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income-tax Officer Vs. Jangi Lal. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberI. T. APPEAL NO. 717 (ALL.) OF 1982 [ASSESSMENT YEAR 1975-76]
Reported in[1986]17ITD662(NULL)
Appellantincome-tax Officer
RespondentJangi Lal.
Excerpt:
.....considers that the huf was guilty of any default, it is for him to proceed against it in accordance with law and not against a different entity not guilty of any default. application: not to current assessment years. income tax act 1961 s.271(1)(a) income tax act 1961 s.282b - - 7. according to him, this clearly went to show that it was the same assessee, namely, the huf of shri jangi lal, which was throughout the subject-matter of assessment and penalty by the ito. 8. a careful consideration of the facts stated above clearly goes to show that the commissioner (appeals) was absolutely correct in his approach. the supreme court in the case of rameshwarlal sanwarmal (supra) had also given a similar finding that the same person could be taxed both as an individual as well as the..........of the income-tax act, 1961 (the act).2. a search was conducted at the premises of the huf of shri jangi lal on 9-10-1974. a return was subsequently filed by this huf. an assessment was also made on it in the status of huf on 31-5-1978 on an income of rs. 4,48,670. in appeal, relief was allowed by the commissioner (appeals) vide his order dated 18-1-1983 and he has finally reduced the taxable income to only rs. 59,700.3. the ito also initiated penalty proceedings under various sections of the act including section 271(1)(a). a show-cause notice was issued to the assessee to which there was also a reply on 27-2-1981. it was stated in the said reply that the books of account and the details were seized by the department and, therefore, the assessee was not in a position to file the.....
Judgment:
ORDER

Per Shri Prakash Narain, Accountant Member - The only contention in this appeal is that the Commissioner (Appeals) had erred in cancelling the penalty of Rs. 1,64,268 levied by the ITO under section 271(1)(a) of the Income-tax Act, 1961 (the Act).

2. A search was conducted at the premises of the HUF of Shri Jangi Lal on 9-10-1974. A return was subsequently filed by this HUF. An assessment was also made on it in the status of HUF on 31-5-1978 on an income of Rs. 4,48,670. In appeal, relief was allowed by the Commissioner (Appeals) vide his order dated 18-1-1983 and he has finally reduced the taxable income to only Rs. 59,700.

3. The ITO also initiated penalty proceedings under various sections of the Act including section 271(1)(a). A show-cause notice was issued to the assessee to which there was also a reply on 27-2-1981. It was stated in the said reply that the books of account and the details were seized by the department and, therefore, the assessee was not in a position to file the return of income until and unless those books were returned. The reply further states that it was after great efforts that a return of income was filed and, therefore, the delay in the submissions of the return was because of a reasonable cause. The ITO, however, rejected the explanation submitted by the assesee. He passed an order under section 271(1)(a) on 28-3-1981 levying a penalty of Rs. 1,64,268 on Shri Jangi Lal son of Shri Sita Ram of Jaunpur as an individual.

4. Shri Jangi Lal as an individual filed an appeal before the Commissioner (Appeals) challenging the levy of the above penalty. A preliminary objection was raised on his behalf before the Commissioner (Appeals) to the effect that although he had been subjected to a penalty under section 271(1)(a) yet there was no assessment against him. It was submitted before the Commissioner (Appeals that an assessment had been made on Shri Jangi Lal. In the status of HUF only and no assessment had been made on him as an individual. The Commissioner (Appeals), therefore, following the decision of the Allahabad High Court in the case of CIT v. Lalit Mohan : [1977]106ITR817(All) cancelled the penalty. It was held in the above case that the person assessed and the person upon whom a penalty was levied must be the same. The Commissioner (Appeals) observed that the ITO could not levy penalty on Shri Jangi Lal as an individual against whom no assessment had actually been made.

5. The department is now in appeal against the above order of the Commissioner (Appeals) contending that he had erred in cancelling the penalty. The learned departmental representative admitted before us that the assessment had been made on Shri Jangi Lal in the status of HUF, but the penalty under section 271(1)(a) had been imposed on him as an individual. He also accepted that a notice of demand in Form No. 7 had also been issued for the above penalty to Shri Jangi Lal, son of Shri Sita Ram as an individual. His submission, however, was that these mistakes or defects did not affect the validity of the penalty proceedings in view of the provisions contained in section 292B of the Act introduced in the Act with effect from 1-10-1975 by the Taxation Laws (Amendment) Act, 1975. He pointed out that the decision of the Allahabad High Court in the case of Lalit Mohan (supra) was rendered on 15-2-1974 and, therefore, it had no occasion to consider the implication of section 292B, which was brought on the statute only subsequently with effect from 1-10-1975. In this connection, he invited our attention to another decision of Allahabad High Court in CIT v. M. K. Gupta [1978] 113 ITR 473. It was held in this case that section 292B was prospective in nature and applied only with effect from 1-10-1975. He also referred to the decision of Calcutta High Court in Bengal & Assam Investors Ltd v. CIT : [1983]142ITR156(Cal) to show that the defect of the nature described above was fully covered by section 292B. In this connection, he also emphasised the fact that it was the same GIR No J - 221, which was shown in the assessment order, in the order under section 271(1)(a) and in the various notices issued by the ITO as also in the demand notice in Form No. 7. According to him, this clearly went to show that it was the same assessee, namely, the HUF of Shri Jangi Lal, which was throughout the subject-matter of assessment and penalty by the ITO.

6. On behalf of the assessee, his learned counsel submitted before us that the penalty had been imposed on Shri Jangi Lal as an individual and it was he, who appealed to the Commissioner (Appeals) in his individual capacity for the cancellation of the penalty on the ground that no assessment had been made against him. He argued that the HUF was nowhere in the picture either before the Commissioner (Appeals) or before us in the present proceedings. He contended that the Commissioner (Appeals had heard the appeal of Shri Jangi Lal as an individual and the department before us was also in appeal against Shri Jangi Lal as an individual. He argued that there was no doubt and, in fact, it was also the case of the department that Shri Jangi Lal had not committed any default in furnishing the return late and, therefore, he was rightly exonerated from the levy of the penalty by the Commissioner (Appeals). He also referred to the decision of the Supreme Court in CIT v. Ishwar Singh & Sons : [1981]131ITR480(All) . It was held in this case that an individual and an HUF were absolutely distinct entities in law. He also invited our attention to another decision of the Supreme Court in CIT v. Rameshwarlal Sanwarmal [1971] ITR 628, where also a similar view was taken.

7. We have carefully considered the submissions placed before us. We are conscious of the fact that the issue involved in the present appeal is of considerable importance. It is in this background that we have tried to examine the various authorities and the provisions of section 292B in the background of the arguments before us by the rival parties. There is no dispute that the assessment had been made on HUF named Shri Jangi Lal. Shri Jangi Lal was a member of that family. The ITO, however, levied a penalty under section 271(1)(a) on Shri Jangi Lal as an individual. It is possible that a show-cause notice might have been issued to the HUF and a reply also might have been received from it. However, those proceedings stand at their own places. What we find is that Shri Jangi Lal has been subjected to a heavy penalty in the status of an individual. He was also served with a demand notice requiring him to pay the sum of Rs. 1,64,268 as an individual. He was, therefore, rightly aggrieved as he was subjected to any assessment and was not found guilty of any default in submission of his return late. By the very same demand notice, he was also allowed an opportunity of filing an appeal. He took advantage of this opportunity and appealed to the Commissioner (Appeals) as an individual. Since there was no assessment against him, the Commissioner (Appeals) cancelled the penalty following the decision of the Allahabad High Court in the case of Lalit Mohan (supra). We have already stated above that the principle laid down in this case was that the person assessed and the person upon whom the penalty was levied must be the same. Since they were not the same persons, the Commissioner (Appeals) had no alternative but to cancel the penalty as Shri Jangi Lal as an individual could not be subjected to it.

8. A careful consideration of the facts stated above clearly goes to show that the Commissioner (Appeals) was absolutely correct in his approach. He exonerated a person from the levy of a penalty, which could not and had not been validly levied on him. We do not think that section 292B can be of any assistance to the department in such a situation. The principle as laid down by the Supreme Court in the case of Ishwar Singh & Sons (supra) that the individual and the HUF are two distinct entities is unassailable and cannot be ignored by relying on section 292B. The Supreme Court in the case of Rameshwarlal Sanwarmal (supra) had also given a similar finding that the same person could be taxed both as an individual as well as the karta of his family and that two capacities were totally different. It was made clear by the Court that the individual and the HUF were totally different units of taxation and that thy were two different assessees.

9. Section 292 runs as under :

'No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceedings is in substance and effect in conformity with or according to the intent and purpose of this Act.'

The above section removes the invalidity among others of an assessment or other proceedings under the Act if it is caused by reason of any mistake, defect or omission. It further states that it will have effect only if the assessment or other proceedings were in substance and effect in conformity with or according to the intent and purpose of the Act. In the first place, passing, of an order or an individual and treating it as having been passed against an HUF is not a defect, which, in our opinion, can be covered by section 292B. In fact, we do not consider it a defect at all. In the second place, such an order can also not be called in conformity with or according to the intent and purpose of the Act. To us, the position is quite clear. To repeat the assessment was made on the HUF, while the penalty was imposed on a different entity. The penalty had, therefore, to be cancelled as the entity which was subjected to it was not found guilty of any default. If the ITO still considers that the HUF was guilty of any default, it is for him to proceed it in accordance with law and not against a different entity not guilty of any default.

10. We also do not think that any of the cases cited by the learned departmental representative in any way, help the department or compel us to set aside the order of the Commissioner (Appeals). In M. K. Guptas case (supra), the Allahabad High Court merely held that section 292B was prospective in operation and applied with effect from 1-10-1975 and not with an earlier date. The scope and the meaning of the section were not considered by the High Court. The Calcutta High Court in Bengal & Assam Investors Ltds case (supra) again did not have an occasion to consider the question of status of an assessee and whether it could be rectified under section 292B.

11. Our finding, therefore, is that the Commissioner (Appeals) was amply justified in cancelling the penalty wrongly imposed on Shri Jangi Lal as an individual. We, therefore, uphold his order.

12. In the result, the appeal is dismissed.


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