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M.S. Venugopal Naidu Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1985)14ITD295(Mad.)
AppellantM.S. Venugopal Naidu
Respondentincome-tax Officer
Excerpt:
.....he was under the honest impression that there was no need for him to file the return since the income returned was less than the taxable limit. but the ito was of the opinion that the additions made to the income returned showed that the assessee had not returned the correct income and, hence, the reason given was not correct. he accordingly, imposed a penalty of rs. 6,980.on appeal, the aac confirmed the imposition of penalty.3. in the further appeal before us, apart from the merits of the appeal, a question arose as to the legal requirement to file a return in response to the notice under section 148 which has prompted this reference to the special bench. under the scheme of the act, a return has to be filed under section 139(1) of the act within the time prescribed or in response.....
Judgment:
1. This appeal is directed against the imposition of penalty under Section 271(1)(a) of the Income-tax Act, 1961 ('the Act').

2. The assessee is an individual. The assessment for the assessment year 1970-71 was originally completed on 24-3-1972 on a total income of Rs. 1,241. However, the assessment was reopened under Section 147 of the Act and a notice under Section 148 of the Act was issued on 25-1-1975. The assessee filed a return on 16-2-1979 showing the same income of Rs. 1,241. The assessment was completed on 28-2-1979 on a total income of Rs. 31,480. The ITO also initiated proceedings for imposition of penalty and called upon the assessee to show cause why penalty should not be imposed for the delay in filing the return in response to the notice under Section 148. The assessee filed a reply dated 5-1-1981 in which he stated that he was under the honest impression that there was no need for him to file the return since the income returned was less than the taxable limit. But the ITO was of the opinion that the additions made to the income returned showed that the assessee had not returned the correct income and, hence, the reason given was not correct. He accordingly, imposed a penalty of Rs. 6,980.

On appeal, the AAC confirmed the imposition of penalty.

3. In the further appeal before us, apart from the merits of the appeal, a question arose as to the legal requirement to file a return in response to the notice under Section 148 which has prompted this reference to the Special Bench. Under the scheme of the Act, a return has to be filed under Section 139(1) of the Act within the time prescribed or in response to the notice under Section 139(2) when it is served. If an assessment has been completed, it may be reopened under Section 147. Similarly, if no assessment has been made and the income has escaped assessment, even then, notice can be issued under Section 148. That section states that the ITO shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139 and the provisions of this Act shall, so far as may be, apply accordingly, as if the notice were a notice issued under that sub-section. This has given rise to a view that an assessment proceeding being only one made with reference to the original return or by reason of a notice under Section 148, there is no necessity for the assessee to file another return once the proceedings had originally commenced on the basis of the return filed by him. In other words, it may be said that Section 148 requires issue of a notice Bunder Section 139(2) only in cases where no original assessment has been made, for, in other cases such a notice will be redundant as the return is already on record. The expression 'so far as may be' occurring in this section could, in a sense, lead to the conclusion that only when circumstances warranted that where no return exists on record a notice under Section 139(2) would be required to be issued by the ITO and where a return is already on record there being no need to call for the filing of any return there would consequently be no obligation on the part of the assessee to file a return in response to the notice under Section 148 and the entire proceedings for the imposition of penalty would be untenable. The view of the department, however, is that the expression 'so far as may be' qualifies only the provisions of the Act which are invoked for completing the assessment after the issue of notice under Section 139(2) along with a notice under Section 148 and that the ITO has no option to omit the issue of notice under Section 139(2) wherever he initiates the proceedings for reassessment. This view appears to have commended itself to the Kerala High Court while considering the provisions of the Madras Agricultural Income-tax Act, 1950, which are in part materia in the case of V. Srinivasa Naickern v. Agrl. ITO [1963] 47 ITR 122 and it was observed as under : ... On principle the making of a fresh return cannot be considered to be meaningless or redundant ; it may be that the assessee may have discovered some mistake in the original return he had made or may wish to modify it in the light of fresh circumstances which may have come to his notice and it is only reasonable for the department to give the assessee a last chance, as it were, to make a return of his income before proceeding against him by way of reassessment....

(p. 124) It may, however, be noticed that in that case, a reference has been made to the income-tax manual and the prescribed form of the notice under Section 34 of the Indian Income-tax Act, 1922 ('the 1922 Act') requiring the filing of a return. It may be pertinent to note that under the Act, there is no prescribed form for notice under Section 139(2) or under Section 148 and the issue may well be arguable. For instance, it may not be possible to impose a penalty for failure to comply with notice under Section 139(2) if, in fact, the assessee has already filed a return under Section 139(1) and the situation may not be different when we juxtapose a notice under Section 148 in a situation where there is already a return on record. But in view of the expression of opinion of the High Court on this point, it is needless to pursue the matter further.

4. On the merits of the case, it was argued on behalf of the assessee that the assessee could not be aware of the fact that in the reassessment, the explanation of the assessee with respect to certain cash credits and certain investments would be rejected and those amounts should be added as part of the total income of the assessee. It was pointed out that the penalty imposed under Section 271(1)(c) for concealment in respect of these items has also been cancelled, and, therefore, there could not be any mala fides in the belief of the assessee that the amount returned at the time of filing the return was the correct income. Reliance was placed on the decisions in the cases of Budhar Singh & Sons v. CIT [1983] 142 ITR 180 (AIL), Omkar Estate Corpn. v. CIT [1982] 138 ITR 635 (Guj.), CIT v. N. Khan & Bros. [1973] 92 ITR 338 (All.), CIT v. Assam Automobile & Accessories Agency [1978] 111 ITR 411 (Gauhati), CIT v. Allied Silk Mills [1983] 140 ITR 428 (Bom.) and of Addl. CIT v. I.M. Patel & Co. [1977] 107 ITR 214 (Guj.) (FB) and it was submitted that in the circumstances the penalty should be cancelled. On the other hand, it was contended on behalf of the revenue that the assessee had even omitted to show income from a particular source, namely, his own business of running a rice mill and, therefore, it could not be said that the assessee had honestly believed that his income was not taxable.

5. On consideration of the rival submissions, we are of the opinion that the assessee is entitled to succeed on the merits of the case. We find that the assessee had returned an income of Rs. 1,241 which had been assessed originally. In the reassessment, the amounts added were Rs. 3,000 from the business of rice mill, Rs. 12,000 for cash credits disbelieved and Rs. 15,239 for unexplained investments. It is obvious that the cash credits and unexplained investments were treated as the income of the assessee only by rejecting the explanation of the assessee. Since the evidence produced by the assessee was not disproved but only rejected out of hand, it cannot be said that the assessee had any mala fides in believing that these amounts did not form part of the income. Even if we include the sum of Rs. 3,000 from the rice mill business to the returned income of Rs. 1,241 the amount would not exceed the maximum amount of income not chargeable to tax. In the circumstances, it must be accepted that the assessee had a honest belief that his income did not exceed the maximum amount not chargeable to tax and this belief constituted a reasonable cause for his not filing the return within the time prescribed. Therefore, there was no justification for the imposition of penalty on ,the facts of this case.

The penalty imposed is cancelled. The appeal is allowed.


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