Per Shri K. C. Srivastava, Accountant Member - This departmental appeal is against the order of the AAC relating to the assessment year 1975-76 by which he has cancelled the penalty imposed under section 271(1) (a) of the Income-tax Act, 1961 (the Act).
2. The return which was due to the filed on 31-7-1975 was filed on 23-3-1978. The ITO imposed the penalty as the assessed did not reply to the show-cause notice. While imposing the penalty he worked out the at on the firm as an unregistered firm as provided under law.
3. When the matter came before the AAC, it was pleaded before him that the penalty was wrongly imposed without affording a reasonable opportunity to the assessed. It was also contended that on the completion of the assessment, the ITO had issued a demand notice showing nil demand. As the tax payable on the assessed as a registered firm was lesser than the tax paid in advance at Rs. 11,052, it was contended that the tax payable being nil, no penalty could be imposed in this case. It was contended that the advance at paid was more than the tax payable by the firm and hence no penalty was leviable. The AAC accepted this plea and held that no penalty was leviable.
4. In the departmental appeal before us the plea of the department is that the AAC has not given any finding that there was any reasonable cause for not filing the return in time. It was contended that once there was no reasonable cause the penalty became impossible and in the case of a registered firm, the calculation of penalty was to be made on the basis of tax payable by an unregistered firm. It was, thereforee, contended that the cancellation of penalty was not correct. Reliance was placed on the decision of the Bombay High Court in the case of CIT v. Janata Trading Co.  37 CTR 203. The High Court had held that penalty under section 271(1) (a) has to be imposed by treating the firm as an unregistered firm even in a case where the advance tax paid was more than the tax payable by the registered firm.
5. The learned counsel for the assessed has relied on the decision of the Supreme Court in the case of CIT v. Vegetable Products Ltd. : 88ITR192(SC) and the decision of the Gauhati High Court in the case of CIT v. Maskara Tea Estate . He also submitted that the assesseds plea has not been considered by the ITO as no reasonable opportunity was given by him and there was no application of mind before imposition of penalty. It was further contended that even if penalty was livable it will come to Rs. 3,051 after the reduction allowed in appeal.
6. The first question which arises for consideration in this case is whether in case any penalty was leviable, it shall not be levied because the advance tax paid or the tax deducted at source was more than the tax found payable by the assessed as a registered firm. The assessed had paid Rs. 11,052 as tax deducted at a source and the tax found payable on the assessment after reduction in appeal was less than that. The question, however, for consideration is whether where there is a delay in the filing of the return and there is no reasonable cause, penalty can be imposed on the basis of the firms tax being calculated as unregistered firm as provided under law. On this question there is a difference of opinion between the High Courts. In the case of CIT v. R. Ochhavalal & Co. : 105ITR518(Guj) , the Gujarat High Court held that while the function of clauses (a), (b) and (c) is to create penal liability, the function of sub-clauses (i), (ii) and (iii) is to quantify the said liability. According to the Hon' able High Court, if the quantification of penal liability is based on the amount of tax payable by the assessed and in a given case the assessed is not found liable to pay any tax, the quantification of penal liability would not be possible but that could not mean that penal liability under the first part of sub-section (i) was not incurred by the assessed. The Court further held that if the default is committed by a registered firm, then under the deeming fiction such a firm has to be treated as an unregistered firm and quantification of penalty has to be worked out on the amount of tax which would be impossible on this firm as if it were an unregistered firm. The High Court had relied on the decision of the Supreme Court in the case of CIT v. S. V. Angidi Chettiar : 44ITR739(SC) . In that case while considering the provisions of section 28 of the Indian Income-tax Act, 1922 (the 1922 Act), their Lordships held that the penalty proceedings are commenced at the time of the completion of the assessment and satisfaction is regarding the default committed. In this case it was further held by the Supreme Court that the fact that under section 23(5) of the 1922 Act tax was not payable by the registered firm, did not prevent penalty being imposed on the firm and it was not necessary that before penalty could be imposed some tax must be payable by the assessed. The Gujarat High Court had, thereforee, upheld the imposition of penalty in the case of a default without reasonable cause, if the tax payable by the unregistered firm could give a positive figure for imposition of penalty.
7. A contrary view has been taken by the Gauhati High Court in the case of Maskara Tea Estate (supra). In this case it was held that section 271(2) was not attracted in that case where the tax paid was more than the tax payable by the registered firm. Reliance had been placed on the decision of the Supreme Court in the case of Vegetable Products Ltd. (supra). Their Lordships specifically dissented from the decision of the Gujarat High Court, referred to above.
8. We further find that this question was considered by the Calcutta High Court in the case of CIT v. Priya Gopal Bishoyee : 127ITR778(Cal) , speaking for the Bench Mr. Sabyasachi Mukharji, J. observed that at the time of imposition of penalty there could have been no assessed tax if it was a registered firm but for the purpose of determination of imposition of penalty it has to be treated as an unregistered firm. In view of this, penalty was upheld. Their Lordships observed :
'.... In this case, default upon which penalty was imposed was the delay in submission of the return. thereforee, the fact is that payment of the assessed tax on the basis of a registered firm would not exonerate the assessed from the imposition of the penalty on the basis that it was an unregistered firm calculating the default for the month for which the default had continued.' (p. 781)
This decision of the Calcutta High Court has been followed by the Bombay High Court in the case of Janata Trading Co. (supra), a reference to which has already been made above.
9. Thus, we find that there has been a difference in the view taken by High Courts but the consensus has been that where penalty is found to be leviable, the calculation of penalty has to be made according to the provisions made in the law itself. In this connection, a reference may be made to the order of the Special Bench in the case of ITO v. Lachmandas Raghunath Das Parihar  6 ITD 474 where the question involved was imposition of interest under section 139(8) of the Act. Though the question was similar, the Special Bench made it clear that they were deciding the issue independent of the conflicting views of the different High Courts on section 271(1) (a) and that matter was decided on an interpretation of the provisions of section 139(8) (a) read with Explanationn 2. In this decision it was held that where the advance tax paid was more than the tax found payable by the registered firm, no interest could be levied under section 139(8) on the basis that the firm was an unregistered firm. As the Special Bench has itself excluded the operation of that order from penalties under section 271(1) (a), we leave at that. We may, however, mention that an argument is advanced that if there is any tax payable by the registered firm, after adjusting the advance tax then the provisions for calculating the tax on the basis of the firm, being an unregistered firm, will operate. There is likely to be an anomaly in such a view and even the difference of one rupee between the tax payable by the registered firm and the advance tax will make the firm liable for penalty whereas if that differences is not there, no penalty would have been leviable. The law need not be interpreted in a way which can create such anomalies.
10. The consensus of judicial opinion is, thereforee, in favor of upholding penalties where penalty is found impossible on a firm and the tax payable by the registered firm is more than the tax paid in advance. In view of this, the order of the AAC cannot be upheld.
11. Having said so, we must further hold that it was necessary for the AAC to give a finding whether he was satisfied that there was a case for imposition of penalty and whether there was no reasonable cause for the delay in this case. As there is no clear finding on this point, the matter is restored to his file. In case he finds the penalty leviable, the penalty may be calculated in accordance with law after taking into consideration the reduced total income.
12. As the matter is being restored to the file of the AAC, the appeal shall be treated as allowed for statistical purposes.