Allahabad H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that no penalty could be imposed on a registered firm where the advance tax paid exceeded the tax assessed on it as a registered firm even though as an unregistered firm the tax payable would be more than the advance tax ?

High Court Of Allahabad

CIT vs. Chanda Radio

Section 271(1)(a), 271(2)

Asst. Year 1983-84

R.K. Agrawal & Prakash Krishna, JJ.

IT Ref. No. 231 of 1992

22nd March, 2005

ORDER

Prakash Krishna, J. :

The Tribunal, Allahabad, at the instance of the Revenue has referred the following question of law under s. 256(1) of the IT Act, 1961 (hereinafter referred to as the Act), for opinion to this Court :

“Whether, on the facts and in the circumstances of the case, the Tribunal was legally justified in holding that no penalty could be imposed on a registered firm where the advance tax paid exceeded the tax assessed on it as a registered firm even though as an unregistered firm the tax payable would be more than the advance tax ?”

2. The reference relates to the asst. yr. 1983-84. The IT return for the asst. yr. 1983-84 was due on 31st July, 1983 as the accounting period ended on 31st March, 1983. It was filed on 19th Nov., 1985 and was late by more than 27 months. The ITO initiated penalty proceedings under s. 271(1) (a) of the Act for late filing of the return of income. A written reply was filed to the show-cause notice. The penalty was imposed to the tune of Rs. 2,955 and while calculating the penalty the assessed tax was determined by treating the assessee, which was a registered firm, as an unregistered firm as per the provisions of s. 271(2) of the Act. The penalty order was confirmed in appeal. However, in further appeal, the Tribunal held that the penalty under s. 271(1)(a) was not leviable as the advance tax paid by the assessee was more than the tax calculated (on the basis of the registered firm) on the assessed income.

3. Heard the learned standing counsel for the Department. None appeared on behalf of the assessee.

4. Sec. 271(1)(a) of the Act provides that the ITO in the course of any proceeding under this Act if is satisfied that any person has failed to furnish return of total income which he was required to furnish under sub-s. (1) of s. 139 or by notice given under sub-s. (2) of s. 139 or s. 148 or has failed to furnish it within the time allowed in the manner required by sub-s. (1) of s. 139 or by such notice as the case may be, may direct that such person shall pay penalty. Sub-s. (2) of s. 271 of the Act reads as follows : “(2) When the person liable to penalty is a registered firm or an unregistered firm which has been assessed under cl. (b) of s. 183, then, notwithstanding (the fact that) anything contained in the other provisions of this Act, the penalty imposable under sub-s. (1) shall be the same amount as would be imposable on that firm if that firm were an unregistered firm.”

5. Thus, s. 271(1)(a) envisages imposition of penalty for failure to file the return of total income or delayed filing of return without reasonable cause, and also for failure to file it in the manner and within the time required. The parameter for levy of penalty is the period of delay viz., default in filing the return of total income without reasonable cause. Sec. 271(1)(a)(i)(b) of the Act prescribes manner for calculation of the penalty. It says that in addition to the amount of tax, if any, payable by the assessee, a sum equal to 2 per cent of the assessed tax for every month during which default continued to be leviable as penalty. The combined reading of s. 271(1)(a) with ss. 271(2) and 271(1)(a)(i)(b) is that the imposition of penalty is linked with the assessed tax. Explanation attached to s. 271(1)(a)(i)(b) defines the assessed tax which means tax as reduced by the sum, if any, deducted at source or paid in advance.

6. In the present case the return was filed with delay by the assessee which was a registered firm. Sub-s. (2) of s. 271 of the Act provides that for the purposes of calculation of amount of penalty under s. 271(1)(a) of the Act the assessee shall be deemed to be treated as an unregistered firm who worked out the tax assessed. Meaning thereby that so far as the levy of penalty is concerned for the default committed under s. 271(1)(a), the assessee would be treated as unregistered firm. We could lay our hands on a judgment of this Court in the case of Ram Bilas Purshottam Dass vs. CIT (1992) 104 CTR (All) 271 : (1993) 201 ITR 11 (All) wherein it has been held as follows :

“The legal position is that the penalty exigible for delay or default in furnishing the return of income shall be two per cent for every month during which the default continued and the quantum of penalty is to be calculated with reference to the ‘assessed tax’, i.e., tax payable on total income, as reduced by the sum, if any, deducted at source or paid as advance tax. However, if the defaulter is a registered firm, for the purpose of imposition of penalty, the firm is to be treated as an unregistered firm and, so treated, the ‘assessed tax’ must be calculated on the basis that it was an unregistered firm.”

7. This Court has followed the judgment of Madhya Pradesh High Court delivered in Delux Publishing Co. vs. Addl. CIT (1981) 127 ITR 782 (MP). The following paragraph of Madhya Pradesh High Court is quoted herein : “By s. 271(2) of the Act, a fiction is created and even if the person liable to penalty is a registered firm, the penalty imposable under s. 271 of the Act shall be the same amount as would be imposable on that firm if that firm were an unregistered firm. Therefore, in the case of registered firm, the tax assessable has to be worked out as if it were an unregistered firm and on that basis the penalty has to be calculated because the fiction created has to be carried to its logical extent… In our opinion in cases covered by s. 271(2) of the Act, in order to calculate the penalty, the tax payable by the assessee on the income assessed has to be determined on the basis that the assessee is an unregistered firm and the penalty has to be calculated on the tax so determined…”

8. Now coming to the facts of the present case we find that there was a delay of 27 months in filing the return. But one Form No. 6 was stated to be filed on 30th July, 1983. Therefore, the ITO allowed the benefit for two months in respect of the Form No. 6 filed on 30th July, 1983. The cause as shown by the assessee for late filing of the return was not found sufficient by the Departmental authorities. The Tribunal, however, set aside the order of penalty on the short ground that the advance tax paid was more than the tax calculated on the assessed income. Perhaps the attention of the Tribunal was not drawn towards the sub-s. (2) of s. 271 of the Act. For the purposes of calculation of penalty amount, the assessee-firm shall be deemed to be unregistered firm and the assessed tax has to be calculated accordingly to find out as to whether excess advance tax was paid. The Tribunal has placed reliance upon a judgment of Rajasthan High Court in the case of CIT vs. Builders Engineers Co. (1988) 73 CTR (Raj) 230 : (1989) 175 ITR 317 (Raj). But in view of the authoritative pronouncement of this Court in the case of Ram Bilas Purshottam Dass (supra) we respectfully dissent with the view taken by the Rajasthan High Court on this point. There appears to be divergence of opinion among various High Courts on this issue. The Madhya Pradesh High Court has reiterated and followed its earlier view subsequently in Dadariya Sales & Service vs. CIT (1995) 125 CTR (MP) 193 : (1996) 217 ITR 604 (MP) and has held that in levying penalty under s. 271(1)(a), in respect of a registered firm, quantification of penalty should be made by treating the firm as an unregistered firm. If the advance tax paid is less than the tax payable, if the assessee is treated as an unregistered firm, penalty under s. 271(1) of the Act is imposable. Contra view has been taken by the Rajasthan High Court in the case of CIT vs. Builders Engineers Co. (supra), by Orissa High Court in CIT vs. Permilla Singh & Co. (1994) 116 CTR (Ori) 466 : (1994) 207 ITR 887 (Ori) and by Patna High Court in CIT vs. Jindal Bros. (1997) 140 CTR (Pat) 128 : (1997) 223 ITR 289 (Pat).

9. Respectfully following the decision of our Court in the case of Ram Bilas Purshottam Dass (supra) we answer the question referred to us in negative, i.e., in favour of the Department and against the assessee. However, there shall be no order as to costs.

[Citation : 280 ITR 245]

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