Bombay H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the penalty leviable on the assessee for the asst. yr. 1962-63 under cl. (i) of s. 271(1)(a) of the IT Act, 1961, was properly levied and that the same should be on the net amount of tax payable by the assessee after deducting from the gross advance tax as well as provisional assessment tax, if any, paid by the assessee in relation to the said assessment year ?

Counsel Appeared

R.J. Joshi with S.V. Naik & L.K. Chatterjee, for the Revenue : J.I. Patel, for the Petitioner

REGE, J. :

In this reference under s. 256(1) of the IT Act 1961, made by the Tribunal, Bombay Bench ‘D’, both at the instance of the Revenue and the assessee, the following question has been referred to us for our opinion:”Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the penalty leviable on the assessee for the asst. yr. 1962-63 under cl. (i) of s. 271(1)(a) of the IT Act, 1961, was properly levied and that the same should be on the net amount of tax payable by the assessee after deducting from the gross advance tax as well as provisional assessment tax, if any, paid by the assessee in relation to the said assessment year ?”

2. The Revenue in its reference application had asked the Tribunal to refer to this Court for its opinion two questions of which the Tribunal while refusing to refer the first question had agreed to refer the second question for this Court’s opinion. The assessee in its reference application had asked the Tribunal to refer to this Court’s opinion six questions. The Tribunal while refusing to refer the last two questions, they being questions of fact, and the fourth question not being argued by the assessee, agreed to refer the first three questions to the Court for its opinion. However, ultimately, the Tribunal appears to have rolled the said four questions, one by the Revenue and three by the assessee, into one question stated above and has referred the same to this Court. We, however, feel that if the Tribunal had retained the said four questions as they were framed by the parties and accepted by the Tribunal for being referred to this Court instead of rolling them into one, the controversy between the parties could have been brought out more clearly and plainly than done by the said single question. We, therefore, have reframed the said one question referred to us into four questions as they originally stood. The said questions are: “(1) Whether, on the facts and circumstances of the case, penalty for failure to furnish the return of income within the time allowed under s. 139(1) of the IT Act, 1961, can be levied under s. 271 (1)(a)(i) of the IT Act, 1961, on the assessee ? (2) Whether, on the facts and circumstances of the case, penalty under s. 271(1)(a)(i) can be levied on the assessee when it was served with the notice under s. 148 and when it has filed the return of income within the time mentioned in the said notice? (3) Whether, on the facts and circumstances of the case, penalty under s. 271 (1)(a)(i) can be levied on the assessee when the return has been filed before the assessment was made and before the expiry of the period specified in sub-cl. (b) of s. 139(4) ? (4) Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the penalty leviable on the assessee for the asst. yr. 1962-63 under cl. (i) of s. 271(1)(a) of the IT Act, 1961, could be on the net amount of tax payable by the assessee after deducting from the gross tax, advance tax as well as provisional tax, if any, paid by the assessee in relation to the said assessment year ?”

In this case the assessee is a registered firm carrying on business in paper, both in retail as well as in wholesale. The assessment year in question is 1962-63. The assessee failed to file a return as required under s. 139(1) of the IT Act, 1961. The ITO, therefore, issued a notice dated 12th September, 1963, under s. 148 of the said Act calling upon the assessee to file a return. In pursuance of the said notice, the assessee filed a return on 30th September,1963, that is, within the time prescribed under the notice, disclosing a total income of Rs. 53,659. However, the ITO completed the assessment on 20th December, 1965, on the total income of Rs. 57,248.

The ITO thereafter initiated penalty proceedings against the assessee under s. 271(1)(a)(i) of the said Act, as, according to him, the assessee, had committed default under s. 139(1) by not filing the return in time as required under the said section. The assessee sought to explain the delay on the ground that as its accountant had left for his native place and was required to stay there for a long time due to his father’s illness and death, the return could not be filed in time. The ITO did not accept the said explanation for delay as being reasonable to exonerate the assessee from default in filing a return and from consequent levy of penalty for such default. The ITO, therefore, imposed a penalty of Rs. 6,295 at the rate of 2per cent per month of the tax determined, by treating the assessee as an unregistered firm.

Against the said order of the ITO imposing penalty, the assessee appealed to the AAC. Before the AAC the main contention of the assessee was that since in pursuance of the notice dated 12th October, 1963, issued by the ITO under s. 139(2) or s. 148 it had filed the return within the period of one month prescribed under the notice, the ITO could not adopt penalty proceedings under s. 271(1)(a) of the IT Act, 1961, for default under s. 139(1) of the said Act and such proceedings being invalid, the order of the ITO could not be sustained. The AAC accepted the said contention of the assessee by observing that as there was no provision for presuming that the return submitted in response to a notice under s. 139(2) or s. 148 can be presumed to have been submitted under s. 139(1), default under s. 139(1) never ceased but still continued and so no penalty could be levied for a default under that section. He accordingly cancelled the penalty levied by the ITO. The AAC, however, did not accept the explanation for the delay given by the assessee as being reasonable.

Against the said order of the AAC, the Revenue went in appeal to the Tribunal. The Revenue in the said appeal contended that in respect of the asst. yr. 1962-63, the assessee ordinarily should have filed its return on 30th September, 1962, which time was extended by the Government till 31st August, 1963, and, therefore, even though the assessee had filed the return within the time prescribed under the notice under s. 139(2) or s. 148, the assessee had still committed a default under s. 139(1), for which it was liable for penalty. The Tribunal accepted the said contention of the Revenue, and relying on the decision of the Rajasthan High Court in the case of CIT vs. Indra and Co. (1971) 79 ITR 702 (Raj) and on its earlier decision, set aside the order of the AAC and confirmed the order of penalty by the ITO. The said finding of the Tribunal is challenged before us.

The first three questions can be dealt with at the same time. The main question is whether in cases where the assessee had filed the return in response to the notice under s. 139(2) or s. 148 of the IT Act, 1961, within the time prescribed in the said notice, penalty proceedings could be taken for default in filing a return under s. 139(1) of the said Act. Sec. 139(1) provides for the filing of the return by a person having a taxable income before the time or the date stated therein. Sec. 139(2) provides for the filing of the return within the time prescribed in the notice issued by the ITO to a person who in his opinion was assessable under the said Act. Sec. 139(4)(a) of the IT Act, 1961, deals with cases where no return is filed under s. 139(1) or no notice is issued under s. 139(2), and the assessee, before the assessment is made, furnishes a return for any previous year at any time before the end of the period specified in cl. (b).

8. Sec. 271(1)(a)(i)(b) of the IT Act, 1961, relevant for the purpose in this case, provides for levying of penalty as under : “271. Failure to furnish returns, comply with notices concealment of income, etc.—(1) If the ITO or the AAC or the CIT (A.), in the course of any proceedings under this Act, is satisfied that any person— (a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-s. (1) of s. 139 or by notice given under subs. (2) of s. 139 or s. 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-s. (1) of s. 139 or by such notice, as the case may be, or …… he may direct that such person shall pay by way of penalty,— (i) in the cases referred to in cl. (a),—… (b) in any other case, in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the assessed tax for every month during which the default continued;…”

9. In this case it is not disputed that the assessee has failed to file a return of income voluntarily as required under s. 139(1) of the IT Act, 1961, but had filed the same in pursuance of a notice issued under s. 139(2) or s. 148 of the said Act within the time prescribed therein. It, therefore, cannot be disputed that the assessee has committed a default in not filing its return of income under s. 139(1).

The question is whether there was anything in the said provisions to hold that in view of the assessee filing the return in compliance with a notice under s. 139(2) or s. 148 of the IT Act, 1961, the initial default of the assessee in not filing a return under s. 139(1) was extinguished.

10. Broadly put, s. 271 (1)(a) of the IT Act, 1961, deals with four different types of defaults, namely:— (i) total failure to furnish without a reasonable cause a return as required under s. 139(1) of the IT Act, 1961 ; (ii) total failure to furnish without a reasonable cause a return as required to be furnished by a notice under s. 139(2) or s. 148 of the IT Act, 1961 ; (iii) furnishing a return but failing to do so without a reasonable cause within the time allowed and in the manner prescribed under s. 139(1) of the IT Act, 1961 ; and (iv) furnishing a return but failing to do so without a reasonable cause within the time prescribed by the notice. Defaults spoken of in the said provisions are independent of each other, and there is nothing in the said provisions to suggest that for the purpose of penalty, the filing of a return under s. 139(2) of the IT Act, 1961, was to be considered as the filing of the return under s. 139(1), or that compliance with the provisions of s. 139(2) in furnishing a return in pursuance of the notice would extinguish the default already committed under s. 139(1) in not filing returns as required by that section. The default contemplated under s. 139(1) lies only in the fact that a return as required therein was not filed and once that was proved, penalty under s. 271 was attracted.

The reasoning of the AAC in his order that since it could not be presumed that a return filed under s. 1.39(2) of the IT Act, 1961, was to be a return required to be filed under s. 139(1) default under s. 139(1) continues, was not correct, as such a default would continue only till a return was filed or assessment was otherwise completed. This view that we are taking is supported by certain decisions cited across the Bar. The first one is of the Rajasthan High Court in the case of CIT vs. Indra and Co. (supra). The facts of the case were quite similar to the facts of this case. The Court there held (headnote): “An assessee is liable to penalty for not submitting his return as required in a notice under s. 139 (1) of the IT Act, 1961, even though he subsequently filed a return in pursuance of a notice under s. 139(2) and an assessment is made on the basis of that return.” Similar view has been taken by the Orissa High Court in the case of CIT vs. Gangaram Chapolia (1975) CTR (Ori) 25 (FB) : (1976) 103 ITR 613 (FB). The Court there negatived the contention that as the assessee had filed a return within the time allowed under s. 139(4) of the IT Act, 1961, he should be deemed to have filed the return within the time allowed under s. 139(1) and consequently no penalty under s. 271(1)(a) was imposable.

The third decision was of the Allahabad High Court in the case of Metal India Products vs. CIT (1978) CTR (All) 376 (FB 🙂 (1978) 113 ITR 830 (FB). In that case, the assessee had failed to file a return under s. 139(1) of the IT Act, 1961. Also no notice was served under s. 139(2) on him. But the assessee had filed the return under s. 139(4)(a) providing for filing of return for any previous year before the assessment is made or any time before the end of the period specified in s. 139(4) (b). The Court, dealing with such a case held (headnote): “Where the assessee did not file his return within the time prescribed by s. 139(1) of the IT Act, 1961, and where no notice was issued by the ITO to the assessee under s. 139(2) of the Act, even if the assessee filed his return under s. 139(4), that is, within four years from the end of the assessment year and before the assessment order was passed, the assessee is liable to pay penalty under s. 27l(1)(a) of the Act, for not having filed the return within the time prescribed in s. 139(1) or the time given under s. 139(2). For the purposes of penalty, the filing of the return within the time prescribed by sub-s. (4) cannot be treated as a return filed within the time prescribed by sub-s. (1). The emphasis of s. 271(1)(a) is on checking evasion of the time prescribed by sub-s. (1) or sub-s. (2) of s. 139. If the time prescribed by sub-s. (1) or (2) passes, default takes place, attracting liability to penalty.”

The learned counsel for the assessee did not seriously dispute the finding of the Tribunal, as according to him, the matter was covered by the said three decisions. This would also answer the contention of the assessee that the case being covered under s. 139(4) no penalty was attracted for default under s. 139(4). The said contention has no substance, for, s. 139(4) deals with cases not covered under s. 139(1) or s. 139(2). In this case, admittedly, the assessee had furnished a return under s. 139(2) within the time prescribed in the return (notice?). Hence, s. 139(4) could have no application to this case.

In this case the Tribunal has rejected the contention of the assessee that it had reasonable ground for not furnishing the return under s. 139(1). The assessee’s failure to furnish a return under s. 139(1) is not disputed. In that view of the matter, in this case under s. 271(1)(a)(i)(b), the assessee was liable for penalty.

The fourth question, referred at the instance of the Revenue, is as regards the manner of calculation of penalty leviable under the Act. The Tribunal, while making the order for payment of penalty, had provided that it shall be payable by the assessee after deducting from the gross tax the advance tax as well as the Provisional tax, if any, Paid by the assessee. Initially as the provisions of s. 271(1) stood, the words were that the penalty to be paid was to be calculated on “the tax” paid. The said provisions were amended subsequently by the Direct Taxes (Amendment) Act of 1974, with retrospective effect from the commencement of the Act of 1961, by replacing the word “tax”, as appearing in the said section, by the words “assessed tax”. The Explanation to the said amendment Act (s. 13) provides: “In the said clause, ‘assessed tax’ means tax reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C.”

The said Explanation, therefore, provided for a deduction from the tax of only the tax deducted at source or the tax paid in advance and not the provisional tax, as directed by the Tribunal in its order. In fact, the Tribunal provided for a deduction of the provisional tax by Correcting its original order which provided for the self-assessment tax instead. However, in view of the said Explanation, the Tribunal’s order for deduction of the provisional tax cannot stand.

20. In the circumstances, the questions would be answered as under: Questions Nos. 1, 2 and 3 : In the affirmative and against the assessee. Question No. 4 : So far as the order of the Tribunal provides for the deduction of advance tax from the gross tax, it was justified in passing the order. However, so far as it provides for the deduction of provisional tax, the Tribunal was not justified in providing for such deduction.

21. The parties to bear their own costs of the reference.

[Citation : 141 ITR 392]