INCOME TAX OFFICER v. ABDUL MAJID
[Citation -1985-LL-0619-1]

Citation 1985-LL-0619-1
Appellant Name INCOME TAX OFFICER
Respondent Name ABDUL MAJID
Court ITAT
Relevant Act Income-tax
Date of Order 19/06/1985
Assessment Year 1977-78
Judgment View Judgment
Keyword Tags imposition of penalty • penalty proceeding • computing penalty • unregistered firm • bona fide belief • judicial opinion • assessed tax • advance tax • tea estate
Bot Summary: In the penalty proceeding initiated for late filing, it was explained that the assessee was a registered firm and that its finally assessed income amounted to Rs. 1,63,840, on which in the status of registered firm, the tax worked out to Rs. 27,583, against which tax deducted at source under section 194C of the Act was to the tune of Rs. 54,598 and there could be no question of levying any penalty which could be in relation to tax levied on assessment. The first appellate authority cancelled the penalty by accepting the plea that the tax required to be paid by the assessee in the ordinary course being tax paid on the registered firm and actually refund having been given after adjusting the tax levied from the tax deducted at source, there could be no question of even computing any penalty. Since tax deducted at source in the present case far exceeded the tax worked out on the assessed income, there was no question of computing any penalty, which could be in relation to tax levied. To the imposition of a penalty liability to pay tax by the person against whom the penalty is sought to be imposed is therefore not a condition precedent. In view of this, I set aside the order of the AAC and hold that penalty under section 271(1)(a) should be imposed but the penalty on the basis of its being unregistered firm. ' The question that has arisen for consideration is about the impact of the provisions of sub-section of section 271, which lays down that when the person liable to penalty is a registered firm, then notwithstanding anything contained in sub-section, the penalty imposable under sub-section shall be the same amount as would be imposable on the firm as if it is an unregistered firm. In order to appreciate the rival contentions, it is desirable to refer to the provisions of section 271(2), which read as under: When the person liable to penalty is a registered firm or an unregistered firm which has been assessed under clause of section 183 notwithstanding anything contained in the other provisions of this Act, the penalty imposable under sub-section shall be the same amount as would be imposable on that firm if that firm were an unregistered firm.


In this revenue appeal, solitary ground is against cancellation of penalty of Rs. 2,550 levied by ITO under section 271(1)(a) of Income-tax Act, 1961 ('the Act') in respect of assessment year 1977-78. 2. respondent filed its return of income on 7-10-1977, though in normal course, it should have been filed on or before 30-6-1977. In penalty proceeding initiated for late filing, it was explained that assessee was registered firm and that its finally assessed income amounted to Rs. 1,63,840, on which in status of registered firm, tax worked out to Rs. 27,583, against which tax deducted at source under section 194C of Act was to tune of Rs. 54,598 and, therefore, there could be no question of levying any penalty which could be in relation to tax levied on assessment. assessee further pleaded that no extension application was filed, being under bona fide belief that tax deducted at source was much more than tax due. ITO, however, brushed aside assessee's pleadings and objections and levied penalty of Rs. 2,550 by treating firm as unregistered and after adjusting entire tax deducted at source by referring to provision of section 271(2). 3. first appellate authority cancelled penalty by accepting plea that tax required to be paid by assessee in ordinary course being tax paid on registered firm and actually refund having been given after adjusting tax levied from tax deducted at source, there could be no question of even computing any penalty. 4. Before us for revenue, Shri P.K. Sridharan very kly contended that t h e AAC wrongly cancelled penalty. He argued that for purpose of computing penalty for late filing, firm had to be treated as unregistered and since on that basis tax worked out was admittedly more than tax deducted at source, there was positive liability to which penalty could be related and worked out. Shri Sridharan next argued that concept of registered firm must necessarily be ignored for purpose of levying penalty under section 271(1)(a) in view of provision of section 271(2). For his case, Shri Sridharan referred us to following mentioned judgments: CIT v. R. Ochhavlal & Co. [1976] 105 ITR 518 (Guj.), Nepoli Restaurant v. CIT [1979] 117 ITR 828 (Kar.), CIT v. Kandaswami Wvg. Factory & Co. [1977] 110 ITR 84 (Mad.), K.R. Velayudha Mudaliar & Sons v. Addl. CIT [1977] 110 ITR 381 (Mad.), Seetharama Lakshmi Rice & Groundnut oil Mill Contractors Co. v. ITO [1978] 111 ITR 212 (AP) and CIT v. Rowther Bros. [1979] 119 ITR 353 (Ker.). 5. For respondent, Shri G.R. Agnihotri relied on three judgments two of Hon'ble Gauhati High Court and third of Hon'ble Andhra Pradesh High Court--CIT v. Maskara Tea Estate [1981] 130 ITR 955 (Gauhati), CIT v. Ganesh Das Sreeram (Firm) [1983] 141 ITR 946 (Gauhati) and P. Venkata Krishnayya Naidu & Sons v. CIT [1984] 19 TAXMAN 369 (AP). Shri Agnihotri very kly pleaded that though different High Courts have taken different approaches but in situation like one before us, AAC's decision must be upheld, because it is taxpayer which must be given benefits of judgments of Hon'ble Gauhati High Court and Andhra Pradesh High Court in preference to view taken by other High Courts, there being no judicial pronouncements of Hon'ble Supreme Court. 6. We have perused judgments cited on behalf of parties. There are clearly two lines of thinking. One, that once default is said to have been committed of late filing, first step would be to treat firm as unregistered entity, compute tax on same then look at aspect of there being any tax having already been paid. other thinking is that if no tax is said to be payable on completion of assessment, question of levying any penalty does not arise and, therefore, revenue should not involve itself with process of computation of penalty at all. Though Shri Sridharan is correct that majority of judgments are in favour of view taken by revenue, but it must be borne in mind and kept in close focus that tax litigation is not between two subjects of State, but between State and subject. Therefore, though very foundation of taxing statute is to require subject to pay his taxes and in this regard frivolous technicalities should not be allowed to take advantage but when question of levy of penalty can be said to be fairly debatable, advantage of favourable view, even taken by minority of High Courts, must be given to subject. On such view of matter, we are inclined to follow view taken by Hon'ble Gauhati High Court, as also Hon'ble Andhra Pradesh High Court. Since tax deducted at source in present case far exceeded tax worked out on assessed income, there was no question of computing any penalty, which could be in relation to tax levied. Therefore, we see no merit in this revenue appeal. It is dismissed. Per Shri K.C. Srivastava, Accountant Member -- I have perused order of learned Judicial Member, but I regret that I cannot concur with his views expressed. 2. Penalty under section 271(1)(a) has to be imposed if there is no reasonable cause for delay in filing of return by assessee. In present case, AAC has not held that there was reasonable cause and penalty has been cancelled only on ground that advance tax by registered firm was more than tax found payable on completion of assessment. 3. As noted in order of Judicial Member, there is definitely difference of judicial opinion on issue whether in such case, where there is no reasonable cause for not filing return, penalty can be imposed on registered firm even if tax paid in case of registered firm is more than tax found payable. decisions are also indicated in order of learned Judicial Member. I am of view that language of law is clear and it is clearly laid down that where penalty is imposable on registered firm, calculation of penalty has to be on basis of that it is unregistered firm. This provision of law is not held to be bad in law and, therefore, once it is found that there is no reasonable cause for filing of return, one has to proceed to calculate penalty imposable on basis that assessee was unregistered firm. Taking any other view would be ignoring particular provision of law. 4. While there are contrary decisions of High Courts, I would refer to decision of Supreme Court in case of CIT v. S. V. Angidi Chettiar [1962] 44 ITR 739, where similar question was considered with reference to provision under Indian Income-tax Act, 1922 ('the 1922 Act'). Supreme Court observed as under: ". . . assumption that expression 'any tax' used in section 28(1) is intended to indicate that there must be some tax payable by assessee before penalty could be imposed is wholly unwarranted. futility of assumption is exhibited by terms of clause (b). Penalty may be imposed for failure to comply with notice under sub-section (4) of section 22 or sub-section (2) of section 23 even if assessee has no assessable income. To imposition of penalty liability to pay tax by person against whom penalty is sought to be imposed is therefore not condition precedent." This observation of Supreme Court has been kly relied upon by Gujarat High Court in case of R. Ochhavlal & Co. 5. It may be mentioned that other view is that where tax paid in advance is more than tax payable, no penalty under section 271(1)(a) can be imposed may lead to various anomalies. To take example, where assessee pays tax of Rs. 5,000 and tax payable is found to be less by one rupee, no penalty can be imposed in spite of fact that there was no reasonable cause for delay in filing of return. On other hand, where tax payable is found to be more than tax paid in advance, penalty under section 271(1)(a) would become leviable on basis of that firm was unregistered firm. There does not appear to be any warrant for this type of anomaly under law and language of law is clear. I would, therefore, hold that view expressed by various High Courts as enumerated in paragraph No. 4 of order of learned Judicial Member is more reasonable and it should be followed. In view of this, I set aside order of AAC and hold that penalty under section 271(1)(a) should be imposed but penalty on basis of its being unregistered firm. appeal is allowed. REFERENCE TO THIRD MEMBER UNDER SECTION 255(4) OF INCOME-TAX ACT, 1961 Per Shri K.C. Srivastava, Accountant Member -- We have differed in above case. We proceed to state point on which we have differed and refer matter to President, Tribunal for getting matter heard by one or more of other members of Tribunal. point of difference is as follows: 'Whether on facts of case and having regard to provisions of section 271(2), penalty under section 271(1)(a) could be imposed on assessee-firm when tax paid as registered firm was more than tax payable by firm?" THIRD MEMBER ORDER Per Shri T.D. Sugla, President -- point of difference between learned members, who heard this appeal originally, has been stated as under: "Whether on facts of case and having regard to provisions of section 271(2), penalty under section 271(1)(a) could be imposed on assessee-firm when tax paid as registered firm was more than tax payable by firm?" Both learned Members agree that assessee has failed to file its return of income for assessment year 1977-78 in time and has, thus, committed default in terms of section 271(1)(a) without reasonable cause. They also agree that independent of sub-section (2) of section 271, no penalty is leviable on assessee under section 271(1)(a)(i) as 'assessed tax on basis of which penalty is to be imposed is minus figures.' question that has arisen for consideration is about impact of provisions of sub-section (2) of section 271, which lays down that when person liable to penalty is registered firm, then notwithstanding anything contained in sub-section (1), penalty imposable under sub-section (1) shall be same amount as would be imposable on firm as if it is unregistered firm. In other words, difference between learned Members is as to purport and scope of sub- section (2) of section 271. 2. I have heard parties at langth. They have mainly relied on orders of learned Accountant Member and Judicial Member, respectively. In particular, departmental representative invited my attention to observations of Supreme Court at page 299 of its decision in case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 to effect that charging section and computation provisions together constitute integral part. He urged that section 271(1)(a)(i) has to be read along with sub-section (2) of section 271 for purpose of deciding whether assessee-firm is liable to penalty or not. counsel for assessee on other hand, stated that conditions precedent for application of section 271(2) is that person liable to penalty is registered firm. For purpose of deciding whether that condition is satisfied or not, recourse cannot be taken to provisions of sub-section (2). 3. In order to appreciate rival contentions, it is desirable to refer to provisions of section 271(2), which read as under: "When person liable to penalty is registered firm or unregistered firm which has been assessed under clause (b) of section 183, then, notwithstanding anything contained in other provisions of this Act, penalty imposable under sub-section (1) shall be same amount as would be imposable on that firm if that firm were unregistered firm." It is evident that section 271(2) is not applicable to all assessees. It is applicable to only those assessees who are liable to penalty and are assessed as registered firm. first question that requires consideration, therefore, is whether assessee, who has admittedly been assessed as registered firm is liable to penalty. On face of it, I am in agreement with counsel for assessee that for purpose of deciding whether this condition is satisfied or not, it may not be proper to apply provisions of sub-section (2) itself. To my mind, proper course would be to ascertain independent of sub-section (2) whether assessee-firm is liable to penalty. For this purpose, we have to consider provisions of section 271(1)(a) and 271(1)(a)(i) along with Explanation thereto. Clause (a) provides for default. Sub-clause (i) provides consequences of default. While so providing, it contemplates imposition of penalty equal to 2 per cent of 'assessed tax for every month during which default continued'. expression 'assessed tax' has been defined in Explanation to mean tax as reduced by sum, if any, deducted at source or paid in advance. There is no dispute that in case before me, assessed tax as defined in Explanation is minus figure and 2 per cent of minus figure for every month during which default continued will also be minus figure. Thus, assessee though is in default in terms of section 271(1)(a) without reasonable cause, is not liable to penalty under section 271(1)(a)(i). In this view of matter, I am inclined to hold that condition for application of section 271(2) is not satisfied and, therefore, section 271(2) cannot be switched into service. 4. No doubt, there are decisions which on face of it give impression that section 271(2) can be relied upon even for purpose of deciding whether assessee-firm is liable to penalty. However, there are also decisions where contrary view has been taken. Supreme Court decision relied upon by learned Accountant Member in case of S. V. Angidi Chettiar, according to me, is not applicable inasmuch as, after said decision relevant provisions have undergone material change. In contradistinction with expression 'any tax' used under 1922 Act, expression 'assessed tax' has been used in section 271(1)(a)(i) of 1961 Act and this expression has been defined in Explanation. Having regard to fact that High Courts have taken conflicting views on issue, it will only be proper for me to say that both views are reasonably possible. If that be so, I think I am bound by Supreme Court decision in case of CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 wherein it has been held that in case where two views are reasonably possible, Court should take view in favour of assessee. In this view of matter, I am inclined to agree with learned Judicial Member and hold that penalty under section 271(1)(a)(i) cannot be imposed on assessee-firm. case will now go back to Bench for deciding appeal according to majority view. *** INCOME TAX OFFICER v. ABDUL MAJID
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