1996 (6) TMI 56 - HC - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under section 271(1)(a) read with section 271(2) of the Income-tax Act, 1961, on a registered firm.
2. Interpretation of section 271(2) in relation to the imposition of penalty on registered firms treated as unregistered firms.
3. Applicability of the Supreme Court's observations in Ganesh Dass Sreeram v. ITO [1988] 169 ITR 221 to the imposition of penalties under section 271(1)(a).

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(a) Read with Section 271(2):
The primary issue in this case is whether the Tribunal was justified in upholding the cancellation of the penalty imposed by the Appellate Assistant Commissioner on the assessee, a registered firm, for late filing of income tax returns for the assessment years 1973-74 to 1976-77. The Income-tax Officer had imposed penalties under section 271(1)(a) for the delayed filing of returns. The Appellate Assistant Commissioner cancelled these penalties, reasoning that since the tax assessed was less than the advance tax paid, no penalty could be imposed. The Tribunal upheld this decision, referencing cases from the Madras and Gauhati High Courts which supported the view that no penalty is imposable where no tax is found payable by a registered firm.

2. Interpretation of Section 271(2):
Section 271(2) states that when a person liable to penalty is a registered firm, the penalty imposable under sub-section (1) should be the same as if the firm were an unregistered firm. The Revenue argued that this legal fiction meant the assessee should be treated as an unregistered firm for penalty purposes, regardless of the advance tax paid. However, the Tribunal and various High Courts interpreted that if the advance tax paid covers the tax assessed, no penalty should be imposed, even if the firm is treated as unregistered.

3. Applicability of Supreme Court Observations in Ganesh Dass Sreeram v. ITO:
The Supreme Court in Ganesh Dass Sreeram v. ITO observed that where advance tax covers the entire tax assessed, no interest should be charged for late filing, as interest is compensatory. This principle was extended to penalties by various High Courts, which held that no penalty under section 271(1)(a) should be imposed if the advance tax paid covers the assessed tax. The Rajasthan High Court, in CIT v. Builders Engineers Co., and other High Courts followed this interpretation, dissenting from the earlier Full Bench decision of the Patna High Court in Jamunadas Mannalal v. CIT, which had held that penalties could be imposed regardless of advance tax payments.

Conclusion:
The Tribunal's decision to uphold the cancellation of penalties by the Appellate Assistant Commissioner was affirmed. The court concluded that no penalty under section 271(1)(a) can be levied on a registered firm treated as an unregistered firm if no tax is payable after accounting for advance tax paid. This interpretation aligns with the Supreme Court's observations in Ganesh Dass Sreeram's case and the unanimous view of various High Courts post that decision. The question referred to the court was answered in the affirmative, in favor of the assessee and against the Revenue, with no order as to costs.