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Issues Involved:
The judgment addresses the issue of whether interest under sections 139(8) and 217 of the Income-tax Act, 1961 is chargeable when the first assessment was made under section 143(3) of the Act, read with section 147 of the Act. Comprehensive Details: The assessee, a registered firm for the assessment year 1978-79, did not submit a return as required under section 139 of the Income-tax Act, 1961. The Income-tax Officer later issued a notice under section 148, stating that income had escaped assessment due to the failure of the assessee to file a return. After receiving the notice, the assessee submitted a return and account books. The Income-tax Officer then assessed the total income and levied income tax along with interest under sections 139 and 217(1A) of the Act. The assessee contended that since the assessment was made under section 147, it was not a regular assessment as defined in the Act, and therefore, interest should not be levied. Both the Commissioner of Income-tax (Appeals) and the Tribunal upheld this contention, leading to the reference to the High Court. Sub-section (8) of section 139 of the Act deals with cases where the return was not furnished on time or not furnished at all, resulting in liability to pay simple interest. The definition of "regular assessment" under section 2(40) of the Act includes assessments made under section 143 or section 144. Assessment under section 143 can only occur if a return has been filed under section 139. On the other hand, section 147 pertains to cases of escaped income due to various reasons, requiring a separate assessment process initiated by a notice under section 148. The High Court clarified that assessment or reassessment under section 147 is distinct from assessment under section 143 and does not qualify as a "regular assessment" as defined in the Act. The Court emphasized that the expression "regular assessment" in sections 139(8) and 217 should be interpreted in line with the Act's definitions and not in an ordinary sense. The judgment referred to decisions by various High Courts supporting this interpretation. The Court also addressed the substituted Explanation 2 to sub-section (8) of section 139, which deems an assessment made for the first time under section 147 as a regular assessment. However, the Court noted that this amendment, effective from April 1, 1985, does not apply retrospectively. Therefore, the Court ruled in favor of the assessee, stating that interest under sections 139(8) and 217 should not be charged in the given scenario. In conclusion, the High Court answered the question in favor of the assessee and against the Revenue, directing the judgment to be sent to the Appellate Tribunal without any costs incurred.
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