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Issues:
1. Interpretation of the term 'total income' in section 271(3)(a) of the Income-tax Act, 1961. 2. Legality of penalty order under section 271(1)(a) and applicability of amendment under section 275. 3. Legality of canceling the penalty imposed by the Income-tax Officer under section 271(1)(a) for the assessment year 1965-66. Analysis: Issue 1: The case involved a reference under section 256(2) of the Income-tax Act, 1961, where the court was asked to interpret whether the term 'total income' in section 271(3)(a) referred to income as disclosed in the returns filed by the assessee or the income finally computed by the tax authorities. The court examined the obligations under section 139(1) to file a return of total income and the consequences under section 271(1)(a) for failing to do so without reasonable cause. Referring to previous judgments, the court held that the return of income to be filed is what the assessee believes to be their income, not the income as finally assessed by the tax authorities. The court emphasized that penalty under section 271(1)(a) is attracted only if there is taxable income according to the bona fide calculation of the assessee, and failure to file without reasonable cause must be established independently in penalty proceedings. Issue 2: Regarding the legality of the penalty order under section 271(1)(a) and the applicability of an amendment under section 275, the court analyzed the circumstances of the case where the penalty was imposed for filing a belated return. The court noted that the Income-tax Appellate Tribunal believed the explanation of the assessee that it filed the return late due to a bona fide belief that its income did not exceed the taxable limit. The court further explained that the benefit of section 271(3)(a) does not apply to cases of belated returns but rather to cases of complete failure to furnish a return. As the assessee's income was marginally above the exemption limit, the Tribunal correctly considered the provisions of section 271(3)(a) and accepted the bona fides of the assessee, leading to the cancellation of the penalty. Issue 3: In relation to the cancellation of the penalty imposed by the Income-tax Officer for the assessment year 1965-66, the court upheld the decision of the Income-tax Appellate Tribunal to cancel the penalty. The court emphasized that the imposition of penalty under section 271(1)(a) requires a factual determination of whether the assessee failed to furnish the return without reasonable cause. Since the Tribunal found in favor of the assessee's bona fide belief regarding its income level, the court concluded that the Tribunal was justified in canceling the penalty. In conclusion, the court answered issue 3 in favor of the assessee and against the Revenue, while returning issues 1 and 2 unanswered as they were not raised before the Tribunal and were deemed academic in light of the decision on issue 3.
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