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Issues Involved:
1. Whether a registered firm can be penalized for delay in filing the return under Section 271(1)(a) of the Income Tax Act, 1961, when no tax is ultimately found to be due on the date of filing the return. Detailed Analysis: Issue 1: Penalty for Delay in Filing Return by a Registered Firm Facts and Circumstances: The assessee, a registered firm, was required to file its return of income by September 30, 1970, but filed it on September 25, 1972, resulting in a delay of about two years. The Income Tax Officer (ITO) assessed the income as Rs. 78,000, but the Tribunal later accepted the declared income of Rs. 50,000. The advance tax paid exceeded the tax payable on the declared income, resulting in no further tax liability and possibly a small refund. Legal Provisions and Arguments: - The assessee argued that no penalty under Section 271(1)(a) is leviable as there was no assessed tax due, relying on precedents from the Madras and Gauhati High Courts. - The Revenue, supporting the penalty, cited the Gujarat High Court's decision, arguing that the liability to penalty arises upon the ITO's satisfaction of default, irrespective of the assessed tax. Section 271(1) Analysis: - Section 271(1) empowers the ITO to levy penalties for various defaults, including failure to file returns on time (clause (a)), non-compliance with notices (clause (b)), and concealment of income (clause (c)). - The measure of penalty under clause (i) is based on the "assessed tax," defined as the tax determined by the ITO reduced by tax deducted at source and advance tax paid. Section 271(2) and Registered Firms: - Section 271(2) states that for registered firms, the penalty imposable shall be the same as if the firm were unregistered. - The Revenue contended that the tax payable should be recalculated treating the registered firm as unregistered for penalty purposes. Court's Reasoning: - The court emphasized the distinct scheme for levying penalties under clauses (i), (ii), and (iii) of Section 271(1), noting that the concept of "assessed tax" is crucial for clause (i) but not for clauses (ii) and (iii). - The court agreed with the Madras and Gauhati High Courts that liability to penalty does not arise automatically upon the ITO's satisfaction of default. The ITO must direct the payment of penalty based on the measures specified in clauses (i), (ii), and (iii). - The court found that the Explanation to clause (i) applies to all assessees, including registered firms, and if no "assessed tax" exists after considering advance tax and tax deducted at source, no penalty is leviable. - The court disagreed with the Gujarat High Court's view that penal liability exists even if quantification is impossible, emphasizing that penalty cannot be imposed if the measure specified in clauses (i), (ii), and (iii) is ineffective. Conclusion: - The court concluded that since the advance tax paid by the assessee exceeded the tax payable on the total income, there was no "assessed tax" and thus no liability to penalty under Section 271(1)(a). - Consequently, the provisions of Section 271(2) do not apply, and the ITO cannot levy a penalty. Judgment: The court answered the question in the negative, in favor of the assessee and against the Revenue, stating that the Tribunal erred in upholding the levy of penalty. No costs were awarded, and the advocate's fee was set at Rs. 500.
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