1981 (12) TMI 33 - HC - Income Tax

Issues Involved:

1. Interpretation of sections 271(1)(a), 139(1), and 139(2) of the Income-tax Act.
2. Computation of penalty period for non-filing of returns.
3. Impact of notices under sections 148 and 139(2) on penalty computation.

Issue-Wise Detailed Analysis:

1. Interpretation of sections 271(1)(a), 139(1), and 139(2) of the Income-tax Act:

The core issue revolves around the interpretation of sections 271(1)(a), 139(1), and 139(2) of the Income-tax Act. Section 139(1) mandates that every person with taxable income must voluntarily file a return. Section 139(2) allows the Income-tax Officer (ITO) to serve a notice requiring the person to file a return within 30 days. Section 271(1)(a) stipulates penalties for failure to furnish returns as required under sections 139(1), 139(2), or 148.

The judgment clarifies that section 139(1) imposes an obligation on the assessee to file a return voluntarily. Non-compliance with this obligation exposes the assessee to penalties under section 271(1)(a). The issuance of a notice under section 139(2) does not absolve the assessee of the accrued liability for default under section 139(1).

2. Computation of penalty period for non-filing of returns:

The Tribunal had directed that the penalty should be calculated from the date of filing the return fixed by the service of notices under sections 148 and 139(2). However, the judgment disagrees with this approach, stating that the default period starts from the date when the return was due under section 139(1) and continues until the notice under section 139(2) is issued. The default period does not get wiped out by the issuance of a notice under section 139(2).

The judgment emphasizes that the penalty for non-compliance with section 139(1) continues to accrue until a notice under section 139(2) is served. After the notice is served, the default continues under section 139(2) if the return is not filed within the stipulated time.

3. Impact of notices under sections 148 and 139(2) on penalty computation:

The Tribunal had relied on the Patna High Court's decision in Addl. CIT v. Bihar Textiles, which suggested that once a notice under section 139(2) is issued, the default under section 139(1) is precluded. The judgment rejects this view, stating that the issuance of a notice under section 139(2) does not eliminate the liability for default under section 139(1). The default under section 139(1) continues until the notice under section 139(2) is issued, and the subsequent default under section 139(2) is a separate issue.

The judgment also refers to decisions from the Rajasthan, Delhi, and Andhra Pradesh High Courts, which support the view that the default under section 139(1) continues until the notice under section 139(2) is issued. The Madhya Pradesh High Court's view that the default period under section 139(1) ends when the notice under section 139(2) is served is also addressed, with the judgment suggesting that the default periods should be treated separately.

Conclusion:

The High Court concludes that the Tribunal erred in confining the penalty to the period after the issuance of notices under sections 148 and 139(2). The default under section 139(1) continues until the notice under section 139(2) is issued, and the subsequent default under section 139(2) is a separate matter. The Tribunal's direction to recompute the penalty by confining it to the period after the notice under section 139(2) is incorrect. The judgment emphasizes that the statutory obligation to file a return under section 139(1) and the associated penalty for non-compliance are not nullified by the issuance of a notice under section 139(2).

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