1975 (12) TMI 58 - HC - Income Tax

Summary

Issues Involved:
1. Whether a registered firm liable to penalty u/s 271(1)(c) can be penalized if its income is ultimately found to be not assessable to tax.
2. Jurisdiction of the Inspecting Assistant Commissioner to impose penalty.
3. Interpretation of sub-section (2) of section 271 regarding penalty computation for registered firms.

Summary:

Issue 1: Penalty on Registered Firm with No Tax Liability
The primary question was whether a registered firm, liable to penalty u/s 271(1)(c), can be penalized if its income is ultimately found to be not assessable to tax. The court held that the penalty provisions apply regardless of the final tax liability. The main object of section 271 is to ensure correct returns are filed and accurate particulars of income are revealed, irrespective of the tax liability.

Issue 2: Jurisdiction of the Inspecting Assistant Commissioner
The assessee contended that since no tax was ultimately payable, the Inspecting Assistant Commissioner had no jurisdiction to impose a penalty. The court rejected this, stating that the jurisdiction depends on the facts at the time of the initiation of proceedings by the Income-tax Officer, not on subsequent events. The jurisdiction is established when the Income-tax Officer finds that the minimum penalty exceeds Rs. 1,000 at the time of assessment.

Issue 3: Interpretation of Section 271(2)
The court clarified that sub-section (2) of section 271 directs that for penalty computation, a registered firm should be treated as an unregistered firm. This means that even if no tax is ultimately payable, the penalty can still be computed as if the firm were unregistered. The court emphasized that penal liability is incurred when any of the defaults under clauses (a), (b), or (c) of section 271(1) are committed, and the quantification of penalty follows thereafter.

Conclusion:
The Tribunal's decision to cancel the penalty was overturned. The court concluded that the Tribunal was not justified in law in cancelling the penalty imposed by the Inspecting Assistant Commissioner u/s 271(1)(c) read with section 274(2). The answer to the referred question was in the negative, in favor of the revenue and against the assessee. The respondent-assessee was ordered to bear the costs of the revenue in this reference.