1982 (7) TMI 146 - AT - Income Tax

Summary

Issues involved:
1. Legality of proceedings under Section 147(a) of the IT Act, 1961.
2. Obligation to file return under Section 139(1).
3. Validity of penalty levied under Section 271(1)(a) for late filing of return.

Issue-wise Analysis:

1. Legality of Proceedings under Section 147(a) of the IT Act, 1961:

The primary contention was whether the proceedings initiated under Section 147(a) were valid. The assessee argued that the proceedings were illegal since the assessee had only dairy income, which was exempt from tax up to Rs. 10,000, and therefore was under no obligation to file a return under Section 139(1). The Income Tax Officer (ITO) initiated proceedings under Section 147(a) based on the belief that the assessee's income had escaped assessment due to the non-filing of the return and undisclosed investment in a plot and buffaloes.

The Tribunal found that the ITO initiated the proceedings under Section 147(a) based on information obtained during the assessment proceedings for subsequent years, which indicated that the assessee's claim of using sale proceeds from a house for the investment was false. The Tribunal held that the ITO's reasons for initiating proceedings under Section 147(a) were not justified, as they were based on information obtained later and not on the assessee's failure to disclose material facts at the time of the original assessment. The Tribunal cited the Supreme Court's decision in Parshuram Pottery Works Co. Ltd. vs. ITO, emphasizing that both conditions under Section 147(a) must co-exist: the ITO must have reason to believe that income has escaped assessment, and this must be due to the assessee's omission or failure to file a return or disclose fully and truly all material facts. Since these conditions were not met, the Tribunal annulled the assessment framed under Section 147(a).

2. Obligation to File Return under Section 139(1):

The assessee contended that there was no obligation to file a return under Section 139(1) as the only income was from dairy farming, which was exempt up to Rs. 10,000. The Tribunal accepted this argument, noting that the assessee's main source of income was agriculture and dairy farming, and there was no other taxable income that necessitated filing a return under Section 139(1). The Tribunal highlighted that the ITO did not issue a notice under Section 139(2) requiring the assessee to file a return, and therefore, the initiation of proceedings under Section 147(a) was not warranted.

3. Validity of Penalty Levied under Section 271(1)(a) for Late Filing of Return:

The ITO had levied a penalty of Rs. 1,360 under Section 271(1)(a) for the late filing of the return. The assessee argued that since there was no obligation to file a return under Section 139(1), the penalty for late filing was not justified. The Tribunal agreed with the assessee, noting that since the assessment itself was annulled, the basis for the penalty under Section 271(1)(a) was invalid. Consequently, the penalty order was also cancelled.

Conclusion:

The Tribunal allowed both appeals of the assessee, annulling the assessment framed under Section 147(a) and cancelling the penalty levied under Section 271(1)(a). The Tribunal concluded that the proceedings under Section 147(a) were wrongly initiated, and the assessee was not obliged to file a return under Section 139(1) due to the exemption of dairy income.