1985 (6) TMI 66 - AT - Income Tax

Issues Involved:

1. Imposition of penalty under section 271(1)(a) of the Income-tax Act, 1961.
2. Treatment of the firm as registered or unregistered for penalty computation under section 271(2).
3. Judicial precedents and conflicting views from various High Courts.
4. Impact of section 271(2) on the liability of a registered firm for penalty.

Issue-wise Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(a):

The primary issue in this case was whether a penalty under section 271(1)(a) of the Income-tax Act, 1961, could be imposed on the assessee-firm for the late filing of the income tax return for the assessment year 1977-78. The respondent filed its return on 7-10-1977, beyond the due date of 30-6-1977. The Income Tax Officer (ITO) initiated penalty proceedings and levied a penalty of Rs. 2,550, treating the firm as unregistered and adjusting the tax deducted at source (TDS) under section 194C.

The first appellate authority canceled the penalty, accepting the assessee's plea that the tax paid as a registered firm exceeded the tax payable, resulting in a refund. Therefore, no penalty should be computed.

2. Treatment of the Firm as Registered or Unregistered:

The revenue argued that for penalty computation, the firm should be treated as unregistered per section 271(2). This was supported by various judgments, including CIT v. R. Ochhavlal & Co. and Nepoli Restaurant v. CIT. The revenue contended that the tax payable as an unregistered firm exceeded the TDS, creating a positive liability for penalty.

The respondent relied on judgments from the Gauhati and Andhra Pradesh High Courts, arguing that if no tax was payable after assessment, no penalty should be levied. The AAC's decision was upheld, giving the benefit of the doubt to the taxpayer due to conflicting judicial opinions.

3. Judicial Precedents and Conflicting Views:

The tribunal noted two lines of judicial thinking. One view held that late filing defaults should treat the firm as unregistered for penalty computation. The other view posited that if no tax was payable post-assessment, no penalty should be levied. The majority of judgments supported the revenue's view, but the tribunal emphasized that tax litigation involves the state and a subject, and in cases of debatable penalty, the benefit should go to the taxpayer.

4. Impact of Section 271(2) on Liability:

The Accountant Member disagreed with the Judicial Member, emphasizing that section 271(1)(a) imposes penalties if there is no reasonable cause for delay. The Accountant Member argued that the law clearly states that penalties for registered firms should be computed as if they were unregistered, citing the Supreme Court's decision in CIT v. S. V. Angidi Chettiar. He noted potential anomalies if penalties were not imposed when advance tax exceeded payable tax, leading to inconsistent outcomes.

The Third Member, President T.D. Sugla, resolved the difference by stating that section 271(2) applies only to assessees already liable to penalty. He agreed with the Judicial Member that since the "assessed tax" was a negative figure, no penalty could be imposed. The President noted conflicting High Court views and cited the Supreme Court's decision in CIT v. Vegetable Products Ltd., which mandates adopting the view favorable to the assessee when two views are reasonably possible.

Conclusion:

The tribunal, by majority view, held that no penalty under section 271(1)(a) could be imposed on the assessee-firm, as the tax deducted at source exceeded the tax payable, resulting in a negative "assessed tax." The revenue appeal was dismissed.

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