1992 (2) TMI 144 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under Section 271(1)(a) for delay in filing the return.
2. Interpretation and application of Section 271(3)(d) regarding the ceiling on penalty.
3. Whether the penalty is applicable when the assessed tax is zero.
4. Reasonable cause for delay in filing the return.

Detailed Analysis:

1. Imposition of Penalty under Section 271(1)(a) for Delay in Filing the Return:

The revenue appealed against the cancellation of the penalty imposed for the delayed filing of the trust's return by invoking Section 271(1)(a). The return due on June 30, 1980, was filed on May 26, 1981, as a provisional return subject to audit. A revised return was filed on November 23, 1982, showing a deficit of Rs. 82,480. The Income Tax Officer (ITO) treated the revised return as the first return, resulting in a delay of 29 months. The penalty was imposed as the explanation provided by the assessee was found unsatisfactory, and no explanation in Form No. 6 was filed.

2. Interpretation and Application of Section 271(3)(d) Regarding the Ceiling on Penalty:

The Appellate Assistant Commissioner (AAC) deleted the penalty on the grounds that the trust was not liable for any tax, and since the penalty limit is related to the tax sought to be avoided or evaded, there being no tax, the penalty could not be levied. The revenue contended that the penalty was proper as the trust's income, normally treated as applied for charitable purposes, was not to be treated as so applied, thereby necessitating tax calculation.

Section 271(3)(d) states, "the penalty imposed under clause (i) of sub-section (1) and the penalty imposed under clause (iii) of that sub-section read with Explanation 3 thereto, shall not exceed in the aggregate twice the amount of the tax sought to be evaded." This means that the penalty should be related to a sum not exceeding 1 percent of the total income computed without giving effect to Sections 11 and 12.

3. Whether the Penalty is Applicable When the Assessed Tax is Zero:

The AAC interpreted that since the tax avoided was zero, the penalty should also be zero. However, the Tribunal concluded that the penalty is imposable as per the provisions of Section 271(1)(i), regardless of the tax amount being zero. The Tribunal remanded the issue back to the AAC for reconsideration of the reasonable cause for delay.

4. Reasonable Cause for Delay in Filing the Return:

The Tribunal noted that the AAC did not decide on the factual aspect of the reasonable cause for the delay. The matter was remanded to the AAC for considering the explanation provided by the assessee and disposing of it in accordance with the law.

Separate Judgments:

Judicial Member's View:

The Judicial Member disagreed with the Accountant Member's conclusion. He emphasized that the penalty should not be imposed as the assessed tax was zero. He cited the Rajasthan High Court decisions in CIT v. Builders Engineers Co. and CIT v. Adu Ram, which held that no penalty could be levied where the assessed tax was zero. He argued that the penalty order should be quashed as it was imposed for not filing Form No. 6 rather than for the delay in filing the return.

Third Member's Order:

The Third Member, agreeing with the Accountant Member, held that the penalty is leviable for the late submission of the return. He emphasized that the non obstante clause in Section 271(3)(d) imposes a ceiling on the penalty, which should not exceed twice the amount of the tax sought to be evaded. Since the authorities below did not go into the merits of the case, the matter was remanded back for determining whether there was any reasonable cause for the delay.

Conclusion:

The appeal by the revenue was allowed in part, with the matter being remanded back to the AAC for reconsideration of the reasonable cause for the delay in filing the return. The Tribunal concluded that the penalty is imposable as per Section 271(1)(i), and the ceiling on the penalty as per Section 271(3)(d) should be considered.