2006 (9) TMI 114 - SC - Income Tax

Assessee s submission is that since the assessee was entitled to and did file his return before making the assessment, no penalty should be levied under section 271(1)(a), even though the return was filed beyond the prescribed date, is not acceptable - held that merely because, sub-section (4) of section 139 enables the assessee to file his return at any time before the assessment is made, it does not mean that his liability to pay penalty under section 271(1)(a) is erased

Issues Involved:
1. Jurisdiction of the Inspecting Assistant Commissioner of Income-tax to impose penalty.
2. Legality of penalty imposition under section 271(1)(a) of the Income-tax Act, 1961.
3. Impact of payment of interest on the imposition of penalty.
4. Applicability of precedents cited by the respondent.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Inspecting Assistant Commissioner of Income-tax to impose penalty:
The learned single judge quashed the penalty on the grounds that the Inspecting Assistant Commissioner of Income-tax had no jurisdiction to impose such penalty, and only the Income-tax Officer was competent under section 271(1)(a) of the Income-tax Act. However, during the appeal, the respondent did not dispute the jurisdiction of the Inspecting Assistant Commissioner to impose the penalty for not filing the returns within the extended period. The Division Bench noted, "the learned advocate for the writ petitioner/respondent did not question the jurisdiction of the Inspecting Assistant Commissioner of Income-tax to impose penalty on the writ petitioner for not filing the return within the extended time."

2. Legality of penalty imposition under section 271(1)(a) of the Income-tax Act, 1961:
The Division Bench concluded that the mere deposit of interest would not absolve the assessee from its liability to pay the penalty under section 271(1)(a). The court explained the scheme under section 139, particularly focusing on sub-section (4), which allows for returns to be filed before the end of a specified period even if not filed within the time allowed under sub-sections (1) or (2). The court held that penalty could be imposed under section 271(1)(a) if the return was not filed within the time allowed or within the extended period, emphasizing that "penalty is a punishment imposed on a wrong-doer."

3. Impact of payment of interest on the imposition of penalty:
The respondent argued that since the assessee had paid the dues with interest, penalty proceedings should not be initiated. However, the Division Bench held that interest and penalty are distinct concepts, with interest being an accretion on capital and penalty being a punishment. The court noted that the precedents cited by the respondent involved cases where interest was charged and paid, which was not the situation in the present case. Therefore, the court found that payment of interest does not negate the imposition of penalty.

4. Applicability of precedents cited by the respondent:
The respondent cited various High Court decisions to support the argument that payment of interest should preclude penalty imposition. However, the Division Bench found these cases distinguishable, stating, "the ratio of these decisions could not be applied as the interest was not charged by the Assessing Officer in his assessment orders for the aforesaid periods." The court also referred to the Supreme Court decision in Pradip Lamps Works v. CIT, which held that filing a return under section 139(4) does not erase the liability to pay penalty under section 271(1)(a). The court affirmed this principle, stating, "Merely because, sub-section (4) of section 139 enables the assessee to file his return at any time before the assessment is made, it does not mean that his liability to pay penalty under section 271(1)(a) is erased."

Conclusion:
The appeal was allowed, and the judgment of the learned trial judge was set aside. The court held that the authorities could proceed with the penalty proceedings to recover the penalty in accordance with the law, affirming that the trial court was in error in quashing the penalty proceedings. The Supreme Court dismissed the appeal, affirming the Division Bench's judgment, and held that penalty under section 271(1)(a) could be levied in the present case.

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