1997 (7) TMI 215 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalties under section 271(1)(a) for late filing of returns.
2. Validity of penalties when assessments are made on a protective basis.
3. Whether both interest under section 139(8) and penalties under section 271(1)(a) can be levied together.

Detailed Analysis:

1. Imposition of Penalties under Section 271(1)(a) for Late Filing of Returns:
The assessee filed returns late for the assessment years 1978-79 and 1979-80, resulting in delays of 31 months and 19 months, respectively. The Assessing Officer (A.O.) levied penalties of Rs. 12,509 for 1978-79 and Rs. 12,395 for 1979-80, citing no reasonable cause for the delays. The assessee argued that disputes within the HUF and pending appeals justified the delays.

2. Validity of Penalties When Assessments are Made on a Protective Basis:
The assessee contended that penalties should not be levied on protective assessments. The CIT(Appeals) dismissed this argument, but the Tribunal examined the justification of protective assessments and penalties. The Tribunal referred to judicial precedents and legal commentaries, noting that while protective assessments are permissible to prevent income from escaping taxation, protective penalties are not sanctioned by law.

The Judicial Member argued that protective penalties cannot be sustained, citing precedents like Super Steel (Sales) Co. and Metal Stores. The Accountant Member disagreed, suggesting that penalties should be considered after the substantive assessment is finalized. The Third Member ultimately sided with the Judicial Member, holding that penalties under section 271(1)(a) cannot be imposed on a protective basis, as it would be unjust and legally unsound.

3. Whether Both Interest under Section 139(8) and Penalties under Section 271(1)(a) Can Be Levied Together:
The Tribunal examined whether interest and penalties could be levied simultaneously. The case law cited by the assessee related to pre-1971 law, where interest was charged under a different proviso. The Tribunal referred to the jurisdictional High Court's decision in Jamunadas Mannalal v. CIT, which held that both interest and penalties could be levied together under the amended law post-1971. The Tribunal concluded that the contention of the assessee was not tenable, and both interest and penalties were leviable.

Conclusion:
The Tribunal, through a majority view, concluded that penalties under section 271(1)(a) for late filing of returns cannot be imposed when assessments are made on a protective basis. The Third Member agreed with the Judicial Member that protective penalties are conceptually and legally untenable. The Tribunal also upheld that both interest under section 139(8) and penalties under section 271(1)(a) could be levied together under the amended law. The appeals were ultimately allowed, and the penalty orders were canceled.