1995 (5) TMI 97 - AT - Income Tax

Summary

Issues Involved:
1. Reasonable cause for delay in filing returns due to disputes among partners.
2. Applicability of Section 271(2) for calculating penalties on registered firms.
3. Impact of tax deducted at source exceeding the tax payable on the imposition of penalties.

Detailed Analysis:

1. Reasonable Cause for Delay in Filing Returns Due to Disputes Among Partners:
The CIT(A) accepted the assessee's claim that disputes among partners and the absence of two partners who had gone abroad constituted a reasonable cause for the delay in filing the returns. However, the Tribunal found that the CIT(A) did not provide proper reasons or examine materials to substantiate the existence of such disputes. The Tribunal concluded that there was no sufficient dispute among partners to justify the delay, as the firm continued its business with the remaining partners, and no material evidence was provided to prove otherwise.

2. Applicability of Section 271(2) for Calculating Penalties on Registered Firms:
The Tribunal discussed the applicability of Section 271(2), which mandates that penalties on registered firms should be calculated as if they were unregistered firms. The Tribunal noted that there is a difference of opinion among various High Courts on this issue. The Supreme Court's decision in Ganesh Dass Sreeram was pivotal, stating that if the entire tax is paid through advance tax or TDS, no interest is chargeable. The Tribunal extended this principle to penalties, arguing that if no tax is due after considering TDS and advance tax, no penalty should be imposed. This interpretation was supported by the Delhi Bench of the Tribunal and the Rajasthan High Court in Builders Engineers Co.

However, the Accountant Member disagreed, citing the Bombay High Court's decisions in Govindram & Co., Janata Trading Co., and N.G.K. Electrical Industries, which held that penalties should be calculated as if the firm were unregistered, irrespective of the tax paid. The Accountant Member emphasized that the fiction created by Section 271(2) must be applied, and the Supreme Court's decision in Ganesh Dass Sreeram, dealing with interest, should not be extended to penalties.

3. Impact of Tax Deducted at Source Exceeding the Tax Payable on the Imposition of Penalties:
The Tribunal observed that for both assessment years, the tax deducted at source (TDS) exceeded the tax payable by the assessee as a registered firm, resulting in refunds. The Judicial Member argued that since the TDS exceeded the tax payable, no penalty should be levied, relying on the Supreme Court's principle that no interest is chargeable when the entire tax is paid through advance tax or TDS. The Accountant Member, however, maintained that penalties should be calculated based on the tax payable as if the firm were unregistered, as mandated by Section 271(2).

Conclusion:
The Tribunal was divided on the issue, with the Judicial Member favoring the assessee's interpretation that no penalty should be imposed if the TDS exceeds the tax payable, while the Accountant Member upheld the Bombay High Court's view that penalties should be calculated as if the firm were unregistered. The matter was referred to a Third Member, who agreed with the Accountant Member, emphasizing the binding nature of the Bombay High Court's decisions and distinguishing the Supreme Court's ruling on interest from the issue of penalties. Consequently, the penalties imposed by the ITO were confirmed.