1969 (6) TMI 18 - HC - Income Tax

Tribunal was right in holding that in calculating the penalty leviable u/s 271(1)(i) the amount paid by the assessee under the provisional assessment u/s 23B of the Indian Income-tax Act 1922 was to be deducted from the amount of tax determined u/s 23(3) of that Act in order to determine the amount of tax on which the computation of penalty was to be based and in reducing the amount of the penalty

Summary

Issues Involved:
1. Validity of the notice under section 274(1) of the Income-tax Act, 1961.
2. Sufficiency of the cause for the delay in filing the return.
3. Calculation of the penalty under section 271(1)(i) of the Income-tax Act, 1961.

Detailed Analysis:

1. Validity of the Notice under Section 274(1):
The assessee contended that the notice under section 274(1) was issued after the completion of the assessment proceedings, rendering it invalid. The Tribunal held that the Income-tax Officer had already indicated his intention to initiate penalty proceedings before the assessment completion by issuing a notice under section 28(3) of the 1922 Act on January 13, 1961. The Tribunal ultimately rejected the assessee's contention that the penalty proceedings were not properly initiated.

2. Sufficiency of the Cause for Delay in Filing the Return:
The assessee argued that the delay in filing the return was due to the absence of its accountant, and the audited balance-sheet was ready only in October 1960. The Income-tax Officer and the Appellate Assistant Commissioner did not accept this explanation as sufficient cause for the delay. The Tribunal also did not accept the assessee's contention that it was prevented by sufficient cause from filing the return before January 17, 1961.

3. Calculation of the Penalty under Section 271(1)(i):
The assessee submitted that the penalty should be calculated based on the tax payable after deducting the amount already paid under provisional assessment. The Tribunal accepted this contention and held that the tax payable by an assessee is the tax ultimately determined to be payable after giving credit for all payments made towards the tax liability. Consequently, the penalty was reduced to Rs. 2,737.

The court examined the relevant provisions of section 271 of the 1961 Act, particularly focusing on clause (i) which states that the penalty is in addition to the amount of the tax payable by the assessee. The court reasoned that the expressions "tax payable" and "the tax" mean the same thing and should be understood as "the tax payable." This interpretation means that penalty is to be calculated with reference to the actual amount due and payable by the assessee on the date of imposition of the penalty. The court concluded that the Tribunal's decision to reduce the penalty was correct.

The court also considered judgments from the Lahore High Court and the Allahabad High Court, which supported the view that penalty proceedings could be initiated after the assessment order. However, the court leaned towards a construction that exempts the subject from penalty if there is ambiguity, as per the Supreme Court's rulings in Tolaram Relumal v. State of Bombay and Commissioner of Income-tax v. Karamchand Premchand Ltd.

Conclusion:
The court answered the question in the affirmative, supporting the Tribunal's decision to reduce the penalty to Rs. 2,737. Each party was ordered to bear its own costs.