1970 (3) TMI 52 - HC - Income Tax

Levy of penal interest under clause (iii) of third proviso to section 139(1)(v) of Income-tax Act, 1961- best judgment assessment

Summary

Issues: Failure to submit income tax return, levy of penal interest under section 139(1)(b) of the Income-tax Act, 1961.

Analysis:
For the assessment year 1962-63, the petitioner failed to submit a return of income by the due date as required under section 139(1) of the Income-tax Act, 1961. Despite subsequent notices and opportunities given by the Income-tax Officer, the petitioner did not comply with the submission requirements. The Income-tax Officer proceeded to make an assessment under section 144 of the Act to the best of his judgment, including the imposition of penal interest amounting to Rs. 11,991.19 under the third clause of proviso to section 139(1)(b) of the Act.

The petitioner, through his counsel, challenged the levy of penal interest, arguing that the specific clause under which the interest was imposed was not applicable to the facts of the case. The court examined the proviso to section 139(1)(b) in detail, emphasizing that penal interest can only be levied if the assessee requests an extension of time under the third clause of the proviso. In this case, since the petitioner did not request an extension for submitting the return, the court held that the Income-tax Officer was not justified in imposing penal interest based on that clause.

The court concluded that while consequences such as penalties under section 271 of the Act or a best judgment assessment could apply for failure to submit a return, the specific imposition of penal interest under the third clause of the proviso to section 139(1)(b) required a formal request for an extension of time, which was absent in this case. As a result, the court allowed the writ petition, quashed the order of the Income-tax Officer regarding the levy of penal interest, and awarded costs to the petitioner, including advocate's fee.