1972 (4) TMI 23 - HC - Income Tax

Income-tax Officer did not accept the explanation given by the assessee and imposed a minimum penalty of 2% by virtue of the provisions of section 297(2)(g) of the Act of 1961 - return filed before commencement of the Income-tax Act, 1961 but the assessment was made after commencement - whether penalty u/s 271(1)(a) can be levied

Summary

Issues:
Imposition of penalty under section 271(1)(a) of the Income-tax Act, 1961 for delayed filing of return.

Analysis:
The judgment pertains to a reference under section 256(1) of the Income-tax Act, 1961, initiated by the Commissioner of Income-tax regarding the imposition of a penalty on the assessee for filing the return late for the assessment year 1960-61. The Income-tax Officer initially imposed a minimum penalty of 2% under section 297(2)(g) of the Act of 1961. The Tribunal, however, reduced the penalty to a lump sum of Rs. 1,000, citing a Supreme Court decision that the penalty should be in accordance with the law at the time of the offense. The main issue was whether the Tribunal had the authority to reduce the penalty below the minimum prescribed under section 271(1)(a) of the Income-tax Act, 1961.

The High Court opined that the Tribunal erred in applying criminal law principles to the tax penalty issue. Referring to previous decisions, including Kishanlal v. Commissioner of Income-tax and Jain Brothers v. Union of India, the court emphasized that the penalty should be imposed as per the provisions of the Act in force at the time of completion of assessment. The court highlighted that the satisfaction of income-tax authorities regarding a default by the assessee is crucial for penalty imposition, and the penalty order must be made post-assessment completion. Therefore, the court concluded that the penalty in this case must adhere to section 271(1)(a) of the Income-tax Act, 1961, which mandates a minimum penalty of 2% for delayed filing of returns.

In light of the legal precedents and statutory provisions, the court held that the Tribunal did not have the authority to reduce the penalty below the prescribed minimum. Consequently, the court answered the reference question by stating that the Tribunal was not competent to lower the penalty for delayed filing of the return below the statutory minimum. The judgment directed that each party would bear their own costs related to the reference.

This judgment underscores the importance of applying the relevant provisions of the Income-tax Act in determining penalties for non-compliance, emphasizing that penalties should align with the law in force at the time of assessment completion.