1973 (2) TMI 14 - HC - Income Tax

The assessee is a firm registered under the Act. For the assessment year 1962-63 it did not file a return of its income as required by section 139(1) of the Act - assessee estimated the income below the taxable minimum but the assessed income was in excess of the taxable minimum - whether penalty can be levied for failure to file the returns

Summary

Issues:
1. Whether the penalty levied under section 271(1)(a) of the Income-tax Act, 1961, was rightly cancelled?

Detailed Analysis:
The case involved an assessee, a registered firm, who did not file a return of income for the assessment year 1962-63 by the due date but later filed a voluntary return showing a net loss. The Income-tax Officer assessed the total income at Rs. 64,922, including Rs. 40,000 from undisclosed sources. A penalty of Rs. 13,702 was imposed under section 271(1)(a) for the default in filing the return. The Tribunal held that the assessee was not liable to file a voluntary return under section 139(1) as the actual taxable income was less than the minimum taxable limit for a firm. The Commissioner challenged this decision, leading to the question of whether the penalty was rightly cancelled.

The Tribunal's decision was based on the interpretation of section 139(1) which requires a person to file a voluntary return if the income exceeds the maximum amount not chargeable to income tax. The court clarified that the assessee should be guided by what it believes to be its income at the time of filing a voluntary return, not the final assessment by the Income-tax Officer. In this case, the disputed Rs. 40,000 from unexplained cash credits was surrendered by the assessee due to lack of evidence, not because it considered it as income. The Tribunal found the belief of the assessee to be bona fide, especially since the Inspecting Assistant Commissioner absolved the assessee of concealment regarding the cash credits. After deducting the Rs. 40,000, the remaining income was below the taxable limit for a firm, absolving the assessee from filing a voluntary return and penalty under section 271(1)(a).

Additionally, the department argued that even if the income was below the taxable limit, the firm was still obligated to file a return as the income is ultimately included in the partners' assessment. However, this argument was not raised before the Tribunal and therefore not considered by the court. The court concluded in favor of the assessee, stating that the firm was not liable to file a voluntary return or pay the penalty under section 271(1)(a). The Commissioner of Income-tax was directed to pay the costs of the reference to the assessee.