2005 (4) TMI 14 - HC - Income Tax

Law Applicable - Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally justified in confirming the decision of the Deputy Commissioner (Appeals) deleting the penalties of Rs. 9,800 each in the assessment years 1982-83 and 1983-84 imposed under section 271(1)(b) of the Income-tax Act, 1961? - It is well settled that penalty provisions are to be strictly construed and if under the aforesaid provision, there is no levy of penalty or the quantum cannot be ascertained no penalty under law can be imposed. Accordingly, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the Revenue

Summary

Issues involved:
Penalty under section 271(1)(b) of the Income-tax Act, 1961 for assessment years 1982-83 and 1983-84.

Detailed Analysis:

The High Court of Allahabad was presented with a question of law regarding the imposition of penalties under section 271(1)(b) of the Income-tax Act, 1961 for the assessment years 1982-83 and 1983-84. The respondent-assessee, an individual deriving income from a share in a hotel, failed to file a return despite notices issued under sections 148 and 142(1) of the Act. The assessment was completed ex parte, resulting in penalties of Rs. 9,800 each for both years. The Deputy Commissioner of Income-tax (Appeals) allowed the appeal, stating that penalties could not be imposed as no return was filed, a prerequisite for penalty determination under section 271(1)(b). The Tribunal upheld this decision, emphasizing that before April 1, 1989, reassessment could not be considered regular assessment.

The Revenue argued that amendments to section 139(8) of the Act post-April 1, 1985, deemed assessments under section 147 as regular assessments. Citing a Supreme Court decision, the Revenue contended that even the first assessment under section 147 should be treated as regular assessment, justifying the penalties. However, the Court disagreed, clarifying that penalties under section 271(1)(b) were contingent on non-compliance with specific notice provisions. The penalty quantum was to be determined based on the income returned by the assessee. As the respondent had not filed any return, penalty calculation under clause (ii) of section 271(1)(b) was inapplicable. The Court emphasized that penalty provisions must be strictly construed, and if penalty imposition or quantum determination was not feasible, no penalty could be levied.

Consequently, the Court ruled in favor of the assessee, affirming that penalties were unjustified due to the absence of a filed return, thereby dismissing the Revenue's appeal. No costs were awarded in the judgment.