Penalty provisions. - Income Tax - 1419/CBDT

INSTRUCTION NO. 1419/CBDT Dated: October 3, 1981 Reference is invited to Boards Instructions No.1037 dated 1st February 1977 in F.No.284/23/76-IT (Inv). In para 2 it has been stated that in cases where default in filing the returns had taken place prior to 1-4-76 and continues after that date, the default is a continuing one, as the obligation to file the return continued day after day, even after the expiry of the period laid down in the Act and that the penalty has to the reckoned for every month during which the default continued. It has been further stated that the new provisions would apply in relation to the period of the default after 31-3-76 and that while the maximum penalty for the period of default upto 31-3-76 would be restricted to 50% of the assessed tax, for the period of default after that date, further penalty is imposable without being subject to the restriction. These instructions have been reviewed by the board in the light of the supreme court decisions in Brij Mohan vs. CIT(120 ITR 1) and CWT vs. Suresh Seth (129 ITR 328). 2. In Brij Mohan's case the supreme court considered the provisions of sec.271(1)(i)(c)/ 271(1)(iii) of the I.T.Act and has held that where a penalty is imposed on account of the commission of a wrongful act, plainly it is the laws operating on the date on which the wrongful act is committed which determined the penalty and that where the penalty is imposed for concealment of particulars of income, it is the law ruling on the date when the act of concealment takes place which is relevant. Thus according to the supreme court, the penalty u/s.271(1)(iii) is leviable in accordance with the law on the date when the return of income containing the concealment is filed. In suresh seth's case the the supreme court examined the provisions of sec.18(1)(a)/18(1)(i) of the Wealth-tax Act and have held that w hen the default is the filing of a delayed return the penalty may be correlated to the time lag between the last day for filing it without penalty and the day on which it is filed and the quantum, of tax or wealth involved in the case for the purposes of determining the quantum of penalty but the default however is only one which takes place on the expiry of the last day for filing the return without penalty and not a continuing one and have observed:- Sec.18 of the Act with which we are concerned in this case, however does not require the assessee to file a return during every month after the last day to file it is over. Non-performance of any of the acts mentioned in sec.18(1)(a) of the Act gives rise to a single default and to a single penalty the measure of which however is geared upto the time lag between the last date on which it is filed. The default if any committed is committed on the last date allowed to file the return. The default cannot be one committed every month thereafter. The words for every month during which the default continued indicate only the multiplier to be adopted in determining the quantum of penalty and do not have the effect of making the default in question a continuing one. Nor do they make the amended provisions modifying the penalty applicable to earlier defaults in the absence of necessary provisions in the amending acts. The principle under lying section 6 of the General clauses Act is clearly applicable to these cases. It was held in this case that for default u/s.18(1)(a) of the wealth-tax Act the penalty has to be commuted in accordance with the law in force on the last day on which the return in question had to be filled. 3. The clarifications as above apply to penalties imposable under the relevant sections of the I.T.Act, Wealth-tax and Gift-tax. The correct legal position is illustrated in the examples given below:- Example 1:- For the Assessment year 1975-76 the last date for filing the return of income was 30th June 1975. The return was filed on 30th June, 1976. The penalty leviable u/s.271(1)(i) of the I.T.Act will be at the rate of 2% of assessed tax for every month of default but subject to a maximum 50% of the assessed tax in accordance with the law in force on 30th June, 1975 prior to the amendment which came into force on 1-4-76. Example 2: A return of wealth was due to be filed on or before 30th June, 1975 for assessment year 1975-76 but was filed on 30th June, 1976. The scale of penalty u/s.18(1)(i) of the wealth-tax Act will be 1/2% of the net wealth as assessed reduced by the amount of initial exemption from wealth-tax for every month of default subject to a maximum of an amount equal to the assessed wealth as reduced by the amount of initial exemption in accordance with law which was in force on 30th June, 1975 prior to the amendment which came into force w.e.f. 1st April, 1976. Example 3: A return of wealth for the assessment year 1976-77 due to be filed on or before 30th June, 1976 was filed on 30th June, 1977 . The scale of penalty u/s.18(1)(i) of the wealth-tax act will be in accordance with the law in force on 30-6-76 i.e. it will be a sum equal to 2 of the assessed tax for every month during which the default continued. 4. In view of the decisions of the Supreme court the clarification given in para 2 of Instructions No.1037 dated the 1st February, 1977 referred to above are withdrawn and all pending appeals/references on the point may be withdrawn. 5. These clarifications may be brought to the notice of the officers working in your charge.