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TMI Blog1984 (6) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... for a part of the period of delay, with the result that, eventually, the Tribunal held that there was no reasonable cause for failure to furnish the return of income for a period of fourteen months. The ITO was directed to levy penalty with reference to the period of default of fourteen months. It appears, the assessee returned an income of Rs. 50,000. The ITO made an assessment on a total income of Rs. 78,000 ; but on appeal, the Tribunal eventually accepted the income declared in the return. The advance tax paid by the assessee for the assessment year under consideration, it appears, was more than the tax payable on the total income of Rs. 50,000 declared and finally accepted for purposes of assessment. Consequently, there was no liability, on regular assessment, to pay any further tax. The assessee was, perhaps, entitled to a small refund. On the aforesaid facts, the contention urged was that there was no liability to pay penalty by the assessee under s. 27](1)(a) of the Act, inasmuch as there was no assessed tax at all and, consequently, in terms of the Explanation to s. 271 (1)(i) of the Act, no penalty is leviable. In support of the above proposition, the assessee relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the amount of tax, if any, which would have been avoided if the income returned by such person had been accepted as the correct income. Finally, in the case of a person concealing the particulars of his income or furnishing inaccurate particulars of income, the measure of penalty as per cl. (iii) is a sum equivalent to but not exceeding twice the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income. The expression " the amount of tax sought to be evaded " is explained in Explanation 4 as meaning the difference between the tax on the total income assessed and the tax that would have been chargeable, had such total income been reduced by the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished. The above are the relevant provisions of the Act relating to the levy of penalties under s. 271. The present case falls under s. 271(1)(a) of the Act, as the assessee did not file its return of income within the time allowed under s. 139(1) of the Act and there was no reasonable cause for such failure. It must, therefore, be said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be reduced from the tax determined payable by an assessee on regular assessment and the penalty leviable under s. 271 (1)(a) will have to be determined with reference to the balance of tax designated as " assessed tax" In respect of an assessee's default for non-compliance with the notices issued under s. 142(1) or s. 142(2) or s. 142(2A), the measure of penalty provided is quite different. In respect of these defaults, the penalty leviable shall be a minimum of ten per cent. and a maximum of fifty per cent. of the amount of tax which would have been avoided if the income returned by such person had been accepted as the correct income. Yet another different measure of penalty is set out in respect of cases of concealment of income. In concealment cases, the minimum penalty leviable shall be equal to the amount of tax sought to be evaded and shall not exceed twice the amount of such tax. As already stated, the expression " the amount of tax sought to be evaded " is clarified by Explanation 4. It means the difference between the tax on the total income assessed by the ITO and the tax that would have been chargeable had such total income been reduced by the amount of income in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible for the ITO to direct the levy of penalty as per the measures specified in clauses (i), (ii) and (iii). According to the learned counsel, the provisions contained in clauses (a), (b) and (c) do not declare that a person shall be automatically liable to penalty the moment the ITO derives satisfaction. According to him, after deriving the satisfaction, the ITO, in exercise of the discretion vested in him to levy penalty, shall have to give a direction that a penalty in accordance with the measure of quantification specified in clauses (i), (ii) and (iii) shall be payable by the assessee and unless and until such direction is given, there is no question of any person being liable to penalty. This view finds support in the judgments of the Madras and Gauhati High Courts above referred to. Before examining the rival contentions, it is necessary to refer to the provisions of s. 271(2) of the Act, which, in fact, gave rise to this controversy. Section 271(2), to the extent that it is relevant for our present purpose, provides that, when the person liable to penalty is a registered firm, then notwithstanding anything contained in the other provisions of the Act, the penalty imposabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng counsel contends that the liability to penalty has already arisen because the registered firm committed a default within the terms of s. 271 (1)(a) and, consequently, the registered firm is person liable to penalty within the meaning of s. 271(2). In order, therefore, to determine the amount of penalty leviable, the tax payable by the registered firm as such will have to be ignored and s. 271(2) has to be invoked for purposes of determining the amount of penalty imposable under s. 271(1) of the Act. It may be relevant to mention at this stage that the contention urged by the Revenue finds support in the judgment of the Gujarat High Court and the contention urged by the assessee finds support in the judgments of the Madras and Gauhati High Courts referred to above. It may also be relevant to mention at this stage that the judgment of the Gujarat High Court in CIT v. Ochhavlal Co. [1976] 105 ITR 518 (Guj), relates to the levy of penalty for concealment of income for which penalty is imposable under s. 271(1)(iii). The decision of the Madras High Court in Addl. CIT v. Murugan Timber Depot [1978] 113 ITR 99 (Mad) also relates to concealment of income. On the other hand, the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the amount of tax, if any, payable by an assessee, and if, in a given case, the assessee is not found liable to pay any tax, the quantification of penal liability would be impossible ; and in that case, no penalty is leviable." In our opinion, these observations represent the correct position regarding a person's liability to pay penalty. Having made the above observations, the Gujarat High Court proceeded to observe as under (p. 528) : " But that does not mean that penal liability under the first part of subsection (1) was not incurred by that assessee. Impossibility of quantifying penal liability would not obliterate the fact that the assessee had rendered himself liable to a penal action. It is, therefore, a mistake to say that if there is no tax liability and if, consequent to that, quantification of penal liability is not possible, there was never any penal liability incurred by the assessee. " We find it difficult to subscribe unqualifiedly to the above view. It must, however, he pointed out that the Gujarat High Court was dealing with a case of concealment of income for which penalty is imposable under clause (iii) and not with a case concerning default in the filing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said observations of the Madras and Gauhati High Courts in so far as the levy of penalty under clauses (ii) and (iii) is concerned. It seems to us that the liability of an assessee to pay penalty under clauses (ii) and (iii) has no connection with the amount of tax paid by him. As we pointed out earlier, the scheme is entirely different. The effect of the provisions of clauses (ii) and (iii) may be usefully examined. Let us assume that an assessee committed default of the nature referred to in clause (b) of sub-s. (1) of s. 271 and has also concealed income by furnishing inaccurate particulars of such income. The following illustration will bring out the real effect of clauses (ii) and (iii) : Rs. 1. Total income declared in the return : say 20,000 2. Tax payable on the income declared in the return : say 2,500 3. Advance tax paid by the assessee : 10,000 4. Total income finally determined for purposes of assessment : 40,000 5. Tax chargeable on the total income determined for purposes of assessment : 7,000 6. Income concealed by the assessee : 20,000 It will be seen from the particulars given above that, by mistake or otherwise, the assessee paid advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 4,500 and a maximum penalty of Rs. 9,000 for the concealment of income by the assessee falling in terms of clause (iii). This penalty is imposable notwithstanding again the fact that, on regular assessment, no tax is found to be payable by the assessee ; that fact, in our opinion, is irrelevant because the scheme of levy of penalty under clauses (ii) and (iii) is totally different and has nothing to do with the amount of tax, if any, paid by the assessee. The above illustration will apply without any distinction, even if the assessee is a registered firm, which should be treated as an unregistered firm by reason of s. 271(2) of the Act. The above analysis of clauses (i), (ii) and (iii) will also fortify our view that whereas, for purposes of defaults in filing returns falling under clause (a), the Legislature has provided through the Explanation a slightly indulgent method of levy of penalty, there is a departure in the provisions contained in clauses (ii) and (iii). We are, therefore, of the opinion that, in so far as the levy of penalty under s. 27](1)(a) is concerned, it must necessarily be correlated with the Explanation and if there is no " assessed tax ", an assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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