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TMI Blog1981 (12) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... second year under s. 139(2) of the Act. It may be pointed out that for the first of the two years under consideration, notice was also issued under s. 148 of the Act. Return for the first year was filed on May 6, 1970, and for the second year on October 3, 1970. While making assessments for the two years, the ITO initiated proceedings under S. 271(1)(a) of the Act and, after hearing the assessee, imposed penalty. Assessee challenged the imposition by preferring appeals. The AAC refused to interfere and affirmed the imposition. Assessee went in appeal before the Appellate Tribunal against the imposition of penalty in these two years as also an earlier year. The Tribunal relied upon the decision of the Patna High Court in the case of Addl, CIT v. Bihar Textiles [1975] 100 ITR 253 and came to hold: ".................... the undisputed fact in this case is that notices under section 148 and under section 139(2) for the assessment years 1968-69 and 1969-70 were served on the assessee on 19-2-70 and 9-2-70, respectively. But no such notice was served for the assessment year 1967-68. In view of that fact, we are of the opinion that the quantum of the penalties computed for the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome of any other person in respect of which he is assessable, if such income during the previous year, bona fide calculated by him, exceeded the maximum amount which is not chargeable to income-tax. Section 271(1)(a) of the Act at the relevant time had the following provision " If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person (a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be, or ...... he may direct that such person shall pay by way of penalty, (i) in the cases referred to in clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the tax : ...... of Sub-section (1) of s. Z71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be no occasion for a provision for imposition of penalty in the absence of omission to make return in discharge of the obligation under s. 139(1) of the Act. The scheme envisaged under the statute, therefore, is not amenable to an interpretation that if a notice is issued under s. 139(2) of the Act, the liability arising out of omission to make a voluntary return in discharge of the obligation under s. 139(1) of the Act is wiped out. As we have already indicated, the obligation to make a voluntary return was for the first time introduced in the Act of 1961. Under the previous Act of 1922, the scheme was of a general notice under s. 22(1) and individual notice under sub-s. (2). For the first time, the 1961 Act imposed a liability upon every taxpayer to suo motu submit a return of his income for each assessment year as it came along. In keeping with the scheme which threw the responsibility on the taxpayer to make a return of his income suo motu, the Act made a provision for the levy of interest on an assessee who did not file the return within the specified time. It also made provision to subject him to penalty. The exposure obtained by an assessee on account of his omission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preclude any penalty being imposed for any default committed in respect of the failure to furnish the return within the period prescribed by sub-section (1) of section 139. The last part of clause (a) aforesaid clearly says that the penalty may be imposed if the assessee has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice (under section 139(2)), as the case may be. (The brackets are mine). Once, therefore, a notice is issued under section 139(2), the penalty under clause (a) of sub-section (1) of section 271, if any, can be imposed for any default on the part of the assessee to comply with the directions in the notice. That obviously will preclude a penalty being imposed for failure to furnish the return under sub-section (1) of section 139. As a necessary corollary, it would follow that once a notice under sub-section (2) of section 139 is duly issued and time is granted therein by the Income-tax Officer, the law does not contemplate any penalty to be imposed in respect of any default for failure to comply with the provisions of sub-section (1) of section 139. To take a concrete c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is absolved of his statutory obligation to file a return of his income voluntarily under s. 139(1) and the default committed in not filing a return voluntarily under s. 139(1) cannot be taken note of for initiating proceedings for the imposition of a penalty if a notice under s. 139(2) is issued, or that the period of default shall cease from the date when the notice under s. 139(2) is served on the assessee. Similar is the view of the Andhra Pradesh High Court in the case of Mullapudi Venkatarayudu v. Union of India [1975] 99 ITR 448. We may refer to a later case of the Madhya Pradesh High Court in the case of Addl. CIT v. Rampratap Shankarlal [1979] 117 ITR 662, where the position has been indicated thus (p. 675): As discussed above, the real question before us is that after the expiry of the statutory period under s. 139(1) an assessee is in default so far as he has failed in his obligation to file a return as required under section 139(1). During the period when he is running in default a notice under s. 139(2) is served on him and after the expiry of the statutory period of notice the assessee has not filed a return, as in the present case. Then could it be said th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislation. We are, therefore, of the view that, in the facts of the case, the Tribunal went wrong in holding that the assessee's liability to be penalised had to be confined to the period of default in complying with the notice under s. 139(2) of the Act and the earlier default was wiped out when the notice under s. 139(2) is issued. Our answer to the question referred, therefore, is: On the facts and in the circumstances of the case, the Tribunal went wrong in directing the ITO to recompute the penalty by confining the default to the period after the issue of the notice under s. 148 of the Act for the assessment year 1968-69 and the notice under s. 139(2) of the Act for the assessment year 1969-70. The issue of a notice under s. 139(2) of the Act did not wipe out the accrued default of non-compliance with the statutory obligation under s. 139(1) of the Act. Mr. Ray for the assessee contended that the Tribunal did not go into the quantum of penalty as the sustainability of it was examined and the assessee's contention was accepted. It becomes difficult for us to accept this contention at this stage particularly when learned standing counsel contends that since that question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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