1988-VIL-417-PAT-DT

Equivalent Citation: [1989] 176 ITR 47, 44 TAXMANN 324

PATNA HIGH COURT

Date: 11.10.1988

COMMISSIONER OF INCOME-TAX

Vs

SP. VIZ CONTRUCTION CO.

BENCH

Judge(s)  : D. K. SEN., S. ALI AHMAD 

JUDGMENT

D. K. SEN C. J.-The material facts and the proceedings leading up to this reference are, inter alia, that S. P. Viz Construction Co., Ranchi, partnership firm registered under the Income-tax Act, 1961, which was an assessee within the meaning of the said Act, was assessed to income-tax in the assessment year 1969-70, the relevant accounting year ending on December 31, 1968.

Under section 139(1) of the said Act of 1961, the assessee was required to file its return of income for the said assessment year on or before June 30, 1969, but, in fact, the return was filed by the assessee for the first time on October 30, 1970.

The case of the assessee is that it filed an application for extension of time for filing its returns in the prescribed form on September 30, 1969. Such application, it appears, was filed after the expiry of the time prescribed under section 139(1) of the Act and in the said application, extension of time was sought only up to March 31, 1970.

Notice under section 274 read with section 271(1)(a) of the said Act of 1961 dated March 21, 1973, was served by the Income-tax Officer on the assessee. The assessee filed an explanation in response to the said notice and was heard on December 30, 1974.

It was contended on behalf of the assessee, inter alia, that:

(a) the proceedings for penalty not having been initiated in the course of the assessment proceedings were bad in law :

(b) the Income-tax Officer did not satisfy himself, that the assessee had committed a default before initiating penalty proceedings :

(c) the assessee had reasonable and sufficient cause for late filing of its return as its accounts could not be finalised:

(d) as interest was charged under section 139, no penalty could be levied under section 271(1)(a) of the Act as charging of such interest led to the presumption that the assessee's application for extension of the date for filing of its return had been allowed ; and,

(e) as the assessment itself had become barred by limitation, no penalty could be levied.

The Income-tax Officer rejected all the contentions of the assessee and imposed a penalty of Rs. 48,610.

Being aggrieved, the assessee filed an appeal before the Appellate Assistant Commissioner where the assessee reiterated its contentions raised earlier before the Income-tax Officer. The Appellate Assistant Commissioner rejected all the contentions of the assessee. In particular, the Appellate Assistant Commissioner held that the contention of the assessee that the assessment itself had become barred by limitation was unsustainable in as much as such contention was rejected in the appeal preferred by the assessee against the assessment and the said appeal was dismissed.

From the order of the Appellate Assistant Commissioner, the assessee filed a further appeal before the Income-tax Appellate Tribunal. All the contentions of the assessee raised in the earlier proceedings were, reiterated before the Tribunal. The Tribunal rejected all the contentions of the assessee except one.

The Tribunal noted that in an appeal by the assessee against the order of assessment for the said assessment year, the Income-tax Appellate Tribunal, Patna, had set aside the assessment on the ground that the same was time-barred. The Tribunal held that, by reason of the cancellation of the said assessment, no tax would be payable by the assessee and as such penalty under section 271(1)(a) of the said Act, which was required to be calculated with reference to the tax payable by the assessee, could not be levied on the assessee. On this sole ground, the Tribunal allowed the appeal of the assessee and cancelled the order of penalty.

On an application of the Revenue under section 256(1) of the Incometax Act, 1961, the Tribunal has referred the following question as a question of law arising out of its order for the opinion of this court:

"Whether, on the facts and in the circumstances of the case, the Tribunal has rightly cancelled the penalty order passed by the Income-tax Officer under section 271(1)(a) of the Income-tax Act, 1961 ?"

Taxation Case No. 104 of 1978 (CIT v. S. P. Viz Construction Co. (No. 2) [1989] 176 ITR 44), which was a reference at the instance of the Revenue from the order of the Income-tax Appellate Tribunal, Patna, setting aside the order of assessment of the assessee for the said assessment year 1969-70, has been disposed of by our judgment which is being delivered today. By the said judgment, the order of the Tribunal cancelling the assessment for the said assessment year has been upheld. In view of the aforesaid, no tax is payable by the assessee in respect of the said assessment year. The material provisions of section 271 of the Income-tax Act, 1961, are noted hereunder Section 271 :

"(1) 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), . . .

(b) ... in addition to the amount of the tax, if any, payable by him a sum equal to two per cent. of the assessed tax for every month during which the default continued..."

It is clear from the provisions of the said section 271(1)(a) noted above that penalty imposable under the said section cannot be calculated without reference to the tax assessed. As such, no valid order of penalty can be passed against the assessee in the instant case. The learned advocate for the Revenue did not dispute that if the order of assessment in the assessment year involved was not sustainable, then the order of penalty imposed on the assessee under section 271(1)(a) of the said Act of 1961 could not stand by itself.

I hold that the order of the Tribunal in allowing the appeal of the assessee on the ground as aforesaid is valid and proper.

For the reasons as aforesaid, the question referred is answered in the affirmative and in favour of the assessee. In the facts and circumstances, there will be no order as to costs.

Let a copy of this judgment and order be sent to the Assistant Registrar, Income-tax Appellate Tribunal, Patna, in compliance with section 260 of the Income-tax Act, 1961.

S. ALI AHMAD J.-I agree.

 

 

 

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