G.S. Atwal and Co. vs Commissioner of Income Tax, Central

Sankar Prasad Mitra, C.J.—In this reference u/s 256(1) of the I. T. Act, 1961, the questions referred to this court are as follows:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that penalty u/s 271(1)(a) of the I. T. Act, 1961, could be imposed ?

(2) Whether the Tribunal was justified in holding that the period of the default for which the penalty u/s 271(1)(a) is to be imposed should start from the date on which the return of income became due u/s 139(1) of the Act?"

The assessee is a registered firm. The reference relates to the assessment year 1964-65.

For this assessment year, the return of income was due to be filed under Sub-section (1) of Section 139 of the 1961 Act by the 30th June, 1964. A notice u/s 139(2) was served on the 13th July, 1964, according to which the return was due to be filed in August, 1964.

The return of income was filed only on the 27th October, 1965. Hence the ITO in course of the assessment proceedings, initiated action for penalty u/s 271(1)(a). The ITO did not accept the assessee''s contention that since the return of income had ultimately been filed before the completion of assessment no penalty could be imposed u/s 271(1)(a). The ITO also stated that even after the service of notice u/s 139(2) the assessee continued to make default and the return was filed as late as on 27th October, 1965. He imposed a penalty of Rs. 2,40,462 u/s 271(1)(a). The assessee had lost both before the AAC and the Tribunal and, ultimately, the two questions set out above were referred to this court.

Question No. 1 in this reference is fully covered by the judgment of this court in Income Tax Reference No. 133 of 1971 (Major (Dr.) S. K. Ghosh v. CIT) delivered on the 18th December, 1974, by the Hon''ble Mr. Justice Sabyasachi Mukharji sitting with the Hon''ble Mr. Justice R. N. Pyne. The argument advanced before this Bench appears to be more or less the same as those advanced before us. Mr. Justice Sabyasachi Mukharji has followed the decision of another Division Bench in Appeal from Original Order No. 59 of 1972 (Namin Das Paramanand Das v. ITO) delivered by the Hon''ble Mr. Justice Salil K. Roy Chowdhury on the 17th July, 1974 (since reported in Narain Das Paramanand Das Vs. Income Tax Officer, ''E'' Ward and Others, to which I had concurred.

The views expressed in these two judgments have also been expressed by other High Courts, e.g., in K. P. REDDY Vs. COMMISSIONER OF Income Tax, ANDHRA PRADESH., , K.C. Vedadri Vs. Commissioner of Income Tax, , Additional Commissioner of Income Tax, Gujarat Vs. Santosh Industries, , Poorna Biscuit Factory Vs. Commissioner of Income Tax, and Commissioner of Income Tax Vs. Gangaram Chapolia, .

The law appears to be well settled and question No. 1 is accordingly answered in the affirmative and in favour of the revenue.

We now come to question No. 2. Learned counsel for the applicant has referred us to a decision of the Patna High Court in Additional Commissioner of Income Tax Vs. Bihar Textiles, . In this case, the Patna High Court has held that once a notice under Sub-section (2) of Section 139 of the I.T. Act, 1961, has been issued to an assessee during the relevant assessment year, there cannot be any penalty u/s 271(1) for failure to furnish the return as required by Sub-section (1) of Section 139.

We are unable to agree with the view of the Patna High Court. Our view is that once a default is committed u/s 139(1), the fact that a notice u/s 139(2) has been served would not make any difference to the date of imposition of penalty, namely, the date of default u/s 139(1). This view was taken by the Rajasthan High Court in the case of The Commissioner of Income Tax, Rajasthan, Jaipur Vs. Indra and Co., Jodhpur, . The Rajasthan High Court has said that an assessee is liable to pay penalty for not submitting his return as required u/s 139(1) of the I. T. Act, 1961, even though he subsequently files a return in pursuance of a notice u/s 139(2) and an assessment is made on the basis of that return. Disagreeing with the Tribunal in that case the Rajasthan High Court has stated at page 706 :

"If the view taken by the Tribunal is adopted, the result will be that if a person has not filed any return u/s 139(1), he cannot be penalised if he has filed a return after a notice has been given under subsection (2) of Section 139. It may be pointed out that before taking any assessment proceedings, it is incumbent on the Income Tax Officer to issue notice under Sub-section (2) of Section 139. Such a view would mean that any person liable to pay Income Tax may sit comfortably without any fear of the imposition of penalty and not furnish his return as required u/s 139(1) and wait till a notice is given to him u/s 139(2) and then file a return within the time mentioned in that notice. This view does not appeal to us."

We are inclined to agree with the Rajasthan High Court. It is to be noted that an ITO, before he makes a best judgment assessment u/s 144, is bound to give a notice u/s 139(2). An assessee cannot, therefore, be allowed to wait till a notice is given u/s 139(2) and escape the consequences of penalty imposable u/s 271(l)(a).

The same view has been taken by the Delhi High Court in The Commissioner of Income Tax, Delhi Vs. Hindustan Industrial Corporation, New Delhi, . The Delhi High Court says that the plain language of Section 139(2) cannot be construed by saying either that the assessee is absolved of his statutory obligation to file a return of his income voluntarily u/s 139(1) and the default committed in not filing a return voluntarily u/s 139(1) cannot be taken note of for initiating proceedings for imposition of penalty if a notice u/s 139(2) is issued or that the period of default shall cease from the date when the notice u/s 139(2) is served on the assessee.

A reference in this connection may also be made to the decision of the Andhra Pradesh High Court in Mullapudi Venkatarayudu Vs. Union of India (UOI), . The Andhra Pradesh High Court is of opinion that because the ITO issues a notice u/s 139(2) after the termination of the period prescribed by Section 139(1), the ITO cannot be deemed to have condoned the non-compliance to furnish a return u/s 139(1).

In the premises aforesaid our answer to question No. 2 in this reference is also in the affirmative and in favour of the revenue.

We make no order as to costs.

Deb, J.

I agree.