R. Chandrasekaran vs Commissioner of Income Tax

These two references can he taken together for consideration as the point raised is identical. The two assessees are the two partners of a firm known as "M/s. Gopalakrishnan and Bros." The partners were not served with a notice u/s 22(2) of the Indian Income Tax Act of 1922. They did not, however, comply with the requirements of a public notice issued u/s 22(1) of the Indian Income Tax Act of 1922 which was in force in the relevant years. The Income Tax Officer issued a notice u/s 148 of the Income Tax Act of 1961 which had come into force on 1st of April, 1962. The two assessees filed returns for both the assessments years, i.e., 1960-61 and 1961-62, on 2tst February, 1966, in pursuance of such notice u/s 148 of the Income Tax Act, 1961. The Income Tax Officer completed the reassessment arid levied penalties in accordance with the provisions of the Act of 1961. Taking the case of Gopalakrishnan as typical of the two cases, the amounts of penalty levied were Rs. 2,370 and Rs. 2,823, respectively.

The two assessees appealed to the Appellate Assistant Commissioner, who cancelled the penalty on the ground that penalty could not he imposed under the provisions of the Act of 1961 when default had taken place under the Act of 1922. If it should be held that penalty should be levied on the assessees for defaults u/s 22(1) of the Act, the Appellate Assistant Commissioner held that the reasonable penalty would be Rs. 500 and Rs. 750, respectively. The department appealed to the Tribunal and there were cross-objections by the assessees. The Tribunal held that the assessments in these cases having been completed u/s 297(2)(d)(ii), it would be legal and correct to impose a penalty under the provisions of the new Act. The Tribunal confirmed the levy of penalty taking the date of default in the manner done by the Income Tax Officer, i.e., from the date when the returns were due under the public notice issued tinder Section 22(i) of the Indian Income Tax Act, 1922. At the instance of the assessees the following questions have been referred :

"(i) Whether, in the circumstances of the case, the levy of penalty for 1960-61 and 1961-62 u/s 271(1)(a) of the Income Tax Act of 1961 is valid?

(ii) If the answer to the first question is in the affirmative, whether for fixing the amount of penalty the period of default prior to April 1, 1962, could be taken into account."

The questions in both the cases are identical.

As this is a case in which the proceedings have been taken u/s 147 of the Act of 1961, Section 297(2)(d)(ii) applies with the result that all the provisions of the Act of 1961 apply to such reassessment. The expression "all the provisions" include the provisions of Section 271 of the Act of 1961. That penalty could be levied under the Act of 1961 in respect of defaults in relation to assessment years preceding 1962-63 has been laid down by the Supreme Court in Jain Bros. and Others Vs. The Union of India (UOI) and Others, . Thus, there is no scope for acceptance of the submission that penalty could not be levied under the Act of 1961. The learned counsel for the assessees submitted that in a case where notice for reassessment was issued, penalty could only be levied with reference to the delay or default, if any, in pursuance of such a notice. In effect, the submission was that once the notice for reassessment was issued, the default or delay, if any, which occurred earlier to the initiation of the said reassessment proceedings would be wiped out. It is not possible to accept this submission. In C. Vs. GOVINDARAJULU IYER v. COMMISSIONER OF Income Tax, MADRAS., , it was held by this court that penalty for the default in not responding to the public notice u/s 22(1) could be imposed even in the course of the reassessment proceedings u/s 34 of the Act of 1922. The theory that the default committed earlier got itself wiped out by the issue of reassessment notice has absolutely no merit and is inconsistent with the decision of the above case.

The learned counsel for the assessees relied also on Additional Commissioner of Income Tax Vs. Bihar Textiles, in his support. That was a case arising under the Act of 1961. It may be remembered that under the Act of 1961 the obligation to issue a public notice as contemplated by Section 22(1) of the Act of 1922 was dispensed with. Section 139(1) provides for the submission of a return by the assessee within certain statutory time-limits (without issue of any notice whatsoever). Section 139(2) enables the Income Tax Officer to issue a notice if he thought fit. In the case before the Patna High Court cited by the learned counsel for the assessees, the return was due on 30th June, 1967, u/s 139(1) of the Act. The Income Tax Officer issued a notice on 1st January, 1968, u/s 139(2) of the Act, as the assessee had not submitted the return earlier. The assessee did not file the return even within the period contemplated by the notice u/s 139(2). The Income Tax Officer imposed a penalty, taking the default to be from 30th June, 1966. Ho rejected the contention of the assessee that the default would arise only from the date on which the return u/s 139(2) was due. The matter ultimately reached the Patna High Court and the High Court held that once a notice u/s 139(2) was issued, there could not be any penalty u/s 271(1) for failure to furnish the return as required by Sub-section (1) of Section 139. For our purpose, it is unnecessary to go into the correctness of this decision. It is enough to mention that the present case is not one where while the return was due u/s 139(1) the Income Tax Officer issued a notice u/s 139(2). The facts relating to the case before us are wholly different. We do not think it necessary to go into this decision further as it has no application to the case before us. We consider in the light of the decision in the case of C.V. Govindarajulu Iyer v. Commissioner of Income Tax, that the levy of penalty u/s 271(1)(a) is valid even, with reference to a default of not responding to the public notice u/s 22(1) of the Act of 1922. If the assessee was unable, for any reason to comply with the public notice u/s 22(1), he should have approached the authorities for extension. On his failure to do so, he committed the default. When once there was a default, there is scope for punishing him in the manner contemplated u/s 271(1)(a) read with Section 297(2)(d)(ii). In this view, we would answer the first question in the affirmative and against the assessees. The second question is also answered in the affirmative and against the assessees, as in the section there is no warrant for taking the default only from 1st April, 1962.

The learned counsel for the assessees then submitted that if the provisions of the Act of 1961 were to apply then the assessees should be given the benefit of waiving the penalty available under the Act of 1961. It was pointed out that the authorities could not be approached for this purpose in the view that the assessees took, viz., that no penalty could be levied under the Act of 1961 in respect of earlier years preceding 1962-63. We can only say that the assessees seem to have been bona fide agitating the question of non-applicability of the Act of 1961 with reference to earlier years. There were decisions to support, them at the time when this contention was taken up. But now in view of the Supreme Court''s pronouncement, the contention can no longer find acceptance of any court. The assessees could not, therefore, in the view they took, approach the Commissioner of Income Tax for this purpose earlier. We are sure that the Commissioner would, if approached by the assessees, consider the matter with sympathy in the particular circumstances mentioned above. As the assessees have failed, the Commissioner will have his costs. Counsel''s fee Rs. 250 in both.