Ramlal Chironjilal vs Commissioner of Income Tax

B.A. Khan, J. 1. This reference has been made by the Income Tax Tribunal at the instance of the assessee u/s 256(1) of the Income Tax Act, 1961, soliciting our opinion on the following stated question :

"Whether, on the facts and in the circumstances of the case, the Tribunal erred in upholding the penalty for delay in furnishing the return ?"

The deceptive formulation of the question notwithstanding, what we are in fact called upon to answer is whether service of notice on the assessee u/s 139(2) wipes off the default committed by him in filing the return u/s 139(1) of the Act. There are divergent views expressed by two Division Benches of this court in Addl. Commissioner of Income Tax Vs. Rampratap Shankarlal, and Chunnilal and Bros. Vs. Commissioner of Income Tax, on the issue and hence it becomes necessary to have a fresh look at the matter, if only to take sides with one or the other judgment.

The facts giving rise to the present controversy are that the assessee failed to file the return of his income u/s 139(1) till the deadline, i.e, June 30, 1974. The Income Tax Officer naturally put it on notice u/s 139(2) which was served on it on September 11, 1974. The assessee then filed a return in response thereto on March 10, 1975, showing income of Rs. 1,22,000. It, thereafter, filed a revised return on December 6, 1976, declaring an income of Rs. 1,60,240. Detecting delay of eight months in filing the return the Income Tax Officer issued a show-cause notice for levy of penalty u/s 271(1)(a). The assessee replied to it on June 2, 1978, taking the stand that it had applied for extension of time. The Income Tax Officer, however, overruled the contention and imposed a penalty of Rs. 17,490.

On appeal the Commissioner of Income Tax (Appeals) though rejecting the plea of the assessee for waiver of penalty placing reliance on a judgment of this court in Addl. Commissioner of Income Tax Vs. Rampratap Shankarlal, directed the period to be treated from October 12, 1974, as four months instead of eight months. The Revenue took appeal against this and the Tribunal drawing support from yet another judgment of this court in Chunnilal and Bros. Vs. Commissioner of Income Tax, remanded the matter to the Commissioner of Income Tax (Appeals) for reconsideration in the light of the aforesaid subsequent judgment. The assessee felt aggrieved and sought a reference on the stated question supra and that is how we are seized of the matter. All that remained to be seen was whether the Tribunal was justified in affirming the penalty levied by the Income Tax Officer for eight months by placing reliance on the later judgment of this court in Chunnilal and Bros. Vs. Commissioner of Income Tax, . It all comes to which of the two judgments should be followed. A difficult choice to make indeed. Though it is not for us to pick out holes in either judgment, it does not debar us from opting for the one which represents a widely accepted view.

At this stage, it would be advantageous to survey and examine the relevant provisions having bearing on the matter. Section 139(1) casts an obligation on the assessee to file a return of his income before the specified date depending upon the adopted accounting system. If he fails, the Income Tax Officer is empowered u/s 139(2) to serve a notice requiring the assessee to file the return within 30 days from the date of notice. Section 271(1) provides for levy of penalty in case of a default by the assessee in filing the voluntary return u/s 139(1) and also for non-compliance with notice u/s 139(2).

It is in this backdrop that the judgment in Addl. Commissioner of Income Tax Vs. Rampratap Shankarlal, rules that default in filing the voluntary return comes to an end with the service of notice u/s 139(2). The reason given makes interesting reading and warrants quoting hereunder (page 675):

". . . .. after the expiry of the statutory period u/s 139(1) an assessee is in default so far as he has failed in his obligation to file a return as required u/s 139(1). During the period when he is running in default a notice u/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 that from the date after the statutory period in the notice expires, the assessee is guilty of two defaults simultaneously ? If he could not be held guilty for two defaults for the same period simultaneously, as he is not expected to file two returns, one u/s 139(1) and another u/s 139(2), then after the expiry of the period of notice he could only be held responsible for one default ; and that default could only be for non-compliance with the provisions contained in Section 139(2). The necessary corollary, therefore, that follows is that the period of default u/s 139(1) comes to an end as soon as notice u/s 139(2) is served on the assessee."

As against this, the judgment in Chunnilal and Bros. Vs. Commissioner of Income Tax, proceeds on a different reasoning and finds support in the judgments of various High Courts including those of Rajasthan, Bombay, Madras, Orissa and Allahabad. It rules that a default made u/s 139(1) ceases only on filing of the return in answer to a notice u/s 139(2) or u/s 139(4) and that this default is neither arrested nor wiped out on notice being issued u/s 139(2) and that it attracts levy of penalty u/s 271(1)(a) in both cases. The reason advanced is that once the default commences u/s 139(1) it continues till the return is filed by the assessee or the assessment is made by the Income Tax Officer. It does not go with the issuance of notice u/s 139(2). If that was so, it would put a premium on the default made by the assessee who would sit comfortably without inviting any penalty till a notice was issued u/s 139(2). By that logic, a wilful default u/s 139(1) would go unpunished even though Section 271(1)(a) provided penalty for it.

This view is supported by the Rajasthan High Court in The Commissioner of Income Tax, Rajasthan, Jaipur Vs. Indra and Co., Jodhpur, by the Delhi High Court in The Commissioner of Income Tax, Delhi Vs. Hindustan Industrial Corporation, New Delhi, by the Andhra Pradesh High Court in Mullapudi Venkatarayudu Vs. Union of India (UOI), by the Allahabad High Court in Additional Commissioner of Income Tax Vs. Seth Devi Chand and Sons, and so on. We also fall in line and express our respectful disagreement with the view taken by another Division Bench of this court in Addl. Commissioner of Income Tax Vs. Rampratap Shankarlal, . It is accordingly held that the Tribunal was justified in affirming the penalty levied by the Income Tax Officer and that notice u/s 139(2) does not bury or cover the default made by the assessee u/s 139(1) of the Act.

The reference is so answered accordingly.