1998 (10) TMI 71 - HC - Income Tax

Summary

Issues involved:
Interpretation of penalty for delay in furnishing the return under Income-tax Act, 1961 based on service of notice under section 139(2).

Detailed Analysis:

1. Issue of Penalty for Delay in Furnishing the Return:
The judgment sought to address the question of whether the service of notice on the assessee under section 139(2) of the Income-tax Act, 1961, wipes off the default committed by the assessee in filing the return under section 139(1). The court examined the conflicting views expressed by two Division Benches of the High Court in previous cases and the implications of these views on the penalty for delay in filing the return. The assessee in this case failed to file the return under section 139(1) by the deadline and was served a notice under section 139(2) subsequently. The court analyzed the provisions of sections 139(1), 139(2), and 271(1) of the Income-tax Act, which deal with the obligation to file a return, serving of notice, and levy of penalty for default, respectively.

2. Interpretation of Previous Judgments:
The judgment discussed and compared two previous judgments of the High Court - one in Rampratap's case and the other in Chunnilal and Brothers' case. The Rampratap's case held that the default in filing the voluntary return ends with the service of notice under section 139(2), while the Chunnilal and Brothers' case ruled that the default continues until the return is filed in response to the notice under section 139(2) or 139(4). The court examined the reasoning behind both judgments and cited support from various High Courts like Rajasthan, Bombay, Madras, Orissa, and Allahabad for the view that the default under section 139(1) is not extinguished by the notice under section 139(2) and attracts penalty under section 271(1)(a).

3. Court's Decision and Reasoning:
The court ultimately sided with the interpretation in line with Chunnilal and Brothers' case and other High Court judgments, holding that the notice under section 139(2) does not absolve the assessee of the default made under section 139(1). The court reasoned that allowing the default to be wiped out by the notice would incentivize willful defaults by the assessee. The judgment emphasized that the default under section 139(1) continues until the return is filed, and the penalty under section 271(1)(a) can be imposed for such default. The court disagreed with the view taken in the Rampratap's case and affirmed the penalty levied by the Income-tax Officer in this case.

In conclusion, the court answered the reference question by upholding the penalty for delay in furnishing the return and clarified that the notice under section 139(2) does not negate the default under section 139(1) of the Income-tax Act, 1961.