TMI Blog1992 (2) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessees to prepare two separate accounts - One up to11th October, 1979and the second from12th October, 1979to31st March, 1980. Such preparation of account took a long time and that a compilation was ready some time in February 1982.This combined with the delay in audit and getting the Auditor's Certificate was the reason for revising the return on 23rd of November, 1982. It was also explained that the provisional return was prepared on the basis of books of accounts, which were not subjected to audit. The explanation so provided by the assessee was found to be unsatisfactory and since the assessee did not file any explanation in Form No. 6, it was concluded that there was no reasonable cause and, accordingly, penalty came to be imposed for 29 months. 3. Aggrieved, the assessee preferred appeal to the AAC, who deleted the penalty on the ground that as per the assessment, the assessee-trust was not liable for any tax and since the limit of penalty was in relation to the Lax sought to be avoided or evaded, there being no tax at all, penalty could not have been levied. 4. Aggrieved by this finding of the AAC, the assessee has come up in appeal. The argument of the learned Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly for such purposes, or often being voluntary contributions referred to in sub-clause (iia) of clause (24) of section 2, shall, if the total income in respect of which he is assessable as a representative assessee (total income for this purpose being computed under this Act without giving effect to the provisions of sections 11 and 12) exceeds the maximum amount which is not chargeable to income-tax, furnish return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1). The return of the trust, which is to be filed by virtue of section 139 (4) is treated as the return under section 139(1). Further, the proviso to clause (iii) of section 271 clearly provides that the provision as contained in sub-section (a) of this sub-clause (iii) do not apply to cases referred to in sub-clause (1) of clause (a) of section 271(1). This sub-clause reads as under: "Section 271(1)(iii): In the cases referred to in clause (c), in addition to any tax payable by hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l aspect of reasonable cause, the matter having not been decided by the AAC, we are remanding the issue back to his files for considering the same and disposing it in accordance with law. 9. In the result the appeal by the revenue is allowed in part. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Since difference has occurred between us the matter is being placed before the Hon'ble President, Income-tax Appellate Tribunal for proceeding in accordance with law. 2. The point of difference is as under:-- "Whether on the facts and in the circumstances of the case, the penalty under section 271(1)(a) of the Act is exigible?" Per Judicial Member - I had the benefit of going through the detailed order prepared by my learned Brother, Shri A. Kalyanasundharam, however and regret my inability to agree with the conclusion arrived by him. According to the ld. A.M. penalty for default under section 271(1)(a) of the Income-tax Act, 1961 was imposable and observing thus, he referred the matter back to the file of the ld. AAC for deciding the factual aspect whether the assessee had a reasonable cause for not filing the return in time. As according to him this was not gone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to impose the penalty and making mention of section 271 of the Act cancelled the penalty observing that no penalty for late filing of the return could be imposed, in such a case. 4. The issue was brought before us by the revenue and the following ground is seen to have been raised: "On the facts and in the circumstances of the case the ld. AAC has erred in deleting the penalty under section 271(1)(a) of the Act amounting to Rs.35,180 which was imposed by the ITO." 5. It is seen from para 3 of the penalty order that the ld.ITO imposed penalty observing that he saw no solid reasons for not filing Form No. 6 and that the assessee committed the said 'default' without any cogent reason. The para nearly gives the impression that the penalty was imposed for not showing good reasons for not filing Form No. 6 and perhaps not for delay in filing the return. This assumption is clear from the above paragraphs. Penalty under section 271(1)(a) is contemplated for late filing of the return and not for late filing of Form No. 6. The penalty order, therefore, requires to be quashed on this ground itself. The ld. ITO imposed the penalty keeping in view the provision of section 271(1)(a)(i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a trust whose income was exempt under sections 11 and 12 of the Income-tax Act, had to file its return of income by30-6-1980. It filed on26-5-1981a provisional return subject to audit Subsequently this return was revised on23-11-1982disclosing excess of expenditure over income of Rs.5,82,408. The Income-tax Officer treating the second return as the original return filed, called upon the assessee to explain as to why there was a delay in the furnishing of the return by 29 months and why a penalty should not be imposed for the late submission of the return under section 271 of the Income-tax Act. In response thereto, the assessee submitted that it applied for and obtained the approval under section 35CCA of the Income-tax Act, on 18-10-1979 and this permission was to expire by 31-3-1982 and that this required the assessee to prepare two separate returns, one upto 11-10-1979 and the other from 12-10-1979 to 31-3-1980 and this exercise of separation of accounts for the two period had consumed a lot of time and the accounts were ready only in February 1982 and thereafter the accounts were to be got audited. All this has delayed the process of filing the return of income although a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty because the penalty in such an event would be contravening the provisions of that section. He took support for this view from a decision of the Rajasthan High Court in the case of Builders Engineers Co. (sugars) where the Gujarat High Court held that no penalty could be levied where assessed tax was zoo. Since the penalty was not leviable at all, he observed that the question of remitting the matter back to the Appellate Asstt. Commissioner for consideration co merits did not arise. He thus confirmed the order of the Appellate Asstt. Commissioner and preferred to dismiss the departmental appeal. Thus the difference of opinion arose. 5. I have heard the arguments addressed to me, by the learned Departmental Representative Shri Sandeep Tandon and the arguments on behalf of the assessee of Shri J.H. Parekh and perused the records. 6. This matter presented some difficulty to me in coming to a definite conclusion because of the unhappily worded section 271(1)(i), under which the penalty is now imposed read with section 271(3)(d) of the Income-tax Act. Section 271 provides for the imposition of penalty for failure to furnish returns without reasonable cause. Section 271(1)(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the total income in respect of which he is assessable as a representative assessee does not exceed the maximum amount which is not chargeable to income-tax, a sum not exceeding one per cent of the total income computed under this Act without giving effect to the provisions of sections 11 and 12, for each year or part thereof during which the default continued;" Under this sub-clause if an assessee happens to be a referred to in sub-section (4A) of section 139, and in case that assessee delays the filing of a return, he is not to totally escape from the levy of penalty on the ground that the income was exempt from tax but even it is to pay a penalty computed in the manner provided in sub-clause (a) i.e., a sum not exceeding 1 per cent of the total income computed under the Act without giving effect to the provisions of sections 11 and 12 for each year or part thereof during which the default continued When the section provided for penalty of a sum not exceeding 1 per cent of the total income computed under the Act, it only means that the 1 per cent of the total income computed is only a ceiling of the quantum of penalty and the penalty can be even less than 1 per cent also. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to file the return of income notwithstanding the fact that the income was exempt from tax under sections 11 and 12 of the Act. But in section 271(1)(i)(a) the expression used is "whore the total income in respect of which he is assessable as a representative assessee does not exceed the maximum amount which is-not chargeable to income-tax". What exactly is sought to be conveyed by this expression particularly by the insertion of the word "not" before the word "exceed" is not very clear. If the expression "does not exceed the maximum amount which is not chargeable to income-tax" is taken to mean as the total income below the maximum amount not chargeable to income-tax, i.e., below taxable limit only then a penalty at the rate not exceeding 1 per cent of the total income computed under the Act without giving effect to the provisions of sections 11 and 12 can be levied. But if the total income exceeds the maximum amount not chargeable to income-tax, then clause (b) will take over and under that clause the penalty leviable is in addition to the amount of the tax, if any, sum equal to 2 per cent of the assessed tax for every month during which the default continued. Thus if a penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 142 (SC) and CIT v.Prayaglal Agarwala Co. [1986] 162 ITR 570 (Pat) (FB).Therefore the expression "does not exceed the maximum amount which is not chargeable to income-tax" most mean nil amount of income also. If the income of a trust is nil, by reason of exemption granted under s. 11 and 12, nonetheless for failure to comply with the provisions of section 139(4A). penalty is leviable under section 271(1)(i) of the Act computed at a sum not exceeding 1 per cent of the total income which is to be computed under the Act withdrawing the benefit of exemptions provided in sections 11 and 12. If this is so, a penalty is definitely imposable even in the case of a trust in case there is failure to file the return of income within the meaning of section 139(4A) without reasonable cause. Once it is held that penalty is leviable, then it is to be seen as to what will be the effect of the non obstante clause enacted in sub-section (3) of section 271. This sub-section reads as follows: "271(3). Notwithstanding anything contained in this section,-- (a) no penalty for failure to furnish the return of his total income under sub-section (1) of section 139 shall be imposed under sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be evaded in the case of concealment of income is to be ascertained. The amount of penalty to be so imposed on both the counts, if it exceeds twice the amount of the tax sought to be postponed and the tax sought to be evaded, the imposition of such excess penalty shall become unauthorised. In the case of an assessee, where the tax payable on assessment is nil, then there is no tax either sought to be postponed and much lea sought to be evaded. In such a case the penalty imposable with reference to the ceiling imposed by sub-clause (d) must also be nil. Therefore in a case where a default is committed in the filing of the return by a trust, whose total income earns complete exemption from the levy of tax even though a penalty not exceeding 1 per cent of the total income computed under the Act without giving effect to the provisions of sections 11 and 12 can be imposed but if clause (d) is applied, that penalty cannot exceed twice the amount of tax sought to be postponed or evaded. Thus the penalty imposable under clause (i) of sub-section (1) is subject to the limitation of ceiling provided in clause (d) introduced by the non obstante clause (3) of section 271. 9. It is now a wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequently if there is no tax sought to be postponed or evaded, the question of levy of penalty cannot arise. It is also pertinent to note that clause (d) will come into operation only after penalty was imposed either under clause (i) or clause (iii) of sub-section (1) and not before. If after the imposition of penalty, it turns out to be in conflict with the ceiling provided in clause (d), than that penalty cannot be said to be a legally imposed penalty. 10. Now the question is whether a penalty could be imposed under clause (a) for a situation like the one before me where there is only a delay in the filing of the return but not non-filing of the return. A careful reading of clause (ii) would show that the ceiling of the amount of penalty provided for in clause (d) applies to the penalty imposed under clause (i) of sub-section (1) and the penalty imposed under clause (iii) of that sub-section read with Explanation 3 thereto. Under Explanation 3 if a person, who has not previously been assessed fails without reasonable cause to furnish within the period specified in section 139, the return of income having taxable income, then such a person shall be deemed to have concealed th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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