TMI Blog1977 (3) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer thereupon determined the total income as Rs. 24,990 as against Rs. 16,950 returned by the assessee. In so doing, he made an addition of Rs. 6,400, being the estimate on the turnover suppressed. The Income-tax Officer also initiated action for levy of penalty under section 271(1)(c) of the Income-tax Act, 1961, for alleged concealment of income, and since the minimum penalty imposable exceeded Rs. 1,000, he referred the case to the Inspecting Assistant Commissioner who issued notice to the assessee calling upon it to show cause against levy of penalty. The assessee represented, inter alia, that there was no concealment of income and that no penalty was leviable since the addition made was only on the basis of estimate. The Inspecting Assistant Commissioner held that the suppression of sales was proved beyond doubt, that the estimated addition made by the Income-tax Officer as profit relating to the suppressed turnover was also agreed to by the assessee and that, therefore, penalty was clearly attracted. He further held that the Explanation to section 271 (1)(c) of the Income-tax Act of 1961 applied, and the assessee had not discharged the onus cast upon it therei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, etc.-(1) If the Income-tax Officer, or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person- (a) has without reasonable cause failed to furnish the return of his total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be, or (b) has without reasonable cause failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143, or (c) has concealed the particulars of his income or deliberately furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,- (i) in the cases referred to in clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the tax ; (ii) in the cases referred to in clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the production of evidence that the return is correct and complete, he shall serve on the assessee a notice requiring him, on the date to be specified therein, either to attend at the Income-tax Officer's office or to produce, or to cause to be there produced, any evidence on which the assessee may rely in support of the return. Thus, it will be seen that the notice under section 142(1) can call upon the assessee only to produce accounts or documents or to furnish in writing certain information, while the notice under section 143(2), in addition to such a requirement, can call upon him to appear before the Income-tax Officer also in person. Failure to comply with any of these requirements constitutes a default under section 271(1)(b). Clause (ii) of section 271(1) is the corresponding provision for the levy of penalty. This clause also states that in the cases to which clause (b) applied, the authority concerned may direct the assessee that he shall pay by way of penalty, in addition to any tax payable by him a sum which shall not be less than ten per cent., but which shall not exceed fifty per cent. of the amount of the tax, if any, which would have been avoided if the income re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als or furnishes inaccurate particulars of his income with a view to evade payment of tax due by him. if no tax is due, obviously there could be no evasion of any tax. For example, if an assessee's income as per books is, say, Rs.2,500 and he is found to have omitted from the books an income of Rs.1,000, still his total income being below the taxable minimum, there would be no liability to tax on his part. If we accept the contention of the learned departmental representative, simply because he has concealed and income of Rs. 1,000, penalty of a minimum of Rs. 1,000 and a maximum of Rs. 2,000 would be exigible, which proposition leads to absurdity." Thus, the Tribunal rests its conclusion on two different grounds. One ground is that in section 271 (1), clause (i), the words "if any" occurs after the words "the amount of the tax" and before the words "payable by him", while such an expression is absent in clauses (ii) and (iii) of sub-section (1) of section 271 where the expression which occurs is "in addition to any tax payable by him". Therefore, in the view of the Tribunal, under clause (i) of sub-section (1) of section 271, which is referable to section 271(1)(a), penalty wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, it is clear that the legislature intended the penalty as a deterrent to prevent evasion of tax and when there was no tax payable, there cannot be any evasion of tax and, therefore, there was no question of levying any penalty as a deterrent for the evasion of tax. In this connection, our attention was drawn by the learned counsel for the revenue to a decision of the Gujarat High Court in Commissioner of Income-tax v. R. Ochhavlal Co. [1976] 105 ITR 518. That judgment dealt with the construction of section 271(1). The learned judges observed is follows : "The assessee's contention is that liability to pay penalty would arise only if, as a result of the final assessment, an assessee is found liable to the payment of some tax. This contention has found favour with the Tribunal. But it is difficult to comprehend what connection the penal liability has with the liability to pay tax. Penal liability contemplated by sub-section (2) of section 271 falls within any of the clauses (a), (b) or (c) of section 271(1). These three clauses contemplate three distinct types of defaults. The moment it is found that any one of these three defaults is committed by an assessee which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al to construe the section as creating a penal liability in abstract by clauses (a), (b) and (c) and quantifying the said penal liability by clauses (i), (ii) and (iii) of section 271(1). If the reasoning of the Gujarat High Court is to be accepted, the moment anyone of the defaults contemplated by clauses (a), (b) and (c) of section 271(1) has occurred, there is an automatic attraction of the liability, but the quantification of the liability may lead to no penalty being levied. As we pointed out already, if in every case the quantification of penalty will lead to a nil amount, it is reasonable to construe that the liability to a penalty itself is attracted only when tax is payable by an assessee. This conclusion of ours is in consonance with the object of the section, namely, to. prevent evasion of tax. Once it is found that no tax is payable, there is no question of evasion of tax and consequently there could be no attempt to prevent such evasion. In out view the very structure of the language of section 271(1) does not admit of such compartmentalisation as clauses (a), (b) and (c) creating in themselves a "penal liability" in abstract, and clauses (i), (ii) and (iii) in themsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty on the ground that it was enjoying certain concessions or privileges with regard to the liability to pay tax, and that is the reason why section 271(2) was introduced. If the argument of the revenue is to be accepted, the result will be that while other assessees will not be liable to pay penalty, the registered firm alone will be liable to pay penalty. In fact, the decision of the Gujarat High Court to which we had made reference was considering the liability of a registered firm under section 271(2). In that context only, the observation which we have extracted already happened to be made by the said High Court. Dealing with the case of a registered firm, that court observed as follows : "Therefore, when we are considering the case of a registered firm, under sub-section (2) of section 271, the first question which we have to ask is whether the registered firm has committed any of the defaults contemplated by clauses (a), (b) and (C) of sub-section (1) of section 271. If the answer to this question is in the affirmative, it follows that the registered firm in question is a person 'liable to penalty' within the meaning of sub-section (2) of section 271. Once it is found th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) emphasises this construction, because, according to sub-section (2), 'the penalty imposable under sub-section (1) shall be the same amount as would be imposable on that firm if that firm were an "unregistered firm" '. The word 'amount' can be given the meaning contemplated by section 271(2) only when the tax is assessed in the hands of the registered firm as if it were an unregistered firm, and, on that, the penalty is calculated as provided in section 271(1). Further, seetion 271(2) would be rendered nugatory if this contention were to be accepted. The very object of section 271(2) is to treat a registered firm on a par with any other assessee, with reference to the penalty, once it commits default, notwithstanding the privilege it enjoys with regard to the quantum of tax payable by it. If the argument of learned counsel on the meaning of section 271(2) is to be accepted, section 271(2) will be really otiose and superfluous, because the result contended for by the learned counsel will flow from section 271(1) itself." Thus, it will be seen that that was not a case where no tax was payable by the registered firm, yet the penalty was levied. From what we have extracted already, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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