Commissioner Of Income-Tax, Orissa v. Ganeshram Nayak

R.N Misra, J.:— On being moved by the revenue under s. 256(2) of the I.T Act of 1961 (hereinafter referred to as “the Act”), this court called upon the Appellate Bench of the Income-tax Tribunal at Cuttack to state a case and refer the following question for the opinion of the court:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the penalty levied under section 273(b) of the Income-tax Act on the ground that the proceedings were not initiated in the course of regular assessment within the meaning of section 273 read with section 2(40) of the Act?”

2. Assessee is a forest contractor. The relevant assessment years are 1963-64, 1964-65 and 1970-71. Assessee omitted to file his returns and action was taken by the ITO under s. 147 of the Act and the assessee was directed to file returns under s. 139(2) of the Act. The ITO initiated proceedings under s. 273(b) of the Act for the imposition of penalty and after hearing the assessee levied penalties of different amounts for the three years. The assessee appealed and the AAC vacated the penalties by saying:

“On going through the assessment records it is noticed that the assessments in the course of which these penalty proceedings were initiated were completed u/s. 143(3)/147. Since these penalty proceedings were not started in the course of regular assessment proceedings, the penalties imposed by the Income-tax Officer are cancelled”

3. The revenue appealed to the Tribunal and the appellate order was sustained by the Tribunal by placing reliance upon two decisions, one of the Kerala High Court being the case of Gates Foam & Rubber Co. v. Commissioner Of Income-Tax, Kerala., [1973] 90 ITR 422 and the other of the Patna High Court in the case of CIT v. Ram Chandra Singh, [1976] 104 ITR 77.

4. Section 273 of the Act, prior to its amendment by the Finance Act of 1969, read thus:

“False estimate of, or failure to pay, advance tax.— If the Income-tax Officer, in the course of any proceedings in connection with the regular assessment, is satisfied that any assessee—

(a) has furnished under section 212 an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue, or

(b) has without reasonable cause failed to furnish an estimate of the advance tax payable by him in accordance with the provisions of subsection (3) of section 212,

he may direct that such person shall, in addition to the amount of tax, if any, payable by him, pay by way of penalty a sum—”

5. After the amendment by the Finance Act of 1969, the provision now reads:

“If the Income-tax Officer, in the course of any proceedings in connection with the regular assessment for the assessment year commencing on the 1st day of April, 1970, or any subsequent assessment year, is satisfied that any assessee—

(a) has furnished under section 212 an estimate of the advance tax payable by him which he knew or has reason to believe to be untrue, or

(b) has without reasonable cause failed to furnish an estimate of the advance tax payable by him in accordance with the provisions of subsection (3) of section 212, or

(c) has without reasonable cause failed to furnish an estimate of the advance tax payable by him in accordance with the provisions of subsection (3A) of section 212,

he may direct that such person shall, in addition to the amount of tax, if any, payable by him, pay by way of penalty a sum—……”

6. Assessments for the three years in question were admittedly on the basis of action taken under s. 147 of the Act. The main point for consideration is whether such assessments can be said to be “regular assessments” because jurisdiction to levy penalty under s. 273 of the Act depends upon the ITO's satisfaction that one of the events named therein has happened while the ITO is in seisin of proceedings in connection with regular assessment. “Regular assessment” has been defined in s. 2(40) of the Act to mean “assessment made under section 143 or section 144”. Section 148 of the Act provides:

“(1) Before making the assessment, reassessment or recomputation under s. 147, the Income-tax Officer shall serve on the assessee a notice-containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section”

7. A deeming provision is incorporated in s. 148 to make the assessment machinery applicable to proceedings taken pursuant to action under s. 147 of the Act. Under s. 246 which provides for appeals, a distinction has, however, been maintained. Clause (c) relates to assessments under ss. 143 and 144 while cl. (e) relates to assessment or reassessment under s. 147 of the Act. If the statute contemplated that the assessment proceeding, after action was taken under s. 147 of the Act, was also an assessment under s. 143 or s. 144, as the case may be, there was no necessity for providing a separate clause in s. 246 of the Act. Learned standing counsel criticised the two Bench decisions relied upon by the Tribunal by contending that all the provisions in the statute have not been kept in view. According to him, the principles indicated in the Bombay decision in Deviprasad Kejriwal v. Commissioner Of Income-Tax (Central), Bombay., [1976] 102 ITR 180 and in the Full Bench decision of the Allahabad High Court in the case of Commissioner Of Income-Tax v. Geeta Ram Kali Ram., [1980] 121 ITR 708, should have been relied upon in preference to the two decisions accepted by the Tribunal, as laying down the correct law. Learned standing counsel further contends that “regular assessment” is not “original assessment” and the Tribunal seems to have gone wrong by equating the two. Section 273 of the Act uses the phrase “regular assessment”, and “regular assessment” has a statutory definition. It is confined to assessments under ss. 143 and 144 of the Act. As we have just indicated, s. 246(e) clearly indicates that there can be an assessment under s. 147. Giving a harmonious construction to the different provisions in the same statute, we must hold that “regular assessment” did not cover assessments under s. 147. Therefore, the appellate authorities were correct in their conclusion that s. 273 could not be invoked for levy of penalty in this case. The view of the Kerala and the Patna High Courts has also been followed by a later Punjab & Haryana decision in the case of Kamla Vati v. Commissioner Of Income-Tax (Central), Patiala, [1978] 111 ITR 248. Though the reasonings given in these cases are somewhat different, we are inclined to hold that their conclusion is correct. We would accordingly answer the question against the revenue by holding:

On the facts and in the circumstances of the case, the Tribunal was justified in deleting the penalty levied under s. 273(b) of the Act on the ground that the proceedings had not been initiated in the course of regular assessment within the meaning of s. 273, read with s. 2(40) of the Act.

8. Assessee shall have his costs. Consolidated hearing fee is assessed at rupees two hundred.

Das, J.:— I agree.