Citation Codes

Equivalent Citations

citation codes

Case Number

Income Tax Reference No. 65 of 1975.

Advocates

D. N. Awasthy, Advocate, with B. K. Jhingan, Advocate,
B. S. Gupta, Advocate,

Judges

P.C Jain
C. S. Tiwana, JJ.

Acts

Section 148 of the I.T. Act, 1961 (hereinafter referred to as "the Act").
Section 34 read with Section 22(2) of the Indian I.T. Act, 1922,
Section 22(1) or Section 22(2) or Section 34 of the old Act
Section 22(1) or Section 22(2) or Section 34. Because
Sub-section (2) of Section 139(2) or Section 148
Sub-section (2) of Section 139 or Section 148
provisions of Section 28(1)(a) of the old Act.
SECTION 148 INCOME TAX ACT 1961
provisions of the Indian I.T. Act, 1922.
Section 271(1)(i) of the new Act.
Section 28(1)(a) of the 1922 Act
Section 28(1)(a) of the old Act
Sub-section (1) of Section 139
Sub-section (2) of Section 139
Section 22(1) of the 1922 Act
provisions of Section 139(1).
Sub-section (1) of Section 22.
Section 28(1)(a) of that Act
Rule 11 of the Rules

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Smart Summary

Summary of the Opinion in the Reference concerning M/s. Dehati Co-operative Marketing-cum-Processing Society, Sangrur

Factual and Procedural Background

The Income-tax Appellate Tribunal (the Tribunal), at the instance of the Commissioner of Income-tax, Patiala II, referred questions for opinion concerning penalty under Section 271(1) of the Income-tax Act, 1961 (the Act). The assessee, M/s. Dehati Co-operative Marketing-cum-Processing Society, was required to furnish its return under Section 139(1) by June 30, 1969. A notice under Section 148 was served on August 10, 1970, calling for a return by September 9, 1970. The return was ultimately filed belatedly on February 24, 1971, resulting in a delay of nineteen months counted from June 30, 1969, but a delay of five months counted from the date of the Section 148 notice.

The Income-tax Officer (ITO) imposed a penalty calculated for 19 months (from June 30, 1969), amounting to Rs. 12,668. The Appellate Assistant Commissioner (AAC) reduced the penalty to Rs. 4,638 after accounting for a payment under Section 140A(1); however, both parties agreed before the Tribunal that this particular reduction could not be sustained after a retrospective amendment to Section 271(1)(i) by the Direct Taxes (Amend.) Act, 1974. The Tribunal allowed the assessee to support the AAC's reduction on a new ground (raised for the first time before the Tribunal): that because the proceedings in which the ITO recorded satisfaction under Section 271(1)(a) were based on the return furnished in response to the Section 148 notice, the date prescribed by Section 139(1) became irrelevant for computing the period of default. The Tribunal thus treated the delay as five months (from the Section 148 notice) and computed a proportionate penalty of Rs. 3,333, sustaining the AAC's reduction in aggregate.

The Tribunal referred two questions to the court for opinion (these questions were later substituted by the court due to a clerical error; the substituted questions are set out in the Legal Issues section below). The court considered the questions and a body of case law addressing whether penalty can be imposed for the entire period from the statutory due date when a return is later filed in response to a Section 148 notice, and whether a party may be permitted to raise a new ground before the Tribunal that was not taken below.

Legal Issues Presented

Whether, on the facts and circumstances of the case, the Tribunal was right in law in allowing the assessee to raise before the Tribunal a ground which had not been raised before or adjudicated upon by the Appellate Assistant Commissioner?
Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that penalty in the instant case could be imposed only in respect of the delay that occurred after service of the notice under Section 148, Income-tax Act?

Arguments of the Parties

Respondent / Assessee's Arguments (as recorded)

The assessee explained before the ITO that it had the impression that a co-operative society was not chargeable to income-tax, offered as an explanation for the initial failure to file the return by the date fixed under Section 139(1).
As to the delay after service of the Section 148 notice, the assessee explained that there had been a transfer of the old accountant and the new accountant was unable to complete the return by the due date following the notice.
Before the Tribunal, the assessee was permitted to raise a new ground: that because the proceedings in which the ITO recorded satisfaction under Section 271(1)(a) were based on the return furnished in response to the Section 148 notice, the date for furnishing the return under Section 139(1) became irrelevant for computing the period of default (i.e., penalty should be computed only from the Section 148 notice).
At hearing, both parties agreed that reduction of penalty by the AAC on the basis of payment under Section 140A(1) could not be sustained in view of a retrospective amendment; the assessee nonetheless sought to support the AAC's reduction on the alternative ground described above.

The opinion does not contain a detailed account of specific arguments advanced by the revenue (appellant) in opposition beyond the Tribunal's and court's characterisation of the procedural posture and issues.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT v. Hazarimal Nagji & Co. [1962] 46 ITR 1168 (Bombay)	Supports the proposition that a respondent may support a decree/order of the lower authority on fresh grounds before an appellate forum, subject to conditions similar to Civil Procedure Code practice; fresh grounds which do not require further factual investigation may be permitted.	The court relied on this authority to justify allowing the assessee to raise a new ground before the Tribunal in order to support the AAC's order, answering Question 1 in the affirmative.
Addl. CIT v. Bihar Textiles [1975] 100 ITR 253 (Patna)	Held that issuance of a notice under Section 139(2) within the assessment year operates to extend the time prescribed by Section 139(1) and thereby precludes penalty for failure to furnish the return under Section 139(1).	The court explicitly disagreed with this Patna High Court view, found that it did not consider all aspects, and declined to follow it in answering Question 2 (the court rejected the notion that a Section 139(2) or Section 148 notice automatically condones earlier default under Section 139(1)).
C.V. Govindarajulu Iyer v. CIT [1948] 16 ITR 391 (Madras)	Under the corresponding provisions of the old Act, the ITO was competent in proceedings under assessment provisions to assess income and levy penalty for failure to furnish a return; proceedings that commence by public notice could be deemed to continue into later proceedings.	The court cited this as an authority that supports the proposition that penalty may be levied even where assessment proceeded under reassessment-type notices, thereby supporting the view that original default can be penalised in reassessment.
CIT v. Indra and Co. [1911] 79 ITR 702 (Rajasthan)	Held that an assessee is liable to penalty for not submitting his return required by Section 139(1) even though he later files a return under Section 139(2) and an assessment is made on that basis; interpreted the phrase "as the case may be" in Section 271(1)(a).	The court relied on the reasoning in this decision to explain that the four kinds of defaults enumerated in Section 271(1)(a) are distinct and that the words "as the case may be" do not justify treating a subsequent notice as condoning an earlier default. This authority supported the court's conclusion that penalty was payable for the full period from June 30, 1969, to February 24, 1971.
R. Chandrasekharan v. CIT [1976] 104 ITR 454 (Madras)	Held that levy of penalty under Section 271(1)(a) was valid even with reference to a default in responding to a public notice under the earlier statute; reassessment proceedings may penalise original default.	The court cited this case among authorities which run against the Patna view and which support the conclusion that original default can be penalised in reassessment/relevant proceedings.
S. Balamm v. CIT [1976] 105 ITR 674 (Gujarat)	Held that in reassessment proceedings under Section 148 the original default of not filing any return can be penalised; interpreted "as the case may be" in Section 271(1)(a) as not altering this result.	The court relied on this authority as further support for the proposition that in reassessment proceedings the ITO may take cognisance of and penalise earlier default, reinforcing the conclusion that the penalty should have been imposed for the full nineteen months.

Court's Reasoning and Analysis

The court considered two principal strands of analysis: (A) whether the Tribunal could permit the assessee to raise a new ground before it; and (B) whether the period for imposition of penalty under Section 271(1)(a) is confined to the delay after issue of a Section 148 notice or runs from the original statutory due date under Section 139(1).

A. Permissibility of raising a new ground before the Tribunal

The court examined Rule 11 of the Rules and Orders relating to the Appellate Tribunal, which permits an appellant to urge grounds not set forth in the memorandum of appeal and provides that the Tribunal need not be confined to the grounds in the memorandum. The court drew an analogy to the Civil Procedure Code practice (as discussed in the Bombay High Court decision in CIT v. Hazarimal Nagji & Co.) that a respondent may support a favourable decision below on fresh grounds, provided such fresh grounds do not require further factual investigation and the affected party has a sufficient opportunity to be heard. Applying this principle, the court concluded that if an appellant may be granted such latitude, there is no justification to deny a similar concession to a respondent. Consequently, the court upheld the Tribunal's permission to the assessee to support the AAC's order on a new ground that had not been taken before the ITO.

B. Period of default for imposition of penalty under Section 271(1)(a)

The court first recapitulated the statutory scheme: Section 139(1) requires furnishing of the return by a specified date; Section 139(2) empowers the ITO to issue a notice during the assessment year requiring returns within thirty days; Section 147 deals with income escaping assessment and Section 148 authorises issuance of notice before making an assessment under Section 147; Section 271(1)(a) provides for penalty where a person without reasonable cause failed to furnish the return required by Section 139(1) or by notice under Section 139(2) or Section 148, or failed to furnish it within the time allowed.

The court analysed and rejected the Patna High Court's reasoning in Addl. CIT v. Bihar Textiles that issuance of a notice under Section 139(2) operates to condone prior default under Section 139(1). The court's objections included:

The Patna decision did not consider all relevant aspects and thus was not followed.
If a default under Section 139(1) could be automatically condoned by issuance of a Section 139(2) or Section 148 notice, there would be no express provision in law to relieve a defaulter of penalty; condonation should not be effected indirectly by notice for a different default.
Such a construction would encourage concealment and evasion by allowing taxpayers to await a departmental notice before filing late returns.
The law governing payment of tax may be construed liberally in favour of taxpayers, but penal provisions should not be so construed to benefit tax evaders.

The court surveyed contrary authorities (Madras, Rajasthan, Gujarat High Courts and earlier Madras authority under the 1922 Act) holding that penalty for original default can be imposed even when assessment proceeds are based on returns filed pursuant to subsequent notices. It analysed the phrase "as the case may be" in Section 271(1)(a), explaining that Section 271(1)(a) contemplates four distinct kinds of defaults (failure to file under Section 139(1); failure to file as required by notice under Section 139(2) or Section 148; failure to file within time/manner required by Section 139(1); failure to file within time/manner required by notice under Section 139(2) or Section 148). The court concluded that the words "as the case may be" do not support reading the section so as to treat a later notice as retroactively condoning an initial omission to file under Section 139(1).

Applying this reasoning to the facts, the court found the Tribunal's conclusion (that only the five-month delay after the Section 148 notice was relevant) to be erroneous. Instead, the court held that penalty was properly imposed for the entire period from June 30, 1969 (the Section 139(1) due date) to February 24, 1971 (date of filing), i.e., nineteen complete months.

Holding and Implications

Holding:

On Question 1: The Tribunal was correct in law in allowing the assessee to raise before the Tribunal a ground which had not been raised before or adjudicated upon by the Appellate Assistant Commissioner. (Answered in the affirmative.)
On Question 2: The Tribunal was not correct in law in holding that penalty could be imposed only in respect of the delay after service of the Section 148 notice; the penalty was required to be imposed for the entire period of default from June 30, 1969 to February 24, 1971 (nineteen months). (Answered in the negative to the Tribunal's view reducing the period to five months.)

Consequences and immediate effects:

The Tribunal's grant to the assessee to support the AAC's order on a new ground was upheld.
The Tribunal's computation of the period for penalty as only five months was held to be erroneous; the correct period of default is nineteen months and penalty should be computed accordingly.
The assessee was ordered to pay the costs of the reference to the Commissioner.
The court recorded and effected a clerical amendment to substitute the originally (mistakenly) copied questions with the corrected questions (the substituted questions are reproduced in the Legal Issues Presented section). A note was directed to be recorded if any copy of the judgment is issued indicating the substitution made on December 4, 1978.

The opinion addresses specific consequences for the parties in this reference (reversal of the Tribunal's view on the period for penalty and affirmation of the Tribunal's procedural discretion to permit new grounds). The court did not purport to state that it was laying down an unprecedented rule beyond application to the legal issues discussed and the authorities surveyed.

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Commissioner Of Income-Tax v. Dehati Co-Operative Marketing-Cum-Processing Society

1. In this reference made by the Income-tax Appellate Tribunal at the instance of the Commissioner of Income-tax, Patiala II, Patiala, the main point for determination is whether on the failure of an assessee to furnish a return, no penalty can be imposed prior to the date of the default made in pursuance of a notice issued under Section 148 of the I.T. Act, 1961 (hereinafter referred to as "the Act"). The other minor point upon which reference has been made is for determination of this fact whether an assessee can be allowed to raise a new ground of attack in appeal before the Tribunal in the absence of that ground having been taken before the ITO.

2. The relevant facts of the case in hand may be stated with the help of the order of reference dated July 22, 1975. The assessee is M/s. Dehati Co-operative Marketing-cum-Processing Society, Sangrur. The assessee had to furnish the return of income under Section 139(1)(a) of the Act before June 30, 1969. A notice under Section 148 of the Act was served on the assessee on August 10, 1970, calling upon it to furnish a return before September 9, 1970. The return was belatedly filed on February 24, 1971. There was thus a delay of five complete months. The ITO, for the imposition of penalty, calculated the period of delay as being that of nineteen months commencing from June 30, 1969. The explanation for the delay given before the ITO was that the assessee had the impression that a cooperative society was not chargeable to income-tax. The delay after the service of the notice was tried to be explained on the ground that there had been transfer of an old accountant and the new accountant was unable to complete the return by the due date. Any of these grounds for escaping from the payment of the penalty did not find favour with the ITO. A penalty of Rs. 12,668 was imposed. The AAC, by taking into consideration the payment of Rs. 21,130 made under Section 140A(1) of the Act by way of self-assessed tax, reduced the penalty to Rs. 4,638. At the time of hearing of the case before the Tribunal both the parties agreed that in view of the retrospective amendment of Section 271(1)(i) of the Act by virtue of the Direct Taxes (Amend.) Act, 1974, the reduction in penalty made by the AAC could not be sustained on the basis of the tax assessed under Section 140A of the Act. The assessee was allowed by the Tribunal to support the order of the AAC in relation to the reduction of the penalty on a new ground, namely, that as the proceedings in the course of which the ITO had recorded his requisite satisfaction under section 271(1)(a) of the Act were based on the return furnished in response to the notice under Section 148 of the Act, the date for furnishing the return under Section 139(1) became irrelevant for computing the period of default. The Tribunal gave this finding that there was only a delay of five months as the return was furnished with that much delay after the receipt of the notice under Section 148 of the Act. The proportionate penalty for five months amounted to Rs. 3,333 as against the penalty of Rs. 4,638 as upheld by the AAC. The assessee had not appealed before the Tribunal. However, the reduction by AAC in the penalty was sustained by the Tribunal.

3. The questions referred to this court for opinion were formulated as follows by the Tribunal :

"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in allowing the assessee to raise a new ground of attack against the order of the Income-tax Officer (for the firs-t time) in the appeal filed by the revenue against the set-off of tax paid under Section 140A(1) of the Act ?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that penalty in the instance case could be validly imposed for 5 months only instead of 19 months as calculated by the Income-tax Officer and the Appellate Assistant Commissioner ?"

4. Rule 11 of the Rules and Orders relating to the Appellate Tribunal can be of some help in giving a decision on question No. 1. Under this rule an appellant can be allowed to urge such a ground in support of the appeal which has not been set forth by him in the memorandum of appeal. It has then been mentioned that the Tribunal, if it so desired in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal. The only proviso to this rule is that the Tribunal cannot rest its decision on a new ground unless the party who would be affected thereby has had a sufficient opportunity of being heard on that ground. If the appellant can be allowed a concession of the nature contained in Rule 11, there is no justification for denying the respondent in an appeal a similar concession. There is even an authority of the Bombay High Court in support of the view which we intend to take. It is reported as CIT v. Hazarimal Nagji & Co. [1962] 46 ITR 1168. In it the respondent's right to support the AAC's order on a new ground is discussed. The law laid down in this authority with which we respectfully agree was summarised in the headnote as follows ;

"The powers of the Appellate Tribunal are similar to the powers of the appellate court under the Civil Procedure Code. In so far as a respondent only wants to maintain the decree of the lower court which is in his favour, he is entitled to support it on fresh grounds if he can do so, and the appellate court also will have jurisdiction to permit him to do so, provided that the fresh grounds which he wants to urge do not require a further investigation into facts which are not already on record and are not based on facts which were neither alleged nor admitted nor proved and which the other side was never called upon to meet in the lower court."

5. For the determination of question No. 2, some provisions of the Act, even though otherwise well known, have to be recapitulated. Every person who has an assessable income has to furnish a return without any notice to him as required by Section 139(1) of the Act. If the return is not furnished by the date fixed by the statute, a notice under Section 139(2) of the Act can be issued by the ITO which has to be served before the end of the relevant assessment year. By such notice the assessee can be required to furnish within thirty days from the date of service of the notice a return of his income during the previous year. If the. ITO has failed to serve such a notice, he can make use of the power given to him under Section 148 of the Act. The matter relating to the income escaping assessment has at first to be considered under Section 147 of the Act. If the ITO has reason to believe that by reason of the omission or failure on the part of an assessee to make a return under Section 139 of the Act for any assessment year to the ITO, income chargeable to tax has escaped assessment for that year, he may assess such income for the assessment year concerned. Before making the assessment, he has to issue a notice under Section 148 of the Act. In this kind of notice all or any of the requirements which may be included in a notice under Section 139(2) of the Act can be mentioned. The ITO has, however, to record his reasons before issuing notice under Section 148 of the Act. Then the relevant provision for the imposition of penalty is contain-

ed in Section 271(1) of the Act. This provision, omitting the words which are not relevant in this case, would read something like this :

"If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act is satisfied that any person has without reasonable cause failed to furnish the return of 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, he may direct that such person shall pay by way of penalty, in addition to the amount of tax, if any, payable by him, a sum equal to two per cent. of the assessed tax for every month during which the default continued."

6. The view taken by the Tribunal in respect of the period of default is only supported by an authority of the Patna High Court reported as Addl. CIT v. Bihar Textiles [1975] 100 ITR 253. The question referred for decision was whether the delay under Section 139(1) of the Act is condoned if a notice under Section 139(2) was issued to the assessee. This question was answered in favour of the assessee. It was remarked that once a notice under Section 139(2) is duly issued during the relevant assessment year there cannot be any penalty for failure to furnish the return as required by Sub-section (1) of Section 139 of the Act. This reasoning was adopted in the body of the judgment that once a notice under Sub-section (2) of Section 139 of the Act is issued that precludes the penal provision being attracted in so far as the failure to furnish the return under Sub-section (1) of Section 139 is concerned. One reason given for this view was that an ITO was empowered under Section 139(2) of the Act to issue a notice even before the period prescribed under Sub-section (1) of Section 139 of the Act. When once it is held that under Sub-section (2) of Section 139 the ITO has power to curtail the period prescribed under Section 139(1), it does not stand to reason as to why the power for extending such a time within any point of time in the relevant assessment year be not held to be inherent in him. It was then remarked that it must be held that by the issuance of a notice under Section 139(2) within the relevant assessment year the period prescribed in Sub-section (1) of Section 139 was duly extended and no penalty could be levied for any default committed in respect of the provisions of Section 139(1).

7. We are of the view that the Patna High Court did not consider all the aspects of the matter and, therefore, we do not follow the law as laid down by it. After a default is committed by an assessee to furnish a return under Section 139(1) of the Act, would the ITO be unable to take any action without issuing a notice under Section 139(2) of the Act ? If the provisions relevant in connection with notices under 139(2) and 148 of the Act are omitted from Section 271 of the Act, the result would be that after the ITO or the AAC comes to this finding that any person has without reasonable cause failed to furnish a return, he can direct such person to pay the penalty. Even though the customary method of asking an assessee to show cause against the payment of the penalty is that of issuing a notice under Section 139(2) of the Act, this cannot be said to be the sole method of issuing notices contemplated by Section 271 of the Act. If the default has once occurred there has to be an express provision of law for relieving a defaulter of the penalty. The condonation of delay and the exemption of the defaulter from the payment of penalty could not occur indirectly by the issuance of a notice for some other kind of default made under the provisions of the Act apart from those contained in Section 139(1) of the Act. Another reason for discarding the Patna view is that it puts a premium on concealment of income and evasion of tax. We are not unmindful that if there is any vagueness in a taxing law it has to be interpreted in favour of the taxpayer. There is, however, no authority for the view that the law has to be interpreted in favour of a person who is a tax-evader. Payment of tax is quite distinct from the payment of penalty. A provision with regard to the payment of tax can be construed liberally in favour of a taxpayer, but a provision with regard to the payment of penalty cannot be so construed.

8. We would now notice the authorities going against the view taken by the Patna High Court. The first such authority is C.V. Govindarajulu Iyer v. CIT [1948] 16 ITR 391 (Mad). There is a reference to the provisions of the Indian I.T. Act, 1922. It may be mentioned that Section 22 of the old Act corresponds to Section 139 of the Act. The holding of the authority is that the ITO was competent in the course of the proceedings taken by him under Section 34 read with Section 22(2) of the Indian I.T. Act, 1922, to assess such income, to levy a penalty under Section 28(1)(a) of that Act for failure without reasonable cause to furnish a return pursuant to a notice under Section 22(1). It was a case where an assessee failed to furnish a return of his total income as required by a notice under Section 22(1), but no notice under Section 22(2), was issued by the department within the year of assessment. Under the old Act, there used to be a general notice under Section 22(1) for the furnishing of returns by the assessee. This view was taken in the authority under discussion that once assessment proceedings have commenced they can come to an end only either by an order of assessment or by an order declaring that no assessment can be made. In the case being considered [1948] 16 ITR 391 (Mad), there was admittedly no such order, and when eventually proceedings were taken under Section 34 such proceedings must be deemed to relate to the proceedings which commenced with the public notice under Sub-section (1) of Section 22.

9. The next authority is of the Rajasthan High Court reported as CIT v. Indra and Co. [1911] 79 ITR 702. The holding is that an assessee is liable to penalty for not submitting his return as required in a notice under Section 139(1) of the Act, even though he subsequently files a return under Section 139(2) of the Act and an assessment is made on the basis of that return. Two contentions wore made on behalf of the assessee. The first contention was that as soon as notices under Section .139(2) of the Act were issued it must be taken that the delay in the filing of the returns under Section 139(1) was condoned. The other contention was that the ITO had not mentioned in the assessment order that the penalty proceedings were being initiated for default under Section 139(1). The AAC rejected both the arguments. The assesses then preferred appeals before the Tribunal and the Tribunal took the view that as in each case the assessment proceedings had been initiated and completed on the basis of returns submitted under Section 139(2) it was not permissible under law that penalty should be imposed for any default committed in not submitting the returns under Section 139(1). The import of the words "as the case may be" occurring in Section 271 of the Act has been explained in this authority for taking the ultimate view, and we can do no better than repeat the discussion of the Rajasthan High Court contained in the authority itself. The relevant portion reads as follows (p. 704):

"The Tribunal contrasted the language of section 271(1)(a) of the Act with the language of Section 28(1)(a) of the old Act and noticed that the words 'as the case may be' were added in Clause (a) of Sub-section (1) of Section 271 of the Act and these words substantially modified the corresponding provisions of Section 28(1)(a) of the old Act. The Tribunal proceeded to say that under the Act minimum penalty is provided and that minimum penalty is to be calculated for every month during which the default continued and this calculation is possible only when the limits of time during which the default continued can be determined. The Tribunal took the view that so far as the time of commencement of the default is concerned, it was known and definite in the instant case. It was, however, not possible to determine the point of time when the default ceased in either of these two cases, for the simple reason that the default in these cases never ceased as none of the assessees had filed any return as required under Section 139(1). We have to examine whether this reasoning is correct.

The addition of the words 'as the case may be' at the end of section 271(1)(a) of the Act presents us with no problem in interpretation. Under this section, the defaults contemplated are of four kinds :

1. Any person who without reasonable cause has failed to submit the return of total income which he was required to furnish under Sub-section (1) of Section 139; or

2. Any person who without reasonable cause has failed to furnish the return of total income which he was required to furnish by notice given under Sub-section (2) of Section 139(2) or Section 148 ; or

3. Any person who without reasonable cause has failed to furnish it within the time allowed and in the manner required by Sub-section (1) of Section 139 ; or

4. Any person who without reasonable cause has failed to furnish it within the time allowed and in the manner required by notice given under Sub-section (2) of Section 139 or Section 148.

The words 'as the case may be' have been put because all these four cases have been condensed in one paragraph and these words only mean that, whichever the case may be, the person shall be deemed to have committed default for which penalty was to be imposed under Section 271(1)(i) of the new Act. These words 'as the case may be' have their full meaning when we construe section 271(1)(a) in this light. They were not necessary in Section 28(1)(a) of the old Act, for the reason that the words at the end of section 28(1)(a) 'by such notice' covered all the defaults mentioned therein, as all the defaults could be committed only when appropriate notices as required in Section 22(1) or Section 22(2) or Section 34 of the old Act had been given. The words 'by such notice' meant a notice as may have been given either under Section 22(1) or Section 22(2) or Section 34. Because the word 'such' covered the entire ground, it was not necessary to put the words 'as the case may be' in section 28(1)(a) at its end, but it became necessary to add these words in Clause (a) of Sub-section (1) of Section 271 of the Act, because there were two kinds of default contemplated under it, one committed even when no notice is given and the other committed after notice. It may be mentioned that, under the Act, no notice is to be issued for filing the return under Section 139(1) and every person, if his total income exceeded the maximum amount which is not chargeable to income-tax, has to furnish the return of his income by or before a particular date as mentioned therein.

This being the position we do not find that there is any ground for shifting the words 'as the case may be' out of their context and take them and read them in connection with the words 'in the course of any proceedings' in the said Act as appears to have been done by the Tribunal. Such a queer construction is neither warranted by the language of the enactment nor by any other consideration."

10. Further on, it was remarked that a contrary view would mean that any person liable to pay income-tax could sit comfortably without any fear of the imposition of penalty and not furnish his return as required under Section 139(1) and wait till a notice is given to him under Section 139(2) and then file a return within the time mentioned in that notice.

11. The third authority is of the Madras High Court, viz., R. Chandrasekharan V. CIT [1976] 104 ITR 454. The holding is that the levy of penalty under section 271(1)(a) of the Act even with reference to a default of not responding to the public notice under Section 22(1) of the 1922 Act was valid. It cannot be contended that in a case where notice for reassessment was issued penalty could be levied only with reference to the delay or default, if any, in pursuance of such a notice. If the assessee was unable for any reason to comply with the public notice under Section 22(1) he should have approached the authorities for extension. On his failure to do so he committed the default. The last authority to be considered is of the Gujarat High Court reported as S. Balamm v. CIT [1976] 105 ITR 674. This question was answered in the affirmative in this authority whether penalty could be legally leviable in reassessment, proceedings for the original default of not filing the return. The holding would be further clear from the following headnote :

"In reassessment proceedings under Section 148 of the Income-tax Act, 1961, the original default committed by an assessee in not filing any return can be penalised. The words 'as the case may be' occurring in section 271(1)(a), which did not occur in Section 28(1)(a) of the 1922 Act refer only to the last two defaults mentioned in that section and not to the first two defaults. Therefore, the words 'as the case may be' do not make any substantial difference between the proviso to Section. 28(1 )(a) of the Act of 1922 and section 271(1)(a) of the Act of 1961. It is, therefore, open to the Income-tax Officer in reassessment proceedings under Sections 147 and 148 read with Section 297(2)(g) of the Act of 1961, to take cognisance of a default committed under Section 22(1) of the Act of 1922, and to impose penalty under section 271(1)(a)."

12. Another circumstance going against the assessee particularly in this case is that no serious objection seems to have been taken before the ITO for obtaining an exemption in the payment of penalty for all the nineteen months merely on the ground that no penalty was payable in spite of the default committed under Section 139(1) of the Act. If such had been the case this ground need not have been urged that the assessee was unaware, of this legal position that even by a co-operative society penalty was payable.

It has also been noted by the ITO in his order dated October 3, 1972, that a prayer had been made by the learned counsel appearing on behalf of the assessee that a lenient view in relation to the default should be taken. If the liability was altogether denied, an indirect admission of the liability by. asking for leniency need not have been made.

13. Thus, on the basis of the preponderance of view of the different High Courts and for the reasons already stated, question No. 2 is answered in the negative. This view of the Tribunal was erroneous that the penalty could be imposed only for a period of five months. It was required to be imposed for the whole of the period commencing from June 30, 1969, to February 24, 1971, when the return was filed. The period of default thus comes to nineteen complete months. As already made clear, question No. 1 is answered in the affirmative. The Tribunal was justified in allowing the assessee to raise such a ground which had not been taken before or adjudicated upon by the ITO. The assessee shall pay the costs of this reference to the Commissioner.

Prem Chand Jain, J.

14. I agree with the conclusion.

December 4, 1978 C.S. Tiwana, J.

15. After the pronouncement of judgment dated November 21, 1978, in Income-tax Reference No. 65 of 1975 (CIT v. Dehati Co-operative Marketing-cum-Processing Society, Sangrur) we found that a clerical mistake had occurred therein. The two points on which the opinion was sought by the Tribunal were wrongly copied out in the judgment. They were the points which were proposed for decision. Subsequently, the Tribunal had modified the language of the questions which were actually referred to this court for opinion. There is, however, no consequential mistake in the judgment itself. We thus under the inherent powers of this court order the following questions mentioned in the judgment to be deleted :

"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in allowing the assessee to raise a new ground of attack against order of the Income-tax Officer (for the first time) in the appeal filed by the revenue against the set-off of tax paid under Section 140A(1) of the Act ?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that penalty in the instant case could be validly imposed for 5 months only instead of 19 months as calculated by the Income-tax Officer and the Appellate Assistant Commissioner of Income-tax ?"

16. In the place of these questions, the following questions are ordered to be substituted :

"(1) Whether, on the facts and circumstances of the case, the Tribunal was right in law in allowing the assessee to raise before the Tribunal a ground which had not been raised before or adjudicated upon by the Appellate Assistant Commissioner ?

(2) Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that penalty in the instant case could be imposed only in respect of the delay that occurred after service of the notice under Section 148, Income-tax Act ?"

17. If any copy is required to be issued the deleted questions need not be mentioned but the following note after giving the substituted questions should be recorded :

Note : As substituted by way of amendment by order of the court dated December 4, 1978.

Commissioner Of Income-Tax v. Dehati Co-Operative Marketing-Cum-Processing Society

Summary of the Opinion in the Reference concerning M/s. Dehati Co-operative Marketing-cum-Processing Society, Sangrur

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Respondent / Assessee's Arguments (as recorded)

Table of Precedents Cited

Court's Reasoning and Analysis

A. Permissibility of raising a new ground before the Tribunal

B. Period of default for imposition of penalty under Section 271(1)(a)

Holding and Implications

Commissioner Of Income-Tax v. Dehati Co-Operative Marketing-Cum-Processing Society

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