Law: Income Tax Act, 1961

Section: 256(1),271(1)(a),139(1)

Section 271(1)(a) of the Income-tax Act, 1961 - Penalty - For late in filing of return - Assessment years 1973-74 to 1976-77 - Whether penalty under section 271(1)(a), can be levied on a registered firm by treating it as an unregistered firm in terms of section 271(2) when no tax is payable by registered firm after giving credit to advance tax paid and/or tax deducted at source - Held, no FACTS The assessee registered firm filed delayed returns of income for the relevant assessment years. The ITO in the course of assessment proceedings initiated penalty proceedings for late filing of the returns. The assessee submitted an Explanation to the effect that the delay was on account of non-finalisation of the accounts by the accountant. The explanation was not accepted by the ITO, who imposed penalty under section 271(1)(a). On appeal, the AAC held that since the tax assessed was less than the tax paid by way of advance tax and upon completion of assessment refund had also been granted by the ITO, no penalty under section 271(1)(a)(i ) could be imposed. On revenue's appeal, the Tribunal confirmed the order of the AAC. On reference, the revenue contended that in terms of section 271(2), by legal fiction, the assessee had to be treated as an unregistered firm and then its tax liability assessed and that by making the assessment treating it to be a registered firm it could not be said that the tax which it was liable to pay as an unregistered firm was less than the tax already paid by it by way of advance tax. HELD The observations of the Supreme Court in Ganesh Dass Sreeram v. ITO [1988] 169 ITR 221 have been interpreted unanimously by different High Courts as laying down the proposition that where the amount of tax paid by way of advance tax or deducted at source covers the amount of tax assessed, no penalty can be imposed under section 271(1)(a). It would make no difference whether the assessee is a registered or unregistered firm. Reliance on the provisions of section 271(2) was found to be irrelevant as the said provision merely provides for quantification of the penalty "when it is imposable". Thus, not only the preponderance of opinion of different High Courts is…

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