Penalty computation for firms: only advance tax actually paid can be deducted, not notional tax under a deeming fiction.

For penalty computation under Section 271(1)(i)(b) of the Income-tax Act, the deemed treatment of a registered firm as an unregistered firm under Section 271(2) does not authorise a further notional deduction of advance tax that was never paid. The statutory definition of "assessed tax" in the Explanation permits deduction only of tax deducted at source and advance tax actually paid, and the fiction in Section 271(2) must be read harmoniously with that definition. The computation cannot be enlarged by borrowing the language of Section 280-O. Only actual advance tax is deductible, and the contrary approach was rejected.

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Issues: Whether, for computing penalty under Section 271(1)(i)(b) of the Income-tax Act, 1961 in the case of a registered firm treated as an unregistered firm under Section 271(2), the advance tax notionally payable by the unregistered firm must be deducted while determining assessed tax, or only the advance tax actually paid can be deducted.

Analysis: The statutory scheme of Section 271(1)(i)(b) read with the Explanation defines "assessed tax" as tax reduced by tax deducted at source and advance tax paid. Section 271(2) creates a legal fiction that the penalty payable by a registered firm shall be the same as if it were an unregistered firm, but that fiction does not displace the Explanation or permit a further notional deduction of advance tax that was never paid. The non obstante clause does not exclude the definition of assessed tax, and the provisions must be read harmoniously according to their plain language. The computation therefore cannot be enlarged by borrowing the different language of Section 280-O, which concerns annuity deposit and operates on a materially different statutory footing.

Conclusion: The Tribunal was not correct. Only advance tax actually paid is deductible in computing assessed tax, and notional advance tax payable by an unregistered firm cannot be deducted. The answer is against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered by affirming the Revenue's interpretation of the penalty provision and rejecting the Tribunal's approach to notional deduction of unpaid advance tax.

Ratio Decidendi: A deeming provision treating a registered firm as an unregistered firm for penalty purposes does not authorise disregard of the statutory definition of assessed tax; only amounts actually deductible under the Explanation can be excluded in computing penalty.

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