1988 (8) TMI 73 - HC - Income Tax

Court rules no penalty if tax paid equals or exceeds due amount, aligning with precedent.

The court ruled in favor of the assessee, holding that no penalty under section 271(1)(a)(i)(b) is applicable when the tax deducted at source or paid in ... Penalty, Registered Firm Issues Involved:1. Whether penalty u/s 271(1)(a) is leviable when the tax deducted at source or paid in advance is equal to or exceeds the tax payable.2. The applicability of sub-section (2) of section 271 in calculating penalty for a registered firm.3. The relevance of Supreme Court's decision in Ganesh Dass Sreeram's case regarding interest u/s 139(8) and its impact on penalty u/s 271(1)(a).Summary:Issue 1: Penalty u/s 271(1)(a) with Excess Tax Deducted at Source or Paid in AdvanceThe court examined whether penalty u/s 271(1)(a)(i)(b) can be levied when the tax deducted at source or paid in advance equals or exceeds the tax payable. The relevant assessment year was 1978-79, and the assessee, a registered firm, filed the return late. The Income-tax Officer initiated penalty proceedings despite the tax deducted at source being greater than the tax payable, resulting in a refund. The Tribunal and Commissioner (Appeals) accepted the assessee's contention that no penalty was leviable since the 'assessed tax' was zero. The court upheld this view, stating that the penalty calculated as a percentage of the 'assessed tax' would also be zero, making the penalty effectively nil.Issue 2: Applicability of Sub-section (2) of Section 271The Revenue argued that a registered firm should be treated as an unregistered firm for penalty purposes u/s 271(2), which would result in some tax due. The court rejected this contention, clarifying that sub-section (2) is for quantification of penalty only when it is imposable under sub-section (1). The court emphasized that this argument does not apply to other categories of 'person' defined in section 2(31) of the Act, reinforcing that no penalty is due when the 'assessed tax' is zero.Issue 3: Impact of Supreme Court's Decision in Ganesh Dass Sreeram's CaseThe court referred to the Supreme Court's decision in Ganesh Dass Sreeram's case, which held that no interest u/s 139(8) can be charged when the advance tax covers the entire tax assessed. The court found no reason why the same principle should not apply to penalties, as both interest and penalty arise from the same facts and are computed similarly. The court concluded that no penalty u/s 271(1)(a)(i)(b) is leviable when the tax deducted at source or paid in advance equals or exceeds the tax payable.Conflicting Decisions and ConclusionThe court reviewed conflicting decisions from various High Courts. It disagreed with the Patna and Bombay High Courts, which supported the Revenue's view, and concurred with the Madras, Gauhati, and Andhra Pradesh High Courts, which opposed it. The court concluded that no penalty can be imposed u/s 271(1)(a)(i)(b) when the 'assessed tax' is zero, aligning with the Supreme Court's reasoning in Ganesh Dass Sreeram's case.Final JudgmentThe reference was answered against the Revenue and in favor of the assessee, holding that no penalty u/s 271(1)(a)(i)(b) is leviable when the tax deducted at source or paid in advance equals or exceeds the tax payable. No costs were awarded.