1988 (4) TMI 41 - HC - Income Tax

High Court clarifies tax penalty rules on assessment year defaults vs. subsequent years, differing on filing returns.

In the first case, the High Court held that penalties under section 271(1)(a) of the Income-tax Act can only be imposed for defaults within the assessment ... Penalty Issues:1. Whether penalty under section 271(1)(a) of the Income-tax Act, 1961 can be imposed for default in filing returns under section 139(1) beyond the limits of an assessment yearRs.2. Whether penalty could be imposed where the return had been filed under section 139(4) of the Income-tax Act, 1961Rs.Analysis:1. The case involved four reference cases where the Income-tax Appellate Tribunal, Patna Bench, referred a question of law to the High Court regarding the imposition of penalties for the default of the assessee in filing returns under section 139(1) of the Income-tax Act, 1961. The penalties were imposed by the Income-tax Officer and confirmed by the Appellate Assistant Commissioner. However, on appeal to the Tribunal, it was found that the penalties were not justified as the returns were filed under section 139(4) of the Act within the prescribed time. The Tribunal held that penalties were restricted to the close of the subsequent previous year. The High Court, relying on previous judgments, held that penalties can be imposed for defaults within the assessment year and cannot be projected into subsequent years. The Tribunal's direction to refund excess penalties was upheld, and the question was answered in the negative, in favor of the Revenue. (Addl. CIT v. Dongarsidas Biharilal [1979] 116 ITR 897)2. The second issue revolved around whether penalties could be imposed when returns were filed under section 139(4) of the Income-tax Act, 1961. The High Court, after considering relevant statutory provisions and previous judgments, held that penalties for defaults under section 139(1) can be imposed even if returns are filed under section 139(2) or 139(4). The period of default is deemed to end with the filing of the return of income within the prescribed time. The court disagreed with previous views and concluded that penalties under section 271(1)(a) are leviable even after charging interest under section 139. The Tribunal's misdirection on the question of law was rectified, and the High Court answered the question in the negative, in favor of the Revenue. The law was settled, and the Tribunal's direction was deemed unjustified. (Jamunadas Mannalal v. CIT [1985] 152 ITR 261)