Assessed tax for penalty excludes section 23B payment; absence of reasonable cause can still trigger liability.

For penalty under section 271(1)(a) of the Income-tax Act, 1961, assessed tax must be computed on the statutory basis prescribed by the Act, and tax paid under section 23B of the Indian Income-tax Act, 1922 cannot be deducted in that computation. The absence of reasonable cause for delay in filing the return attracts penalty, and mens rea is not a necessary ingredient for liability under the provision. The commentary therefore states that penalty remains exigible where the assessee cannot show reasonable cause, even if contumacious conduct is not established.

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Issues: (i) Whether, for the purpose of penalty under section 271(1)(a) of the Income-tax Act, 1961, tax paid under section 23B of the Indian Income-tax Act, 1922 could be deducted while computing the assessed tax; (ii) Whether penalty was exigible despite the Tribunal's finding that the assessee had no reasonable cause for delay in filing the return and despite absence of contumacious conduct.

Issue (i): Whether, for the purpose of penalty under section 271(1)(a) of the Income-tax Act, 1961, tax paid under section 23B of the Indian Income-tax Act, 1922 could be deducted while computing the assessed tax.

Analysis: The statutory expression governing the computation of penalty was held to be 'assessed tax'. In view of the retrospective amendment, the amount paid under section 23B could not be adjusted while determining the assessed tax for penalty purposes. The computation therefore had to proceed on the statutory basis laid down for penalty under the provision.

Conclusion: The question was answered in the negative, in favour of the Revenue and against the assessee.

Issue (ii): Whether penalty was exigible despite the Tribunal's finding that the assessee had no reasonable cause for delay in filing the return and despite absence of contumacious conduct.

Analysis: Once it was held that tax paid under section 23B could not be deducted from the assessed tax, the Tribunal's view that no penalty was leviable because the assessee had paid the whole assessed tax could not stand. The Full Bench ruling had already negatived the application of mens rea to penalty proceedings under the provision, and the absence of reasonable cause established liability to penalty.

Conclusion: The question was answered in the negative, against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered entirely for the Revenue, and the Tribunal's relief to the assessee was reversed on both referred questions.

Ratio Decidendi: For penalty under section 271(1)(a) of the Income-tax Act, 1961, the assessed tax must be computed on the statutory basis prescribed by the Act without deducting tax paid under section 23B of the Indian Income-tax Act, 1922, and mens rea is not a necessary ingredient where the assessee had no reasonable cause for the default.

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