Statutory fiction in penalty computation cannot override nil assessed tax, so late-filing penalty is not sustainable.

A statutory fiction treating a registered firm as an unregistered firm for penalty purposes under late-return provisions cannot be extended beyond its limited role in computation. Assessed tax must be determined on the actual assessment position after deducting tax deducted at source and advance tax paid. Where the assessed tax of the registered firm is nil, the penalty base disappears and no penalty can be imposed. If competing interpretations remain, the construction favourable to the assessee prevails.

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Issues: Whether, for imposing penalty on a registered firm for late filing of returns under section 271(1)(a), the fiction in section 271(2) could be carried into the computation of assessed tax so as to treat the firm as unregistered even where no tax was outstanding on the date of penalty.

Analysis: The penalty under section 271(1)(a), as amended, was linked to the assessed tax, and the Explanation showed that assessed tax meant tax reduced by tax deducted at source and advance tax paid. Section 271(2) created a fiction only for the limited purpose of treating a registered firm as an unregistered firm when penalty was otherwise imposable. That fiction could not be extended to ignore the actual assessment position of a registered firm or to rewrite the computation of assessed tax. A harmonious reading of section 271(2) with the Explanation required the assessed tax to be determined on real facts; if it was nil, no penalty could be levied. Where two views were possible, the construction favourable to the assessee had to prevail.

Conclusion: The fiction in section 271(2) did not apply so as to create penalty liability when the assessed tax of the registered firm was nil; the cancellation of penalty was /valid.

Ratio Decidendi: A statutory fiction for treating a registered firm as an unregistered firm for penalty computation cannot be extended beyond its limited purpose to defeat the Explanation limiting penalty to assessed tax actually payable; where assessed tax is nil, penalty under section 271(1)(a) cannot be imposed.

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