1989 (8) TMI 125 - AT - Income Tax

Tax Tribunal: ITO's Inaction on Extension Orders, Penalty Initiation Rules Clarified

The Tribunal held that the inaction by the Income Tax Officer (ITO) in communicating extension orders implied the extensions were granted, resulting in a ... - Issues:1. Delay in filing income tax returns for the assessment years 1981-82 and 1982-83.2. Initiation and levying of penalties under section 271(1)(a) of the IT Act, 1961.3. Applicability of penalty provisions based on extension of time applications and tax liability.4. Validity of penalty proceedings and satisfaction of the taxing authority.5. Computation of penalty for a registered firm under section 271(1)(a) and 271(2).Analysis:1. The assessee-firm filed income tax returns for the assessment years 1981-82 and 1982-83 after the due dates, leading to penalty proceedings initiated by the Income Tax Officer (ITO) under section 271(1)(a) of the IT Act, 1961. The assessee contended that extension of time was sought through applications in Form No. 6, which were not responded to by the ITO, thereby assuming the extensions were granted. The delay in filing returns should be calculated based on the period of extension applied for. The Tribunal held that inaction by the ITO in communicating extension orders implied the extensions were granted, resulting in a twelve-month delay for 1981-82 and a six-month delay for 1982-83.2. The Departmental Representative argued that the ITO's order granting extension should not be assumed without communication to the assessee. However, the Tribunal emphasized that objective satisfaction of the taxing authority is crucial for penalty initiation under section 271(1). Mere issuance of a show cause notice does not substitute the requirement of satisfaction during assessment proceedings. As the initiation of penalty proceedings was not evident during assessment, the penalty for 1981-82 was canceled. For 1982-83, the penalty was upheld, but the computation required revision.3. Regarding penalty computation for a registered firm under section 271(1)(a) and 271(2), the Tribunal clarified that the liability of a registered firm is determined based on satisfaction of the taxing officer, while the computation is done treating the registered firm as unregistered. The tax liability for penalty calculation is assessed as if the registered firm were unregistered. Citing relevant case laws, the Tribunal directed the ITO to recompute the penalty for 1982-83 considering a six-month delay and treating the assessee-firm as unregistered.4. Consequently, the Tribunal allowed the appeal for the assessment year 1981-82 and partly allowed the appeal for the assessment year 1982-83, emphasizing the importance of proper initiation of penalty proceedings and accurate computation based on the firm's registration status.