[2001] 119 taxman 269 (sc)

Supreme Court of India

Pradip Lamps Works

v.

Commissioner of Income-tax

B.P. JEEVAN REDDY AND S.B. MAJMuDAR, JJ.

CIVIL APPEAL NOS. 911 AND 913 OF 1977

SEPTEMBER 27, 1995

Section 271(1)(a), read with section 271(2), of the Income-tax Act, 1961 - Penalty - For late filing of return - According to assessee, while calculating tax with reference to which penalty was leviable under section 271(1)(a), read with section 271(2), tax paid by partners in their individual assessments should be deducted - Whether while in assessment proceedings, assessee had to be assessed as a registered firm, for purpose of penalty it had to be treated as an unregistered firm and penalty calculated on that basis, in which case there was no occasion of deducting tax paid by partners in their individual assessments from out of tax assessed - Held, yes

Facts

According to the assessee, while calculating the tax with reference to which penalty was leviable under section 271(1)(a), read with section 271(2), the tax paid by the partners in their individual assessments should be deducted. The High Court did not accept this contention.

On appeal :

Held

So far as the assessment proceedings were concerned, undoubtedly, it would be assessed as a registered firm, but for the purpose of penalty, it would be treated as an unregistered firm and penalty had to be calculated on that basis. In such a situation, there was no occasion of deducting the tax paid by the partners in their individual assessments from out of the tax assessed. The assessment of tax is only for the purpose of determining the penalty payable, inasmuch as at the relevant time the penalty was two per cent of the assessed tax subject of course to the prescribed ceiling. The High Court was, thus, right in its decision.

Section 271 of the Income-tax Act, 1961 - Penalty - Opportunity of being heard - Tribunal held that inasmuch as assessee did not appear before original ITO in response to show-cause notice regarding penalty and had made no oral submissions but had only made a reply in writing, it was in order for successor ITO to have imposed penalty without giving a fresh notice to assessee - Whether in absence of any demand having been made under proviso to section 129 in instant case, successor ITO had jurisdiction to continue proceeding from stage at which proceeding was left by his predecessor, and there was no error in order of High Court in upholding Tribunal’s findings - Held, yes

Section 271(1)(a) of the Income-tax Act, 1961 - Penalty - For late filing of return - Whether merely because sub-section (4) of section 139 enables assessee to file its return at any time before assessment is made, it does not mean that its liability to pay penalty under section 271(1)(a) is erased - Held, yes

Facts

The Tribunal held that inasmuch as the assessee did not appear before the original ITO in response to the notice asking it to show cause as to why penalty should not be imposed and had made no oral submissions but had only made a reply in writing, it was in order for the successor ITO to have imposed the penalty without giving a fresh notice to the assessee. On reference, the High Court upheld the Tribunal’s decision.

The Tribunal further held that notwithstanding that the return of income had been filed within the period permissible under section 139(4), the imposition of penalty was justified as there was a delay for the purpose of section 271(1)(a). On reference, the High Court upheld the Tribunal’s decision.

On appeal :

Held

Section 129 makes it clear that a successor ITO has jurisdiction to continue the proceeding from the stage at which the proceeding was left by his predecessor. The proviso empowers the assessee to demand that before the proceeding is so continued, the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him, be reheard. But, in the instant case, no such demand was made by the assessee. Merely because sub-section (4) of section 139 enables an assessee to file his return at any time before the assessment is made, it does not mean that his liability to pay penalty under section 271(1)(a) is erased.

Hence, the High Court’s views were to be affirmed.

K.B. Rohtagi for the Appellant. Manoj Arora and S.N. Terdol for the Respondent.

Order

1. There are two appeals before us. In Civil Appeal No. 911 of 1977, two questions were referred under section 256(1) of the Income-tax Act, 1961 (‘the Act’) for the opinion of the High Court. The two questions are :

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that inasmuch as the assessee did not appear before the original ITO in response to the notice asking it to show cause why penalty should not be imposed and had made no oral submissions but had only made a reply in writing, it was in order for the successor ITO to have imposed the penalty without giving a fresh notice to the assessee on hearing the assessee ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that notwithstanding that the return of income had been filed on 6th February, 1961, i.e., within the period permissible under section 139(4) of the Income-tax Act, 1961, the imposition of a penalty was justified as there was a delay for the purpose of section 271(1)(a) of the Income-tax Act, 1961 ?”

Both the questions were answered by the High Court against the assessee and in favour of the revenue. We see no error in the order of the High Court.

2. So far as the first question is concerned, the only contention of the assessee was that before a penalty order was passed by the successor ITO, no personal hearing was given to him. The Act does not make it obligatory upon the successor ITO to give a personal hearing. In this case, the show-cause notice was issued on 17-11-1966. Even though a period of two years elapsed, no explanation or representation was made by the assessee, whereupon the order of penalty was passed on 23-12-1968. Section 129 of the Act makes it clear that a successor ITO has jurisdiction to continue the proceeding from the stage at which the proceeding was left by his predecessor. The proviso, no doubt, empowers the assessee to demand that before the proceeding is so continued, the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him, be reheard. But, in this case, it is not suggested that any such demand was made by the assessee. In such circumstances, the High Court was right in answering the question against the assessee.

3. So far as the second question is concerned, the only submission is that since the assessee was entitled to and did file his return before making the assessment, no penalty should be levied under section 271(1)(a) of the Act even though the return was filed beyond the prescribed date. We do not think that this contention is sustainable in law. Merely because sub-section (4) of section 139 of the Act enables the assessee to file his return at any time before the assessment is made, it does not mean that his liability to pay penalty under section 271(1)(a) is erased. We affirm the opinion of the High Court on this question as well.

4. Now, coming to Civil Appeal No. 913 of 1977, the only question referred under section 256(2) is the following :

“Whether, on the facts and in the circumstances of the case, for the purpose of calculating the tax with reference to which the penalty was leviable in the case of a registered firm, under section 271(1)(a), read with section 271(2), the tax payable by such firm should be determined after the tax paid by partners in respect of their share of profit from the firm from the gross tax payable by the firm on the basis that it was unregistered firm ?”

5. A reading of the question would disclose that the only contention of the assessee was that while calculating the tax with reference to which penalty was leviable under section 271(1)(a), read with section 271(2), the tax paid by the partners in their individual assessments should be deducted. We see no room for such an argument in the context. Section 271(2) says that when the person liable to penalty is a registered firm, then notwithstanding anything contained in the other provisions of the Act, the penalty imposable under section 271, sub-section (1), shall be the same amount as would be imposable on that firm if that firm were an unregistered firm. The assessee herein was a registered firm. It was assessed as such. So far as the assessment proceedings are concerned, undoubtedly, it will be assessed as a registered firm, but for the purpose of penalty, it will be treated as an unregistered firm and penalty has to be calculated on that basis. This is exactly what has been done in this case. In such a situation, there is no occasion of deducting the tax paid by the partners in their individual assessments from out of the tax assessed. It may be remembered that the assessment of tax is only for the purposes of determining the penalty payable inasmuch as at the relevant time the penalty was two per cent of the assessed tax subject, of course, to be prescribed ceiling. In our opinion, the High Court was right in answering the said question also against the assessee and in favour of the revenue.

Both the appeals are, accordingly, dismissed. No costs.

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