Commissioner of Income Tax vs Sugan Chand and Sons

J.S. Verma, C.J.—This is a reference u/s 256(1) of the Income Tax Act, 1961 (for short "the Act"), at the instance of the Revenue, to answer the following question of law, viz.:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty imposable u/s 271(1)(a) of the Income Tax Act, 1961, in the case of the assessee-registered firm cannot exceed 50% of the assessed tax worked out in the status of a registered firm ?"

The relevant assessment year is 1974-75. The return of income was required to be filed by the assessee on or before July 31, 1974, but it was actually filed late on December 15, 1975. The Income Tax Officer, therefore, initiated penalty proceedings u/s 271(1)(a) of the Act. The Income Tax Officer levied penalty of Rs. 2,580. The assessee preferred an appeal to the Appellate Assistant Commissioner who held that the maximum penalty could not exceed 50% of the assessed tax and since the amount of assessed tax was only Rs. 1,407, it was held that the penalty could not exceed Rs. 700. The amount of penalty was, therefore, reduced accordingly. On further appeal, the Income Tax Appellate Tribunal has affirmed the view of the Appellate Assistant Commissioner. Hence, this reference at the instance of the Revenue.

There is no controversy that prior to April 1, 1976, the maximum penalty calculated at the rate of 296 of the assessed tax for every month during which the default continued, could not exceed 50% of the assessed tax. This was the upper limit for penalty prescribed at the time when the assessee committed default incurring the liability for payment of penalty. Obviously for this reason, any amount in excess of the prescribed upper limit could not be imposed as penalty. The Tribunal''s view to the same effect has, therefore, to be upheld.

Consequently, the reference is answered against the Revenue and in favour of the assessee by holding that the Tribunal''s view was justified. No costs.