Nauranglal Chiranjilal vs Commissioner of Income Tax

Nazir Ahmad, J.—A supplementary statement of the case has been submitted by the Income Tax Appellate Tribunal, "B" Bench, Patna, in view of the direction of this court in Taxation Case No. 100 of 1975, referring the following questions for the opinion of this court:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal having found that no notice u/s 139(2) of the Income Tax Act, 1961, was served for the assessment year 1967-68 was yet justified in sustaining the penalty of Rs. 3,150 imposed by the Income Tax Officer ?

(2) Whether, on an appeal against an order of penalty imposed by the Income Tax Officer u/s 271(1)(a) for default of a notice u/s 139(2) of the Act, the Tribunal on facts was right in sustaining the penalty for the period of default falling u/s 139(1)? "

The relevant facts of the case can be culled from the statement of the case. The assessee is a registered firm and the assessment year involved is 1967-68. The ITO imposed a penalty of Rs. 3,150 u/s 271(1)(a) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), due to default for delayed submission of a return, rejecting the explanation of the assessee that a return was sent by post on June 26, 1967, since he found that the said return was not available in his record. A copy of the order of the ITO has been annexed and marked as annexure "A" forming part of the statement of the case.

The assessee appealed before the AAC and it was submitted that no notice u/s 274 was served on the assessee and that the penalty proceeding was not started in the course of the assessment proceedings. It was also submitted that the assessee could not be treated as a defaulter as he filed return u/s 139(4) of the Act. The AAC after verification of the record found that notice u/s 274 of the Act was issued on March 5, 1968, whereas the assessment was completed on April 3, 1969. He further found that the alleged certificate of posting could not prove the sending of a return. He, therefore, held that the assessee was a defaulter and was liable to penalty. Hence, he confirmed the order of the ITO. A copy of the order of the AAC has been annexed and marked as annexure "B" forming part of the statement of the case.

Being aggrieved by the order of the AAC, the assessee appealed before the Tribunal and repeated the same argument and the Tribunal agreed with the finding of the AAC. The Tribunal originally did not consider the assessee''s contention that the ITO made a mistake in computing the quantum of penalty by calculating the period of penalty in terms of Section 139(1) of the Act when he proceeded to impose penalty for the default of notice u/s 139(2) of the Act. But on a miscellaneous petition preferred by the assessee, the Tribunal held that when no notice u/s 139(2) was issued by the ITO, no question of computing the period of default u/s 139(2) of the Act should arise in this case. The Tribunal considered that the ITO made a mistake in making a remark that notice u/s 139(2) was served on the assessee on November 14, 1966, because it was clear from the order of penalty as also the quantum of penalty imposed that the ITO purported to impose penalty for default u/s 139(1) and not for the default u/s 139(2). The Tribunal, therefore, considered that the penalty order should not be held to be invalid for labelling a wrong section only and that the default of the assessee for non-compliance u/s 139(1) clothed the ITO with power to impose penalty u/s 271(1)(a) of the Act, although by mistake the ITO made a remark that the assessee was a defaulter for non-compliance u/s 139(2).

In view of the observations made above, the Tribunal came to the conclusion that the assessee was a defaulter for delayed submission of return and was liable to penalty. Accordingly, the Tribunal upheld the order of the AAC confirming the penalty imposed by the ITO. A copy of the miscellaneous petition filed by the assessee has been annexed and marked as annexure "D" and a copy of the miscellaneous order dated December 17, 1974, of the Tribunal has also been annexed and marked as annexure " C-1 " forming part of the statement of the case.

Mr. K.N. Jain, for the assessee, has submitted that when no notice u/s 139(2) of the Act was served on the assessee for the assessment year 1967-68 and the ITO imposed penalty for default u/s 139(1), no penalty could be imposed against the assessee.

Mr. B.P. Rajgarhia, for the Revenue, has submitted that when no notice u/s 139(2) was served on the assessee, the ITO was competent to impose penalty for default u/s 139(1) of the Act and so the ITO imposed a penalty of Rs. 3,150 for default u/s 139(1) of the Act.

Admittedly, in this case, no notice u/s 139(2) of the Act was served on the assessee and so it cannot be doubted that the ITO wrongly mentioned that "it is a clear case of default of the notice u/s 139(2) and it is a fit case for imposition of penalty u/s 271(1)(a)" as he has mentioned that notice u/s 139(2) was served on the assessee on November 14, 1966.

Under such circumstances, the ITO was competent to impose penalty for default u/s 139(1) of the Act. It is conceded by both the parties that the ITO imposed the penalty for default u/s 139(1) which was also upheld by the AAC and the Appellate Tribunal.

There are numerous decisions of various High Courts to the effect that an assessee is liable to penalty for not submitting his return as required, u/s 139(1) of the Act, even though he subsequently files a return in response to a notice u/s 139(2) of the Act and an assessment is made on the basis of that return. Various decisions have been cited in the decision of the Full Bench of this court in the case of Jamunadas Mannalal Vs. Commissioner of Income Tax, and in view of these decisions, the decision of this court in the case of Additional Commissioner of Income Tax Vs. Bihar Textiles, , has been held to be not a correct decision and it has been overruled.

In view of my discussion above, it is evident that default u/s 139(1) of the Act continues whether a notice u/s 139(2) is served or not on the assessee. Hence, I hold that the Tribunal having found that no notice u/s 139(2) of the Act was served for the assessment year 1967-68, was justified in sustaining the penalty of Rs. 3,150 imposed by the ITO, and the Tribunal on the facts was right in sustaining the penalty for the period of default falling u/s 139(1) of the Act. Both the questions are answered in the affirmative and in favour of the Revenue and against the assessee. However, in view of the peculiar circumstances of the case, the parties will bear their own costs.

S.K. Jha, J.

I agree.