JUDGMENT R.K. Agrawal and Rajes Kumar, JJ.
1. The Income Tax Appellate Tribunal, Allahabad has referred the following question of law under Section 256(1) of the Income Tax Act, 1961 (hereinafter , referred to as "the Act") for opinion to this Court.
"Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was legally justified in confirming the decision of the D.C. (Appeals) deleting the penalties of Rs. 9,800/- each in the assessment years 1982-83 and 1.983-84 imposed Under Section 271(1)(b) of the I.T. Act?"
2. The reference relates to the Assessment Year 1982-83 and 1983-84 in proceeding arising out of imposition of penalty under Section 271(1)(b) of the Income Tax Act, 1961..
3. Briefly stated, the facts giving rise to the present reference are as follows.
4. The respondent-assessee is an individual. She derived income from share in the Hotel. She did not file any return even after issue of notice under Section 148 of the Act which was issued on 15th September, 1984. It was served upon her on 14th March, 1984. Another notice was issued to the assessee under Section 142(1) of the Act on 24th February, 1989 which was served on 1st March, 1989. In response to the said notice, she did not file any return. Assessment under Section 144 of the Act was completed ex parte on 13th September, 1989 on the total income of Rs. 60,000/-. Penalty proceeding under Section 271(1)(b) of the Act was initiated for both the assessment years and the assessing authority imposed a sum of Rs. 9,800/- in each of the two years as penalty. Feeling aggrieved, respondent-assessee preferred separate appeal before the Deputy Commissioner of Income Tax (Appeals). The Deputy Commissioner of Income Tax (Appeals) has allowed the appeal on the ground that the penalty under Section 271(1)(b) of the Act could not be imposed because no return has been filed by the assessee and as per the provisions of Section 271(1)(b) of the Act for computing the penalty to be levied, return is must. The order of the Deputy Commissioner of Income Tax (Appeals) has been upheld by the Tribunal on the ground that prior to 1.4.1989 i.e. before the amendment of Clause (ii) of Sub-section (1) of Section 271 of the Act, re-assessment proceeding cannot be treated as regular assessment. Tribunal has upheld the order of the Deputy Commissioner of Income Tax (Appeals).
5. We have heard Sri Shambhu Chopra, learned Standing Counsel for the Revenue. No body has appeared on behalf of the respondent-assessee.
6. Learned Standing Counsel submitted that in view of the amendment made to Sub-section (8) of Section 139 of the Act by insertion of Explanation (2) by the Taxation Laws (Amendment) Act, with effect from 1.4.1985 even an assessment made for the first time under Section 147 is to be treated as regular assessment. Similar provision has been made in Section 217 of the Act. Relying upon the decision of the Apex Court in the case of K. Govindan and Sons v. Commissioner of Income Tax, (2001) 247 ITR, 192 wherein the Apex Court has held that Explanation 2 to Section 139(8) of the Act is clarificatory and applies to all the assessment years. He submitted that the reasons given by the Tribunal for upholding the order of the Deputy Commissioner of Income Tax (Appeals) is erroneous. According to him even the first assessment made under Section 147 of the Act like the present one is to be treated as regular assessment and therefore, the penalty was rightly levied. Submission is misconceived. Under Section 271(1)(b) of the Act as it stood during the relevant period, penalty was imposable if any person has without reasonable cause failed to comply with a notice under Sub-section (1) of Section 142 or Sub-section (2) of Section 143 or fails to comply with the direction issued under Sub-section (2-A) of Section 142. However, under Clause (ii) to Sub-section (1) of Section 271 of the Act, quantum of penalty has been mentioned as follows:
"(ii) in the cases referred to in Clause (b), in addition to any tax payable by him, a sum which shall not be less than ten percent, but which shall not exceed fifty percent, of the amount of the tax, if any, which would have been avoided if the income returned by such person had been accepted as the correct income."
7. From the reading of the aforesaid Clause (ii), it is seen that quantum, of penalty is to be determined by treating the return filed by such person to have been accepted as correct income and the quantum of penalty valued at 10 percent to 50 percent. In the present case, as the respondent has not filed any return of income, the question of treating the income return by her as correct income and the quantification of penalty under Sub-section (ii) does not arise and, therefore, the Deputy Commissioner, of Income Tax (Appeals) rightly set aside the penalty imposed. Reliance placed by the learned Standing Counsel on the decision of the Apex Court in the case of K. Govindan and Sons (supra) is misconceived inasmuch as in the present case, quantum of penalty is not referable to the regular assessment at all. It is well settled that penalty provisions are to be strictly construed and if under the aforesaid provision, there is no levy of penalty or the quantum cannot be as certained. No penalty under law can be imposed.
8. Accordingly, we answer the question referred to us in the affirmative i.e. in favour of the assessee and against the Revenue. However, there shall be no order as to costs.