T.U. MEHTA, J. - (1.) THE real question which is involved in this reference is whether a registered firm which becomes liable to penalty under cl. (c) of sub-s. (1) of s. 271 of the IT Act, 1961 (which is hereinafter referred to as "the Act"), and attracts the provisions of sub-s. (2) of that section, cannot be penalised under cl. (iii) of that section, if its income is ultimately found to be not assessable to tax.
(2.) SHORT facts of the case are that the respondent-assessee is a registered firm and it filed its first return of income on December 5, 1964, showing a business loss of Rs. 74,841 and the dividend income of Rs. 15,600, thus showing the net loss of Rs. 59,241. It is further found that as a result of seizure of certain documents from the assessee, it was revealed that the assessee had earned income which was not disclosed by its books of accounts produced before the ITO and such undisclosed transactions were reflected in some other books, which were not produced before the ITO. Thereafter, on 20th March, 1965, the assessee filed a second return and disclosed the business income of Rs. 1,775 and the total income of Rs. 17,375 which included the above-referred dividend income of Rs. 15,600. Thereafter, pending the assessment proceedings, the assessee filed the third return on 9th February, 1968, disclosing further business income of Rs. 5,028 and total income of Rs. 20,628. The ITO completed the assessment on 22nd March, 1969, assessing the total income of the assessee at Rs. 30,384, computing business income as Rs. 14,784 and dividend income of Rs. 15,600. At the time of passing this assessment order, the ITO also ordered the issue of notice under s. 271 of the Act for concealment of income. Since the income of the assessees as assessed by the ITO came to Rs. 30,384, the assessee was liable to pay tax of Rs. 388 as a registered firm. However, if the assessee was to be treated as an unregistered firm as contemplated by sub-s. (2) of s. 271 of the Act, its tax liability on the income of Rs. 30,384 would have been Rs, 6,799. Since this was the assessment for the asst. yr. 1964-65, the minimum penalty, to which the assessee was liable under cl. (iii) of s. 271 of the Act, was to be computed at the rate of 20per cent of the tax liability. This penalty came to Rs. 1,358 on the footing that the assessee was an unregistered firm as contemplated by s. 271(2) of the Act. Since this amount of minimum penalty of Rs. 1,358 was more than Rs. 1,000, the ITO referred the question as regards the imposition of penalty to the IAC under sub-s. (2) of s. 274. In the meanwhile the assessee preferred an appeal against the assessment order passed by the ITO. The Appellate Asstt. CIT, who heard this appeal, reduced the assessment of the income of the assessee from Rs. 30,384 to Rs. 23,094 by his order dated November 21, 1970. At this time the penalty proceedings were pending before the IAC under sub-s. (2) of s. 274. The IAC eventually passed the order of penalty on February 27, 1971, and imposed the penalty of Rs. 5,000 for concealment of the particulars as regards the income of the assessee under cl. (iii) of sub-s. (1) of s. 271 of the Act.
(3.) BEING aggrieved by the decision of the IAC as regards the imposition of penalty, the assessee approached the Tribunal in appeal. On behalf of the assessee it was contended before the Tribunal that as a result of the final assessment of assessee's income by the AAC in appeal, its income was assessed at Rs. 22,094 and as the assessee's firm was a registered firm, no tax was leviable on this amount of Rs. 22,094 as at the relevant time the income up to Rs. 25,000 earned by a registered firm was exempted from tax payable by a registered firm. It was, therefore contended that since no tax was payable by the assessee, as a result of the final assessment made by the AAC, there was no question of levying any penalty from the assessee. Another contention which was raised before the Tribunal was that since there was no tax and, therefore, no penalty, the IAC, who concluded the penalty proceedings, had no jurisdiction to deal with the matter under sub-s. (2) of s. 274. It was further contended that the tax on the dividend income was deducted at source and, therefore, in view of the final assessment of the assessee's income made by the AAC some refund was due to the assessee and, therefore, also, there was no question of imposing any penalty. It is regrettable to note that from the order recorded by the Tribunal while disposing of the appeal preferred before it, it is not possible to locate the exact facts but since the above- mentioned facts are admitted facts and are taken from the record, we have mentioned them in order to appreciate the contentions raised by the parties in this reference. The conclusions arrived at by the Tribunal have been recorded in a few lines as under : "We have considered the arguments put forward by the authorised representatives of both the sides and are of the view that since it is a case of refund we do not think that any penalty could be leviable as per the calculations furnished to us in that the refund would be Rs. 1,436. Since the order of the learned IAC is without jurisdiction, the penalty levied would not be sustainable." ;