COMMISSIONER OF INCOME TAX Vs. BHURALAL CHITTARMAL

JUDGEMENT

(1.) THIS reference under Section 256(1)of the Income-tax Act, 1961, at the instance of the Revenue, is to answer the following question of law, namely :

(2.) THE relevant assessment year is 1970-71. THE assessee was required to file the return of its income for the assessment year 1970-71 on or before June 30, 1970. It did not file any return under the bona fide impression that no return was required to be filed since it had suffered loss in that year. THE Income-tax Officer issued a notice under Section 139(2) of the Act, which was served on the assessee on January 14, 1971, requiring the assessee to file its return of income on or before February 13, 1971, THE assessee filed the return on July 23, 1971, declaring a loss of Rs. 29,936, THE assessee claimed that two items of losses amounting to Rs. 47,366 and Rs. 51,665 were trading losses which had to be deducted. However, the Income-tax Officer rejected the assessee's claim of deduction of the two items as trading loss and treated them as loss from speculation. Consequently, additions were made and the assessee's taxable income was computed at Rs. 1,91,210. This was later reduced to Rs. 91,143. THE Income-tax Officer issued a notice to the assessee to show cause why penalty should not be imposed on it under Section 271(1)(a) of the Act. THE assessee replied to the notice contending that no return had been filed by it under the bona fide impression that a return of income was not required to be filed when the assessee had actually suffered loss as it had claimed. THE Income-tax Officer negatived this contention and levied penalty of Rs. 10,910 under Section 271(1)(a) of the Act for failure to furnish the return under Section 139(1) of the Act. THE Appellate Assistant Commissioner upheld the penalty in appeal. THE assessee's appeal to the Tribunal was, however, allowed and the penalty was set aside. THE Tribunal held that there was reasonable cause for the assessee's failure to furnish the return of income under Section 139(1) of the Act, inasmuch as there was an honest difference of opinion as to whether the two items claimed as deduction by the assessee as trading loss were to be treated as trading losses or loss from speculation. It was the rejection of the assessee's contention in respect of these two items which has brought about the result of the assessee having taxable income instead of loss suffered for that year, as claimed by the assessee. It was, therefore, held that no penalty could be levied under Section 271(1)(a) for default committed under Section 139(1) of the Act. It was further held that the Income-tax Officer not having levied any penalty on the assessee for default committed under Section 139(2) of the Act, it was not permissible to sustain the penalty on that basis. Hence, this reference at the instance of the Revenue.