( 1 ) AN interesting question regarding imposition of penalty under section 271 (l) (a) of the Income Tax Act, 1961, (hereinafter referred to as the Act ) is raised in this case.

( 2 ) THE assessee is a registered firm. It had to submit its return of income for the assessment year 1962-63 on or before 30th June, 1962. The assessee made an application to the Income Tax Officer on 28th September, 1962 for extension of time for filing the return of income on the ground that the audit of books of accounts of the assessee was not complete. The Income Tax Officer granted time uptil 29th October, 1962. A notice dated 23rd February, 1963, under section 139 (2) of the Act was served on the assessee on 14th March, 1963, requiring it to furnish the return of its income within thirty days from the date of service of the notice. The assessee submitted its return showing its income at Rs. 1,95,132-00. On this amount of income shown and keeping in view the status of the registered firm the tax payable by it was Rs. 16,665-00. After giving credit of advance tax paid amounting to Rs. 7,564-00, the tax payable by the assessee was detemined at Rs. 9,101-84. The Income Tax Officer also levied penal interest in the sum of Rs. 596-00 under section 139 (1) of the Act. The assessee having failed to file its return of income by 30th June, 1962, the Income Tax Officer started penalty proceedings against it. The assessee explained its failure to file the return in time on the ground that its books of account were not audited. This explanation was not accepted by the Income Tax Officer showing a reasonable cause for not having filed the return in time and he levied a penalty of Rs. 14,530-00 under section 271 (l) (a) of the Act. The penalty was calculated at the rate of 2 per cent per month on the tax due from the assessee from 22nd October, 1962.

( 3 ) FEELING aggrieved by the order of the Income Tax Officer, the assessee filed an appeal before the Appellate Assistant Commissioner and held that the penalty should have been levied for five months. Before the Department the assessee relied upon a circular letter of the Central Board of Direct Taxes by which an automatic extension of time to submit the return of income by an assessee, was given upto 30th November, 1962 as 1962-63 was the first assessment year under the provisions of Income Tax Act, 1961.

( 4 ) FEELING dis-satisfied with the order of the Appellate Assistant Commissioner, the assessee filed an appeal before the Tribunal. One of the contentions urged before the Tribunal was that the assessee was prevented from submitting its return of income within the time allowed by the Income Tax Officer as the audit of its books of account could not be completed due to labour strike and the partners of the firm were not able to obtain access to the premises where the books of account were lying. The other contention urged before the Tribunal was that the Income Tax Officer was wrong in impsoing penalty upon it for having not filed the return in pursuance to the provisions of section 139 (1) of the Act as the assessee had filed the return in compliance with the notice served upon it under section 139 (2) of the Act and that on a reasonable construction of section 271 (l) (a) of the Act, the penalty could not be imposed as the default in not submitting the return under section 139 (1) of the Act, if at all. had ceased when the notice under section 139 (2) of the Act was issued to it. That being so the argument of the assessee proceeded, that the default at best could be from 1st December, 1962 to 23rd February, 1963, i. e. , the date on which notice under section 139 (2) was issued as in the circular letter issued by the Central Board of Direct Taxes, 1st December, 1962. was specified as the date for filing of return for the assessment year 1962-63, as already noted above. In this view of the matter the asses- see contended that the default continued for two months only, i. e. . during Decem