2005 (6) TMI 27 - HC - Income Tax

Penalty levied under section 271(1)(a) delay in filing the return - reasonable cause to file the return in time - it is apparent that the assessee had tendered an explanation before the Income-tax Officer in response to the show-cause notice issued by him such explanation has been ignored by the Income-tax Officer in entirety by stating that no explanation has been tendered and in the circumstances the order levying penalty suffers from violation of the principles of natural justice and vice of non-application of mind and cannot be allowed to stand. The Tribunal was therefore justified in holding that the order levying the penalty was bad in law

Summary

Issues:
1. Penalty levied under section 271(1)(a) of the Income-tax Act, 1961 for late submission of the return.
2. Consideration of the explanation tendered by the assessee by the Income-tax Officer and the appellate authorities.
3. Validity of the penalty order and the application of principles of natural justice.

Issue 1: Penalty under section 271(1)(a) for late submission of the return:
The case involved a registered partnership firm that filed its income tax return after the due date for the assessment year 1982-83. The Income-tax Officer imposed a penalty of Rs. 14,730 under section 271(1)(a) of the Income-tax Act for late submission. The Commissioner of Income-tax (Appeals) partially allowed the appeal, considering the extension application filed by the assessee and the explanation provided for the delay. The Tribunal upheld the findings but canceled the penalty, leading to a reference by the Revenue.

Issue 2: Consideration of the explanation by the authorities:
The Commissioner of Income-tax (Appeals) partially allowed the appeal, acknowledging the extension application filed by the assessee. However, the Commissioner did not fully consider the explanation provided by the assessee for the delay in filing the return. The Tribunal, while upholding the findings on the merits, canceled the penalty on the grounds that the penalty order was passed without proper application of mind. The Tribunal emphasized that the right of an assessee to provide an explanation cannot be ignored, even if the appellate authority considers it for the first time.

Issue 3: Validity of the penalty order and principles of natural justice:
The Tribunal held that the order levying the penalty was bad in law as the Income-tax Officer failed to consider the explanation tendered by the assessee. The Tribunal emphasized that the discretion to levy or not levy a penalty under section 271(1)(a) must be exercised judiciously, with proper consideration of the assessee's explanation. Ignoring the explanation tendered violates the principles of natural justice and results in non-application of mind, rendering the penalty order unsustainable. The Tribunal's decision was upheld, emphasizing the importance of considering the assessee's explanation before imposing penalties.

In conclusion, the High Court answered the reference in favor of the assessee against the Revenue, highlighting the significance of proper consideration of the assessee's explanation and the application of principles of natural justice in penalty proceedings.