2011 (3) TMI 719 - HC - Income Tax

Imposing penalty u/s 271FA. - failure to furnish annual information return (AIR) as required under sub-section (1) of section 285BA of the Act - Held that - with effect from the date of service of the notice dated December 17, 2008, issued under section 285BA(5) of the Act, any default on the part of the petitioner would be viewed as a conscious disregard of its statutory obligation and as such, in respect of the period subsequent thereto, the petitioner would not be entitled to the benefit of the provisions of section 273B of the Act. This view finds support in the decision of this court in the case of CIT v. Kanubhai Muljibhai Patel (2008 -TMI - 31395 - GUJARAT HIGH COURT) on which reliance has been placed on behalf of the petitioner. - the petitioner is entitled to partial relief by way of deletion of penalty till the date of service of notice dated December 17, 2008, under section 285BA(5) of the Act. However, for the remaining period, no reasonable cause as envisaged under section 273B of the Act can be said to be in existence for non-compliance with the statutory provisions. - Decided partly in favor of assessee.

Issues Involved:
1. Legality of the penalty imposed under section 271FA of the Income-tax Act, 1961.
2. Validity of the petitioner's claim of reasonable cause under section 273B of the Act for the delay in filing the annual information return.
3. Impact of the petitioner's awareness of statutory obligations post issuance of notice under section 285BA(5).

Detailed Analysis:

1. Legality of the Penalty Imposed Under Section 271FA:
The petitioner challenged the penalty of Rs. 40,700 imposed by the Director of Income-tax (CIB), Ahmedabad, for a delay of 407 days in filing the annual information return for the financial year 2006-07. The penalty was calculated at Rs. 100 per day of default as per section 271FA of the Income-tax Act, 1961.

2. Validity of the Petitioner's Claim of Reasonable Cause:
The petitioner, a small co-operative bank, argued that it was unaware of the requirement to file the annual information return due to its location in a mofussil area, lack of trained staff, and exemption from income tax under section 80P(2)(a)(i) until the assessment year 2006-07. The petitioner contended that these factors constituted a reasonable cause under section 273B, which should exempt it from the penalty.

The court acknowledged that the petitioner might not have been initially aware of section 285BA, which came into effect from April 1, 2005. However, once the Department issued a notice under section 285BA(5) on December 17, 2008, for the financial year 2007-08, the petitioner could no longer claim ignorance of its statutory obligations.

3. Impact of the Petitioner's Awareness Post Issuance of Notice:
The court noted that despite the notice issued on December 17, 2008, the petitioner did not file the annual information return until after a second notice was issued on September 11, 2009. This delay indicated a conscious disregard of statutory obligations post the first notice. The court held that for the period after the notice, the petitioner could not claim reasonable cause for the delay.

Judgment:
The court partially allowed the petition. It modified the impugned order, stating that there was a reasonable cause for the petitioner not complying with section 285BA until the date of service of the notice on December 17, 2008. The penalty should be recalculated from this date at Rs. 100 per day of default. The matter was remitted to the respondent for computing the penalty accordingly. The rule was made absolute to this extent with no order as to costs.

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