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Issues: Levy of penalty under section 271(1)(a) of the Income-tax Act, 1961 for the assessment year 1961-62.
Analysis: The judgment delivered by the High Court of MADRAS pertains to a reference under the Income-tax Act, 1961, regarding the imposition of a penalty on the assessee for the assessment year 1961-62 under section 271(1)(a) of the Act. The key question raised was whether the Tribunal was justified in law in reducing the penalty. Section 271(1)(a) provides for the levy of penalty when an assessee fails, without reasonable cause, to furnish their return of income within the specified time. The penalty is quantified as 2% of the assessed tax for each month of default. The Tribunal in this case determined that the assessee had a reasonable cause for the delay in filing the return except for the first three months of the year 1962. The Tribunal found that the delay during January, February, and March 1962 was not justified by the reasons provided by the assessee, leading to the quantification of penalty for these three months. The Tribunal considered the circumstances surrounding the delay in filing the return. It noted that the assessee's records were seized during a raid in April 1962, making it challenging to prepare the return accurately. However, the Tribunal found that the delay from January to March 1962 could not be justified by the reasons given by the assessee, such as a partner's illness and absence. The Tribunal concluded that penalty under section 271(1)(a) should be imposed at the rate of 2% on the assessed tax for the three months of January, February, and March 1962 due to the lack of reasonable cause for the delay during that period. The High Court upheld the Tribunal's decision, emphasizing that penalty could only be levied for months where there was no reasonable cause for the delay. The Court agreed with the Tribunal's finding that the default was limited to the first three months of 1962, and therefore, the quantification of the penalty was appropriate. As there was no challenge to the Tribunal's factual findings regarding the reasonable cause for the delay, the Court ruled in favor of the assessee, holding that the penalty should only be imposed for the specified three months of default. Consequently, the reference was answered against the Department, and the assessee was awarded costs, including counsel's fee.
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