1986 (7) TMI 34 - HC - Income Tax

Summary

Issues:
Delay in filing income tax return leading to penalty under section 271(1)(a) of the Income-tax Act, 1961. Contemplation of voluntary disclosure by the assessee and disagreement among partners. Difference of opinion among Tribunal members leading to reference to a third member under section 255(4) of the Act. Cancellation of penalty by the Tribunal and the question of law regarding the cancellation of penalty under section 271(1)(a) of the Income-tax Act, 1961.

Analysis:
The High Court of Calcutta dealt with a case where the assessee, Kanhayalal Mukundlal, was penalized for delaying the submission of its income tax return for the assessment year 1962-63. The Income-tax Officer imposed a penalty under section 271(1)(a) of the Income-tax Act, 1961 due to the delayed filing of the return, which was submitted only on January 14, 1966, instead of the deadline of October 12, 1962.

Upon appeal, the Appellate Assistant Commissioner upheld the penalty but directed a re-computation of income. The assessee argued that the delay was due to a dispute among partners and not out of malice. However, this contention was rejected for lack of evidence.

The Tribunal was divided in its decision. The Accountant Member accepted the assessee's explanation that they were contemplating a voluntary disclosure, which was hindered by partner disagreements. The penalty was canceled based on this reasoning. In contrast, the judicial Member did not find sufficient evidence to support the voluntary disclosure claim and upheld the penalty.

Due to the difference of opinion, the matter was referred to a third member of the Tribunal. The third member agreed with the Accountant Member, emphasizing that the delay was not without reasonable cause as the assessee intended to disclose income voluntarily. The Tribunal, based on the majority decision, canceled the penalty under section 271(1)(a).

The Revenue challenged the Tribunal's decision, questioning the cancellation of the penalty. However, the High Court upheld the Tribunal's findings, emphasizing that the delay in filing was due to the genuine contemplation of voluntary disclosure by the assessee, regardless of any potential advantage from a disclosure scheme announced later. The Court ruled in favor of the assessee, affirming the Tribunal's decision to cancel the penalty.

In conclusion, the High Court dismissed the Revenue's challenge, upholding the Tribunal's decision to cancel the penalty under section 271(1)(a) of the Income-tax Act, 1961. The judgment highlighted the importance of reasonable cause for delay and the genuineness of the assessee's intention to make a voluntary disclosure, ultimately leading to the cancellation of the penalty.