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Issues:
1. Whether burden of proof for failure to furnish return with reasonable cause lies on assessee under section 271(1)(a) of the Income-tax Act, 1961? 2. Whether imposition of penalty under section 271(1)(a) was justified? 3. Interpretation of the term "total income" under section 271(3)(a) of the Income-tax Act, 1961. Analysis: Issue 1: The Tribunal placed the burden of proof on the assessee to show reasonable cause for late submission of the return under section 271(1)(a). However, the High Court held that the burden of proof lies on the Revenue to establish that the failure to file the return was without reasonable cause. Citing the Full Bench decision in Addl. CIT v. I. M. Patel & Company, the court emphasized that the Department must first lead evidence to show prima facie that the assessee had no reasonable cause for the delay. The court ruled that the Tribunal erred in placing the burden of proof on the assessee, and the penalty order was unsustainable due to this error. Issue 2: Regarding the justification of imposing a penalty under section 271(1)(a), the assessee contended that the penalty could not be levied as the returned income was below the threshold for penalty under section 271(3)(a). The High Court noted that the addition made by the ITO on the closing stock valuation was not known to the assessee at the time of filing the return. The court held that the assessee, believing in good faith that the income returned was accurate, should not be penalized for the delay in filing the return. Therefore, the court concluded that the imposition of the penalty was not justified. Issue 3: The court did not find it necessary to answer question No. 2 regarding the interpretation of the term "total income" under section 271(3)(a) since the other issues were resolved in favor of the assessee. The High Court accepted the reference, answering questions 1 and 3 in the negative, in favor of the assessee, and directed the Revenue to pay the costs of the reference to the assessee.
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