1981 (4) TMI 67 - HC - Income Tax

Summary

Issues Involved:
1. Justification of penalties imposed under Section 271(1)(a) of the Income Tax Act, 1961, for the assessment years 1967-68, 1968-69, and 1969-70.
2. Whether the department discharged the initial burden of proving that the delay in filing the returns was without reasonable cause.
3. The applicability of Section 271(3)(a) concerning the assessment year 1967-68.

Issue-wise Detailed Analysis:

1. Justification of Penalties Imposed Under Section 271(1)(a) for Assessment Years 1967-68, 1968-69, and 1969-70:
The assessee, a registered partnership firm, filed its income tax returns late for the assessment years 1967-68, 1968-69, and 1969-70. The Income Tax Officer (ITO) initiated penalty proceedings due to these delays and imposed penalties of Rs. 994, Rs. 4,647, and Rs. 1,087, respectively, under Section 271(1)(a) of the Act. The Appellate Assistant Commissioner (AAC) confirmed these penalties.

The Income Tax Appellate Tribunal (ITAT) deleted the penalties, holding that the department had not discharged the initial burden of proving that the delay was without reasonable cause, as required by the Full Bench decision in Addl. CIT v. I. M. Patel and Co. [1977] 107 ITR 214. The Tribunal noted that there was no material on record to show that the assessee was aware of its liability to file the returns in time. However, the Tribunal also observed that the cause shown by the assessee was "hardly adequate."

2. Whether the Department Discharged the Initial Burden of Proving that the Delay in Filing the Returns was Without Reasonable Cause:
The High Court found that the Tribunal misinterpreted the principles laid down in Addl. CIT v. I. M. Patel and Co. The court emphasized that the department had discharged its initial burden by showing that no application for an extension of time was made and that no extraordinary situation prevented the filing of returns. The court noted that the assessee had a history of filing returns late and was aware of the liability to file returns within the prescribed time. The court held that the department had discharged its initial burden, and the cause shown by the assessee for the delay was not reasonable.

3. Applicability of Section 271(3)(a) Concerning the Assessment Year 1967-68:
For the assessment year 1967-68, the court found that no penalty was leviable under Section 271(3)(a) because the income returned and accepted by the ITO was Rs. 26,197, which was below the non-taxable limit of Rs. 26,500 for a registered firm. The court referred to Circular F. No. 88/104/67-II (Inv) dated January 1, 1968, issued by the CBDT, which clarified that no penalty is leviable if the income does not exceed Rs. 26,500. Therefore, the penalty for the assessment year 1967-68 was rightly deleted by the Tribunal.

Conclusion:
The High Court answered the question referred to it in the negative and against the assessee for the assessment years 1968-69 and 1969-70, upholding the penalties imposed by the ITO. For the assessment year 1967-68, the court answered in the affirmative and against the revenue, confirming the deletion of the penalty. The court noted that the assessee could approach the Commissioner of Income-tax under Section 273A for a waiver of penalties and interest, given the small tax liability compared to the penalties and interest imposed. The reference was answered accordingly, with no order as to costs.