1988 (1) TMI 61 - AT - Income Tax

Summary

Issues Involved:

1. Sustaining the penalty for 41 months under section 18(1)(a) of the Wealth-tax Act.
2. Whether the return of wealth was filed within the time allowed by the WTO.
3. Whether there was a reasonable and sufficient cause for the delay in filing the return.
4. Whether the penalty quantum sustained by the AAC was excessive.
5. Whether the assessee had a bona fide belief that his net wealth was below the taxable limit.
6. Whether the delay in filing the return could be condoned based on the Supreme Court decision in CIT v. M. Chandra Sekhar.
7. Whether the penalty under section 18(1)(a) of the Wealth-tax Act was correctly sustained by the Appellate Assistant Commissioner.

Detailed Analysis:

1. Sustaining the Penalty for 41 Months under Section 18(1)(a) of the Wealth-tax Act:

The assessee contended that the penalty for 41 months was wrongly sustained by the AAC. The AAC held that the return was not filed voluntarily under section 14(1) and thus, the penalty was justified. However, the assessee argued that the return was filed within the time allowed by the WTO, and the delay should be condoned. The Judicial Member agreed with the AAC, stating there was no reasonable cause for the delay, while the Accountant Member disagreed, citing the bona fide belief of the assessee regarding the taxable limit of his wealth.

2. Whether the Return of Wealth was Filed within the Time Allowed by the WTO:

The assessee argued that since the WTO had allowed an extension of two months for filing the return, the earlier delay should also be considered condoned. The Judicial Member did not accept this argument, stating that the extension granted by the WTO was only for the additional period and not for the entire delay. The Accountant Member, however, supported the assessee's contention that the extension implied condonation of the entire delay.

3. Whether there was a Reasonable and Sufficient Cause for the Delay in Filing the Return:

The assessee claimed that he was under a bona fide belief that his net wealth was below the taxable limit, supported by an Approved Valuer's report valuing the property at Rs. 1,12,472. The Judicial Member rejected this claim, stating that the legal advice was available to the assessee, and he should have known that the exemption limit was not applicable to his hotel property. The Accountant Member, on the other hand, accepted the assessee's bona fide belief and held that there was a reasonable cause for the delay.

4. Whether the Penalty Quantum Sustained by the AAC was Excessive:

The assessee argued that the penalty quantum sustained by the AAC was excessive. The AAC had reduced the penalty period by two months but upheld the penalty for the remaining 41 months. The Judicial Member agreed with the AAC's decision, while the Accountant Member found the penalty to be unjustified and excessive, considering the assessee's bona fide belief and the nominal tax involved.

5. Whether the Assessee had a Bona Fide Belief that his Net Wealth was Below the Taxable Limit:

The assessee claimed that he believed his wealth was below the taxable limit based on the valuation report and the exemption available for one property. The Judicial Member did not accept this belief as bona fide, citing the legal advice available to the assessee. The Accountant Member, however, accepted the assessee's belief as bona fide, considering the valuation report and the lack of professional advice before filing the return under section 17.

6. Whether the Delay in Filing the Return could be Condoned Based on the Supreme Court Decision in CIT v. M. Chandra Sekhar:

The assessee relied on the Supreme Court decision in CIT v. M. Chandra Sekhar, arguing that the extension of time by the WTO implied condonation of the entire delay. The Judicial Member distinguished this case, stating that the Supreme Court decision did not apply to reassessment proceedings under section 17. The Accountant Member, however, found the decision relevant and held that the delay should be condoned based on the extension granted by the WTO.

7. Whether the Penalty under Section 18(1)(a) of the Wealth-tax Act was Correctly Sustained by the Appellate Assistant Commissioner:

The Judicial Member upheld the penalty, agreeing with the AAC that there was no reasonable cause for the delay. The Accountant Member disagreed, finding that the penalty was not justified due to the assessee's bona fide belief and the circumstances surrounding the delay. The Third Member, agreeing with the Accountant Member, held that the penalty was not justified and should be cancelled.

Conclusion:

In conformity with the majority opinion, the penalty under section 18(1)(a) of the Wealth-tax Act was not leviable, and the orders of the authorities below imposing/sustaining the penalty were quashed. The appeal was allowed.