2004 (4) TMI 262 - AT - Income Tax

Imposition of penalty u/s 271F for failure to furnish return of income within the due date - Determination of reasonable cause for failure to file the return - Applicability of penalty amount as per law prevailing on the date of default - HELD THAT - An order of penalty u/s 271F cannot be passed without considering objectively the explanation of the assessee. When the assessee shows that the cause was reasonable, the burden will shift to the Department to prove that it was not a reasonable one so as to justify the assessee's failure to file return within required time. The matter is to be decided judicially on a consideration of all the relevant circumstances. If a question arises to the Department as to whether the cause shown by the assessee is reasonable or not while exercising its discretion to impose penalty u/s 271F and two alternative meanings are given to the cause shown, one should lean in favour of the subject as it is by now settled that if two possible and reasonable constructions can be put upon a penal provision, the Court must lean towards that construction which exempts the subject from penalty rather than the one which imposes penalty. As already observed, the default as contemplated u/s 271F is not a continuing default nor it is quantified on the basis of tax ultimately determined to be payable by the assessee on completion of assessment under the provisions of IT Act. The amount of penalty prescribed u/s 271F is fixed and uniform one in all cases committing a default of a nature referred to in s. 271F. Sec. 271F provides for the penalty in case of a failure to file return as required u/s 139(1) before the end of the relevant assessment year. It speaks of an omission to do an act which is required by law to be performed by a person or the assessee and such omission is attracted penalty as contemplated u/s. 271F. Ordinarily, a failure to perform an act required by law to be done becomes a completed act of omission as soon as when the time prescribed by law to perform such an act expires, and the liability arising therefrom gets fastened as soon as the act of omission is completed. The extent of that liability is ordinarily measured according to the law in force at the time of such completion. The default which is committed once and for all is distinguishable from the continuing default. In the present case, the failure to file the return before the end of the relevant asst. yr. 2000-01 becomes a default at the end of 31st March, 2001, and as such a liability arising therefrom fastened on the expiry of 31st March, 2001. The question of imposition of fixed penalty has arisen as soon as the assessee had failed to furnish the return required u/s 139(1) by 31st March, 2001. The theory of continuing wrong or default is not applicable to the nature of default enumerated u/s. 271F of the Act. The decision of Hon'ble Supreme Court in the case of Maya Rani Punj 1985 (12) TMI 1 - SUPREME COURT holding that penalty is imposable on the basis of law applicable at the time when the AO decided to initiate penalty proceedings is not applicable to the present case of penalty imposable u/s 271F inasmuch as that decision was rendered in the context of continuing default as prescribed under then s. 271(1)(a) of the IT Act. It is also pertinent to note that the question of imposition of penalty under then s. 271(1)(a) had arisen only after assessment of tax was made and the legislature intended to deem the non-filing of the return to be a continuing default as would be clear from the language used in s. 271(1)(a) and as observed by Hon'ble Supreme Court in the aforesaid case of Smt. Maya Rani Punj. The language used in the present s. 271F is quite different from that of then s. 271(1)(a). The ratio laid down by Hon'ble Supreme Court in the said case of Smt. Maya Rani Punj supports the case of present assessee in the light of distinction between present s. 271F and then s. 271(1)(a). We, therefore, hold that levy of penalty under present s. 271F is to be imposed as per law prevailing on the date of default. In the ultimate analysis, the order imposing penalty of Rs. 5,000 u/s 271F on the present assessee is cancelled. In the result, the appeal filed by the assessee stands allowed.

Summary

Issues Involved:
1. Imposition of penalty u/s 271F for failure to furnish return of income within the due date.
2. Determination of "reasonable cause" for failure to file the return.
3. Applicability of penalty amount as per law prevailing on the date of default.

Summary:

1. Imposition of Penalty u/s 271F:
The assessee filed a return of income on 20th March 2002 for the assessment year 2000-01, showing a total income of Rs. 89,980. The due date for filing the return was 31st August 2000, and the last date was 31st March 2001. The AO imposed a penalty of Rs. 5,000 u/s 271F for failing to file the return before the end of the relevant assessment year. The CIT(A) upheld the penalty, stating that "Mens rea is not an essential ingredient of default in relation to filing of return of income."

2. Determination of "Reasonable Cause":
The Tribunal examined whether the cause pleaded by the assessee constituted a "reasonable cause" for avoiding the penalty. The assessee argued that the delay was due to the non-receipt of confirmation of transactions and that the entire tax liability was covered by TDS, resulting in a refund. The Tribunal noted that "reasonable cause" is not defined under the IT Act but should be interpreted similarly to "sufficient cause." The Tribunal found that the assessee's belief that she was not required to file the return before the end of the assessment year due to the refund was bona fide and constituted a reasonable cause.

3. Applicability of Penalty Amount:
The Tribunal also addressed the contention that the penalty should be restricted to Rs. 1,000 as per the law prevailing on the date of default (31st March 2001). The Tribunal held that the default u/s 271F is not a continuing default and that the liability for penalty arises as soon as the act of omission is completed. Therefore, the penalty should be imposed as per the law prevailing on the date of default.

Conclusion:
The Tribunal concluded that the penalty of Rs. 5,000 u/s 271F was not justified as the assessee had a reasonable cause for the delay in filing the return. The order imposing the penalty was cancelled, and the appeal filed by the assessee was allowed.