1998 (3) TMI 178 - AT - Income Tax

Summary

Issues Involved:
1. Whether the delay in filing the income tax returns by the partners of M/s. Mangal Engg. Works was justified.
2. Whether the penalties levied under section 271(1)(a) for the delay in filing the returns should be upheld, reduced, or deleted.

Detailed Analysis:

1. Justification for Delay in Filing Returns:
The primary issue was whether the partners of M/s. Mangal Engg. Works had a reasonable cause for the delay in filing their income tax returns. The partners filed their returns on 10-3-1988, whereas the due date was 31-7-1985, resulting in a delay of 31 months. The partners argued that their main source of income was the share from the firm, and since the firm's return was filed on 9-2-1988, they could not file their returns earlier. They contended that the delay in the firm's return was due to a search and seizure operation on 25-8-1984, which led to the seizure of various books of account and subsequent filing of an application before the Settlement Commission. The CIT(A) accepted this explanation partially, condoning the delay up to 9-2-1988 but sustaining the penalty for the remaining one month.

2. Penalties Under Section 271(1)(a):
The Assessing Officer initially levied penalties for the entire 31-month delay. However, the CIT(A) reduced the penalty, holding that the delay up to the date of the firm's return was reasonable. The Revenue appealed against this reduction, arguing that the firm was not penalized under section 271(1)(a), and thus, the partners should not be excused. The assessees cross-appealed, arguing that even the one-month penalty was unjustified.

Judgment Analysis:

Revenue's Argument:
The Revenue contended that the CIT(A) erred in condoning the 30-month delay, emphasizing that the firm's audit report was prepared on 30-7-1985, and there was no justification for the partners to delay their returns. They argued that the penalties should be upheld in full as the partners had other sources of income and could have filed their returns earlier.

Assessees' Argument:
The assessees relied on the decisions of the jurisdictional High Court in CIT v. Pratap Chand Makeshwari and the Delhi High Court in Madan Lamba v. CIT. They argued that the delay in the firm's return constituted a reasonable cause for their delay. They also pointed out that the Settlement Commission did not levy any penalty on the firm, which should not affect the partners' cases.

Tribunal's Decision:
The Tribunal considered the rival submissions and noted that the main source of income for the partners was the share from the firm. They observed that the search and seizure operation on 25-8-1984 led to the seizure of books and documents, and the firm had to approach the Settlement Commission. The Tribunal agreed with the CIT(A) that the partners had a reasonable cause for the delay up to the date the firm filed its return. However, they upheld the penalty for the remaining one month, as there was no justification for further delay after the firm's return was filed.

Third Member's Opinion:
Due to a difference of opinion between the Members, the matter was referred to a Third Member. The Third Member upheld the view of the Accountant Member, confirming the CIT(A)'s order. He emphasized that the partners' delay was justified up to the date the firm filed its return, considering the search and seizure operation and the subsequent application to the Settlement Commission. He noted that the main source of income for the partners was the firm's share, and the additional income offered by the firm was subject to revision under section 154 based on the Settlement Commission's final decision.

Conclusion:
The Tribunal upheld the CIT(A)'s order, condoning the delay in filing the returns up to 9-2-1988 and sustaining the penalty for the remaining one month. The appeals by the Revenue and the cross-objections by the assessees were dismissed. The Third Member's opinion confirmed that the partners had a reasonable cause for the delay up to the date the firm filed its return, aligning with the principles laid down by the High Courts in similar cases.