1977 (5) TMI 47 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under Section 271(1)(a) of the IT Act, 1961 for belated submission of the return.
2. Limitation period for passing the penalty order.
3. Reasonable cause for the delay in submission of the return.

Detailed Analysis:

1. Levy of Penalty under Section 271(1)(a) of the IT Act, 1961 for Belated Submission of the Return
The appellant was penalized for filing the return late. The due date for filing the return under Section 139(2) was 31st July 1966, but the return was filed on 25th April 1970. The ITO imposed a penalty of Rs. 5,080 under Section 271(1)(a). The appellant contended that similar additions and disallowances were made for the preceding assessment year 1965-66, which were deleted on appeal, leading to a belief that the income would be below the taxable limit. The ITO rejected this argument, considering it a hypothesis by the appellant. The appellant also argued that the firm's dissolution due to partner differences delayed the finalization of accounts, but the ITO dismissed this, noting that the partners had filed their returns showing their share income.

2. Limitation Period for Passing the Penalty Order
The appellant argued that the penalty order was barred by limitation. The assessment was completed on 18th March 1971, and the penalty notice was issued on 20th March 1971. The penalty order was passed on 25th January 1973. The appellant filed a revision petition to the CIT under Section 264, contending that the penalty order was passed without giving notice under Section 129, thus vitiating it. The CIT accepted this contention, set aside the penalty order on 13th March 1975, and directed the ITO to give a fresh opportunity of being heard. The successor ITO passed the penalty order on 1st August 1975. The appellant argued that under Section 275(a)(ii), the penalty order should have been passed before the expiration of six months from the date when the CIT received the order of the AAC, making the penalty order time-barred.

3. Reasonable Cause for the Delay in Submission of the Return
The appellant contended that the delay in filing the return was due to a bona fide belief that the income was below the taxable limit, as similar additions and disallowances made in the preceding assessment year were deleted on appeal. Additionally, the firm's closure due to partner differences was cited as a reason for the delay. The ITO rejected these reasons, but the Tribunal found that the explanation offered was not palpably false. The cumulative effect of these circumstances constituted a reasonable cause for the delay, and thus, the penalty could not be sustained.

Judgment:
The Tribunal allowed the appeal, ordering the refund of the penalty if already recovered. The Tribunal held that the appellant had a reasonable cause for the delayed submission of the return, and the penalty levied could not be sustained. The Tribunal also rejected the appellant's plea based on limitation, concluding that the time taken in giving an opportunity to the assessee to be reheard under the proviso to Section 129 should be excluded in computing the period of limitation. However, the second member, V. Balasubramanian, held that the order passed by the ITO was barred by limitation and was ab initio illegal on that score.