1973 (7) TMI 18 - HC - Income Tax

Penalty under section 271(1)(a) - rejection of assessee s explanation for the delay in filing return - since there was no material to hold that the assessee had deliberately failed to submit its return within the prescribed time limit or that its conduct was contumacious or dishonest, penalty is not leviable

Summary

Issues:
Levy of penalty under section 271(1)(a) of the Income-tax Act, 1961 for belated return filing.

Analysis:
The case involved the question of whether the levy of penalty under section 271(1)(a) of the Income-tax Act, 1961 was justified in law due to the belated filing of the return by the assessee, a registered firm. The relevant accounting period was the financial year ending on March 31, 1966. The return of income under section 139(2) was due on October 7, 1966, but the assessee failed to file it by that date. The Income-tax Officer issued a show cause notice for the penalty, and eventually, a penalty of Rs. 2,960 was levied. The assessee's appeal to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal were unsuccessful, with the penalty being reduced to Rs. 2,086 by the Tribunal.

The primary argument raised by the assessee was that the authorities had misdirected themselves on a question of law. The burden was on the department to prove that the delay in filing the return was without reasonable cause. The court examined section 271(1)(a) of the Act, which requires that the assessee must have failed to furnish the return without reasonable cause to levy a penalty. This provision is similar to section 18(1)(a) of the Wealth-tax Act, 1957, as observed in previous judgments.

The court referred to precedents, including a decision of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa, which emphasized that the liability to pay a penalty arises from deliberate defiance of law or contumacious conduct. In this case, none of the authorities found evidence that the assessee acted deliberately in violation of the law. The Income-tax Officer rejected the explanation offered by the assessee, emphasizing the need to comply with statutory requirements, but the Appellate Assistant Commissioner acknowledged the complexities of the firm's business. The Tribunal also noted the challenges faced by the firm but still upheld the penalty.

Ultimately, the court found that there was no material to suggest deliberate non-compliance by the assessee. The authorities had not considered the guiding principles for imposing penalties and had proceeded on an erroneous view. Therefore, the court concluded that the levy of penalty under section 271(1)(a) was not justified in law and ruled in favor of the assessee. The assessee was awarded costs and advocate's fee.