1974 (1) TMI 11 - HC - Income Tax

Return is filed after the due date but before the assessment - Reasonable cause - Whether, in the facts and in the circumstances of the case, the cancellation of penalty by the Appellate Tribunal was justified in law ? - held that ITO was not justified in levying the penalty

Summary

Issues:
- Whether the cancellation of penalty by the Appellate Tribunal was justified in law?

Analysis:
The judgment involves a reference made by the revenue under section 256(1) of the Income-tax Act of 1961 to decide the question of law regarding the justification of canceling the penalty imposed on the assessee. The assessee, a firm, filed its return after the due date, leading to a penalty under section 271(1)(a) of the Act. The Appellate Assistant Commissioner upheld the penalty, but the Tribunal, considering the circumstances, canceled the penalty. The Tribunal's decision was based on the interpretation of sections 139(1) and 139(4) of the Income-tax Act, 1961, and the applicability of a Supreme Court decision under the earlier law. However, the High Court noted that the Tribunal erred in equating the provisions of the old and new Acts, emphasizing that the law under the 1961 Act imposes a mandatory obligation to file returns within the specified time.

The High Court further examined the alternative basis provided by the Tribunal for canceling the penalty under section 271(1)(a) of the Act. It highlighted the requirement for the revenue to prove that the assessee failed to furnish the return without reasonable cause. Referring to decisions by various High Courts and the Supreme Court, the Court emphasized that penalty for failure to comply with statutory obligations is quasi-criminal and should not be imposed unless there is a deliberate defiance of the law or conscious disregard of obligations. The Tribunal's view that the assessee's default was technical due to the change in law and lack of contumacious conduct was considered reasonable by the High Court.

The High Court disagreed with the revenue's contention that the assessee's failure to respond to the notice implied no reasonable cause, stating that the burden to establish the absence of reasonable cause was not discharged merely by the assessee's non-compliance with the notice. Ultimately, the High Court upheld the Tribunal's decision, ruling that the cancellation of the penalty was justified in law based on the circumstances of the case. Both judges concurred with this decision, making no direction as to costs.