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Sewbalakram and Co. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberIncome-tax Reference No. 1 of 1974
Judge
ActsIncome Tax Act, 1961 - Sections 139(2), 271(1) and 274
AppellantSewbalakram and Co.
RespondentCommissioner of Income-tax
Appellant AdvocateP.G. Barua, R.P. Agarwalla and R.L. Jain, Advs.
Respondent AdvocateG.K. Talukdar, D.K. Talukdar, R.K.M. Singh and R. Bordeloi, Advs.
Excerpt:
- - provided that, on an application made in the prescribed manner, the ito may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of sub-section (8). 8. under section 271(1) of the act if the ito or the aac in the course of any proceeding under the act is satisfied that any person--(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1)of section 139 or by notice given under sub section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case..... saikia, j. 1. in this reference under section 256(1) of the i.t. act, 1961, the income-tax appellate tribunal, gauhati bench, has referred the following question of law : 'whether, on the facts and in the circumstances of the case arid on a proper construction of section 139 and section 271(1)(a) of the income-tax act the tribunal was right in upholding the levy of penalty under section 271(1)(a) of the income-tax act ?'2. as the case is stated, the assessee is a registered firm with its principal place of business at kohima, nagaland. the assessment year is 1962-63. a notice under section 139(2) was issued on december 12, 1962, requiring the assessee to file a return within 30 days, but no return was filed and a notice under section 274 read with section 271(1)(a) was issued on february.....
Judgment:

Saikia, J.

1. In this reference under Section 256(1) of the I.T. Act, 1961, the Income-tax Appellate Tribunal, Gauhati Bench, has referred the following question of law :

'Whether, on the facts and in the circumstances of the case arid on a proper construction of Section 139 and Section 271(1)(a) of the Income-

tax Act the Tribunal was right in upholding the levy of penalty under Section 271(1)(a) of the Income-tax Act ?'

2. As the case is stated, the assessee is a registered firm with its principal place of business at Kohima, Nagaland. The assessment year is 1962-63. A notice under Section 139(2) was issued on December 12, 1962, requiring the assessee to file a return within 30 days, but no return was filed and a notice under Section 274 read with Section 271(1)(a) was issued on February 8, 1963, asking the assessee to show cause as to why penalty should not be imposed for not complying with the notice at this stage. A return was filed by the assessee on April 15, 1964, Further opportunities were given to the assessee to comply with the notice issued under Section 271(1)(a)/274. Hearing was fixed on January 29, 1965, June 8, 1965, and August 30, 1965, and the final hearing was on January 31, 1967, where a written reply was given by the assessee raising three-fold contention before the ITO: '(1) That the return could not be filed due to the disturbed condition around Kohima. (2) There was no intention to delay the return. (3) The interest under Section 139 has been charged and so penalty under Section 271(1)(a) cannot be imposed.' The ITO rejected all the three contentions. Regarding the first contention he held that there was nothing on record to show that the conditions were disturbed around Kohima throughout 1963 and the first three months of 1964 ; that no specific instances of disturbance had been mentioned; that, no request for extension of time on this ground was received; and that no such disturbance was referred to in any of the petitions asking for time. Regarding the second contention the ITO held that merely saying that there was no intention to delay without producing any evidence thereof was merely begging the question, Regarding the third contention, after elaborately discussing the legal position he concluded that the levy of interest under Section 139 did not prevent the levy of penalty under Section 271(1)(a). Accordingly the ITO by his order dated February 15, 1967, imposed a penalty of Rs. 19,640 in addition to the interest charged under Section 139, for late filing of return.

3. In his appeal before the AAC, besides raising the aforesaid three, contentions, the assessee further argued that the quantification of penalty at 2% was not mandatory, but it only showed the maximum. All the contentions were rejected; and the appeal was dismissed.

4. When the matter came up before the Income-tax Appellate Tribunal the assessee once again raised the aforesaid three contentions. As regards reasonable cause, the Tribunal found that the reasons advanced could not have prevented the assessee for the whole of 15 months. Observing that the cause shown should be such as should have a direct bearing on the inability pleaded and should not be merely a vague suggestion in a general way, it held that the ITO had been able to show that the assessee

had shown conscious disregard of his legal obligation of filing a return. It also held that the levy of interest under Section 139 was no bar to the levy of penalty under Section 271(1)(a); that only in a case where the ITO extended the time for filing the return and the return was filed within the time so extended that the penalty could not be levied; and that interest under Section 139 had to be charged in accordance with the provisions of the section ; and even in a case where a return was filed under Section 139(4) interest became chargeable. The Tribunal accordingly upheld the penalty. Wherefore the above question of law in this reference.

5. Mr. P.G. Barua, the learned counsel for the assessee, submits, inter alia, that the Tribunal was not right in upholding the levy of the penalty under Section 271(1)(a) of the Act inasmuch as the ITO did not give any opportunity to the assessee to adduce evidence before holding that the ground shown was not proved and it did not constitute a reasonable cause; that had opportunity been given it could have shown that there was no negligence or mens rea on his part in not filing his return within time ; and that even assuming, but not conceding, that penalty was leviable, it ought to have been under Section 139(1) and not Section 139(2). Mr. Barua has not pressed the third contention, namely, illegality of levying penalty when interest is charged under Section 139. On the first submission counsel relies on Hanutram Ramprasad v. CIT , Smt. Indu Barua v. CWT , V.L. Dutt v. CIT : [1976]103ITR634(Mad) , Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) , CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) , Anantharam Veerasinghaiah & Co. v. CIT : [1980]123ITR457(SC) and Bhawani Shankar Bagaria v. Asst. CED . On the second submission Mr. Barua relies on T.K. Roy v. CWT , CWT v. Suresh Seth : [1981]129ITR328(SC) , CIT v. Golaprai Hoonlal and Co. and CIT v. Assam Travels Shipping Service .

6. Mr. G.K. Talukdar, the learned counsel for the Department, refutes the first submission of Mr. Barua stating that the ITO's order imposing penalty is very exhaustive and is unassailable ; that mens rea is not necessary in economic offences for the purpose of imposition of penalty ; that the ITO having found that the delay was without reasonable cause and that the assessee showed conscious disregard of his obligation to file return, the order imposing penalty was amply justified. He submits that the Department discharged its burden by showing that the notice was issued under Section 139(2) and that return was not filed and the fact of disturbance around Kohima having been within the special knowledge of the assessee the burden was on him to prove that it constituted a reasonable cause and that mens rea is not necessary in economic offences in the same sense as it

is necessary in other crimes. He relies on CIT v. Kulu Valley Transport Co. Pvt. Ltd. : [1970]77ITR518(SC) , Indu Barua (Smt.) v. CWT , CIT v. Patram Dass Raja Ram Beri , R.S. Joshi v. Ajit Mills Ltd. : [1978]1SCR338 , Hindustan Steel Ltd. v. Stale of Orissa : [1972]83ITR26(SC) , 'Anantharam Veerasinghaiah & Co. v. CIT : [1980]123ITR457(SC) , CIT v. Anwar Ali : [1970]76ITR696(SC) , CIT v. Gangaram Chapolia : [1976]103ITR613(Orissa) . Replying to the second submission, Mr. Talukdar submits that the question of law referred to by the Tribunal could not be widened in this reference; that Section 139 was mentioned therein only in the context of imposition of interest; and that in this case the penalty proceeding throughout was on the basis of Section 139(2), He relies on CIT v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) .

7. Section 139 of the I.T. Act, 1961 (shortly 'the Act'), deals with the submission of return of income. Under Sub-section (1) of Section 139 every person, if his total income or the total income of any other person in respect of which he is assessable under the Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner setting forth such other particulars as may be prescribed, before the 30th day of June, of the assessment year: Provided that, on an application made in the prescribed manner, the ITO may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the, provisions of Sub-section (8) thereof. Under Sub-section (2) of that section in the case of any person who, in the ITO's opinion, is assessable under the Act, whether on his own total income or on the total income of any other person during the previous year, the ITO may, before the end of the relevant assessment year, issue a notice to him and serve the same upon him requiring him to furnish, within thirty days from the date of, service of the notice, a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed: Provided that, on an application made in the prescribed manner, the ITO may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of Sub-section (8).

8. Under Section 271(1) of the Act if the ITO or the AAC in the course of any proceeding under the Act is satisfied that any person--(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under Sub-section (1)of Section 139 or by notice given under Sub

section (2) of Section 139 or Section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by Sub-section (1) of Section 139 or by such notice, as the case may be, he may direct that such person shall pay by way of penalty the amount that may be computed under the prosions of that Sub-section.

9. Under the above provisions for imposition of penalty under Section 271(1)(a) of the Act, two pre-requisites can be spelled out, namely, (1) the failure to submit a return as required under Section 139, and (2) without any reasonable cause.

10. In the instant case there is no dispute about the failure to furnish a

return within the required time. The only question is whether that was

without a reasonable cause, and, if so, whether the levy of penalty was

justified While considering the presence or absence of a reasonable cause

how the authority is to arrive at the conclusion is the crucial question.

This also involves the question of burden of proof. Who is to show

whether there was a cause, and if such a cause is shown, who is to decide

whether it was reasonable or hot Only after the cause is found to be not

reasonable the question of imposition of penalty will arise. Imposition of

penalty must be preceded by a finding as to omission or commission of an

act which entails the penalty. Is there any burden on the ITO at this

stage to prove that the assessee has omitted or committed an act which

entails the penalty, or does the absence of a reasonable cause ipso facio

enable the ITO to impose the penalty? If it is held that the burden lies on

the ITO to prove the omission or commission of an act which entails

penalty, the next question will be as to how it can be proved that the

assessee has omitted or committed an act sought to be prevented by law

and for doing so it will be necessary to prove that he had the mens rea in

omitting or committing it; and without such a proof the penalty may not

be imposable under law.

11. In CIT v. Anwar Ali : [1970]76ITR696(SC) , where the ITO discovered an undisclosed bank account of the respondent in which a cash deposit of Rs. 87,000 had been made, which the assessee explained to have represented diverse amounts entrusted to him by his relatives who had got panicky during the communal riots in Bihar in 1946, the ITO rejected the explanation and brought the same to tax as his income from undisclosed sources and thereafter a penalty of Rs. 66,000 was imposed under Section 28(1)(c) of the Indian I.T. Act, 1922, for concealment of particulars of his income, it has been held that one of the objects in enacting Section 28 was to provide a deterrent against recurrence of default on the part of the assessee, and that Section 28 was penal in character in the sense that the consequences are intended to be an effective deterrent which will put a stop to practices which the Legislature considers to be against the public interest, and that

the Department must establish that the receipt of the amount in dispute constituted an income of the assessee and if there was no evidence on record except the explanation given by the assessee, which explanation had been found to be false, it did not follow that the receipt constitutes his taxable income. It has been further held that as the proceedings under Section 28 were of a penal nature and the burden was on the Department to prove that a particular amount was a revenue receipt, it would be legitimate to say that the mere fact that the explanation of the assessee was false, did not necessarily give rise to the inference that the disputed amount represented the income. It had been pointed out in that decision that the finding given in the assessment proceedings for determining or computing the tax was not conclusive though it might be good evidence. It had further been held that before penalty could be imposed the entirety of circumstances must reasonably point to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.

12. In CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) , the question referred to the High Court was : 'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the penalty of Rs. 35,000 levied under Section 28(1)(c) of the Indian Income-tax Act, 1922 ?' The assessee for the assessment year 1955-56, sent a return showing Rs. 51,214 as taxable income. But looking into the accounts and other records the ITO made several additions raising it to Rs. 3,30,474 which was reduced on appeal to Rs. 2,09,575 and, on further appeal, the Appellate Tribunal did not alter the figure, but it set aside the order levying penalty and the High Court held that there were no questions of law arising for reference being made to the High Court and it rejected the application filed by the appellant under Section 66(2) of that Act. Referring to the decision in Anwar Ali's case : [1970]76ITR696(SC) , their Lordships held that proceedings under Section 28 are penal in character ; the Department must establish that the receipt of the amount in dispute constituted the income of the assessee and that apart from the falsity of the explanation given by the assessee the Department must have before it before-levying penalty cogent material or evidence from which it could be inferred that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same and that the disputed amount is a revenue receipt. It has farther been held that no doubt the original assessment proceedings for computing the tax may be a good item of evidence in the penalty proceedings but the penalty cannot be levied solely on the basis of the reasons given in the original order of assessment. In that case except the reasons given in the original

assessment order for including the disputed item in the total income, the Department had no other material or evidence from which it could be reasonably inferred that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. The appeal was accordingly dismissed.

13. In Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) , between 1954 and 1959, the appellant-company was erecting factory buildings for the steel plant, residential buildings for its employees and ancillary works such as roads, water supply, drainage, etc. Some of the constructions were done departmentally and the rest through contractors. The company supplied to the contractors for use in construction, bricks, coal, cement, steel, etc., for consideration and adjusted the value of the goods supplied at the rates specified in the tender and in addition to the cost price the company included some additional amounts which were charged by the appellant. The question was whether the supply of materials amounted to 'sale' and the appellant-company was a 'dealer' for the purpose of sales tax under the Orissa Sales Tax Act, 1947. In proceedings for assessment of tax under the Orissa Sales Tax Act, 1947, the STO held that the company was a dealer in building materials, and had sold the materials to contractors and was on that account liable ,to pay tax at the appropriate rates under the Orissa Sales Tax Act and he directed the company to pay tax due for ten quarters ending on 31st December, 1958, and penalty, in addition, to tax, for failure to register itself as a dealer. The AAC confirmed the order of the STO and the Tribunal maintained the penalty but reduced its quantum. At the instance of the company six questions were referred to the Orissa High Court under Section 24(1) of the Orissa Sales Tax Act, 1947, question No. F being--' Whether the Tribunal is right in holding that penalties under Section 12(5) of the Act had been rightly levied and whether in view of the serious dispute of liability it cannot be said that there was sufficient cause for not applying for registration ' The High Court answered the question in the affirmative. On appeal their Lordships of the Supreme Court held that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose

penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. On the above facts, their Lordships held that those in charge of the affairs of the company in falling to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out.

14. In V.L. Dutt v. CIT : [1976]103ITR634(Mad) , the assesses filed his return after a notice under Section 139(2) of the Act nearly 18 months after the due date for the assessment year 1964-65, and about 91/2 months for the assessment year 1965-66. Explanation of the assessee in respect of the assessment year 1964-65 was that the return of income could not be filed in time because the finalisation of the statutory audit relating to M/s. V. Ramakrishna & Sons Private Ltd., which was the only source for gathering materials required for the preparation of the return, was not completed and that there were labour troubles in the workshop of K.C.P. Ltd., a sister concern. For the assessment year 1965-66, the objections and contentions were identical. The ITO rejected all of them and held that penalty was leviable under Section 271(1)(a) and he calculated the penalty at Rs. 4,500 and Rs. 1,344 for the two years respectively. The AAC affirmed the penalty subject to reduction in assessment as a result of the appellate proceedings and the Appellate Tribunal confirmed the levy of penalty. The real question in issue was whether penalty could be levied under Section 271(1)(a) of the Act. Their Lordships of the Madras High Court Considered that the decision in Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) was applicable to the penalty proceedings under the Act (p. 635 of 103 ITR).

'The penalty under Section 271(1)(a) will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of his obligations. The language of this provision is not consistent with the view that there is any presumption that the assessee who submits a belated return has committed an offence, so that it would be necessary for him to establish that he had reasonable cause. As the same expression 'without reasonable cause' occurs both in Section 271(1)(a) and 276(b) the same meaning would have to be given in both the provisions so that the presence of a mental element which is relevant for the provision under Section 276(b) would also have to be established in applying Section 271(1)(a). The mental element can be established by circumstantial evidence in the shape of contumacious conduct or dishonest or persistent disregard of the statutory obligation. The levy of penalty under Section 271(1)(a) is not a mere concomitant of delay in filing the return. If Parliament intended that this was the position, then it would have

omitted the expression 'without reasonable cause' in the substantive part of Section 271(1)(a) and would have provided for the assessee to get out of the operation of the provision by establishing reasonable cause, as has been provided in Section 146. The rigour of the principle applicable to the criminal prosecution will not apply to the proceedings under Section 271(1)(a), so that even in a case where the assessee fails to extend cooperation and withholds any explanation for the delay in filing the return he is not liable to be penalised unless the Department established that he had acted in deliberate disregard of his statutory obligations.' (p. 647 of 103 ITR)

15. Their Lordships further observed. (p. 648);

'Where a person had no explanation to offer, it may be treated as circumstantial evidence to show that he had acted without reasonable cause. Also, in a case where the explanation is so prima facie unreasonable, it would be open to the Income-tax Officer to levy penalty on the ground that the, assessee had no reasonable cause for the delay in submission of the return. It would be difficult to lay down how or in what manner the onus to establish the absence of a reasonable cause can be discharged. It would depend upon the facts and circumstances of the particular case. The provision is not intended to penalise a technical or venial breach of the provisions of the Act or where the breaches suffer from a bona fide belief that the offender is not liable to act in the manner prescribed in the statute.'

16. Applying the aforesaid principles it was considered that there was no conscious or deliberate disregard of the statutory obligation on the part of the assessee and it was accordingly held that the penalty was not properly levied under the provisions of Section 271(1)(a) of the Act in that case and the question was answered in the negative and in favour of the assessee.

17. In Hanutram Ramprasad v. CIT , a notice dated November 14, 1958, under Section 22(2) of the Indian I.T. Act, 1922, for the assessment year 1958-59 was served on the assessee on November 15, 1058, requiring the assessee to submit the return of income within 35 days from the date of receipt of the notice but the assessee did not submit any return on the due date. He, however, submitted the return on May 25, 1961, and consequently a notice dated May 25, 1963, under Section 274 read with Section 271 of the Act was issued requiring him to show cause why penalty should not be imposed for non-submission of the return within the time allowed. The assessee did not comply and after several dates on March 8, 1965, an application was filed on behalf of the assessee not showing any cause therein but raising two contentions of law, namely, (i) that only-proceedings under Section 274 read with Section 271 was not a valid initiation of the proceedings in the eye of law, and (ii) that the assessment was completed under the 1922 Act and, as such, the penalty proceedings under the 1961 Act was invalid. The ITO having rejected both the contentions and having observed that he was satisfied that the default in filing the return was deliberate and the assessee rendered itself liable to penalty under Section 271(1)(a), assessed penalty of Rs. 14,090 at the rate of 2% per month for 15 months from January 1, 1959, to April 30, 1961, under Section 271(1)(a) of the Act for the assessment year 1958-59 ; and his appeal having been rejected by the AAC as well as by the Income-tax Appellate Tribunal, two questions were referred to this court, the second being reframed, namely :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the penalty proceedings under Section 271(1)(a) has been legally initiated ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the penalty was validly imposed in view of the decision of the Supreme Court in the case of Commissioner of Income-tax v. Kulu Valley Transport Co. P. Ltd. : [1970]77ITR518(SC) , and in view of the fact that the burden of proof was laid by the Tribunal on the assessee '

18. Their Lordships observed that in Kulu Valley the Supreme Court have

not decided that no penalty can be levied if a return is submitted beyond

the time allowed, without reasonable cause ; and as such it must be held

that the order levying penalty was not invalid in view of the decision of

the Supreme Court in Kulu Valley's case. Discussing the question of

burden of proof their Lordships referred to the principles of law of evidence

as engrained in Sections 101 to 114 of the Indian Evidence Act; and it has been

observed that the penalty proceeding under Section 271 of the Act is a quasi-criminal proceeding, but not a criminal prosecution as such, and, therefore,

the doctrine of criminal jurisprudence that the guilt of the accused shall

be established beyond reasonable doubt by the prosecution, does not fully

apply to a proceeding under Section 271 of the Act. In other words, the Department,

in the course of any proceeding under the Act, in order to levy penalty,

need not prove beyond reasonable doubt, negatively, that the assessee

has, without reasonable cause, failed to furnish the return of the total

income which he was required to furnish. Their Lordships approved the

following statement from Wharton's Evidence in Criminal Cases, Section 201,

Vol. 1, 11thEdn.:

'As a rule affecting merely the time and manner of proof, but not for the purpose of affecting the merits of the testimony, when facts are peculiarly within the knowledge of a party, the burden is on him to prove such facts, whether the proposition be in an affirmative or a negative one. A

court may, therefore, properly hold that so far as the mode of offering proof but in no way touching the question of the degree of proof, it is incumbent on a party who has a peculiar proof in his possession to first produce it.'

19. Their Lordships also relied on the following lines from Halsbury's Laws of England, 3rd Edn., vol. 15, p. 270:

'(i) When there exists a rebuttable presumption of law in favour of a party, the burden of rebutting it lies upon his opponent, and (ii) where the truth of a party's allegation lies peculiarly within the knowledge of his opponent, the burden of disproving it lies upon the latter.' .

20. We fully subscribe to this analysis.

21. In Anantharam Veerasinghaiah & Co. v. CIT : [1980]123ITR457(SC) , the assessee was an abkari contractor who submitted a return for the assessment year 1959-60 disclosing a total turnover of Rs. 10,92,132. On examination of the assessee's books, the ITO found that on two dates expenditure was in excess of the disclosed available cash and also noticed cash deposits in the name of certain sendhi shop-keepers. The assessee's explanation was that the excess expenditure was met from amounts deposited by some shop-keepers but not entered in the books and alternatively the expenditure incurred earlier had been recorded later ; and that cash deposits represented amounts deposited with it as security. This explanation was rejected and the ITO made certain additions to the book profits which were reduced by the Tribunal ultimately to Rs. 1,30,000. Penalty proceedings were initiated and the assessee repeated the explanation given in the assessment proceedings. Rejecting the explanation the IAC imposed a penalty of Rs. 75,000 under Section 271(1)(c) of the Act. On appeal the Tribunal held that there was no positive material to establish that the cash deposits represented concealed income and that some part of the addition of Rs. 2 lakhs made to the book profits of the assessee for the assessment year 1957-58 could have been ploughed back to the business and that a sum of Rs. 90,000 could be said to have been introduced in the year 1959-60 and accordingly set aside the penalty. On a reference the High Court held that the Tribunal was not justified in holding that no penalty was leviable and also that in point of fact the assessee earned income during the relevant year and that the assessee was guilty of concealing such income or furnishing inaccurate particulars thereof. On appeal the Supreme Court interpreting Section 271(1)(c) of the Act observed (pp. 461-62):

'This is the provision as it stood at the relevant time. It is now settled law that an order imposing a penalty is the result of quasi-criminal proceedings and that the burden lies on the Revenue to establish that the disputed amount represents income and that the assessee has consciously

concealed the particulars of his income or has deliberately furnished inaccurate particulars : CIT v. Anwar Ali : [1970]76ITR696(SC) . It is for the Revenue to prove those ingredients before a penalty can be imposed. Since the burden of proof in a penalty proceeding varies from that involved in an assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted as a finding to that effect in the penalty proceeding. In the penalty proceeding the taxing authority is bound to consider the matter afresh on the material before it and, in the light of the burden to prove resting on the Revenue, to ascertain whether a particular amount is a revenue receipt. No doubt, the fact that the assessment order contains a finding that the disputed amount represents income constitutes good evidence in the penalty proceeding but the finding in the assessment proceeding cannot be regarded as conclusive for the purposes of the penalty proceeding. That is how the law has been understood by this court in 'Anwar Ali's case : [1970]76ITR696(SC) , and we believe that to be the law still. It was also laid down that before a penalty can be imposed the entirety of the circumstances must be taken into account and must point to the conclusion that the disputed amount represents income and that the assessee has consciously concealed particulars of his income or deliberately furnished inaccurate particulars. The mere falsity of the explanation given by the assessee, it was observed, was insufficient without there being in addition cogent material or evidence from which the necessary conclusion attracting a penalty could be drawn. These principles were reiterated by this court in CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) .'

22. In Smt. Indu Barua v. CWT , one of the questions referred was--'Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order of penalty under Section 18(1)(a) passed by the Wealth-tax Officer 'The Tribunal in that case agreed with the WTO and the AAC that the assessee had failed to show reasonable cause for her default in filing the return within time for all the assessment years in question. Rejecting the explanation of the assessee as unreasonable the Tribunal reached the conclusion that the assessee had consciously disregarded the provisions of law in making the default. Referring to the pronouncements of the Supreme Court on requirement of mens rea and burden of proof it was observed (p. 450):

'Reading the words of Section 18(1) of the Act, the object of the statute, and considering the principles of law discussed above, we are of the opinion that the element of mens rea has not been dispensed with, either expressly or impliedly, and is to be read into the penalty proceeding under Section 18(1)(a) of the Act.

Consequently, to justify imposition of penalty, onus is on the department to establish prima facie by producing some evidence that the assessed is liable to payment of penalty for default to file the return within time by conscious disregard of the provisions of law. If there is no evidence on the record except the explanation given by the assessee which has been found to be false, it does not follow that the default automatically attracted penalty. In our view, after the initial 'burden has been discharged by the Department, it is for the assessee to show that he had reasonable cause for default to file the return within time.'

23. In CIT v. Patram Dass Raja Ram Beri , in the light of the broader scheme of the Act, the specific language of Section 271(1)(a), and the weight of precedent, it has been held that the doctrine of mens rea is not attracted to the penalty proceedings within the four corners of the aforesaid section. The only requirements of the statute thereunder is the presence or absence of reasonable cause for the tax delinquency and no other. Therefore, inducting the requirement of a deliberate defiance of law, or contumacious conduct, or dishonest intention, or acting in conscious disregard of the statutory obligations, is unwarranted under Section 271(1)(a) of the Act. It has been pointed out that Section 276CC, which provides for stringent punishment, is different from Section 271(1)(a) and that while the former prescribes rigorous imprisonment and fine, the latter only financial penalty; while the proceeding under the former is criminal and requires mens rea, the latter is of coercive civil nature and mens rea is not required.

24. From the above decisions there remains no doubt that a finding in the assessment proceedings as to cause of failure to or delay in filing return cannot provide the foundation for penalty. The finding has to be made in the penalty proceedings. The finding in assessment proceedings may be good evidence. It is also settled that penalty proceedings are penal in nature : CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) , and that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and it will not be imposed merely because it is lawful to do so, but when the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation, and not merely for technical or venial breach of the provision of the Act: Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) . The rigour of criminal trial and proof will not be there in a penalty proceeding.

25. It appears that as regards burden of proof and mens rea distinction has to be made between, cases under Sections 271(1)(a) and 271(1)(c) of the Act.

26. While in Clause (c) concealing the particulars of the assessee's income or furnishing inaccurate particulars of such income implies positive acts, clearly requiring mens rea or blameworthy state of mind, in Clause (a) failure to file the return implies a decision to omit to do an act rather than doing of a positive act. Omission to file return of total income presupposes an obligation to file it. The assessee 'may not have even been conscious of the obligation. Failure to file on the belief of absence of any obligation to file, has to be distinguished from a case of failure to file or to file within required time where there is knowledge of the obligation to file. When there is an obligation to file, the failure to file or delay in, filing depends on a decision not to file or not to file within time. When a decision not to file or not to file within required time is taken, it may be for a reasonable cause or without any reasonable cause. The case of the assessee who has failed to file a return on the bona fide belief that he is not required to file such a return may be treated as for a reasonable cause, and it may be distinguished from that of an assessee who earlier filed returns and was certain about his obligation to file his return, but yet has not filed it and unless reasonable cause is shown, it may be treated as being without reasonable cause. Failure to file when no notice is issued may also be distinguished from failure to file after a notice to file return is served upon him. If despite the notice no return is filed, on the Department issuing show-cause to penalty notice under Section 271(1)/274, the burden of proof as a matter of law in the sense of establishing a case will be on the Department to prove that the failure or delay in filing return was without reasonable cause. Once this is done, the onus probandi will be on the assessee to prove the reasonability or otherwise of his decision, by introducing evidence. It may, therefore, be said that in a penalty proceeding, the Department having shown that for failure to file return at all or for delay in filing return without reasonable cause the assessee has rendered himself liable to penalty, subject to the rule that when it is within the special knowledge of the assessee, the burden of proof will be on him, the burden to show that there was a reasonable cause for failure to file the return of income, or to file within required time will always lie on the assessee. If this burden is not discharged the Department shall be justified in holding that the assessee by his failure to file return or to file within time made himself liable to penalty. If a cause is shown, the burden of providing the truth and reasonability of the cause will always be with the assessee. If he fails to discharge that burden then the assessee by his failure rendered himself liable to penalty. But when the assessee shows that the cause shown was true and was reasonable, the burden will shift to the Department to prove that either the cause shown was not true or that, even if it was true, it was not a reasonable one so as to justify

the assessee's failure to file or delay in filing return. The question is how will the Department discharge that burden If the cause shown is based on the books of account or other records, the Department may prove the unreasonability of the cause shown from the books of account and/or the records. If the cause was such as was within the special knowledge of the assessee and would not be reflected in the books or records dealt with by the Department, then the Department may perhaps discharge its burden by showing that the cause, if it were true and reasonable, would have been reflected in the accounts and the records or from the common course of human conduct that it was not reasonable for the assessee to have failed to discharge his obligation to file return. In such a case, the conduct of the assessee may be termed unreasonable or contumacious or dishonest. When, however, there was a cause which, though not strictly reasonable when viewed objectively, could have as well been bona fide considered to be sufficient by the assessee under the facts and circumstances of the case, the conduct in failing to file the return or the delay in doing so may be regarded as only technical or venial and not dishonest or contumacious. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on consideration of all the relevant circumstances. Where an assessee has no explanation to offer it may be treated as circumstantial evidence to show that he had acted without reasonable cause. Where again, explanation is prima facie unreasonable, it would be open to the ITO to levy the penalty- as if the assessee had not shown any cause. However, no cut and dry formula can be laid down. Before imposing penalty, the entirety of the facts and circumstances must reason-ably point to the conclusion of the assessee's contumacious, dishonest or unreasonable conduct and deliberate or wreckless disregard of his obligation to file return and within the required time.

27. From the above decisions of their Lordships of the Supreme Court it is somewhat difficult to reconcile with the proposition that the doctrine of actus non facit reum, nisi mens sit rea, as originally stated by St. Augustine and re-stated by Coke, is not applicable in the matter of penalty under Section 271(1)(a) of the Act. This doctrine as applied to crimes makes a clear distinction between a man's deed (actus) and his mental process (mens) at the time he was engaged in the activity which resulted in the deed, According to it, there are two necessary elements in the crime, a physical element and a mental element, and it makes plain that at common law no man may be found guilty of a crime and, therefore, legally punishable unless in addition to having brought about a harm which law forbids, he had at times a legally reprehensible state of mind. The word actus connotes a deed, a physical result of human conduct. Law prohibits

it and seeks to prevent its occurrence by imposing a penalty for its omission. Actus reus may be defined as such result of human conduct as the law seeks to prevent. It is the result of the conduct and, therefore, an event and is to be distinguished from the conduct which produced it. Mens rea is the person's intention to cause that actus reus. As applied to penalty under Section 271(1)(a) actus reus is the non-submission of the return or non-submission within time ; and mens rea is the state of mind that has caused the non-submission or the delay in submission of the return. Law has chosen to forbid the non-submission or the delay in submission of return. The doctrine that a man should be held responsible for anything he could be proved to have done naturally leads to the common idea that a man could incur no liability if harm resulted as a result of his not doing 'anything at all and as such 'no one is held criminally responsible for the harmful consequences, of his omission to act, whether that omission be careless or intentional, unless the prosecution can prove that he was under a legal obligation to take action in the particular circumstances in which he was placed. In case of offences created by statute the authority of the statute is paramount. 'Yet it has been laid down that a statute must be interpreted to conform to the common law except where and so far as the words of the statute show plainly that it is intended to alter course of the common law or cannot in their plain meaning be otherwise construed', so that in any crime created by statute there should prima facie be a presumption that mens rea, as understood in the common law, is a necessary ingredient. A reconciliation of mens yea in statutory crimes may be better understood if it is remembered that mens rea has been used by the courts in two different senses, namely, (1) to denote the accused person's attitude of mind to what he was doing from which can be decided the question whether his conduct was or was not voluntary ; and (2) to denote the accused person's foresight of the consequences of what he was doing. In all crimes, whether under common law or under statute, the prosecution must establish the first of the above points, namely, that the accused knew what he was doing and that he was a free agent in so doing. In the first sense, i.e., attitude of mind, mens rea may be necessary for an offence under Section 271(1)(a) of the Act. As regards foresight of consequences in statutory offences, the courts were inclined to hold that where the words of the statute were plain and made no reference to mens rea, it was not necessary to read into the section any such words as knowledge, etc., thus departing from the general proposition that mens rea must be presumed to be necessary in any crime created by statute. If the offence created is independent of guilty intention, it may be regarded as an exception to the general rule that there can be no guilty man without a guilty mind.

28. In the instant case, we find that the cause shown, namely, the disturbance around Kohima is not one that would naturally be reflected in the accounts or other records but its effects in general may have been reflected, in loss of business, loss of profits, etc., if its truth and reasonability was within the special knowledge of the assessee. Considered from another angle, in the absence of its reflection in business and profits the cause would be so prima facie unreasonable that it would not impose any real burden on the Department to show that it was unreasonable. Considering the entirety of the facts and circumstances of the case, including that no facts of the disturbance were reflected in the books of accounts, profits and volume of business of the assessee during the relevant period, and that the assessee never earlier mentioned about it or prayed for extension of time on that ground and the assessee itself having not given the details of such disturbance, it cannot be said that the Income-tax Appellate Tribunal was not right in upholding the levy of penalty under Section 271(1)(a) of the Act. The decision not to file the return within the required time in the absence of any reasonable cause may be said to indicate the reprehensible state of mind or the assessee's mens rea or attitude of the mind ; and he may be said to have committed a forbidden or reprehensible act or default or omission with that reprehensible condition of mind. The question referred, therefore, must be answered in the affirmative in favour of the Department and against the assessee.

29. As regards the second submission we find that the penalty proceedings have throughout been on the basis of failure to furnish the return of total income which the assessee was required to furnish by the notice given under Sub-section (2) of Section 139 and at no stage any contention was raised that the proceedings ought to have been for failure to file return as required under Section 139(1). We, therefore, are not inclined to entertain this contention.

30. In CIT v. Scindia Steam Navigation Co. Ltd. : [1961]42ITR589(SC) , it has been held that the High Court has jurisdiction to entertain the company's contention raised for the first time before it as the contention was within the scope of the question as framed by the Appellate Tribunal and was really implicit therein. This was followed in Indu Barua's case . But in the instant case it cannot be said that this submission is either within the scope of the question referred to or is really implicit therein. Section 139, as Mr. Talukdar points out, was mentioned in relation to charging of interest and resorting to the penalty proceeding for the same period; but that contention has not been pressed before us. The submission also cannot be said to arise out of the instant penalty proceedings ; and it is accordingly rejected.

31. In the result, we hold that on the facts and in the circumstances of the case and on a proper construction of Section 139 and Section 271(1)(a) of the I.T. Act, the Tribunal was right in upholding the levy of penalty under Section 271(1)(a) of the I.T. Act. The reference is answered accordingly in favour of the Department and against the assessee,

D. Pathak, Actg. C.J.

32. I agree.


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