P.K. Tare. C.J.
1. This order shall also govern the disposal of Miscellaneous Civil Case No. 391 of 1972 (Commissioner of Income-tax v. V. M. Modi and Sons).
2. The respondent-firm was to be assessed for the assessment year 1960-61, for which the accounting period ended on December 31, 1959. The return on behalf of the firm was due on July 5, 1-960, but actually it was filed on March 30, 1961, that is, during the assessment year. The Income-tax Officer initiated proceedings for imposing penalty for late filing of the return. By order dated December 1, 1966 (petitioner's annexure 'C'), the Income-tax Officer was of the opinion that there was no reasonable cause for the late filing of the return and, therefore, he imposed a penalty of Rs. 10,448.
3. On an appeal to the Appellate Assistant Commissioner, he, by order dated February 20, 1969 (petitioner's annexure 'E'), reduced the penalty to Rs. 3,000. On a further appeal to the Income-tax Appellate Tribunal, the Tribunal by order dated September 2, 1971 (petitioner's annexure 'G'), set aside the entire penalty on the ground that in the transition period before the Income-tax Act, 1961, came into force from April 1, 1962, the departmental practice was not to impose any penalty if the assesses filed its return, although delayed, before the end of the assessment year. That was the only ground on which the Appellate Tribunal set aside the entire penalty. The Appellate Tribunal relied on the Supreme Court case of Hindustan Steel Ltd. v. State of Orissa : 83ITR26(SC) .
4. Aggrieved by the order of the Income-tax Appellate Tribunal in the two appeals filed by the department and filed by the assessee, the department moved the Appellate Tribunal for making a reference to this court under Section 66(1) of the Indian Income-tax Act, 1922. That application was rejected by the Tribunal. Hence, this application under Section 66(2) of the said Act for requiring the Tribunal to refer the following questions for the opinion of this court:
'(1) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in vacating the penalty levied under Section 271(1)(a) of the Income-tax Act, 1961 ?
(2) Whether the Appellate Tribunal could presume that there was a departmental practice not to levy penalty for late filing of the return and whether the assessee was entitled to delay the filing of the return on that basis ?'
5. So far as the second question is concerned, the Appellate Tribunal took judicial notice of the departmental practice prevailing prior to the coming into force of the Income-tax Act, 1961. That departmental practice may have been against the specific provisions of the Indian Income-tax Act, 1922, but that is neither here nor there. The question will be whether as required by Section 271(1)(a) of the Income-tax Act, 1961, there was reasonable cause or that the assessee failed to furnish the return without a reasonable cause. For determining the reasonable cause, it was open to the Income-tax Appellate Tribunal to take notice of a departmental practice which might not have been strictly in accordance with the provisions of the Indian Income-tax Act, 1922. As such, we do not think that question No. 2 posed in this application for reference is a question of law which we should be called upon to answer by requiring the Appellate Tribunal to refer it to us.
6. As regards the question No. 1, the requirement of Section 271(1)(a) is that penalty is imposable where an assessee fails to file a return without a reasonable cause. Under the Indian Income-tax Act, 1922, a general notice used to be given or sometimes even individual notices used to be served by the income-tax authorities. But there can be no doubt that the practice followed under the old Act was that even if a return was filed before the end of the assessment year, the same used to be accepted without imposition of any penalty under Section 28 of the Indian Income-tax Act, 1922.
7. Moreover, as laid down by their Lordships of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa., before a penalty can be imposed, there ought to be the following element as observed by their Lordships :
'Under the Act penalty may be imposed for failure to register as a dealer : Section 9(1), read with Section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. 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. Those in charge of the affairs of the company in failing 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.'
8. There can be no doubt that if penalty is imposable, then it has to be under the Income-tax Act, 1961, as per the requirements of Section 297(2)(g) of the Act and for imposition of such penalty for delayed return, the condition as required by Section 271(1)(a) of the Act must be fulfilled. Section 271(1)(a) of the Act speaks of failure to file a return without any reasonable cause. The very phrase 'without reasonable cause' vests some kind of discretion in the authority imposing the penalty to find out whether there was reasonable cause or not. If in the opinion of the authority there was reasonable cause, in that case, no penalty whatsoever may be imposed. However, if there was no reasonable cause, in that case, imposition of penalty is mandatory. The Appellate Tribunal, in our opinion, did not act erroneously in taking into consideration the prevailing departmental practice at that time in coming to the conclusion that there was reasonable cause for the assessee's failure to file a return within due date. As such, the question of existence or otherwise of a reasonable cause in the instant case would be a pure question of fact and not a question of law. We cannot be approached for requiring the Tribunal to refer to us questions of fact but only questions of law.
9. Under the circumstances, we feel that this petition is liable to be dismissed. Accordingly, it is dismissed. However, under the circumstances, we direct that there shall be no order as to costs of these proceedings.