1. This is an application submitted by the CIT, Madhya Pradesh, Bhopal, under Section 256(2) of the I.T. Act, 1961.
2. The assessment year about which this application is made is 1961-62 for which the accounting period ended on 31st March, 1961. The assessee filed the return of his income declaring only Rs. 12,811. The ITO by his order dated February 26, 1966, determined the total income of the non-applicant-assessee at Rs. 1,16,494. It is alleged that notice under Section 22 of the Indian I.T, Act, 1922, was served on the non-applicant on June 20, 1961, and the return was due to be filed within 35 days thereof. The return, however, was ultimately filed on 21st December, 1962. The ITO by his order dated February 15, 1968, held that there was delay of 17 months in filing the return. He, therefore, issued a notice for showing cause for penalty under Section 271(1)(a) of the I.T. Act, 1961. It appears that the non-applicant did not appear and no explanation was submitted. A penalty, therefore, of Rs. 20,393 was levied by orders dated February 15, 1968. Against this order the non-applicant preferred an appeal before the AAC and the AAC by his order dated December 20, 1968, held that by his appellate order the total income was reduced to Rs. 78,265 and there was default only of 14 months. He, therefore, directed the ITO to modify the amount of penalty.
3. Against this order the non-applicant preferred an appeal before the Tribunal. It was contended before the Tribunal that by the orders of the Tribunal in the assessment proceedings the total income was further reduced to Rs. 22,017 only and as it was a registered firm it was not an assessee with taxable income and consequently no penalty could be levied under Section 271(1)(a). The Tribunal observed that for the relevant assessment year a registered firm with income over Rs. 40,000 only was liable to pay income-tax. In this view, it was held that the non-applicant's income fell below the taxable limit. However, it was held by the Tribunal that since the default occurred after the service of notice under Section 22(2), penalty of Rs. 25 only was leviable under Section 271(3)(b) of the I.T. Act, 1961.
4. After the order passed by the Tribunal, the petitioner requested the Tribunal to state the case on two questions of law. But the Tribunal by orders dated September 10, 1971, rejected the petition holding that no question of law arose out of this order and, therefore, the present petition has been filed by the CIT under Section 256(2) of the I.T. Act, 1961.
5. According to learned counsel for the petitioner the two questions :
'(1) Whether, on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that no penalty could be levied under Section 271(1)(a) of the Income-tax Act, 1961 ?
(2) Whether the Appellate Tribunal was right in holding that the penalty was leviable only under Section 271(3)(b) and in further reducing the penalty to Rs. 25 only ?'
are questions of law and the Tribunal be directed to state a case.
6. It is not in dispute that in the assessment proceedings ultimately the Tribunal assessed the income at Rs. 22,017 only and it is also not in dispute that for the year under assessment a registered firm with income over Rs. 40,000 only was taxable and, therefore, the non-applicant firm had income which did not fall within the taxable limits. Both the learned counsel frankly conceded that in a reference against the order of the Tribunal in the assessment proceedings the matter is pending in this court on account of difference of opinion between the learned judges who heard that reference. Learned counsel for the non-applicant contended that the assessment order passed ultimately by the Tribunal showed that the income was below the taxable limit and, therefore, no penalty could be levied under Section 271(1)(a) of the I.T. Act, 1961.
7. Section 271(3)(a) reads :
'(a) no penalty for failure to furnish the return of his total income under Sub-section (1) of Section 139 shall be imposed under Sub-section (1) on an assessee whose total income does not exceed the maximum amount not chargeable to tax in his case by one thousand five hundred rupees.'
8. This provision clearly enacts that no penalty for failure to furnish return of his total income under Sub-section (1) of Section 139 could be imposed under Sub-section (1) of this section if the total income of the assessee does not exceed the maximum amount not chargeable to tax in his case by Rs. 1,500. The total income assessed on the assessee by the Tribunal clearly does not exceed the taxable income and the view taken by the Tribunal that nopenalty could be imposed under Section 271(1)(a) appears to be correct. Under Sub-clause (b) of Sub-section (3) for non-compliance with the notice under Sub-section (2) of Section 139, if it is proved that the total income is not liable to tax, then the penalty which could be imposed under Sub-section (1) in view of Section 271(3)(b) shall not exceed Rs. 25 and, therefore, the Tribunal ordered the imposition of penalty of Rs. 25.
9. Section 271(1)(a) of the I.T. Act, 1961, runs :
' 271. (1) If the Income-tax Officer.....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, or.....
he may direct that such person shall pay by way of penalty,--...'
10. The language of this section indicates that if one has failed to furnish the return of total income without reasonable cause, then alone this subsection is attracted. If the assessee honestly believes that his income is not taxable and his belief is supported by the decision of the Tribunal, it could not be said that the assessee has not submitted the return without any reasonable cause. The Tribunal considered this question that the loss of Rs. 56,248 which according to the assessee was hedging loss, even if not ultimately accepted, is a controversial issue and apparently the Tribunal did accept the contention of the assessee as regards this loss being a hedging loss. In this view of the matter, the Tribunal felt that the assessee had a reasonable cause for not submitting the return and this, according to the view taken by the Tribunal, is a question of fact and, therefore, did not call for any reference.
11. It is not in dispute that according to the decision of the Tribunal in the assessment case the total income assessed of the assessee is below the taxable limit although a reference is pending in this court. But it could not be disputed that if the assessee honestly believed that his income is not above the taxable limit it could not be said that it is not a reasonable cause and this has been accepted by the Tribunal as a reasonable cause, and, therefore, the Tribunal held that no penalty under Section 271(1)(a) of the Act could be imposed on the assessee.
12. In CIT v. V. M. Modi and Sons : 102ITR548(MP) , a Division Bench of this court considered the question of penalty under Section 271(1)(a) of the Act and observed (p. 551):
'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.'
13. And after considering the facts of that case their Lordships further observed (p. 551):
'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.'
14. It, therefore, is clear that on the facts found if the Tribunal felt that in the facts of this case where the total income which according to the Tribunal fell below the taxable limit and was in controversy, it amounted to a reasonable cause and that being a pure question of fact this court could not exercise jurisdiction under Section 256(2) of the Act to direct the Tribunal to state the case.
15. In CIT v. N. Khan and Brothers : 92ITR338(All) , a similar question was considered and it was observed (p. 340) :
'As has been rightly pointed out by the Tribunal the fact that the Inspecting Assistant Commissioner of Income-tax had absolved the assessee of the charge of concealment with respect to the cash credits during the course of proceedings for levy of penalty under Section 271(1)(c) goes a long way to show that the belief of the assessee that cash credits were not items of taxable income was bona fide one. Thus, the sum of Rs. 40,000 must be deducted out of the income assessed to find out if the balance was still more than the maximum amount not chargeable to income-tax. Now, after deducting Rs. 40,000, the balance is less than Rs. 25,000, which is the maximum amount not chargeable to income-tax in the case of a registered firm. Clearly, the assessee was under no obligation to file any voluntary return under Section 139(1) of the Act, and, as such, was not liable to any penalty under Section 271(1)(a).'
16. As discussed above it could not be doubted that the assessee had a reasonable cause for not riling the return and that finding is a finding of fact arrived at by the Tribunal. No question of law, therefore, arises and the first question suggested by the petitioner cannot be said to be a question of law. Similarly, on the finding arrived at by the Tribunal with regard to the first question, the second question is just a corollary and that too having been found by the Tribunal in favour of the assessee, it could not be said that any question of law arises.
17. We, therefore, see no reason to entertain this petition. It is dismissed.Parties are directed to bear their own costs.