1. This appeal by the assessee is directed against the order of the AAC dated 3-3-1983, relating to the assessment year 1972-73. By this order, the AAC confirmed the penalty of Rs. 24,258 levied by the ITO under Section 271(1)(a) of the Income-tax Act, 1961 ('the Act') by his order dated 30-6-1982. The facts that arc relevant for consideration in determining the issue before us, make an interesting reading and are as under.
2. The assessee is a registered firm. For the assessment year 1972-73, under the provision of law, the return was due on or before 31-7-1972.
It was filed on 14-9-1972. On the basis of this return, the ITO proceeded with the process of assessment in accordance with law and finalised the assessment on 18-3-1974 under Section 143(3) of the Act on a total income of Rs. 58,000. Since the return, filed on 14-9-1972, was late by a complete month, the ITO levied penalty of Rs. 455 under Section 271(1)(a) on 1-8-1974, which was confirmed in appeal by the AAC by his order dated 17-2-1975 and the matter rested there. The assessee felt aggrieved with the assessment order so made by the ITO and took the matter in appeal up to the Tribunal. The Tribunal, vide its order dated 8-1-1976, reduced the income assessed to Rs. 53,060. The tax, due on this income in the status of a registered firm, came to Rs. 3,405.
This tax had been paid by the assessee, partly as advance tax (Rs. 1,333), partly on self-assessment (Rs. 2,627) and, finally on regular assessment (Rs. 1,315).
3. After all this had happened, the ITO found that the return, filed on 14-9-1972, was not duly signed at verification. He records in his impugned penalty order dated 30-6-1982, now in appeal, that he treated the return, filed by the assessee on 14-9-1972, on the basis of which subsequent proceedings, as narrated supra had already taken place, as non est. Accordingly, he issued notice under Section 148 of the Act calling for a return from the assessee. This notice was served upon the assessee on 23-3-1977 and the assessee filed a return in response to this notice on 14-4-1977. Thus, so far as the notice under Section 148 is concerned, the return filed by the assessee, was within time.
However, in these reassessment proceedings, on 5-2-1980, the ITO determined the total income at Rs. 53,060, as settled by the Tribunal, in its order dated 8-1-1976. Thus, so far as the quantum of assessment is concerned, there is no dispute on reassessment. However, the imposition of penalty by the ITO under Section 271(1)(a), by his order dated 30-6-1982, is in dispute. In the impugned penalty order, the ITO has treated the assessee as in default from the original due date of return, i.e., 31-7-1972. In the impugned penalty order, however, he has, for the reasons best known to him, not recorded the number of complete months, for which the default has been considered, as was enjoined upon him by law. However, the penalty of Rs. 24,258 was levied upon the assessee. This was taken up in appeal before the AAC and the AAC, also having reiterated the facts, stated by the ITO, confirmed the penalty.
4. After careful consideration of the submissions made before us, we are surprised at the manner in which the authorities below proceeded to penalise the assessee, on the facts and in the circumstances of the case, which indicate that the default, if any, was of contributory negligence by both the sides. Apparently, when the assessee filed the return of income on 14-9-1972, declaring an income of Rs. 44,060, it believed bona fide the return to be true and correct. This is more so clear from the factum of the assessee having filed all necessary accompaniments with that return. The belief of the assessee was apparently bona fide as, in response to the original assessment proceedings, the assessee responded and complied consciously with the provisions of law. The ITO, himself, as is clear from the narration given above, apparently, believed the return to be true and correct because, but for such a belief, he could not have proceeded in the manner he did. Not only this even at the two appellate stages, through which the original assessment passed, none noticed that the original return had, apparently, through inadvertence of the assessee, remained unverified. Therefore, when the ITO woke up subsequently and found that the original return was not verified, it was a case where the assessee had not failed to file the return without reasonable cause, but through facts, which appear to be stranger than fiction. The return was found defective though every one concerned had treated the return filed by the assessee as true and correct.
5. What is more surprising, is the manner in which the ITO, thereafter, proceeded. He says that he has treated the original return as invalid.
There is no word from him as to what happened to the assessment that he made and the subsequent appellate proceedings that finally determined the total income of the assessee at Rs. 53,060 which, in the reassessment proceedings, the ITO has adopted and the penalty for the default under Section 271(1)(a) that was confirmed by the AAC, in appeal. The manner of proceeding against the assessee is, therefore, to say the least, quixotican.
6. There is no default, committed by the assessee at the time of reassessment proceedings. Therefore, the penalty levied by the ITO, is, on the facts of the case, without any justification, whatsoever. He has levied the penalty for a default which, on the facts stated supra, was not committed by the assessee, so as to be visited with a huge penalty.
In spite of this, the assessee explained that the delay, if it is to be considered, was due to reasonable cause because the assessee had bona fide belief that the original return was a valid return. On these facts, we are absolutely clear that no other view than the delay, if any, to be considered in the reassessment proceedings, was due to reasonable cause, can be taken. We, therefore, hold that the delay, if any, was due to reasonable cause but that delay itself did not justify any type of penalty upon the assessee in view of the circumstances that we have described in detail supra. We, therefore, cancel the penalty and allow the appeal.