1. The assessed in this income-tax reference is a partnership-firm and it had to file its return of income for the assessment year 1966-67, on or before June 30, 1966, but it filed the return only on February 9, 1970, after a delay of 43 months. The ITO was of opinion that there was no reasonable cause for the delay and he levied a penalty of Rs 6,974 calculated at the rate of 2 per cent. per month on the tax payable by the assessed for a period of 43 months.
2. The assessed preferred an appeal to the AAC and gave certain Explanationns for the delay in the filing of the return. The AAC accepted the case of the assessed that there was reasonable cause for the delay in the filing of the return but only up December 30, 1968. He, thereforee, directed the ITO to recompute the penalty on the basis of the default without reasonable cause being for the period commencing on January 1, 1969, and ending with the date on which the return was filed. It may also be mentioned that by this time there had been a reduction in the total income as a result of an appeal and the AAC also directed the amount of penalty to be calculated on the basis of the reduced total income.
3. Not satisfied with the relief granted by the AAC, the assessed preferred an appeal to the Appellate Tribunal. The Tribunal agreed with the finding of the AAC that there was reasonable cause for the delay in the filing of the return but only up to December 31, 1968. Nevertheless, the Tribunal came to the conclusion that no penalty at all could be levied against the assessed. This was because, according to the Tribunal, s. 271(1)(a) restricted the penalty livable to 50 per cent. of the tax payable and from this the Tribunal inferred that there could be no default in a case once the period of 25 months gets exhausted. In other words, the Tribunal seems to have thought that where there was a default under s. 271(1)(a) a penalty could be levied only for a default up to a period of 25 months. If the default during this period was without reasonable cause, a penalty could be sustained. On this reasoning, the Tribunal held that the penalty levied on the present assessed required to be cancelled and it allowed the assessed's appeal
4. Aggrieved by the order of the Tribunal, the Commissioner has come to this court on a reference and the question referred for our decisions reads as follows :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assess could not be penalised for the default u/s. 271(1)(a) of the Income-tax Act, 1961, beyond the period of 25 months which commenced on July 1, 1967, and ended on December 31, 1968 ?'
5. We are of opinion that the view taken by the Tribunal cannot be upheld. Section 271(1)(a) authorises the ITO to impose a penalty where he is satisfied that the assessed has, without reasonable cause, failed to furnish the return to total income within the time allowed and in the manner required by s. 139. Sub-clause (i) of the second paragraph of the above section, as it stood at the relevant time, read as follows :
'In the cases referred to in clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent. of the tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent. of the tax.'
6. This is the clause which deals with the amount of penalty imposable on the assessed in the present case. The default of the assessed in the filing of the return is for the period July 1, 1966, to February 9, 1970, i.e., a period of 43 months. It is no doubt true that for the period between July 1, 1966 and December 31, 1968, the AAC and the Appellate Tribunal have accepted the position that there was reasonable cause for the period from January 1, 1969, to February 9, 1970, i.e., the period of 13 months. On the language of the said paragraph above referred to, the penalty at the rate of 2 per cent. per month is respect of these 13 months was imposable on the assessed.
7. We are unable to share the view of the Tribunal that from the provisions of the above said paragraph any immunity to the assessed in regard to a default beyond the period of 25 months could be spelt out. It is very difficult to see how, merely because a period of 25 months has expired, the assessed's failure without reasonable cause to furnish the return thereforee can be ignored and how it can be held that once the assessed has proved that there was no default without reasonable cause for a period of 25 months no penalty could be imposed notwithstanding the subsequent delay without reasonable cause for over 12 months. The Supreme Court has explained in the recent decision in the case of Suresh Seth : 129ITR328(SC) , the words 'for every month during which the default continued' indicate only the multiplier to be adopted in determining the quantum of penalty. It cannot be inferred from the reference to 50% made in the sub-paragraph that the section intends to ignore all delay beyond the period of 25 months. We are, thereforee, unable to agree with the view taken by the Tribunal and liable for a penalty in respect of the default between January 1, 1969, and February 9, 1970.
8. The Tribunal has tried to draw support for its conclusion from a decision of the Supreme Court in J. P. Jani, ITO v. Induprasad Devshanker Bhatt : 72ITR595(SC) . In that case the question before the Supreme Court was whether the ITO could issue a notice under s. 148 of the 1961 Act to reopen an assessment in regard to which the right to reopen the assessment has been barred under the 1922 Act on the date when the new Act came into force, namely, April 1, 1962. The Supreme Court held that, in the absence of a specific provision in the new Act, it was not possible to construe the statute and the saving clause in s. 297 as reviving the right of the ITO to reopen an assessment which was already barred under the old Act. The analogy of the Supreme Court's decision may be applicable in the present case only if there is any justification for the view that once a period of 25 months had expired the department had lost the right to levy a penalty. As we have already explained the provision of sub-para. (2) of s. 271(1)(a) cannot be interpreted in this manner. We are, thereforee, of opinion that the decision of the Supreme Court referred to by the Tribunal is not of much assistance arrived at by the Tribunal.
9. Before concluding it has also to be pointed out that there is a small error in the phrasing of the question by the Tribunal. The question refers to the period of 25 months which commenced on July 1, 1967, and ended on December 31, 1968. Obviously the reference is to the period from July 1, 1966, to December 31, 1968 (a period of 30 months), being the period for which the Tribunal held that there was reasonable cause for the assessed's failure to furnish the return. The period of 25 months actually expired on July 31, 1968. This error, however, is not really very material because the basic reasoning of the Tribunal was that since the delay for the first 25 months had been explained by the assessed the penalty could not be imposed under s. 271(1)(a).
10. We, thereforee, answer the question referred to us in the negative and in favor of the applicant. As there has been no appearance on behalf of the respondent we make no order as to costs.