1. At the instance of the revenue, the following question has been referred to us for our opinion under s. 256(1) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'):
Question: 'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law, in deleting the penalties imposed u/s. 271(1)(a) of the I.T. Act, 1961, for assessment years: (a) 1967-68, (b) 1968-69 and (c) 1969-70 holding that the department had not discharged the initial burden that the delay in the filing of the return was without reasonable cause ?'
2. The assessee is a registered partnership firm. The income-tax returns for the assessment years 1967-68,1968-69 and 1969-70 were due on September 30, 1967, July 30, 1968, and October 15, 1969, respectively, under s. 139(1) of the Act. The assessee-firm, however, filed the return of income for the assessment year 1967-68 on July 20, 1968, the return of income for the assessment year 1968-69 on July 20, 1970, and the return of income for the assessment year 1969-70 on July 18, 1970. There were thus delays of nine months, twenty-one months and nine months in filing the returns of income for the assessment years 1967-68, 1968-69 and 1969-70, respectively. The income returned by the assessee in each of the said assessment years was accepted by the ITO. The income returned and assessed was Rs. 26,197 for the assessment year 1967-68, Rs. 38,573 for the assessment year 1968-69 and Rs. 28,730 for the assessment year 1969-70. In view of the delay in filing the returns, the ITO initiated penalty proceedings for the late filing returns in each of the said assessment years under s. 271(1)(a) of the Act. In response to the show-cause notice, the explanation for the delay given by the assessee for each of the assessment years was common. The assessee explained that it could not file the return in question within time as the accountant who was 80 years old was not keeping well and it had applied for extension of time. The ITO held that the explanation given by the assessee was not reasonable. In the opinion of the ITO, the assessee-firm could have made alternative arrangements for writing and preparing the accounts instead of depending on a part-time accountant who was old and ill. The ITO further found that the assessee firm had not made any application for extension of time, nor was time for filing the returns extended in any of the assessment years in question. He, therefore, held that the assessee-firm had failed to show reasonable cause for the late filing of returns in each of the assessment years under consideration. In the result, he levied penalties of Rs. 994 for the assessment year 1967-68 Rs. 4,647 for the assessment year 1968-69 and Rs. 1,087 for the assessment year 1969-70 under s. 271(1)(a) of the Act.
3. The AAC, having confirmed the penalties levied by the ITO, the assessee carried the matter in appeal before the Income-tax Appellate Tribunal. The Tribunal, following the Full Bench decision of this court in Addl. CIT v. I. M. Patel and Co. : 107ITR214(Guj) , held that the department had failed to discharge the initial burden of proving that the assessee had failed to file the return within the prescribed time without reasonable cause. The Tribunal observed:
'Here we find that there is nothing on the record to show that the assessee was aware of the liability to file the return in time... There is no material on the record to show that the assessee was made aware of its default for late filing of return.'
4. The Tribunal, therefore, held that the department had not discharged the burden of proof that was cast on it. The Tribunal, however, made it clear that the cause shown by the assessee was 'hardly adequate'. Dealing with the cause shown by the assessee the Tribunal observed:
'If a person chooses to have a part time employee, aged 80 years, he cannot complain of the person not being well and give that as reason for not filing the return in time.'
5. In other words, the Tribunal did not find the cause shown by the assessee to be reasonable. It appears that the assessee-firm did not press its contention, that it had made an application for extension of time for filing the returns, before the Tribunal. However, in the view which it took, that the department had failed to discharge initial burden which lay on it, as laid down by this court in Addl. CIT v. I. M. Patel and Co. : 107ITR214(Guj) , the Tribunal deleted the penalties imposed by the ITO and confirmed by the AAC. It is in this background of facts that the Tribunal has referred to us the question set out above for our opinion.
6. The Tribunal has not properly appreciated the principles which are laid down by this court in Addl. CIT v. I. M. Patel and Co. This is evident from its observation to the effect that there was no material on record to show that the assessee was made aware of its liability to file returns in time. The department had failed to discharge its initial burden of providing that the late filing of returns was without reasonable cause. The learned members of the Tribunal, who decided the assessee's appeal have, with respect, misread the above decision of this court, and placed a burden on the department which is impossible to discharge. How can the department prove whether or not an assessee was aware of his duty to file his return of income within the prescribed time It is true that as laid down by this court in Addl. CIT v. I. M. Patel and Co. : 107ITR214(Guj) the initial burden is on the department to establish by leading some evidence that, prima facie, the assessee has without reasonable cause failed to furnish the return within the time specified in s. 271(1)(a), but we find from that evidence in the instant case that the department has discharged its initial burden. The evidence discloses that in the past also, the assessee had filed its returns late. It is true that in the earlier years, the income of the assessee was not taxable but the fact remains that it had filed its returns late. In any case, it is not in dispute that the assessee-firm's income for the assessment years 1967-68, 1968-69 and 1969-70 was taxable. The assessee-firm, however, did not file its returns of income in any of these assessment years in time. So far as the assessment year 1967-68 is concerned, for the reasons we shall presently state, no penalty is leviable for the late filing of return, but that alone cannot mellow down the fact that the return for that year was filed late. We are emphasising the fact regarding the late filing of return for the assessment year 1967-68 only from the standpoint of answering the question whether the revenue has discharged its initial burden of proving that the returns for the assessment years 1968-69 and 1969-70 were filed beyond the prescribed time without reasonable cause. Thus, the past history of the assessee's case shows that it was a habitual defaulter so far as the filing of returns was concerned. It is also pertinent to note that one of the grounds on which the assessee sought to explain the delay was that it had applied for extension of time for filing the return in each of these years. Although this assertion made by the assessee is not borne out by the evidence on record, it goes to establish awarenes on the part of the assessee-firm that it was required to file its returns within the prescribed time. Therefore, even assuming that the department was required to prove that the assessee was aware of the liablity to file the returns in time, the evidence shows that the assessee was in fact aware of such liability. There is, however, absolutely no warrant for the observations made by the Tribunal to the effect that the burden was cast on the department to prove that the assessee was made aware of the duty to file the return in time. The assessee is presumed to know the provisions of law which require him to file the return in the prescribed time. It is not for the department to prove whether or not the assessee was aware of tis such duty or liability. The Full Bench decision of this court in Addl. CIT v. I. M. Patel and Co. : 107ITR214(Guj) , on which reliance is placed by the Tribunal, does not lay down any proposition of law as stated by the Tribunal. The ratio of the decision must be understood and applied in the light of the following propositions:
(1) The reason for late filing is a fact within the exclusive knowledge of the assessee and no one else, much less the revenue officials, can even make a guess about the reason. What then can the revenue officials do or be expected to do in order to discharge the burden (2) All that requires to be done in order to discharge the initial theoretical burden is to show that no application for extension of time was made and there did not prevail a situation in the city or town concerned which made it difficult or impossible to do so (for instance the city may be in the grip of some violent agitation with the law and order situation being such that one could not move about freely during the material period). (3) The law does not require the revenue to do the impossible.
7. The revenue cannot ensure that every assessee is personally informed that he must file his return in time. Even if an army of officials is drafted every year for such a purpose, no such 'operation awareness' can be visualized to appraise every actual or potential assessee of his obligation to file the return in time. Law cannot and does not oblige the revenue to do the impossible. Nor can any one, who is not wholly unpractical and unaware of the realities of life, expect the revenue to do so. All that can be said is that when one is dealing with the case of some one who has never had an occasion to file a return in the past and who on account of understandable ignorance being on the other side of the immunity line steps into the taxability zone for the first time, the otherwise light burden may perhaps be considered to be more onerous. In our opinion, having regard to the facts on record, the department had discharged the initial burden of proving that the assessee had failed to file the returns within time without reasonable cause. The cause which is shown by the assessee-firm for the late filing of returns, as rightly held by the Tribunal, is without any substance. The cause shown cannot be said to be reasonable. It must, therefore, be held that the assessee had failed to file its return of income within the prescribed time without any reasonable cause in each of the assessment years in question. The ITO was, therefore, right in levying penalties as he did in each of the assessment years 1968-69 and 1969-70. We have not elaborately discussed the evidence on record or the propositions of law laid down by the Full Bench of this court in Addl. CIT v. I. M. Patel and Co. : 107ITR214(Guj) , as Mr. N. R. Divatia, learned counsel for the assessee, could not dispute that the revenue having established that the assessee had, without reasonable cause, failed to furnish its returns for the assessment years 1968-69 and 1969-70 within the prescribed time, penalty under s. 271(1)(a) of the Act was leviable for the said assessment years.
8. The assessee's case, however, stands on a different footing so far as the assessment year 1967-68 is concerned. No penalty is leviable for the said year in view of the provisions contained in s. 271(3)(a). The income which was returned and accepted by the ITO for the said assessment year was Rs. 26,197. It is not in dispute that income up to Rs. 25,000 is not taxable in the case of a registered firm. The assessee is a registered firm. Therefore, under s. 271(3)(a), no penalty would be leviable if the income assessed does not exceed Rs. 26,500. Circular F. No. 88/104/67-II (Inv) dated January 1, 1968, issued by the CBDT also clearly states that in the case of a registered firm, no penalty is leviable unless the income of the registered firm exceeds Rs. 26,500. As the income of the assessee-firm returned and assessed was less than Rs. 26,500, no penalty is leviable for the assessment year 1967-68. It appears that the attention of the taxing authority and the Tribunal was not drawn to this aspect of the case. It must, therefore, be held that the penalty for the assessment year 1967-68 was rightly deleted by the Tribunal. But in so far as the assessment years 1968-69 and 1969-70 are concerned, as held above, the Tribunal was not justified in deleting the penalties.
9. Before parting with this matter, we may refer to the last submission which was made by Mr. N. R. Divatia. Mr.Divatia pointed out that in the assessment year 1968-69, the assessee had to pay a penalty of Rs. 4,647 under s. 271(1)(a) and penal interest of about Rs. 1,600 as against the tax of Rs. 1,074. For the assesseement year 1969-70, the penalty was Rs. 1,087 and penal interest was about Rs. 1,420 as against the tax liability of Rs. 296. Mr. Divatia urged that the assessee is comparatively a small assessee and it would be oppressive to levy such a harsh burden on him by way of penalties and interest. We, in our advisory jurisdiction, can do little in this respect. The appeal must be addressed to the right quarters, viz., the Commissioner of Income-tax, who has jurisdiction under s. 273A to waive wholly or partly the penalty leviable in such cases. Penalty (the occasion provides us an opportunity to say) is designed to be a deterrent from the perspectives, viz., (1) deterrent to the assessee concerned in order to teach him a lesson not to repeat the culpable act in future; (2) deterrent to those who are like minded and to operate as a warning to taxpayers in general not to be amiss in their obligation, not to flout or circumvent their obligation under the taxing statute. But it is a drug which must be used with care - lest it may not become counter-productive. The medicine may have undesirable side effects which may be more serious than the original disease. To be strict towards the big assessees who flout the law but comparatively sympathetic towards the small assessees erring in a small way in deserving cases of minor lapses is a policy which may well commend itself to the authority that be. But the appeal has to be addressed to the appropriate quarters. Not to us. When it is made to the appropriate quarters, whatever is just as per the demands of the situation will doubtless be done. But, we, on our part, can do no more than say that the assessee will be at liberty to approach the appropriate quarters and satisfy, if it can, that its case deserves sympathetic treatment.
10. In the result, we answer the question referred to us in the negative and against the assessee so far as the assessment years 1968-69 and 1969-70 are concerned, and in the affirmative and against the revenue so far as the assessment year 1967-68 is concerned.
11. Reference answered accordingly with no order as to costs.