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Commissioner of Income-tax Vs. Ajit Singh Bhagat Singh - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Income-tax Reference No. 23 of 1972
Judge
Reported in[1985]151ITR696(Raj)
ActsIncome Tax Act, 1961 - Sections 271(1) and 271(3)
AppellantCommissioner of Income-tax
RespondentAjit Singh Bhagat Singh
Advocates: J.P. Joshi, Adv.
Cases ReferredHindustan Steel Ltd. v. State of Orissa
Excerpt:
.....for each one of the two years preceding the assessment years 1962-63 and 1963-64, and as such the assessee-firm was not bound to submit any return within time and as such no penalty could have been imposed even if the returns for those years were filed beyond the time provided under section 139(1). the aac, rejecting the aforesaid contention advanced on behalf of the assessee-firm, observed that the total income of the assessee was not the income shown by him in the returns filed by him for the aforesaid two years, but it was the income which was assessed by the ito, and as the same was clearly above the taxable limit, the assessee-firm was liable for payment of penalty. 8. it may be observed in this connection that imposition of penalty for failure to carry out a statutory obligation..........tribunal, delhi bench 'b':'whether, on the facts and in the circumstances of the case, the assessee-firm could be taken to have been prevented by reasonable cause from submitting its returns for the assessment years 1962-63 and 1963-64, by reason of the fact that the incomes returned by it for the years in question were rs. 26,116 and rs. 24,764, respectively ?'2. it is not in dispute that in respect of the assessment years 1962-63 and 1963-64, the assessee should have filed the returns of its income on or before august 31, 1962 and june 30, 1963, respectively, in accordance with the provisions of section 139(1) of the i.t. act.3. it is also not in dispute that the assessee-firm failed to file the returns for the aforesaid two years before the expiry of the time allowed by law.....
Judgment:

Dwarka Prasad, J.

1. The following question has been referred to this court for its opinion by the Income-tax Appellate Tribunal, Delhi Bench 'B':

'Whether, on the facts and in the circumstances of the case, the assessee-firm could be taken to have been prevented by reasonable cause from submitting its returns for the assessment years 1962-63 and 1963-64, by reason of the fact that the incomes returned by it for the years in question were Rs. 26,116 and Rs. 24,764, respectively ?'

2. It is not in dispute that in respect of the assessment years 1962-63 and 1963-64, the assessee should have filed the returns of its income on or before August 31, 1962 and June 30, 1963, respectively, in accordance with the provisions of Section 139(1) of the I.T. Act.

3. It is also not in dispute that the assessee-firm failed to file the returns for the aforesaid two years before the expiry of the time allowed by law and that the returns for both the years 1962-63 and 1963-64 were filed on February 13, 1964. Thus, there was a delay of 17 months in the filing of the return pertaining to the year 1962-63, while there was a delay of seven months in the filing of the return relating to the assessment year 1963-64. The income returned for the year 1962-63, as shown by the assessee in its return, was Rs. 26,116 and for the year 1963-64 the return showed its income as Rs. 24,764. However, the income of the assessee-firm was ultimately determined after appeals as Rs. 35,501 for the year 1962-63 and Rs. 29,996 for the subsequent year 1963-64.

4. After the assessments for the aforesaid two years were completed, the ITO proceeded to impose penalties upon the assessee under Section 271(1)(a) of the I.T. Act, and levied a penalty of Rs. 2,954 for the first year and Rs. 1,027 for the second year. The appeals filed by the assessee-firm were dismissed by the AAC. One of the grounds raised by the assessee-firm in its appeals was that the income of the assessee, according to its books of account, was less than Rs. 26,500 for each one of the two years preceding the assessment years 1962-63 and 1963-64, and as such the assessee-firm was not bound to submit any return within time and as such no penalty could have been imposed even if the returns for those years were filed beyond the time provided under Section 139(1). The AAC, rejecting the aforesaid contention advanced on behalf of the assessee-firm, observed that the total income of the assessee was not the income shown by him in the returns filed by him for the aforesaid two years, but it was the income which was assessed by the ITO, and as the same was clearly above the taxable limit, the assessee-firm was liable for payment of penalty.

5. On further appeal, the Income-tax Appellate Tribunal, Delhi Bench 'B' (hereinafter called 'the Tribunal'), accepted the aforesaid contention raised by the assessee-respondent and held that no penalty could be levied under Section 271(1)(a) for either of the two years and the orders imposing penalty were cancelled for both the aforesaid years by the Tribunal by its consolidated order dated May 23, 1970. The Tribunal, while upholding the contention advanced on behalf of the assessee, observed as under :

'We are inclined to uphold the objections raised by the learned counsel for the assessee. The income, according to the assessee's own calculations, fell below the level which made it liable to penalty under Section 271(1)(a). In fixing this liability, one has necessarily to consider that the income according to the assessee's own books proved that there were no mala fides or manipulations. The addition made to the book results in the final assessments by reference to certain defects in the accounts cannot be considered while fixing the assessee's liability, because the assessee could not reasonably be expected to anticipate the rejection of the book results and assume a liability on that basis. There is no suggestion of mala fides or manipulations for any of the two years in the present case. We must, therefore, examine the liability of the assessee only in the light of income according to its own books. Taking into account such income for both the years, the assessee could reasonably take the view that it was not liable to submit the returns. It must, therefore, be taken to have been prevented by reasonable cause from submitting the returns under Section 139(1). No penalty could be levied under Section 271 for either of the two years and the same are, therefore, cancelled for both the years.'

6. The Commissioner of Income-tax approached the Tribunal for making a reference to this court under Section 256 of the I.T. Act and the question mentioned above was thus referred to this court by the Tribunal.

7. In our view, the Tribunal was justified in holding that the assessee-firm could not have reasonably anticipated that the income shown by it in its returns for the two years in question, in accordance with the books of account maintained by the assessee-firm would not be accepted by the ITO. The Tribunal also held that there was no suggestion of mala fides or manipulations in the account books of the assessee for any of the two years. It is a different thing that the ITO did not accept the income as shown by the assessee in its returns, but made certain additions in both the years so that the total income of the assessee in each of the two years was found to be taxable. However, the Tribunal accepted the explanation offered by the assessee for late filing of returns by the assessee and observed that the assessee could reasonably take the view that it was not liable to submit the returns in the light of the income calculated on the basis of its account books. On this basis, the Tribunal took the view that the assessee was prevented by reasonable cause from submitting the returns under Section 139 within the prescribed time, for either of the two years.

8. It may be observed in this connection that imposition of penalty for failure to carry out a statutory obligation is a matter of quasi-criminal nature. Their Lordships of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa : [1972]83ITR26(SC) held that penalty should 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 obligations. Their Lordships further observed that the question whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority, to be exercised judicially on a consideration of all the relevant circumstances and that penalty should not be imposed merely because it is lawful to do so.

9. The same view was taken by their Lordships of the Supreme Court in CIT v. Khoday Eswarsa and Sons : [1972]83ITR369(SC) while dealing with a case of imposition of penalty under Section 28(1)(c) of the Indian I.T. Act, 1922. In that case, it was observed that penalty proceedings are penal in character and it is not enough for the Department to say that the explanation offered by the assessee is false, but the Department must have before it, before levying penalty, cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of its income or has deliberately furnished inaccurate particulars in respect of the same.

10. The Madhya Pradesh High Court in CIT v. Modi and Sons : [1976]102ITR548(MP) observed that the phrase 'failure to file a return without reasonable cause' occurring in Section 271(1)(a) of the I.T. Act, 1961, vests some kind of discretion in the authority imposing the penalty to find qut whether there was a reasonable cause or not and if in the opinion of authority there was reasonable cause, then in that case no penalty could be imposed. It was also observed by their Lordships in the aforesaid case that the question of existence or otherwise of a reasonable cause is purely a question of fact and normally no question of law arises.

11. Similar view was also taken by the Punjab and Haryana High Court in CIT v. Vidya Sagar . In that case, it was observed that, if the Tribunal held that the assessee was prevented by sufficient cause, that decision should not ordinarily be assailed, unless it is based on no evidence or is otherwise fanciful. In another case, in CIT v. Jodhamal Bishan Lal Kuthiala the Punjab and Haryana High Court observed that when the Appellate Tribunal held that there was a reasonable cause for the assessee for not filing the returns of income within time and the Tribunal deleted the penalty levied under Section 271(1)(a) of the Act, the High Court should not ordinarily interfere with the finding of fact recorded by the Tribunal. In that case, the High Court refused to interfere with the finding arrived at by the Tribunal in respect of existence of reasonable cause, holding that the same related to a pure question of fact.

12. This court in Addl. CIT v. Noor Mohammad and Co. observed that the failure of the assessee to return the correct income, if the same did not arise from fraud or any gross or wilful neglect on his part, cannot be made the subject-matter of imposing penalty. A similar view was again expressed by this court in the case of Addl. CIT v. Gem Palace while dealing with a case under Section 271(1)(c) of the I.T. Act, and it was observed that whether there was fraud or gross or wilful neglect in the filing of a proper return of its income on the part of an assessee is essentially a question of fact.

13. We have considered the material on record and it does not appear to us that the assessee-firm has either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or that it acted in conscious disregard of its obligations under the law. There is no case of gross or wilful neglect on the part of the assessee-firm. The Tribunal held that there was no suggestion of mala fides or manipulation in the account books of the assessee and that on the basis of the books of account kept by the assessee-firm, it could have fairly and reasonably taken the view that its income for the two years in question was below the taxable limit. The Tribunal accepted the explanation offered by the assessee-firm for late filing of returns of the two years in question. In these circumstances, the Tribunal held that the assessee-firm was prevented by reasonable cause from submitting its returns for the two assessment years in question, under an impression created on the basis of its account books that the returned income was below the taxable limit. We have no reason to take a different view from that arrived at by the Tribunal in this respect, more particularly as the question is essentially one of fact.

14. In view of the aforesaid discussion, our answer to the question referred to us is in the affirmative, in favour of the assessee and against the Department. The parties are left to bear their own costs.


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