BALASUBRAHMANYAN J. - The Commissioner of Income-tax has questioned in this reference the cancellation of a penalty levied by the ITO under s. 271(1)(a) of the I.T. Act, 1961, for the delay in the submission of the return by the assessee-company for the year 1966-67. The Tribunal found that the delay was only of a period of 3 months. Before the filing of the return in this delayed fashion, the assessee-company has applied to the ITO for extension of time, but that request for extension had been refused by the ITO.
In the penalty proceedings, the ITO referred to the fact that the assessees application for extension of time for filing the return has been rejected, and proceeded to hold that there was no reasonable cause for the delay in the submission of the return beyond the time appointed under the Act. On appeal, the AAC went in some detail into the explanation offered by the assessee for the delay. The assessee had submitted before him that during the year in question, assessees concern was beset with strikes. It was further submitted that the directors of the company were pre-occupied with urgent administrative matters and also with the preparation of the accounts for the preceding year which were overdue and which had for some reason or the other got delayed. The AAC, however, rejected these explanations. He expressed the view that the administrative pre-occupations of the directors of the assessee-company cannot justify the delay in the filing of the returns. He also dismissed as untenable the reliance placed by the assessee on the disturbed industrial situation in their establishment. He accordingly confirmed the order of penalty. The assessee then took the matter in further before the Tribunal. The Tribunal having set out the background facts of the case, proceeded to consider the correctness of the imposition of the penalty in the light of the principles laid down by the Supreme Court in Hindustan Steel Ltd. v. State of Orissa : 83ITR26(SC) . Having cited the gist of that decision, the Tribunal entered their finding as follows : 'We consider the delay of 3 months in the filing of the return a technical or venial breach of the Act not calling for the rigours of a penalty under s. 271(1)(a). ' With these words, the Tribunal cancelled the penalty.
The principal submission made by the learned standing counsel for the Commissioner before us was that although the Tribunal had concluded that the delay in this case was a technical or a venial breach of the Act, they had not supported their conclusion with a fair discussion of the facts and circumstances of the case. The learned standing counsel submitted that by a mere citation of the case law in Hindustan Steel Ltd. v. State of Orissa : 83ITR26(SC) , the Tribunal cannot seek to annual penalty without at the same time, going into the merits of the case.
We do not say that the criticism of the learned counsel is entirely uncalled for. But we cannot accept the suggestion that the Tribunal had cancelled the penalty in this case capriciously or even for some wrong reason, As we had earlier mentioned, they had quoted the law from the decision of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa : 83ITR26(SC) . That was a case which arose under the Orissa Sales Tax Act, 1947. The observations of the Supreme Court in that case, however, were considered by a Bench of this court in V. L. Dutt v. CIT : 103ITR634(Mad) as apposite and as application to cases falling under s. 271(1)(a) of the I.T. Act, 1961. In the course of their judgment, the learned judges summed up the decision as under (p. 647) :
'We consider that the decision in Hindustan Steel : 83ITR26(SC) is applicable to the penalty proceedings under the Income-tax Act of 1961. The penalty under section 271(1)(a) will 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 his obligation. The language of this provision is not consistent with the view that there is any presumption that the assessee who submits a belated return has commited an offence, so that it would be necessary for him to establish that he had reasonable cause. As the same expression without reasonable cause occurs both in section 271(1)(a) or 276(b) the same meaning would have to be given in both the provisions so that the presence of a mental element which is relevant for the provision under section 276(b) would also have to be established in applying to section 271(1)(a). The mental element can be established by circumstantial evidence in the shape of contumacious conduct or dishonest or persistent disregard of the statutory obligation. The levy of penalty under section 271(1)(a) is not a mere concomitant of a delay in filing the return. If Parliament intended that this was the position, then it would have omitted the expression without reasonable cause in the substantive part of section 271(1)(a) and would have provided for the assessee to get out of the operation of this provision by establishing reasonable cause, as has been provided in section 146. The rigour of the principle applicable to the criminal prosecution will not apply to the proceedings under section 271(1)(a) , so that even in a case where the assessee fails or extend co-operation and withholds any explanation for the delay in filing the return he is not liable to be penalised unless the department established that he had acted in deliberate disregard of his statutory obligations. We do not share the view that commended itself to the Orissa High Court in CIT v. Alimohamad and Co. : 97ITR133(Orissa) . Where a person had no explanation of offer, it may be treated as circumstantial evidence to show that he had acted without reasonable cause. Also, in a case where the explanation is so prima facie unreasonable, it would be open to the Income-tax Officer to levy penalty on the ground that the assessee had no reasonable cause for the delay in submission of the return. It would be difficult to lay down how or in what manner the onus to establish the absence of a reasonable cause can be discharged. It would depend upon the facts and circumstances of the particular case. The provision is not intended to penalise a technical or venial breach of the provisions of the Act or where the breaches suffer from a bona fide belief that the offender is not liable to act in the manner prescribed in the statute.'
Briefly stated, the position laid down in the above passage is that it is up to the department to make out a case for levy of penalty under s. 271(1)(a). The fact that there has been a delay by itself cannot grant jurisdiction to the ITO to levy penalty. Nor could the ITO rely on his own order denying extension of time applied for by the assessee, as a justifiable ground for the levy of a penalty for a return filed out of time. The power of the ITO to grant extension of time for filing returns is in the nature of a discretion. If the ITO, in exercise of that discretion, rejects an application, that cannot ipso facto arm the ITO with jurisdiction to levy penalty on the ground that the delayed submission of the returns must be without reasonable cause. The rejection of the application for extension of time for filing the return is one thing. The finding that the delay in the filing of the return was without reasonable cause is quite another thing. The ITO was not, therefore, justified in holding that the penalty was leviable merely on the score that he had earlier refused to grant extension of time for filing the return.
The AACs order sustaining the penalty also does not seem to us to be based on any valid reason or justification. He had overlooked the statutory imperative that the filing of the returns in a delayed fashion must be without reasonable cause in order to attract penalty. The Tribunal having gone into the reasonings of the AAC, such as they were, had come to the conclusion that the delay in three months in the circumstances of this case can only be regarded as a technical or a venial breach of the Act which cannot be regarded as such a delay as might be regarded as being without reasonable cause.
The Tribunal might possibly have set out the reasons for cancellation of the penalty in the way which we have endeavoured to do in the foregoing paragraphs. However, the fact that they have not done so in an elaborate manner does not vitiate their ultimate conclusion. We would, all the same, like to observe that in matters of penalty it would be of assistance to this court, if the Tribunal were to set out briefly the facts of the case, their view of the facts, and the reason why they regard the case on hand as not falling within the terms of s. 271(1)(a) of the Act. A mere mention of the leading case on the subject and summarising in the abstract the principles on which the penalty should be levied would not meet with the requirements of an order, especially an order which has to be passed by the Tribunal as the highest fact-finding authority.
The questions of law which was set out in this reference for our answer are as follows :
'1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the penalty under section 271(1)(a) for the assessment year 1966-67, when the assessee had not offered any explanation at all before the Income-tax Officer for the delay ?
2. Whether, on the facts and in the circumstances of the case, and having regard to the provisions of section 271(1)(a) the conclusion of the Appellate Tribunal is based on relevant evidence and is a reasonable view ?'
The first question contains a mis-statement in so far as it implies that the assessee had not offered any explanation whatever for the delay in the filing of the return. It may be mentioned that the assessee did file a letter in explanation before the ITO in the course of the assessment proceedings. But this explanatory letter was ignored by the ITO. Although it was considered by the AAC. The Tribunal apparently did not consider either the assessees letter or the decision of the AAC as proper on the matters contained in the explanation. The first question, therefore, will have to be altered as follows :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the penalty under section 271(1)(a) for the assessment year 1966-67 ?'
Our answer to this question as reframed, as well as to the second question, is in the affirmative and against the department.
There will be no order as to costs.