Bombay H.C : Whether the Tribunal erred in law in holding that mens rea is not an essential ingredient for imposition of penalty under s. 271 (1) (a) of the IT Act, 1961 ?

Counsel Appeared

Dastoor with N.A. Dalvi, instructed by mathubhai Jamietram & Madan for the Assessee : Dr. V. Balasubramanian with J.P. Devadhar & K.C. Sidhwa for the Revenue

D. SUGLA, J.:

The questions raised in this reference at the instance of the assessee are :

“(1) Whether the Tribunal erred in law in holding that mens rea is not an essential ingredient for imposition of penalty under s. 271 (1) (a) of the IT Act, 1961 ?

(2) Whether the Tribunal erred in law in holding that the levy of interest under s. 139 has nothing to do with the levy of penalty under s. 271 (1) (a) of the IT Act, 1961 ?

(3) Whether the Tribunal ought to have held that the expression for every month during which the default continued’ referred to a completed calendar month and not to a period of thirty days ?”

The assessee is a company. The proceedings relate to the asst. yr. 1970-71. Its previous year ended on June 30, 1969. The return for the year was due to be filed on or before June 30, 1970. By an application dated June 29, 1970, the assessee applied for extension of time for filing the return up to September 30, 1970, which was granted. The assessee filed another application on September 29, 1970, for further extension of time for filing the return by one month. This application was granted up to October 19, 1970, only. The return was filed on December 24, 1970. While completing the assessment, the ITO charged interest under proviso (iii) to s. 139(1) of the IT Act for the period from October 1, 1970, up to December 23, 1970. He also initiated penalty proceedings under s. 271(1)(a) and required the assessee to show cause why penalty under that section should not be levied. The assessee’s explanation that it was prevented by reasonable cause in not filing the return within the extended time was rejected by the ITO who levied penalty under s. 271(1)(a) for period of two months at the statutory rate. There is no dispute that the assessee’s explanation that it was prevented by reasonable cause in not filing the return within the extended time was rejected both by the AAC and the Tribunal.

Shri Dastoor, learned counsel for the assessee, submits that question No. 2 is covered by the Supreme Court decision in the case of CIT vs. M. Chandra Sekhar (1985) 44 CTR (SC) 110 : (1985) 151 ITR 433. It is pointed out that like the present case, in that case also, the returns were filed beyond time without there being an application for extension of time and an, order thereon extending the time as a matter of fact. However, interest under proviso (iii) to s. 139(1) was charged. The Supreme Court approved the view taken by the High Court that the time for filing the return should be deemed to have been extended by the ITO and once the time for filing the return is deemed to have been extended, there is no question of imposition of penalty under s. 271(1)(a) on the ground that the return was not filed within time. Dr. Balasubramanian fairly conceded that the second question is covered by the Supreme Court decision. Accordingly, following the Supreme Court decision in M. Chandra Sekhar’s case (supra), we answer the second question in the affirmative and in favour of the assessee, namely, that the Tribunal erred in holding that the levy of interest under s. 139 had nothing to do with the levy of penalty under s. 271 (1) (a) of the Act.

Counsel are agreed that in view of our answer to question No. 2, it is not necessary to consider questions Nos. 1 and 3. These two questions are, therefore, not answered.

No Order as to costs.

[Citation : 181 ITR 436]