Delhi H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee could not be penalised for the default under s. 271(1)(a) of the IT Act, 1961, beyond the period of 25 months which commenced on 1st July, 1967, and ended on 31st Dec., 1968 ?

Counsel Appeared

Wazir Singh & Anoop Sharma, for the Petitioner : None, for the Respondent

RANGANATHAN, J. :

The assessee in this income-tax reference is a partnership-firm and it had to file its return of income for the asst. yr. 1966- 67, on or before 30th June, 1966, but it filed the return only on 9th Feb., 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 assessee for a period of 43 months.

The assessee preferred an appeal to the AAC and gave certain explanations for the delay in the filing of the return. The AAC accepted the case of the assessee that there was reasonable cause for the delay in the filing of the return but only up 30th Dec., 1968. He, therefore, directed the ITO to recompute the penalty on the basis of the default without reasonable cause being for the period commencing on 1st Jan., 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.

Not satisfied with the relief granted by the AAC, the assessee preferred an appeal to the 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 31st Dec., 1968. Nevertheless, the Tribunal came to the conclusion that no penalty at all could be levied against the assessee. This was because, according to the Tribunal, s. 271(1)(a) restricted the penalty leviable 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 assessee required to be cancelled and it allowed the assessee’s appeal

Aggrieved by the order of the Tribunal, the CIT 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 assessee could not be penalised for the default under s. 271(1)(a) of the IT Act, 1961, beyond the period of 25 months which commenced on 1st July, 1967, and ended on 31st Dec., 1968 ?”

We are of opinion that the view taken by the Tribunal cannot be upheld. Sec. 271(1)(a) authorises the ITO to impose a penalty where he is satisfied that the assessee 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-cl. (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 cl. (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.”

5. This is the clause which deals with the amount of penalty imposable on the assessee in the present case. The default of the assessee in the filing of the return is for the period 1st July, 1966, to 9th Feb., 1970, i.e., a period of 43 months. It is no doubt true that for the period between 1st July, 1966 and 31st Dec., 1968, the AAC and the Tribunal have accepted the position that there was reasonable cause on the part of the assessee in regard to the delay. This only means that there was default on the part of the assessee without reasonable cause for the period from 1st Jan., 1969, to 9th Feb., 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 in respect of these 13 months was imposable on the assessee.

We are unable to share the view of the Tribunal that from the provisions of the above said paragraph any immunity to the assessee 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 assessee’s failure without reasonable cause to furnish the return, therefore, can be ignored and how it can be held that once the assessee 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. As the Supreme Court has explained in the recent decision in the case of Suresh Seth (1981) 21 CTR (SC) 349 : (1981) 129 ITR 328 (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 per cent made in the sub- paragraph that the section intends to ignore all delay beyond the period of 25 months. We are, therefore, unable to agree with the view taken by the Tribunal and in our opinion, the correct decision in this case is that the assessee would be liable for a penalty in respect of the default between 1st Jan., 1969, and 9th Feb., 1970.

The Tribunal has tried to draw support for its conclusion from a decision of the Supreme Court in J.P., Jani, ITO vs. Induprasad Devshanker Bhatt (1969) 72 ITR 595 (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, 1st April, 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, therefore, of opinion that the decision of the Supreme Court referred to by the Tribunal is not of much assistance in corning to a conclusion in the present case and does not justify the conclusion arrived at by the Tribunal.

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 1st July, 1967, and ended on 31st Dec., 1968. Obviously the reference is to the period from 1st July, 1966, to 31st Dec., 1968 (a period of 30 months), being the period for which the Tribunal held that there was reasonable cause for the assessee’s failure to furnish the return. The period of 25 months actually expired on 31st July, 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 assessee the penalty could not be imposed under s. 271(1)(a).

We, therefore, answer the question referred to us in the negative and in favour of the applicant. As there has been no appearance on behalf of the respondent, we make no order as to costs.

[Citation : 141 ITR 437]