Gujarat H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the penalty imposed under s. 271(1)(a) of the IT Act, 1961, cannot be sustained ?

Counsel Appeared

S.N. Shelat with G. N. Shah, for the Revenue : J. P. Shah, for the Assessee

MANKAD, J.:

The assessee in this reference is a registered partnership firm. It was required to furnish its return of income for the asst. yr. 1968-69, on June 30, 1968. The return was, however, filed on November 7, 1968, declaring a total income of Rs. 5,83,962. In view of the delay in submission of the return, the ITO initiated proceedings for levy of penalty for late submission of return under s. 271(1)(a) of the IT Act, 1961 (hereinafter referred to as the ” Act”). In response to the showcause notice, the assessee appeared before the ITO and resisted the Proposed action on various grounds. The contention which the assessee raised before the ITO, as set out in the order of the Tribunal, were as follows : “(1) An application was made to the ITO on 26-6-1968, requesting for supply of the form of return of income and as the form was not received, and application in Form No. 6 was made on 28-61968, requesting extension of time till 30-9-1968. Another application in Form No. 6 was made on 10-10-1968, requesting extension of time up to 31-10-1968, and again, an application in Form No. 6 was made on 1-11-1968, asking for extension of time up to 30-11-1968, on the ground that the form of return was still not received. (2) Though the applications made in Form No. 6 were not signed by the authorised person, the default was of technical nature which would not invalidate the said applications. The ITO ought to have pointed out this to the assessee so that proper application could be made by the assessee. (3) The assessee was an old assessee and pursuant to the Board’s Circulars F.No. 13/41163-II(AI), dated 2-12-1963, the ITO ought to have issued a notice under s. 139(2) to the assessee. (4) Placing reliance on the decision of the Tribunal in IT.A. No. 2001(Ahd)/71-72, dated 18-101973, it was stated that the Tribunal has taken judicial cognizance of non-availability of forms of return of income. (5) According to the assessee it had paid advance tax as well as tax under s. 140A and tax at source amounting to Rs. 84,074 while the tax payable worked out to Rs. 76,845. Thus in view of the fact that the assessee had paid higher amount of tax than what it was liable to pay no penalty should be imposed.”

The explanation for the delay given by the assessee was not accepted by the ITO who held that the assessee had committed default in submitting its return of income late without reasonable cause. In the result, he levied penalty of Rs. 25,494. In the appeal preferred by the assessee, the AAC, while agreeing with the view taken by the ITO, held that the ITO had wrongly calculated the penalty imposed upon the assessee under s. 27l(1)(a) of the Act. In the result, he enhanced the penalty to Rs.27,830, after hearing the assessee on the question of enhancement of penalty.

Being aggrieved by the order of the AAC, the assessee carried the matter in appeal before the Tribunal (hereinafter referred to as the “Tribunal”). The Tribunal was of the view that the assessee had complied with the requirements of s. 139(1), when it made an application in Form No. 6 for extension of time for filing the return, and, therefore, no penalty could be levied under s. 271(1) (a). The Income-tax Appellate Tribunal further held that it was incumbent upon the ITO to render his decision on the applications for extension of time made on behalf of the assessee. The ITO in exercise of the discretion vested in him should have either rejected the assessee’s application or granted it extension of time. He, however, failed to do either and thus he failed to discharge his statutory duty. The Tribunal observed that had the ITO decided to reject the assessee’s application and informed the assessee about such rejection, the assessee could have taken steps to file the return. The Tribunal further held that when the assessee made an application in the prescribed form for extension of time and the ITO failed to communicate his decision thereon, the assessee could entertain a bona fide belief that extension of time as sought for was granted. Under the circumstances, it could be assumed that there was no conscious disregard of the legal obligations on the part of the assessee. In, the result, the Tribunal allowed the assessee’s appeal and quashed the order of penalty passed by the authorities below. The Revenue has challenged the view taken by the Tribunal, and at its instance the following questions have been referred to us for our opinion under s. 256(1) of the Act :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the penalty imposed under s. 271(1)(a) of the IT Act, 1961, cannot be sustained ?

(2) Whether, under the provisions of the IT Act, 1961, r/w the Rules framed thereunder it is incumbent upon the ITO to entertain the application for extension of time not made in the prescribed manner and whether non-reply of such invalid applications exonerate the assessee from penal consequences under s. 271(1)(a) of the IT Act, 1961 ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that when the ITO did not discharge his statutory duty by exercising his discretion one way or the other and whereby he deprived the assessee of his right, it was not open to the Revenue authority to penalise the assessee by holding that the assessee was in default of not filing the return of income in time ?”

The following facts are not in dispute. The assessee who under s. 139(1) of the Act was required to file a return of its income for the asst. yr. 1968-69, on June 30, 1968, filed it on November 7, 1968. Applications in Form No. 6, dated June 26, 1968, June 28, 1968, October 18, 1968, and November 1, 1968, were made on behalf of the assessee before the ITO seeking extension of time for filing the return. The ITO did not render his decision on these applications. In other Words, be neither rejected nor granted these applications. Since the ITO did not render any decision, no decision was communicated to the assessee.

The question of delay in filing the return which arises in the context of the assessee’s obligation to file a return under s. 139(1) of the Act. Proviso to s. 139(1) lays down that on an application made in the prescribed manner, the ITO may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of sub-s. (8). Rule 13 of the IT. Rules, 1962, deals with application for extension of time for filing return of income and it lays down that the application to the ITO under the proviso to sub-s. (1), or the proviso to sub-s. (2), or sub-s. (3) of s. 139, for seeking an extension of the date for furnishing the return of income shall be in Form No. 6. As already pointed out above, applications in Form No, 6 were made on behalf of the assessee for extension of time. It is, however, contended on behalf of the Revenue that the applications which were made on behalf of the assessee were not made in the prescribed manner inasmuch as they were not signed by the person authorised to sign on behalf of the assessee. The ITO, therefore, could have ignored these applications. In other words, according to the Revenue, it was not incumbent upon the ITO to render his decision on the applications made on behalf of the assessee. As pointed out above, proviso to sub-s. (1) of s. 139 empowers the ITO to extend the date for furnishing the return. It is obvious that there is a corresponding duty on the ITO to render his decision on the application made to him and communicate it to the assessee concerned. He has no doubt discretion whether or not to extend the date, but such discretion has to be exercised judicially and not arbitrarily.

In other words, he has to exercise the discretion fairly and reasonably. He, however, cannot refuse to use discretion one way or the other and ignore the application for extension made to him in the prescribed form. If the application is not made properly or it suffers from some defect, it may be open to the ITO to reject the application on that ground, but he cannot simply ignore the application as not maintainable. A statutory duty is enjoined on the ITO to entertain and decide the application for extension of time. He cannot refuse to discharge his duty under the pretext that since the application was not properly made or signed, he can ignore it. If a statute invests a public officer with authority to do an act in a specified set of circumstances, it is imperative upon him to exercise his authority in a manner appropriate to the case when a party interested and having a right to apply moves in that behalf and circumstances for exercise of authority are shown to exist. We are, therefore, unable to see any force in the Revenue’s argument that the ITO could have ignored the applications made on behalf of the assessee. It was incumbent upon the ITO either to grant or reject the applications for valid reasons.

In view of the decision of the Full Bench of this Court in Addl. CIT vs. I. M. Patel & Co. 1977 CRE (Guj) 320 (FB) (1977) 107 ITR 214 (Guj), it is clear that penalty for failure to furnish the return within the time specified by law could have been imposed only if it was shown that the assessee had either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of his obligation to file the return in time. Failure without reasonable cause to furnish the return in time is an ingredient of the offence and the legal burden is on the Department to establish by leading some evidence that, prima facie, the assessee had without reasonable cause failed to furnish the return within the time specified. If we examine the facts in the instant case in the background of this decision, we find that the applications for extension of time made on behalf of the assessee were not disposed of by the ITO. Under the circumstances, the assessee could have reasonably entertained the belief that his applications were granted by the ITO. If, under such belief, he did not file the return till November 7, 1968, could it be said that the assessee had, without reasonable cause, failed to furnish the return within the prescribed time? The answer is obviously “no”. In our opinion, having regard to the facts and circumstances of the case, the Tribunal was justified in holding that penalty imposed under s. 271 (1)(a) of the Act cannot be sustained.

In the result, we answer all the three questions referred to us in the affirmative and against the Revenue. Reference answered accordingly with costs.

[Citation : 142 ITR 84]