COMMISSIONER OF INCOME-TAX VS SOORAJMULL NAGARMULL, 1994 PTD-CALCUTTA-HIGH-COURT-INDIA 365 (1989)

Income-tax.

----Penalty---Delay in filing return---Levy of penalty ---Mens rea not required to be proved by Revenue---Return filed after inordinate delay of 43 months-- Tribunal cancelling penalty on grounds of dispute among partners leading to protracted litigation, Department seizing books of account and assessee filing incomplete return under compelling circumstances---Disputes among partners no ground for such inordinate delay in filing return---No material brought on record by Tribunal to prove that there was real dispute among partners-- Tribunal not considering whether long delay was justified---Tribunal proceeding on wrong assumption that Department had to prove mens rea before imposition of penalty---No material to show that assessee was prevented by reasonable cause from filing return within time---Levy of penalty valid-- Indian Income Tax Act, 1961, S.271(1)(a).

For the assessment year 1963-64, the assessee-firm filed the return of its income after a delay of 43 months. The Income Tax Officer initiated proceedings under section 271(1)(a) of the Income Tax Act, 1961, for imposition of penalty since the return was filed after an inordinate delay. The assessee contended that the return could not be filed in time as (i) certain connected books of earlier years were in the custody of the Department, and (ii) the partners were quarrelling among t1wmselves and certain cases were pending in the Court in this regard. The Appellate Assistant Commissioner upheld the action of the Income Tax Officer. The Tribunal accepted the contention of the assessee and set aside the order of penalty. On a reference:

Held, that the Tribunal did not bring on record any material to hold that there was a real dispute amongst the partners which prevented them from filing the return in time. The submission of the assessee could not be treated as evidence. The Tribunal accepted the submission of the assessee that it had not, intended to rile an incomplete return but had done so later under compelling circumstances. The Tribunal had not considered whether the long delay in filing the return was justified having regard to the facts and circumstances of the case. The Tribunal proceeded solely on the erroneous assumption that it was for the Department to prove that there was any conscious disregard on the part of the assessee of its legal obligation to file the return within time. It was not necessary for the Revenue to prove mens rea before penalty could be levied under section 271(1)(a). It was for the assessee to satisfy the authority that there was reasonable cause for the delay in filing the return. Merely because there was a dispute amongst the partners or the Income Tax Department had seized the books of account could not be a ground for such inordinate delay. There was no material on record to show that the assessee was prevented by reasonable cause from filing the return in time. Therefore, the Tribunal was not justified in cancelling the penalty.

Gujarat Travancore Agency v. CIT (1989) 177 ITR 455 (SC) ref.

JUDGMENT

AJIT K. SENGUPTA, J.---In this reference under section 256(2) of the Income Tax Act, 1961, for the assessment year 1963-64, the following questions of law have been referred to this Court:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal had no evidence and/or had relied on irrelevant materials in holding that the assessee was prevented by reasonable cause from filing the return of its total income within the time allowed by the notice under section 139(2) of the Income Tax Act, 1961?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in cancelling the order of penalty made by the Income Tax Officer under section 271(1)(a) of the Income Tax Act, 1961?"

Shortly stated, the facts are that for the year under reference, the assessee was required to file its return of income on or before May 18, 1963, in terms of the notice issued under section 139(2) of the Act served on the assessee on April 18, 1963. The return was, however, actually filed on December 19, 1966. Therefore, there was a delay of 43 months in filing the return of income. The Income Tax Officer initiated proceedings under section 271(1)(a) of the 1961 Act and in reply to a show-cause notice issued under that section the assessee stated that the return of 'income could not be filed on or before the due date as (i) certain connected books of earlier years were in the custody of the Income Tax Department and (ii) the partners were quarrelling among themselves and certain cases were pending in the High Court in this regard. The Income Tax Officer, however, was not satisfied with the explanation given by the assessee and imposed penalty of Rs.13,34,439 under section 271(1)(a) of the 1961 Act, vide his order, dated February 7, 1970. In appeal, the Appellate Assistant Commissioner upheld the action of the Income Tax Officer imposing penalty under section 271(1)(a) of the 1961 Act.

He, however, directed the Income Tax Officer to re-determine the quantum of penalty keeping in view the result of the appellate order in the quantum appeal.

The Tribunal following its earlier order allowed the appeal of the assessee and set aside the order imposing the penalty. The Tribunal was of the view that there was no jurisdiction for the Income Tax Officer to impose the penalty under section 271(1)(a). Penalty proceedings are quasi-criminal proceedings and penalty may not be levied merely because it is lawful to do so. The Revenue has not shown that there was any conscious disregard on the part of the assessee of the legal obligations imposed by the statute or that there was any contumacious or dishonest conduct on the part of the assessee. The Tribunal also observed that the disputes amongst the partners were real and -not imaginary and were the subject-matter of protracted litigation, which was at the material time still pending in the Court. The Tribunal also accepted the assessee's submission that the assessee initially did not want to file an incomplete return and did so later on only under compelling circumstances that matters could not indefinitely be delayed.

We are of the view that the Tribunal was not right in holding that in proceedings under section 271(1)(a), the Department has to prove that there was conscious disregard on the part of the assessee of the legal obligation imposed by the statute or that there was any contumacious or dishonest conduct on the part of the assessee. Reliance may be placed on a decision of the Supreme Court in the case of Gujarat Travancore Agency v. CIT (1989) 177 ITR 455. There, the Supreme Court held that the element of mens rea was not required to be proved in a proceeding taken by the Income Tax Officer under section 271(1)(a) of the Act.

But the question still remains whether on the facts and in the circumstances of the case, there was any reasonable ground for the delay in filing the return. That there was a default in complying with the statute is not disputed. The Tribunal did not bring on record any material to hold that there was real dispute amongst the parties which prevented them from filing the return. The submission of the assessee cannot be treated as evidence. The Tribunal accepted the submission of the assessee that it did not intend to file an incomplete return but did so later under compelling circumstances. In our view, the Tribunal has not considered whether the long delay in filing the return was justified having regard to the facts and circumstances of the case. It appears to us that the Tribunal proceeded solely on the erroneous assumption that it was for the Department to prove that there was any conscious disregard on the part of the assessee of its legal obligation to file the return within time. It is not necessary for the Revenue -to prove mens rea before penalty can be levied under section 271(1)(a). It is for the assessee to satisfy the authority that there was reasonable cause for the delay in filing the return. Merely because there was a dispute amongst the partners or the Income Tax Department had seized the books of account could not be a ground for such inrodinate delay. It has not been suggested that the assessee could not get hold of the books of account and papers from the Income Tax Department for the purpose of preparing the accounts. Ultimately, the assessee filed an incomplete return. There is no material or record to hold that the assessee was prevented by reasonable cause from filing the return in time. We are, therefore, of the view that the Tribunal was not justified in cancelling the penalty.

For the reasons aforesaid we answer both the questions in' this reference in the affirmative and in favour of the Revenue.

There will be no order as to costs.

BHAGABATI PRASAD BANERJEE, J: --I agree.

M.B.A./19/T.F Reference answered,