Bona fide belief as reasonable cause can defeat penalty where the taxpayer's no-return explanation is supported by material.

A bona fide belief that no return was required can constitute reasonable cause under section 271(1)(a) when supported by material and not shown to be perverse. The Tribunal's deletion of penalty was upheld because the assessee's explanation, though rejected, was corroborated by surrounding circumstances and treated as a finding of fact. Penalty under the provision is not automatic and depends on proof of default without reasonable cause. The earlier finding in proceedings under section 271(1)(c) was also relied upon. The penalty therefore did not survive.

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Issues: Whether there was material to support the Tribunal's finding that the assessee believed he was under no statutory obligation to file a return and whether that explanation constituted reasonable cause for the default under section 271(1)(a) of the Income-tax Act, 1961.

Analysis: The Tribunal had deleted the penalty after holding that, although the assessee's explanation was rejected, the surrounding circumstances still supported the finding that he was under a bona fide belief that no return was required. The finding was treated as one of fact, and on the record it could not be characterised as perverse or unsupported by evidence. Penalty proceedings are not automatic and depend upon the statutory requirement of default without reasonable cause. The earlier finding in proceedings under section 271(1)(c) was also relied upon by the Tribunal in reaching its conclusion.

Conclusion: The finding that the assessee had reasonable cause and was under a belief that he was not obliged to file the return was supported by material and was upheld, resulting in deletion of the penalty in favour of the assessee.

Final Conclusion: The reference was answered in favour of the assessee and against the Revenue, and the penalty did not survive.

Ratio Decidendi: In penalty proceedings under section 271(1)(a) of the Income-tax Act, 1961, a bona fide belief that no return was required, if supported by material and not shown to be perverse, constitutes reasonable cause and justifies deletion of penalty.

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