Penalty for delayed return fails where interest is charged under the filing proviso and no arbitrary assessment is shown.

Penalty under Section 271(1)(a) of the Income-tax Act, 1961 cannot be sustained where interest has been charged under clause (iii) of the proviso to Section 139(1) for delayed filing. The governing principle applied was that charging interest for the delay reflects acceptance of sufficient cause for the late return, and the Revenue must show that the assessing authority acted arbitrarily or contrary to the statutory procedure. In the absence of such proof, once interest is levied for the delay, the foundation for penalty does not survive. The issue was answered in favour of the assessee and against the Revenue.

---

---

Issues: Whether penalty under Section 271(1)(a) of the Income-tax Act, 1961 can be sustained where interest has been charged under clause (iii) of the proviso to Section 139(1) of the Income-tax Act, 1961.

Analysis: The question was held to be governed by the Supreme Court decision that charging of interest for delayed filing reflects acceptance of sufficient cause for the delay, and the Revenue did not establish that the assessing authority acted arbitrarily or contrary to the statutory procedure. Once interest is charged for the delay, the basis for levy of penalty does not survive.

Conclusion: The answer to the question was given in the negative, in favour of the assessee and against the Revenue.

---