1985 (5) TMI 43 - HC - Income Tax

High Court rules in favor of assessee on penalty imposition, citing reasonable cause for return filing delay.

The High Court held that there was a reasonable cause for the delay in filing the return, up to September 1964. The Court agreed with the Tribunal's ... Penalty under section 271(1)(a) - reasonable cause for delayed filing of return - requirement of audited accounts and auditor's report for company returns - leviability of penalty where no tax payable on date of imposition - delay caused by books of account being in custody of official receiverLeviability of penalty where no tax payable on date of imposition - Tribunal was not correct in holding that penalty under section 271(1)(a) could not be imposed merely because no tax was payable on the date of imposition of penalty. - HELD THAT: - The court concluded the first referred question by following its decision in CIT v. Chhoruky and held that the absence of tax payable on the date of imposition does not, by itself, preclude the levy of penalty under section 271(1)(a). The reference record shows the court answered the question against the Tribunal's view and in favour of the Revenue, thereby displacing the Tribunal's reliance on the earlier Calcutta High Court decision relied upon below.Answered in the negative and in favour of the Revenue; penalty may be leviable despite no tax being payable on the date of imposition.Reasonable cause for delayed filing of return - requirement of audited accounts and auditor's report for company returns - delay caused by books of account being in custody of official receiver - Tribunal was right in holding that the assessee had reasonable cause for delay in filing the return up to September 1964. - HELD THAT: - Rule 12 of the Income-tax Rules requires a company to attach audited financial statements and the auditor's report to its return; consequently a company cannot file a proper return until audit and the auditor's report are available. The concurrent factual findings of the AAC and the Tribunal-unchallenged before this court-record that the assessee's books for the preceding year were in custody of the official receiver and released only in September 1963, that audit of the earlier year finished in February 1964, and that the audit and auditor's report for the year under appeal were completed and received on September 10, 1964. Applying these facts to the statutory requirement, the court held that the delay in filing the return up to September 1964 was attributable to reasonable cause and was therefore excusable for purposes of section 271(1)(a).Answered in the affirmative and in favour of the assessee; delay up to September 1964 held to be for reasonable cause.Final Conclusion: The court allowed the reference in part: it held that absence of tax payable on the date of penalty does not bar imposition of penalty under section 271(1)(a), but upheld the Tribunal's finding that the assessee had reasonable cause for delay in filing the return up to September 1964, with no order as to costs. Issues Involved: The judgment involves the imposition of a penalty under section 271(1)(a) of the Income Tax Act, 1961 for the assessment year 1963-64 due to the belated filing of the return of income by the assessee.Imposition of Penalty: The Income Tax Officer (ITO) imposed a penalty of Rs. 52,148 under section 271(1)(a) for the failure to furnish the return under sections 139(1) and 139(2) of the Income Tax Act, 1961, as the return was filed on January 2, 1965, instead of the due date of June 30, 1963. The ITO rejected the reasons provided by the assessee for the delay and noted that no application for extension of time had been made.Appeal Before AAC: The assessee appealed before the Appellate Assistant Commissioner (AAC) who found that there was a reasonable cause for the belated filing of the return, except for a three-month period. The AAC also noted that as there was no outstanding tax on the date of penalty imposition, relying on a previous judgment, the penalty was not leviable under section 271(1)(a).Tribunal's Decision: The Department appealed before the Tribunal, which upheld the AAC's decision based on the judgment in the case of Vegetable Products Ltd. The Tribunal found that since no tax was payable on the date of penalty imposition, the penalty could not be imposed. It was also established that the assessee had a reasonable cause for the delay in filing the return, as the audit for the relevant year was completed in September 1964.Questions of Law: The High Court considered two questions of law: whether the penalty was imposable when no tax was payable on the date of penalty imposition, and whether the assessee had a reasonable cause for the delay in filing the return.Court's Decision: The High Court held that based on the facts and circumstances, there was a reasonable cause for the delay in filing the return up to September 1964. The Court agreed with the Tribunal's decision that the delay was explained due to the completion of the audit in September 1964. The first question was answered in the negative, favoring the Revenue, while the second question was answered in the affirmative, favoring the assessee.Conclusion: The High Court affirmed the Tribunal's decision, stating that there was a reasonable cause for the delay in filing the return, and therefore, no penalty was imposable. The judgment was delivered by Judges Dipak Kumar Sen and Ajit Kumar Sengupta.