Penalty for failure to file return needs independent proof of no reasonable cause, not just rejection of cancellation plea.

Penalty under section 28(1)(a) of the Income-tax Act, 1922 requires the department to independently establish that the assessee failed to furnish the return without reasonable cause; rejection of an application under section 27 does not, by itself, satisfy that statutory test. The analysis also notes that relevant facts such as illness and inability to hand over accounts must be considered in deciding default, while matters like the regularity of accounts or alleged mala fides are extraneous to the penalty enquiry. The stated position is that penalty cannot stand unless the penalty provision is separately and properly applied on its own requirements.

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Issues: Whether penalty under section 28(1)(a) of the Income-tax Act, 1922 was valid where the assessee had failed to furnish the return in response to notice under section 22(2), and whether the rejection of an application under section 27 could by itself justify the penalty.

Analysis: The liability to penalty under section 28(1)(a) depended on the department establishing that the assessee failed to furnish the return without reasonable cause. That requirement was distinct from the requirement under section 27, where the assessee had to show sufficient cause for cancellation of the best judgment assessment. The reasoning below had proceeded largely on the failure of the section 27 application and had not independently addressed the statutory test under section 28(1)(a). Relevant facts showing illness and inability to hand over the accounts were not properly considered, while extraneous matters such as the regularity of accounts and alleged mala fides were irrelevant to the penalty issue.

Conclusion: The penalty was not justified in law. The question was answered in favour of the assessee.

Final Conclusion: The reference was disposed of by holding that the penalty order could not stand because the statutory conditions for imposition of penalty were not separately and properly established.

Ratio Decidendi: Penalty for failure to furnish a return cannot rest on the mere rejection of an application for cancellation of assessment; the department must independently prove absence of reasonable cause for the default under the penalty provision.

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