Reasonable cause can defeat late-filing penalty where surrounding circumstances and departmental practice support the taxpayer

Penalty for late filing of a return under section 271(1)(a) arises only where the default occurs without reasonable cause. The Tribunal may assess reasonable cause on the surrounding circumstances, including pre-existing departmental practice followed under the Indian Income-tax Act, 1922, even if that practice does not strictly match the old Act. Reasonable cause in this context is largely a factual determination rather than a pure question of law. On the delayed filing before the end of the assessment year, the Tribunal's view that penalty should not be sustained was not erroneous in law.

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Issues: Whether the Tribunal was right in deleting the penalty for late filing of the return on the basis of reasonable cause and the prevailing departmental practice.

Analysis: Penalty under section 271(1)(a) of the Income-tax Act, 1961 is attracted only when the return is not furnished without reasonable cause. The expression confers discretion on the authority to decide whether reasonable cause exists, and the Tribunal was entitled to consider the pre-existing departmental practice followed under the Indian Income-tax Act, 1922, even if that practice did not strictly accord with the old Act. The existence of reasonable cause depended on the surrounding circumstances and did not raise a question of law. In the circumstances of delayed filing before the end of the assessment year, the Tribunal's view that penalty should not be sustained could not be treated as erroneous in law.

Conclusion: The Tribunal was justified in holding that reasonable cause existed and in setting aside the penalty.

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