1992 (4) TMI 5 - SC - Income Tax

Penalty Imposition: Proof of Reasonable Cause in Income Tax Appeals

The Supreme Court clarified that the absence of mens rea is not a requirement for imposing penalties under section 271(1)(a) of the Income-tax Act, ... Whether, on the facts and circumstances, the Tribunal is justified in law in cancelling the penalty levied on the assessee under section 271(1)(a) for the three assessment years 1964-65 to 1966-67 ? Held that:- The Revenue is entitled to succeed. As a matter of fact, the very question with which we are concerned is no longer res integra as has rightly been pointed out by Mr. Ramamurthy. In Gujarat Travancore Agency v. CIT [1989 (5) TMI 1 - SUPREME Court] wherein held that there is nothing in section 271(1)(a) which requires that mens rea must be proved before penalty can be levied under that provision. Issues:Assessment of penalty under section 271(1)(a) of the Income-tax Act, 1961 for the assessment years 1964-65 to 1966-67 based on belated filing of returns. Interpretation of the term 'reasonable cause' in the context of penalty imposition. Examination of the burden of proof on the Department and the assessee regarding the absence of reasonable cause. Clarification on the requirement of mens rea for imposing penalties under section 271(1)(a) compared to section 271(1)(c) of the Act.Analysis:The Supreme Court dealt with three appeals concerning the same assessee for different assessment years 1964-65, 1965-66, and 1966-67, where penalties were imposed under section 271(1)(a) of the Income-tax Act, 1961 due to belated filing of returns. The Gujarat High Court's Full Bench disagreed with the Kerala High Court's view and emphasized that failure to furnish returns without reasonable cause is a key element for penalty imposition under section 271(1)(a). The Department must first establish prima facie evidence of the absence of reasonable cause, shifting the burden to the assessee to prove reasonable cause, not just falsity of explanation. The Division Bench upheld the Tribunal's decision that the assessee showed reasonable cause, leading to the penalty cancellation.The Revenue argued that the Kerala High Court's decision, requiring mens rea for penalty under section 271(1)(a), was overruled by the Supreme Court in subsequent cases like Gujarat Travancore Agency v. CIT and CIT v. Kalyan Das Rastogi. They highlighted the distinction between penalties under sections 271(1)(a) and 271(1)(c), emphasizing the civil nature of obligation under 271(1)(a) and the absence of mens rea requirement. The Supreme Court reiterated that mens rea is not necessary for imposing penalties under section 271(1)(a) as it involves a civil obligation, not a criminal sentence, unlike section 276C. The Court clarified that section 271(1)(a) does not mandate proving mens rea for penalty imposition.The Court concluded that the requirement of mens rea for penalties under section 271(1)(a) is settled law, as established in Gujarat Travancore Agency v. CIT and CIT v. Kalyan Das Rastogi. The burden of proof regarding the absence of reasonable cause lies with the Department initially, and the assessee must then demonstrate reasonable cause. As mens rea is not a prerequisite for penalties under section 271(1)(a), the appeals were allowed, setting aside the High Court and Tribunal judgments, confirming the penalties imposed by the assessing authority.