1990 (10) TMI 112 - AT - Income Tax

Tribunal cancels penalty for late tax return, emphasizes importance of considering taxpayer explanations

The Tribunal canceled the penalty of Rs. 14,780 imposed on a registered firm for late filing of the return under s. 271(1)(a) of the IT Act. It held that ... - Issues:Penalty under s. 271(1)(a) of the IT Act for late filing of return without reasonable cause; Non-consideration of assessee's explanation by the ITO; Applicability of penalty in case of non-finalization of accounts; Arbitrariness in the exercise of discretion by the ITO.Analysis:1. The case involved the imposition of a penalty of Rs. 14,780 on the assessee, a registered firm, for late filing of the return without any reasonable cause under s. 271(1)(a) of the IT Act, 1961. The return was due on 30th June, 1982, but filed on 31st May, 1983. The ITO contended that the assessee failed to provide any explanations for the delay.2. The CIT(A) noted that the assessee had applied for an extension of time up to 30th Sept., 1982, but the non-finalization of accounts by the assessee's accountant was not considered a reasonable cause for the delay. The CIT(A) directed the ITO to count the period of default from 1st Oct., 1982, and levy the penalty accordingly.3. The assessee argued that the penalty was not legally sustainable as the ITO did not consider the extension application or the explanation provided. The argument was supported by precedents from the Delhi Bench and Ahmedabad Bench. The Departmental Representative (D.R.) contended that the defects in the penalty order were required to be ignored since the ITO's order merged with that of the CIT(A).4. The Tribunal emphasized that an assessee has the right to be heard and explain the delay in filing the return. Non-consideration of the assessee's explanation by the ITO amounted to a miscarriage of justice and a dereliction of duty. The discretion to levy a penalty should be exercised judiciously and not arbitrarily.5. Penalty proceedings under s. 271(1)(a) are quasi-criminal in nature, and the standard of proof required is similar to civil cases. The ITO's discretion in imposing a penalty must be exercised judicially, and non-consideration of the assessee's explanation would amount to an arbitrary exercise of discretion.6. The Tribunal further highlighted that if the ITO did not consider the extension application or the explanation offered by the assessee, it indicated arbitrariness in the exercise of discretion. The failure to consider the explanation should not lead to the imposition of a penalty.7. In the present case, the ITO's disregard for both the extension application and the assessee's explanation demonstrated arbitrariness in the exercise of discretion. The Tribunal accepted the assessee's argument based on the precedents cited.8. However, on the merits of the case, the Tribunal found it challenging to accept the contention that non-finalization of accounts was the cause for the delayed filing of the return. The conduct of the assessee in delaying the filing despite the readiness of the return earlier showed a lack of regard for statutory obligations.9. Ultimately, the Tribunal accepted the appeal and canceled the penalty levied on the assessee.