Bona fide belief of no liability as a body of individuals can constitute reasonable cause against penalty for late return filing.

A bona fide belief that assessees were not assessable as a body of individuals and, on that basis, were not required to file a return under section 139(1), constituted reasonable cause for failure to file the return in time. The fact that the source of the amount was not satisfactorily explained for assessment purposes did not, by itself, justify penalty under section 271(1)(a). On that reasoning, the penalty was not sustainable and its cancellation was upheld.

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Issues: Whether penalty under section 271(1)(a) of the Income-tax Act, 1961 was leviable when the assessees believed that they were not assessable as a body of individuals and, on that basis, did not file a return under section 139(1).

Analysis: The assessees' explanation was that they honestly believed that the cash amount did not constitute income of a body of individuals and that, therefore, no return was required to be filed in that status. The mere fact that the source of the amount was not satisfactorily explained for assessment purposes did not by itself justify penalty. For penalty under section 271(1)(a), the relevant question was whether there was reasonable cause for the failure to file the return in time. A bona fide belief that the assessees were not liable to be assessed as a body of individuals constituted reasonable cause.

Conclusion: The penalty was not sustainable and the cancellation of penalty was upheld.

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