Reasonable cause defeats penalty for delayed gift-tax return where the transaction was honestly believed to be a loan.

Penalty for delay in filing a gift-tax return under the Gift-tax Act was sustainable only where the delay was without reasonable cause. The assessee's bona fide belief that the transaction was a loan, supported by the account entry describing it as a loan and the surrounding circumstances, provided a reasonable basis for treating the return as not deliberately delayed. The fact that the return was filed on advice and that the departmental notice came later did not negate the honest belief. The penalty was therefore held not sustainable and was cancelled.

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Issues: Whether penalty for delay in filing the gift-tax return under Section 17(1)(a) of the Gift-tax Act, 1958 was exigible when the assessee claimed a bona fide belief that the transaction was a loan and not a gift.

Analysis: Penalty under Section 17(1)(a) could be sustained only if the delay was without reasonable cause. The account entry describing the amount as a loan, together with the surrounding circumstances, showed material on which a reasonable person could believe that the transaction was not a gift. The fact that the return was filed on advice and that the departmental notice under Section 16(1) was issued later did not displace the assessee's plea of honest belief. The departmental circular emphasising fair assistance to taxpayers reinforced the view that the assessee's conduct did not justify penal action.

Conclusion: The penalty was not sustainable and was cancelled, in favour of the assessee.

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