2006 (11) TMI 149 - HC - Income Tax

Penalty levied u/s 272A(2)(e)? - failure to file the returns within the time stipulated - charitable trust - granted registration u/s 12A by the CIT(A) - proves that there was reasonable cause for the said failure - HELD THAT - In our view in the facts of the present case where the Department contends that notices were issued and the assessee denies receiving such notices the burden is on the Department to show that such notices were served on the assessee. There is no finding rendered by the CIT(A) or Tribunal that the notices in question were in fact served on the assessee. Therefore the only conclusion that can be drawn is that the assessee was not served these notices and was consequently not afforded the opportunity of being heard before the penalties were imposed. In our view this by itself is sufficient to set aside the orders imposing the penalty on the appellant for the assessment years in question. Respectfully adopting the reasoning of the Full Bench of this court in J. T. (India) Exports v. Union of India 2001 (9) TMI 10 - DELHI HIGH COURT which was rendered in the context of the Imports and Exports (Control) Act 1947 we are of the view that there is an implied requirement of the principles of natural justice that before imposing a penalty u/s 272A(2)(e) of the Act notices are required to be both issued and served upon the assessee to enable it to defend itself in the penalty proceedings. It is trite that the imposition of any penalty has adverse civil consequences and has to be preceded by the affording of an opportunity of being heard to the assessee. Only then can the assessee urge factors relevant to the question of penalty and independent of the explanations offered during assessment proceedings. It affords a chance to the assessee to show why penalty should be either waived altogether or should be less than what is proposed by the Department. On the merits of the case we find that the explanation offered by the appellant for not filing the returns within the time stipulated under the Act appears to be a plausible one. Thus we are of the considered view that the appellant has proved that there was reasonable cause within the meaning of section 273B of the Act for the failure to file income-tax returns for the relevant assessment years within the time stipulated and therefore no penalty was required to be levied in terms of section 272A(2)(e) of the Act. Therefore the impugned orders of the authorities below i.e. the Assessing Officer CIT(A) or the Tribunal are hereby set aside. The appeals are accordingly allowed with no orders as to costs.

Summary

Issues Involved:

1. Penalty under Section 272A(2)(e) of the Income-tax Act, 1961 for delay in filing Income-tax returns.
2. Justification for imposition of penalty.
3. Service of notice under Section 272A(2)(e).
4. Reasonable cause for delay under Section 273B.

Issue-wise Detailed Analysis:

1. Penalty under Section 272A(2)(e) of the Income-tax Act, 1961 for delay in filing Income-tax returns:

The appeals concern the penalty levied on the appellant under Section 272A(2)(e) for the delay in filing Income-tax returns for the assessment years 1990-91, 1991-92, 1995-96, 1996-97, and 1997-98. The penalties were imposed due to the appellant's failure to file returns within the stipulated time, with delays ranging from 318 to 2875 days.

2. Justification for imposition of penalty:

The appellant, a charitable trust, claimed its income was not taxable due to exemptions under Section 10(22) read with Section 11. The returns were filed late based on revised advice from their chartered accountant. The Department accepted the returns but initiated penalty proceedings for the delay. The appellant argued that the penalties were unjustified as the returns were eventually filed and accepted as nil.

3. Service of notice under Section 272A(2)(e):

The Department claimed to have issued notices on three dates, but the appellant contended that these notices were never received. The Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal did not address this issue adequately. The court held that the burden was on the Department to prove that the notices were served. Since there was no finding that the notices were served, the court concluded that the appellant was not given an opportunity to be heard, thus setting aside the penalty orders.

4. Reasonable cause for delay under Section 273B:

The appellant argued that the delay was based on the mistaken advice of their chartered accountant, which was later corrected. The court found this explanation plausible, noting that legal advice can sometimes be wrong. The court emphasized that each case should be evaluated on its merits to determine if there was a reasonable cause for the delay. In this case, the court concluded that the appellant had a reasonable cause for the delay in filing returns and thus no penalty should be imposed.

Conclusion:

The court set aside the orders of the Assessing Officer, Commissioner of Income-tax (Appeals), and the Income-tax Appellate Tribunal. The appeals were allowed, and the penalties were waived, with no orders as to costs.