1975 (9) TMI 156 - AT - Income Tax

Summary

Issues:
1. Cancellation of penalties imposed by the ITO for failure to file returns before ex-parte assessments.
2. Justification for not filing returns due to severe illness.
3. Legal obligation and contumacious conduct in penalty levy under section 271(1)(a) of the Act.

Detailed Analysis:
1. The appeals were filed by the Revenue challenging the cancellation of penalties imposed by the ITO for the failure of the assessee to file returns before ex-parte assessments. The assessee, a dealer in various goods, cited severe health issues as the reason for not filing returns, as his income was below the taxable limit. The ITO completed assessments estimating income at Rs. 30,000 for each year. The CIT reduced the estimated income considering the assessee's illness. The ITO then levied penalties under section 271(1)(a) of the Act, which were canceled by the AAC. The Revenue appealed the decision.

2. The Departmental Representative contended that the notice under section 148 of the Act made the income being below the taxable limit irrelevant, questioned the evidence of the assessee's illness, and cited a Full Bench decision of the Kerala High Court regarding the necessity of mens rea in penalty levy. The assessee, on the other hand, explained his chronic illness and inability to manage business affairs due to health issues. The assessee argued that the failure to file returns was justified due to his severe illness, which was also considered during the revision petitions against ex-parte assessments.

3. The Tribunal considered the facts presented, emphasizing that voluntary returns under section 139(1) are required only if income exceeds the taxable limit. The assessee's responses to the notice under section 148 highlighted his severe illness as the reason for non-compliance. The Tribunal found that the assessee had a reasonable cause for not filing returns before the ex-parte assessments were made, as he genuinely believed his income was below the taxable limit. The Tribunal also noted that the majority of High Courts in India required contumacious conduct for penalty levy under section 271(1)(a) and found that the assessee's actions did not amount to a conscious disregard of legal obligations. Consequently, the cancellation of penalties by the AAC was upheld, and the Revenue's appeals were dismissed.