TMI Blog1975 (4) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1961 (hereinafter to be referred to as " the Act "), which came into force on and from April 1, 1962, the firm was required to submit its return under section 139(1) of Act before September 30, 1964. The return was, however, filed on August 16, 1965, after a delay of about 10 months, but this was before the assessment was made on April 28, 1967. For the default in not filing the return by September 30, 1964, a penalty proceeding was initiated under section 271(1)(a) of the Act. The firm submitted an explanation on July 11, 1967, in response to the notice. The stand in the explanation for exoneration from penalty was that that was the first year of business under the name and style of M/s. Gangaram Chapolia and Co., that the firm expected a notice under section 139(2) of the Act which on consultation with their advocate later on they came to learn that it was mandatory to submit the return voluntarily within the period prescribed under section 139(1), and that the accounts could not be closed as the accountant, Shri Govindram Agarwalla, was absent for a long time due to illness. The Income-tax Officer did not accept the explanation as satisfactory and imposed a penalty of Rs. 5, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution for quashing the order of the Tribunal and for a direction to it for rehearing maintainable ? (4) A return was not filed in time under section 139(1) of the Act and no notice was given by the revenue under section 139(2), would a return filed under section 139(4) within four years from the end of the assessment year before the assessment was completed be treated as a return under section 139(1) so as to be exonerated from penalty under section 271(1)(a) ? Question No (1) : We would first proceed to make an analysis of section 271(1)(a) on its language and phraseology without the help of any authorities. Section 271(1)(a) and (1)(c) runs thus : " 271. Failure to furnish returns, comply with notices, concealment of income, etc.--(1) If the Income-tax Officer or the Appellate Assistant Commissioner in the course of any proceedings under this Act, is satisfied that any person-- (a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d an honest and genuine belief that the return could be filed later than the time allowed, the cause may be taken as reasonable even though the belief may be unsustainable in law. Similarly, penalty may not be imposed if there is a technical or pardonable breach of the provisions of the Act, or when the breach flows from a bona fide belief that the assessee is not liable under the statute. These are merely illustrative but not exhaustive. If, however, the assessee does not furnish any explanation or furnishes a cause which is not accepted as reasonable, the penalty is exigible for not furnishing the return within the time allowed. It would be instructive to compare and contrast section 271(1)(a) with section 276C. Section 271 occurs in Chapter XXI of the Act under the caption " Penalties imposable ", while section 276C occurs in Chapter XXII under the caption " Offences and prosecutions. " Section 276C, so far as material, runs thus : " If a person wilfully fails to furnish in due time the return of income which he is required to furnish under sub-section (1) of section 139, or by notice given under sub-section (2) of section 139 or section 148, he shall be punishabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition to any tax payable by him, a sum not exceeding one and a half times the amount of the income-tax and super-tax, if any, which would have been avoided if the income as returned by such person had been accepted as the correct income........ Section 28(1)(a) of the 1922 Act corresponds to section 271(1)(a) of the Act. Section 28(1)(a) and (1)(c) read in juxtaposition would show that the element of deliberateness or design was present in section 28(1)(c) while the same was absent in section 28(1)(a). Thus while proof of mens rea was necessary in section 28(1)(c), it was not in section 28(1)(a). Section 28(1)(c) underwent a substantial modification in section 271(1)(c) of the Act by omission of the word " deliberately ". On the aforesaid analysis, our conclusion on the express language of section 271(1)(a) is that the burden of proof is on the assessee to establish that there was reasonable cause for not furnishing the return within the time allowed and that this burden can be discharged on proof of facts and circumstances by preponderance of probabilities as in a civil case and not beyond reasonable doubt. In Commissioner of Income-tax v. Ketini Krishnamurthy, a Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sections 9(1), 12(5) and 25(1) of the Orissa Sales Tax Act, 1947, so far as material, may be extracted : " 9. (1) No dealer shall, while being liable under section 4 to pay tax under this Act, carry on business as a dealer unless he has been registered under this Act and possesses a registration certificate :...... 12. (5) If upon information which has come into his possession, the Commissioner is satisfied that any dealer has been liable to pay tax under this Act in respect of any period and has nevertheless without sufficient cause failed to apply for registration, the Commissioner shall, after giving the dealer a reasonable opportunity of being heard, assess, to the best of his judgment, the amount of tax, if any, due from the dealer in respect of such period and all subsequent periods and the Commissioner may direct that the dealer shall pay, by way of penalty, in addition to the amount so assessed, a sum not exceeding one and a half times that amount :...... 25. (1) Whoever-- (a) carries on business as a dealer in contravention of sub-section (1) of section 9 ;...... shall be punishable with imprisonment of either description which may extend to six months or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the beach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out." This decision is no authority for the proposition that under section 12(5) of the Orissa Sales Tax Act the expression " without sufficient cause " carries an import of mens rea or that the burden of proof is on the revenue to establish absence of sufficient cause. Though the proceeding was for imposition of penalty under section 12(5) and not for prosecution for an offence under section 25(1), the Supreme Court appears to have inadvertently referred to section 25(1). That a penalty proceeding is a quasi-criminal proceeding is concluded by the aforesaid observation, but the underlined sentence cannot be construed to mean that the burden of proof is on the revenue and that proof of mens rea was essential in a penalty proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department must prove that the assessee had no reasonable cause for not filing it within the time ". With respect we are unable to accept it as laying down good law. We need not repeat our reasons. In Dawn Co. v. Commissioner of Income-tax, another Division Bench of the Kerala High Court again considered the same question. At page 73 their Lordships laid down as follows : " The words 'has without reasonable cause failed to furnish it within the time allowed' in section 271(1)(a) of the Income-tax Act, 1961, show that mens rea is an ingredient to be proved by the department before the imposition of penalty." They again observed at page 75 thus : Unlike section 271 (1) of the Income-tax Act, 1961, the provision of the Orissa Sales Tax Act considered by the Supreme Court is absolute in terms in that it rules out means rea as an essential ingredient for the imposition of penalty. Yet their Lordships of the Supreme Court stressed the necessity of mens rea or knowledge of the wrongfulness of the act before imposing the penalty." With respect we say that the aforesaid observations are contrary to law and are not supported by the Supreme Court decisions in Hindustan St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court of Appeal accepted the following observations of Harman J. : " As the Lord Chief Justice said 'A bare traverse is a perfectly good plea provided that all that is thereby intended is to put the plaintiff to proof of his case, but it may be that, concealed in a traverse, is an affirmative case, and this may well be so when the traverse is of a negative averment. If it is clear to the court, either from the nature of the case or from the admission of counsel or otherwise, that it is intended to set up an affirmative case, so that the traverse is what has been described as a negative pregnant, it seems to me that particulars of the affirmative case ought to be delivered. Otherwise, the opposite party and the court will be in doubt as to what issues are to be determined at the trial.' " It is on the basis that the burden of proof lay on the defendant to establish that he had a reasonable excuse that the particulars were asked from him. This case fully supports the proposition that the burden of proof is on the assessee to establish that there was reasonable cause in committing the default. In Commissioner of Income-tax v. Alimohamad and Co. a Bench of this court made th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that the Income-tax Officer may complete the assessment within the period specified in the Income-tax Act. If the return is not filed in time or, if filed in time, it does not contain all the particulars required, it will not be possible for the Income-tax Officer to complete the assessment within the period specified in the Act. In other words, the object of the legislature in insisting upon the assessee filing the return within the time and in the manner prescribed is to enable the Income-tax Officer to complete the assessment within a period of four years as specified in the Act and that object will be frustrated unless the assessee files the return within the time allowed and in the manner prescribed. To carry out the object of the legislature it is necessary to attach a sanction for the failure to fulfil any of the two conditions. If the object is clear, we do not think the use of the conjunctive word 'and' in the sub-section is conclusive. The word 'and' has generally a cumulative sense, and is thus the antithesis of disjunctive 'or', but occasionally it is permissible to read 'and' as 'or' if the context so requires." We are alive to the position that a penal provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 271/274 was therefore issued to the assessee in response to which it has been stated that due to the absence of the accountant the return could not be filed in time. This is not acceptable." As would appear from the order of the Appellate Assistant Commissioner dated April 1, 1969 (annexure "3"), the assessee did not challenge the finding of the Income-tax Officer on this point. The appeal was argued on other points. Similarly, it appears from annexure " 4 ", the appellate order of the Tribunal dated December 30, 1971, that the assessee did not urge this point. The reference order also shows that the assessee did not file an application for reference on this point, nor asked for a question of law to be stated in the reference made by the Commissioner of Income-tax. Factually the position, therefore, is that after an adverse finding was recorded by the Income-tax Officer, in not accepting the explanation, the point was not pursued by the assessee at any higher stage. This conclusion by itself is sufficient to reject the contention of Mr. Mohanty that a mandamus would be issued to quash the orders of the Income-tax Officer and the Appellate Tribunal and to direct the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a penalty proceeding. Before we examine the applicability of that case to the facts of this case it would be profitable to notice section 139 which provides for filing of a return of income. Material portion thereof may be extracted : " 139. Return of income.--(1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed-- (a) in the case of every person whose total income, or the total income of any other person in respect of which he is assessable under this Act, includes any income from business or profession, before the expiry of six months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is lat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hirty days from the date of service of the notice, a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed : Provided that on an application made in the prescribed manner the Income-tax Officer may, in his discretion, extend the date for the furnishing of the return, and when the date for furnishing the return, whether fixed originally or on extension, falls beyond the 30th day of September or, as the case may be, the 31st day of December, of the assessment year, the provisions of sub-clause (iii) of the proviso to sub-section (1) shall apply. (3) If any person who has not been served with a notice under sub-section (2), has sustained a loss in any previous year under the head 'Profits and gains of business or profession' or under the head 'Capital gains' and claims that the loss or any part thereof should be carried forward under sub-section (1) of section 72 or sub-section (2) of section 73, or sub-section (1) of section 74, he may furnish, within the time allowed under sub-section 1, a return of loss in the prescribed form a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he benefit of carrying forward of loss which was expressly prohibited by virtue of section 22(2A). At page 529, Grover J. spoke for the majority thus : " Section 24(2) confers the benefit of losses being set off and carried forward and there is no provision in section 22 under which losses have to be determined for the purpose of section 24(2). The question which immediately arises is, whether section 22(2A) places any limitation on that right. This sub-section which has been reproduced before simply says that in order to get the benefit of section 24(2) the assessee must submit his loss return within the time specified by section 22(1). That provision must be read with section 22(3) for the purpose of determining the time within which a return has to be submitted. It can well be said that section 22(3) is merely a proviso to section 22(1). Thus, a return submitted at any time before the assessment is made is a valid return. In considering whether a return made is within time, sub-section (1) of section 22 must be read along with sub-section (3) of that section. A return whether it is a return of income, profits or gains or of loss must be considered as having been made within t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then section 139(5) would be equally treated as a proviso to section 139(1) and a person filing a return two months later than within the time allowed under section 139(1) would be penalised while another person filing a revised return under section 139(5) a day before the assessment is made would escape penalty. In section 22(3) of the 1922 Act initially there was a clause to the following effect : " and any return so made shall be deemed to be a return made in due time under this section." This clause was omitted by section 24 of the Central Act 7 of 1939. Legislature clearly intended thereby that default in time was not condoned in the case of delayed returns. The Supreme Court did not notice the omission of this clause in Kulu Valley's case as it did not pertain to a penalty proceeding, but was concerned with carrying forward of the loss. Mr. Mohanty placed reliance on certain observations of a Bench of this court in Commissioner of Income-tax v. K. C. Behera. At page 484 this court held : " Enunciation of law by the Supreme Court does not vary according to the context in which it is argued. The exposition was on the legal position and it is on that basis that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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