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TMI Blog1975 (12) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... ne, 1966, i.e., about 9 1/2 months after the notice was issued. 2. For both these years the ITO required the assessee to show cause why penalty should not be levied for the above default. The explanation of the assessee in respect of the asst. yr. 1964-65 was that the return of income could not be filed in time because the finalisation of the statutory audit relating to M/s V. Ramakrishna & Sons Private Ltd., Madras, which was the only source for gathering the materials required for the preparation of the return, was not completed and that there were labour troubles in the workshop of K.C.P. Ltd., a sister concern. It was also contended that the ITO, was fully satisfied with the existence of the reasonable cause, as he had not completed the assessment under s. 144 of the Act and that in any event the ITO having levied interest under the provisions of s. 139 of the Act could not also levy penalty. For the asst. yr. 1965-66 the objections and the contentions were identical. The ITO rejected all of them and held that penalty was leviable under s. 271(1)(a). He came to the conclusion that for the asst. yr. 1964- 65 it could be taken that time had been allowed for filing the return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. At the hearing, the learned counsel for the assessee sought to contend that before any penalty could be levied under s. 271(1)(a) there should be proof of mens rea and that the onus for this purpose lay on the IT authorities. The learned counsel for the CIT objected to the said contention being urged on the ground that the questions that had been referred did not comprehend any such contention. It was argued that the only contention that could be urged on the basis of the questions, as they are, would be that the penalty levied was bad because, (a) the assessment itself has not been completed under s. 144, and (b) interest had been charged under the proviso to s. 139(1). The reply of the learned counsel for the assessee was that he had asked for a comprehensive question in the application for reference as to whether the levy of penalty in the present case was justified by the provisions of s. 271(1)(a) of the Act and that the questions in his application for reference would have taken in the contentions that he was proposing to urge. He further submitted that the provisions of s. 256 did not contemplate the Tribunal making any changes to the questions as framed by him and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the matter came before the Allahabad High Court. In pursuance of the direction of the High Court the Tribunal referred the question as to whether there were materials on which it could be held that the relevant amounts were spent by the assessee wholly and exclusively for the purpose of its business. In purported exercise of its power under s. 66(4) of the Indian IT Act, 1922, the High Court called upon the Tribunal to submit another statement of case on certain other questions which had not been raised in the application for reference. In dealing with the propriety of the exercise of the powers of the High Court in the above manner, the Supreme Court pointed out that the powers under s. 66(4) of the Act could not be exercised to call for a supplementary statement to raise an additional question or to call for a statement of case on questions not referred by the Tribunal. If it happened that the Tribunal made an inadequate statement of case and did not submit all the questions of law arising out of its order, the remedy of the aggrieved party was, it was held, to proceed in the manner suggested by Kania J. in N. V. Khandvala vs. CIT (1946) 14 ITR 635(Bom) as follows : "When a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exceeding in the aggregate fifty per cent. of the assessed tax...................." 12. At the relevant time there was also another provision in s. 276, which to the extent material ran as follows : "276. If a person fails without reasonable cause or excuse' .......... (b) to furnish in due time any of the returns or statements mentioned in sub-s. (2) of s. 139...... he shall be punishable with fine which may extend to ten rupees for every day during which the default continues." 13. With effect from 1st of April, 1971, s. 276(b) was amended so as to exclude reference to the return under s. 139(2) and s. 276C was enacted. That provision runs as follows : "276C. If a person wilfully fails to furnish in due time the return of income which he is required to furnish under sub-s. (1) of s. 139 or by notice given under sub-s. (2) of s. 139 or s. 148, he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine equal to a sum calculated at a rate which shall not be less than four rupees or more than ten rupees for every day during which the default continues, or with both." 14. It must be remembered that this provision was not in fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for cancellation of the assessment under s. 27 of that Act was also dismissed on the ground that there was not sufficient cause for not complying with the notice. In the penalty proceedings, the finding in the proceedings under s. 27, for cancellation of the assess ment, was relied on as a ground for imposing the penalty under s. 28. The learned judges pointed out the distinction between ss. 27 and 28 and in doing so observed at page 296 as follows ; "Again, in an application under s. 27 of the Act, it seems to us that the onus is upon the assessee, to establish sufficient cause, while under s. 28, before a penalty could be imposed, it is for the Department to show that the assessee who failed to submit the return did so without reasonable cause." 17. Where the onus lies has been clearly specified in the above extract. In interpreting the provision of s. 271(1)(a) several High Courts have considered the decision of the Supreme Court in a sales tax case in Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26(SC). In that case the assessee was a Government of India undertaking in the public sector. It erected factory buildings for locating a steel plant and also residenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach 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." 18. The Supreme Court itself referred to this decision in considering the levy of penalty under s. 28(1)(c) of the Act of 1922 in CIT vs. Anwar Ali (1970) 76 ITR 696(SC) as follows : "It appears to have been taken as settled by now in the sales tax law that an order imposing penalty is the result of quasi- criminal proceedings [Hindustan Steel Ltd. vs. State of Orissa (supra)]." 19. It was pointed out in the same case that when proceedings under s. 28 were penal in character and the gist of the offence under s. 28(1)(c) was that the assessee had concealed the particulars of his income, the Department had to establish that the receipt of the amount in dispute constituted income of the assessee. The onus was, thus, put on the Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was granted and for the other year there was no such application. But, for both the years the return was filed some time after the dates on which they were due. The explanation of the assessee was that he was under the bona fide belief that he had no assessable income. The explanation was found to be unsatisfactory and the ITO, therefore, levied penalty. The AAC confirmed the penalty so levied and the Tribunal came to the conclusion that the ITO had not brought on record any material to show that the assessee could not have had any such bona fide impression and that mens rea which was required to be proved had not been proved. It, therefore, cancelled the penalty. When the matter came on reference to the High Court, it was referred to a Full Bench with reference to this particular point. Relying mainly on the distinction between the language of s. 28(1)(c) of the 1922 Act and of s. 271(1)(c) and also s. 276C of the Act of 1961 the High Court came to the conclusion that mens rea need not be established before, the imposition of the penalty under s. 271(1)(a) of the Act. The learned judges did not understand the observations of the Supreme Court in Hindustan Steel (supra) as laying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76C cannot be taken as indicating that Parliament required different conditions to be established for the purpose of applying s. 271(1)(a). If s. 276C is excluded from consideration, then we are concerned only with the provisions of a ss. 271(1)(a) and 276(b). In s. 276(b), the offence committed by a person in failing without reasonable cause or excuse to furnish in due time the return under s. 139(2) is made punishable. The expression "without reasonable cause" must bear the same meaning in both the provisions. Sec. 279 contemplates prosecution to be taken at the instance of the CIT in respect of an offence, inter alia, under s. 276. It would, therefore, follow that the, legal principles applicable to proceedings in respect of a prosecution for an offence would have to be applied in considering the offence under s. 276. There can be no dispute that if prosecution was to be launched for the offence under s. 276(b) in this particular case, the mental element would be relevant. When identical language was employed in s. 271(1)(a), it would be unreasonable to apply a different requirement or to rule out the mental element. An expression must bear the same meaning in the same statute u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he penalty proceedings as civil proceedings. 23. To sum up : We consider that the decision in Hindustan Steel (supra) is applicable to the penalty proceedings under the IT Act of 1961. The penalty under s. 271(1)(a) will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct, contumacious or dishonest, or acted in conscious disregard of his obligation. The language of this provision is not consistent with the view that there is any presumption that the assessee who submits a belated return has committed an offence, so that it would be necessary for him to establish that he had reasonable cause. As the same expression "without reasonable cause" occurs both in s. 271(1)(a) or 276(b) the same meaning would have to be given in both the provisions so that the presence of a mental element which is relevant for the provision under s. 276(b) would also have to be established in applying to s. 271(1)(a). The mental element can be established by circumstantial evidence in the shape of contumacious conduct or dishonest or persistent disregard of the statutory obligation. The levy of penalty under s. 271(1)(a) is not a mere co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s putting forward is going to be disbelieved by the ITO. It would be open to an ITO to accept a plea even on a prima facie reading of the explanation. If the explanation was not found prima facie acceptable, then natural justice demands that the assessee should be appraised of the same so as to enable him to put forward any further materials or details. If the details or materials are not put forward or they did not establish the assessee's case, then it would be open to the ITO to reject the plea and find the absence of the reasonable cause, but such rejection cannot be done in an arbitrary or unreasonable manner. Rejection of any such plea is open to review in the proceedings authorised by the statute. In the present case, apart from merely disbelieving the explanation given by the assessee, the ITO had not applied his mind to the requirements of the statute. We consider that there are no materials to come to the conclusion that the assessee had no reasonable cause on the facts herein. 25. In the above view it is unnecessary for us to go into the question as to whether the ITO could be taken to have extended the time for submission of the return when he levied interest in ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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