TMI Blog2004 (4) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... notice was issued to the assessee as to why penalty as provided under s. 271F should not be imposed. In response to the show-cause notice issued under s. 271F the assessee submitted written explanation stating that the entire tax liability was covered by TDS amount and ultimately there was a refund due to the assessee. The AO had referred to the provisions of s. 139(1)(a) of the Act and formed an opinion that the explanation as submitted by the assessee that the entire tax liability was covered by TDS is not acceptable and it was a deliberate failure on the part of the assessee to file the return within the relevant assessment year i.e., 31st March, 2001. He, therefore, found the present case fit for imposition of penalty under s. 271F of the Act. Thus, a penalty of Rs. 5,000 as provided under s. 271F was imposed by the AO. Being aggrieved, the assessee went in first appeal before the CIT(A), who dismissed the assessee's appeal by observing as under: "I have considered the matter carefully. The judgment of Hon'ble Supreme Court in the case of Hindustan Steel quoted by the appellant was in connection with the sale-tax law and the penalty in that case had been imposed for failing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no deliberate defiance of law. A reliance was placed on the decision of Hon'ble Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa (1972) 83 ITR 26 (SC). 5. The learned Departmental Representative, on the other hand, supported the orders of the authorities below, and contended that the penalty under s. 271F was rightly imposed as the assessee failed to file her return of income before the expiry of relevant assessment year in spite of having total income chargeable to tax under the Act. 6. We have carefully considered the rival contentions of both the parties. We have deliberated upon the relevant provisions of law contained in that behalf. We have gone through the orders of the authorities below and the materials on record. 7. At this stage, we find it useful to set out the relevant provisions of the IT Act, 1961. The s. 271F was inserted in the Act by the Finance Act, 1997, w.e.f. 1st April, 1997 and it then stood as under: "271F. Penalty for failure to furnish return of income If a person who is required to furnish a return of his income as required by the proviso to sub-s. (1) of s. 139 fails to furnish such return on or before the due date, he shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., whose total income exceeds maximum amount not chargeable to tax, and fail to file the same before the end of the relevant assessment year. The amount of penalty in such cases was prescribed at a uniform amount of one thousand rupees. Again, in view of the substituted s. 271F w.e.f. 1st June, 2001, failure to furnish return of income as required under sub-s. (1) of s. 139, before the end of the relevant assessment year or failure to furnish return on or before the due date as specified by proviso to s. 139(1) shall attract a uniform penalty of five thousand rupees in place of then existing penalty of one thousand rupees and five hundred rupees respectively. The outer limit of time for filing return of income so as to attract the provisions of s. 271F was separately provided for the two categories of persons i.e. persons required to file return under s. 139(1) and the persons required to file return under proviso to s. 139(1). But, by the amendment effective from 1st June, 2002 a uniform dead line of default in filing of the return is made, i.e. failure to furnish return of income, as required under s. 139(1) or by the proviso to s. 139(1), before the end of the relevant assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Having said so that no penalty is imposable under s. 271F if the assessee proves that there was reasonable cause for the failure specified in s. 271F, it is now desirable to find out the meaning of "reasonable cause" having regard to the context in which it is used. 12. What would constitute reasonable cause cannot be laid down with precision. It would depend upon the factual background. Reasonable cause, as applied to human action, is that which would constrain a person of average intelligence and ordinary prudence. The word 'reasonable' has in law the prima facie meaning of reasonable with regard to those circumstances of which the actor, called on to act reasonably, knows or ought to know. Reasonable cause can be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or lack of bona fide. What can be construed as a reasonable cause is to be decided on the available facts of each and very case in a judicious manner. The decision on the matter should be taken by giving sufficient attention to particular facts of the case. It is to be looked from the view point of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under main sub-s. (1) of s. 139. The scope and effect of the so substituted s. 271F w.e.f. 1st April, 1999 has been given in the following portion of the Departmental Circular No. 772, dt. 23rd Dec., 1998, as under: "63 Provision of penalty for non-filing of returns of income. 63.1 Under the existing provisions, no penalty is provided for failure to file return of income under sub-s. (1) of s. 139 (s. 271F provides for penalty of Rs. 500 only in case of failure to file return under the proviso to sub-s. (1) of s. 139). The, interest chargeable under s. 234A of the IT Act for not furnishing the return or furnishing the same after the due date is calculated on the basis of the tax payable. If no taxes are payable, no interest can be charged. It is seen that a large number of persons having salary income which are subject to deduction of tax at source do not file their returns. Since the Finance (No. 2) Act, 1998, has amended s. 192(2B) of the IT Act to provide that loss from house property shall be allowed to be adjusted against salary income at the source, filing of returns has become absolutely necessary to find out that the claim of set off of loss is being correctly made. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e imposing any penalty under s. 271F so that the case of an assessee filing return immediately after the end of the relevant assessment year or within few days thereafter is to be considered liberally as compared to the case of inordinate delay in filing the return even after the end of the relevant assessment year unless circumstances of a particular case warrants otherwise. 14. Further a critical analysis of s. 271F prescribing a fixed sum as penalty reveals that the assessees having no tax liability or having tax liability of say rupees two to five thousand and the assessees having the tax liability in lakhs are also made liable for the same penalty of Rs. 5,000. The matter needs judicious attention where a person due to having income exceeding maximum amount not liable to tax, is required to file return but does not have any amount of tax payable because of tax rebates admissible under the Act and if such person fails to file return before the end of the relevant assessment year but files the same within the time allowed under s. 139(4) of the Act, then, under such circumstances, he shall also be made liable for the same penalty of Rs. 5,000 under s. 271F as he fails to furni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 is issued may also be distinguished from failure to file return after a notice to file return is served upon him. 16. Thus when a reasonable man of ordinary prudence acting under normal circumstances has in his mind a belief that he is not required to file return within required time because of the fact that there being no amount of tax payable by him after the adjustment of tax rebates admissible under the Act or of advance tax paid or tax deducted or collected at source and thus fails to file the return within required time, the case of this assessee would be treated as for a reasonable cause unless his belief is otherwise found false, fabricated and not bona fide. The particular cause operated upon the mind of the assessee of ordinary prudence and thus prevented him from filing the return within required time is to be examined or considered not arbitrarily but judicially in order to decide whether the cause shown can be said to be reasonable or not. The cause shown must be considered from the view point of a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides. There is no scope of any doubt that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was found refundable to the assessee. The assessee stood nothing to gain by filing return of income on 20th March, 2002, i.e., after the end of the relevant assessment year in view of the amount of tax ultimately found refundable to the assessee. Instead, the assessee has made herself deprived from receiving interest under s. 244A for the period immediately after the expiry of the due date of filing the return prescribed under s. 139(1) till the month of filing the return as there is no interest allowable for the period of delay attributable to the assessee as stated in sub-s. (2) of s. 244A. These facts only show that the belief of the assessee that she was not required to file the return before the end of the relevant assessment year because of the reason that the entire liability of tax payable on total income was covered by TDS amount and ultimately there was a refund due to the assessee, is a bona fide one. Such bona fide belief is to be treated as reasonable cause for not furnishing the return before the end of the assessment year. That being the position and on a careful consideration of the facts and circumstances of the case, we are of the considered view that the penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Hon'ble Supreme Court in the case of Maya Rani Punj holding that penalty is imposable on the basis of law applicable at the time when the AO decided to initiate penalty proceedings is not applicable to the present case of penalty imposable under s. 271F inasmuch as that decision was rendered in the context of continuing default as prescribed under then s. 271(1)(a) of the IT Act. It is also pertinent to note that the question of imposition of penalty under then s. 271(1)(a) had arisen only after assessment of tax was made and the legislature intended to deem the non-filing of the return to be a continuing default as would be clear from the language used in s. 271(1)(a) and as observed by Hon'ble Supreme Court in the aforesaid case of Smt. Maya Rani Punj. The language used in the present s. 271F is quite different from that of then s. 271(1)(a). The ratio laid down by Hon'ble Supreme Court in the said case of Smt. Maya Rani Punj rather supports the case of present assessee in the light of distinction between present s. 271F and then s. 271(1)(a). 20. For the aforesaid reasons we, therefore, hold that levy of penalty under present s. 271F is to be imposed as per law prevaili ..... X X X X Extracts X X X X X X X X Extracts X X X X
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