Commissioner of Income Tax vs A.R.K. Perumal Chettiar

Ratnam, J.—At the instance of the Revenue, u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as ""the Act""), the following

two questions have been referred for the opinion of this court :

(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling, and had valid material to cancel the

penalty of Rs. 34,435 imposed u/s 261(1)(a) for the assessment year 1965-66 ?

(2) Whether, in the absence of the assessee''s explanation or cause for the delay, the Appellate Tribunal''s finding that the assessee''s default was

not willful, was valid and proper ?

The assessee is a registered firm engaged in the business of export of textile goods. We are concerned with the assessment year 1965-66 in the

reference. The Income Tax Officer issued a notice to the assessee u/s 139(2) of the Act on August 13, 1965, and it, therefore, became necessary

for the assessee to file its return within one month thereafter i.e. on or before September 13, 1965. However, the assessee filed its return only on

February 1, 1966, and as there was delay in the filing of the return a notice u/s 274 read with section 271 of the Act was issued in reply to that

notice, the assessee maintained that no penalty proceedings were initiated in the course of the assessment proceedings, that it had applied for

extension of time for filing the return, that as interest had been levied, it had to be presumed that time had been allowed up to the date on which the

return was filed and that, in any event, no penalty could be levied. The Income Tax Officer found that on October 6, 1965, the assessee had

applied for extension of time for filing the return and time was thus delay only for December 1, 1965, to January 31, 1966, for two months.

Overruling an objections raised by the assessee, the Income Tax Officer imposed a penalty of Rs. 34,435 u/s 271(1)(a) of the Act. On appeal by

the assessee, the Appellate Assistant Commissioner also confirmed the levy of penalty Aggrieved by that, the assessee preferred an appeal to the

Appellate Tribunal. The Tribunal found that the assessee had failed to addition any reasonable cause for the delay in the filing of the return, but that

from the grant of time by the Income Tax Officer to the assessee for and filing of the return up to November 30, 1965, it would be reasonable to

infer that there was no wanton disregard by the assessee in meeting its statutory obligation. In that view, the Tribunal cancelled the penalty imposed

on the assessee. That is how the matter has come up before this court on the questions of law referred to at the outset.

Learned counsel for the Revenue contended, drawing attention to the finding recorded by the Tribunal in para 3 of its order to the effect, that the

assessee had failed to adduce any reasonable cause for the delay of two months, that there is absolutely no material whatever by way of any

explanation or cause for the delay and that the Tribunal had, without any material, proceeded to cancel the penalty levied and the conclusion of the

Tribunal cannot be supported or sustained.

On the other hand, learned counsel for the assessee submitted that having regard to the earlier extension of time for the filing of the return on the

ground that the accounts had not been finalised by the assessee, it would not be unreasonable to hold that the same difficulty, viz., non-finalisation

of the accounts, continued even during the period of delay and therefore, the Tribunal was justified in cancelling the penalty imposed on the

assessee.

Consequent upon the issue of a notice u/s 139(2) of the Act on August 13, 1965, it was incumbent on the assessee to have filed its return on or

before September 13, 1965. However, the assessee filed an application for extension of time or October 6, 1965, and extension was also granted

by the Income Tax Officer up to November 30, 1965. It is common ground that thereafter there was no application for further extension of time or

any other communication sent by the assessee getting out its inability to file the return or the reasons therefor. In para 3 of its order, the Tribunal

has clearly and categorically rendered a finding that the assessee had failed to adduce any reasonable cause for the delay. Having recorded this

finding, the Tribunal has proceeded to state that from the granting of time by the Income Tax Officer up to November 30, 1965, it will be

reasonable to draw an inference that there was no wanton disregard by the assessee. How the Tribunal was the assessee, setting but the non-

finalisation of its accounts as the reason, the Income Tax Officer extended the time for filing the return up to November 30, 1965, and thereafter

there was no reason at all given by the assessee for its inability to file the return. The Tribunal has also found that there was no reasonable cause. If,

even according to the Tribunal that after November 30, 1965, the assessee had failed to adduce reasonable cause for the delay of two months, it is

difficult to accept the view of the Tribunal that there was no wanton disregard by the assessee. The reason given by the assessee for its inability to

file the return but seek an extension of time for that purpose up to November 30, 1965, was that the accounts had not been finalised. It has not

been established that state of affairs continued to be even after November 30, 1965. Even when the assessee had not made any attempt to

establish any reasonable cause for the delay, it is not for the Tribunal, under the guise of drawing a reasonable inference, to hold that there was no

wanton disregard by the assessee. On the available material it is difficult to hold that because of the extension of time for filing the return by the

assessee at its request up to November 30, 1965, the same state of affairs continued even thereafter and that would justify the delayed filing of the

return by the assessee. On the finding rendered by the Tribunal in para 3 of its order that the assessee had failed to adduce any reason able cause

for the delay, the conclusion arrived at by the Tribunal that penalty imposed cannot be sustained, is, to say the least, totally prevent and

unsupported by the materials on record. Further, it is seen that there was total absence of any explanation whatever for the delay that had occurred

after November 30, 1965, and, in such a situation, the Tribunal fell into an error in holding that the assessee is not guilty of any default warranting

the levy of penalty. On a careful consideration of the facts and the circumstances, we answer the questions referred to us in the negative and in

favour of the Revenue. There will be, however, no order as to costs.