S. Loonkaran and Sons vs Commissioner of Income Tax

Sethuraman, J.—The assessee is a registered firm consisting of six partners. The senior-most partner was one Loonkaran aged about 65

years in the year under consideration. It appears that he was generally not keeping good health. His eldest son, Moolchand, who was also a

partner was normally attending to the Income Tax assessment of the firm. For the assessment year 1963-64, the previous year ended on Diwali

day in the month of November, 1962. The Income Tax Officer and the Tribunal have stated that the return in such a case was due on 30th

September, 1963. On 13th August, 1963, the Income Tax Officer issued a notice u/s 139(2) of the Income Tax Act, 1961 (hereinafter referred to

as ""the Act"") and the notice was received by the assessee on 20th August, 1963. The return was due under the said notice by 24th September,

1963. Moolchand suffered from an attack of jaundice some time in 1963. The return had not been filed even in August, 1964. Therefore, the

Income Tax Officer issued a notice calling upon the assessee to produce its books of accounts on August 17, 1964. At that time it was stated that

Moolchand was unwell for more than 6 months and had not been completely cured at the time of writing and that the doctor had advised him to

take rest for another three months. It was pointed out that it would not be possible to file the return and that three months'' time might be given for

filing the return. The extension of time for filing the return was not granted by the Income Tax Officer. On 5th March, 1965, the Income Tax

Officer issued a notice calling upon the assessee to show cause why a penalty should not be imposed u/s 271(1)(a) of the Act. The assessee, on

receipt of this, filed the return on 19th March, 1965. It was assessed on a total income of Rs. 51,158 by assessment order dated 31st March,

1965. It was stated before us that the assessment as made was substantially on the basis of the return.

In the case of Moolchand himself, the Income Tax Officer had initiated proceedings for levy of penalty u/s 271(1)(a) of the Act for his failure to

submit the return within the time allowed under the law. These penalty proceedings were not pursued presumably because the income tax Officer

was satisfied about his illness and his consequent inability to attend to the Income Tax matters.

In the course of the penalty proceedings the assessee explained that Moolchand was in charge of the accounts and tax matters, that he was

suffering from jaundice, that he was under treatment for six months and was otherwise unfit for a further period of six months, that Loonkaran was

also not keeping good health and that the other partners were busy in the shop for more than the working hours due to the retail nature of the

work. The business of the assessee was in cloth. The Income Tax Officer rejected the explanation of the assessee and levied penalty by his order

dated 31st January, 1967. The amount of penalty was Rs. 7,342. It may be mentioned here that in the assessment, Rs. 1,801.47 was charged as

interest under the proviso to Section 139(1). The penalty levied was confirmed on appeal by the Appellate Assistant Commissioner and also by

the Tribunal. Several contentions were taken before the Tribunal to which it is unnecessary to refer. Aggrieved by the decision of the Tribunal

confirming the penalty, the assessee has come upon reference and the question referred runs as follows :

Whether, on the facts and in the circumstances of the case, the levy of penalty u/s 271(1)(a) was justified in law ?

The learned counsel for the assessee raised only one submission before us, namely, that this is a case in which there is no proof of mens rea in

the matter of the failure to submit the return within the time allowed under the law. The fact that the return had been substantially accepted was

emphasised before us as showing that the assessee could not have had any mens rea in not submitting the return within the time allowed under the

law. The learned counsel for the revenue submitted that this is a case where the assessee had been reminded more than once with reference to the

submission of the return and that only after the issue of the notice for imposition of penalty the assessee came forward with the return. It was,

therefore, pointed out that this is a case where mens rea is evident from the facts.

The question as to the requisites u/s 271(1)(a) has been the subject of consideration by us in V.L. Dutt Vs. Commissioner of Income Tax, . In

the said judgment, after referring to all the relevant authorities on the point, it was pointed out as follows :

To sum up: We consider that the decision in Hindustan Steel Ltd. Vs. State of Orissa, is applicable to the penalty proceedings under the Income

Tax Act of 1961. The penalty u/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 Section 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 u/s

276(b) would also have to be established in applying to Section 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 u/s 271(1)(a) is not a mere

concomitant of a delay in filing the return. If Parliament intended that this was the position, then it would have omitted the expression '' without

reasonable cause '' in the substantive part of Section 271(1)(a) and would have provided for the assessee to get out of the operation of this

provision by establishing reasonable cause, as has been provided in Section 146. The rigour of the principle applicable to the criminal prosecution

will not apply to the proceedings u/s 271(1)(a) so that even in a case where the assessee fails to extend his co-operation and withholds any

explanation for the delay in filing the return he is not liable to be penalised unless the department established that he had acted in deliberate

disregard of his statutory obligations. We do not share the view that commended itself to the Orissa High Court in Commissioner of Income Tax

Vs. Alimohamad and Co., . Where a person had no explanation to offer, it may be treated as circumstantial evidence to show that he had acted

without reasonable cause. Also, in a case where the explanation is so prima facie unreasonable it would be open to the Income Tax Officer to levy

penalty on the ground that the assessee had no reasonable cause for the delay in submission of the return. It would be difficult to lay down how or

in what manner the onus to establish the absence of a reasonable cause can be discharged. It would depend upon the facts and circumstances of

the particular case. The provision is not intended to penalise a technical or venial breach of the provisions of the Act or where the breaches suffer

from a bona fide belief that the offender is not liable to act in the manner prescribed in the statute.

In the light of the above we have to examine whether in the present case there is any mens rea which was responsible for the assessee''s delay in

the submission of the return. We have carefully considered the circumstances of the present case and we are satisfied that there is no question of

mens rea on the facts here. It is not in dispute that the seniormost partner was aged and was in indifferent health. Moolchand was the only person

who was attending to the tax affairs both on behalf of the firm and on behalf of himself. That he was ill is not in dispute. In his own case it is found

that he was not penalised presumably because the authorities were satisfied that his conduct could not be considered to be deliberate or wilful in so

far as the returns are concerned. This failure to do so in the firm''s case cannot lead to a different result. In these circumstances, we consider that

this is a case in which the penalty provision is not attracted. There could be no mens rea as there could be no motive to withhold the small amount

of tax payable by the registered firm by delaying the return. We consider that there is no scope on the facts for the levy of penalty. The question

referred is answered in the negative and in favour of the assessee. The assessee will be entitled to its costs. Counsel''s fee Rs. 250.