1988 PLP 679 (PTD)

M.L. JAIN, J.-- This is an application under subsection (2) of section 256 of the I.T. Act, 1961 (hereinafter, referred to as 'the Act'), for requiring the Income-tax Appellate Tribunal, Jaipur Bench, to state a case and refer the following question of law alleged to. be arising out of its order dated July 23, 1974, namely: "Whether, on the facts and in the circumstances of the case the Tribunal was justified in cancelling the penalty of Rs.6,090 imposed by the I.T.O. under section 271(1)(A)?" The respondent-assessee; Messrs Rawat Singh & Sons, Jodhpur were required to file the return of their total income `or the assessment yeas 1965-66, by September 30, 1965. They made an application for extension of time and were allowed to file the return by November 15, 1965. The return was, however, filed on December 21, 1965, showing a total income of Rs.13,000 on estimated basis. The return was considered invalid as it was not accompanied by a copy of the profit and loss account, trading accounts, and balance-sheet. This fact was communicated to the assessee by the I.T.O. on January 4, 1966. Thereafter; the assessee furnished a return on May 19, 1966, declaring an income of Rs.89,338 alongwith the profit and loss account. The assessment was completed under section 143 of the Act, on December 24, 1969, and the respondent was assessed at Rs.1,05,

000. Since there was delay in submission of the return, penalty proceedings under clause (a) of subsection (1) of section 271 of the Act were initiated. In reply to the notice in that respect, one of the submissions made by the assessee was that the assessee had requested for extension up to April 30, 1966. But I.T.O. observed that in spite of show-cause notice and reminder no one appeared before him, nor was there any evidence produced before him in support of the plea that the assessee had applied for extension of time up to April 30, 1966. No communication to the assessee granting time was either made on behalf of the department. The I.T.O. therefore, heed that the assessee has not been able to show any "reasonable cause" for the late submission of the return and, accordingly, he imposed a penalty of rRs.6,090 by his order dated February 25, 1972. On appeal, the A.A.C. by his order dated March 1, 1973, quashed the penalty holding that the appellant had a reasonable cause for not filing the return of income until April 30, 1966. In the appellate proceedings, the advocate of the assessee had filed a copy of the application by which he had sought extension of time up to April 30, 1966. The application was filed, vide day-book entry No. 6664 dated `larch 28, 1966. The Appellate Assistant Commissioner was of the view that in the absence of a negative reply k turning down the assessee's request for extension, the assessee was entitled to act reasonably on the assumption that the request for extension of time had been granted. Against this order, the I.T.O. preferred an appeal to the Income-tax Appellate Tribunal. The Tribunal stated that the assessee, vide its application dated March 28, 1966, sought time up to April 30, 1966, for filing the fresh return of income and did the needful on May 19, 1966. The Tribunal dismissed the appeal as they were unable to hold that the assessee "deliberately acted in defiance of law" or that its conduct was "contumacious or dishonest" so as to justify the levy of penalty. This order of the Tribunal is, dated 23rd July, 1974. C.I.T. then made an application to the Tribunal for reference. That application was rejected by the Tribunal on December 19, 1974, by saying that the findings of the Tribunal that there was no mens rea on the part of the assessee and that the department failed to prove that the assessee deliberately and in defiance of law failed to file a return in time and further that the conduct of the assessee has not been contumacious or dishonest, were findings of fact and no question of law arose out of the tribunal order. Hence, the present application. We have heard the arguments of the learned counsel. We are of the view that the facts accepted by the.- Tribunal that assessee had made an application for extension of time can no more be questioned in the reference. It is also not the case of the revenue that the assessee had made no application for extension of time, or that such an application could not be considered a reasonable cause for late filing of the return. The question that is sought to be raised is that Tribunal misdirected itself in placing reliance upon the decision of the Kerala High Court in Dawn & Co. v. C.I.T. [1973] 87 I.T.R. 71, according to which mens rea is an essential ingredient to be proved by the department before imposition of penalty under section 271 (1) (a) of the Act, and that it is the duty of the department to point out circumstances from which an inference, that the assessee acted deliberately in violation of law, can be drawn. The Tribunal had also relied upon a decision of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa [1972] 83 I.T.R. 26; [1970] 25 STC

211. It is urged that the said Supreme Court decision relates to a penalty under a sales-tax legislation, while the aforesaid Kerala decision has been overruled by a Full Bench of the same High Court in C.I.T. v. Gujerat Travancore Agency [1976] 103 I.T.R. 149 (Ker.), wherein the said Supreme Court decision was not understood as laying down that penalty proceedings attract the entire body of principles generally associated with criminal proceedings. The learned counsel for the revenue also invited our attention to a Full Bench decision of the Orissa High Court in C.I.T. v. Gangaram Chapolia [1976] 103 I.T.R.

613. In both these decisions it was held that the burden of proof of "reasonable cause" under section 271(1)(a) of the Act (as contra distinguished from section 276 of the Act) is on the assessee as the matter is within his special knowledge, though this burden can be discharged by a preponderance of probabilities as in a civil case and not necessarily by proof beyond reasonable doubt. On the other hand, the learned counsel for the assessee has drawn our attention to a Full Bench decision of the Gujerat High Court in Additional C.I.T. v. I.M. Patel & Co. [1977] 107 ITR 214, wherein it has been held that the penalty proceedings under section 27(1)(a) of the Act were quasi-criminal proceedings and it was for the department to show the absence of a reasonable cause on the part of the assessee by leading some evidence that prima facie the assessee had without reasonable cause failed to furnish the return within the time specified in section 271(1)(a) read with other relevant sections referred to in that section. Once that initial burden, which may be slight had been discharged by the department, it was for the assessee to show as in a civil case on balanced of probabilities that he had reasonable cause in failing to file the return within the time specified. Our attention was also drawn to V.L. Dutt v. C.I.T. [1976] 103 ITR 634 (Mad) which has also taken a view similar to that of the Gujerat High Court. Thus, there is no doubt that a sharp cleavage of opinion between the High Courts in this respect does exist. But upon a careful consideration of the matter, we are of the view that the matter stands concluded by the Supreme Court decisions in this regard and should admit of no controversy. C.I.T. v. Anwar Ali [1970] 76 ITR 696 (SC) was a case under section 28(1)(c) of the Indian I.T. Act, 1922, which provided for penalties where the assessee concealed the particulars of his income or deliberately furnished inaccurate particulars of such income. The Supreme Court observed that it appears to have taken as settled by now in the sales-tax law that an order imposing penalty is the result of quasi-criminal proceedings. They also approved the view taken in C.I.T. v. Goculdas Harivallabhdas [1958] 34 ITR 98 by the Bombay High Court. In that case, it was observed that the penalty proceedings are criminal proceedings in their very nature. In Hindustan Steel Ltd.'s case [1972] 83 ITR 26 (SC) it was categorically stated by the Supreme Court that an order imposing penalty for failure to carry out a statutory obligation is the result of quasi-criminal proceedings, and penalty 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 A in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on consideration of all the relevant circumstances. No doubt these remarks of the Supreme Court were made in reference to the penalty provisions contained in the Orissa Sales Tax Act, 1947, regarding failure of the dealer to have himself registered as such but the observations are so general and wide as can be applied in all cases which provide for penalty of failure to carry out any statutory obligation. Their scope cannot be confined to the sales-tax statutes only, nor will it be proper to hold that the basic nature of the penalty proceedings under one clause of section 271(1) is different from those under another clause of the same subsection. The matter has been placed beyond all doubt by the Supreme Court in Khemka & Co. (Agencies) Pvt. Ltd. v. State of Maharashtra [1975] 35 STC 571; A I R 1975 SC 1549 by stating that the Income-tax Act, 1961, imposes penalty under sections 270 and

271. These sections in the Income-Tax Act provide for imposition of penalty on contumacious or fradulent assessee. It, therefore, appears to us that while applying these dicta to the case the Tribunal cannot be said to have made a wrong approach or misdirected itself on a question of law. It has dismissed the appeal against the order of the A. A. C. and while doing so has supplied an extra ground of support that it was also necessary for the department to show which it failed to do, that the assessee either 'deliberately acted defiance of law" or "its conduct was contumacious or dishonest, Since the matter stands concluded by the decisions of the Supreme! Court, we do not consider that any question of law has arisen and the Tribunal should be directed to state a case. The application for reference is, therefore, dismissed without any order as to costs. M.B.,4./487/T.(Ind.) Appeal dismissed.