1. These eleven appeals are by the assessee against the orders of the Dy. CIT(A) for the assessment years 1969-70 to 1979-80, confirming the penalties levied by the ITO, under Section 271(1)(a) of the Income-tax Act, 1961. All these appeals are being disposed of by this common order, for the sake of convenience.
2. The position of filing of the returns, the due dates and the issue of notice under Section 148 of the Act, is as under:Asst.
Date of filing Due date Notice under sectionYear of return 148 issued on.1969-70 01-03-1978 30-06-69 10-03-1979 In response to the show-cause notices, the assessee stated before the ITO that his quantum appeals were pending before the Tribunal and, requested that the proceedings be kept pending till the disposal of the appeals by the Tribunal. As the limitation for levying the penalty was expiring on 31-3-1987, the ITO did not grant time to the assessee and levied penalties for various amounts, aggregating to Rs. 1,56,860 for the periods of delay, after the due dates for filing the voluntary returns, stated above. The DClTfA), in appeals, upheld the penalties by observing that the additions made in the assessment orders on the basis of which the penalties were imposed, were upheld in the first appeals and, thereafter by the Tribunal, in the second appeals.
3. The learned counsel for the assessee, Sri V.H: Patil, submitted that the assessee was having a bona fide belief that he was under no obligation to file the returns as his income was only from salary from which tax was deducted at source. It was further submitted that for the period of default up to 31-3-1976, the maximum penalty that could be levied was 50 percent of the assessed tax and for the period of default thereafter, penalty could be levied at the rate of 2 per cent of the assessed tax. Relying on two decisions of the Supreme Court: (i) Maya Rani Punj v. CIT[1986] 157 ITR 330; and (ii) CWT v. P.N. Banerjee [1991] 192 ITR 399, the learned counsel for the assessee submitted that the default under Section 271(1)(a) is a continuing default and if the failure or delay for any period is found to be not without reasonable cause, he cannot be penalised under Section 271(1)(a) read with Section 271(1)(Q of the Act. For the assessment years 1969-70 to 1973-74, the returns, by virtue of the provisions of Section 139(4), as they stood at the relevant time, could have been validly filed within two years from the end of the assessment years and, thereafter, the assessee could not be said to have delayed the returns without reasonable cause.
Such period, for all these years, expired before the amendment inserted with effect from 1-4-1976 and, therefore, the maximum penalty for these years, which could be levied under Section 271(1)(a) was 50 per cent of the assessed tax. The assessee has filed returns in pursuance to notices under Section 148 in time and, therefore, there was no delay in filing the ieturns as required by notices under Section 148 of the Act.
4. The learned Departmental Representative, Sri K. Balakrishnan, on the other hand, submitted that the rule of mens rea is not applicable for the purpose of levying penalty under Section 271(1)(a) of the Act as has been held by the Supreme Court in the case of Gujarat Travancore Agency v. CIT [1989] 177 ITR 455 and, therefore, the assessee's plea that he was under a bona fide belief that he was not liable to file the returns cannot be accepted. The assessee himself filed the returns on 1-3-1978 for the assessment years 1969-70 to 1976-77 and in the year 1980 for the assessment years 1977-78 to 1979-80 showing positive income. This fact, according to him, negates the bona fide of the assessee. He further submitted that the default or failure to file the return comes to an end only upon the filing of the return or completion of assessment. Once the notice is issued under Section 148, the bar under Section 139(4) is lifted. The issue of 148 notices, he submitted, does not wipe out the default of the assessee in filing the returns voluntarily under Section 139(1) and penalties can be levied for such default, even where proceedings were initiated under Section 148 of the Act. Reliance was placed on the decisions of the Madhya Pradesh High Court in the case of Chunnilal & Bros. v. CIT[1979] 119 ITR 199; that of the Orissa High Court in the case of CIT v. Ravi Talkies [1982] 137 ITR 176; that of the Calcutta High Court in the case of Kashiram Tea Industries Ltd. v. ITO [1981 ] 132 ITR 783; and that of the Punjab & Haryana High Court in CIT v. Dehati Co-operative Marketing cum-Processing Society [1981] 130 ITR 504. The period of two years, he submitted, had expired due to the default of the assessee and, therefore, he cannot and should not be allowed to take the benefit of his own default. Further, there is no such limitation under Section 271 that the penalty cannot be levied for the default after the two years from the end of the assessment year. The assessee could have filed and did actually file the returns before the issue of notices under Section 148 in 1978 even after the expiry of the said period of two years. He, therefore, submitted that the assessee having failed to show reasonable cause for the late filing of the returns, the penalties were rightly levied and sustained by the departmental authorities.
5. We have heard the parties ana considered their rival submissions. In order to understand the controversy in right perspective, it would be better if we take a view of the relevant provisions regarding filing of return of income. Section 139 deals with such provisions. Under Sub-section (1), every person whose own total income or the income of any other person in respect of which he is assessable under the Act during the previous year exceeded the maximum amount which is not chargeable to tax, is to voluntarily furnish a return in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed before the expiry of 30th June or four months from the end of the previous year(s) if his income includes income from business and in other cases before 30th June of the assessment year. From the assessment year 1974-75, Sub-section (1A) provides that a person need not furnish voluntarily his return if the income consisted only of income chargeable under the head salary and/or income of the nature referred to under one or more Clauses (i) to (ix), of Section 80L of the Act, provided, (a) where he or such other person was employed during the previous year by a company, he or such other person was at no time during the previous year a director of the company or a beneficial owner of shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power ; (b) his salary or the salary of such other person, exclusive of the value of all benefits or amenities not provided for by way of monetary payment, does not exceed eighteen thousand rupees; (c) the amount of income of the nature referred to in Clauses (i) to (ix) of Subsection (1), of Section 80L, if any, does not, in the aggregate, exceed the maximum amount allowable as deduction in his case under that section; and (d) the tax deductible at source under Section 192 from the income chargeable under the head "salaries" has been deducted from that income. Sub-section (2) authorises the ITO to call upon the assessee before the end of the assessment year to file the return within thirty days from the date of service of the notice or such extended time as he might allow. Sub-section (3) deals with returns of loss and we are not concerned with that in this case.
Sub-section (4) provides for filing of return by any person who has not furnished under Sub-section (1), or (2), at any time, before the assessment was made. This was the position prior to amendment by the Finance Act, 1968 inserted with effect from 1st April, 1968. Under the new provision, an assessee may, before the assessment is made, furnish the return before the specified period under Clause (b) thereof, i.e., four years if the return relates to the financial year relevant to the assessment year commencing on or before 1st April, 1967; three years from assessment year commencing on 1st April, 1968; and two years for any subsequent year. In the relevant years, the assessee could not have filed the returns after two years. Other provisions are not discussed as they do not have any bearing on the issue before us.
6. Section 271(1)(a) and (i) provides for penalty for failure of an assessee to file return without reasonable cause. These are: 271 (1). If the Income-tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person-- (a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under Sub-section (1) of Section 139 or by notice given under Sub-section (2) of Section 139 or Section 148 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by Sub-section (1) of Section 139 or by such notice, as the case may be.
(i) in the cases referred to in Clause (a), in addition to the amount of the tax, if any, payable by him, a sum equal to two per cent of the assessed tax for every month during which the default continued, but not exceeding in the aggregate fifty per cent of the assessed tax...
Clause (i) was amended by Taxation Laws Amendment Act, 1974, deleting the words "but not exceeding in the aggregate fifty per cent of the assessed tax," and in Clause (a) the words "without reasonable cause" were deleted by the Taxation Laws Amendment Act, 1986 with effect from 10-1-1986.
7. The default for the purpose of Section 271(1)(a) is thus, (i) failure to file a voluntary return under Section 139(1), or a return required by notice under Section 139(2), or 148; or (it) his failure to furnish a return within the time allowed under Section 139(1) or by such notice under Section 139(2) or Section 148, as the case may be, that is to mean either of the delay independently or in succession.
Failure or delay, as per the law as it stood before the amendment with effect from 10-9-1986, must have to be "without reasonable cause" in order-to make it a default under Section 271(1)(a). Default is committed the moment the period, prescribed or extended expires.
Thereafter, it continues till the assessment is completed or the return is filed, as the case may be. The original theory, that it is a default that commences and completes on the day when the return was due, as propounded in the case of CWT v. Swesh Seth [1981] 129 ITR 328 (SC) did not find favour with in the later decision of the Supreme Court in the case of Maya Rani Pun) (supra), wherein it was held that the default commences on the expiry of the due date prescribed for filing the return and continues thereafter until compliance is made. It is "de die in diem", i.e., it occurs on the day to day basis and it is a continuing default. To quote the Supreme Court at page 341: ...in view of the language used in Section 271(1)(a) of the 1961 Act (corresponding to Section 18(1)(a) of the Wealth-tax Act), the position was beyond dispute that the Legislature intended to deem the non-filing of the return to be a continuing default and the wrong for which penalty was to be visited, commenced from the date of default and continued month after month until compliance was made and the default came to an end.
As stated earlier, for the period prior to 10-1-1986, the default under Section 271 (1)(a) of the Act was failure or delay in filing the return "without reasonable cause". Both failure and delay are to be "without reasonable cause" and if there was a reasonable cause for any period of delay or failure, the assessee could not be charged with the levy of penalty for that period. Further, in the case of Suresh Seth (supra), it was held that the amount of penalty has to be as per the rate prevailing on the due date, whereas in the subsequent decision in the case of Maya Rani Punj (supra), it was held that it should be at the rates when the default ceased to exist, i.e., when the return was fried or assessment completed. The recent decision in the case of P.N.Banerjee (supra) agrees with the decision in the case of Maya Rani Punj (supra) that the default is continuing one. In the said case, it was held that the penalty to be levied is as per the rates applicable on each month's default during the period when the default continued.
8. With this background, we would now deal with the rival contentions of the parties. As held by Their Lordships of the Supreme Court in the case of Gujarat Travancore Agency (supra), we agree with the learned Departmental Representative that the rule of wens rea has no applicpti' n in penalty proceedings under Section 271(1)(o), but that is not exactly what the assessee has been claiming before us in this case. The assessee's case is that he was under a bona fide belief that he was not required to file the returns because of the fact that his only income was from salary from Dena Bank, out of which tax was deducted at source. Mens rea requires presence of guilty mind. If there is no reasonable cause, penalty has to be levied and assessee cannot take the plea that he had no guilty mind. What the assessee is claiming in this case is that he had a reasonable cause and that cause was his bonafide belief. Rule of mens rea does not come into play at this stage. The absence of reasonable cause could alone attract the consideration of the rule of mens rea. But, could it be said in this case that the assessee had a reasonable cause? The assessee's contention is that his only source of income was salary from which tax was deducted at source covering his entire liability, has no force, because the liability to file a voluntary return under Section 139(1) is on all those assessees who have total income assessable to tax, excluding the maximum amount which is not chargeable to tax. In cases of employees, Sub-section (1A) of Section 139 of the Act, exempts filing of return if the salary of an assessee, exclusive of the benefits or amenities not provided for by way of monetary payment, did not exceed rupees eighteen thousand; that the assessee had no other income liable to tax and that tax has been deducted from salary. The assessee had himself filed the returns declaring income other than salary and also paid self-assessment tax in all these years, ranging from Rs. 514 to as high as Rs. 6,458. In these circumstances, the assessee's plea that he was under a bona fide belief cannot be accepted. There is no reasonable cause shown on this account.
This contention of the assessee is, accordingly, rejected.
9. We now come to the second aspect of the matter. As per the provisions of Section 139(4), an assessee can file the return within two years from the end of the assessment year. This section, as it stood at the relevant time, reads as under: (4)(a) Any person who has not furnished a return within the time allowed to him under Sub-section (1) or Sub-section (2) may, before the assessment is made, furnish the return for any previous year at any time before the end of the period specified in Clause (b), and the provisions of Clause (iii) of the proviso to Sub-section (1) shall apply in every such case.
(i) where the return relates to a previous year relevant to any assessment year commencing on or before the 1st day of April, 1976, four years from the end of such assessment year; (ii) where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April, 1968, three years from the end of the assessment year; (iii) where the return relates to a previous year relevant to any other assessment year, two years from the end of such assessment year.
From the above, it is evident that an assessee who has failed to file a voluntary return under Sub-section (1), or in pursuance of notice issued under Section 139(2), could file the return under this sub-section but within a period of two years from the end of the assessment year. Any return filed after the expiry of the aforesaid period, would be invalid and should be ignored and assessment made thereon would be invalid as held by the Allahabad High Court in the case of Srnt. ParbatiDevi v. CIT[1970] 75 ITR 625; and by the Andhra Pradesh High Court in CIT v. Padma Timber Depot [1988] 169 ITR 646.
Filing of returns means filing of a valid return. When the assessee is debarred and not allowed to file a valid return after the two years period, could it be said that he committed the default and failed to file the return thereafter without reasonable cause? In our opinion, that period uptil revived by the issue of the notice under Section 148 of the Act, could be said to be a reasonable cause for not furnishing the return and that period can be excluded from the levy of penalty.
10. Delay in filing the return is a continuo.us default, as per the two decisions of the Supreme Court in Maga Rani Punj's case (supra) and P.N. Banarjee's case (supra) and, therefore, if an assessee could explain any period of default by showing a reasonable cause, he could be exonerated from levy of penalty. The contention of the learned Departmental Representative that it was the assessee who brought the things to such a situation and allowed the time to expire and, therefore, the benefit should not be given to the assessee is of no consequence. It is true that the assessee was responsible for such a situation but he did so at the risk of inviting penalty for the default of the said two years as per the provisions of law. His laches or failure, in our opinion, cannot create a right in favour of the revenue to treat an invalid return as a valid one or to convert an impossible situation into a possible one. No such relaxation is prescribed under Section 139(4) of the Act that the assessee who was prevented by sufficient cause could be permitted to file the return after two years.
The bar is absolute. No one is allowed to file the return after two years from the end of impugned assessment year, be that period of two years elapsed by the fault of the assessee or otherwise.
11. Similarly, we do not find any merit in revenue's submission that Section 148 does not mitigate the already committed default under Section 139(1) and that the bar placed under Section 139(4) is lifted by the issuance of notice under Section 148. As aforesaid, the assessee has been given time to file the return within two years from the end of the assessment year under Section 139(4) and the assessee, of his own, could not have filed the return thereafter. The notice under Section 148 might enable and require the assessee to file the return after the expiry of the said two years period, but, in our opinion only prospectively, i.e., after the issue of the notice. Take for an example an assessee who, like the one before us, does not file the return voluntarily under Section 139(1) or under Section 139(2) and no notice under Section 148 is issued to him, files the return after the expiry of the said period of two years. That return, as aforesaid, would be an invalid one. After the issue of notice under Section 148, such a return can be taken on record at the option of the assessee to be a return in substitution of a return required to be filed in pursuance of notice under Section 148. It is deemed to be a return filed after the issue of a notice under Section 148 of the Act, prospectively not to give validity to that return but to avoid filing duplicate return again. It becomes valid at the option of the assessee; because, he opts to substitute the same in discharge of his obligation to file the return under Section 148 of the Act. The assessee can ignore such a return and choose to file another return in pursuance of notice under Section 148 of the Act. In that case, the earlier return cannot be acted upon. It is invalid return and non esl for all practical purposes.
12. The decision of the Madhya Pradesh High Court in the case of Chunnilal & Bros, (supra) was a case prior to the amendment inserting the two years time limit under Section 139(4) of the Act. The case of Orissa High Court in Ravi Talkies' case (supra) was dealing with the question with reference to the filing of return in response to Section 139(2) notice. In Calcutta High Court decision in the case of Kashtram Tea Industries Ltd. (supra), the issue was relating to the return filed in pursuance of Section 139(2)/148 notice, but the relevant dates of filing the returns and the two years time limit find no discussion. In the case before the Punjab & Haryana High Court in Dehati Co-op.
Marketing-cum-Processing Society's case (supra), notice under Section 148 was issued within two years from the end of the assessment year.
All these cases were thus dealing with a situation where there was either any limit of two years under Section 139(4) and the assessee was given liberty to file the return in time before the assessment was made, or a situation where the two years time limit under Section 139(4) was not the subject matter of consideration. The requirement of filing the return within two years as stated above has been inserted by the Finance Act, 1968, with effect from 1-4-1968 and prior to that, an assessee could have filed the return at any time before the assessment was made. The case cited by the learned Departmental Representative deal with the situation prior to the amendment with effect from 1-4-1968, or cases where the notice itself was issued before the end of the said two years, as in the case of Dehati Co-op.
Marketing-cum-Processing Society (supra). The assessee cannot, therefore, be charged with penalty for the period after two years from the end of the respective assessment years, as the assessee, in our opinion, could not be said to have no reasonable cause; inasmuch as, it was impossible for him to file a return after the two years period from the respective assessment year and before the issuance of notice under Section 148 of the Act.
13. We also get support in our aforesaid view by the provisions of Explanation 3, inserted below Section 271(1)(iii) by the Taxation Laws (Amendment) Act, 1975, with effect from 1st April, 1976. It reads as under: Explanation 3- Where any person who has not previously been assessed under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, fails, without reasonable cause, to furnish within the period specified in Sub-clause (iii) of Clause (a) of Sub-section (1) of Section 153 a return of his income which he is required to furnish under Section 139 in respect of any assessment year commencing on or after the 1st day of April, 1974, and, until the expiry of the period aforesaid, no notice has been issued to him under Sub-section (2) of Section 139, or Section 148 and the Income-tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of Clause (c) of this sub section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice under Section 148.
14. By this Explanation, an assessee is deemed to have concealed his income, if he has not filed the return before the assessment could be made under Section 153(1)(a)(iii), i.e., within two years from the end of the assessment year. This is notwithstanding the fact that the assessee had filed the return after the expiry of the period aforesaid in pursuance of the notice under Section 148. For assessment year 1974-75, the assessing officer could have proceeded against the assessee as per this Explanation but not under Section 271(1)(a).
Penalty under this Explanation, in our opinion, is to make good the loss of penalty under Section 271(1)(a) for the period after the said two years. It appears to be so also from the fact that the penalty levied under Section 271(1)(a) and under this Explanation could not exceed twice the tax sought to be evaded. This Explanation has been inserted to cover only the new assessees who have not previously been assessed to tax. The reason of this appears to be that in case of existing assessees, the department could also be said to be equally responsible for not taking appropriate steps under Section 139(2)/148 ensuing filing of return within the said period of two years.
15. Proceeding on the basis of discussion aforesaid, we hold that the period of default for which penalty under Section 271(1)(a) could be levied was 33 months for assessment years 1969-70, 1970-71, 1971-72 and 1974-75: 32 months for assessment year 1972-73 and 31 months for assessment year 1973-74, i.e., two years from 30th June, 1969, 30th June, 1970, 30th June, 1971, 31st July, 1972, 15th August, 1973 and 30th June, 1974. As this period for assessment years 1969-70 to 1973-74 was prior to the amendment with effect from 1-4-1976, the maximum penalty for these years could be 50 per cent of the assessed tax, because, as per the law as it stood prior to 1-4-1976, penalty equal to two per cent of the tax for every month during which the default continued but not exceeding in aggregate 50 per cent of the tax was leviable. We, accordingly, reduce the penalty for these years to Rs. 3,545, Rs. 10,220, Rs. 11,043, Rs. 13,326 and Rs. 1,810 respectively.
For the assessment year 1974-75, the penalty for 21 months delay up to 1-4-1976 and 12 months delay up to 31-3-1977, i.e., the period of two years from the assessment year, would be at 2 per cent per month of the delay, i.e., 66 per cent for 33 months delay. It works out to Rs. 3,869. For the assessment year 1975-76, the penalty would be @ 2 per cent for the entire delay and this is what the assessing officer has levied. No interference is called for insofar as the penalty pertaining to assessment year 1975-76 onwards is concerned.
16. For all these years, the penalties have been levied before the order of the Tribunal and the Tribunal had directed to adjust the undisclosed income of Rs. 94,666 by taking Rs. 25,000 as from the sources of the assessee's wife as against the credit of Rs. 20,000 given by the assessing officer and by excluding interest pertaining to the said sum of Rs. 25.000, the effect of which has not been given so far. We, therefore, direct the assessing officer that penalties for all these years be further reduced pursuant to the ultimate reduction in the assessed tax of the assessee upon giving effect to the order of the Tribunal.
17. In the result, subject to our observations in the preceding paragraph, the appeals for the assessment years 1969-70 to 1974-75 are partly allowed and those for the assessment years 1975-76 to 1979-80 are dismissed.