Anand Agencies Vs. Income-tax Officer - Court Judgment

Excerpt:
1. these four appeals - two involving penalties under section 271(1)(a) of the income-tax act, 1961 ('the act') and the remaining two under section 271(1)(b) are disposed of by this consolidated order.2. the assessee was required to file its return of income for the assessment year 1981-82 on or before 31-7-1981 but it filed the same on 29-3-1984 and committed a default of 31 complete months. on being asked through notice under section 274 of the act the assessee explained that its sole source of income was from commission earned on selling the goods of its sister concern m/s. anand synthetics pvt. ltd. which was during the relevant accounting period, faced with labour problem and could not intimate to the assessee its commission income due to non-finalisation of accounts. it was further explained that for the aforementioned reason the assessee had to seek extension of time by moving applications in form no, 6 from time to time. eruption of dispute amongst assessee's partners was also pleaded as a factor contributing to the delay in filing the return. the ito, however, did not feel satisfied with this explanation and held that the assessee had filed the return late without any reasonable cause. he accordingly levied penalty of rs. 23,804 under section 271(1)(a) for default of 28 completed months. in appeal the dc (appeals) took no different view of the matter and confirmed the levy of penalty.3. relying on madras high court decision in v.l. dutt v. cit [1976] 103 itr 634 mr. monga, the learned counsel for the assessee, urged that undoubtedly mens rea was no longer an essential ingredient of the offence of default punishable under section 271(1)(a) but that did not absolve the ito of his duty to consider and record a finding on the explanation offered by an assessee with regard to the delay committed in filing the return. he stressed (hat in the instant case the assessee had submitted quite a plausible explanation for not filing the return in the prescribed time or the extended time and assessee's explanation got corroborative support from its conduct of moving extension applications from time to time and ultimately filing the return on estimate basis for want of information from m/s. anand synthetics pvt.ltd. regarding assessee's commission income, mr. monga further submitted that return in the case of that firm was not filed prior to that of assessee's in the instant case. mr. monga thus submitted that looking to the fair conduct of the assessee in this case it was not at all a fit case for levy of penalty under section 271(1)(a) of the act.4. mr. amitabh mishra, the learned senior departmental representative, on the other hand, supported the order under appeal and further submitted that mens rea being no longer an essential ingredient of the offence of default punishable under section 271(1)(a), penalty under that provision would be leviable unless the assessee showed that he was prevented by reasonable cause from filing the return in time. he further submitted that in the instant case the assessee failed to offer any acceptable and satisfactory reasonable cause for filing the return late. it was pointed out that the assessee had filed the return on estimate basis and such a return could have been filed within the prescribed or extended time, had the intention and conduct of the assessee been fair. the learned departmental representative thus prayed that the order under appeal be confirmed. we, however, find force in mr, monga's arguments.5. penalty proceedings under section 271 of the act are quasi criminal in character - "quasi" criminal in the sense that whereas the defects contemplated in section 271 are punishable as 'offences' by levy of penalties the standard of proof required to establish those offences is that of the degree required in proceedings of civil nature. in other words to prove the guilt of an assessee "beyond all reasonable shadows of doubt" is neither the burden of revenue nor to prove his innocence transparently is the duty and responsibility of the assessee.preponderance of probabilities should dictate the judicial decision.normalcy of assessee's behaviour should tilt the balance of "preponderance of probability" in his favour.6. mens rea is ordinarily the essence of every guilty act. when we talk of mens rea as being not an essential ingredient of the offence punishable under section 271(1)(a) we simply want to say that it is not necessary for the revenue to prove the presence of a guilty intention on the part of the assessee in his act of filing the return of income late. that means that as soon as a return is found to have been not filed within the prescribed or extended time the provisions of section 271(1)(a) would stand attracted automatically. but that can never mean that the assessee would be having no right to explain the circumstances under which he came to file the return late. indian law presumes every citizen to be innocent unless the contrary is proved. this inherent presumption of innocence in favour of the citizen has been though substantially eroded and weakened by the latest trend in criminology yet the fundamental principle of naturaljustice that 'nobody should be condemned without being heard' still rules and would always rule the field of penology in a civilised society. the judicial pronouncement that mens rea is not an essential ingredient of the default punishable under section 271(1)(a) does not at all adversely affect the right of an assessee to assert his innocence by explaining the circumstances under which he filed the return late.7. now coming to the merits of the case in hand, it is not disputed that assessee's only source of income was from the commission received from the sister concern m/s. anand synthetics pvt. ltd. it could further be not disputed that m/s. anand synthetics pvt. ltd. had fallen victim to labour unrest and could not finalise its accounts. this fact is not only borne out from the order of cit(appeals)-i, new delhi in the case of m/s. anand synthetics (p.) ltd. for assessment years 1981-82 and 1982-83 but also from ito's own conduct and action of granting extension to the assessee on that very ground. it follows, therefore, that the explanation putforth by the assessee and which was to the effect that it could not file the return in time due to non-availability of account of its commission income from m/s. anand synthetics (p.) ltd. was basically and inceptionally. true and correct.in fact in his order in the case of m/s. anand synthetics (p.) ltd. the learned cit(appeals) had unhesitatingly concluded that the striking labourers were not allowing access to the members of management to the account books of the factory. without dispute it was a sister concern of the assessee firm and the trouble erupted therein was to adversely affect the other interested persons including the partners of the assessee firm. it is, therefore, not at all improbable that dispute might have also arisen amongst the partners of the assessee firm. when all these facts and circumstances attending on the filing of the return by the assessee in this case are kept in mind the conduct of the assessee in repeatedly seeking extensions of time to file the return, in waiting to get the dispute amongst its partners and trouble in its sister concern set at rest and finally to file the return on estimate basis to avoid further delay would not appear to be abnormal or fraudulent or contumacious. faced with such circumstances any person of ordinary prudence and business inclination would have acted in that way. the argument of the learned departmental representative that the return could have been filed earlier if it was to be filed on estimate basis can, at the most, attribute an error of judgment on the part of the assessee but judgments of error are not per se punishable at law.8. to sum up we hold that the assessee was prevented by reasonable cause from filing the return of income for the year under consideration within the prescribed and extended time. since the assessee is not found to have acted fraudulently or contumaciously in the discharge of its statutory obligation under the act, it is not liable to be visited with any penalty under section 271(1)(a) of the act.9. return of income for assessment year 1982-83 was required to be filed by the assessee on or before 31-7-1982 but the same was not filed upto the date of making assessment on 5-3-1985. by its reply dated 24-9-1986 the assessee explained that due to non-receipt of the account of its commission income from its sister concern m/s. anand synthetics pvt, ltd. and on account of dispute amongst assessee's partners the return could not be filed. the ito did not accept this explanation and held that the assessee was not prevented by any reasonable cause from filing the return in time. he accordingly levied penalty of rs. 26,734 under section 271(1)(a) of the act for default of 31 complete months.the cit (appeals) confirmed the penalty in appeal on that very ground.10. mr. monga, the learned counsel for the assessee. and mr. mishra, the learned senior departmental representative for the revenue, advanced the same arguments as were advanced in respect of similar penalty for assessment year 1981-82, discussed above. mr. monga, however, advanced a further argument for this year to the effect that the period of default covered by penalty for assessment year 1981-82 be not again considered for levy of penalty for this year. mr. mishra, however, submitted that each year was separate from and independent of the other and, therefore, the order under appeal was required to be confirmed in toto. we, however, find force in mr. monga's arguments.11. while disposing assessee's appeal for assessment year 1981-82 we have held that the assessee was prevented by reasonable cause from filing the return for that year upto 29-3-1984. for reasons recorded above we hold that default upto 29-3-1984 stands satisfactorily explained for the year under consideration.12. there is, however, no satisfactory explanation from the assessee for not filing the return for this year along with the filing of the return for assessment year 1981-82 on 29-3-1984. if return for assessment year 1981-82 could be filed on estimate basis so could have been the return for assessment year 1982-83. there is no answer from the assessee in not filing the return for this year too on estimate basis even. further there is no material on record to indicate as to when the trouble in the sister concern and the inter se dispute amongst assessee's partners had come to an end. under these circumstances we hold that though the assessee was prevented by reasonable cause from filing the return of income for assessment year 1982-83 upto 29-3-1984 yet it was not so prevented thereafter and it certainly acted fraudulently or contumaciously in disregard of its statutory obligation in not filing the return upto the date of making assessment on 5-3-1985. the assessee is, therefore, liable to levy of penalty under section 271(1)(a) for 10 months for default of filing the return for assessment year 1982-83. the ito would levy minimum penalty as per law in force at the relevant time for 10 months only.(b) penalties under section 271 (1)(b) [ita nos. 7007 & 7008 (del) of 1988].13. penalties of rs. 3,795 and rs. 4,312 were levied by the ito under section 271(1)(b) for assessment years 1981-82 and 1982-83 and confirmed in appeal by the cit(appeals) on the ground that the assessee had failed to comply with the "statutory notices issued to him".14. mr. monga submitted that due to the labour trouble in the sister concern wherefrom the assessee was earning commission income and on account of inter se dispute amongst assessee's partners, the assessee could neither put in appearance nor could it produce the required documents, account books or information before the ito. it was submitted that the default was not deliberate but was committed under the pressure of unavoidable circumstances and was accordingly required to be excused. mr. mishra, however, urged that since the assessee had failed to offer any satisfactory explanation in that behalf the levy of penalty under section 271(1)(b) in both the years was sustainable. we, however, feel inclined to agree with mr. monga.15. while setting aside the ex parte assessments in the case of the sister concern m/s. anand synthetics (p.) ltd. for assessment years 1981-82 and 1982-83 the learned cit(appeals)-i, new delhi had held that the assessee in that case was prevented by sufficient cause in not complying with the notices under section 142(1) and/or 143(2). there is no evidence to show that the finding of the cit(appeals) to the above effect was ever challenged by the revenue before the tribunal. the case of the assessee also is required to be viewed at and approached similarly. labour unrest in the sister concern from whom the assessee was to receive its only income and then inter se dispute amongst its own partners could have made the assessee somewhat negligent or careless in heeding to the notices issued by the ito but that conduct of the assessee does not appear to us to be tainted with any mala fide or indeliberate disregard of the provisions of the act. we, therefore, hold that the assessee had not failed to comply with the "statutory notices issued to him" without reasonable cause. we would accordingly cancel the penalties under section 271(1)(b) for both the years.16. a parting thought may be an uncalled for and uninvited advice but certainly not a sermon. penalty proceedings, being in the nature of quasi criminal proceedings terminating either in exoneration of the assessee from the guilt or in a verdict of guilty against him resulting in penal consequences, are required to be taken up and dealt with seriously highlighting exactly the nature of offence alleged to have been committed by the assessee. in our opinion, the expression "statutory notices" used by the ito in these cases is too wide a term to be definite and specific on the actual guilt of the assessee.neither the ito in the penalty proceedings nor the cit (appeals) in appeal proceedings thought it proper to pinpoint the exact nature of default or offence alleged to have been actually committed by the assessee. it is desirable that while drafting the penalty orders the assessing officers should be vigilant to specifically mention the exact nature of the default alleged to have been committed by the assessee and desired to be punished by the assessing officer and in recording his findings and decision on the essential ingredients of such default. (i) penalty under section 271(1)(a) for assessment year 1981-82 is cancelled and appeal for that year allowed. (ii) penalty under section 271(1)(a) for assessment year 1982-83 is directed to be levied at permissible minimum, for 10 months. the appellate order for that year is modified accordingly and appeal allowed partly. (iii) penalties under section 271(1)(b) for assessment years 1981-82 and 1982-83 are hereby cancelled and appeals for both the years allowed.

Judgment:
1. These four appeals - two involving penalties under Section 271(1)(a) of the Income-tax Act, 1961 ('the Act') and the remaining two under Section 271(1)(b) are disposed of by this consolidated order.

2. The assessee was required to file its return of income for the assessment year 1981-82 on or before 31-7-1981 but it filed the same on 29-3-1984 and committed a default of 31 complete months. On being asked through notice under Section 274 of the Act the assessee explained that its sole source of income was from commission earned on selling the goods of its sister concern M/s. Anand Synthetics Pvt. Ltd. which was during the relevant accounting period, faced with labour problem and could not intimate to the assessee its commission income due to non-finalisation of accounts. It was further explained that for the aforementioned reason the assessee had to seek extension of time by moving applications in Form No, 6 from time to time. Eruption of dispute amongst assessee's partners was also pleaded as a factor contributing to the delay in filing the return. The ITO, however, did not feel satisfied with this explanation and held that the assessee had filed the return late without any reasonable cause. He accordingly levied penalty of Rs. 23,804 under Section 271(1)(a) for default of 28 completed months. In appeal the DC (Appeals) took no different view of the matter and confirmed the levy of penalty.

3. Relying on Madras High Court decision in V.L. Dutt v. CIT [1976] 103 ITR 634 Mr. Monga, the learned counsel for the assessee, urged that undoubtedly mens rea was no longer an essential ingredient of the offence of default punishable under Section 271(1)(a) but that did not absolve the ITO of his duty to consider and record a finding on the explanation offered by an assessee with regard to the delay committed in filing the return. He stressed (hat in the instant case the assessee had submitted quite a plausible explanation for not filing the return in the prescribed time or the extended time and assessee's explanation got corroborative support from its conduct of moving extension applications from time to time and ultimately filing the return on estimate basis for want of information from M/s. Anand Synthetics Pvt.

Ltd. regarding assessee's commission income, Mr. Monga further submitted that return in the case of that firm was not filed prior to that of assessee's in the instant case. Mr. Monga thus submitted that looking to the fair conduct of the assessee in this case it was not at all a fit case for levy of penalty under Section 271(1)(a) of the Act.

4. Mr. Amitabh Mishra, the learned senior departmental representative, on the other hand, supported the order under appeal and further submitted that mens rea being no longer an essential ingredient of the offence of default punishable under Section 271(1)(a), penalty under that provision would be leviable unless the assessee showed that he was prevented by reasonable cause from filing the return in time. He further submitted that in the instant case the assessee failed to offer any acceptable and satisfactory reasonable cause for filing the return late. It was pointed out that the assessee had filed the return on estimate basis and such a return could have been filed within the prescribed or extended time, had the intention and conduct of the assessee been fair. The learned departmental representative thus prayed that the order under appeal be confirmed. We, however, find force in Mr, Monga's arguments.

5. Penalty proceedings under Section 271 of the Act are quasi criminal in character - "quasi" criminal in the sense that whereas the defects contemplated in Section 271 are punishable as 'offences' by levy of penalties the standard of proof required to establish those offences is that of the degree required in proceedings of civil nature. In other words to prove the guilt of an assessee "beyond all reasonable shadows of doubt" is neither the burden of revenue nor to prove his innocence transparently is the duty and responsibility of the assessee.

Preponderance of probabilities should dictate the judicial decision.

Normalcy of assessee's behaviour should tilt the balance of "preponderance of probability" in his favour.

6. Mens rea is ordinarily the essence of every guilty act. When we talk of mens rea as being not an essential ingredient of the offence punishable under Section 271(1)(a) we simply want to say that it is not necessary for the revenue to prove the presence of a guilty intention on the part of the assessee in his act of filing the return of income late. That means that as soon as a return is found to have been not filed within the prescribed or extended time the provisions of Section 271(1)(a) would stand attracted automatically. But that can never mean that the assessee would be having no right to explain the circumstances under which he came to file the return late. Indian Law presumes every citizen to be innocent unless the contrary is proved. This inherent presumption of innocence in favour of the citizen has been though substantially eroded and weakened by the latest trend in criminology yet the fundamental principle of naturaljustice that 'nobody should be condemned without being heard' still rules and would always rule the field of penology in a civilised society. The Judicial pronouncement that mens rea is not an essential ingredient of the default punishable under Section 271(1)(a) does not at all adversely affect the right of an assessee to assert his innocence by explaining the circumstances under which he filed the return late.

7. Now coming to the merits of the case in hand, it is not disputed that assessee's only source of income was from the commission received from the sister concern M/s. Anand Synthetics Pvt. Ltd. It could further be not disputed that M/s. Anand Synthetics Pvt. Ltd. had fallen victim to labour unrest and could not finalise its accounts. This fact is not only borne out from the order of CIT(Appeals)-I, New Delhi in the case of M/s. Anand Synthetics (P.) Ltd. for assessment years 1981-82 and 1982-83 but also from ITO's own conduct and action of granting extension to the assessee on that very ground. It follows, therefore, that the explanation putforth by the assessee and which was to the effect that it could not file the return in time due to non-availability of account of its commission income from M/s. Anand Synthetics (P.) Ltd. was basically and inceptionally. true and correct.

In fact in his order in the case of M/s. Anand Synthetics (P.) Ltd. the learned CIT(Appeals) had unhesitatingly concluded that the striking labourers were not allowing access to the members of management to the account books of the factory. Without dispute it was a sister concern of the assessee firm and the trouble erupted therein was to adversely affect the other interested persons including the partners of the assessee firm. It is, therefore, not at all improbable that dispute might have also arisen amongst the partners of the assessee firm. When all these facts and circumstances attending on the filing of the return by the assessee in this case are kept in mind the conduct of the assessee in repeatedly seeking extensions of time to file the return, in waiting to get the dispute amongst its partners and trouble in its sister concern set at rest and finally to file the return on estimate basis to avoid further delay would not appear to be abnormal or fraudulent or contumacious. Faced with such circumstances any person of ordinary prudence and business inclination would have acted in that way. The argument of the learned departmental representative that the return could have been filed earlier if it was to be filed on estimate basis can, at the most, attribute an error of Judgment on the part of the assessee but judgments of error are not per se punishable at law.

8. To sum up we hold that the assessee was prevented by reasonable cause from filing the return of income for the year under consideration within the prescribed and extended time. Since the assessee is not found to have acted fraudulently or contumaciously in the discharge of its statutory obligation under the Act, it is not liable to be visited with any penalty under Section 271(1)(a) of the Act.

9. Return of income for assessment year 1982-83 was required to be filed by the assessee on or before 31-7-1982 but the same was not filed upto the date of making assessment on 5-3-1985. By its reply dated 24-9-1986 the assessee explained that due to non-receipt of the account of its commission income from its sister concern M/s. Anand Synthetics Pvt, Ltd. and on account of dispute amongst assessee's partners the return could not be filed. The ITO did not accept this explanation and held that the assessee was not prevented by any reasonable cause from filing the return in time. He accordingly levied penalty of Rs. 26,734 under Section 271(1)(a) of the Act for default of 31 complete months.

The CIT (Appeals) confirmed the penalty in appeal on that very ground.

10. Mr. Monga, the learned counsel for the assessee. and Mr. Mishra, the learned senior departmental representative for the revenue, advanced the same arguments as were advanced in respect of similar penalty for assessment year 1981-82, discussed above. Mr. Monga, however, advanced a further argument for this year to the effect that the period of default covered by penalty for assessment year 1981-82 be not again considered for levy of penalty for this year. Mr. Mishra, however, submitted that each year was separate from and independent of the other and, therefore, the order under appeal was required to be confirmed in toto. We, however, find force in Mr. Monga's arguments.

11. While disposing assessee's appeal for assessment year 1981-82 we have held that the assessee was prevented by reasonable cause from filing the return for that year upto 29-3-1984. For reasons recorded above we hold that default upto 29-3-1984 stands satisfactorily explained for the year under consideration.

12. There is, however, no satisfactory explanation from the assessee for not filing the return for this year along with the filing of the return for assessment year 1981-82 on 29-3-1984. If return for assessment year 1981-82 could be filed on estimate basis so could have been the return for assessment year 1982-83. There is no answer from the assessee in not filing the return for this year too on estimate basis even. Further there is no material on record to indicate as to when the trouble in the sister concern and the inter se dispute amongst assessee's partners had come to an end. Under these circumstances we hold that though the assessee was prevented by reasonable cause from filing the return of income for assessment year 1982-83 upto 29-3-1984 yet it was not so prevented thereafter and it certainly acted fraudulently or contumaciously in disregard of its statutory obligation in not filing the return upto the date of making assessment on 5-3-1985. The assessee is, therefore, liable to levy of penalty under Section 271(1)(a) for 10 months for default of filing the return for assessment year 1982-83. The ITO would levy minimum penalty as per law in force at the relevant time for 10 months only.

(B) Penalties under Section 271 (1)(b) [ITA Nos. 7007 & 7008 (Del) of 1988].

13. Penalties of Rs. 3,795 and Rs. 4,312 were levied by the ITO under Section 271(1)(b) for assessment years 1981-82 and 1982-83 and confirmed in appeal by the CIT(Appeals) on the ground that the assessee had failed to comply with the "statutory notices issued to him".

14. Mr. Monga submitted that due to the labour trouble in the sister concern wherefrom the assessee was earning commission income and on account of inter se dispute amongst assessee's partners, the assessee could neither put in appearance nor could it produce the required documents, account books or information before the ITO. It was submitted that the default was not deliberate but was committed under the pressure of unavoidable circumstances and was accordingly required to be excused. Mr. Mishra, however, urged that since the assessee had failed to offer any satisfactory explanation in that behalf the levy of penalty under Section 271(1)(b) in both the years was sustainable. We, however, feel inclined to agree with Mr. Monga.

15. While setting aside the ex parte assessments in the case of the sister concern M/s. Anand Synthetics (P.) Ltd. for assessment years 1981-82 and 1982-83 the learned CIT(Appeals)-I, New Delhi had held that the assessee in that case was prevented by sufficient cause in not complying with the notices under Section 142(1) and/or 143(2). There is no evidence to show that the finding of the CIT(Appeals) to the above effect was ever challenged by the revenue before the Tribunal. The case of the assessee also is required to be viewed at and approached similarly. Labour unrest in the sister concern from whom the assessee was to receive its only income and then inter se dispute amongst its own partners could have made the assessee somewhat negligent or careless in heeding to the notices issued by the ITO but that conduct of the assessee does not appear to us to be tainted with any mala fide or indeliberate disregard of the provisions of the Act. We, therefore, hold that the assessee had not failed to comply with the "statutory notices issued to him" without reasonable cause. We would accordingly cancel the penalties under Section 271(1)(b) for both the years.

16. A parting thought may be an uncalled for and uninvited advice but certainly not a sermon. Penalty proceedings, being in the nature of quasi criminal proceedings terminating either in exoneration of the assessee from the guilt or in a verdict of guilty against him resulting in penal consequences, are required to be taken up and dealt with seriously highlighting exactly the nature of offence alleged to have been committed by the assessee. In our opinion, the expression "statutory notices" used by the ITO in these cases is too wide a term to be definite and specific on the actual guilt of the assessee.

Neither the ITO in the penalty proceedings nor the CIT (Appeals) in appeal proceedings thought it proper to pinpoint the exact nature of default or offence alleged to have been actually committed by the assessee. It is desirable that while drafting the penalty orders the Assessing Officers should be vigilant to specifically mention the exact nature of the default alleged to have been committed by the assessee and desired to be punished by the Assessing Officer and in recording his findings and decision on the essential ingredients of such default.

(i) Penalty under Section 271(1)(a) for assessment year 1981-82 is cancelled and appeal for that year allowed.

(ii) Penalty under Section 271(1)(a) for assessment year 1982-83 is directed to be levied at permissible minimum, for 10 months. The appellate order for that year is modified accordingly and appeal allowed partly.

(iii) Penalties under Section 271(1)(b) for assessment years 1981-82 and 1982-83 are hereby cancelled and appeals for both the years allowed.