Rattanlal Dangi Vs. Income-tax Officer - Court Judgment

Excerpt:
1. all these appeals and cross appeals involve a common issue and hence are disposed of by this consolidated order for the sake of convenience.2. in all these cases, the assessees, who are brothers, jointly owned a piece of land admeasuring 8 bighas and 1 biswas at moti magri scheme within the municiple limits at udaipur. the said land was jointly sold to hindustan zinc ltd. during the year under consideration for a total consideration of rs. 8,75,516. notices were issued by the assessing officer (a.o.) under section 139(2) to all of them to file their returns of income. the assessees failed to comply with the said notice.subsequently, notices under section 142(1) were also issued but no compliance was made in spite of several opportunities. the ao, therefore, completed the assessments.....

Judgment:
1. All these appeals and cross appeals involve a common issue and hence are disposed of by this consolidated order for the sake of convenience.

2. In all these cases, the assessees, who are brothers, jointly owned a piece of land admeasuring 8 bighas and 1 biswas at Moti Magri Scheme within the municiple limits at Udaipur. The said land was jointly sold to Hindustan Zinc Ltd. during the year under consideration for a total consideration of Rs. 8,75,516. Notices were issued by the Assessing Officer (A.O.) under Section 139(2) to all of them to file their returns of income. The assessees failed to comply with the said notice.

Subsequently, notices under Section 142(1) were also issued but no compliance was made in spite of several opportunities. The AO, therefore, completed the assessments under Section 144 on 25-2-1985 on the basis-of material available with him and estimated the incomes as follows :Shri Rattanlal Dangi Rs. 2,14,430 Rs. 5,000Shri Tolaram Dangi Rs. 2,14,930 Rs. 5,000Shri Fatehlal Dangi Rs. 2,41,390 Rs. 5,000 3. Simultaneously the AO initiated penalty proceedings under Section 271(1)(a). On appeal against the above assessments,-the learned CIT(A) set aside the assessments on 5-9-1985. During the set aside proceedings the assessees filed their respective returns of income on 25-3-1988, declaring nil income and the AO completed the assessments on 25-3-1988 itself determining the total incomes as assessed earlier on 25-2-1985.

On appeal, all the three assessees got a relief of Rs. 5,000 each.

4. In the penalty proceedings under Section 271(1)(a), in all the cases, the AO computed a delay of 67 months in filing the return. For computing the said delay, the AO reckoned it from 31-7-1982, that is, the due date for filing the return, up to 25-3-1988, that is upto the date on which the returns were filed during re-assessment proceedings.

Accordingly, he imposed penalties as follows : 5. On appeal against the above penalties imposed, the ld. CIT(A) observed that there existed no reasonable cause for not filing the return in time and upheld the levy of penalty. However, as regards the period of delay, he reckoned it from'31-7-1982 to 25-2-1985, that is upto the date on which assessments under Section 144 were completed and directed the AO to recompute the penalties accordingly in all the three cases.

6. In the present appeals before us, the assessees are aggrieved by the sustenance of penalties for thirty months, whereas the department is aggrieved against the reduction of delay from 67 months to 30 months.

If the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person- (a) has failed to furnish the return of total income which he was required to furnish under Sub-sectiontion (1) of Section 139 or by notice given under Sub-sectiontion (2) of Section 139 or Section 148 or has failed to furnish it within the time allowed and in the manner required by Sub-sectiontion (1) of Section 139 or by such notice as the case may be or,...

10. In the instant cases it is undisputed that the assessees were liable to file their returns by 31 -7-1982 but failed to do so. They also did not file their returns in response to notices sent to them under Section 139(2). Hence it cannot be disputed that the counting of period of delay has to commence from 1-8-1982. But the issue that emerges in these cases is upto what point of time it has to be counted.

Section 271 (1)(i)(b) provides that penalty has to be calculated at the rate of 2% of the assessed tax for every month during which the default continued.

11. As per these provisions, normally the penalty would be calculated upto the date of filing the return as on filing the return only the default would come to an end.

12. In the present cases, the assessees filed their returns on 25-3-1988 for the first time and the AO considered the default upto that date. But the fact is that these returns were filed during set aside proceedings as a consequence of the order of the ld. CIT(A), an appeal against whom was preferred against the order made under Section 144 on 25-2-1985.

13. A situation may, however, arise that an assessee may accept the order made under Section 144 and hence may never file a return for that year. In that event, going strictly by the language of Section 271(1)(i)(b), the computation of the period of default may go on infinitely or the assessee may totally escape the penalty. But both these are absurd eventualities one can think of.

14. A rational interpretation would suggest that in such cases the default should be deemed to have ended on the day the AO, in absence of a return filed, makes up his mind to make the assessment to the best of his judgment on the basis of the material available with him. Such an interpretation sounds to be rational because it will serve the ends of justice between both the situations, namely, one who accepts the assessment under Section 144 and then never files the return and the other, where one files the return under set aside or re-assessment proceedings as his first return for that particular year.

15. In view of the above, the learned CIT(A) had rightly computed the default upto the date of the assessment made under Section 144.

16. Coming to the grievance of the assessee as regards sustaining the penalty for the reduced period of default, it has been pleaded on behalf of one of the assessees that he is a villager. The assessee has always sustained himself on meagre agricultural income. He has never been exposed to a regulated way of doing things, least of all the tax law. Further, he is almost illiterate and rustic to have thought of complying with the provisions of law. In view of these circumstances it was pleaded that there is sufficient cause for cancelling the penalty.

17. The learned Departmental Representative supported the order of the learned CIT(A) and pleaded that ignorance of law was not an excuse.

18. We have given our thoughtful consideration to the pleas made before us by both the parties.

19. We find much force in the arguments advanced on behalf of the assessee. The circumstances of the assessee narrated by the learned counsel are not disputed. It is true that ignorance of law is not an excuse, but the Hon'ble Supreme Court has also held that there is no presumption that every one knows the law. This dictum propounded of the Apex Court has to be applied in appropriate cases. In our opinion, the instant cases are such appropriate cases and hence direct the cancellation of penalty sustained by the learned CIT(A). Since the circumstances in all the cases are alike, our direction will apply to all the assessees in the present appeals.

20. In the result, the appeals by the assessees are allowed and those of the department are dismissed.