M/S DALU RAM RAM CHANDER vs. C.I.T. JDR.

(1) If the Income-tax Officer or the Appellate Assistant Commissioner 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 -7- time allowed and in the manner required by sub- section (1) of section 139 or by such notice, as the case may be, or (b) XX XX XX (c) XX XX XX (d) XX XX XX he may direct that such person shall pay by way of penalty. (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. Explanation: In this clause, “assessed tax” means tax as reduced by the sum, if any, deducted at source under Chapter XVIIB or paid in advance under Chapter XVIIC; (ii) XX XX XX (iii) XX XX XX” Rule 117 A 117A. In respect of assessment relating to an assessment year commencing on or before the first day of April, 1988, the Assessing Officer may reduce or waive the interest payable under section 139 in the cases and in the circumstances mentioned below, -8- namely:- (i) where the return of income is furnished by a person who has been treated under section 163 as an agent of a non-resident and is assessed in respect of the latter's income; (ii) where the return of income is furnished by an assessee whose only source of income during the relevant previous year is a share in the income of an unregistered firm which has been assessed on its total income in respect of that previous year under clause (b) of section 183; (iii) where the return of income of a deceased individual is furnished by his legal representative and the legal representative satisfies the Assessing Officer that he had sufficient cause for not furnishing such return within time; (iv) where the return of income has been furnished in pursuance of a notice issued under section 148; (v) any case in which the assessee produces evidence to the satisfaction of the Assessing Officer that he was prevented by sufficient cause from furnishing the return within time: Provided that the previous approval of the Deputy Commissioner has been obtained where the amount -9- of interest reduced or waived, as the case may be, under clause (iv) or clause (v) exceeds one thousand rupees.” Section 139 (8) provides for charging of interest in case of delayed filing of return. According to the said Section, where an assessee who furnishes a return either under sub-section (1), or sub- section (2) or sub-section (4) after the specified date or does not furnish, whether the Assessing Officer has extended the date for filing of such return or not, the assessee is liable to pay simple interest at the rate of 12% per annum. The period for which an assessee is liable is to be computed from the date immediately following from such specified date to the date of filing return or where no return is filed, the date of completion of assessment under Section 144 of the Act. The interest is calculated on the amount of tax payable on the total income as determined on regular assessment which is reduced by advance tax, if any, paid and tax deducted at source. However, the proviso grants an exception and empowers the Assessing Officer to reduce or waive the interest payable by an assessee under this Section under circumstances as may be prescribed. Rule 117A of the Rules prescribes the circumstances in which reduction or waiver of interest payable under Section 139 (8) can be allowed by the Assessing Officer. Sub rules (iv) and (v) are relevant for the purposes of present adjudication. Sub rule (iv) stipulates that the Assessing Officer may reduce or waive levy of interest under Section 139 of the Act in those cases where the return is filed in pursuance of issuance of notice under Section 148 of the Act. Sub rule -10- (v) envisages a situation for reduction or waiver by the Assessing Officer, where the assessee produces evidence to the satisfaction of the Assessing Officer that he was prevented by sufficient cause from filing the return in time. The cumulative effect of the aforesaid provisions of Section 139 (8) of the Act and Rule 117A (v) of the Rules is that the Assessing Officer is required to provide an opportunity to be heard to the assessee before levying interest in order to enable the assessee to explain the circumstances under which the delay had occurred. In case, the assessee is able to show sufficient cause for late filing of return, the Assessing Officer may reduce or waive imposition of interest. The levy of interest is not automatic or mechanical. The discretion vested in the Assessing Officer is to be exercised judiciously on certain objective factors. The exercise of discretion by the Assessing Officer must be manifest so that it could be gathered by all as to whether the discretion has been properly exercised or not. Now adverting to the interpretation of Section 271 (1)(a) of the Act, the Full Bench of this Court in Patram Dass Raja Ram Beri's case (supra) had categorically laid down that for imposition of penalty under Section 271(1)(a) of the Act, no mens rea on the part of the assessee is required to be established by the revenue. The Full Bench concluded, thus:- “We take the view that the basic issue before us can be truly answered only when viewed against the larger perspective of the scheme and the provisions of the I.T.Act, 1961. It is manifest that the Act first -11- prescribes the duty of filing the income-tax return within the prescribed time and then postulates three distinct sanctions for the enforcement of that statutory obligation. These are, by levying interest under s.139 by imposing penalty, if the delay has been occasioned without reasonable cause under s.271(1)(a), and by convicting and sentencing the assessee by treating such failure to file the returns as an offence, if it was proved that this was wilful. These are three distinct and varying degrees of non- filing of returns or filing them beyond the prescribed time and the statute clearly keeps up the distinctions at all stages, between the three modes. While the Legislature has been content by imposing only a financial penalty on reaching satisfaction as to the absence of reasonable cause, it has prescribed the presence of wilful failure to furnish returns in due time to make it an offence punishable with a minimum imprisonment added with fine. Equally significant is the distinction between the word “penalty” as contemplated by s.271(1)(a) and the stringent punishments provided by s.276CC. Reference to s.271(1)(a)(i) of the Act would indicate that the Legislature itself viewed this “penalty” as an addition to the amount of tax, if any, payable by the assessee and the same is calculated in relation to the amount -12- of the assessed tax. It would be thus obvious that the penalty imposed here is in a way related to tax and as was authoritatively said in C.A.Abraham's case[1961] 41 ITR 425 (SC) is part of the assessment proceedings. Now, what is imposed under s.276CC of the Act is altogether different in nature. The proceedings therein are neither part of the assessment proceedings nor are they directly proportionate to the amount of tax leviable. The offender under cls.(i) and (ii) thereof can be visited with rigorous imprisonment which may extend to seven years or three years respectively with an addition of fine as well. It seems unnecessary to elaborate the point because the difference which the statute maintains between the penalty leviable under s.271(1)(a) and the punishment imposable under s.276CC of the Act, is demonstratively patent. Whilst for levying penalty, absence of reasonable cause has to be shown, for imposing punishment, wilful failure has to be established and as a settled canon of criminal law, the burden to do so rests on the prosecution. Wilfulness certainly brings in the element of guilty mind and thus the requirement of a mens rea, but the presence or absence of a reasonable cause can be something wholly objective and far removed therefrom. Thus from the provisions -13- of the Act itself, it irresistibly emerges that the element of mens rea is made an ingredient for the offence under s.276CC of the Act and not for the mere penalty proceedings under s.271(1)(a)”. However, an exception has been carved out in favour of the assessee. Wherever, an assessee establishes that there existed a reasonable cause for late filing of return, that an Assessing Officer could reduce or waive the penalty imposable on the assessee. The relevant portion of the judgment reads thus:- “We must, therefore, conclude on the larger principle, in the light of the broader scheme of the I.T.Act, 1961, the specific language of s.271(1)(a) and the weight of precedent, that the doctrine of mens rea is not attracted to the penalty proceedings within the four corners of the aforesaid section. The only requirement of the statute thereunder is the presence or absence of reasonable cause for the tax delinquency and no other. Therefore, inducting the requirement of a deliberate defiance of law, or contumacious conduct, or dishonest intention, or acting in conscious disregard of the statutory obligations, is unwarranted under s.271(1)(a) of the Act.” Now having arrived at the interpretation of the aforesaid provision, we make reference to the expression “sufficient cause” referred in Rule 117A and “reasonable cause” occurring in Section 271 -14- (1)(a) of the Act. According to us, there is no substantial difference between the “sufficient cause” and the “reasonable cause”. The Assessing Officer while exercising the powers under the aforesaid Rules and the Section exercises discretionary power in an objective manner to find out - whether or not the cause show is sufficient or reasonable to take away the assessee from the ambit of rigour imposed by either Section 139 (8) or 271 (1)(a) of the Act. But the mere difference in such phraseology, it cannot be said that what is a reasonable cause is not a sufficient cause or vice versa. The Karnataka High Court in S. Govindaraju's case (supra) had also laid down in the aforesaid terms. The relevant portion reads thus:- “.....The difference in the language of r.117A(v) of the Rules and the language of s.271(1)(a) of the Act is that the term “sufficient cause” has been used in the rule while in the section “reasonable cause” has been used. Otherwise, the nature of the power to be exercised by the authority concerned in both the aforementioned rule and the section is similar inasmuch as they are discretionary powers exercised to find out whether or not the cause shown is sufficient or reasonable to avoid the rigour imposed by either s.139(8)(a) or s.271(1)(a) of the Act. In the case of s.271(1)(a) of the Act it is already settled law that without affording an opportunity to the assessee proceeded against under that section, no penalty can be imposed on him. Regard being had to the -15- cumulative effect of s.139(8)(a) of the Act and r.117A (v) of the Rules, one 'has necessarily to infer that the assessing officer is under an obligation to afford an opportunity to the assessee as to why interest should not be charged unless sufficient cause is shown for the delay in filing the return. Mere mechanical computation of the interest without informing the assessee that such interest is being charged would totally deprive the assessee of explaining the delay in filing the return. Therefore, on the well-established principles of construction of a taxing statute, while it must be held that the ITO in computing the assessment of an assessee who has filed a belated return, must necessarily first make a proposal to impose interest under s.139(8)(a) of the Act, as, otherwise, it puts the assessee at a disadvantage as pointed out by me earlier. If that opportunity is not afforded to the assessee, then r.117A(v) of the Rules becomes redundant in the statute, as no occasion arises for the assessing authority to exercise the discretionary juri iction vested in it. Therefore, that part of the order of the 2nd respondent-ITO imposing interest under s.139(8)(a) of the Act, suffers from the infirmity of not being in accordance with the procedure laid down by law and is, therefore, liable to be set aside”.

As has been stated earlier, in the assessment year 1975-76 the ITO has reduced by 50% the interest charged u/s 139 (8) by taking recourse to sub-rule (v) of Rule 117A of the I.T. Rules. From the order waiving the interest it can be reasonable presumed that the ITO was satisfied that the assessee was prevented by sufficient cause from filing the return for the assessment year 1975-76 till 31.3. 76. Following the decision of the Karnataka High Court, the contention of the assessee that it was prevented by reasonable cause from filing the return of the A.Y. 75-76 is accepted for the period 1.8.75 to -17- 31.3. 76. For the remaining period the explanation of the assessee does not hold any water. It is evident from record that the assessee never made any effort whatsoever to approach the ITO for extension of time to file the return. Its representatives claim that they had requested the ITO verbally is neither substantiated by any entry in the order-sheet not by any record mentioned by the assessee. The assessee has completely failed to discharge its legal obligations not in the matter of filing the return in time but also in approaching the ITO for seeking extension of time. The assessment record of the assessee is full of instance when it has failed to comply with the notices issued and other requisitions made by the assessing officer. The assessee is certainly guilty of wilful neglect. Therefore, the order of the ITO holding the assessee liable to penalty U/s 271 (1)(a) of the Act in the assessment year 75-76 is upheld. However for the reasons mentioned above the period of delay for which the assessee is liable to penalty under this section is restricted to 01.4.76 to 23.12. 76. This will mean that the penalty for late filing of the return shall be charged for eight complete months. The ITO is directed to recalculate the amount of penalty accordingly and issue revised demand notice and challan.