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Commissioner Of Income-Tax, West Bengal-Iv, Calcutta v. Sulekha Works (P.) Ltd.
Factual and Procedural Background
This reference under section 256(2) of the Income-tax Act, 1961, concerns the imposition of a penalty of Rs. 52,148 under section 271(1)(a) for the assessment year 1963-64. The assessee was required to file the income tax return by June 30, 1963, but filed it belatedly on January 2, 1965. The assessee attributed the delay to the unavailability of the books of account, which were in possession of the official receiver due to a winding-up suit, and the audit being completed only on September 10, 1964. The Income Tax Officer (ITO) rejected these explanations and imposed the penalty for failure to file the return within the prescribed time without reasonable cause. The assessee appealed to the Assistant Commissioner of Income-tax (AAC), who partly accepted the reasons for delay and held that no penalty was leviable since no tax was outstanding on the date of penalty imposition, relying on a Calcutta High Court decision in Vegetable Products Ltd. The Department appealed to the Tribunal, which upheld the AAC’s decision, finding reasonable cause for delay until September 1964 and no penalty due to the absence of tax liability at the relevant time. The present reference to the court raises two legal questions arising from these facts.
Legal Issues Presented
- Whether the Tribunal was correct in holding that no penalty is imposable under section 271(1)(a) of the Income-tax Act, 1961, on the ground that no tax was payable by the assessee on the date of imposition of penalty?
- Whether the Tribunal was correct in holding that the assessee had reasonable cause for not filing the return of income within the time allowed by section 139(1) of the Income-tax Act, 1961?
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Vegetable Products Ltd., (1971) 80 ITR 14 (Calcutta High Court) | Penalty under section 271(1)(a) is not leviable if no tax is outstanding on the date of penalty imposition. | The Tribunal and AAC relied on this precedent to hold that no penalty could be imposed as no tax was payable on the penalty date. |
| CIT v. Chhoruky, (1976) 2 CLJ 152 | Penalty under section 271(1)(a) can be imposed even if no tax is payable on the date of penalty imposition. | The court followed this precedent to answer the first question negatively, holding in favour of the Revenue that penalty can be imposed despite no tax being outstanding. |
Court's Reasoning and Analysis
The court first addressed the question of whether penalty under section 271(1)(a) could be imposed when no tax was payable on the date of penalty imposition. It relied on the precedent set in CIT v. Chhoruky (1976) and rejected the Tribunal’s reliance on Vegetable Products Ltd., thereby holding that the absence of tax liability at the time of penalty does not preclude imposition of penalty.
Regarding the second question, the court analyzed the statutory requirements under section 271(1)(a) and section 139(1) of the Income-tax Act, 1961, and Rule 12 of the Income-tax Rules, 1962, which require a company to attach audited accounts and auditor’s report with the return. The court noted the undisputed concurrent findings of the AAC and Tribunal that the assessee’s books were in custody of the official receiver until September 19, 1963, and the audit for the relevant year was only completed on September 10, 1964. Given these facts, the court held that the delay in filing the return until September 1964 was with reasonable cause. The court emphasized that none of these factual findings were challenged, thus affirming the Tribunal’s conclusion in favor of the assessee on this point.
Holding and Implications
Holding: The court answered the first question in the negative, holding that penalty under section 271(1)(a) may be imposed even if no tax is payable on the date of penalty imposition, thus ruling in favor of the Revenue. The second question was answered in the affirmative, concluding that the assessee had reasonable cause for the delay in filing the return up to September 1964, ruling in favor of the assessee.
Implications: The decision directly affects the parties by allowing penalty imposition notwithstanding the absence of tax liability on the penalty date, but also recognizing reasonable cause for delay based on factual circumstances related to audit completion and custody of books. No new precedent was established beyond the application of existing principles, and the ruling preserves the factual findings of the lower authorities regarding reasonable cause.
Ajit K. Sengupta, J.:— This reference under s. 256(2) of the I.T Act, 1961, for the assessment year 1963-64 relates to the imposition of penalty of Rs. 52,148 under s. 271(1)(a) of the said Act.
2. The assessee should have filed the return of income on or before June 30, 1963.
3. The return was, however, filed on January 2, 1965. The assessee was, therefore, asked to explain as to why the return was filed belatedly and as to why penalty should not be imposed on the ground of failure to file the return of income within time under s. 139(1) and 139(2). The assessee replied that the books of account were not under the control of the company and that the auditing was completed on September 10, 1964, and the same was placed before the general body meeting on October 23, 1964. The ITO refused to believe that the books of account for the calendar year 1962 (i.e, for the relevant assessment year), were also taken away by the official receiver. The ITO observed that the books of account were returned on September 19, 1963, to the assessee while the return was filed on January 2, 1965. The first ground was rejected by the ITO. The second ground was also rejected as the assessee filed the return four months after the auditing was completed. The ITO also took note of the fact that no application for extension of time had been made by the assessee for filing the return belatedly. Therefore, the ITO imposed a penalty of Rs. 52,148 under s. 271(1)(a) for failure to furnish the return under ss. 139(1) and 139(2) of the I.T Act, 1961.
4. The assessee went on appeal before the AAC. He held that there was sufficient cause for the belated filing of the return for the reasons mentioned by the assessee except for a period of three months. It was further held by the AAC that as there was no outstanding as on the date of imposition of penalty, penalty under s. 271(1)(a) was not leviable in view of the decision of the Calcutta High Court in the case of Vegetable Products Ltd., [1971] 80 ITR 14.
5. The Department went on appeal before the Tribunal. Following the said judgment of the Calcutta High Court in the case of Vegetable Products Ltd., [1971] 80 ITR 14, the Tribunal held that since on the date of imposition of penalty no tax was payable, no penalty could be imposed and, as such, the AAC was right in cancelling the penalty. He also found that the assessee had reasonable cause for not filing the return of income up to September 19, 1964. The Tribunal found that the account books of the assessee for the immediately preceding year, i.e, the assessment year 1962-63, were taken into custody by the official receiver appointed by the Calcutta High Court in connection with a suit for winding-up of the company and the books were released only on September 15, 1963, when the audit for the said year was taken up. Audit was completed some time in February, 1964. It was only thereafter that the audit of the account books for the year under consideration could be taken up and the audit report was received only on September 10, 1964. The Tribunal, therefore, held that since the audit of the account books for the year under appeal was completed only in September, 1964, the delay in the filing of the return up to September, 1964, was not without reasonable cause. Thus, on this point also, the departmental appeal failed.
6. On the aforsaid facts, the following questions of law have been referred to this court:
“1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that no penalty is imposable under section 271(1)(a) of the Income-tax Act, 1961, on the ground that no tax was payable by the assessee on the date of imposition of penalty?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the assessee had reasonable cause in not filing the return of income within the time allowed by section 139(1) of the Income-tax Act, 1961?”
7. The first question is concluded by the decision of this court in the case of CIT v. Chhoruky, [1976] 2 CLJ 152. Following the said decision, we answer the first question in the negative and in favour of the Revenue.
8. We now turn to the second question. Under s. 271(1)(a) of the Act, a penalty may be imposed if there is no reasonable cause in filing the return beyond the time prescribed under s. 139(1) or s. 139(2). Whether there was reasonable cause or not would undoubtedly depend on the facts and circumstances of a particular case. The assessee is a private limited company. Rule 12 of the I.T Rules, 1962, provides that return of income required to be furnished in the case of a company shall be in Form No. 1 and be verified in the manner indicated therein. If the accounts are kept on the mercantile system of accounting, a copy of the manufacturing account or trading account, the profit and loss account and balance-sheet must be attached to the return. If the accounts are kept on any other system, a description of the system should be given and a copy of any statement which corresponds to the profit and loss account and balance-sheet on the mercantile accounting system must be attached to the return. A copy of the auditor's report under s. 227 of the Companies Act, 1956, must also be attached to the return. Thus, unless the audit is completed and the auditor's report and balance-sheet are made available, a company cannot furnish the return of income. The concurrent findings of the AAC and the Tribunal are that for the immediately preceding assessment year (1962-63), the books of account were in the custody and possession of the official receiver appointed in the suit for winding-up and the said books of account were released only on September 19, 1963. The audit of the books of account for the assessment year 1962-63 was completed in February, 1964. It was only thereafter that the audit of the account books for the assessment year 1963-64 was taken up and the assessee company received the audit report on September 10, 1964. The assessee was required to file the return on or before June 30, 1963, but the return was filed on January 2, 1965. The AAC as well as the Tribunal held that since the audit report was received on September 10, 1964, the delay in filing the return up to September, 1964, was explained and such delay was not without reasonable cause. None of the facts found by the AAC and the Tribunal have been challenged.
9. We are, therefore, of the view that, on the facts and in the circumstances of the case, the Tribunal was right in holding that there was reasonable cause for delay in filing the return up to September, 1964. We, therefore, answer the second question in the affirmative and in favour of the assessee.
10. There will be no order as to costs.
Dipak Kumar Sen, J.:— I agree.
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