Income Tax Appellate Tribunal - Kolkata
Mrs. Manju Kataruka vs Income Tax Officer on 7 April, 2004
Equivalent citations: (2005)94TTJ(KOL)873
ORDER
C.L. Sethi, J.M.
1. This is an appeal filed by the assessee against the order dt. 27th June, 2003 passed by the CIT(A) in the matter of an order of penalty amounting to Rs. 5,000 imposed by the AO under Section 271F of the IT Act, 1961 (hereinafter referred to as Act) for the asst, yr. 2000-01.
2. Material facts, in brief, related to the issue involved in this appeal are as under :
The AO noted that the assessee filed return of income on 20th March, 2002 for the asst. yr. 2000-01 showing total income at Rs. 89,980. The due date within the meaning of Section 139(1) was 31st Aug., 2000. The asst. yr. 2000-01 had ended on 31st March, 2001. The last date for filing return of income was 31st March, 2001 as contemplated under Section 271F of the Act. The assessee did not furnish the return of income before the end of the relevant assessment year. Penalty proceedings under Section 271F were initiated by the Act and a show-cause notice was issued to the assessee as to why penalty as provided under Section 271F should not be imposed. In response to the show-cause notice issued under Section 271F the assessee submitted written explanation stating that the entire tax liability was covered by TDS amount and ultimately there was a refund due to the assessee. The AO had referred to the provisions of Section 139(1)(a) of the Act and formed an opinion that the explanation as submitted by the assessee that the entire tax liability was covered by TDS is not acceptable and it was a deliberate failure on the part of the assessee to file the return within the relevant assessment year i.e., 31st March, 2001. He, therefore, found the present case fit for imposition of penalty under Section 271F of the Act. Thus, a penalty of Rs. 5,000 as provided under Section 271F was imposed by the AO. Being aggrieved, the assessee went in first appeal before the CIT(A), who dismissed the assessee's appeal by observing as under :
"I have considered the matter carefully. The judgment of Hon'ble Supreme Court in the case of Hindustan Steel quoted by the appellant was in connection with the sale-tax law and the penalty in that case had been imposed for failing to register as a dealer and thus evading sales-tax. The penalty in that case was not for delay in filing of return of income, The case is, therefore, distinguishable. Mens rea, is not an essential ingredient of default in relation to filing of return of income as has been held by the Hon'ble Supreme Court in case of Gujarat Travancore Agency v. CIT (1989) 177 ITR 455 (SC). Only default is required to be proved by the Department and burden is on the assessee to prove if there was any reasonable cause for default. The ground for delay given by the appellant, that is, non-receipt of confirmation of transactions is not supported by any evidence. It is also not a satisfactory ground as the assessee could have filed return of income based on books of account maintained by her and, in case of any discrepancy, could have filed revised return later, The submission of the learned Authorised Representative that the penalty should be imposed as per law applicable on the date of default on 31st March, 2001 is also not acceptable in view of the judgment of Hon'ble Supreme Court in case of Smt. Maya Rani Punj v. CIT (1986) 157 ITR 330 (SC). The Hon'ble Supreme Court has held in the said case that penalty would be imposable on the basis of law applicable at the time when the AO decided to initiate penalty proceedings. In this case, both the filing of return of income and the action of the AO initiating penalty have occurred after the amended provision became effective from 1st June, 2001. In the facts and circumstances of the case, penalty of Rs. 5,000 imposed by the AO as per the amended law is found to be in order and the same is confirmed."
3. Still aggrieved, the assessee has preferred this appeal before the Tribunal.
4. The learned counsel appearing for the assessee has submitted that there was the delay in submission of return as all the confirmations in respect of the transactions could not be obtained in time to be filed along with the return. It was furthermore submitted that the entire liability of tax was covered by TDS and ultimately there was a refund due to the assessee and in such circumstances the assessee would have gained nothing in not filing the return in time. He further contended that the delay in submission of the return was thus due to reasonable causes. He would further contended that there was no deliberate defiance of law. A reliance was placed on the decision of Hon'ble Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC).
5. The learned Departmental Representative, on the other hand, supported the orders of the authorities below, and contended that the penalty under Section 271F was rightly imposed as the assessee failed to file her return of income before the expiry of relevant assessment year in spite of having total income chargeable to tax under the Act.
6. We have carefully considered the rival contentions of both the parties. We have deliberated upon the relevant provisions of law contained in that behalf. We have gone through the orders of the authorities below and the materials on record.
7. At this stage, we find it useful to set out the relevant provisions of the IT Act, 1961, The Section 271F was inserted in the Act by the Finance Act, 1997, w.e.f. 1st April, 1997 and it then stood as under:
"271F. Penalty for failure to furnish return of income--If a person who is required to furnish a return of his income as required by the proviso to Sub-section (1) of Section 139 fails to furnish such return on or before the due date, he shall be liable to pay by way of penalty, a sum of five hundred rupees."
7.1 The aforesaid Section 271F as inserted by the Finance Act, 1997, w.e.f. 1st April, 1997 was later substituted by the Finance (No. 2) Act, 1998, w.e.f. 1st April, 1999 as under :
271F. Penalty for failure to furnish return of income--If a person who is required to furnish a return of his income, as required under Sub-section (1) of Section 139, fails to furnish such return before the end of the relevant assessment year, he shall be liable to pay, by way of penalty, a sum of one thousand rupees.
Provided that a person who is required to furnish a return of his income, as required by the proviso to Sub-section (1) of Section 139, fails to furnish such return on or before the due date he shall be liable to pay, by way of penalty, a sum of five hundred rupees.
7.2 The amount of penalty of a sum of one thousand rupees and a sum of five hundred rupees as provided for failure to furnish return of income as required under Sub-section (1) of Section 139 or as required by the proviso to Sub-section (1) of Section 139 before the end of the relevant assessment year or before the end of due date respectively has been increased to a sum of five thousand rupees by the Finance Act, 2001, w.e.f. 1st June, 2001.
7.3 The Section 271F is now re-worded w.e.f. 1st June, 2002 as under :
"271F. If a person who is required to furnish a return of his income, as required under Sub-section (1) of Section 139 or by the proviso to that sub-section, failed to furnish such return before the end of the relevant assessment year, the AO may direct that such person shall pay, by way of penalty, a sum of five thousand rupees."
8. Looking to the amendments made in Section 271F from time-to-time it will be seen that initially w.e.f. 1st April, 1997, a uniform penalty of a sum of five hundred rupees was provided under Section 271F for failure to furnish return on or before the due date as required by the proviso to Section 139(1). In other words, in Section 271F as inserted initially w.e.f. 1st April, 1997 a penalty of five hundred rupees was prescribed for failure to furnish return of income by those persons who come in the category of what is known as one out of six conditions as enumerated in the proviso to Sub-section (1) of Section 139. The scope and effect of Section 271F was extended w.e.f. 1st April, 1999 also to those persons who were required to file their return of income under Sub-section (1) of Section 139 i.e., whose total income exceeds maximum amount not chargeable to tax, and fail to file the same before the end. of the relevant assessment year. The amount of penalty in such cases was prescribed at a uniform amount of one thousand rupees. Again, in view of the substituted Section 271F w.e.f. 1st June, 2001, failure to furnish return of income as required under Sub-section (1) of Section 139, before the end of the relevant assessment year or failure to furnish return on or before the due date as specified by proviso to Section 139(1) shall attract a uniform penalty of five thousand rupees in place of then existing penalty of one thousand rupees and five hundred rupees respectively. The outer limit of time for filing return of income so as to attract the provisions of Section 271F was separately provided for the two categories of persons i.e. persons required to file return under Section 139(1) and the persons required to file return under proviso to Section 139(1). But, by the amendment effective from 1st June, 2002 a uniform dead line of default in filing of the return is made, i.e. failure to furnish return of income, as required under Section 139(1) or by the proviso to Section 139(1), before the end of the relevant assessment year.
9. A critical analysis of Section 271F shows that a uniform penalty is prescribed for the defaults specified therein irrespective of the amount of total income and tax payable thereon is involved in the given case. It is also pertinent to note that penalty is not leviable under Section 271F, if the assessee proves that there was reasonable cause for such failure as provided in Section 273B of the Act. Section 273B reads as under :
"273B. Notwithstanding anything contained in the provisions of (Clause (b) of Sub-section (1) of) (Section 271, Section 271A, (Section 271AA), Section 271B (Section 271BA) (Section 271BB) Section 271C, Section 271D, Section 271E (Section 271F (Section 271G), Clause (c) or Clause (d) of Sub-section (1) or Sub-section (2) of Section 272A, Sub-section (1) of Section 272AA) or (Section 272B or (Sub-section (1) of Section 272BB or) (Sub-section (1) of Section 272BBB or) Clause (b) of Sub-section (1) or Clause (b) or Clause (c) of Sub-section (2) of Section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure)".
10. On conjoint reading of Section 271F and Section 273B there remains no scope of any doubt that it is not mandatory under Section 271F that a penalty must be imposed in every case if the conditions laid down in the said section are established. Section 273B (starts with) a "non-obstante clause" which makes exception from the general provision of Section 271F. Section 273B beginning with the expression "notwithstanding anything contained in the provisions of ....." has overriding effect over the provisions of sections specified therein. It, therefore, goes to show that no penalty under Section 271F shall be imposable on the person or the assessee for any failure referred to in Section 271F if he proves that there was reasonable cause for the said failure. In other words, penalty under Section 271F is imposable only in the event the assessee fails to prove that there was reasonable cause for the said failure. It is, therefore, bounden duty of the AO to give due opportunity to the assessee to prove that there was reasonable cause for the failure and then to consider and appreciate in a judicious manner the explanation, if any, filed by the assessee before imposing any penalty under Section 271F. However, the burden to prove that there was reasonable cause for the failure specified in Section 271F lies on the assessee as would be clear from the language used in Section 271F and 273B.
11. Having said so that no penalty is imposable under Section 271F if the assessee proves that there was reasonable cause for the failure specified in Section 271F, it is now desirable to find out the meaning of "reasonable cause" having regard to the context in which it is used.
12. What would constitute reasonable cause cannot be laid down with precision. It would depend upon the factual background. Reasonable cause, as applied to human action, is that which would constrain a person of average intelligence and ordinary prudence. The word 'reasonable' has in law the prima facie meaning of reasonable with regard to those circumstances of which the actor, called on to act reasonably, knows or ought to know. Reasonable cause can be reasonably said to be a cause which prevents a man of average intelligence and ordinary prudence, acting under normal circumstances, without negligence or inaction or lack of bona fide. What can be construed as a reasonable cause is to be decided on the available facts of each and very case in a judicious manner. The decision on the matter should be taken by giving sufficient attention to particular facts of the case. It is to be looked from the view point of a man of average intelligence and ordinary prudence. It should also be borne in mind, that the law itself spells out the circumstances in which penalty can be levied by providing for reasonable cause for avoiding penalty. In other words, to decide what can be construed as a reasonable cause for avoiding penalty one has to keep in mind that the law itself requires that the default should have occurred without reasonable cause to merit penalty and that the issue must be decided on the available facts and the nature of default in a judicious manner. Before a cause can be said to be reasonable or not, it must be found as a fact that a particular cause operated upon the mind of the assessee which prevented him from doing the required act under normal circumstances. It is true that the word "reasonable cause" is not defined under the IT Act but it could receive same meaning and interpretation which is given to the expression "sufficient cause". Therefore, in the context of the penalty provisions including the provisions of Section 271F, the word "reasonable cause" would mean a cause which prevents a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides, from doing the act of which he, called on to act reasonably, knows or ought to know.
12A. Now, we have to see whether cause pleaded by the assessee in the present case would constitute reasonable cause for the purpose of avoiding penalty imposable under Section 271F, To find out an answer to this question, one has also to take into consideration the intent and purpose of inserting Section 271F in the Act and the nature of penalty provided thereunder. As already observed above herein, new Section 271F was inserted by the Finance Act, 1997 providing for levy of penalty for failure to furnish return of income within due date only on those persons or assessee's who were covered by the first proviso to Section 139(1), i.e. persons who come in the category of what is known as one out of six conditions. No such penalty under Section 271F as inserted w.e.f. 1st April, 1997 was provided for failure to furnish return of income as required under main Section 139(1). Subsequently, by the Finance (No. 2) Act, 1998, a new Section 271F has been substituted w.e.f. 1st April, 1999 in place of the then existing Section 271F so as to provide also for penalty for failure to furnish return of income as required under main Sub-section (1) of Section 139. The scope and effect of the so substituted Section 271F w.e.f. 1st April, 1999 has been given in the following portion of the Departmental Circular No. 772, dt. 23rd Dec., 1998, as under :
"63 Provision of penalty for non-filing of returns of income.--63.1 Under the existing provisions, no penalty is provided for failure to file return of income under Sub-section (1) of Section 139 (Section 271F provides for penalty of Rs. 500 only in case of failure to file return under the proviso to Sub-section (1) of Section 139). The, interest chargeable under Section 234A of the IT Act for not furnishing the return or furnishing the same after the due date is calculated on the basis of the tax payable. If no taxes are payable, no interest can be charged. It is seen that a large number of persons having salary income which are subject to deduction of tax at source do not file their returns. Since the Finance (No. 2) Act, 1998, has amended Section 192(23) of the IT Act to provide that loss from house property shall be allowed to be adjusted against salary income at the source, filing of returns has become absolutely necessary to find out that the claim of set off of loss is being correctly made. The penal provisions are also necessary to ensure that all such persons having taxable income file their returns of income.
63.2 Therefore, Section 271F has been amended to provide for a penalty of Rs. 1,000 for not filing of return under Sub-section (1) of Section 139 before the end of the relevant assessment year.
63.3 This amendment will take effect from 1st April, 1999, and will accordingly, apply in relation to the asst. yr. 1999-2000 and subsequent years (Section 61)".
13. In view of the main Section 271F of the Act as substituted w.e.f. 1st April, 1999, the position is beyond any doubt that the legislature has provided the penalty for failure to furnish return of income as required under main Section 139(1) if such failure extends beyond the end of the relevant assessment year. In other words, if there is a failure to furnish return of income within due date as required under main Section 139(1) but such failure does not continue beyond the end of the relevant assessment year, then no penalty under Section 271F would be imposable, Mere failure to furnish return within due date as required under Section 139(1) is not sufficient to warrant penalty provided under Section 271F but it is imposable only when the default continues even after the end of the relevant assessment year. The imposition of penalty is confined to the default in not furnishing the return as required under Section 139(1) before the end of the relevant assessment year. It is, therefore, clear that the default enumerated in Section 271F commences immediately by the end of the relevant assessment year and it also comes to an end with the end of the relevant assessment year. The default referred to in Section 271F is not construed to be a continuing default. Even one day delay in filing the return after the end of the relevant assessment year is made sufficient to attract the provisions of Section 271F of the Act. No provision has been made for marginal relief. In other words, what is significant is that an assessee having marginal delay in furnishing the return after the end of the relevant assessment year and an assessee having inordinate delay in furnishing the return after the end of the assessment year are made liable for the same penalty of rupees five thousand imposable under Section 271F. Having regard to the scheme of the penalty provided under Section 271F we may say that such a situation should be taken care of by the expression "reasonable cause" before imposing any penalty under Section 271F so that the case of an assessee filing return immediately after the end of the relevant assessment year or within few days thereafter is to be considered liberally as compared to the case of inordinate delay in filing the return even after the end of the relevant assessment year unless circumstances of a particular case warrants otherwise.
14. Further a critical analysis of Section 271F prescribing a fixed sum as penalty reveals that the assessees having no tax liability or having tax liability of say rupees two to five thousand and the assessees having the tax liability in lakhs are also made liable for the same penalty of Rs. 5,000. The matter needs judicious attention where a person due to having income exceeding maximum amount not liable to tax, is required to file return but does not have any amount of tax payable because of tax rebates admissible under the Act and if such person fails to file return before the end of the relevant assessment year but files the same within the time allowed under Section 139(4) of the Act, then, under such circumstances, he shall also be made liable for the same penalty of Rs. 5,000 under Section 271F as he fails to furnish return required under Section 139(1) before the end of the relevant assessment year. In the same manner, the assesses though having tax liability after adjustments of rebates admissible under the Act, has no further tax payable by reason of the fact that the tax liability is fully covered by way of advance tax paid or tax deducted or collected at source would also be made liable for the same penalty of Rs. 5,000. Similar situation is also with those assessees required to file return under one-by-six scheme as provided under proviso to Section 139(1) but do not have any taxable income or otherwise have no tax payable. There may be some other cases of similar nature where ultimately the Department is not deprived from its revenue collectible under the Act.
15. A decision not to file return within due date or before the end of the relevant assessment year may be taken by the assessee for the reason of there being no tax payable by him due to tax rebates admissible under the Act or there being no further tax payable by him after adjustment of advance-tax paid or tax deducted or collected at source. When a decision not to file or not to file within required time is taken by the assessee, it may be for a reasonable cause or without any reasonable cause. The case of the assessee who has failed to file a return within required time on the bona fide belief that he is not required to file such a return within required time because of there being no tax payable as a result of tax rebates admissible under the Act or there being no further tax payable after adjustment of advance tax and tax deducted or collected at source, may be treated as for a reasonable cause unless otherwise to the contrary is brought on record. The case of such assessee may be distinguished from that of an assessee who was certain about his obligation to file his return and was having tax payable by him even after adjustment of tax rebates admissible under the Act or of advance tax paid or tax deducted or collected at source but yet has not filed the return or paid the tax within required time and unless some other reasonable cause is shown, it may be treated as being without reasonable cause. However smallness of tax payable by the assessee would also be another factor to be considered liberally before imposing penalty under Section 271F. Further, failure to file return when no notice under Section 142(1) or 148 is issued may also be distinguished from failure to file return after a notice to file return is served upon him.
16. Thus when a reasonable man of ordinary prudence acting under normal circumstances has in his mind a belief that he is not required to file return within required time because of the fact that there being no amount of tax payable by him after the adjustment of tax rebates admissible under the Act or of advance tax paid or tax deducted or collected at source and thus fails to file the return within required time, the case of this assessee would be treated as for a reasonable cause unless his belief is otherwise found false, fabricated and not bona fide. The particular cause operated upon the mind of the assessee of ordinary prudence and thus prevented him from filing the return within required time is to be examined or considered not arbitrarily but judicially in order to decide whether the cause shown can be said to be reasonable or not. The cause shown must be considered from the view point of a reasonable man of ordinary prudence acting under normal circumstances, without negligence or inaction or want of bona fides. There is no scope of any doubt that the assessee has to prove the existence of a reasonable cause by preponderance of probabilities as in a civil case and not necessarily by proof beyond reasonable doubt. An order of penalty under Section 271F cannot be passed without considering objectively the explanation of the assessee. When the assessee shows that the cause was reasonable, the burden will shift to the Department to prove that it was not a reasonable one so as to justify the assessee's failure to file return within required time. The matter is to be decided judicially on a consideration of all the relevant circumstances. If a question arises to the Department as to whether the cause shown by the assessee is reasonable or not while exercising its discretion to impose penalty under Section 271F and two alternative meanings are given to the cause shown, one should lean in favour of the subject as it is by now settled that if two possible and reasonable constructions can be put upon a penal provision, the Court must lean towards that construction which exempts the subject from penalty rather than the one which imposes penalty.
17. Keeping in view the above proposition, we now turn to the factual matrix of the case. In the case on hand, the return of income for the asst. yr. 2000-01 was filed on 20th March, 2002, i.e. after the end of the relevant assessment year, showing total income at Rs. 89,980, which is undoubtedly in excess of maximum amount not liable to tax. The assessee was required to file her return of income under main Sub-section (1) of Section 139. The total tax liability payable by the assessee was determined at Rs. 2,820. The tax deducted at source or tax collectible at source was of Rs. 6,875 and was accordingly given credit. An amount of Rs. 4,055 was ultimately found to be refundable to the assessee. An amount of Rs. 395 was also allowed as interest payable to the assessee making total refundable amount at Rs. 4,450. The computation of income shown by the assessee has not been found to be false and non-bona fide. The claim of any deduction claimed by the assessee in the return of income has also not been found to be false, baseless and non-genuine. The Department had every chance to examine and verify the claim, if any, made by the assessee in the return of income. There was no loss to the Revenue as no tax was found due from the assessee after taking into account the amount of TDS. Rather, some amount was found refundable to the assessee. The assessee stood nothing to gain by filing return of income on 20th March, 2002, i.e., after the end of the relevant assessment year in view of the amount of tax ultimately found refundable to the assessee. Instead, the assessee has made herself deprived from receiving interest under Section 244A for the period immediately after the expiry of the due date of filing the return prescribed under Section 139(1) till the month of filing the return as there is no interest allowable for the period of delay attributable to the assessee as stated in Sub-section (2) of Section 244A. These facts only show that the belief of the assessee that she was not required to file the return before the end of the relevant assessment year because of the reason that the entire liability of tax payable on total income was covered by TDS amount and ultimately there was a refund due to the assessee, is a bona fide one. Such bona fide belief is to be treated as reasonable cause for not furnishing the return before the end of the assessment year. That being the position and on a careful consideration of the facts and circumstances of the case, we are of the considered view that the penalty sustained by the CIT(A) has to be cancelled.
18. The other contention of the assessee that in case it is concluded by the Tribunal that the levy of penalty under Section 271F was justified, the levy of penalty is to be restricted to a sum of one thousand rupees as against a sum of five thousand rupees imposed by the AO in view of the provisions of law prevailing on the date of default, has now become academic in the light of our conclusion that such penalty under Section 271F was not justified. However, we proceed to deal with the said contention as the same has been raised before us and has important and material bearing on the issue involved in the present appeal.
19. As already observed above, the default as contemplated under Section 271F is not a continuing default nor it is quantified on the basis of tax ultimately determined to be payable by the assessee on completion of assessment under the provisions of IT Act. The amount of penalty prescribed under Section 271F is fixed and uniform one in all cases committing a default of a nature referred to in Section 271F. Section 271F provides for the penalty in case of a failure to file return as required under Section 139(1) before the end of the relevant assessment year. It speaks of an omission to do an act which is required by law to be performed by a person or the assessee and such omission is attracted penalty as contemplated under Section 271F. Ordinarily, a failure to perform an act required by law to be done becomes a completed act of omission as soon as when the time prescribed by law to perform such an act expires, and the liability arising therefrom gets fastened as soon as the act of omission is completed. The extent of that liability is ordinarily measured according to the law in force at the time of such completion. The default which is committed once and for all is distinguishable from the continuing default. In the present case, the failure to file the return before the end of the relevant asst. yr. 2000-01 becomes a default at the end of 31st March, 2001, and as such a liability arising therefrom fastened on the expiry of 31st March, 2001. The question of imposition of fixed penalty has arisen as soon as the assessee had failed to furnish the return required under Section 139(1) by 31st March, 2001. The theory of continuing wrong or default is not applicable to the nature of default enumerated under Section 271F of the Act. The decision of Hon'ble Supreme Court in the case of Maya Rani Punj (supra) holding that penalty is imposable on the basis of law applicable at the time when the AO decided to initiate penalty proceedings is not applicable to the present case of penalty imposable under Section 27IF inasmuch as that decision was rendered in the context of continuing default as prescribed under then Section 271(1)(a) of the IT Act. It is also pertinent to note that the question of imposition of penalty under then Section 271(1)(a) had arisen only after assessment of tax was made and the legislature intended to deem the non-filing of the return to be a continuing default as would be clear from the language used in Section 271(1)(a) and as observed by Hon'ble Supreme Court in the aforesaid case of Smt. Maya Rani Punj (supra). The language used in the present Section 271F is quite different from that of then Section 271(1)(a). The ratio laid down by Hon'ble Supreme Court in the said case of Smt. Maya Rani Punj (supra) rather supports the case of present assessee in the light of distinction between present Section 271F and then Section 271(1)(a).
20. For the aforesaid reasons we, therefore, hold that levy of penalty under present Section 271F is to be imposed as per law prevailing on the date of default.
21. In the ultimate analysis, the order imposing penalty of Rs. 5,000 under Section 271F on the present assessee is cancelled.
22. In the result, the appeal filed by the assessee stands allowed.