COMMISSIONER OF INCOME TAX Vs. SOORAJMULL NAGARMULL

JUDGEMENT

(1.) In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1963-64, the following questions of law have been referred to this court :

(2.) Shortly stated, the facts are that for the year under reference, the assessee was required to file its return of income on or before May 18, 1963, in terms of the notice issued under Section 139(2) of the Act served on the assessee on April 18, 1963. The return was, however, actually filed on December 19, 1966. Therefore, there was a delay of 43 months in filing the return of income. The Income-tax Officer initiated proceedings under Section 271(1)(a) of the 1961 Act and in reply to a show-cause notice issued under that section the assessee stated that the return of income could not be filed on or before the due date as (i) certain connected books of earlier years were in the custody of the Income-tax Department, and (ii) the partners were quarrelling among themselves and certain cases were pending in the High Court in this regard. The Income-tax Officer, however, was not satisfied with the explanation given by the assessee and imposed penalty of Rs. 13,34,439 under Section 271(1)(a) of the 1961 Act, vide his order dated February 7, 1970. In appeal, the Appellate Assistant Commissioner upheld the action of the Income-tax Officer imposing penalty under Section 271(1)(a) of the 1961 Act. He, however, directed the Income-tax Officer to redetermine the quantum of penalty keeping in view the result of the appellate order in the quantum appeal.

(3.) The Tribunal following its earlier order allowed the appeal of the assessee and set aside the order imposing the penalty. The Tribunal was of the view that there was no jurisdiction for the Income-tax Officer to impose the penalty under Section 271(1)(a). Penalty proceedings are quasi-criminal proceedings and penalty may not be levied merely because it is lawful to do so. The Revenue has not shown that there was any conscious disregard on the part of the assessee of the legal obligations imposed by the statute or that there was any contumacious or dishonest conduct on the part of the assessee. The Tribunal also observed that the disputes amongst the partners were real and not imaginary and were the subject-matter of protracted litigation which was at the material time still pending in the court. The Tribunal also accepted the assessee's submission that the assessee initially did not want to file an incomplete return and did so later on only under compelling circumstances that matters could not indefinitely be delayed.