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M/s bharat furnishing co. vS. commissioner of income tax and anr
August, 25th 2014

                                  Date of decision: 12th August, 2014

+                        ITA 34/2002

M/S BHARAT FURNISHING CO.                        ..... Appellant
             Through     Mr. Sanjeev Ralli and Mr. Aayush
             Juneja, Advocates.


            Through  Mr. Sanjay Kumar, Jr. Standing



      This appeal, by the assessee, impugns imposition of penalty,

under section 271(1)(a) of the Income Tax Act,1961 ( Act, for short),

for late filing of return in relation to assessment year 1984-85. By

order dated 17th September, 2002, the following substantial question of

law was framed:-

          "Whether the Income-tax Appellate Tribunal was
          justified in law in holding that there was no
          reasonable cause for delay in filing the return by
          the assessee for the assessment year 1984-85 and,
          therefore, penalty under Section 271(1)(a) of the
ITA 34/2002                                           Page 1 of 10
           Income-tax Act, 1961 was leviable for the entire
           period of delay?"

2.      The appellant-assessee, a partnership firm, was a government

contractor during the relevant period. Return for the assessment year

1984-85 was due and should have been filed on or before 31st July,

1984.    It was belatedly filed after 23 months on 2nd July, 1986,

declaring taxable income of Rs. 3,91,440/-. Self assessment tax of

Rs.89,940/- due was paid at the time of filing the return, after taking

credit of tax deducted at source of Rs.42,095/-. The computation sheet

shows that there were three partners of the appellant firm and the

taxable income of Rs. 3,01,500/-was divided amongst the three

partners in the ratio of 30% (Rs.90,450/-), 35%      (Rs.1,05,525/-) and

35% ( Rs.1,05,525/-).

3.      The Assessing Officer by order dated 26th March, 1990, imposed

penalty of Rs.1,34,228/- for this delay of 23 months, computed @ 2%

per month for the period of delay. Commissioner of Income Tax

(Appeals) affirmed, observing that the assessee had not been able to

justify the delay in filing of the return. He observed that the return for

the last year i.e. assessment year 1983-84 was also filed belatedly in

November, 1985.       Being a "class A" government contractor, the

appellant-assessee was required by law to maintain books of accounts

ITA 34/2002                                           Page 2 of 10
on day-to-day basis and the prolonged delay of nearly 2 years could

not be explained in a casual manner.

4.    The appellant-assessee filed an appeal before the Income Tax

Appellate Tribunal (Tribunal, for short), which has been dismissed by

the impugned order dated 8th June, 2001. Before the Tribunal, the

assessee had placed reliance on judgment of the Supreme Court in

Hindustan Steel Limited Vs. State of Orissa, (1972) 83 ITR 26 (SC).

Tribunal rejected the contention that the return for the earlier

assessment year 1983-84 was revised and as a result of the revision, the

income of the assessment year        1984-85 underwent a change. It was

held that this could not be established.         Further, the appellant-

assessee's submission that they were in a dilemma and that there were

sufficient reasons to explain the delay in filing the return after a period

of 23 months, cannot be accepted. The assessee had not filed Form

No.6 seeking extension of time nor had they justified and satisfactorily

explained the cause for the delay.

5.    Learned counsel appearing for the appellant-assessee submits

that the facts have not been properly understood and appreciated by the

Tribunal.     He states that the appellant-assessee was in fact in a

dilemma and did not know how to treat and claim the amount received

from the DDA. He accepts that Rs.2,93,004.13 was received from the

DDA on account of the Asian Games Project in the present assessment
ITA 34/2002                                            Page 3 of 10
year i.e. 1984-85 and not in the assessment year 1983-84, but states

that the revised return for assessment year 1983-84 was filed on 1st

November, 1985 taking into account the losses suffered in the Asian

Games Project and net loss of Rs.9,35,200/- was declared in the said

return. The original return for assessment year 1983-84 was filed on

29th October, 1984, declaring positive income of Rs.72,995/-. He has

drawn our attention to a chart enclosed as Annexure A-4 and states that

in case income/receipt of Rs.2,93,004/- stands excluded from the

returned income of Rs.3,91,440/-, the net taxable income would be

Rs.98,436/-, on which tax of Rs.11,155/- was payable by the

partnership firm, whereas the tax deducted at source was more i.e.

Rs.42,095/-. If income of Rs.98,436/- had been declared, Rs.30,940/-

would be refundable. The appellant-assessee, therefore, had established

and proved a just and sufficient cause and reason for the delay in filing

the return, if not for the whole period, but upto 1st November, 1985.

6.    We have considered the said contention and also examined the

reasons given by the Assessing Officer, reply given by the appellant-

assessee to the notice under Section 271(1)(a) (Annexure A-5) and the

findings recorded by the Tribunal. It is noticeable that the original

return for the assessment year 1983-84 was filed on 29th October, 1984,

declaring positive income of Rs.72,995/-. This return was slightly

belated, but was in fact filed. Thus, the submission that the appellant-
ITA 34/2002                                          Page 4 of 10
assessee was debating or in dilemma cannot be accepted without

reference to other circumstances. Subsequently, revised return for the

assessment year 1983-84 dated 1st November, 1985 declaring loss of

Rs.9,35,200/- was filed. However, the return for the assessment year

1984-85, which was due and should have been filed by 31 st July, 1984,

was filed only on 2nd July, 1986. This is about 9 months after the

revised return for the assessment year 1983-84 was filed. This creates

doubt on whether or not the revision of return for the assessment year

1983-84 had any connection and bearing with the belated return for the

assessment year 1984-85. In reply to the notice under Section 274 read

with Section 271(1)(a), the appellant-assessee firm had stated that they

had completed the Asian Game Project in the assessment year 1983-84

and had incurred all expenses, but the full amount was not paid by the

DDA. It was also stated that right from the inception, the appellant-

assessee had adopted and followed receipt or cash system of

accounting. As the appellant did not receive payment from the DDA,

they had revised the return for the assessment year 1983-84, declaring

loss of Rs.9,35,200/-. This would certainly be the reason and cause for

revising the return for the assessment year 1983-84, but cannot justify

the delay in filling return for the assessment year 1984-85 i.e period

ending 31st March, 1984. As per the said reply, the appellant-assessee

accept and admit that they had received payment of Rs.2,93,004.13/-
ITA 34/2002                                         Page 5 of 10
from the DDA in the assessment year in question. Thus, as per the

system and method of accounting followed by the appellant-assessee,

this amount had to be included as income for the assessment year

1984-85. Therefore, the submission that dilemma or lack of clarity was

the reason, for not filling in time the return for assessment year 1984-

85, has not been substantiated and established. Assuming that the

appellant-assessee was in doubt, still return of income for the

assessment year 1984-85 could have been filed on time and then if

required, revised. This was done in the assessment year 1983-84.

Argument of the appellant-assessee that they were in dilemma on how

to compute the income of the assessment year 1984-85, does not

explain the return filed for the assessment year 1983-84 on 29th

October, 1984. If the return for the assessment year 1983-84 could

have been filed, though the assessee claims that they were not sure how

to treat the loss as they had not received payment from the DDA, the

return for the assessment year 1984-85 could have been surely and

certainly filed. This reason/cause had not prevented the appellant-

assessee from filing the return for the assessment year 1983-84. We,

therefore, are not inclined to accept the aforesaid reasons as a valid

cause and acceptable justification for filling return for assessment year

1984-85, after a delay of 23 months.

7.    Contention of the appellant-assessee that if the receipt of
ITA 34/2002                                          Page 6 of 10
Rs.2,93,004.13 stands excluded, refund was due, is again an argument

based on assumption. It is accepted that payment of Rs 2,93,004.13

was received during the assessment year in question.               Clearly,

therefore, it was an amount which had to be included in the return of

income as a receipt, as the appellant-assessee was following

receipt/cash basis for computing their income.      If we include this

amount of Rs 2,93,004.13, the appellant was liable to pay self-

assessment tax of Rs.89,940/-, being the short-fall or deficient payment

after taking into consideration TDS of Rs.42,095/-. We also do not

know whether the TDS amount of Rs.42,095/- includes the TDS,

which was deducted on Rs. 2,93,004.13 received from the DDA.

8.    Learned counsel for the appellant-assessee has relied upon

decision of this Court in Shyam Gopal Charitable Trust Vs. Director

of Income Tax (Exemption), [2007] 290 ITR 99 (Delhi). This was a

case relating to Section 272A. It was held that there was violation of

principles of natural justice as the notice for penalty under Section

272A(2)(e) of the Act was required to be issued and served on the

assessee to enable him to defend the proceeding as imposition of

penalty had adverse civil consequences. The assessee had to be given

an opportunity and chance to explain why the penalty should be either

waived or should not be imposed. Thereafter, the Division Bench

observed that the assessee had given an explanation, which was a
ITA 34/2002                                         Page 7 of 10
plausible one. Reference was made to the decision of the Kerala High

Court in State of Kerala Vs. Krishan Kurup Madhava Kurup, 1971

AIR Ker 211, which was approved and extracted by the Supreme Court

in Concord of India Insurance Co. Ltd. Vs. Smt. Nirmala Devi,

[1979] 118 ITR 507 to observe that legal advice sometimes might be

wrong and on pronouncements on questions of law, human errors can

take place and the courts must be careful when they examine the

question of competence or merits of the legal advice to rule out and

segregate cases which do not have any taint of mala fides or element of

recklessness or ruse. In the said case, the penalty imposed was set


9.       In the facts of the present case, we do not find that the appellant-

assessee in the course of the reply had stated that they had taken legal

advice, and could not ascertain and compute their income and therefore

could not file their return for assessment year 1984-85. No details

regarding said legal advice including the name of person, who had

rendered the same, was stated and brought on record. The appellant-

assessee in their reply to the notice for penalty had referred to the

return for the assessment year 1983-84 and the fact that the original

return was filed taking into account payment received from DDA.

However, this cannot be a ground for not filing the return for the

assessment year 1984-85, specially, when we notice that the return for
ITA 34/2002                                              Page 8 of 10
the assessment year 1983-84 was originally filed on 29th October, 1984

and the revised return was filed on 1st November, 1985. However, the

return for the assessment year 1984-85 was filed on 2nd July, 1986.

The appellant-assessee had the opportunity to file Form No.6, which

was applicable and could have given reasons for delay and belated

filing of the return. The return could have been initially filed and then

revised. For claiming loss, it was necessary for an assessee to file

original return within the stipulated time.       It is apparent that the

assessee by not filing the return did not want benefit of carry forward

of loss.

10.    Supreme Court in the case of Gujarat Travancore Agency Vs.

C.I.T (1989) 177 ITR 455 has held that question of mens rea does not

arise or require consideration when we examine the question of penalty

under Section 271 (1)(a) of the Act. Penalty is a civil liability and is

imposed upon infraction of law when conditions stipulated in the

provision are satisfied. Mens rea is not an requirement to impose

penalty under Section 271(1)(a) of the Act. As far as the factum that

the return was delayed, the same is accepted and is not in dispute.

Justification and cause for the delay is the issue in dispute.

11.    Decisions in the case of Commissioner of Income Tax Vs.

Kanubhai Muljibhai Patel, [2008] 306 ITR 179 (Guj) and Viswam

and Company Vs. Commissioner of Income Tax, [1993] 201 ITR 291
ITA 34/2002                                            Page 9 of 10
are distinguishable. In Viswam and Company (supra), the assessee had

sought reference before the High Court and penalty was imposed for a

period of one month only. The Tribunal had deleted the penalty for the

other period. High Court did not interfere and the reference filed by

the assessee was answered against him. In Kanubhai Muljibhai Patel

(supra), penalty for part period was deleted observing that there was a

decision of the Bombay High Court in favour of the assessee and

thereupon the assessee had entertained a bonafide belief that the return

need not be filed. The said case proceeds on its own facts. Facts of the

present case and excuse given by the appellant has been noticed above

and rejected.

12.   In view of the aforesaid, the question of law is answered against

the appellant-assessee and in favour of the respondent-Revenue. We

do not find any ground to interfere with the decision of the Tribunal for

the reasons stated above. The appeal is dismissed. No costs.

                                             SANJIV KHANNA, J.

                                       V. KAMESWAR RAO, J.
AUGUST 12, 2014

ITA 34/2002                                          Page 10 of 10
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