ORDER
S. Grover, Judicial Member
1. In this second appeal, confirmation of penalty of Rs. 1,85,598 by the Commissioner (Appeals), Meerut, which was levied under Section 271(1)(a) of the Income-tax Act, 1961 (‘the Act’) for late filing of return by four months, in respect of the assessment year 1981-82 is contested.
2. The previous year, being the financial year, ending 31-3-1981, the assessee, a firm of seven partners, was required to file its voluntary return under Section 139(1) of the Act on or before 31-7-1981. On 30-7-1981 an extension application in prescribed Form No. 6 was submitted stating that the ‘books of account are under audit’. The request was accepted and time allowed up to 31-8-1981. On 30-8-1981, a fresh extension request was made and the same reason was given as earlier. The ITO communicated rejection on 12-9-1981. The assessee reacting filed third extension application repeating the reasons for the request. This application also came to be rejected. On 31-10-1981, a fourth extension application was submitted, the reason stated being ‘books of account under compilation’ and for the third time, the ITO rejected such request, the assessee was informed on 11-11-1981. Fifth request followed on 30-11-1981 stating that the ‘books of account are under compilation’. On 15-12-1981, the assessee was intimated the rejection order made on 30-11-1981 itself. The return was submitted on 31-12-1981.
3. At this stage, it must be stated that the ITO did not issue any notice under Section 142(1) of the Act requiring the assessee to produce books of account for verification.
4. The ITO after brushing aside the assessee’s resistence levied the impugned penalty vide order dated 28-3-1984.
5. The penalty order starts with a statement that the assessee is a firm of seven partners deriving income from supply of country liquor and runs a distillary by the name of ‘The Co-operative Co. (P.) Ltd.’ for which there is an agreement dated 16-1-1973. In paragraphs 4 and 5, the ITO gave details of the assessee’s repeated submissions as also the facts of there being extension applications having been filed on 30-7-1981, 31-8-1981, 1-10-1981,2-11-1981 and 1-12-1981. As per the ITO’s own version, the substance of the assessee’s contention was that the accounts were under audit and the extension was repeatedly requested on various occasions. The ITO further stated that though the assessee is a firm and its accounts were not to be audited, it was also a fact that bulk of its business was carried on by the co-operative company which was a public limited concern and whose accounts were statutorily to be audited. From there, the ITO proceeded to observe that the assessee’s attitude appeared to be that filing of extension request exonerated it of all defaults of late filing and there appeared to be neither good nor sufficient reasons for seeking extension. By further observing that at no stage, any explanation was offered as to why the accounts of the public limited concern could not be audited in time and for the default in the case of the limited concern, the assessee did not possibly get any benefit, he held that the assessee had without reasonable cause failed to furnish its return within the time even after noting the contention for the assessee that a limited company gets six months to finalise its audit.
6. The learned Commissioner (Appeals) in his order dated 20-7-1984, which is brought in appeal stated that the reasons given by the assessee in its extension requests that the books of account were under audit, was incorrect and it made no difference that the income earned by the assessee ‘accrued out of running the distillary which was owned by co-operative company’.
7. There seems to be some confusion in the Commissioner (Appeals)’s order inasmuch as he observed that no doubt that the books of the company were to be statutorily audited but delay in that matter could not absolve the assessee of its responsibility for filing its timely return.
8. Another impression on the mind of the Commissioner (Appeals) was that the assessee was filing frivolous applications for extension of time for filing its return and that shifting stand was being taken inasmuch as initially the assessee stated that the accounts were under audit but in the last two applications, reason given was that statement of accounts were under compilation. By holding that on the facts and in view of the assessee’s pleading it was clear that the delay occurred because of callous disregard for statutory provisions as even when the audit of the company had been completed in September 1981, the return was filed only on 31-12-1981, and further that bald submissions regarding the books being not complete, not constituting reasonable cause, the levy of penalty came to be confirmed.
9. Shri O.P. Sapra, advocate, after narrating the facts submitted that in view of filing of extension requests and the reasons stated therein, coupled with the fact that the ITO himself accepted in so many words that the primary business of the assessee and its income was derived from running of the distillary owned by the limited company the fact of non-completion of accounts, which was accepted by the auditors in writing, showed that the assessee was being prevented by a reasonable cause from filing its return. Very effectively referring us to the reasons given in the extension applications, he pleaded that the assessee’s stand was consistent with the facts inasmuch as up to 31-8-1981, the cause given was non-auditing of accounts which in relation to the accepted facts necessarily meant the books of the company and in the last applications, the cause stated was the compilation of the accounts and the books of the firm in which, the necessary entries had to be incorporated, which caused further delay. He greatly emphasised that it is not even alleged that the books of account were incomplete and the profits computed on the basis of which the assessee should have filed return. He contended that the approach of the lower income-tax authorities was wrong insofar as they adopted the attitude that non-auditing of the company’s accounts constituted no reason at all in the hands of the assessee.
10. We were referred to the agreement between the assessee and the company dated 16-1-1973 as also the amended agreement of 5-1-1974. Very strongly relying on the clauses of the agreement, it was argued that when it is an accepted position that the assessee was looking after the affairs of limited company and further when the return depended on the computation of income of the limited concern, non-auditing of accounts in the company’s case constituted good and reasonable cause in the assessee’s hand. It is considered expedient to notice here Clauses 5 and 6 of the agreement of 5-1-1974 to show that the assessee which is a second party of the agreement had all the responsibility of running the business of the limited company which was first party :
5. That the 2nd party shall look into the business of the 1st party for the benefit of the 1st party along with the officials of the 1st party either themselves or through their authorised persons.
6. That all tenders, etc., shall be solely in the name of the 1st party and shall be signed by the. 1st party as and when so desired by the 2nd party.
Referring us to the previous year in the company’s case, which was also 31-3-1981, the point made out by him was that audit could be completed up to September 1981 and necessarily for filing return some further time was necessary and if under those circumstances, the return was filed on 31-12-1981, the assessee could not be said to be without reasonable cause particularly so when the necessary information in this regard continued to be filed and extension requested from time to time right up to December, itself.
11. Shri Sapra also referred us to several judicial pronouncements particularly the judgment of the Hon’ble Gujarat High Court in the case of CIT v. C. Shantilal & Co. [1983] 141 ITR 476, in which it has been held that penalty for failure to furnish returns within time can be imposed only if it is shown that the assessec had either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest or acted in conscious disregard of his obligation.
12. We were addressed alternative submission to reduce the period of default on various grounds inasmuch as it was submitted that if six months’ statutory period for auditing of the company’s accounts was to be accepted and further sufficient time allowed for filing return the default even in the absence of any extension request could not be more than one month.
13. For the revenue Shri B.K. Haldar, persistently read out the ITO’s and the Commissioner (Appeals)’s orders and submitted that extension request unless accepted by the ITO had no meaning and when the assessee was intimated repeated rejections, it was duty bound to file its return.
14. We have given the sequence of events with a purpose to show that under no circumstances, the assessee could be said to be oblivious or negligent of its responsibility of furnishing the return. The ITO was aware of the sources of income of the assessee and, therefore, he was wholly wrong even to suggest that reason given in the assessee’s extension request that the books were under audit could not be understood.
15. Though the assessee had made more than one submission, the impression sought to be created from the penalty order was that not only the return was filed late but show-cause notices were also sought to be avoided which is factually wrong position. Before the Commissioner (Appeals), not only the replies filed before the ITO were sought to be brought in close focus but the assessee’s auditor stated that the books of account of the co-operative company from where the firm earned profit were under audit till September 1981 and after that compilation of accounts took further time which caused delay in filing of the assessee’s return till December 1981. Such submission was made in writing by M.S. Chug & Co., chartered accountants of Saharanpur vide communication dated 2-7-1984/12-7-1984 photocopy of which has been filed before us.
16. We find the Commissioner (Appeals)’s inference that the assessee made unreasonable extension request and no plausible reason was given and further that the delay occurred because of callous disregard of the provisions of law, as not correct. On the contrary, we find that the assessee was prevented by strong reasonable cause from filing its return in time and its action of making timely requests for extension of time clearly projected responsible attitude. Therefore, absolving the assessee of the charge of delay in filing the return without reasonable cause as stipulated under Section 271(1)(a) we vacate the penalty.
17. Independent of the above, it was stated before us that interest under Section 139(8) was levied for late filing of the return for a period of four months. It was very substantial considering the assessee’s income which amounted to Rs. 38,99,159 against the returned income of Rs. 38,79,170. The figures also show that the assessee’s version of income came to be accepted without any significant modification, again indicating the attitude of the taxpayer, vis-a-vis his tax responsibilities. Such factual position was accepted by the revenue. Though Shri Sapra pleaded that levy of interest itself gave rise to presumption that extension was allowed but we do not consider it necessary to go into this legal proposition because of the view which has been taken above. Similar is the position with regard to the judicial authorities, cited for the assessee as also for the revenue.
18. In the result, the appeal is allowed.