ORDER
R.N. Singhal, Accountant Member
1. This appeal by the assessee is directed against the levy of penalty of Rs. 2,49,552 under Section 27l(1)(a) for delayed submission of the return.
2. Return was due on 31-7-1979 but through Form No. 6 extension was sought upto 30-9-1979. The return was actually filed on 4-8-1981. So from 1-10-1979 to 4-8-1981 delay is of 22 completed months. The assessee submitted before the Assessing Officer and the CIT(A) that the delay covered by application in Form No. 6 should be certainly excluded from the quantification of penalty. It was further submitted that the assessee faced many adverse circumstances due to failure of its pictures and from busy professional schedule as cine artiste. It was further submitted that on 24-1-1981 the assessee had suffered a major heart attack and, therefore, delay beyond 24-1-1981 should be condoned more so because within 6 1/2 months of the major heart attack the assessee had filed the return. The Assessing Officer rejected all these contentions. The CIT(A) took note of the position that time upto 30-9-1979 was sought by filing Form No. 6 on 27-7-1979 and the IAC had not rejected that application. In spite of making this observation the CIT(A) did not allow exemption from penalty even for the period of delay upto 30-9-1979 but confirmed the penalty order.
3. Before us the contentions raised before the CIT(A) are reiterated. The learned advocate submitted also that notice under Section 139(2) was served and it should be presumed that the delay in the context of Section 139(1) had been condoned by the ITO. He further submitted that at any rate the period covered by the Form No. 6 for seeking extension of time upto 30-9-1979 must not be taken into account in quantification of penalty. He further submitted that after a major heart attack the return was filed within 6 1/2 months and, therefore, last part of delay beyond the date of heart attack should not be taken into consideration in quantification of penalty. On this last aspect we specifically asked the learned advocate whether he was having any case law on the point. We were told that there was no case available for or against.
4. On the other band, the learned departmental representative took us through the detailed explanation furnished by the assessee before the CIT(A) in his letter dated 12-11-1984 and pointed out that the assesses had all along been busy with his professional work but claimed that he was prevented from filing the return. The point made out was that assessee was in a position to do work but he merely chose to attend his professional work, etc., and neglected his statutory duty of filing the return.
5. We have very carefully considered the rival submissions. We agree with the learned advocate that the delay covered by the application in Form No. 6 seeking extension of time should be excluded from the quantification of penalty. This is so because the Assessing Officer had not rejected that application and the assessee would be reasonably presuming that the extension had been granted. We agree with the departmental officers that delay beyond 30-9-1979 and upto the date of the heart attack i.e., 24-1-1981 has not been explained, and this period should be considered for quantification of penalty. We further agree on merits that beyond the date of heart attack i.e., 24-1-1981 when the return was filed on 4-8-1981 it is reasonable to allow 6 to 7 months for filing the return after the massive heart attack. However, the point is that that period of 6 1/2 months falls (chronologically) at the end of the total period of delay to be penalised. So the law point involved is whether in quantification of penalty for delay in submission of return, last part of the delay may be exempted. As already mentioned, no decision directly on the point was brought to our notice even on our specific query.
6. We have considered this aspect very very carefully. Let us first have a close look on the relevant portions of the statutory provisions. Vide Clause (a) of Sub-section (1) of Section 271 penalty is livable if the assessee “has without reasonable cause failed to furnish” the return “within the time allowed….Then the quantification as contained in Sub-clause (b) of Clause (i) of Section 271(1) is “a sum equal to two per cent of the assessed tax for every month during which the default continued.” So the charge is of unexplained delay and quantification depends upon the duration of delay.
7. Now in the case of Maya Rani Punj v. CIT [1986] 157 ITR 330 the Supreme Court has disapproved the view taken in CWT v. Suresh Seth [1981] 129 ITR 328 and has held that failure to file return in time involves a continuing default. The observations in Maya Rani Punj’s case (supra) at page 341 are as follows:
The imposition of penalty not confined to the first default but with reference to the continued default is obvious on the footing that non-compliance with the obligation of making a return is an infraction as long as the default continued. Without sanction of law, no penalty is imposable with reference to the defaulting conduct; The position that penalty is imposable not only for the first default but as long as the default continues and such penalty is to be calculated at a prescribed rate on monthly basis is indicative of the legislative intention in unmistakable terms that as long as the assessee does not comply with the requirements of law, he continues to be guilty of the infraction and exposes himself to the penalty provided by law.
8. In the context of continuing delay and quantification depending upon duration of delay some assistance may be had also from the aspect of quantification of interest under Section 220(2) for delay in payment of tax insofar as different rates of interest are prescribed for different periods. In ITO v. Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. [1975] 10l ITR 457 the Supreme Court observed that as per Section 220(2) rate prescribed was 4% per annum upto 31-3-1965 and 6% p.a. w.e.f., 1-4-1965. In that case therefore, it was held that for the period ending with 31-3-1965 interest was leviable at 4% and w.e.f. 1 -4-1965 it was leviable at 6%. Therein, the Supreme Court approved the decision of the Orissa High Court in Biswanath Ghosh v. ITO [1974] 95 ITR 372 – 374 wherein it was held that interest under Section 139 was leviable @ 6% until the provision was amended to enhance the rate of interest at 9%. So the point is that if interest is to be levied for delay or default and the total period falls into two or more parts in which different rates of interest were prescribed by the Statute, then for the respective parts of delay the prescribed rates of interest have to be applied for quantifying the total liability of interest Indeed such quantification of interest is not on all fours with quantification of penalty insofar as in quantification of interest different, parts of delay could have different rates of interest while in the case before us involving quantification of penalty we are to consider the bifurcation of delay itself.
9. Then we have the Hon’ble Bombay High Court decision in the case of CWT v. S.N. Tarawia [1988] 170 ITR 569 in regard to the quantification of penalty for delay in submission of wealth-tax return. The basis of quantification was changed statutorily from 1-4-1969. Delay fell partly before 1-4-1969 and partly after 31-3-1969. The Bombay High Court held that quantification of penalty for the delay upto 31-3-1969 should be as per unamended provision and for the period from 1-4-1969 it should be-as per the amended provision. On that basis the total penalty leviable should be computed. Thus, the principle of applicability of different basis for two different parts of delay was propounded. The point is that different factors may be applicable to different parts of delay on whose basis quantification is to be done.
10. Yet another analogous concept comes from the cases involving limitation for filing of appeals, etc. In such case each day of delay has to be explained. Indeed, in that context any part of explained delay falling chronologically after the unexplained delay would become redundant because the first available unexplained delay in point of time would bar the condonation of delay. In this case we are considering the exemption of last part of delay from quantification of penalty but the relevant point is that for a continued delay explanation for each day of delay has to be considered on merits.
11. Now, we can combine these two basic concepts arising from the analogous cases of (i) quantification of interest and penalty and (if) condonation of explained period of delay. Assessee should not be made to pay the amount of penalty attributable to the explained part of delay. No problem arises when that explained part of delay is in the beginning of the total delay. Now the point is that different parts of delay could be governed by different factors. In this case last part of delay is explained and may be exempted from penalty. Therefore, when quantification of penalty is with reference to the duration of delay, the point is that the explained part of delay should not contribute anything to the quantum of penalty even if that explained part falls in point of time at the end of the total period of delay.
12. This may be viewed in yet another way also. Quantification of penalty is for the period during which the default continued vide Section 271(1)(i)(b) and the charge of penalty is vide Section 271(1)(a) for failure without reasonable cause to furnish the return within the time allowed. So the moot point is whether the default as envisaged in Section 271(1)(i)(b) is the total delay or only the unexplained delay. It is possible to take a view that that default an envisaged in Section 271(1)(i)(b) is that of unexplained delay rather than the total delay of which a part is explained and the other part is unexplained.
13. We may hasten to add that we are not considering a case in which a part of explained delay (chronologically speaking) is sandwiched between two parts of unexplained delay. Different considerations may apply to such a case as, for example, the department may claim that the existence of the alleged reasonable cause for the sandwiched part of explained delay is merely incidental because even after the end of that cause return had not been filed. Be that as it may, we are not expressing any opinion on that aspect because it is not involved in the case before us.
14. Thus, the penalty has to be quantified in respect of the unexplained part of delay from 1-10-1979 to 24-1-1981 (i.e., upto the date of heart attack) and that makes 15 complete months, The exact quantification of penalty would be done by the Assessing Officer.
15. For statistical purpose, the appeal is treated as partly allowed.