Penalty proceedings under Section 271(1)(a) of the Income Tax Act, 1961 are quasi-criminal proceedings and the burden of proof is on the department to show that the assessee either "deliberately acted in defiance of law" or that its conduct was "contumacious or dishonest" so as to justify the levy of penalty.

1. - This is an application under Sub-section (2) of Section 256 of the I.T. Act, 1961 (hereinafter referred to as "the Act"), for requiring the Income-tax Appellate Tribunal, Jaipur Bench, to state a case and refer the following question of law alleged to be arising out of its order dated July 23, 1974, namely :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in cancelling the penalty of Rs. 6,090 imposed by the ITO Under Section 271(1)(a)?"

2. The respondent-assessee, M/s. Rawat Singh and Sons, Jodhpur, were required to file the return of their total income for the assessment year 1965-66, by September 30, 1965. They made an application for extension of time and were allowed to file the return by November 15, 1965. The return was, however, filed on December 21, 1965, showing a total income of Rs. 12,000 on estimated basis. The return was considered invalid as it was not accompanied by a copy of the profit and loss account, trading accounts, and balance-sheet. This fact was communicated to the assessee by the ITO on January 4, 1966. Thereafter, the assessee furnished a return on May 19, 1966, declaring an income of Rs. 89,338 along with the profit and loss account. The assessment was completed under Section 143 of the Act, on December 24, 1969, and the respondent was assessed at Rs. 1,05,000.

3. Since there was delay in submission of the return, penalty proceedings under Clause (a) of Sub-section (1) of Section 271 of the Act were initiated. In reply to the notice in that respect, one of the submissions made by the assessee was that the assessee had requested for extension up to April 30, 1966. But the ITO observed that in spite of show-cause notice and reminder no one appeared before him, nor was there any evidence produced before him in support of the plea that the assessee had applied for extension of time up to April 30, 1966. No communication to the assessee granting time was either made on behalf of the department. The ITO, therefore, held that the assessee has not been able to show any "reasonable cause" for the late submission of the return and, accordingly, he imposed a penalty of Rs. 6,090 by his order dated February 25, 1972.

4. On appeal, the AAC by his order dated March 1, 1973, quashed the penalty holding that the appellant had a reasonable cause for not filing the return of income until April 30, 1966. In the appellate proceedings, the advocate of the assessee had filed a copy of the application by which he had sought extension of time up to April 30, 1966. The application was filed, vide day-book entry No. 6664 dated March 28, 1966. The Appellate Assistant Commissioner was of the view that in the absence of a negative reply turning down the assessee's request for extension, the assessee was entitled to act reasonably on the assumption that the request for extension of time had been granted.

5. Against this order, the ITO preferred an appeal to the Income-tax Appellate Tribunal. The Tribunal stated that the assessee, vide its application dated March 28, 1966, sought time up to April 30, 1966, for filing the fresh return of income and did the needful on May 19, 1966. The Tribunal dismissed the appeal as they were unable to hold that the assessee "deliberately acted in defiance of law" or that its conduct was "contumacious or dishonest" so as to justify the levy of penalty. This order of the Tribunal is dated 23rd July, 1974.

6. The CIT then made an application to the Tribunal for reference. That application was rejected by the Tribunal on December 19, 1974, by saying that the findings of the Tribunal that there was no mens rea on the part of the assessee and that the department failed to prove that the assessee deliberately and in defiance of law failed to file a return in time and further that the conduct of the assessee has not been contumacious or dishonest, were findings of fact and no question of law arose out of the Tribunal's order. Hence, the present application