The discretionary nature of penalty provision under Section 271B, the requirement of reasonable cause for failure, and the burden of proof on the assessee to show the absence of fraud or neglect.

G.S.Singhvi, J.

1. On an application made by the Revenue under Section 256(1) of the Income-tax

Act, 1961 (for short, "the Act"), the Income-tax Appellate Tribunal, Delhi Bench "B" Delhi (for short, "the Tribunal") has referred the following question of law for the opinion of this court: "Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in confirming the order of the learned Commissioner of Income-tax (Appeals), Karnal, who deleted the penalty of Rs. 1 lakh imposed under Section 271B of the Income-tax Act, 1961 by the Assessing Officer?"

2. The assessee is engaged in the sale of milk. For the assessment year 1985-86, its turnover was more than Rs. 40 lakhs. Therefore, in terms of Section 44AB of the Act. it was required to file return latest by July 31, 1985 (the date was extended to September 30, 1985, by the Central Board of Direct Taxes vide its Circular No. 422 dated June 19, 1985 (see [1985] 155 ITR (St.) 44)). However, the return was actually filed on November 29, 1985. The same was accompanied by the audit report prepared by the chartered accountant, namely, M/s. Rajesh Behl and Associates. Later on, the assessee filed revised return under the amnesty scheme. The Assessing Officer accepted the return but initiated penalty proceedings under Section 271B on account of delayed filing of the same. In its reply, the assessee tried to explain delay in the filing of return by stating that its partners were not well educated; that its accountant had left the service and that the chartered accountant had delayed preparation of the audit report. The Assessing Officer did not accept the explanation of the assessee, albeit without assigning cogent reasons and imposed penalty of Rs. one lakh. On appeal the Commissioner of Income-tax (Appeals) (for short, the "CIT(A)") set aside the penalty order. While doing so, he took into consideration the following factors:

"(i) that the partners were by and large, not well educated.

(ii) that the appellants accountant left the service on March 31, 1985.

(iii) that one of the partners, namely, Shri Sawan Ram, was seriously ill during the period under consideration.

(iv) that the books of account were given to the appellants chartered accountants in early July, 1985 for tax audit.

(v) that extension applications were filed for extension of date for furnishing the return of income wherein the reason given was that the audit report was awaited."

3. The Commissioner of Income-tax (Appeals) referred to the judgment of the Full Bench of the Gujarat High Court in Addl. CIT v. I. M. Patel and Co. and held that in the absence of any finding that there was want of reasonable cause on the part of the assessee, the levy of penalty was not justified and that there was no reason for the Assessing Officer to doubt the correctness of the certificate issued by the chartered accountant.

4. The Revenue challenged the order of the Commissioner of Income-tax (Appeals) before the Tribunal, but could not persuade it to restore the penalty imposed by the Assessing Officer. The Tribunal dismissed the appeal vide its order dated January 18, 1994, the relevant portion of which is reproduced below:

"It is not in dispute that the assessee has filed its revised return under the amnesty scheme. It is also not in dispute that the previous year of the assessee ends on March 31, 1985 and as per the provisions of Section 44AB the assessee was required to get its accounts audited and obtain the audit report and file it along with the return before the specified date, i.e., July 31, 1985. It is also not in dispute that the Central Board of Direct Taxes vide first Circular No. 422 dated June 19, 1985 (see [1985] 155 ITR (St.) 44) has extended the specified date up to September 30, 1985 in view of the fact that this was the first year of this requirement. In the present case, we find that the assessee had obtained the audit report and filed it along with the return