Sudhindra Mohan Guha, J. - (1.) This reference relates to the assessment year 1971-72 and the relevant previous year ended on 31st August, 1970.
(2.) The assessee was a limited company having a business of manufacture and sale of sugar. In respect of the financial year 1970-71, the ITO raised the advance tax demand of Rs. 2,99,626 based on a total income of Rs. 5,44,744 under Section 210 of the Act and the demand notice Was served on the assessee on 27th May, 1970. The said demand became payable in three instalments, on 15th June, 1970, 15th September, 1970, and 15th December, 1970, and the assessee paid it actually on 15th June, 1970, 12th September, 1970, and 15th January, 1971. On 7th May, 1971, the books of account of the assessee-company were audited. On 1st April, 1972, the assessee-company filed its return of income for this assessment year on a total income of Rs. 17,78,459. The ITO completed the assessment under Section 144 of the Act on 28th February, 1974, on a total income of Rs. 26.50 lakhs which the AAC confirmed in appeal. The Tribunal, however, reduced the income to Rs. 24 lakhs subject to depreciation of the AAC's decision on the assessee's claim for sugarcane from loss of Rs. 5.46 lakhs (sic). On these facts, the ITO took a view that the assessee-company had failed to comply with the provisions of Section 212(3A) of the Act and for this default he initiated penalty proceedings under Section 273 of the Act by his show cause notice dated 26th February, 1974. This proceeding culminated in the levy of the impugned penalty which had been confirmed in appeal by the AAC.
(3.) There was a further appeal to the Tribunal by the assessee. It was argued that a quasi-criminal proceeding like penalty had been dealt with by the ITO and the AAC in a light-hearted manner. It was further argued that no attempt at all had been made to establish mens rea on the part of the assessee. With reference to the AAC's observation that the assessee was a recalcitrant assessee it was argued that such observation was baseless and that the AAC in making such observation had ignored the facts which were placed before him that the assessee-company had been subjected to calamities and disasters due to political unrest and that with the department's own acquiescence it was paying its outstanding tax by instalments. With regard to the business trend, reflected in the increase of turnover from Rs. 1.34 crores to Rs. 1.57 crores, learned representative for the assessee said that the profit on the increased turnover and the stocks at the rate at which profit had been earned for the immediately preceding year, that is, 2 per cent was about Rs. 5.75 lakhs and the assessee-company having also paid advance tax under Section 210 of the Act on an income of Rs. 5.44 lakhs, it felt that no further action was called for. He further said that a huge profit had arisen from the valuation of closing stock which the assessee-company had not anticipated and that its audited books of account became available, as stated by the AAC himself only on 7th May, 1971, and hence it should have been held that the assessee was prevented by reasonable cause from filing the estimate under Section 212(3A) of the Act. The conclusion of the AAC was also challenged on the ground that there was no conscious disregard of the statutory obligation on the part of the assessee. Proceeding further, the learned advocate said that the penalty proceeding under Section 273(c) of the Act was a quasi-criminal proceeding and establishment of mens rea on the part of the department was an essential ingredient of this penalty proceeding. For this proposition, he relied upon certain decisions of the Punjab & Haryana High Court and the Madras High Court. Reference was also made to the decision in the case of Hindustan Steel Ltd. v. State of Orissa as also in the case of CIT v. Anwar Ali. and thus it was concluded that the penalty under Section 273.(c) could be levied by the department only after establishing that there was an intentional and deliberate default on the part of the assessee to comply with the provisions of Section 212(3A) of the Act.;