1. These appeals are by the assessee and pertain to the assessment years 1990-91 and 1991-92. They are directed against the order dated 13-11-2000 of the CIT (Appeals)-II, Kochi, confirming he penalty of Rs. 3,68,800/- and Rs. 3,14,800/- respectively for the assessment years 1990-91 and 1991-92, levied under Section 272A(2)(c) of the Income-tax Act, 1961.
2. The facts of the case in brief are that the assessee filed returns for the assessment years 1990-91 & 1991-92 disclosing a loss of Rs. 24,42,200/- and Rs. 24,68,020/- respectively. Returns were processed under Section 143(1)(a) of the Act on 21-03-1991 and 23-09-1991 respectively. Subsequently the assessments were completed under Section 143(3) of the Act. The assessee produced a feature film named 'Oru Sayahnathinte Swapnom' and was released on 28-9-1989 and another feature film named 'Arangu' which was released on 22-3-1991. The assessing officer was of the view that the assessee was required to file a statement in form No. 52A, containing the particulars of all payments of over five thousand rupees in the aggregate made by it or due from it as the assessee was engaged in the production of films. The said statement was to be filed within 30 days of completion of the production. The first film was released on 28-9-89 and the second one released on 22-3-1991. Hence, the statement was due on or before 28-10-1989 and 21-4-1991 respectively. However, the assessee did not comply with the above requirement. The assessing officer held that the failure on the part of the assessee to file the said statements within the prescribed time attracts penalty under Clause (c) of Sub-section (2) of Section 272A of the Act. Accordingly, notice under Section 274(1) r.w.s. 272A(2)(c) of the Act, on 14-07-1999 for both the assessment years in question, calling the assessee to appear before the assessing officer on 27-7-1999 so as to explain why penalty could not be imposed. The assessee did not reply. Second notice was issued on 27-10-1999 calling the assessee to state its reply on or before 15-11-1999. The assessee did not respond again. According to the assessing officer various notices issued to the assessee were acknowledged yet for reasons better known to the assessee, the assessee did not reply or respond. Therefore, the assessing officer held that 'it can only be surmised that the assessee has no explanation to offer in this matter. There is gross negligence or disregard on the part of the assessee towards fulfilling a statutory compliance'. Thus he was of the view that this is a fit case for imposition of penalty Under Section 272A(2)(c) and levied penalty as stated above for both the years. For the assessment year 1990-91 the assessing officer levied penalty amounting to Rs. 368800/- against the maximum imposable penalty of Rs. 7,37,600/-. While doing so the assessing officer noted that for the assessment year 1990-91 the last date for filing the Form No. 52A was 28-10-1989. Since no details were furnished on the completion of the film, the release date was treated as the completion date. The number of days was taken at 3686 days. Since the penalty order was dated 3-12-1999, for every day of delay, penalty was taken at Rs. 100/-. Similarly, for the assessment year 1991-92 the film was released on 21-4-1991 and the assessing officer treated the said date as completion date and thus the date for filing Form No. 52A was due on 21-4-1991. The period of failure was accounted 3148 days and @ Rs. 100/- per day penalty was calculated at Rs. 314800/-. Aggrieved by the above orders of the assessing officer, the assessee approached the first appellate authority who dismissed the assessee's appeals by his consolidated order dated 3-11-2000.
3. Since both the appeals arise out of the consolidated order of the first appellate authority, the facts involved in both the appeals being similar and identical, we have clubbed, heard and dispose of these two appeals together, for the sake of convenience and brevity.
4. Before the learned first appellate authority it was submitted by the assessee's representative that Form No. 52A was filed in time in Income-tax Office, Wart-I, Aluva, before transferring the jurisdiction from Aluva to Trichur. The returns were filed before the Dy. CIT Trichur, on 30-8-1990 showing loss of Rs. 24,42,200/- for the assessment year 1990-91 and the Dy. CIT, Spl. Range, Trichur processed the return under Section 143(1)(a) on 21-3-1991 without pointing out any short-falls. It was the case of the assessee that since the Dy.CIT processed the return without pointing out any discrepancy or irregularity, it was possible that Form No. 52A might have got misplaced/lost after completing the assessment proceedings. Similar is the case for the assessment year 1991-92. The first appellate already dismissed the assessee's appeal vide para. 4 of his order observing as under: "On consideration of the facts of the case, it is noticed that the Assessing Officer has imposed the penalty as form No. 52A was not on record, either for the assessment year 1990-91 or for the assessment year 1991-92. During the course of appellate proceedings, the authorised representative of the appellant was required to give evidence in regard to the claim that form 52A was actually filed.
However, he expressed his inability to give any direct evidence of having filed form No. 52A with the Income Tax authorities at Aluva or Trichur. Since the appellant has been insisting on having filed form No. 52A with the Income Tax authorities, no explanation was offered at the time of hearing in regard to non filing of form No. 52A at all. Under the circumstances, the Assessing Officer was justified in levying penalty under Section 272A(2)(c) of the I.T. Act." Against the above findings of the first appellate authority, the assessee is in second appeal before the Tribunal.
5. Shri C.K. Nair, learned counsel for the assessee submitted that circumstantial evidences will show that the assessee had filed, as claimed, at the right time, the relevant Form No. 52A for both the years under consideration. The ld. counsel invited our attention to the paper book page No. 5, copy of a covering letter received from the Office of the Dy. Director of Income-tax (Inv.), Anna Salai, Chennai, dated 10-7-1991, so also to page No. 4 which is a xerox copy of the envelop sent by the ITO (CIB)-II, Office of the DDI (Inv.), Unit IV, Chennai, addressed to the assessee. By letter dated 10-7-1991, cited supra, the Income-tax Officer, (CIB-I, Chennai, made enquiries regarding the film production during the year ended on 31-3-1991 and calling for the assessee to furnish details within 15 days of the receipt of the said letter. Page 6 of the paper book is the reply of the assessee dated 4-9-1991. The relevant portion is extracted hereunder: "Our firm have produced a Malayalam feature film titled as 'Arangu' and released on 22-3-1991. We have filed form No. 52A with Deputy Commissioner of Income-tax (Asst.), Special Range, Trichur showing the details as specified in the proforma attached. A copy of the same is also attached herewith for your kind consideration. We have filed our Income Tax return on 30-8-1991 with the above office." Page No. 7 of the paper book is the acknowledgement of the above letter. Page No. 9 is a copy of covering letter addressed to the Dy.
CIT(Asst.), Trichur, forwarding a copy of Form No. 52A. Page No. 13 is the copy of summary assessment for the assessment year 1991-92 and no defect has been pointed out. Page No. 19 is the copy of summary assessment for the assessment year 1990-91 that too accepting the assessee's return. No defect has been pointed out. From the above, the assessee's counsel submitted that it is clear that the assessee not only had claimed that the assessee had filed the requisite form No.52A, but also again a copy of the said firm, for the second time by way of reply to the enquiry from Income-tax Office, Chennai, had filed. All these will show that the claim of the department that the assessee has not filed Form No. 52A is incorrect. The assessee's counsel further submitted that while processing the returns under Section 143(1)(a) the assessing officer has not pointed out any defects in the returns, which is also supports the contention of the assessee. Thus, the learned counsel for the assessee contended that there is no reason for the department to blame the assessee that the assessee has not filed Form No. 52A as required under the statute.
6. The learned counsel for the assessee submitted that legally also the order of the assessing officer has no sanctity. Under Section 285B of the Act, the assessee was obliged to file Form No. 52A. According to the revenue the assessee did not comply with it. For the failure of the assessee to file the prescribed form within the prescribed time attracts penalty under Clause (c) of Sub-section (2) of Section 272A.Accordingly notice under Section 274(1) was issued on 14-7-1999, after the laps of almost 10 years. The assessee's counsel submitted that under Section 275(1)(c), penalty proceedings are initiated beyond the time and therefore illegal. The assessee's counsel submitted that since the assessment was completed on 9-2-1993 the penalty should have been initiated on or before 9-2-1993 and it should have been completed on 31-3-1993 or in any case it should have been completed on 31-8-1993.
The assessee's counsel relied upon the following decisions in support of the contention raised as above: Relying upon the decision of the Supreme Court reported in 157 ITR 330 cited supra, the assessee's counsel submitted that the default ends with the completion of assessment. And particularly on considering the decision of the Delhi High Court reported in 125 ITR 756 the assessee's counsel submitted that the proceedings can only be initiated during the penalty proceedings and not at a whimsical time, i.e. after a lapse of 10 years.
7. The learned departmental representative, on the other hand, supported the orders of the revenue authorities and submitted that 272A(2)(c) clearly tells that the assessee should be penalised with a sum of Rs. 100/- for every day during which the failure continues. That means the failure continues as long as the assessee fails to comply with the provisions of law. The assessee had not furnished any evidence to show that the assessee has filed the requisite form. Mere claim that the assessee is having some circumstantial evidence is not sufficient.
In the light of the above, the learned departmental representative submitted that the order of the revenue authorities should be upheld.8. We have heard rival submissions, gone through the orders of the revenue authorities and the decisions cited. Before going through the circumstantial evidence in support of the assessee's contention that the assessee had filed the requisite form at the right time, we would proceed to consider the issue in the light of the provisions of the law.
9. Under Section 285B, the assessee has to submit a statement, assessee being a producer of cinematograph films. It is not disputed that the assessee is carrying the production of films and the film was released in 1989 and 1991, as the date given by the assessing officer. As such the assessee was to prepare and deliver the statement to the assessing officer within 30 days from the end of the financial year or within 30 days of the completion of the production of the film. Not going through the evidence, let us proceed with the presumption that the assessee has not filed the requisite form. An assessee in failure to furnish the details in the prescribed form is to be penalised under Section 272A(2)(c) of the Act as he has not complied with Section 285B.10. But the statute prescribed a limitation time for imposing penalty under Section 275 of the Act. For an easy reference, this section is reproduced hereunder: Section 275(1). No order imposing a penalty this Chapter shall be passed--(a) xx xx xx(b) xx xx xx (c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later." Section clearly states that no penalty shall be imposed in any other case i.e. other than the one mentioned in Clause (a) and (b), after the expiry of the financial year in which the proceedings in the course of which action for imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever the period expires later.
11. In this regard the Hon'ble Delhi High Court in the case reported in 125 ITR 756 clearly held that -- "By necessary implication, Section 275 of the I.T. Act, 1961, has also provided that section for imposition for penalty must be initiated in the course of the assessment proceedings. It is not enough that the ITO is satisfied in the course of the assessment proceedings that a case for penalty exists, it is further necessary that he should have initiated some action for the imposition of penalty in the course of such proceedings. It depends on the facts of each case whether any such action has been initiated before the date of completion of the assessment. If, even before the completion of the assessment, the ITO has issued a penalty notice, it is clear that he has taken necessary action for the imposition of penalty.
This condition can also be said to be satisfied where, though a penalty notice has not been issued before that date, it is that the officer had given a direction to his office before completing the assessment that such a notice should be issued. Similarly in cases governed by Section 274(2) (which has been deleted with effect from April 1, 1976) action could be considered to have been initiated if the officer had made a reference to the IAC under that provision though the IAC might apply his mind and issue a further notice to the assessee only long thereafter. But some definite step by way of initiation of penalty proceedings should be taken by the officer before the assessment proceedings come to an end. It is not enough for the ITO to record in the assessment order that penalty proceedings are to be or will be initiated separately. There should be some other step such as an actual direction to the office to issue a penalty notice (which thereafter needs only ministerial compliance), the actual issue of a penalty notice, a reference to the IAC or some other similar action." The case of the revenue is that decision was rendered while considering the proceedings initiated under Section 271(1)(c) and therefore, penalty like continuance of penalty under Section 272A(2)(c) such initiation is not necessary. They are independent. We are afraid, the contention of the revenue is mis-placed.
12. Section 275 is the only section deals with the time limit for imposition of penalties. Sub-section (3) starts with the wording "in any other case..... This means Section 275(1)(c) is applicable to all other sections, i.e. other than the one mentioned in Section 275(1) and (b). The Hon'ble Delhi High Court held, as noted above, that the penalty proceedings should be started during the course of assessment proceedings. In that case, the Hon'ble High Court not only held that a mere writing in the assessment order that penalty proceedings will be separately initiated alone is not sufficient but before the completion of the assessment at-least the first initial step of issuance of notice should have taken place or instruction to the concerned officer to issue notice of penalty should separately given.
13. In the instant case of the assessee penalty proceedings starts after a gap of almost 6 years and 10 months. Natural justice demands that there should be an end to the proceeding within a reasonable time.
The assessing officer who passed the assessment order either by mistake or for valid reason did not initiate the proceedings and impose the penalty. However, after a long gap of about 7 years, one fine morning the machinery put in motion and penalty proceedings are initiated. We are constraint to say that the proceedings initiated after such a long gap is against the fair-play and justice. Even otherwise, as we have already noted in terms of Section 275(1)(c) the penalty proceedings, since was not initiated during the assessment proceedings nor even completed within the contemplated time, the penalty proceedings initiated are bad in law.
14. Section 275 which prescribes time limit for imposing penalty is applicable to Chapter XXI given under the head "Penalties imposable".
Section 272A falls within this Chapter. Section 275(1)(c) stipulates that no order imposing penalty under this Chapter (Chapter XXI) shall be passed in any other case, after the expiry of the financial year in which the proceedings in the course of which action for imposition of penalty has been initiated are completed or 6 months from the end of the month in which action for imposition of penalty is initiated.
15. In the instant case of the assessee it was neither completed before the 31st March, 1993, nor even initiated before the six months contemplated by the second limb of the provision, i.e. 31-8-1993. It was initiated in the year 1999. First of all there should be a reasonable time within which penalty proceedings is to be initiated or to be completed. Even if a time is not prescribed under the law, the penalty cannot hang on the head of an assessee as sword of Damocles indefinitely. It is true that there is no equity in tax. But there cannot be injustice. The penalty proceedings are like criminal proceedings, though on a different footing. It may be improper to use the word 'harrasment' but the least, it is not fair-play to penalise an assessee against whom no penalty was initiated during the assessment proceedings or if started to keep penalty proceedings ad infinitum.
16. In the light of the above, we set aside the order of the ld. CIT(A) sustaining the penalty imposed by the assessing officer as it is against the provisions of law.
17. Coming to the argument of the ld. counsel for the assessee that circumstantial evidence will show that the assessee has filed the necessary Form within the time prescribed, we are of the view that these arguments of the learned counsel for the assessee are nearer to the truth, even if we analyse the same on the circumstantial evidence brought in. In this case, 143(1)(a) proceedings were completed on 21-3-1991 for the assessment year 1990-91 and for the assessment year 1991-92 was completed on 23-9-91. There was a letter from the Office of the Dy. Director of Income-tax (Inv.), Unit-IV, Kannamai Building, Anna Salai, Chennai, dated 10-7-1991. In reply to this, the assessee filed a copy of Form No. 52A on 4-9-1991 by R.P.A.D. and the acknowledgment is evidenced in the paper book, which we have mentioned herein above. This indicates that the assessee's claim that the assessee had filed the requisite Form No. 52A gets support. It is the case of the assessee that the assessing officer was changed and there was a shifting of office from Aluva to Trichur and possibly, during this shifting something might have happened. This possibility also cannot be ruled out. We hold so only because the assessee has forwarded a copy of the Form No. 52A said to be filed before the assessing officer in Kerala who was having jurisdiction over the assessee.
18. Page Nos. 15 and 16 of the paper book filed by the assessee are the notices dated 31-8-92 and 25-11-1992 pertaining to the assessment year 1991-92, calling for details. Page No. 17 is the assessment order dated 9-2-1993 passed under Section 143(3), for the assessment year 1991-92.
There is no mention about the initiation of penalty in the assessment order. This may also be for the reason that the requisite form might be available on record at that point of time. Assessee's letter dated 4-9-1991 addressed to 'The Income-tax Officer (CIB)-I, Chennai-6' (page No. 6 of the assessee's paper book) fortifies this conclusion.
19. In view of the above, we hold that the penalty levied is firstly against the provision of law and secondly also it cannot survive since the facts on record indicate that the assessee had filed the requisite Form No. 52A, most probably within the time contemplated. Therefore, we set aside the penalty levied for both the years under consideration.