This is a penalty appeal filed by the assessee, for the asst. yr.
1981-82 against the order of the Dy. CIT(A), dt. 8th Feb., 1990, confirming the penalty of Rs. 14,091 imposed by the ITO, under S.271(1)(a) of the IT Act, 1961.
2. Originally the assessment was completed under S. 143(3) on 16th Nov., 1983. The due date for filing the return for asst. yr. 1981-82, was on or before 31st July, 1981. However, return was filed on 19th April, 1983. Thus, there was delay of 20 completed months in filing the IT return. The assessed income was Rs. 18,480 in the original assessment and the agricultural income was Rs. 12,000. While completing the original assessment proceedings, penalty notice under S. 271(1)(a) was issued calling upon the assessee to explain why penalty should not be levied for late filing of the return. The assessee filed an explanation dt. 30th Dec., 1983. In the reply, it was submitted that the main source of income was share income from registered firm. The income returned was Rs. 8,100 which was below the taxable limit.
However, the assessee became liable to tax due to the fact that the share income of the firm in which the assessee is a partner was assessed at a higher figure than the returned figure. Therefore, it was requested that a lenient view may be taken and the penalty proceedings may be dropped. Subsequent to the original assessment, a search took place in the residential premises of the assessee as well as in the business premises of the firm in which he was a partner. During the course of raid, a sum of Rs. 90,000 in cash was seized besides seizing account books, documents, correspondence files, etc. An order under S.132(5) was passed on 25th July, 1985 in which investments made by the assessee in his name and in the name of his minor children were found out. Unexplained cash that was available at the time of raid, expenditure on Akai Stereo, V. C. R. and construction of house were noticed and they were considered for asst. yrs. 1981-82 to 1986-87. In pursuance of search proceedings, the assessment was reopened under S.147(a) and notice under S. 148 was issued on 10th Oct., 1985. Return was filed in pursuance of the notice on 15th Dec., 1985 and there was no delay in filing that return. Reassessment was made on 27th March, 1987 under S. 147(a) r/w S. 143(3) under which the assessed income was Rs. 78,500 and agricultural income Rs. 12,000. Penalty notice under Ss.
271(1)(a) and 271(1)(c) were issued under this reassessment. In response to the penalty notice served, the assessee gave a reply dt.
21st Feb., 1989. Copy of the consolidated reply submitted by the assessee to the notices under Ss. 271(1)(a) and 271(1)(c) issued for asst. yrs. 1981-82 to 1985-86, was furnished by the learned Departmental Representative. In the said consolidated reply, the plea is taken by the assessee that for asst. yrs. 1981-82 to 1983-84 he had filed returns on 19th April, 1983 and 24th Oct., 1983 respectively, in which the incomes returned were Rs. 8,100, Rs. 7,000 and Rs. 7,070 respectively. Therefore, there was no taxable income according to the assessee for the above three assessment years. If the assessee considered his income to be less than the maximum not liable to tax, he is not required to file a voluntary return even if ultimately his income is assessed at a figure which is taxable. The assessee cited the following decisions in support of this proposition : (3) CIT vs. Assam Automobile & Accessories Agency (1978) 111 ITR 411 (Gau); It was requested to drop the penalty proceedings, inter alia, for asst.
yr. 1981-82. The ITO in his penalty orders dt. 27th March, 1989 imposed a penalty of Rs. 14,091 holding that the alleged belief of the assessee that the income for asst. yr. 1981-82, is below the taxable limit is not acceptable for the simple reason that at the time of filing the return he was fully aware that he has got taxable income as illustrated in the reassessment order. Therefore, the assessee is liable to penalty. Aggrieved against the penalty order, the assessee went in appeal before the Dy. CIT(A), Vijaywada. It is contended before him that he filed return of income on 19th April, 1983, declaring total income of Rs. 8,100 as against the due date of 31st July, 1981, that the assessment proceedings were completed on 18th Nov., 1983, and during the course of such proceedings penalty under S. 271(1)(a) were initiated. The assessee filed an explanation dt. 30th Dec., 1983, inter alia, contending that the result of the original penalty proceedings is not made known to him, since he had not received any order from the IT office. He further contended that the penalty proceedings initiated on 18th Nov., 1983, should have been completed before 31st March, 1986, and he should have received the penalty order before that date. Thus, in view of the fact that no such order has been received by him the original penalty proceedings initiated on 18th Nov., 1983, has become time barred.
3. The assessee was subjected to search and seizure operations on 4th and 5th June, 1985. Subsequently notice under S. 148, dt. 10th Oct., 1985 was served on the assessee in November, 1985. The assessee filed a return of income on 16th Dec., 1985, declaring an income of Rs. 18,480.
During the course of reassessment proceedings, penalty proceedings under S. 271(1)(a) were initiated for the delay that was caused in filing original return of income. The initiation of penalty proceedings for non-filing or late filing of original return after completion of reassessment proceedings was stated to be not correct under law for the three reasons set out below. The penalty proceedings initiated on 18th Nov., 1983, have become time barred and since there was no delay in filing the revised return after issue of notice under S. 148 no penalty under S. 271(1)(a) can be levied in reassessment proceedings and in support of that proposition the decision of the Madhya Pradesh High Court in CIT vs. Marfatia & Co. (1982) 136 ITR 159 (MP) was relied upon. It is contended that according to S. 275 of the IT Act, 1961, the limitation will not be extended in respect of penalty proceedings initiated in the original assessment by issue of notice under S. 148.
The Dy. CIT(A) held that the decision of the M. P. High Court in (1982) 136 ITR 159 (MP) (supra) relied upon by the assessee, is distinguishable. In that case, having initiated penalty proceedings under the original assessment proceedings, the penalty order was not passed and during the reassessment proceedings, it was held that the default under the original assessment proceedings cannot be taken into account to compute period of default for purpose of imposition of penalty envisaged under S. 271(1)(a) initiated under the reassessment proceedings. However, in the facts of the case before him, he stated that penalty proceedings were initiated on 18th Nov., 1983, and the time limit for completion of the penalty proceedings was 31st March, 1986. However, within the said time, the reopening proceedings were started in November, 1985, and when the original assessment proceedings were thus reopened, the penalty proceedings initiated during the course of such original proceedings automatically cease to exist before getting time barred and thus there was no scope for the ITO to complete the original proceedings. The Dy. CIT(A) held that there are other line of decisions which state that issue of notice under S. 139(2)/148 does not condone the default under S. 139(1). He cited the following decisions : As per the ratio of the above decisions, according to the Dy. CIT(A), the assessee cannot escape penalty for belated submission of the return on the ground that he submitted a return in pursuance of notice subsequently issued under S. 139(2)/148 and it is not available to argue that penalty should be confined to the period after the issue of notice under S. 139(2)/148. The Dy. CIT(A) held that admittedly, in the instant case, the assessee had not delayed submission of the return in response to notice under S. 148. The delay was committed only for submission of the return in terms of S. 139(1) and, therefore, ultimately, he held that according to the above decisions, penalty under S. 271(1)(a) becomes exigible. Having been aggrieved against the impugned orders of the Dy. CIT(A), dt. 8th Feb., 1990, the assessee came up in second appeal before this Tribunal.
4. Though the assessee was served a notice under RPAD fixing the date of hearing of this appeal, he did not choose to appear and, therefore, the matter is taken up for hearing on merits on 7th April, 1993, in his absence since there was no reasonable cause for his absence on 7th April, 1993. This Tribunal heard Shri K. Vasanth Kumar, learned Departmental Representative. It is contended by the learned Departmental Representative that so long as the assessed tax is not there, the basis of levying penalty is not present. When once reopening is made, one cannot say definitely what is going to be assessed tax. So on reopening the finality of assessed tax which formed the basis of penalty was no longer available. On reopening, the penalty proceedings started under the original assessment proceedings come to a stop. They revive only on completion of reassessment. In support of this proposition, the learned Departmental Representative, relied upon the following decisions : The assessee already relied upon the decision of the M. P. High Court in CIT vs. Marfatia & Co. (supra). The question is, whether the M. P.High Courts decision is distinguishable and whether submission of the learned Departmental Representative can be accepted. The facts are very clear. Under the original assessment proceedings no doubt penalty proceedings were initiated. After receiving the reply of the assessee to the penalty proceedings, no penalty order was ever passed nor communicated to the assessee. Under S. 275, the penalty proceedings were barred by time on 31st March, 1986. The question is whether the issue of notice under S. 148, dt. 10th Oct., 1985 and service of the same on the assessee in November, 1985, would stop running of time against the Revenue and whether initiation of reassessment proceedings stop the penalty proceedings initiated under the original assessment proceedings automatically and make them cease to operate before getting time barred.
5. After going through the records and also authorities cited, this Tribunal holds that the M. P. High Courts decision reported in (1982) 136 ITR 159 (MP) (supra) definitely comes to the aid of the assessee and the distinguishing features sought to be explained by the Dy.
CIT(A) are not at all convincing and this Tribunal does not accept the contention that the facts in the M. P. High Courts decision are quite different from the facts on hand. Just like in the facts of this case, in the facts of the M. P. High Courts decision also, the reopening under S. 148 was made within the two year period available to the Revenue, but without penalty proceedings initiated under the original assessment proceedings. However, no penalty proceedings initiated under original assessment proceedings were completed and no penalty was levied under the original assessment proceedings. The period of default in submitting the IT return under S. 139(1) is sought to be equated to the period of default committed in submitting return in pursuance of notice under S. 148. In the M. P. High Courts case, the period of default in submitting the return in the reassessment proceedings was only 10 months. However, if the period of default committed in filing return under S. 139(1) is taken into account, the default would be 31 months for asst. yr. 1965-66 and 21 months for asst. yr. 1968-69. When the matter was ultimately carried to the High Court, the M. P. High Court held that the period of delay can be considered only as 10 months since that was the delay caused in submitting the returns under reassessment proceedings. If held that in penalty proceedings started under reassessment proceedings, the default period committed under the original assessment proceedings or the delay in submitting the return under S. 139(1) cannot be clubbed and the default period cannot be taken to be the aggregate period of default committed both under the original assessment proceedings as well as reassessment proceedings. In this connection, the ratio of the decision of the M. P. High Court is clearly brought out in the headnote of the decision which is as follows : "Where the original assessment for the relevant assessment years were completed by the ITO under S. 143 of the IT Act, 1961, and though there was some delay in filing the returns in respect of all the assessment years and penalty notices under S. 148 were issued to the assessee, no penalty was imposed on the assessee in the course of the original assessment proceedings, the assessment orders have been passed, the ITO cannot take into account such delay prior to the service of a notice for reassessment under S. 148 for purposes of imposition of penalty under S. 271(1)(a) in the reassessment proceedings. Penalty is leviable only for the delay relating to the notice for reassessment under S.Thus, it can be seen that the decision of the M. P. High Court is on all fours to the facts of the present case and the ratio of the said decision clearly applies to the facts on hand. In the understanding of this Tribunal, when once limitation starts running, no subsequent event is capable of intervening and is capable of stop running the period of limitation. If the contention of the Dy. CIT(A) set out in his impugned order is correct then in the facts before the M. P. High Court also, notice under S. 148 was issued calling upon the assessee to file its return on or before 20th Oct., 1970, whereas the original assessment proceedings themselves were completed for assessment year on 13th Jan., 1970, and for asst. yr. 1968-69, they were completed on 21st Jan., 1970. So the issue of notice under S. 148 was not considered as an event by which the penalty proceedings started under the original assessment proceedings would come to a stop.
6. In Kashiram Tea Industries Ltd. vs. ITO & Ors. (supra), the question was whether after notice was issued under S. 139(2)/148, penalty proceedings can still be initiated for non-submission of the return under S. 139(1), in reassessment proceedings. All that the Calcutta High Court held in that decision was extracted in the headnote of the decision at page 784, which is as follows : "A person is in default for non-submission of return under S. 139(1), cannot escape the liability of being penalised for its non-submission on the ground that he submitted a return pursuant to a notice subsequently issued under S. 139(2) or S. 148." Thus it can be seen that a plea was raised before the Calcutta High Court in that case that in view of the fact that notice for reopening was issued and return was filed in pursuance of that notice it debars the Revenue to pursue the penalty proceedings for the default committed by the assessee under the original assessment proceedings. This contention was negatived. Thus, it can be seen that the Calcutta High Courts decision impliedly overrule the contention of the Dy. CIT(A) in his impugned order that the issue of notice under S. 148, would be an intervening circumstance, which would invalidate the penalty proceedings started under the original assessment proceedings. Thus, the Calcutta High Court by implication runs counter to the assumption on the basis of which the Dy. CIT(A) proceeded in his impugned orders, namely, that the issue of notice under S. 148 would discontinue the penalty proceedings started under the original assessment proceedings.
7. In CIT vs. Ravi Talkies (supra), the Honble Orissa High Court had dissented from the view taken by the Patna High Court in Addl. CIT vs.
Bihar Textiles (1975) 100 ITR 253 (Pat), and held the following at page 182 of the reported judgment : "There is good authority for the ultimate conclusion that an assessee is liable to penalty for not submitting his return as required under S.139(1) of the IT Act 1961, even though he subsequently files a return in pursuance of a notice under S. 139(2) and assessment is made on the basis of the return. [See CIT vs. Indra & Co. (1971) 79 ITR 702 (Raj)] (supra). The view of the Rajasthan High Court is supported by a Bench decision of the Delhi High Court in the case of CIT vs. Hindustan Industrial Corpn. (1972) 86 ITR 657 (Del), where the problem as posed by the Division Bench of the Patna High Court as to whether there can be two sets of penalty has been appropriately answered. The Delhi High Court has indicated that the plain language of S. 139(2) cannot be trained to hold either that the assessee is absolved of his statutory obligation to file a return of his income voluntarily under S. 139(1) and the default committed in not filing a return voluntarily under S.139(1) cannot be taken note of for initiating proceedings for the imposition of a penalty if a notice under S. 139(2) is issued or that the period of default shall cease from the date when the notice under S. 139(2) is served on the assessee. Similar is the view of the Andhra Pradesh High Court in the case of Mulapudi Venkatarayudu vs. Union of India (1975) 99 ITR 448 (AP)." This decision would cut at the root of the following assumption of the Dy. CIT(A) in his impugned orders : "When the original assessment proceedings thus became reopened, the penalty proceedings initiated during the course of such original assessment proceedings thus automatically ceased to operate before getting time barred." To the same effect is the decision of the Bombay High Court in Addl.
CIT vs. Lalit Bros (supra). In the above case, the Bombay High Court postulated four different types of defaults which can be committed under S. 271(1)(a). Failure to furnish a return without a reasonable as required under S. 139(1) and failure to furnish without a reasonable cause as return required to be furnished by notice under S. 139(2)/148 are the two out of the four different types of defaults enumerated. The Bombay High Court held further as follows as per headnote at page 392 : "The four different defaults dealt with in S. 271(1)(a) are independent of each other, and for the purpose of penalty, the filing of a return under S. 139(2) of the Act, is not to be considered as the filing of a return under S. 139(1). Furnishing a return in pursuance of notice issued under S. 139(2) would not extinguish the default already committed under S. 139(1) in not filing a return as required by that section." Thus, simply because a notice was issued under S. 139(2)/148, it cannot be said that the penalty proceedings validly started under the original assessment proceedings would come to a stop without getting time barred which forms the basis of the impugned order of the Dy. CIT(A). Since, the very basis of the impugned order is not correct, the penalty imposed under S. 271(1)(a) is liable to be cancelled.