This appeal of the revenue is directed against the order of the CIT(A), dated 14-8-1997, cancelling the penalty imposed by the assessing officer under section 221(1) of the Income Tax Act.
There was a search in the assessee's premises under section 132 of the Income Tax Act, on 14-12-1995. The revenue authorities seized various documents and a cash of Rs. 1,00,000. In response to a notice issued under section 158BC of the Income Tax Act, the assessee filed the return of income for the block period 1986-87 to 1996-97 declaring an income of Rs. 22,91,356. The assessee has paid a sum of Rs. 2,00,000 towards outstanding due before filing the block return. The assessee has also requested the assessing officer and other authorities to permit the assessee to pay the tax as per the block return in instalments. This request of the assessee was not disposed of by the revenue authorities. The assessing officer issued notice under section 221(1) of the Income Tax Act to show cause why penalty should not be levied for not paying the self-assessment tax as per the block return under section 140A(1). Thereafter, the assessing officer levied a penalty of Rs. 58,742 under section 221 of the Income Tax Act for the failure of the assessee to pay the tax as per the block return under section 140A(1). On appeal by the assessee, the first appellate authority cancelled the penalty levied by the assessing officer on the ground that the assessee requested the revenue authorities for payment of tax in instalments since the liquid sources of the assessee had already been in possession of the department. Since the proposal for payment of tax in instalment was not negativated by the department, the first appellate authority found that levy of penalty under section 221 for non-payment of taxes is not correct. Against this order of the CIT(A), the revenue filed the present appeal before this Tribunal.
Mr. C.R. Janardhan, the learned Departmental Representative submitted that when the assessee filed the block return in response to a notice issued under section 158BC, the assessee has to pay the entire taxes together with interest as per the block return and file the proof of such payments along with return of income. If such a proof is not furnished along with return for payment of self assessment tax, the assessee shall be deemed to be an assessee-in-default in respect of tax or interest which remains unpaid and therefore, liable to pay penalty under section 221(1) of the Income Tax Act. The learned Departmental Representative further submitted that the first appellate authority has observed that section 140A(1) is not applicable to the block return.
This observation of the first appellate authority, according to the learned Departmental Representative, is not correct. The learned Departmental Representative invited our attention to section 158BC and submitted that the provisions of Income Tax Act, which are applicable for return filed under section 139(1) of the Income Tax Act, are also applicable as far as possible in respect of the return filed in response to a notice issued under section 158BC. Therefore, the provisions of section 140A(3) are applicable in respect of return filed in response to a notice issued under section 158BC as it would be applicable in respect of return filed under section 139(1) of the Income Tax Act.
The learned Departmental Representative further invited our attention to section 140A of the Income Tax Act and submitted that section 158BC was included by Finance Act, 1999, with effect from 1-6-1999. Though section 158BC was incorporated with effect from 1-6-1999, since section 140A is a machinery provision, the amendment carried out by Finance Act, 1999, incorporating section 158BC will be clarificatory in nature.
Therefore, it will have retrospective operation. According to the learned Departmental Representative, the amendment carried out by Finance Act, 1999, with effect from 1-6-1999 incorporating section 158BC in section 140A(1) will have retrospective operation and, therefore, the amended provisions of section 140A(1) would be applicable for the assessment year under consideration also.
The learned Departmental Representative further submitted that there is no specific provision under Chapter XIV-B of the Income Tax Act excluding the operation of section 140A(3). Therefore, according to the learned Departmental Representative, the assessee is liable to pay self-assessment tax before filing of the block return in response to notice issued under section 158BC.On the contrary, Mr. V.D. Gopal, the learned counsel for the assessee submitted that admittedly the assessee filed the block return in response to a notice issued under section 158BC on 13-11-1996. The provisions of section 140A as it stood on 13-11-1996 does not provide for payment of any self-assessment tax when the return was filed under section 158BC for the block period. Section 140A was amended by the legislature with effect from 1-6-1999 requiring the assessees who are filing the block return to pay the self-assessment tax in respect of return filed under section 158BC also. Even though section 140A(1) is a machinery provision, for collection of taxes, levy of penalty under section 221 for a default committed under section 140A cannot be construed as a machinery provision. According to the learned counsel, section 221(1) of the Income Tax Act which enables the assessing officer to levy penalty when the assessee was deemed to be in default for payment of taxes, has to be construed as a substantive provision.
Therefore, according to the learned counsel for the assessee, the amendment carried out by the legislature by Finance Act, 1999, with effect from 1-6-1999 incorporating section 158BC in section 140A(1) has to be taken as prospective in operation. According to the learned counsel, the legislature does not clarify anything which was already in existence. The legislature wanted to incorporate a new thing by including section 158BC in section 140A. Therefore, according to the learned counsel, at any stretch of imagination, the amendment carried out by Finance Act, 1999, cannot be treated as retrospective in operation. Therefore, according to the learned counsel for the assessee, the provisions of section 140A(1) is not applicable in respect of return filed by the assessee on 13-11-1996. Therefore, the assessee is not required to pay any tax under section 140A(1) of the Income Tax Act before filing of the block return under section 158BC.The learned counsel for the assessee further submitted that there is no provision under Chapter XIV-B of the Income Tax Act enabling the assessing officer to apply the provisions of section 140A(1). According to the learned counsel, there is no necessity for a provision under Chapter XIV-B to exclude a particular provision of the Act. When Chapter XIV-B provides a special procedure for assessment of block return, there must be an express provision for application of section 140A(1) of the Income Tax Act. Since such a provision is absent in Chapter XIV-B of the Income Tax Act, the provisions of section 140A do not apply in respect of return filed under section 158BC for the block period.
The learned counsel for the assessee further submitted that penalty under section 221 of the Income Tax Act cannot be levied when there is a reasonable cause on the part of the assessee for not paying the tax.
In this case, the entire stock and liquid cash was seized by the department during the course of survey. The assessee was left with day-to-day earnings for his survival. Therefore, the assessee requested the assessing officer and the other authorities to permit the assessee to pay the tax in instalments. The proposal submitted by the assessee for paying the tax in instalment was not rejected by the IT authorities. Therefore, according to the learned counsel, there was a reasonable cause on the part of the assessee in not paying the taxes as per the return of income. The learned counsel further submitted that the first appellate authority has found that the assessee has no liquid source and the proposal for payment of tax in instalment was not negativated. This finding of the first appellate authority was not challenged by the revenue before this Tribunal by raising any ground of appeal. Therefore, according to the learned counsel, it has to be presumed that the finding recorded by the first appellate authority was accepted by the revenue. Once the finding with regard to reasonable cause was accepted and it was not challenged before the Tribunal, no penalty could be imposed in view of second proviso to section 221(1) of the Income Tax Act.
We have considered the rival submissions on either side, and perused the material on record. The first issue arises for consideration is whether the assessee is required to pay self-assessment tax under section 140A(1) of the Income Tax Act when the return of income was filed in response to a notice issued under section 158BC. Admittedly, the return for the block period was filed under section 158BC on 13-11-1996. As on 13-11-1996, section 140A(1) does not require any assessee to pay tax when the return was filed under section 158BC.However, section 140A(1) of the Income Tax Act was amended by the Finance Act, 1999, with effect from 1-6-1999 incorporating section 158BC making the assessee liable to pay tax before furnishing return under section 158BC and also file the proof of payment along with return. Therefore, it is very clear that as on 13-11-1996, when the return was filed by the assessee for the block period under section 158BC, there was no requirement to pay tax under section 140A(1) of the Income Tax Act.
The next question arises for consideration is whether the amended provisions of section 140A(1) would be retrospective in operation or prospective in operation. The case of the revenue is that since section 140A(1) being a machinery provision, the amendment has to be treated as clarificatory, therefore, the amended provision will be retrospective in operation. We have also carefully gone through the notes on clauses which accompanied the Finance Bill, 1999, and also Memorandum Explaining the Provisions of Finance Bill, 1999, in order to find out the intention of the legislature while amending the provisions of section 140A(1). For the sake of convenience, we reproduce the notes on clauses and the memorandum explaining the provision which is reported in (1999) 236 ITR (St) 141 and 187. The Notes on Clauses read as follows : "Clause 63 seeks to amend section 140A of the Income Tax Act relating to self-assessment.
Under the existing provisions, if any tax is payable on the basis of any return required to be furnished under section 139 or section 142 or section 148, the assessee shall be liable to pay such tax along with interest payable under the Act before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest.
It is proposed to provide that any person before filing of the return under section 158BC shall also be liable to pay tax and interest in accordance with the provisions contained in sub-section (1) of section 140A.It is further proposed to provide that after a block assessment under section 158BC has been made, any amount paid under sub-section (1) of section 140A shall be deemed to have been paid towards the block assessment under section 158BC."Under section 140A of the Income Tax Act, the assessee is required to pay tax on the basis of income declared in the return and such tax is required to be paid before the return is furnished and the return is accompanied by the proof of such payment. The existing provisions of section 140A are not applicable to Chapter XIV-B relating to the assessment of the income of the block period in search and seizure cases. There is also no corresponding provision in Chapter XIV-B for payment of self-assessment tax at the time of filing the return.
Therefore, the tax on the admitted income declared in the return cannot be collected till the assessment is completed, In view of the above, it is proposed to amend section 140A of Income Tax Act to provide for the requirement of payment of self-assessment tax at the time of filing the return under section 158BC relating to block assessment of search cases.
On examining the above notes on clauses and memorandum, it is very clear that the legislature originally intended to make the assessee liable to pay taxes and interest when the return was filed under section 139 or under section 142 or under section 148. By the amendment, the legislature proposed to make those assessees who are filing the return under section 158BC also be liable to pay tax and interest under section 140A. It is also made clear in the Memorandum Explaining the Provisions of Finance Bill that the existing provisions of section 140A are not. applicable to Chapter XIV-B relating to assessment of income of the block period in search and seizure cases.
It is also admitted in the memorandum that the admitted tax declared in the return cannot be collected till the assessment is completed.
Therefore, the legislature intended to amend section 140A by incorporating section 158BC so as to make liable those persons who are filing return under section 158BC also. This clearly-shows that what was brought in the statute book by way of amendment is a new class of assessees. In other words, the legislature brought a section of assessiges whose income are subject to be assessed under Chapter XIV-B, in section 140A compelling them to pay self-assessment tax. Therefore, in our considered opinion, it cannot be said that the amendment was to clarify the existing position. In view of the above, in our considered opinion, the amended provisions of section 140A(1) will have prospective operation. Therefore, the amended provisions of section 140A(1) cannot be made applicable in respect of return filed on 13-11-1996.
The next objection of the revenue is that there is no provision under Chapter XIV-B for exclusion of operation of section 140A. Admittedly, Chapter XIV-B prescribes a special procedure for computation of income for the block period in search and seizure cases. Therefore, if the legislature wanted to apply the provisions of section 140A, they would have expressly stated so. The very fact that there is no provision in Chapter XIV-B for applying the provisions of section 140A, clearly shows that the legislature never intended to apply the provisions of section 140A before 1-6-1999. This was also made clear in the memorandum explaining the Finance Bill, 1999, by saying that there is no corresponding provision in Chapter XIV-B for payment of self assessment tax at the time of the filing the return. Since there is no express provision for application of section 140A under Chapter XIV-B, in our opinion, the provisions of section 140A are not applicable in respect of block return filed by the assessee on 13-11-1996.
We have also considered the objection of the revenue that section 140A is a machinery provision for the purpose of collecting the revenue.
Therefore, the amendment has to be treated as retrospective in operation. The question which arises for our consideration is whether a penalty can be imposed under section 221(1) of the Income Tax Act for failure of the assessee to pay the self-assessment tax under section 140A(1) of the Income Tax Act in respect of return filed under section 158BC on 13-11-1996. For the purpose of levying penalty under section 221(1) of the Income Tax Act, the assessee must be in default or deemed to be in default in payment of tax. Therefore, unless and until the assessee is liable to pay tax under section 140A(1) of the Income Tax Act before filing the return of income, in our considered opinion, the assessee cannot be treated as an assessee-in-default. Penalty proceedings are quasi criminal in nature. Therefore, there must be a violation of law on the part of the assessee before levying any penalty. Section 140A(1) is a deeming provision to treat the assessee in default if the interest and tax are not paid under section 140A(1).
From the memorandum explaining the amendment of section 140A(1) by including section 158BC, it is obvious that the legislature never intended that the assessee should pay the tax before filing of return in case of block assessment. Therefore, as on 13-11-1996, when the return was filed under section 158BC, there was no statutory provision requiring the assessee to pay the tax under section 140A(1). Therefore, in our view, there was no violation of any statutory provision.
Consequently, the assessee cannot be treated as assessee in default.
Therefore, we do not find any substance in the submission of the learned Departmental Representative that section 140A is only a machinery provision, therefore, the amendment would be retrospective in operation. Since the amendment brings the assessee into penal consequence, because of deeming provision, in our view, the amendment would have prospective operation and not retrospective operation.
There is another angle for considering this issue. Article 265 of the Constitution of India says that no tax shall be levied or collected except by authority of law. Therefore, for levying and collection of tax there must be an authority under the law. Normally, the assessee is liable to pay tax after completion of the assessment proceedings.
However, the Income Tax Act provides for payment of advance tax, tax at source and self-assessment tax. These taxes are collected by the department before completion of the assessment in view of the specific provisions contained in the Income Tax Act and respective Finance Act.
Therefore, for compelling the assessee to pay the tax before assessment, there must be an enactment by the Parliament. Under the Income Tax Act, regular assessment and block assessment are treated separately. Though the assessee while filing the return of income under sections 139, 142 and 148, was required to pay self assessment tax under section 140A as on 13-11-1996, in respect of block assessment, there is no provision either in the Income Tax Act or any of the Finance Act to compel the assessee to pay the tax before filing the return. Therefore, there was no authority of law as on 13-11-1996 to compel the assessee to pay the self-assessment tax under section 140A(1) before filing of return on 13-11-1996. The Parliament enacted the law by Finance Act, 1999, with effect from 1-6-1999, requiring those assessees who file the return of income under section 158BC also to pay the tax and interest under section 140A(1). Therefore, in our considered opinion, as on 13-11-1996, the assessee cannot be treated as an assessee deemed to be in default under section 140A(1) of the Income Tax Act. Therefore, no penalty can be imposed under section 221(1) of the Income Tax Act.
As rightly contended by the learned counsel for the assessee, the assessee has submitted a proposal for payment of tax in instalment.
Admittedly, the entire stock and liquid cash were under the custody of the department. Under those circumstances, the first appellate authority found that there was a reasonable cause on the part of the assessee for not paying the tax before filing the return of income.
This finding of the first appellate authority is not challenged before this Tribunal by the revenue. Therefore, in view of second proviso to section 221(1) of the Income Tax Act, no penalty could be imposed.
In view of the above discussion, we do not find any infirmity in the order of the lower authority. Accordingly, we confirm the same.