S.M. Ahmed Taj and Sons Vs. Income Tax Officer - Court Judgment

Excerpt:
1. these two appeals, filed by the assessee, are consolidated and disposed of by this common order as the issue involved is the same.2. the assessment years involved are 1981-82 and 1982-83. the sole question to be decided in these appeals is whether penalty under s.271(1)(a) of the it act, is liable to be imposed in a proceeding under s. 148, for the delay in filing the original returns though no penalty proceedings under s. 271(1)(a) were initiated in the original assessments for the two years in question.3. the assessee is a registered firm. the previous years for the asst.yrs. 1981-82 and 1982-83 ended on 31st march, 1981, and 31st march, 1982, respectively. the original assessments were completed on 19th march, 1983, and 6th jan., 1987, respectively, for the two years in question. there was a survey under s. 133a in the business premises of the assessee on 18th oct., 1988. in the course of the survey it was noticed that the closing stock declared by the assessee for the asst.yrs. 1981-82 and 1982-83 was less than the closing stock declared before the commercial tax department. hence, the assessments were reopened under s. 147(a) of the it act, 1961. notice under s. 148 was issued to the assessee on 9th jan., 1989. notice under s. 142(1) was also issued to the assessee on 22nd feb., 1989. in response to the notices the assessee raised an objection that the sales and stock declared to the commercial tax department were only tentative figures before the books were checked and, after the books were verified statements had been prepared and the actual sales and closing stock had been declared to the it department. it was further stated that sales declared to the it department for the asst. yr. 1982-83, was more than what was declared to the commercial tax department. it was the case of the assessee that extra sales declared covered up the alleged deficiency of stock shown to the it department. the ito verified the assessee's books and sales registers in great detail and found that the sales declared to the it department was more than the one declared to the commercial tax department for the asst. yr. 1981-82 the difference in sales offered to the it department was rs. 1,68,900 and the difference in closing stock was rs. 1,45,416. the sale proceeds over the difference in stock of rs. 1,45,416 worked out to rs. 1,70,201 as against the extra sale of rs. 1,68,900 declared. the difference of rs. 1,300 was brought to tax as suppression of sales.for the asst. yr. 1982-83, the sales declared to the it department was rs. 5,70,378 as against rs. 4,50,378 declared to the commercial tax department. the deficiency in stock being rs. 75,721 was covered up in the extra sales of rs. 1,20,000 declared. as such, it was contended on behalf of the assessee, that no addition was called for on this ground.during the survey it was noticed that in the account of m/s ksfic, dandeli, the amount shown as due as on 31st march, 1984, was more than what was actually due as on that date. when enquired into, it was found that during the asst. yrs. 1980-81, 1981-82 and 1982-83, the assessee had paid rs. 1,30,075 outside the books. the assessee filed revised return offering rs. 36,100 for tax, for the asst. yr. 1981-82 and rs. 32,800 for asst. yr. 1982-83 for tax, in addition to the income declared earlier. this had been accepted and the assessments completed for the above two assessment years.4. subsequently, the department initiated penalty proceedings under s.271(1)(a) for the delay in filing the original returns of income for the above two assessment years. for the asst. yr. 1981-82, the return was due on 31st july, 1981, but was filed only on 18th feb., 1983.there was a delay of 18 months. for the asst. yr. 1982-83 the return was due on 31st july, 1982, but was actually filed only on 20th jan., 1986, thereby causing a delay of about 41 months. the explanation offered by the assessee was that the delay in filing the returns of income was due to its auditor being out of station. a request was made for dropping of the penalty proceedings. the ito was not satisfied with the above explanation. according to him, since the reopened assessments under s. 147(a) resulted in positive income the assessee was liable to penal action under s. 271(1)(a) of the it act. thus, he levied a penalty of rs. 8,670 for the asst. yr. 1981-82 and rs. 7,360 for the asst. yr. 1982-83.5. the assessee did not succeed in the appeals preferred to the first appellate authority. hence the present appeals by the assessee before us.6. it is contended on behalf of the assessee that penalty proceedings initiated under s. 271(1)(a) in the reopened proceedings for the delay occurred in filing of the original returns of income is not justified without any initiation of penalty proceedings under s. 271(1)(a) in the course of the original assessment proceedings. it is argued that in the original assessment proceeding under s. 143(1)(a) no penalty proceedings for the asst. yrs. 1981-82 and 1982-83 were initiated. the learned counsel for the assessee admitted that for the asst. yr.1981-82 the return was due on 31st july, 1981, but was filed on 18th feb., 1983, and, for the asst. yr. 1982-83, the return was filed on 20th jan., 1986, whereas it was due to be filed on or before 31st july, 1982. the proceedings under s. 148 notice were initiated on 9th jan., 1988, and were completed on 21st march, 1989, and 20th jan., 1989, respectively. the assessments, under s. 143(1) were completed on 19th march, 1983, and 6th jan., 1987, respectively for the asst. yrs.1981-82 and 1982-83 without initiating any penal proceedings under s.271(1)(a). compliance to notices under s. 148 was not delayed. penal proceedings were initiated in the reopening proceedings, with reference to the delay in filing the original returns of income. this, the learned counsel for the assessee, submitted is not justified. he placed reliance at page 5855 of the commentaries of chaturvedi and pithisaria on income-tax law, 4th edition, vol. v. according to the learned counsel for the assessee, the ito had a second innings. it is contended that initiation of penalty proceedings under s. 271(1)(a) for the delay in respect of the filing of the original returns, in a proceeding after issue of notice under s. 148, is fatal. he accordingly submitted that the orders imposing penalties for the two assessment years be quashed.7. on the other hand, the learned departmental representative contended that on the income returned in the original returns no penalty could have been imposed as no tax was due on the basis of those returns.there was a survey. it was only after the revised returns were filed the assessments were concluded on positive incomes of rs. 70,110 and rs. 55,190 were assessed. it was only thereafter that the ito could have initiated penalty proceedings. he submitted that but for the survey these amounts could not have been brought to tax. if the survey was not conducted the department would not have known what was the actual income of the assessee for the two assessment years under consideration. according to the learned departmental representative there are honest and dishonest taxpayers. according to him, the law does not prevent the taxing authorities from initiating penal proceedings under s. 271(1)(a) on the basis of the income returned in the revised returns in response to notice under s. 148. for this proposition, he placed reliance on the judgment of the supreme court in the case of cit vs. sun engineering works (p) ltd. (1992) 198 itr 297 (sc) : (1992) 64 taxman 442 (sc), particularly the observations at page 455. he further argued that the commentary at page 5855 of chaturvedi and pithisaria on income-tax law is based on the decision of the calcutta high court in the case of b. p. bajoria vs. cit (1982) 135 itr 734 (cal). accordingly he contended that the orders of penalty have to be sustained.8. on a careful consideration of the above rival submissions, we hold that the initiation of penalty proceedings, under s. 271(1)(a), for the delay in filing the original returns, in the reassessment proceedings, without initiation of penalty proceedings in the course of the original assessment proceedings is fatal. in other words, non-initiation of penalty proceedings in the original assessments proceedings under s.143(1) and initiation of penalty proceedings under s. 271(1)(a) in respect of the delay in the original returns of income subsequent to filing of the revised returns of income in response to notices under s.148 is fatal. under s. 271(1)(a) the ito can levy penalty if he is satisfied that the assessee has, without reasonable cause, failed to furnish the return of income or has without reasonable cause failed to furnish it within the time allowed. here, there is no dispute that the assessee did file the returns of income for the two assessment years in question. but the assessee filed the returns late. the delay in filing the returns occurred while filing the original returns. there is no dispute that the compliance to the notices under s. 148 was in time.so, the returns in respect of which the delay occurred is the original returns. therefore, the ito could have initiated penalty proceedings immediately after the completion of the assessments based on the original returns. the delay occurred in filing the original returns is not originally considered for initiation of penalty proceedings. in the original assessments it is decided that no penalty proceedings need be taken for the reason that no tax is due originally. subsequent to the survey under s. 133a the assessee filed revised returns showing positive income for the asst. yr. 1981-82 and 1982-83. we do not find any provision in the act empowering the ito to initiate penal action under s. 271(1)(a) while considering revised returns filed in response to notice under s. 148 for the purpose of making reassessment. hence, we hold that the authorities below were not justified in imposing penalty on the assessee for the asst. yrs. 1981-82 and 1982-83 on the basis of the income assessed in the reopened assessment without initiating penalty proceedings in the original assessment stage for the delay in filing the returns of income originally. we, therefore, cancel the orders of penalty.

Judgment:
1. These two appeals, filed by the assessee, are consolidated and disposed of by this common order as the issue involved is the same.

2. The assessment years involved are 1981-82 and 1982-83. The sole question to be decided in these appeals is whether penalty under s.

271(1)(a) of the IT Act, is liable to be imposed in a proceeding under s. 148, for the delay in filing the original returns though no penalty proceedings under s. 271(1)(a) were initiated in the original assessments for the two years in question.

3. The assessee is a registered firm. The previous years for the asst.

yrs. 1981-82 and 1982-83 ended on 31st March, 1981, and 31st March, 1982, respectively. The original assessments were completed on 19th March, 1983, and 6th Jan., 1987, respectively, for the two years in question. There was a survey under s. 133A in the business premises of the assessee on 18th Oct., 1988. In the course of the survey it was noticed that the closing stock declared by the assessee for the asst.

yrs. 1981-82 and 1982-83 was less than the closing stock declared before the Commercial Tax Department. Hence, the assessments were reopened under s. 147(a) of the IT Act, 1961. Notice under s. 148 was issued to the assessee on 9th Jan., 1989. Notice under s. 142(1) was also issued to the assessee on 22nd Feb., 1989. In response to the notices the assessee raised an objection that the sales and stock declared to the Commercial Tax Department were only tentative figures before the books were checked and, after the books were verified statements had been prepared and the actual sales and closing stock had been declared to the IT Department. It was further stated that sales declared to the IT Department for the asst. yr. 1982-83, was more than what was declared to the Commercial Tax Department. It was the case of the assessee that extra sales declared covered up the alleged deficiency of stock shown to the IT Department. The ITO verified the assessee's books and sales registers in great detail and found that the sales declared to the IT Department was more than the one declared to the Commercial Tax Department For the asst. yr. 1981-82 the difference in sales offered to the IT Department was Rs. 1,68,900 and the difference in closing stock was Rs. 1,45,416. The sale proceeds over the difference in stock of Rs. 1,45,416 worked out to Rs. 1,70,201 as against the extra sale of Rs. 1,68,900 declared. The difference of Rs. 1,300 was brought to tax as suppression of sales.

For the asst. yr. 1982-83, the sales declared to the IT Department was Rs. 5,70,378 as against Rs. 4,50,378 declared to the Commercial Tax Department. The deficiency in stock being Rs. 75,721 was covered up in the extra sales of Rs. 1,20,000 declared. As such, it was contended on behalf of the assessee, that no addition was called for on this ground.

During the survey it was noticed that in the account of M/s KSFIC, Dandeli, the amount shown as due as on 31st March, 1984, was more than what was actually due as on that date. When enquired into, it was found that during the asst. yrs. 1980-81, 1981-82 and 1982-83, the assessee had paid Rs. 1,30,075 outside the books. The assessee filed revised return offering Rs. 36,100 for tax, for the asst. yr. 1981-82 and Rs. 32,800 for asst. yr. 1982-83 for tax, in addition to the income declared earlier. This had been accepted and the assessments completed for the above two assessment years.

4. Subsequently, the Department initiated penalty proceedings under s.

271(1)(a) for the delay in filing the original returns of income for the above two assessment years. For the asst. yr. 1981-82, the return was due on 31st July, 1981, but was filed only on 18th Feb., 1983.

There was a delay of 18 months. For the asst. yr. 1982-83 the return was due on 31st July, 1982, but was actually filed only on 20th Jan., 1986, thereby causing a delay of about 41 months. The explanation offered by the assessee was that the delay in filing the returns of income was due to its auditor being out of station. A request was made for dropping of the penalty proceedings. The ITO was not satisfied with the above explanation. According to him, since the reopened assessments under s. 147(a) resulted in positive income the assessee was liable to penal action under s. 271(1)(a) of the IT Act. Thus, he levied a penalty of Rs. 8,670 for the asst. yr. 1981-82 and Rs. 7,360 for the asst. yr. 1982-83.

5. The assessee did not succeed in the appeals preferred to the first appellate authority. Hence the present appeals by the assessee before us.

6. It is contended on behalf of the assessee that penalty proceedings initiated under s. 271(1)(a) in the reopened proceedings for the delay occurred in filing of the original returns of income is not justified without any initiation of penalty proceedings under s. 271(1)(a) in the course of the original assessment proceedings. It is argued that in the original assessment proceeding under s. 143(1)(a) no penalty proceedings for the asst. yrs. 1981-82 and 1982-83 were initiated. The learned counsel for the assessee admitted that for the asst. yr.

1981-82 the return was due on 31st July, 1981, but was filed on 18th Feb., 1983, and, for the asst. yr. 1982-83, the return was filed on 20th Jan., 1986, whereas it was due to be filed on or before 31st July, 1982. The proceedings under s. 148 notice were initiated on 9th Jan., 1988, and were completed on 21st March, 1989, and 20th Jan., 1989, respectively. The assessments, under s. 143(1) were completed on 19th March, 1983, and 6th Jan., 1987, respectively for the asst. yrs.

1981-82 and 1982-83 without initiating any penal proceedings under s.

271(1)(a). Compliance to notices under s. 148 was not delayed. Penal proceedings were initiated in the reopening proceedings, with reference to the delay in filing the original returns of income. This, the learned counsel for the assessee, submitted is not justified. He placed reliance at page 5855 of the Commentaries of Chaturvedi and Pithisaria on Income-tax Law, 4th Edition, Vol. V. According to the learned counsel for the assessee, the ITO had a second innings. It is contended that initiation of penalty proceedings under s. 271(1)(a) for the delay in respect of the filing of the original returns, in a proceeding after issue of notice under s. 148, is fatal. He accordingly submitted that the orders imposing penalties for the two assessment years be quashed.

7. On the other hand, the learned Departmental Representative contended that on the income returned in the original returns no penalty could have been imposed as no tax was due on the basis of those returns.

There was a survey. It was only after the revised returns were filed the assessments were concluded on positive incomes of Rs. 70,110 and Rs. 55,190 were assessed. It was only thereafter that the ITO could have initiated penalty proceedings. He submitted that but for the survey these amounts could not have been brought to tax. If the survey was not conducted the Department would not have known what was the actual income of the assessee for the two assessment years under consideration. According to the learned Departmental Representative there are honest and dishonest taxpayers. According to him, the law does not prevent the taxing authorities from initiating penal proceedings under s. 271(1)(a) on the basis of the income returned in the revised returns in response to notice under s. 148. For this proposition, he placed reliance on the judgment of the Supreme Court in the case of CIT vs. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC) : (1992) 64 Taxman 442 (SC), particularly the observations at page 455. He further argued that the commentary at page 5855 of Chaturvedi and Pithisaria on Income-tax Law is based on the decision of the Calcutta High Court in the case of B. P. Bajoria vs. CIT (1982) 135 ITR 734 (Cal). Accordingly he contended that the orders of penalty have to be sustained.

8. On a careful consideration of the above rival submissions, we hold that the initiation of penalty proceedings, under s. 271(1)(a), for the delay in filing the original returns, in the reassessment proceedings, without initiation of penalty proceedings in the course of the original assessment proceedings is fatal. In other words, non-initiation of penalty proceedings in the original assessments proceedings under s.

143(1) and initiation of penalty proceedings under s. 271(1)(a) in respect of the delay in the original returns of income subsequent to filing of the revised returns of income in response to notices under s.

148 is fatal. Under s. 271(1)(a) the ITO can levy penalty if he is satisfied that the assessee has, without reasonable cause, failed to furnish the return of income or has without reasonable cause failed to furnish it within the time allowed. Here, there is no dispute that the assessee did file the returns of income for the two assessment years in question. But the assessee filed the returns late. The delay in filing the returns occurred while filing the original returns. There is no dispute that the compliance to the notices under s. 148 was in time.

So, the returns in respect of which the delay occurred is the original returns. Therefore, the ITO could have initiated penalty proceedings immediately after the completion of the assessments based on the original returns. The delay occurred in filing the original returns is not originally considered for initiation of penalty proceedings. In the original assessments it is decided that no penalty proceedings need be taken for the reason that no tax is due originally. Subsequent to the survey under s. 133A the assessee filed revised returns showing positive income for the asst. yr. 1981-82 and 1982-83. We do not find any provision in the Act empowering the ITO to initiate penal action under s. 271(1)(a) while considering revised returns filed in response to notice under s. 148 for the purpose of making reassessment. Hence, we hold that the authorities below were not justified in imposing penalty on the assessee for the asst. yrs. 1981-82 and 1982-83 on the basis of the income assessed in the reopened assessment without initiating penalty proceedings in the original assessment stage for the delay in filing the returns of income originally. We, therefore, cancel the orders of penalty.