| SooperKanoon Citation | sooperkanoon.com/69370 |
| Court | Income Tax Appellate Tribunal ITAT Amritsar |
| Decided On | Feb-19-1998 |
| Reported in | (1998)67ITD425(Asr.) |
| Appellant | Gokal Chand Shammi Kumar |
| Respondent | income Tax Officer |
2. The appellant filed return of income on 29th June, 1986, showing income of Rs. 1,09,538 and assessment was completed by the ITO under s.
143(3) on an income of Rs. 1,28,677. The AO observed that the appellant was required to get the accounts audited in accordance with s. 44AB of the IT Act, 1961, because the sale exceeded to Rs. 40,00,000. The appellant filed accounts for the first period running from 27th August, 1986 to 15th August, 1987, and reflected sale of Rs. 29,95,264 and for the second period from 16th August, 1987, to 31st March, 1988, the appellant reflected sale of Rs. 16,61,549. The AO issued show-cause notice dt. 21st February, 1990, to explain why penalty under s. 271B may not be imposed. The appellant filed reply on 5th March, 1990 and took the plea that the asst. yr. 1988-89 was transitional period for change of the previous year to financial year which increased the period of previous year beyond 12 months and consequently the sale exceeded minimum limit of Rs. 40,00,000. The appellant also took plea before the AO that no such proceedings were initiated along with 143(3). In response to another show-cause notice the appellant took plea before the AO that the appellant had applied for change of previous year and no reply was received and, therefore, he was not clear in consolidating and finalisation of its accounts. The AO was of the opinion that the stand taken by the appellant is not borne out from the records. The AO observed that the appellant applied for change of previous year on 29th March, 1988, whereas previous year was ended on 15th August, 1987. According to him this proves that the appellant has already taken for granted that his request for change of previous year was granted by the ITO. The AO also observed that there is nothing on record to establish the pleading of the appellant that the change of previous year was granted by the ITO at the time of assessment and ITO agreed not to initiate penalty proceedings under s. 271(1)(c). He accordingly imposed penalty amounting to Rs. 23,284.
3. Aggrieved with the finding of the AO, the appellant filed appeal before the CIT(A). The appellant pleaded before the CIT(A) that penalty proceedings were initiated because of the audit report of internal audit party and penalty was agreed to be dropped. Consequently, officer changed opinion and as such penalty is illegal. The CIT(A) gave following findings : "On perusal of the penalty order, there appears to be nothing in it to show that the penalty proceedings have been initiated at the instance of any audit report. Furthermore, a plain reading of s.
271B itself shows that it is nowhere incumbent upon the AO to initiate the penalty proceedings thereunder in the course of assessment proceedings itself. The objection raised by the appellant in appeal is not tenable and is, therefore, not entertained. In regard to the appellant's contention that it was not aware of the AO's decision on its application for change in the accounting period, I agree with the AO that since in filing the return for the accounting period of more than 19 months i.e. from 27th August, 1986, to 31st March, 1988, the appellant had itself taken as granted, its request for change in the accounting period, according to the option exercised by it under the provisions of s. 3 of the Act. Since the appellant had itself applied to opt for an accounting period of more than 12 months and in case, the total turnover for that accounting period exceeded the statutory limit of Rs. 40,00,000, it was incumbent upon it to comply with the provisions of s. 44AB of the Act, which it failed to comply. Since there is no reasonable cause made by the appellant within the meaning of s. 273B of the IT Act, I decline to interfere and confirm the penalty imposed by the appellant".
Aggrieved against the CIT(A), the learned counsel of the appellant has taken similar stand as was taken before the AO as well as CIT(A).
4. The learned Departmental Representative relied on the order passed by the authorities below.
5. The first issue raised by the learned counsel relates to the initiation of proceedings along with assessment order. The learned counsel of the appellant has taken the stand that the penalty proceedings have been initiated due to audit objection. He has relied on the decision of the Hon'ble Supreme Court, decided in the case of Indian & Eastern Newspaper Society vs. CIT (1979) 119 ITR 996 (SC).
This issue on the facts has been dealt by the AO as well as by the CIT(A) who have categorically denied the fact that the penalty proceedings have been started due to the audit objection raised by the internal audit party. The application of case law as cited has to be analysed from the legal point of view. In Indian & Eastern Newspaper Society (supra), the issue to be decided was whether the information based on audit objection can form information for the purpose of invoking s. 147(b). The Hon'ble Supreme Court held that the opinion of audit party on a point of law could (sic-not) be regarded as information for initiating penalty (sic) proceedings under s. 147(b) of the IT Act, 1961. In the case of the appellant the AO has only to frame a prima facie belief, if appellant has committed a default as envisaged under s. 271B. The decision of the Hon'ble Supreme Court does not make function of audit party as illegal or without jurisdiction. Many situations and opinions of audit party are well within their competence and audit party can inform various mistakes and tax authority can take action, it permissible under the law. We, therefore, consider that the ratio of Hon'ble Supreme Court is not applicable on the facts and circumstances of the case. More so authorities below have denied that the penalty proceedings were started on audit objection.
6. The second point taken by the learned counsel relates to application filed by the appellant for change of accounting year. The learned counsel of the appellant has pleaded for the asst. yr. 1988-89, the accounting period of the previous year was to close with the financial year. The learned counsel has also drawn our attention to instruction : F. No. 165/4/1988-ITA(A-1), dt. 4th February, 1988, and submitted that the CBDT has observed in the said circular that if there are assessees who will like to extend their previous year relevant to the asst. yr.
1988-89 to 31st March, 1988. Such requests for the change of accounting year may be liberally allowed by the assessing authorities under the provisions of s. 3(4), subject to the condition that the adoption of such a longer previous year does not result in any loss of revenue. The learned counsel pleaded that since no information was received from the authorities with respect to the application filed by him on 29th March, 1988, they did not audit their accounts as envisaged under s. 44AB of the IT Act, 1961.
7. This issue has been discussed by the authorities below. The AO has rightly held that if the appellant was going to change previous year for the assessment year under consideration, he should have filed an application before the end of previous year as already adopted by the appellant which was ended on 15th August, 1987. The CIT(A) has also decided this issue with the observation that the appellant had taken it himself that his request to change of previous year stands already accepted. One has to look into the conduct of the appellant and by filing a return of income for the asst. yr. 1988-89, the appellant has taken previous year as extended up to 31st March, 1988. The applicability or otherwise of s. 44AB arose after he took a decision of treating the previous year for 19 months by filing of the return which was also in accordance with the decision of filing the return for 19 months. The accounts of both the periods were available and it was in his knowledge that his sale has exceeded Rs. 40,00,000. It was immaterial whether extension was granted or otherwise but he closes his previous year on 31st March, 1988, and during the previous year sale exceeded Rs. 40,00,000, he has to file a audit certificate under s.
44AB along with his return. We, are, therefore, unable to accept this as reasonable cause. We have also gone through s. 44AB which is in operation from 1st April, 1985, and section clearly says that every person carrying on business or profession has to get his accounts of such previous year audited by an accountant, if total turnover exceeds sum of Rs. 40,00,000 in any previous year : Whatever may be the reasons and whosoever may by the authorities, in case the appellant chooses a particular previous year and files return in accordance with that previous year, he has to get his accounts audited, if his sale exceeds the limit of Rs. 40,00,000. The appellant filed a return of income on 29th June, 1988, and in the said return, the appellant mentioned previous year ended as on 31st March, 1988. Assessment itself was completed on 13th December, 1988. We are of the opinion that this cannot constitute reasonable cause for the appellant.
8. The third ground taken by the learned counsel of the appellant is that the penalty was not initiated during assessment proceedings.
Therefore, penalty is bad in law and ab initio. The learned counsel has relied on the decision of Tribunal in the case of H. Ajitbhai & Co. vs.
Asstt. CIT (1993) 47 TTJ (Ahd) 22 : (1993) 45 ITD 262 (Ahd). The learned counsel of the appellant has submitted that the Hon'ble Tribunal has interpreted s. 275, giving the meaning to s. 275 to the extent that the impact of the interpretation will lead to holding the view that the AO could not have validly initiated the penalty proceedings under s. 271B after completion of the assessment proceedings. The learned counsel has also drawn our attention to the interpretation of 'word' may direct that such person shall pay by way of penalty which incorporated that by not mentioning the initiation of penalty, discretion stands already exercised in favour of the appellant. We would like to discuss the second issue which requires the interpretation of the word 'may' prior to 10th September, 1986, s. 271B was incorporated as follows : "If any person fails 'without reasonable cause' to get his accounts audited in respect of any previous year or (furnish a report of such audit as required under s. 44AB), the AO may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred thousand rupees whichever is less." With effect from 10th September, 1986, the word 'without reasonable cause' was removed by legislature. This action of the legislature clearly indicates that the penalty was not left as a purely discretionary power with the AO. However, since the entire section is controlled by s. 273B incorporated from 10th September, 1986, which mentions that penalty under s. 271B cannot be imposed, if the appellant explains reasonable cause. We are of the opinion that if AO does not initiate or impose penalty under s. 271B within the period envisaged under s. 275 then it will be presumed that he has used his discretion and applied his mind in not imposing penalty. This cannot become an issue for invoking s. 263 of the IT Act.
9. The second relevant and related issue is regarding initiation of penalty proceedings along with assessment order. The learned counsel of the appellant has pleaded, relying on the decision cited, if the AO will not or fails to issue penalty proceedings along with assessment order, he cannot issue the same after the completion of the assessment order. He is of the opinion that the AO has apparently not initiated penalty proceedings during the assessment order. Therefore, same cannot be issued after completion of the assessment order. Even though imposition of the penalty proceedings is passed within time-limit prescribed by s. 275 of the IT Act.
10. In the case of H. Ajitbhai & Co. (supra), the Hon'ble Tribunal has agreed that the s. 271B or any other provisions of the Act, nowhere expressly prescribed the period of limitation for initiation of penalty proceedings under s. 271B. However, they are interpreting the s. 271B that the period is to be calculated from the end of financial year in which proceedings in the course of which action for imposition of penalty has been initiated.
"(1) No order imposing a penalty under this Chapter shall be passed - (a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Dy. CIT(A) or the CIT(A) under s.
246 or an appeal to the Tribunal under s. 253, 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 the order of the Dy. CIT(A) or the CIT(A) or, as the case may be, the Tribunal is received by the Chief CIT or CIT, whichever period expires later; (b) in a case where the relevant assessment or other order is the subject-matter of revision under s. 263, after the expiry of six months from the end of the month in which such order of revision is passed; (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 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.
(2) The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall apply to and in relation to any action initiated for the imposition of penalty on or before the 31st day of March, 1989." 12. The learned Supreme Court has dealt with the issue in the case of Varkey Chacko vs. CIT (1993) 203 ITR 885 (SC). The Hon'ble Supreme Court has given finding which is reproduced as follows : "A penalty for concealment of particulars of income or for furnishing inaccurate particulars of income can be imposed when the assessing authority is satisfied that there has been such concealment or furnishing of inaccurate particulars. A penalty proceeding, therefore, can be initiated only after an assessment order has been made which finds such concealment or furnishing of inaccurate particulars, who, at this point of time, has the authority to impose the penalty is what is relevant. Whoever this authority may be, he is obliged to impose such penalty is what is relevant. Whoever this authority may be, he is obliged to impose such penalty as was permissible under the law in that behalf on the date on which the offence of concealment of income was committed, that is to say, on the date of offending return. The two aspects must firmly be borne in mind, namely, who may impose the penalty and in what measure." From the decision of the Hon'ble Supreme Court, it is quite clear that the penalty proceedings can be initiated only after an assessment order is made. The Hon'ble Supreme Court has indirectly interpreted that it is not essential to initiate penalty proceedings and mention the same in the assessment order. The main emphasis in the decision is that at the time of imposition of the penalty, the AO should have jurisdiction which is valid and in accordance with the law. In the present case after the completion of the assessment a show-cause notice was issued to the appellant which clearly shows that it was during the assessment proceedings that the AO came to know that the appellant violated the provisions of s. 44AB and consequently after the assessment proceedings, a show-cause notice was issued. Even for arguments sake, any authority working under the AO or supporting authority to AO can also point out that the appellant has violated the provisions of law.
In any case, there is no time-limit as admitted by the Hon'ble Tribunal in H. Ajitbhai & Co. (supra), still for either framing the opinion or initiation of the penalty, the opinion has to be framed in any proceeding.
13. The Hon'ble Delhi High Court decided this issue in the case of Addl. CIT vs. J. K. D'Costa (1982) 133 ITR 7 (Del), the observations of Hon'ble Delhi High Court are reproduced as follows : "We, therefore, agree with the view taken by the Tribunal that the penalty proceedings do not form part of the assessment proceedings and that the failure of the ITO to record in the assessment order his satisfaction or the lack of it in regard to the leviability of penalty cannot be said to be a factor vitiating the assessment order in any respect. As assessment cannot be said to be erroneous or prejudicial to the interest of the Revenue because of the failure of the ITO to record his opinion about the leviability of penalty in the case. We, therefore, answer the first question referred to us in the affirmative and in favour of the assessee." Against the order of the Hon'ble Delhi High Court, the Revenue filed SLP before the Hon'ble Supreme Court. The Hon'ble Supreme Court decided the issue and dismissed the SLP filed by the Revenue. The revision order is reproduced as follows : "2.3.84 : Their Lordships P. M. Bhagwati and A. N. Sen, JJ. dismissed, as not being a fit case in which the question arising in the special leave petition should be decided, a special leave petition by the Department against the judgment dt. 27th April, 1981 of the Delhi High Court in IT Ref. No. 82 of 1974, Addl. CIT vs. J. K. D'Costa (1982) 133 ITR 7 (Del), whereby the High Court, on a reference, held that the CIT in a suo motu revision under s. 263 of the IT Act, 1961, of an assessment proceedings, was not entitled to set aside the assessment order on the ground that there was no mention of initiation of penalty proceedings in the assessment order, and to direct the ITO to make fresh assessment and to initiate penalty proceedings : CIT vs. J. K. D'Costa : S.L.P. (Civil) Nos. 11391-11392 of 1981." 14. One has to read the purpose of s. 275. It is not for the judicial authorities to incorporate meaning to a particular section for which it does not stand for. That power is exclusively domain of the legislature. The purpose of s. 275 is to provide a period of limitation for completion of penalty proceedings. By directly, indirectly, impliedly or even by any sort of interpretation, it will be difficult and illogical for us to give a meaning to the section so that we can interpret the s. 275 so that the section will deal with initiation of penalty proceedings. The words 'in the course of which the proceedings are nothing but descriptive part of proceedings giving two years period or six month as the case may be from the end of the financial year in which proceedings resulting into the action or cause by which the penalty proceedings have been initiated. There has to be proceedings in a previous year which will give a logical conclusion for coming to a finding that the appellant has violated some or any provisions of the Act and then the limitation will start from the two years or six months of such proceedings. In the instant case, proceedings were the assessment proceedings and penalty was imposed within the period prescribed under s. 275. It has been held by various Courts that s. 275 does not prescribe any requirement by commencement of proceedings for imposition of penalty.
15. The issue has come before the Hon'ble Supreme Court in the case of D. M. Manasvi vs. CIT (1972) 86 ITR 557 (SC) whereby they have supported the contention that the s. 275 does not prescribe requirement regarding the commencement of proceedings for imposition of penalty.
The issue has also come before the various Courts. The origin of the controversy started from the decision of the Hon'ble Calcutta High Court in the case of Guru Prasad Shaw vs. CIT (1944) 12 ITR 233 (Cal) whereby the Hon'ble High Court has laid the law and held that in case officer concerned was satisfied regarding the violation of law which envisages penalty during the course of proceedings, he might issue a notice even after completion of the assessment. This was followed by the Hon'ble Kerala High Court in the case of S. S. Venkatardi Iyer & Bros. vs. CIT (1958) 33 ITR 281 (Ker), Madras High Court in the case of Artisans Press Ltd. vs. ITAT & Anr. (1958) 33 ITR 670 (Mad) and Hon'ble Andhra Pradesh High Court in the case of Chennuru Venkataramanaiah Chetty & Bros. vs. ITO (1959) 37 ITR 533 (AP).
In the case of the appellant there were proceedings where it is established that notice of hearing was issued after completion of the assessment and penalty was completed within the time-limit prescribed under s. 275. We find no legal infirmity whatsoever committed by the authorities below. We would also like to mention the law as decided by the Hon'ble Andhra Pradesh High Court in the case of Addl. CIT vs. N.V. Ganapathi Rao (1978) 115 ITR 277 (AP). The esteemed opinion is reproduced as follows : "It should be remembered that, while interpreting the provisions of a taxing statute, nothing is to be read in, nothing is to be implied one can only look fairly at the language used. One has to look merely at what is clearly said. The language of s. 275 is clear and explicit. It is mandatory." This gives full strength to our finding. The learned Tribunal could not extend the meaning and derive the interpretation which is not existing in the section itself. The Hon'ble High Court has held similar view while deciding the case of Truck Operators vs. CIT (1981) 132 ITR 62 (Del). The Hon'ble Andhra Pradesh High Court has decided the issue in the case of Navayuga Traders Gunnies Firm vs. CIT (1971) 79 ITR 519 (AP). The Hon'ble Andhra Pradesh High Court has given following findings : "We express our respectful disagreement with those observations. To our minds, s. 275 is plainly and exclusively intended to prescribe a limit of time within which penalty proceedings must be concluded. It is not intended to prescribe the stage after which penalty proceedings cannot be commenced. It does not do so expressly; nor does the language of s. 275 lead us to such a necessary implication.
We would indeed be reading too much into s. 275 if we read any such implication. The words 'in the course of which the proceedings for the imposition of penalty have been commenced' are merely descriptive of the proceedings two years after whose completion penalty cannot be imposed. The words are used to identify the particular proceedings before the ITO or the Asstt. CIT which are referred to in cls. (a), (b) and (c) of s. 271(1) rather than to prescribe when a penalty proceeding may commence." 16. Keeping in view the above discussions, the appeal of appellant is dismissed.