- Introduction
- This article
covers the miscellaneous provisions for penalty u/ss. 271FA, 272A, 272B,
272BB and 272BBB.
- General propositions
- At the outset and threshold, it would
be advantageous, beneficial and in fitness of things to explicate
on the nature and character of penalty. In Indra & Co. vs.
UOI (1967) 64 ITR 664, the Rajasthan High Court has at page
668 of the report observed that penalties prescribed under the
Income-tax Act for failure to furnish returns are more or less compensatory
in character to make good the loss that may be caused to State on
account of late submission of the returns of income which results
in late realization of tax. In similar vein, are the observations
of the Madras High Court in Sivagaminatha Moopanar & Sons
vs. ITO (1955) 28 ITR 601, 610 in the context and setting of
section 28(1)(c) of the 1922 Act. In C. A. Abraham vs. ITO (1961)
41 ITR 425, 430, while inter alia dealing with section
28(1)(c) of the 1922 Act, the Highest Court of Land observed that
penalty is imposed in view of the dishonest/contumacious conduct
of the assessee. Pithily stated, the core and meat of the legislative
intent to enact penal provisions is to recompense the State for
the loss or injury caused to it on account of the breach committed
by the citizen and hence, it could, in my opinion, as a general
proposition be urged that unless and until the State suffers a loss
or detriment or injury as a consequence of violation committed by
the assessee, the latter cannot be burdened with penalty.
- In CIT vs. Maya Rani Punj (1973) 92
ITR 394 affirmed in 157 ITR 330 (SC), the Delhi High
Court has held that once the judicial authority resolves to levy
penalty he must charge the minimum prescribed penalty and he has
no discretion to saddle the assessee with a lesser penalty which
is below the minimum stipulated penalty.
- It is well entrenched and established
that penalty and assessment proceedings are separate, independent
and distinct [Anantaram Veerasinghaiah & Co. vs. CIT (1980)
123 ITR 457, 462, 463 (SC); Jain Bros. vs. UOI (1970) 77 ITR 107,
116 (SC); CIT vs. Khoday Eswara & Sons (1972) 83 ITR 367, 376
(SC)]. In the premises, the Apex Court has propounded in Brij
Mohan vs. CIT (1979) 120 ITR 1 (SC) that what is true for assessment
proceedings may not apply to penalty proceedings and consequently,
the tenet that the law prevailing during the relevant assessment
year must apply to assessment proceedings cannot be extended to
and govern penal proceedings inasmuch as different considerations
prevail in assessment proceedings vis-à-vis penalty proceedings.
It must be remembered that a penalty is imposed on account of commission
of a wrong act and it is for this reason, with reference to and
in the context of quantum of penalty to be levied, the Apex Court
in the aforesaid precedent held that it is the law operating on
the date on which the wrongful act is committed which determines
the quantum of penalty. In 120 ITR 1 (SC), the return of
income was filed on 24-4-1968 for assessment year 1964-65. Meanwhile,
section 271 of the Act was amended by the Finance Act, 1968 and
the AO imposed penalty in accordance with the new provisions. The
old law as it stood embedded in clause (iii) of section 271 envisaged
a charge of penalty ranging 20% to 150% of the tax which would have
been avoided if the income as returned by such person has been accepted
as the correct income vis-à-vis 100% to 200% under the new
clause of the tax payable on the income in respect of which the
particulars have been concealed or inaccurate particulars have been
furnished and it is patent and glaring that under the freshly substituted
clause (iii) of section 271, the quantum of tax imposable is greater
than that could have been visited under the old law. The moot and
crux point that arose for consideration and deliberation is whether
the assessee’s case would be governed by the lesser burdensome old
law or the more onerous fresh one with effect from 1-4-1968. The
Court founded on the principles enunciated hereinbefore held that
inasmuch as the offence of concealment was committed on 24-4-1968,
the date of filing the return of income, the new law operative from
1-4-1968 will dictate the assessee’s case.
- Section 271fa failure to furnish annual
information return
- Section 285BA of the Income-tax Act (the
Act) as initially inserted for the first time by the Finance Act,
2003 with effect from assessment year 2004-05 postulated that any
assessee entering into a financial transaction as may be prescribed
with any other person shall furnish within a prescribed time an
annual information return in relation to financial transactions
executed by him during any financial year. The memorandum explaining
the provisions in the Finance Bill, 2003 [260 ITR (St.) 191, 223]
expounds the purpose, object and intention behind the introduction
of the new provision as under: –
"Under the existing procedure,
the Central Information Branch (CIB) collects information relating
to financial transactions from various sources. Information is
also received through the statement submitted under rule 114D
from persons who enter into transactions in relation to which
Permanent Account Number is to be compulsorily quoted. It has
been noticed that there are several hurdles in the collection
of information by the CIB, and often the coverage of sources is
incomplete.
In view of the above factors,
it has been proposed to provide a mechanism wherein the flow of
information regarding the material financial transactions entered
into by a tax-payer with other persons is automatic so that the
same can be utilized for widening and deepening of the tax base."
The employment of the expression
"existing procedure and Rule 114D" in the first paragraph
extracted supra is actually and really a reference and
allusion to section 139A of the Act. Sub-clause (c) to sub-section
(5) of section 139A read with Rule 114B of the Income Tax Rules
(Rules) enshrines that every person who has been allotted
Permanent Account Number (PAN) shall quote such number
in all documents pertaining to such transactions as prescribed
in Rule 114B. Moreover, sub-section (6) of section 139A read with
Rule 114C(2) of the Rules mandates that every person as defined
in Rule 114C(2) receiving any document relating to a transaction
prescribed under sub-clause (c) to sub-section (5) shall ensure
that the PAN has been duly and correctly quoted in the documents.
Furthermore, Rule 114D ordained that the person referred to in
Rule 114C(2) shall forward to the concerned Director of Income-tax
(Investigation) or Commissioner of Income-tax (Central Information
Branch) the information prescribed in Rule 114D. To complete the
circle, the existing section 285BA was substituted by the Finance
(No. 2) Act, 2004 with effect from assessment year
2005-06. The memorandum explaining the provision in Finance (No.
2) Act, 2004 [268 ITR (St.) 174, 184] elaborates the aim
and end of reenacting section 285BA as under: –
"The existing provisions of the
said section do not cast any obligation to furnish such a return
on Government agencies and other authorities, who are valuable
sources of information for the purposes of the Income-tax Act.
Existing provisions of this section also do not provide for a
mechanism to enforce the furnishing of such a return.
It is, therefore, proposed
to substitute the said section by a new Section"
Undoubtedly, no penal provision
existed in the Act for contravention of section 285BA, but nonetheless,
section 272B envisaged imposition of penalty for the failure to
comply with the provisions of section 139A which was partially
an earlier "Avataar" of section 285BA. However, inasmuch
as the obligation to file the annual information return was
thrust on the person only through the mechanism of Rule 114D,
it was very arguable that he cannot be mulcted with penalty under
section 272B because the same did not speak of exacting the person
with the penalty for breach of Rule 114D. Besides, the memorandum
erroneously and incorrectly states that the then existing section
285BA did not mandate government agencies and other authorities
to file such returns inasmuch as on a perusal and inspection
of Rule 114C(2), the conclusion is inescapable that a few government
bodies were peremptorily required to file the annual information
returns. In pursuance of the replacement of the extant section
285BA, the CBDT has now correspondingly and consequentially amended
Rules 114D and interposed new Rule 114E with effect from 1-12-2004
[271 ITR (St.) 38]. In the premises, the old Rule 114D
pertaining to filing of returns by persons referred to in Rule
114C(2) continued to operate despite the introduction of section
285BA from assessment year 2004-05 by the Finance Act, 2003 inasmuch
as no machinery was stipulated in the Rules for giving effect
to the then section 285BA.
On a scrutiny and review
of the aforesaid exposition the conclusion is irresistible that
the ushering of section 285BA is only "an old wine in a new
bottle" except that the scope, purview and ambit of section
285BA has been broadened and expanded to bring within its fold
uncharted realms.
-
Section 271FA interdicts
that if a person who has been commanded to file an annual information
return in section 285BA(1) transgresses the mandatory requirements
he may be susceptible to levy of penalty at the rate of Rs.100/-
per day during which the failure subsists. Notwithstanding
there is an escape route embedded in section 273A which enjoins
that no penalty shall be fastened on the person if he proves that
there was reasonable cause for the non-fulfilment of section 271FA,
the approach of the Courts in saddling the government agencies
with penalty has been highly liberal and non-technical and the
judiciary has relaxed the rigours of the stringent law and gone
out of the way to exonerate the State from the pain of penalty
for the acts of omission and commission perpetrated by its officers.
The relevant authorities in this connection have been adverted
to at the appropriate places; i.e., (9)(e) and (9)(f) infra
- Section 272A
-
Section 272A(1)(c)
contemplates that if any person to whom summon is issued under
section 131(1) either to attend to give evidence or produce books
of account or other documents at a certain place and time omits
to attend or produce books of account or documents at the stated
place and time, he shall be liable to be visited with the penalty
as prescribed in that section: –
- In CIT vs. Moolchand Salecha
(2002) 256 ITR 730 (Raj), it was laid down that where
the assessment is set aside and the impounding of books and
documents is held to be illegal and unlawful, the order inflicting
penalty under section 272A(1)(c) for non-compliance of summons
is unsound and untenable.
- In Biharijje Exports vs. DCIT
(1997) 58 ITD 242 (Del), the Assessing Officer wanted
to cross verify the purchases made by Alpine Exports (A.E.)
from Biharijee Exports and resultantly, he issued summons
under section 131(1) requiring Biharijee Exports to produce
books of account, bank passbook, stock register and other
relevant papers like sales and purchase vouchers instead of
calling for the particular and specific sales bills pertaining
to the purchases made by A.E. It is by now well settled that
information summoned and called for by invoking the provisions
of section 131(1) must be relevant and germane for the purpose
of deciding any pending and existing proceeding under the
Act and consequently, the power under section 131(1) cannot
be exercised in a naked and arbitrary manner bereft of application
of mind [Dwijendra Lal Brahmachari vs. New Central Jute
Mills Co. Ltd. (1978) 112 ITR 568 (Cal) followed in DBS
Financial Service vs. Smt. M. George (1994) 207 ITR 1077 (Bom)
while adjudicating on section 133(6) which proceeding
was quashed because the Court was satisfied that the revenue
had commanded the assessee to furnish general information
unrelated to any existing proceedings]. In the premises, the
issue of an omnibus summons to adduce all books of account
was held to be untenable, unwarranted and unsustainable in
law. Besides, if the AO requires the personal attendance of
the partner of the firm, the summons must be addressed to
the partner personally and not to the firm as was done by
the AO. In the light of the aforesaid legal infirmities and
weaknesses, the summons issued was illegal and unlawful and
consequently, the penalty order thrusting penalty on the assessee
was uprooted.
- (c) In O. P. Khaitan vs. DCIT
(2004) 139 TM 266 (Del), Assessee was exonerated from
the blame of penalty with which he was afflicted for non-compliance
of the summons under section 131(1) on the pedestal that his
ground for adjournment namely, undertaking of a business tour
outside Delhi was held to be a justifiable reasonable cause
under the facts and circumstances of that case.
-
Section 94(6) lays
down that the Assessing Officer may issue a notice requiring any
person to furnish him within not less than 28 days all information
as specified in the notice in respect of all securities of which
such person is the owner or has a beneficial interest for the
purpose of section 94 as also to discover whether Income-tax has
been borne in respect of all those securities. If the concerned
person fails to comply with the notice he can be thrust with penalty
under section 272A(2)(a) at the rate of Rs. 100/- per day during
which the default continues.
-
Section 176(3) prescribes
that any person who discontinues any business or profession shall
give notice of such discontinuance within 15 days thereof failing
which such person would be vulnerable to be administered with
penalty under section 272A(2)(b) at the rate of Rs. 100/- per
day during which the default continues.
-
Section 272A(2)(c)
engrafts that a person who fails to furnish in due time any of
the returns, statements or particulars mentioned in section 133
or Section 206 or section 206C or section 285B shall be liable
to pay penalty as prescribed therein. In this context, I would
advert to judge made law appertaining as to what constitutes reasonable
cause so that the defaulter may be exempted from the vex of penalty.
The mother and locus classicus on this subject is the leading
pronouncement of the Supreme Court in Hindustan Steel Ltd.
vs. State of Orissa (1972) 83 ITR 26 in the context of Orissa
Sales Tax Act, 1947 wherein it has been classically and tellingly
propounded at page 29 that penalty will not be merely imposed
because it is lawful to do so, but will be levied only in cases
where there is deliberate defiance of law or contumacious or dishonest
conduct or conscious disregard of a statutory obligation and although
the statute may prescribe a minimum penalty the authority would
be justified in refusing to saddle the assessee with penalty where
there is technical or venial breach of the provisions of law or
where the breach follows from the bonafide, honest and genuine
belief and in the premises, the discretion to exact penalty on
the assessee must be exercised judicially and on a consideration
of all relevant factors. The aforesaid cogent and weighty ruling
has been the superstructure and suntratum of a host and catena
of judicial precedents by virtue of which the delinquent assessees
have wriggled out of penalty. The common core and meat of the
matter running through all these judicial precedents is that the
concerned assessee has deducted the tax at source and deposited
the same into government treasury within the framework of law
but, there has been delay of varying degrees in terms of duration
in filing the annual returns in prescribed forms and in that view
of the matter, the revenue neither suffered any loss, injury or
damage as a result of such postponement of lodging the returns
nor any other adverse detriment was projected to be caused to
the revenue and it is because of this very reason that the offence
of non-filing has been classified and categorized as technical
or venial which, in other words, connotes that the violation is
unimportant and insignific ant. However, at this stage a note
of caution and circumspection from the lawyer’s panorama is warranted,
in that, it is indispensable not to lose sight of the amendment
ushered in by the Taxation Laws (Amendment and Miscellaneous)
Bill, 1986 by the dint of which a new section 273B had been inserted
whereas on the other hand, the phrase "without reasonable cause
or excuse" was omitted inter alia in section 272A(2).
The statement of objects and reasons annexed to the Taxation Laws
(Amendment and Miscellaneous) Bill, 1986 states that the purpose
of enactment of section 273B is to shift the burden of proof on
the assessee. Furthermore, the Circular number 469 dated 23-9-1986
explains and elaborates the object and intention behind the insertion
of section 273B and the simultaneous and concurrent deletion of
the expression "without reasonable cause or excuse" in
section 272A(2) respectively by the Taxation Laws (Amendment and
Miscellaneous) Bill, 1986 as under: –
"Amendments to provisions
relating to penalties and prosecution for shifting the burden
of proof
12.1 Chapter XXII of the
Income-tax Act contains provisions relating to penalties imposable
for various defaults under the Act. Chapter XXII of the Income-tax
Act contains provisions relating to offences and prosecutions
under the Act. One of the reasons for the unsatisfactory performance
of the Income-tax Department in the matter of successfully levying
penalty and of prosecuting the defaulters is that invariably appellate
authorities and the Courts have cast upon the Department the near
impossible burden of proving the existence of a culpable state
of mind on the part of the defaulters.
12.4 The salient features
of the amendments made to the provisions relating to penalty are
as
under :
- ………………..
-
……………………………………………
By omitting the words "without reasonable cause" from the
provisions (‘without reasonable excuse’ from section 270)
it has been provided that the default by itself will attract
penalty. At the same time, it has been provided by a new section
273B, inserted by the Amending Act, that notwithstanding anything
contained in the provisions of section 270, clause (a) or
clause (b) of sub-section (1) of section 271, section 271A,
section 271B, sub-section (2) of section 273, no penalty shall
be imposable on the person or the assessee, as the case may
be, for any failure referred to in the said provisions if
he proves that there was reasonable cause for the said failure.
By this amendment, the onus of proving the existence of reasonable
cause for the defaults referred to in these provisions has
been cast on the tax-payer. In this context, reference may
be made to section 123(1) of the Customs Act, 1962, as discussed
in para 12.2 above."
An illustrative list of
such cases in relation to Section 272A(1)(c) is summarized below:
–
-
In Rajasthan
Tribal Area Development Co-operative Federation Limited vs.
Income Tax Officer (1998) 60 TTJ 427 (JP), where the assessee
was harbouring a bonafide belief that the annual return pertaining
to tax at source was to be filed only in respect of salaries
and not contract payments and the further fact that the assessee
immediately filed the return on receipt of the show cause
notice from the Assessing Officer buttressed its contention
that it was under a honest impression constituting bonafide
belief.
-
In District
Excise Officer vs. ITO (2000) 69 TTJ 312 (Del), wherein
inter alia the department’s representative advanced
an argument that much water had flown down since the verdict
of the Supreme Court in 83 ITR 26 which had held that
penalty proceedings being quasi-judicial in nature, mens
rea is an important factor, in that, in a subsequent
decision of the Highest Court of the Land in Addl. CIT
vs. I. M. Patel & Co. (1992) 196 ITR 297 such a plea
was negated; i.e., mens rea need not be proved by the
department and hence the ratio of 83 ITR 26 is diluted
and cannot be applied. However the Tribunal did not countenance
such an argument of the revenue because it came to the conclusion
that the Supreme Court in 83 ITR 26 did not found its
conclusion only on deliberate or wilful defiance of law, but
also on the premise that even if a minimum penalty is prescribed
the authority may repudiate the revenue’s contention for sustaining
the penalty if the breach is technical or venial or the act
is bedrocked on a bonafide belief.
-
In Saturday
Club Ltd. vs. DCIT (2003) 85 ITD 224 (Cal), where the
obligation to deduct tax at source under section 194-I came
into operation for the first time in the Assessment Year 1995-96
and the club unaware of the provisions committed a mistake
of not deducting tax at source on the rent paid. When the
lapse was pointed out by the auditors it suo motu made
good the deficiency and deducted the tax at source as also
deposited the same along with interest under section 201(1A)
into the Government treasury. The Tribunal also noted that
apart from the liability to deduct tax at source under section
194-I there was no other tax deducted at source and consequently,
relying on the judgment of the Gauhati High Court in Surajlal
Parsuram Todi vs. CIT (1996) 222 ITR 691 held that the
offence of non-deduction was a complete offence and in the
result, there was no question of further contravention in
relation to non-filing of tax at source return under section
203 so as to attract and be hit by the penal provisions contemplated
under section 272(2)(c). The fact that the revenue had already
mulcted the Club with the penalty under section 271C for failure
to deduct tax at source was also a strong factor which prevailed
upon the Tribunal to delete the penalty for non-submission
of the annual return. However, a dissenting note has been
struck by a Single Member Bench of Pune Tribunal in ITO
vs. Gajanan Auto Engg. (P) Ltd. (2002) 75 TTJ 75, wherein
non-deduction of tax at source or delay in depositing the
same into government account was held not to be a reasonable
cause to escape penalty under section 272A(2)(c) for non-submission
of tax deducted at source return under section 206. In addition,
the the Tribunal observed that the theory of double jeopardy
cannot be pressed into service in Income tax proceedings relying
on the decision of the Gujarat High Court in CIT vs. J.
L. Trivedi & Sons (1993) 115 CTR 535 and consequently,
the fact that the assessee has also been blamed with penalty
under section 271C and interest under section 201(1A) is of
no assistance and avail to the assessee.
-
In Superintending
Engineer vs. ITO (1996) 54 TTJ 608 (JP) the Tribunal placed
reliance on the terms "deductible" and "collectible"
in the proviso to sub-section 2 of section 272A to peculiarly
and unusually advocate that the assessee can be charged penalty
only if the tax remains to be deducted or collected at source
notwithstanding the default or delay in furnishing
the annual return. Nevertheless, on the matter being carried
to the High Court by the revenue, the Rajasthan High Court
reversed the decision of the Tribunal in 260 ITR 641
holding that the words "deductible" and "collectible"
have been deployed only with reference to the quantum of penalty
to be levied and if the view of the Tribunal is affirmed,
the proviso will defeat the very purpose of the substantive
provision under section 272A(2)(c) (page 645 of the report).
The High Court further observed at page 646 that nevertheless
the ignorance of law is no excuse in case of an inadvertent
mistake it would not be sound exercise of quasi-judicial power
to bring home the charge of penalty.
-
In CIT vs Dy.
Housing Commissioner (2004) 265 ITR 686 (Raj), the respondent
was responsible for paying tax on the income chargeable under
the head "Salaries" to the employees working under
him and consequently, was also responsible for deducting tax
at source from such salaries under section 206 of the Act
as also was required to prepare, deliver or cause to be delivered
to the prescribed income tax authority within the prescribed
time an annual return of the tax deducted. The respondent
duly deducted the tax at source as also deposited the same
with the State Exchequer in time, yet he failed to furnish
the annual return. The Assessing Officer levied penalty of
Rs.24,000/- which was maintained by the CIT(A) protanto
Rs. 2,400/- whose order was challenged unsuccessfully by the
revenue before the Tribunal. On appeal by the department to
the High Court, it was held following its own ruling in CIT
vs. Superintending Engineer (2003) 260 ITR 641 (Raj) that
an inadvertent office mistake cannot attract the terra
firma and gravamen of section 272A(2)(c) and in
the premises, it would not be sound exercise of judicial discretion
to inflict minimum penalty on the head of the public office.
In my opinion, with utmost respect, the Hon'ble High Court
took a very lenient and liberal view when it suggested that
the tax authority should evolve a matter of advising the head
of office by way of a notice or reminder providing an opportunity
to comply with the provision the transgression of which may
attract penalty and the public office should be mulcted with
the penalty if and only if he does not act even after such
a notice (page 688). I shudder to think whether the
approach of the Court would have been the same had the assessee
been a non-government one.
-
In State of
Rajasthan vs. Income Tax Appellate Tribunal (2003) 259 ITR
686, the Rajasthan High Court held that nevertheless that
under the Income-tax Act the officer of the State Government
may be under an obligation and duty bound to file TDS returns
as mandated in section 206 of the Act, the revenue is not
justified in issuing a notice straight away to the State Government
for imposition of penalty thereby treating it as an ordinary
assessee inasmuch as the default in filing the same
is by the officer concerned. The Court observed at page
690 of the report that rather than initiating proceedings
for saddling the government with penalty, the proper and correct
course for the department would have been to advice the State
Government to approach the Chief Commissioner of the Income
Tax for waiver of the penalty under section 273A of the Act.
The Court also took note of the verdict of the Apex Court
in Oil & Natural Gas Commission vs. Collector of Central
Excise (1991) 4 JT 158, wherein their Lordships espoused
that the dispute between two government departments should
not come to the Court for resolution unless a certificate
to that effect is issued by the high level committee constituted
by the Government which is commonly known as "COD approval"
and consequently, it expected that in future such litigation
may not directly come before the Court. Keeping in view the
aforesaid canons of law, the Appeal was disposed of in that
the recovery of amount of penalty was stayed for six months
or till the date the application of the State Government for
waiver is decided by the Chief Commissioner of Income Tax
whichever is later. At page 691 of the report the Court
sounded the following note of warning to the officers of the
State Government who were responsible for filing the TDS returns:
–
"The officers of the State
Government, who are responsible for filing of the TDS returns
are to be informed and made known that in case the delay is
made in the submission thereof and the penalty is levied for
their act or omission they shall be personally liable for
the payment of amount of the penalty. It cannot be and shall
not be the burden of the State Government. The State Government
is not in any manner responsible for this delay. Where delay
is there certainly it would have been as a result of negligence,
carelessness, inaction and omission on the part of its officer
which cannot be taken to be an act in discharge of his official
duty and thus the State Government cannot be vicariously made
liable. The Chief Secretary of the State of Rajasthan is expected
to make it clear to the officers of the State Government by
issuing an appropriate circular, order or direction as the
case may be."
This is yet another instance of judicial benediction where
government is involved
-
In Motisagar Estate
(P) Ltd. vs. DCIT (1993) 47 ITD 72 (Pune), the submission
of ignorance of law pleaded by the assessee was accepted and
ratified on the foundation that frequent changes in forms,
rules and procedures rendered the argument unexceptionable
and unimpeachable placing reliance on the ruling of Motilal
Padampat Sugar Mills Ltd. vs. State of Uttar Pradesh (1979)
118 ITR 326. The one peculiar and conspicuous factor which
induced and influenced the Tribunal to put its imprimatur
on the tenet of ignorance of law was that the Assessing Officer
himself in his penalty order had asserted that the Assessees
in general have not complied with the law concerning Tax Deduction
at Source (page 85 of the report).
-
In Bharat Kumar
Manilal vs. JCIT (2002) 121 TM 361 (Rajkot) (SMC), the
Assessment Year 1992-93 was the first year of the assessee’s
business as clearing and forwarding agents and consequently,
it had to grapple with the provisions of section 194C for
the first time. The tax auditors drew the assessee’s attention
to its obligation to deduct tax at source under section 194C
from payment made to labour contractors. Even after the assessee
became aware and conscious of its obligation to deduct tax
at source under section 194C there was delay in its payment
because the labour contractors had to be convinced of the
need to comply with section 194C, but to no avail. Ultimately,
the assessee had to discharge the obligation out of its own
funds and bear the brunt of the tax which ought to have been
deducted from the contractor’s payment. In the light of these
multiple causes as also considering the special circumstance
that this was the very first year of its new line of activity
the penalty order was demolished by the Tribunal. In similar
train of thought is the decision of the Ahmedabad Tribunal
in Asman Investments vs. Addl. CIT (2000) 68 TTJ 704, wherein
it was held that it is believable that the accountant was
not conversant relating to the statutory provision for submission
of annual return pertaining to tax at source because the section
194-I was introduced for the first time in Assessment Year
1995-96, the year under appeal and the fact that the assessee
had a regular consultant cannot come to the rescue of the
revenue because no material was adduced by the revenue to
substantiate that the assessee took the advice of the consultant
and had not implemented it.
-
In Shell International
vs. DCIT (2000) 113 TM 78 (Mum) (Mag), the assessee had
no previous experience in the field of film production and
for the first time it produced a film which was a failure.
In response to the show cause notice issued to visit the assessee
with penalty under section 272A(2)(c) the assessee supplied
the annual return along with the necessary details in the
form of a statement. Under the circumstances, ignorance of
law was held to be a good excuse relying on the pronouncement
of Supreme Court in Motilal Padampat Sugar Mills Ltd. vs.
State of Uttar Pradesh (1979) 118 ITR 326 and consequently,
the violation was held to be only a technical default. In
the result, the penalty was decimated.
-
In Aroma Chemicals
vs. DCIT (2002) 121 TM 31 (Del) (Mag), the assessee failed
to file the annual return as postulated in section 206 inasmuch
as the assessee had not filed the same at the proper place
with the specified person, but at some other office of the
revenue department. The proof of the annual return filed was
provided to the CIT(A), but he did not exert to corroborate
the same from the office where it was lodged for want of the
relevant register and consequently, there was lapse on the
part of the CIT(A). Although certain degree of failure can
be attributed to the assessee, the failure is not such so
as to be characterized and categorized as contumacious disregard
of the provisions of law for a serious default involving a
guilty mind. Further, it was the first year when the assessee
deducted tax at source and it was plausible that the assessee
might not be in know of all the apposite law appertaining
to tax at source. In that view of the matter, the infraction
is merely a technical one coupled with the reasonable cause
and as a result, is not a fit and deserving case for saddling
the assessee with penalty under Section 272A(2)(c).
-
In Shah Traders
vs. DCIT (1996) 56 ITD 33 (Pat), an ex parte decision,
the annual return of tax deducted at source was not filed
at all and hence a show cause notice was issued for mulcting
the assessee with penalty under section 272A(2)(c) despite
which the assessee neglected to furnish such return and even
as on the date of hearing of the Tribunal appeal no material
was produced to demonstrate that the annual return was lodged.
The assessee had truly and fully deducted tax at source as
also deposited the same with the government in accordance
with law. The Tribunal was of the opinion that mere deposit
of tax deducted at source neither enables the department to
verify whether the tax deducted is adequate or not nor does
it facilitate to carry out a verification of the claim of
the tax deduction at source made by the payees in their own
returns of income. Consequently, notwithstanding that the
initial omission was inadvertent, the subsequent omission
to provide the annual return after issue of the show cause
notice was according to the Tribunal surely a conscious disregard
of the obligation and in the result, analogizing the ratio
of the verdict of the Supreme Court in 83 ITR 26 in
reverse and against the assessee in the light of the assessee’s
gross, total and complete failure to furnish the annual return
even up to the date of the Tribunal’s hearing which, in my
opinion, adversely tilted the scales of justice against the
Assessee, the Tribunal approved the charge of penalty. The
Tribunal also adverted to the vital and cardinal change in
the legislature’s approach with regard to the theory of onus
which by the dint of the Taxation Laws (Amendment and Miscellaneous
Provisions) Act 1986 with effect from 10-9-1986 has shifted
from the department to the assessee whereby the latter is
required to demonstrate and exhibit that there existed a reasonable
cause for the impugned failures engrafted in section 272A.
A diametrically opposite and contrary view appears to have
received the imprimatur of the Delhi Tribunal in Mahendra
Prakash Saraf vs. DCIT (1998) 64 ITD 382 (Del) (SMC) where
there was absolute and total failure to file the annual return
mandatory under section 206 in spite of such gross and worse
scenario case, the Tribunal accepted the assessee’s contention
that he was labouring and entertaining a bona fide belief
that no such return is required to be lodged and consequently,
exculpated the assessee from the rigours of penalty.
-
Section 272A(2)(e)
envisages that if any person fails to furnish the return of income
which he is required to furnish under sections 139(4A) or 139(4C)
or to furnish it within the time allowed and in the manner required
under those sub-sections, the person under consideration shall
be amenable to penalty as prescribed therein. The essential and
fundamental case laws appertaining to the infringement engrafted
in this clause are adumbrated hereunder:–
- In Director of Income Tax Exemptions
vs. Malad Jain Yuvak Mandal Medical Relief Centre (2001) 250
ITR 488 (Bom), the Court subscribed to the view that the
clause for exemption under section 10(22) has to be reviewed
and examined each year as laid down by the Supreme Court in
Aditanar Educational Institution vs. Addl. CIT (1997) 224
ITR 310 and consequently, in order to enable the AO to
evaluate the same in the light of relevant material the institution
must file the return every year and in that view of the matter,
if no return is filed, the assessee ought not to be relieved
from the clutches of penalty. The Court further reasoned that
if Assessees falling within the sphere of sections 11 and
12 are mandated to file return, there is no ground as to why
assessee claiming exemption under section 10(22) should not
comply with section 139(4A). In my opinion, with utmost respect,
the Hon'ble High Court has overlooked the plain and obvious
definition of the term "total income" embedded in the
parenthesis which unequivocally enshrines that for the purpose
of section 139(4A) the expression "total income" means
that computed under this Act without giving effect to the
provisions of sections 11 and 12. This is one of those precedents
where the Hon'ble High Court felt as to what the law ought
to have been and hence supplied a deficiency which is impermissible
because the judiciary’s function is to interpret the law as
it stands and not to legislate so as to encroach upon the
sphere of Parliament
- In Shri Virji Ladhabhai vs.
DDIT (E) (1997) 94 TM 31 (Bom) (SMC), the trust failed
to file the returns in time for the Assessment Year, 1989-90
to 1991-92 and therefore, its case fell within the ken of
penalty ordained in section 272(2)(e). However, the Tribunal
absolved the assessee from being mulcted with penalty inasmuch
as: –
- there was no taxable surplus
which was exigible to tax in each of the years;
- there was illness in the family
of the Trustee who was responsible and under an obligation
to look after the accounts;
- no prejudice was caused to the
revenue;
- in the premises, the delay
in lodging the returns was merely venial or technical
guilt bereft of any malafide intention and consequently,
not vulnerable so as to be hit by or attract the terra
firma of section 272A(2)(e) following the ratio of the
pronouncement of the Supreme Court in Hindustan Steel
Ltd. vs. State of Orissa (1972) 82 ITR 26 which has
by now assumed the status of a locus classicus.
-
Section 272A(2)(f)
postulates that if the assessee fails to deliver or cause to be
delivered in due time copy of the declaration mentioned in 197A
which, in turn, enjoins that notwithstanding anything contained
in section 194 or 194EE, no deduction of tax shall be made under
any of the said sections, if an individual resident in India furnishes
a declaration in writing in the prescribed form and in the prescribed
manner to the effect that the tax on his estimated total income
of the previous year in which such income is to be included in
computing his total income will be NIL, he shall be amenable to
be saddled with penalty as enunciated in section 272A(2). The
relevant and germane case laws constituting the terra firma for
projecting a reasonable cause interdicted in section 273B are
expounded hereinbelow: –
- In Sudershan Auto & General
Finance vs. CIT (1997) 60 ITD 177 (Del) the Assessee was
spared from the pain of penalty on the premise that: –
- ignorance of law under the
facts and circumstances of that case was good, sufficient
and reasonable cause because the tax consultant of the
Assessee had filed an affidavit averring that the default
had been committed because he was unaware of the provisions
of section 197A of the Act as also under the bonafide
impression that Form No. 15H ought to be lodged only when
asked for during the course of assessment. Moreover, he
could not advice the concerned assessee in relation to
the financial consequences of the breach contemplated
in section 272A(2)(f). In this connection, the Tribunal
relied on the pronouncement of the Supreme Court in Motilal
Padampat Sugar Mills Ltd. vs. State of Uttar Pradesh (1979)
118 ITR 326 (SC) which is a locus classicus on the
theory of ignorance of law embodied in the following passage
appearing at page 339 of the report: –
-
-
"Moreover, it must
be remembered that there is no presumption that every
person knows the law. It is often said that everyone is
presumed to know the law, but that is not a correct statement:
there is no such maxim known to the law. Over a hundred
and thirty years age, Maula, J. pointed out in Martindale
vs. Falkner (1846) 2 CB 706: "There is no presumption
in this country that every person knows the law: it would
be contrary to commonsense and reason if it were so".
Scrutton, L.J. also once said: "It is impossible to know
all the statutory law, and not very possible to know all
the common law". But, it was Lord Atkin who, as in so
many other spheres, put the point in its proper context
when he said in Evans V. Bartlam (1937) AC 473 : "… the
fact is that there is not and never has been a presumption
that every one knows the law. There is the rule that ignorance
of the law does not excuse, a maxim of very different
scope and application."
Besides, the Tribunal
also relied on the decision of the Supreme Court in Rafiq
vs. Munshilal (1981) 2 SCC 788 to fortify and
strengthen the proposition that the assessee should not
suffer on account of the misdemeanour of the counsel and
quoted the following telling and striking observations:
–
"… a party should
not suffer for inaction, deliberate omission or misdemeanour
of his counsel when he has selected his counsel, briefed
him and paid his fee and was assured that his interest
will be looked after…"
-
Furthermore, the
Tribunal went on to hold that the mere fact of non-supply
of Form 15H, at best, tantamount to technical or venial
breach inasmuch as: –
- no loss has been caused to
the revenue by the dint of such non provision of Form
15H;
- there is neither any guilty
intention is traceable on the part of the defaulter
or the offender nor any motive to defraud the revenue;
- no benefit or advantage or
gain has been derived by the assessee by virtue of such
a act or commission; and
- the assessee has filed Form
No. 27A within the stipulated time wherein names and
addresses of all the depositors to whom the interest
has been paid have been displayed, but the revenue has
failed to issue summons to any one of them so as to
ascertain as to whether any part of the interest has
escaped the net of taxation.
- In Escorts Employees Ancilliaries
Ltd. vs. CIT (2000) 74 ITD 1 (Del) (TM), the then Form No.
15H (now Form No. 15G), a declaration under section 197A(1A)
to be made by a person not being a company or a firm claiming
receipt of interest as prescribed without deduction of tax at
source, was filed late and the reasonable cause advanced by
the assessee comprised of the fact that Form 15H was submitted
late by the depositors to the assessee. Moreover, in the application
forms filed by the depositors with the company inter alia
asserted that their income is below the maximum amount not chargeable
to tax. On the other hand, the learned counsel for the revenue
urged that if the depositors had not provided the Form 15H in
time the assessee ought to have deducted tax at source from
interest under section 194A which was not countenanced by the
Tribunal inasmuch as the bone of contention under adjudication
in the appeal under consideration was in connection with late
submission of Form 15H and not the factum of infraction of non
deduction of tax at source on interest. The Tribunal sustained
the aforementioned arguments of the assessee and knocked down
the penalty on the premise that the assessee was under the bonafide
belief that tax was not to be deducted in respect of these deposits.
With regard to the quantum of penalty, the Tribunal took a diametrically
opposite and contrary view to that expressed by the Pune Tribunal
in Executive Engineer vs. DCIT (1994) 48 ITD 414 referred
to in serial number (12)(b) infra holding that the offence
with the reference to the non-submission of 288 forms bearing
No. 15H cannot constitute one aggregate default, but ought to
be construed as 288 separate, distinct and independent offences
and therefore, the quantum of penalty has to be accordingly
computed.
-
Section 272A(2)(g)
contemplates that if the assessee fails to furnish a certificate
as required by sections 203 or 206C he shall be saddled with the
penalty as prescribed therein. The apposite and weighty judicial
precedent encompassing the reasonable cause advanced under this
offence are summarized below: –
- In Bansal Bros vs. DCIT (1998)
64 ITD 129 (Del), the assessee issued a consolidated certificate
to the party after the end of the accounting year instead
of issuing the certificate at the time of credit or payment
of the sum or issue of a cheque for payment as prescribed
in section 203 of the Act. The Tribunal ruled in favour of
the assessee holding it to be, at best, a technical or venial
breach because of the following
reasons: –
- it was not a case of non-issue
of certificate at all;
- the annual return under section
206 was filed within time;
- the tax deducted at source was
deposited in time;
- the assessee was harbouring
a bonafide belief that only one integrated certificate
was to be issued;
- the assessee was a small one
and had incurred loss during the year which had been accepted
by the department;
- In Executive Engineer vs. DCIT
(1994) 48 ITD 414, the Pune Tribunal held that where the
employer had not issued Tax Deduction Certificates to its
162 employees, the default committed has to be treated as
one default and not as 162 violations for each and every employee.
The assessee was also held as not liable to be blamed with
penalty under section 272A(2)(g) on the following counts:
–
- there was no failure to deduct
tax at source and to deposit the same into government
treasury;
- the Tax Deducted Certificates
had been issued in old forms which were hitherto accepted
by the revenue;
- on account of the frequent
and several changes as enumerated at pages 419, 420
and 421 of the report in Tax Deduction at Source Law
and Procedure, the plea of ignorance of law in a small
town like Phaltan was accepted and maintained relying
on the decision of the Supreme Court in Motilal Padampat
Sugar Mills Ltd. vs. State of Uttar Pradesh (1979) 118
ITR 326, 339; and
- in the light of the above,
the bonafides of the assessee stood established and corroborated
and in that view of the matter, the infringement was barely
and merely venial or technical as propounded by the Supreme
Court in Hindustan Steel Ltd. vs. State of Orissa (1972)
82 ITR 26.
- In CIT vs. Harsiddh Construction
Pvt. Ltd. (2000) 244 ITR 417 (Guj), the assessee was under
a bonafide belief that one consolidated certificate for tax
deducted at source under section 194C was to be issued by
the assessee at the end of the accounting year when the accounts
of such parties for the entire year are generally completed
as against the interdiction of the law to issue such certificates
after each credit or payment as may be prescribed and the
Tribunal upheld such a contention inasmuch as such
a inference could be drawn on the premise that: –
- the tax had been deducted and
deposited into the government account in conformity with
the law thereto;
- no malafide intention could
be imputed to the assessee from the admitted factual canvas;
- there was neither any loss
caused to the revenue nor there was evasion of any tax
liability and on this aspect of the matter, the Tribunal
holding that the assessee was under the honest impression
drew inspiration from the locus classicus on the
subject namely, Hindustan Steel Ltd. vs. State of Orissa
(1972) 82 ITR 26 (SC). It is vital and cardinal to
note that the panacea and omniscient remedy in 83 ITR
26 was objected to by the revenue by quoting the decision
of the Apex Court in Addl. CIT vs. I. M. Patel &
Co. (1992) 196 ITR 297 wherein, according to the department,
the Supreme Court had laid down that imposition of penalty
is no longer discretionary, but mandatory. However, the
High Court after analyzing and scrutinizing the judgment
in 196 ITR 297 (SC) at pages 419 and 420
of the report distinguished the said ruling on the rationale
that the assessee in 196 ITR 297 (SC) never bothered
to file return in time which happened only almost after
three years wherein the income displayed was much lower
than ultimately assessed, whereas the assessee in the
instant case, i.e., 244 ITR 417 (Guj) undoubtedly
and admittedly the tax had been deducted at source and
paid into the government treasury thereby adhering to
the provisions of law which did not result in any loss
of revenue to the department and consequently, the only
failure was to forward the certificate. In the result,
the bona fide mistake of not forwarding the certificate
is good, cogent and reasonable cause for being extricated
from the clutches of the penal provisions. The pronouncement
of the Supreme Court in 196 ITR 297 has also been
distinguished as inapplicable in District Excise Officer
vs. ITO (2000) 69 TTJ 312 (Del) alluded to in (9)(c)
supra in the context of section 272A(2)(c).
- In Aroma Chemicals vs. DCIT
(2002) 121 TM 31 (Del)(Mag), for the reasons already expounded
serial number (9)(k) supra, the penalty foisted on
the assessee under section 272A(2)(g) was overturned as also
additionally on the following grounds: –
- there was no complaint from
the party that it was put to any inconvenience for want
of any tax deduction certificate contemplated to be issued
by the payer under section 203; and
- the assessee might have been
carried away with the instructions contained in the TDS
Certificate booklet thereby raising the possibility that
he might have made a bona fide mistake.
- Section 272AA provides that if a person fails
to furnish the information as may be prescribed pursuant to section
133B he shall be exacted to pay by way of penalty a sum not exceeding
Rs.1,000/-.
- If a person fails to comply with the provisions
of Section 139A he s
hall be chargeable to penalty of Rs.10,000/-
under Section 272B.
-
If a person fails to fulfill
the mandate of Section 203A pertaining to tax deduction number he
shall be liable to pay penalty of Rs.10,000/- under section 272BB.
-
If a person fails to satisfy
the provisions of section 206CA in relation to tax collection number
he shall be vulnerable to penalty of Rs.10,000/- under section 272BBB.
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