INCOME
TAX REVIEW
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Miscellaneous (Part II) |
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Introduction
This article covers the miscellaneous
provisions for penalty u/ss. 271FA, 272A, 272B, 272BB and
272BBB.
General propositions
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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.
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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.
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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
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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.
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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
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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: –
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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.
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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.
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(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.
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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.
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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.
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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
insignificant. 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 :
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…………………………………………… 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: –
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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.
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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.
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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.
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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.
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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.
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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
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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).
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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.
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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 shall 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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