Income Tax Appellate Tribunal - Allahabad
Income-Tax Officer vs Rama Medical Stores on 27 March, 1996
Equivalent citations: [1996]59ITD110(ALL)
ORDER
1. These are two appeals by the department which challenge the deletion of penalty imposed in a sum of Rs. 24,768 and Rs. 27,900 under section 271B of the I.T. Act, 1961, in respect of the assessment years 1988-89 and 1989-90.
2. Assessee carries on sale and purchase of medicines and maintained two set of accounts, one for their head office and the other for their lone branch. The total sales for head office and the branch office for these years stood as under :
Head Office Branch Office
1. 1988-89 23,31,441-90 26,22,312-96
2. 1989-90 24,71,151-54 31,26,965-95
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48,02,593-44 57,49,278-91
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Separate profit and loss accounts and balance-sheet were drawn by the assessee for their head office and the branch office.
3. It has been the assessee's case that they ran an honest and bona fide belief that since in the head office and the branch officer their sales remained below the statutory limit of Rs. 40 lakhs they were not required to get their account books audited. This belief in the submission of the assessee validly constituted "reasonable cause". Apart of this, there was no wilful and deliberate default on the part of the assessee nor any contumacious conduct of theirs. Reliance on certain authorities were placed but this plea was not accepted either by the Assessing Officer or during first appeal. However, the learned CIT(A) felt convinced by another stand taken by the assessee that both the assessments processed by the Assessing Officer under the provisions of section 143(1)(a), such processing completed on 31st March, 1989 and 30th March, 1990 respectively for the two assessment year, no penalty under section 271B was exigible, as the Assessing Officer failed to initiate the penalty proceedings during the course of the assessment year proceedings. It was contended to which fact there is no dispute that the penalties were initiated only vide notices dated 22nd June, 1990 and 2nd April, 1990 for these two years, copies of notices available at pages 2 and 3 of the assessee's paper-book. The ld. CIT took the plea that because of non-initiation of the penalty proceedings by the AO till up to the time he completed action under section 143(1)(a) penalty was not imposable. He also took the aid of section 275 of the Act to say that the limitation for initiating penalty had run out. In this regard reliance was placed on a decision cited before him which is reported in the case of CIT v. Rajinder Kumar Somani [1980] 125 ITR 756 (Delhi).
4. Seriously challenging the view taken during the first appeal, the learned D.R. vehemently contended that the learned CIT(A) fell into a legal error in deleting the penalty. According to him, the requirement of the initiation of the penalty during the assessment proceedings did not apply to penalty under section 271B, which unlike the provisions pertaining to certain other penalties such as 271(1)(c) or 271(1)(a) - penalties for concealment or late filing of return respectively did not enjoin upon the Assessing Officer to impose penalty in the course of any proceedings under the IT Act. Regarding the applicability of section 275 of the Act, it was submitted that the limitation provided for by it related to the completion of the proceedings after initiation rather than any limit set for the initiation of a penalty. About the ratio in the case of Rajinder Kumar Somani, (supra), the learned D.R. submitted that there the Court was examining the provisions of section 275 qua 271(1)(a) and substantive provision, namely, 271(1)(a) did require the initiation of penalty during the course of any proceedings under the I.T. Act. It was, thus, urged that the ratio of Somani's case was not relevant for a case where penalty was imposed under section 271 where there was no mandate of the Legislature that the penalty must be initiated during the course of any proceedings under the Income-tax Act.
5. In reply, the learned counsel for the assessee reiterated the stand taken before the learned CIT(A). In addition, he submitted that although the assessee did not file any appeal against the finding about the absence of any reasonable cause, under rule 27 of the Appellate Tribunal Rules, 1963, the assessee was entitled to support a ground decided against him.
6. I have considered the matter carefully. It is intended firstly to deal with the legal ground on which the ld. CIT(A) deleted the penalty imposed on the assessee under section 271B of the Act. AS already stated above, the sole basis of doing so by the Ld. CIT(A) was that the Assessing Officer failed to calculate the period of limitation laid down under section 275 of the Act, the penalty not initiated during 143(1)(a) proceedings. Reliance was placed to lend support to this view to the decision of Rajinder Kumar Somani's case (supra).
7. In my considered opinion, the learned CIT(A) has proceeded on a wrong premise of law.
8. Relevant portion of section 275 of the IT Act, 1961 runs as under :-
"Bar of limitation for imposing penalties 275(1) No order imposing a penalty under this Chapter shall be passed -
(a)..............
(b)..............
(c) In any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later."
9. Since admittedly the present case does not fall with clause (a) & (b) of sub-section (1) of section 275(1) they have been omitted by me.
10. As is evident, the Legislature gave a mandate that no order imposing a penalty under Chapter XXI shall be passed beyond the limitation prescribed by it. This language cannot encompass within its fold, the action about the initiation of a penalty. For this, we would have to go to the substantive provisions. I have also pointed out, for example under section 271 which vests the income-tax authorities to impose penalty for failure to furnish returns, comply with notices or on concealment of income penalty could be initiated only "in the course of any proceedings under this act." As against this section 271B in an unqualified manner without any reservation says that if any person fails to get his accounts audited in respect of any previous year or years, etc., penalty of a specified sum could be imposed. The difference is distinct and vital for the interpretation of the two sets of provision. Under section 271 of the Act for imposing penalty under any of the 3 clauses initiation must be in the course of any proceedings under the IT Act, which condition does not prevail while imposing penalty under section 271B. As regards the view taken by the High Court of Delhi in Rajinder Kumar Somani's case (supra) is concerned its ratio does not apply to the facts of the present case for several reasons. Firstly, the Hon'ble Court was dealing with a case of penalty under section 271(1)(a), which as stated above clearly requires the initiation of penalty in the course of any proceedings under the IT Act. Secondly, the provision where such a legal requirement about the initiation of penalty in the course of any proceedings under the IT Act did not exist was not under consideration before the Court. Incidentally, it was also not possible. I say so because the judgment in Rajinder Kumar Somani's case (supra) was rendered on 30th April, 1980, while the substantive provision of section 44AB requiring audit of accounts of certain persons carrying on business or profession, the penalty provisions contained in section 271B imposing penalty or non-compliance of the mandate of section 44AB came on the statute book only w.e.f. 1st April, 1985. These circumstances make it more than obvious that the ratio of Rajinder Kumar Somani's case (supra) does not at all help the assessee in any manner-directly or indirectly. Rajinder Kumar Somani's case (supra) hold good qua the penalty to be imposed under section 271(1) of the Act where the Hon'ble Court held that it was not enough that during the course of assessment proceedings ITO was satisfied that case for penalty existed. It was further necessary that the ITO should have initiated some action for the imposition of penalty in the course of such proceedings. This ratio is clearly in the background of a provision where law requires that the penalty should be initiated in the course of any proceedings under the Income-tax Act. Taking the second limb of the assessee's submission about the applicability of section 275 of the Act, it may be stated that the penalty proceedings having been initiated on the 22nd of June, 1990 and 2nd of April, 1990, both the penalty orders passed on 30th October, 1990 are very much within the time frame, i.e., within 6 months from the end of the month in which action for imposition of penalty was initiated. The view taken by the ld. CIT(A) is, therefore, untenable in law and reversed.
11. I would now deal with the assessee's stand about the existence of a reasonable cause, although not accepted by the learned CIT(A) but permitted to be raked up by the assessee under section 27 of the Income-tax Rules, 1963.
12. On facts, assessee runs two medical stores, one called head office and the other branch office. Indisputably if the sales of the two are taken independently they will fall short of Rs. 40 lacs in each of the two years. If taken together, as has been done, they will far exceed Rs. 40 lacs in both the years. Assessee is a partnership firm and they submitted one return for their whole of the business. In the circumstances, the submission that the turnover of each of the branches was to be considered separately does not appear to hold any water, separate profit and loss account and balance-sheets prepared for the two notwithstanding. The preparation of separate profit and loss account and drawing of separate balance-sheet is naturally done with a view to know about the state of health of the two business - so that the assessee knows the sales, profit and other necessary business requirements. A belief could be bona fide only if it is that of a reasonable and prudent man. The provisions of law requiring compulsory audit came into effect from 1st April, 1985. The assessment years before us are 1988-89 and 1989-90. Much water had flown during this long interval in our holy rivers. It is not as if this belief was founded by the assessee on the basis of any legal or expert advise which might have been incorrectly given to them. The point argued by the learned counsel for the assessee before me that it was first lapse of the assessee also remains unconvincing inasmuch as the provision as stated above had come into force w.e.f. 1st April, 1985 and the C.B.D.T. itself had made some relaxations in respect of the auditing of accounts for the assessment year 1985-86. Reference to a decision of the Apex Court in Akbar Badrudin Jiwani of Bombay v. Collector of Customs AIR 1990 SC 1579 also does not help the assessee as the default in the case in hand is neither venial nor technical. It is a clear-cut default where the assessee despite their turnover far exceeding the limit of Rs. 40 lacs failed to have their books audited as enjoyed by section 44AB without any reasonable cause. The submission made on behalf of the assessee, therefore, stand repelled.
13. In the result, the impugned orders are set aside and penalties imposed by the Assessing Officer restored.
14. Appeals allowed.