Income Tax Appellate Tribunal - Jaipur
Manoharlal vs Deputy Commissioner Of Income Tax. on 13 July, 1995
Equivalent citations: (1995)53TTJ(JP)105
ORDER
PRADEEP PARIKH, A.M. :
Both these appeals by the assessee are directed against the combined order of the learned CIT(A) dt. 1st August, 1994 for asst. yr. 1990-91. For the sake of convenience, they are disposed of by this common order.
2. The assessee is the proprietor of M/s Gokulchand Manohar Lal which is in the business of cotton waste. In the course of assessment proceedings, the Assessing Officer observed that during the year the assessee had received Rs. 16,686 in cash as loan from Smt. Sushila Devi and Rs. 3,184 in the same way from Smt. Ganga Devi. Smt. Sushila Devi is the wife of assessee's brother and Smt. Ganga Devi is the assessee's wife. Similarly, it was noticed that Smt. Sushila Devi was repaid Rs. 1,500 every month in cash aggregating to Rs. 18,000. Both these acts, namely, receiving of loans in cash and repayment thereof in cash were alleged to be in violation of the provisions of s. 269SS and 269T respectively. He, therefore, initiated penalty proceedings under ss. 271D and 271E. Several explanations were given and pleas made by the assessee, but the Assessing Officer remained unsatisfied and accordingly imposed a penalty of Rs., 19,870 under s. 271D and Rs. 18,000 under s. 271E.
3. Before the learned CIT(A) also, several pleas were made by the assessee. The levy of penalty was challenged on grounds of limitation and also on the ground that ss. 269SS and 269T were held to be unconstitutional by the Madras High Court. The levy was also attacked on the plea that the Assessing Officer failed to appreciate the existence of a reasonable cause in taking the loans in cash and repaying them also in cash. However, he too was not convinced on any ground and confirmed the penalty levied by the Assessing Officer under both the provisions.
4. The first argument by Shri M. Gargieya, learned counsel for the assessee, was that the penalties levied were barred by limitation. In order to appreciate this argument, it would be relevant to take note of certain facts. The assessment order under s. 143(3) was passed on 26th June, 1992. This order was a subject-matter of appeal before the learned Dy. CIT(A) and his appellate order is dt. 17th February, 1993. The show cause notices for levying the penalties are dt. 25th June, 1992. The impugned penalty orders are dt. 24th August, 1993.
5. It was contended by Shri Gargieya that in this case cl. (c) of sub-s. (1) of s. 275 was applicable and not cl. (a) of sub-s. (1) of s. 275 as contemplated by the learned CIT(A). It is unfortunate that though the alleged offence has been committed during the financial year 1989-90, the assessment year involved is 1990-91, penalty proceedings have been initiated in 1992, yet the learned CIT(A) applied the provisions of s. 275 as they stood prior to 1st April, 1989 and rejected the plea of the assessee. We, however, need not go into the aspect as to whether, even under the unamended provisions, the penalties were barred by limitation or not. Since the amended provisions of s. 275 are applicable, it needs to be examined as to whether under these provisions the penalties were time-barred or not. In order to determine the issue, the plea of the learned counsel that cl. (c) is applicable and not cl. (a) shall have to be examined first.
Sec. 275(1)(a) reads as follows :
"(1) No order imposing a penalty under this chapter shall be passed -
(a) In a case where the relevant assessment or other order is the subject-matter of an appeal to the Dy. CIT(A) or the CIT(A) under s. 246 or an appeal to the Appellate Tribunal under s. 253 , after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the Dy. CIT(A) or the CIT(A) or, as the case may be, the Tribunal is received by the Chief CIT or CIT, whichever period expires later;."
6. It will be observed that cl. (a) contemplates a situation where the "relevant assessment or other order" is the subject-matter of an appeal to any of the appellate authorities under the Act. If that be the case, then no penalty can be imposed after the later of the two dates mentioned therein. First of the two dates is the expiry of the financial year in which the proceedings, in the course of which penalty action has been initiated, are completed. The second date is the expiry of a period of six months from the end of the month in which any of the appellate orders is received by the Chief CIT or CIT. In other words, an extended period of limitation is available in those cases where the order is subjected to appeal. Sec. 275 as enacted in 1961 did not provide for this extended period. It was only in 1971 that s. 275 was amended to obviate the difficulties caused on account of the order be subjected to appeal. This was made amply clear by Circular No. 56 dt. 19th March, 1971, the relevant portion of which is reproduced below :
" Sec. 275 , as substituted, aims at obviating difficulties in such cases, reducing infructuous work and avoiding hardship to assessee. Under the section as substituted, the time limit for making an order imposing a penalty under the provisions of Chapter XXI of the IT Act will, ordinarily, be two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. However, in a case where the relevant assessment or other order is the subject-matter of an appeal to the AAC or an appeal by the ITO to the Tribunal, the time-limit for completing the penalty proceedings will be either the two year period as stated above or a period of six months from the end of the month in which the order of the AAC or, as the case may be, of the Tribunal is received by the CIT, whichever period expires later ..."
7. The period of limitation was further brought down by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989.
8. The question for our consideration is whether penalty proceedings under ss. 271D and 271E can be said to be subject-matter of appeal or not. According to the learned CIT(A), they are said to be the subject-matter of appeal, because these penalty proceedings were initiated in the course of assessment proceedings under s. 143(3) and the assessment order under s. 143(3) was appealed against by the assessee. According to him, it was immaterial whether these proceedings themselves were under challenge or not.
9. We are unable to agree with the views of the learned CIT(A). In our view penalties under ss. 271D and 271E are quite independent of the assessment proceedings. It is true that defaults under those sections would normally be noticed in the course of assessment proceedings only, but once having noticed the defaults, these penalty proceedings will be independent of the assessment proceedings and the penalties shall be imposable by Dy. CIT only. Even initiation of these penalty proceedings can be independent of the assessment proceedings and, hence, s. 275 has undergone drastic changes to take care of such proceedings. It is cl. (c) which takes care of such cases. Clause (c) reads as follows :
" Sec. 275(1) No order imposing a penalty under this chapter shall be passed - ....
(c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later."
10. From the above clause, it will be seen that the later part, that is, commencing from the words "or six months ...", envisages and takes care of the limitation period in those cases where penalty proceedings can be initiated independent of the assessment proceedings. The earlier part of cl. (c) is meant for those penalty proceedings which are initiated in the course of assessment or any other proceedings. Under both the situations it is contemplated that there will not be any necessity to extend the period of limitation on account of appellate proceedings and, hence, are clubbed together in the same clause. Thus, in our view, in the case before us, the limitation prescribed under cl. (c) of sub-s. (1) of s. 275 would be applicable. In arriving at this conclusion, we have derived much strength from a recent decision of the Pune Bench of the Tribunal in the case of Bhushan Chemicals vs. Dy. CIT (1995) 54 ITD 5 (Pune). While dealing with these provisions, the Pune Bench considered several decisions, and in particular that of the Delhi High Court in CIT vs. Rajinder Kumar Somani (1980) 125 ITR 756 (Del) and also of the Ahmedabad Bench of the Tribunal in H. Ajitbhai & Co. vs. Asstt. CIT (1993) 47 TTJ (Ahd) 146 : (1993) 45 ITD 262 (Ahd) and concluded as follows :
"Thus, the distinction between the law operative in the case before us and the law as applicable to the case before the Delhi High Court is very material and has to be take note of. Whereas in the case before the Delhi High Court, the period of limitation commenced from the end of the financial year in which the proceedings initiated were completed, in the case before us, the prescribed period of 6 months is to commence from the end of the month in which the penalty proceedings are initiated. As far as the decision of the Ahmedabad Bench of the Tribunal is concerned, there again the case before it pertained to the asst. yrs. 1986-87 and 1987-88, i.e., before the amendment of s. 275(1). It was in the context of the old law as then prevailing that a view was taken that the penalty proceedings can be initiated only during the course of assessment proceedings and not thereafter. One of the decisions which persuaded the Ahmedabad Bench of the Tribunal to accept this contention was the decision of the Delhi High Court in Rajinder Kumar Somani's case (supra). At this stage, it would be necessary also to refer to the argument of the learned senior Departmental Representative to the effect that the changed position of law, more particularly that contained in s. 275 does not preclude the Revenue authorities from initiating penalty proceedings even after completion of assessment proceedings or independently of the assessment proceedings. In this connection, the learned Departmental Representative referred, inter alia, to the following provisions of the IT Act, viz., ss. 271A, 271B, 271C, 271D, 271E, 272A. cl. (1) sub-cl. (a), cl. (1) sub-cl (c), cl. (1), sub-cl. (d), ss. 272AA, 272BB, 272A , sub-s. (2). The learned Departmental Representative submitted that recent amendments in the Act have introduced a large number of penalty provisions which arise out independently and not out of assessment proceedings. The period of limitation even for these penalties has been provided in s. 275. It was, therefore, necessary that the provisions of s. 275 should be amended correspondingly. It is for this reason that s. 275 has undergone material changes including the changes with regard to the commencement of period of limitation. In the changed context of s. 275 , therefore, such implicit bar as has been enunciated by the Delhi High Court in Rajinder Kumar Somani's case (supra) can no longer operate. We have given our anxious thought to this aspect of the matter and find that the argument of the learned senior Departmental Representative is not without force. The principle of implicit bar was upheld by the Delhi High Court and followed by the Ahmedabad Bench of the Tribunal mainly on the basis that the period of limitation prescribed for the relevant penalty proceedings commenced from the end of the financial year in which the assessment proceedings were completed. On account of change in s. 275 , this position no longer obtains and, therefore, the view accepted by the Hon'ble Delhi High Court cannot operate in the case before us. Since the period of limitation prescribed in the present case commences from the end of the month in which action for imposition of penalty is initiated, reference to the assessment proceedings is totally unnecessary and, therefore, there cannot be any implicit bar to the initiation of penalty proceedings after the completion of the assessment proceedings or independently of them."
11. Applying the above provisions of law to the facts of the present case, it is observed and undisputed that penalty proceedings were initiated on 25th June, 1992. The period of limitation shall be six months from the end of the month in which penalty proceedings are initiated, that is, from 1st July, 1992 the six month period will end on 31st December, 1992. The penalty is imposed on 24th August, 1993 and, hence, clearly out of the prescribed period of limitation. Even if the penalty proceedings are linked with the assessment proceedings, the limitation period will end on 31st March, 1993, that is, at the end of the financial year in which assessment proceedings were completed. The assessment proceedings were completed on 26th June, and, hence, the financial year in which they were completed expired on 31st March, 1993. But under no circumstances, the case would fall under cl. (a) of sub-s. (1) of s. 275.
12. The penalties imposed under ss. 271D and 271E are, therefore, cancelled on the ground of limitation. Since the penalties are cancelled on grounds of limitation, we do not think it necessary to deal with the other pleas forwarded by the assessee.
13. In the result, both the appeals are allowed.