Income Tax Appellate Tribunal - Delhi
Shere Punjab Silk Store vs Income-Tax Officer on 22 July, 1991
Equivalent citations: [1991]39ITD469(DELHI)
ORDER
J. Kathuria, Accountant Member
1. These 8 appeals by the assessee for assessment years 1979-80 to 1982-83 arise out of three orders dated 22-12-1986, 9-9-1988 and 9-9-1988 passed by the Commissioner of Income-tax (Appeals) and pertain to penalties levied under Section 271(1)(a) and 271(1)0) of the Income-tax Act. As identical issues are involved, these appeals are disposed of by a combined order, for the sake of convenience.
2. We shall first take up the appeals pertaining to penalties levied under Section 271(1)(a) of the Act.
Brief facts of the case are that the assessee is a firm which consisted of three partners, namely, S/Shri Harbhajan Singh, Joginder Singh and Manmohan Singh. The three partners also happened to be brothers. The position of due date of return, the date on which returns were filed, the delay involved, the penalties imposed etc., is depicted below: -
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Asst. Return Extension Extension Return Delay for Amount of
year due applied granted by filed which penalty
up to ITO up to on penalty levied
levied
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1979-80 31-7-1979 31-12-1979 30-8-1979 18-2-1982 29 months Rs. 47,750
1980-81 31-7-1980 31-12-1980 30-10-1980 19-2-1983 28 months Rs. 1,28,920
1981-82 31-7-1981 31-3-1982 31-10-1981 29-3-1984 28 months Rs. 42,286
1982-83 31-7-1982 - - Not filed 31 months Rs. 47,194
up to asst. delay
order dated counted
8-3-1985 up to date
of asst.
order
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3. Penalty proceedings for late submission of the returns were initiated during the course of assessment proceedings. The assessee's main plea before the Assessing Officer was that there was labour trouble in the mill of M/s. Anand Synthetics Pvt. Ltd., which resulted in strikes, lay off and ultimately closure of the factory on 24-1 -1983. It was also submitted that because the information from Anand Synthetics Pvt. Ltd., was not available in time, the returns could not be filed in time. It was also pointed out that there was strained relationship 'amongst the partners, who also happened to be real brothers. The Assessing Officer, however levied the penalties as mentioned above which were confirmed by the first appellate authority. For assessment years 19 79-80 to 1982-83 the learned Commissioner of Income-tax (Appeals) has referred to his order passed in the case of M/s. Anand & Co. and upheld the penalties. As far as assessment year 1980-81 is concerned the learned CIT (Appeals) has held that if the labour trouble in the factory of M/s. Anand Synthetics Pvt. Ltd., was the reason for late submission of the return then the return for assessment year 1979-80 should have been filed in time because the labour trouble even according to the assessee started sometime in 1980 and there was, therefore, no reason for filing the return for assessment year 1979-80 late sometime in February 1982. As regards the disputes amongst the partners it was held by the learned CIT (Appeals) that if the partners gave priority to their personal disputes over their statutory obligations regarding filing of return then they should not grudge the penalty imposed upon them. It was also observed that if the assessee was maintaining regular books of account, then such an inordinate delay should not have occurred in the matter of filing of the return.
4. It may be mentioned that the assessee-firm, M/s. Anand Synthetics Pvt. Ltd. and M/s. Anand & Co. are sister-concerns. All the three partners of the assessee-firm are Directors of M/s. Anand Synthetics Pvt. Ltd., and wives of two partners, namely, Shri Harbhajan Singh and Shri Joginder Singh along with Shri Manmohan Singh are partners of M/s. Anand & Co. There was delay in the matter of submission of returns by M/s. Anand & Co. as well and as the facts were identical the learned CIT (Appeals) has referred to the detailed order passed by him in the case of M/s. Anand & Co., while disposing of the assessee' s appeals for the aforesaid three assessment years which has been perused by us.
5. Shri P.N. Monga, the learned counsel for the assessee, submitted that an explanation had been filed by the assessee before the Assessing Officer showing reasonable cause for late submission of the returns. His grievance was that that explanation had been rejected by the Departmental authorities without assigning any reasons. According to the learned counsel what was material in penalty matters was to see whether there was a deliberate defiance of law by the assessee and whether the conduct of the assessee was contumacious. It was submitted by him that penalty was not automatic, but was a matter of judicial discretion and that a mere rejection of explanation was not enough. Reliance in this regard was placed on the following cases: Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC); (ii) All India Sewing Machine Co. v. CIT [1914] 96 ITR 206 (Mys.); (iii) CIT v. C. Shantilal & Co. [1983] 141 ITR 476 (Guj.).
6. For assessment years 1980, 1981-82 and 1982-83 it was submitted in the alternative that if the return for assessment year 1979-80 could not be filed in time then the returns for assessment years 1980-81, 1981 -82 and 1982-83 had necessarily to be delayed and there was clearly a reasonable cause for not filing the return of income for those years in time. It was vehemently argued that the Departmental authorities had not properly appreciated the difficulty encountered by the assessee-firm in getting reconciliation statements of M/s. Anand Synthetics Pvt. Ltd., nor had they properly appreciated the legal aspect of the matter. It was, therefore, submitted that there was no warrant for the levy of penalties and that the penalties may be either cancelled or substantially reduced.
7. The learned Departmental Representative equally forcefully argued that the assessee had filed an identical explanation for all the aforesaid years in which it was stated that the accounts could not be finalised because of the absence of reconciliation with the accounts of M/s. Anand Synthetics Pvt. Ltd. It was vehemently argued that the assessee was maintaining regular books of account and it had not been proved why the reconciliation of accounts was at all necessary from M/s. Anand Synthetics Pvt. Ltd., particularly when all the purchase vouchers were available with the assessee. It was also submitted that the assessee had not shown that in earlier years as well the assessee could file returns only after obtaining the reconciliation statement from M/s. Anand Synthetics Pvt. Ltd. The next submission of the learned Departmental Representative was that the assessee was only making purchases from M/s. Anand Synthetics Pvt. Ltd., for which all the purchase vouchers were available with the assessee and it should have been possible for the assessee to file the returns of income in time particularly when its extension applications had also been rejected by the Assessing Officer. It was emphasised that if later on any discrepancy was discovered while reconciling the statements, the assessee would have been within its right to file a revised return. It was also submitted that disputes even according to the assessee arose in the factory of M/s. Anand Synthetics Pvt. Ltd. only in 1980 and that there was absolutely no justification for delay in the submission of return for assessment year 1979-80. It was also submitted that if an assessee delays the filing of return for one assessment year he cannot be heard to say that because the return for the earlier year was delayed, return for subsequent years could not be filed in time. It was, therefore, urged that there was no justification for any interference by the Appellate Tribunal as the penalties had been rightly levied/confirmed. Reliance was also placed on the following decisions: -
CIT v. Gujarat Travancore Agency [1976] 103 ITR 149 (Ker.) (FB);
(ii) Addl. CIT v. Dargapandarinath Tuljiyya & Co. [1977] 107 ITR 850 (AP) (FB);
(iii) CIT v. Patram Dass Raja Ram Beri [1981] 132 ITR 671 (Punj. & Har.) (FB);
(iv) Addl. CIT v. Mohammed & Sons [1985] 154 ITR 220 (Raj.).
8. We have carefully considered the rival submissions as also the facts on record. It is trite to say that each case has to be decided on its own facts. There is no doubt that for assessment years 1979-80 to 1981-82 the returns were filed very late. The extension applications filed by the assessee were not accepted wholly and extension was granted only up to a particular period. For assessment year 1982-83 no return of income was filed till the completion of assessment and so the delay was computed at 31 months. In a situation like this where there is an inordinate delay in the matter of submission of returns of income by the assessee, the onus is on the assessee to prove that there was a reasonable cause which occasioned such a delay. It is the case of an old assessee which knows its obligation to file the returns. The filing of extension applications is a proof positive of its awareness of obligation. The assessee's explanation in this case mainly was that because of the labour trouble in the factory of M/s. Anand Synthetics Pvt. Ltd. the statement of accounts of that party could not be reconciled and that there were disputes amongst the partners. As regards the first limb of the submission, it may be mentioned that the assessee was maintaining books of account and was only making purchases from M/s. Anand Synthetics Pvt. Ltd., for which it had the purchase vouchers. If an assessee wants to have reconciliation of accounts with everybody, i.e., the purchasers arid the sellers then it would be well nigh impossible to file a return of income within the stipulated period. An assessee has to file a return of income on the basis of books of account regularly maintained by him. It has not been denied that the assessee was maintaining books of account on a regular basis. It has also been admitted that complete purchase vouchers from M/s. Anand Synthetics Pvt. Ltd., were available with the assessee. It is not the case of the assessee that the return could not be filed because the books of account had in fact not been subjected to audit. The learned counsel for the assessee has not shown that there was a practice with the assessee to obtain a reconciliation statement of M/s. Anand Synthetics Pvt. Ltd., and only then to file the return. According to us the no availability or reconciliation statement from M/s. Anand Synthetics Pvt. Ltd., could not be a reasonable cause for not filing the returns of income in time. As regards the alleged disputes amongst the partners who happened to be real brothers, nothing has been placed on record to show that this was so. In fact on a query from the bench as to who had signed the various extension applications the reply of the learned counsel for the assessee was that the extension applications may have been signed by different partners. In any case no evidence has been produced before us or before the Departmental authorities that there were disputes amongst the partners, that the disputes were real and that the nature of the disputes was such that even the statutory obligations could be given a go by. A mere averment does not tantamount to evidence. According to us the reasons mentioned by the assessee and reiterated before us were not reasonable or sufficient enough to justify the late submissions of returns.
9. We are also not impressed by the argument of the learned counsel that at least for assessment years 1980-81, 1981-82 and 1982-83 there was a reasonable cause inasmuch as the return for the assessment year 1979-80 had not been filed in time. If such an argument were accepted, it would be putting a premium on the inefficiency and indifference of the assessees. We, therefore, do not accept the proposition canvassed before us in this regard.
10. The slight initial burden, if any, placed on the Revenue in such penalty matters stands discharged in this case, when it can be pointed out that it was the case of an old assessee and the assessee was aware of its obligation to file the return. Thereafter, the burden shifts to the assessee who has to show a reasonable cause because the facts are within his special knowledge. Moreover, the explanation filed by the assessee has to be an acceptable explanation and has to be based on evidence. The mere explanation of the assessee not supported by evidence cannot have the effect of shifting the burden on to the Department nor can the Department be called upon to produce material to show that the assessee had, without reasonable cause failed to furnish the return in time. Reliance in this regard is placed on the Allahabad High Court decision in CIT v. Goel Engg. Corporation [1991] 188 ITR 461.
11. As regards the legal position on which much stress has been laid by the learned counsel for the assessee it may be necessary to look into the evolution of law on the issue.
12. The learned counsel relying on certain observations of the Hon'ble Supreme Court in the case of Hindustan Steel Ltd. (supra) submitted that it is for the Department to prove that the assessee acted in a deliberate defiance of law or that the assessee's conduct was contumacious. Reliance was also placed by him on the Mysore High Court decision in the case of All India Sewing Machine Co. (supra) which, in turn, followed the aforesaid decision of the Supreme Court in Hindustan Steel Ltd. 's case (supra).
13. Much water has flowed after the decision of Hindustan Steel Ltd. 's case (supra) where the observations were in the context of penalty for concealment.
14. The Full Bench of Orissa High Court in CIT v. Gangaram Chapolia [1976] 103 ITR 613 held that the taxing authorities must be satisfied that failure to furnish the return in time was without reasonable cause. The burden of proof of reasonable cause under Section 271(1)(a), according to the High Court, is on the assessee as the matter is within his special knowledge and this burden can be discharged by a preponderance of probabilities as in a civil case and not necessarily by -a proof beyond reasonable doubt.
15. The Madhya Pradesh High Court in Nemichand Gneshlal v. CIT[l980] 124 ITR 438 held that Section 271(1)(a) does not say that the assessee should be guilty of contumacious or dishonest conduct for attracting the penalty provided therein. According to the High Court all that it says is that he should have failed to file the return of his total income within time "without reasonable cause". Imposition of penalty under Section 271(1)(a) is not vitiated for the reason that the Income-tax authorities have not recorded a finding that the assessee was guilty of contumacious or dishonest conduct in failing to furnish the return of income. The High Court discussed the case of Hindustan Steel Lid. (supra) and applied the Supreme Court decision in R.S. Joshi, STO v. Ajit Mills Ltd. [1977] 40 STC 497.
16. Full Bench of Punjab & Haryana High Court in Patram Doss Raja Ram Beri's case (supra) held that the doctrine of mens rea which in essence pertains to the realm of criminal law would normally not be attracted to the imposition of penalties under taxing statutes which in essence are coercive civil sanctions and remedies for the speedy collection of revenue. This decision distinguished the Supreme Court decision in Hindustan Steel Ltd. 's case (supra) and relying on the Supreme Court case in Ajit Mills Ltd. (supra) held that the doctrine of mens rea was not attracted to penalty proceedings under Section 271(1)(a). According to the High Court the only requirement under that section was the presence or absence of reasonable cause for the tax delinquency. The requirement of deliberate defiance of law or contumacious conduct or dishonest intention or acting in conscious disregard of statutory obligation, in the view of the High Court, was unwarranted under Section 271(1)(a).
17. Full Bench of Andhra Pradesh High Court in Dargapandarinath Tuljiyya &Co. 's case (supra) held that the distinction maintained between Section 271(1)(a) and Section 276C of the Act brings out the intention of Parliament in providing for two different machineries of different magnitude, where different considerations prevail. The High Court further held that a penalty imposed for tax delinquency is a civil obligation and is far different from the penalty imposed for a crime or a fine or forfeiture provided as punishment for violation of criminal or penal laws. In the view of the High Court, the element of mens rea need not be established before levy of penalty under Section 271(1)(a). This case also dealt with the aforesaid case of Hindustan Steel Ltd. (supra) and observed that the Supreme Court decision in Hindustan Steel Ltd. 's case (supra) was the fountain source from which the concept of mens rea being an ingredient of penalty proceedings under the Income-tax Act sprang up. In the ultimate analysis, the High Court held that for penalty proceedings under Section 271(1)(a) mens rea was not required.
18. Full Bench of Kerala High Court in Gujarat Travancore. Agency's case (supra) held that the penalty provisions under the Income-tax Act are not provisions of a criminal nature which warrant a requirement of mens rea in the sense in which the same is required for an offence by the criminal law. Explaining the Supreme Court decision in Hindustan Steel Ltd. 's case (supra) the High Court ventured to think that the pronouncement of the Supreme Court with respect to Section 28(1)(c) of the 1922 Act could not straightaway be applied to the provisions of the 1961 Act.
19. It is significant to note that the aforesaid Full Bench decision of the Kerala High Court has been affirmed by the Hon'ble Supreme Court in Gujarat Travancore Agency v. CIT [1989] 177 ITR 455. Thus, the controversy on this issue has been finally resolved by the apex court in the country in the following words: -
There can be no dispute that having regard to the provisions of Section 276C, which speaks of wilful failure on the part of the defaulter and taking into consideration the nature of the penalty, which is punitive, no sentence can be imposed under that provision unless the element of mens rea is established. In most cases of criminal liability, the intention of the Legislature is that the penalty should serve as a deterrent. The creation of an offence by statute proceeds on the assumption that society suffers injury by the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence. In the case of proceedings under Section 271 (1)(a) of the Act, however, the intention of the Legislature is to emphasise the fact of loss of revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty. In this connection, the terms in which the penalty falls to be measured are significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea it is generally sufficient to prove that a default in complying with the statute has occurred. There is nothing in Section 271(1)(a) which requires that mens rea must be proved before penalty can be levied under that provision.
20. In view of the position explained above the contention of the learned counsel for the assessee that the Department must show that the assessee had acted contumaciously or in defiance of law, is not correct. We have already held that the onus of explaining the reasonable cause by the assessee has not been discharged in this case. The penalties, therefore, levied by the Assessing Officer and confirmed by the first appellate authority have got to be sustained. We hold accordingly. The learned counsel for the assessee has not been able to make out a case for reduction of penalties as even according to him the total income as assessed by the Assessing Officer for all the aforesaid years has become final.
21. In the result, all the four appeals pertaining to penalty under Section 271(1)(a) are dismissed.
22. Now we come to the 4 penalties for the aforesaid years imposed under Section 271(1)(b).
23. It is an admitted position that the Assessing Officer issued various notices under Sections 142(1) and 143(2) of the Act and the assessee failed to comply with the same. The learned counsel for the assessee, submitted before us that Shri Harbhajan Singh, partner, who used to appear in the Income-tax proceedings was busy in settling the disputes which had arisen in the factory of M/s. Anand Synthetics Pvt. Ltd. It was also pointed out that there were disputes amongst the partners and that the default of non-compliance of statutory notices occurred not because of any contumacious conduct or defiance of law, but because of the circumstances beyond the control of the assessee. It was also his grievance that the factual explanation given by the assessee which had not been proved false are lacking in material particulars had been brushed aside without assigning any reasons.
24. The learned Departmental Representative, on the other hand, submitted that it was strange that Shri Harbhajan Singh, the partner was busy in resolving dispute in the factory of M/s. Anand Synthetics Pvt. Ltd., but had no time to attend to the statutory requirements. It was also submitted that the Assessing Officer had not issued notices under Section 131 of the Act requiring the personal presence of the partners, but had issued notices requiring the production of books of account etc., which any responsible person of the assessee-firm could have produced. It was also submitted that the default for non-compliance was admitted and no reasonable cause had been shown as to why compliance could not be made by the assessee.
25. We have carefully considered the rival submissions as also the facts on record. The total income for all the aforesaid 4 years assessed by the Assessing Officer has become final. The learned counsel for the assessee has not been able to show as to why the partners or their counsel or any responsible person of the assessee-firm could not comply with the requirements of the notices issued by the Assessing Officer. The reasonable cause had to be shown by the assessee and it was not for the Revenue to establish contumacious conduct on the part of the assessee or deliberate defiance of law on its part. Even the existence of a dispute amongst the partners has not been established. We have also not been shown that the dispute, if any, was real or so grave that even the statutory notices issued by the Department could not be complied with. We are, therefore, satisfied that this was a fit case for the levy of penalty under Section 271(1)(b) for all the aforesaid 4 years and no interference in the orders of the CIT(A) is warranted.
26. All the four appeals of the assessee pertaining to penalty under Section 271(1)(6) are, therefore, dismissed.