Income Tax Appellate Tribunal - Indore
Tirupati Construction Co. vs Income-Tax Officer on 4 September, 1990
Equivalent citations: [1991]38ITD465(INDORE)
ORDER
S.K. Jain, Judicial Member
1. The ITO levied penalty of Rs. 12,293 in the assessment year 1975-76 and of Rs. 11,374 in the assessment year 1977-78 u/s 271(1)(c) of the Income-tax Act, 1961 on the assessee firm M/s. Tirupati Construction Company, Dewas. He also levied penalty of Rs. 3,320 in the assessment year 1977-78 u/s 271 (1)(c) on the assessee, Shri Umeshchand K. Patel, who had besides share income from the firm M/s. Tirupati Construction Company, Dewas, income from his individual business of civil contract works. The said orders of the ITO were taken in appeal by the assessees before the AAC of Income-tax with the preliminary objection that the penalties were levied without the previous approval of the I AC and as such proviso to Clause (iii) of Section 271(1) was violated. The AAC of Income-tax on one hand negatived such objection of the assessees, mentioning to the effect that the penalty orders, though did not mention the fact of having obtained approval of the IAC, the approval of the IAC was taken by the ITO vide letters dated 13-3-1985 and on the other he dismissed the appeals on the ground that he had no jurisdiction to hear the appeals since the appeals lay before the CIT(A). Aggrieved by the said orders of the AAC, the assessees have come up in appeal before the Tribunal. However, these appeals (Nos. 842 and 843/Ind/85 and 833/Ind/85) are infructuous since the assessees again went in appeal before the CIT(A) against the said orders of the ITO and the CIT(A) has dismissed the appeals on merit. Aggrieved by the orders of the CIT(A), the assessees have further come in appeal (ITA Nos. 691,692/Ind/87 and 548/Ind/87).
2. Relevant facts are these. The assessee firm and the assessee, Shri Umeshchand K. Patel had not been previously assessed under the Income-tax Act, 1961. The assessee firm for the first time filed returns of income for the assessment years 1974-75 to 1979-80 on 26-2-1981 in compliance with notices under Section 148. Similarly, the assessee, Shri Umeshchand K. Patel for the first time filed returns of income for the assessment years 1976-77 to 1980-81 in March 1981 in compliance with notices under Section 148. It is thus obvious that the assessees failed to furnish the returns of income for the assessment years 1975-76 and 1977-78 within the period specified in Sub-clause (iii) of Clause (a) of Sub-section (1) of Section 153 and the notices under Section 148 were issued to the assessees after the expiry of the said period. The ITO, therefore, initiated penalty proceedings in the course of the assessment proceedings for these years against the assessees under Section 271(1)(c) read with Explanations. It may be noticed here that the assessee firm declared income in the status of unregistered firm at Rs. 9,180 in the assessment year 1975-76 and at Rs. 46,223 in the assessment year 1977-78 which were assessed at Rs. 40,888 and Rs. 46,223 respectively. The said assessment was confirmed in appeal by the AAC. However, in second appeal it was reduced by the Tributlal and the assessed income was computed at Rs. 18,360 in the assessment year 1975-76 and at Rs. 44,104 in the assessment year 1977-78. Tax deductcd at source was Rs. 1,878 in the assessment year 1975-76 and Rs. 9,245 in the assessment year 1977-78. Further, it may be noticed that the assessee, Shri Umeshchand K. Patel, declared total income of Rs. 1,130 in the status of individual in the assessment year 1977-78 and the tax deducted at source was at Rs, 3,282. Income of Shri Umeshchand K. Patel was assessed by the ITO at Rs. 74,484 which was confirmed in appeal up to the stage of the Tribunal.
3. The CIT(A) confirmed the levy of penalties in the case of the firm and Shri Umeshchand K. Patel for the assessment year 1977-78. He, however, directed the ITO to recompute the penalty in the case of the firm for the assessment year 1975- 76 on the basis of tax payable after giving effect to the order of the Tribunal.
4. Now, contention of the learned counsel for the assessees is that the assessees had no animus to commit any breach of law and to avoid tax. According to him, tax hasbeen deducted at source in the cases of both the assessees was much more than the tax payable by them on the returned income and, therefore, they were unmindful of furnishing the returns of income. It is pointed out by him that the tax as per return was payable at Rs. 220 in the assessment year 1975-76 and at Rs. 2,710 in the assessment year 1977-78, whereas tax deducted at source was Rs. 8,178 and Rs. 9,245 Respectively in the case of the firm. Similarly, as per return of income of Shri Umeshchand K. Patel tax payable was nil whereas tax deducted at source was Rs. 3,282. Further, his contention is that income returned by Shri Umeshchand K. Patel was below taxable limit. Shri Umeshchand K. Patel, the learned counsel contended, honestly believed that he was not required to file the return of income his income being below taxable limit. It is also his contention that Explanation 3 to Section 271(1) should be read along with Section 271(1)(c) and it should not be interpreted in a manner as to expand the substantive provision contained in Section 271(1)(c). It is argued by him that the assessees returned their income honestly and truly; it was, however, not accepted and the additions were made merely on the basis of estimates to the returned income. Such additions made on estimate basis, the learned counsel urged, should not constitute basis for levy of penalty. In support he placed reliance upon J.K. Jajoo v. CIT [1990] 181 ITR 410 (MP), CIT v. Prithipal Singh & Co. [1990] 183 ITR 69 (Punj. & Har.),CIT v. Harlal Mannulal [1989] 178 ITR 284 (MP) and CIT v. S.P. Viz Construction Co. (No. I) [1989] 176 ITR 34 : 44 Taxman 373 (Pat.).
5. Learned Departmental Representative, on the other hand, contended that the case of the assessees clearly falls within Explanation 3 to Section 271(1)(c). It is contended by him that Explanation 3 is a deeming provision clearing up the ambiguity in the main section. The purpose and intent of Explanation 3, the learned Departmental Representative argued, is to take in the net of penalty for concealment, such persons who successfully keep themselves away from their income being assessed to tax till the period of limitation for completion of the assessment is expired. For such persons, learned departmental representative pointed out, no defence is available that no penalty is imposable for the additions merely on the basis of estimates. For this purpose he drew our attention to Explanation 4 which reads as under:-
For the purposes of Clause (iii) of this sub-section, the expression 'the amount of tax sought to be evaded', -
(a) ** ** **
(b) in any case to which Explanation 3 applies, means the tax on the total income assessed;
(b) ** ** ** Thus, according to him, in the case of a person who has failed without reasonable cause to furnish the return of income till expiry of the period of limitation for completion of the assessment, there is hardly any scope for considering the additions made and the ground on which they were made since the amount of tax sought to be evaded is the tax on the total income assessed.
6. We have minutely considered the respective submissions of the parties. We find no merit in the stand of the assessees that they honestly believed that in view of the tax deducted at source, it was not necessary for them to file the returns of income. No prudent man of reason would like to lose refund of tax. The assessees when suffered more TDS than the amount of tax according to them payable, it cannot be accepted that their indifference towards filing of returns of income was charitable to the revenue. Avoidance in filing the returns of income under these circumstances must be attributable to indirect motive of the assessees. Explanations is meant for such assessees, which by virtue of Explanation 4 has gone to the extent of taking the entire tax on the total income assessed as the amount of tax sought to be evaded. Explanation 3 is not divorced from the intent and purpose of the main section. It does to certain extent besides explaining the main section widens the scope of the main section, but thereby while interpreting the Explanation, we are not doing any violence to the principles of statutory interpretation. Following observations of the Hon'ble Supreme Court in Hiralal Ratan Lal v. STO AIR 1973 SC 1034 (1040) are pertinent:
23. In Bita Co-operative Development & Cane Marketing Union Lid. v. Bank of Bihar [1967] 1 SCR 848 (AIR 1967 SC 389), this Court was called upon to consider the Explanation to Section 48(1) of the Bihar and Orissa Cooperative Societies Act, 1935. Therein this Court observed-
The question then arises whether the first Explanation to the section widens the scope of Sub-section (1) of Section 48 so as to include claims by registered societies against non-members even if the same are not covered by Clause (c).
24. On the basis of the language of the Explanation this Court held that it did not widen the scope of Clause (c). But from what has been said in the case, it is clear that if on a true reading of an Explanation it appears that it has widened the scope of the main section, effect must be given to legislative intent notwithstanding the fact that the legislature named that provision as an Explanation. In all these matters, the Courts have to find out the true intention of the legislature.
The scope and effect of an Explanation has been considered by the Hon'ble Supreme Court in S. Sundaram v. V.R. Pattabiraman AIR 1985 SC 582. Objection of an Explanation to a statutory provision has been, inter alia, stated as under -
(d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act, it can help or assist the Court in interpreting the true purport and intendment of the enactment.
7. We, therefore, find no merit in the contention of the learned counsel for the assessees that Explanation 3 cannot be read beyond what is stated in Section 271(1)(c). In view of meaning of the expression "the amount of tax sought to be evaded", there is hardly any scope for the defence that the additions were made on the basis of estimates. There is much substance in the contention of the learned counsel for the assessees that the findings in the assessment proceedings are not conclusive in penalty proceedings. On reappraisal of the material in the assessment proceedings, we do find that the Explanation of the assessee firm that under the facts and circumstances it could earn net profit of 5% only is plausible. If Explanation 3 were not applicable to the instant cases, we would have cancelled the penalties in the case of the firm. But the firm having committed a serious default of abstaining from filing the returns of income till the period for completion of the assessment had expired, has lost the right of such defence being considered. As stated above, we do not find that failure to file the returns had a reasonable cause. The case of the partner, Shri Umeshchand K. Patel is still worse. No material has been placed before us to evince that the claim of losses in the return of income had any foundation. In this view of the matter, coupled with the fact that his failure to file the return was also not supported with reasonable cause, there is no merit in his case. We have considered the case laws referred to by the learned counsel for the assessees. They arc not in point.
8. In view of the above discussion, the orders of the CIT(A) are maintained.
9. In the result, all the appeals are dismissed.