Income Tax Appellate Tribunal - Amritsar
Aan Aam Prop. Narindra Palace vs Assistant Commissioner Of Income Tax on 15 February, 2005
Equivalent citations: (2005)93TTJ(ASR)438
ORDER
Joginder Pall, A.M.
1. This appeal has been filed by assessee against the order of the CIT(A), Jalandhar, for the asst. yr. 1975-76.
2. The only effective issue raised in this appeal is that the learned CIT(A) was not justified in sustaining the penalty of Rs. 2,48,708 imposed under Section 271(1)(a) of the IT Act, 1961. The assessee has raised two additional grounds vide its letter dt. 13th Jan., 2004 and yet another additional ground vide letter dt. 4th Feb., 2004. Out of two additional grounds raised by application dt. 13th Jan., 2004, the learned counsel for the assessee submitted that additional ground No. 2 may be treated as withdrawn. Therefore, the following two additional grounds are being pressed :
"1. That the order of the AO imposing penalty under Section 271(1)(a) is not valid as jurisdiction to impose the same was illegally assumed by him without recording a proper satisfaction as enjoined under law.
2. That the AO gravely erred in not appreciating that when the cause for delay in filing of return in response to notice under Section 148 was accepted by him as a 'sufficient cause' while accepting assessee's application(s) under Section 146 of the Act, therein sufficiency of the said cause would itself justify the existence of a 'reasonable cause' for delay in filing of the said return under Section 148, and therein no penalty under Section 271(1)(a) could be imposed upon the assessee."
The learned counsel for the assessee submitted that these were purely legal grounds which do not call for any investigation into the facts. Therefore, these may be admitted.
3. The learned Departmental Representative did not raise any objection to the admission of additional grounds of appeal.
4. I have heard both the parties and given my thoughtful consideration to the submissions of the learned counsel for admission of two additional grounds. These are purely legal grounds which do not call for any investigation into the new facts. Reliance was placed on the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC). These grounds are, therefore, admitted.
5. As regards the original grounds of appeal taken in the memorandum of appeal, the learned counsel for the assessee submitted that only ground No. 1(i) relating to sustaining the levy of penalty under Section 271(1)(a) without allowing proper opportunity to the assessee is being pressed. All the remaining grounds, i.e., ground Nos. 1(ii) to 1(xiii) and ground No. 2 are not being pressed. The learned Departmental Representative did not raise any objection. Therefore, these grounds- except 1(i) are dismissed as not pressed.
6. From the above grounds of appeal, it is clear that the only dispute in this case relates to levy of penalty under Section 271(1)(a) for filing the return of income late by 56 months. Briefly stated, the facts of the case are that notice under Section 148 was issued to the assessee on 14th Feb., 1980. However, the return was filed only on 3rd Nov., 1984. The AO, therefore, initiated penalty proceedings under Section 271(1)(a). On appeal, the learned CIT(A) upheld the penalty by recording following findings in the impugned order:
"I have considered the submissions of the learned counsel and have gone through the case records. It is seen from the record that the assessment was originally completed on 13th March, 1978, and returned loss having been accepted there was no question of initiation of any penalty proceedings. Since there was information with the AO that certain incomes of assessee in form of investment in construction of building and installation of plant and machinery have escaped assessment, notice under Section 148 of IT Act was issued. In response to the notice which was issued under Section 148 to the IT Act, there is no evidence on the record in the form of prayer from the appellant that the return originally filed may kindly be treated as return filed in response to the notice under Section 148. The assessee having not filed any return inspite of the service of the notice issued under Section 148 of IT Act, the assessment was framed under Section 144 of IT Act on 12th Feb., 1981. The assessee filed application under Section 146 of IT Act but again failed to furnish the return of income. The assessment was again framed under Section 144 of IT Act on 23rd March, 1984, and another application moved by assessee under Section 146 of IT Act was accepted on 31st March, 1984. It is after that the return was filed on 3rd Nov., 1984, as duplicate return having been filed under protest. There was no evidence to prove that the assessee has filed return of income in response to notice issued under Section 148 of IT Act. In view of these facts, I do not find any merits in contention of appellant that letter was filed with Department in response to Section 148 notice that return filed may be treated as having been filed in response to this notice. Learned Authorised Representative's other contention that period of default should have been considered only upto 12th Feb., 1981, was on the basis that since there was letter from the appellant and assessment was framed under Section 144 of IT Act on said date, the period of default at the most was only upto that date. The said contention is also not acceptable in absence of any such letter (having) been filed by appellant and not proved to have been filed even during the appellate proceedings and the fact that in response to notice issued under Section 148, the return was submitted on 3rd Nov., 1984 with delay in submission of return of 56 months and only after the return and in compliance to the notices, the assessment was completed by AO under Section 143(3) of IT Act on 28th Feb., 1986. There was no reasonable cause to explain the default and in view of these facts there are no merits in contention of learned Authorised Representative that period of default should be considered upto 12th Feb., 1981. In the absence of any reasonable cause, the penalty of Rs. 2,48,708 worked out by the AO is confirmed."
Assessee is aggrieved with the order of CIT(A). Hence, this appeal before me.
6. Arguing its first additional ground raised in letter dt. 13th Jan., 2004, relating to legality of the order imposing penalty under Section 271(1)(a), the learned counsel for the assessee submitted that the order passed by the AO was bad in law because the AO has not recorded proper satisfaction, He drew my attention to the copy of the assessment order where the AO has stated that penalty under Section 271(1)(a) has been initiated. Relying on the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Manish Iron Store (2003) 263 ITR 484 (P&H) and two judgments of Hon'ble Delhi High Court in the cases of CIT v. Ram Commercial Enterprises Ltd. (2000) 246 ITR 568 (Del), and Divan Enterprises v. CIT and Ors. (2000) 246 ITR 571 (Del) and the judgment of Hon'ble Supreme Court in the case of D.M. Manasvi v. CIT (1972) 86 ITR 557 (SC), the learned Authorised Representative submitted that the order passed by the AO was bad in law because of the failure on the part of the AO to record proper satisfaction. He also relied on the judgment of Hon'ble Kerala High Court in the case of CIT v. Smt. P.M. Celine (1999) 236 ITR 988 (Ker).
7.1 Proceeding further, the learned counsel for the assessee submitted that in this case original return was filed under Section 139(1) on 3rd Sept., 1975, Later on, notice under Section 148 was issued and was served on the assessee on 14th Feb., 1980. The assessee claimed before the authorities below that a letter was filed stating that the return already filed on 3rd Sept., 1975, may be treated as return in response to notice issued under Section 148 of the Act. However, the assessee could not furnish any evidence. Even, a copy of letter in support of such contention was not furnished. The assessment was completed by the Revenue under Section 144 on 18th Feb., 1981. However, on an application filed by the assessee under Section 146, the assessee explained that it was prevented by a sufficient cause for not complying with the various notices. The AO accepted such application and reopened the assessment under Section 146. Again, the reopened assessment was completed under Section 144 on 23rd March, 1984. The assessee again moved an application under Section 146 explaining that it was prevented by a reasonable cause in not complying with the notices. The AO accepted the application and again reopened the assessment. The assessee filed a return on 3rd Nov., 1984, stating that it was a duplicate return. But, no evidence was furnished either before the authorities below or even before me that it was a duplicate return. Even, such plea was not taken before me.
7.2 The learned counsel for the assessee submitted that applications filed under Section 146 had been accepted twice and assessments were reopened. Thus, the AO was satisfied that there was a sufficient cause for not filing the return of income. He submitted that for the purpose of levy of penalty under Section 271(1)(a), the assessee is required to explain the reasonable cause for delay in filing the return of income. Relying on the judgment of Hon'ble Punjab & Haryana High Court in the case of Leader Engineering Works v. ITO (2003) 264 ITR 65 (P&H), the learned counsel for the assessee submitted that the expression "sufficient cause" used under Section 146 and expression "reasonable" used in Section 271(1)(a) amount to the same thing. Therefore, he submitted that once it is established that there was a sufficient cause for not filing the return of income for the purpose of Section 146, the same would also hold good for the purpose of Section 271(1)(a). Thus, he submitted that the action of the AO for imposing impugned penalty is contrary to his action for accepting the applications under Section 146 of the Act.
7.3 Proceeding further, the learned counsel submitted that the AO impdsed the impugned penalty without proper service of notice as required under Section 274 of the IT Act. He further submitted that in this case, the notices were served by affixture at the business premises of the assessee. He stated that the business of the partnership firm was taken by another concern. Therefore, obviously the partners were not found at the address. However, their addresses were existing in the partnership deed. The AO did not make any attempt to serve notices at the addresses of the partners before serving notice by affixture. He stated that the AO did not record the statement of the notice server before directing service by affixture. Thus, AO has levied penalty without allowing proper opportunity to the assessee. He contended that such order was bad in law.
8. The learned Departmental Representative, Sh. Darshan Singh, on the other hand, heavily relied on the orders of the authorities below. He submitted that the assessee was allowed several opportunities to explain the reasons for delay in filing the return. The assessee failed to furnish any reply. He submitted that here is a case where the assessments had been completed under Section 144 twice due to non-co-operation and still the assessee never took the matter seriously. He further submitted that the additions made in the assessment order have been upheld in appeal. He further stated that the assessee has not been able to explain the reasonable cause for filing the return of income late. Strongly rebutting the arguments of the learned counsel that the AO had condoned the default for filing the return of income late by allowing applications under Section 146 twice, the learned Departmental Representative submitted that as per provisions of Section 146, the AO could have accepted the application under Section 146 only in the following circumstances :
(i) If he was satisfied that the assessee was prevented by sufficient cause from making return required under Sub-section (2) of Section 139, or
(ii) that he did not receive notices issued under Sub-section (1) of Section 142, or Sub-section (2) of Section 143, or
(iii) that he had not been given a reasonable opportunity to comply or was prevented by sufficient cause from complying with the terms of any notice referred to in Clause (ii), i.e., notice issued under Section 142(1) or under Section 143(2).
He submitted that nowhere Section 146 provided condoning the default in filing the return of income late in response to notice issued under Section 148. Thus, he contended that the submissions of the learned counsel that the AO by accepting the application under Section 146 twice has accepted that there was a sufficient cause for filing the return of income late was factually wrong and contrary to the provisions of the Act. He further contended that the penalty has been rightly imposed by the AO and sustained by the learned CIT(A).
9. I have heard both the parties at some length and given my thoughtful consideration to the rival submissions with reference to facts, evidence and material on record. The first submission of the learned counsel for the assessee that the order for imposing penalty under Section 271(1)(a) is bad in law because the AO failed to record proper satisfaction, I do not find any force in the same. The learned counsel has relied on two judgments of Hon'ble Delhi High Court in the case of CIT v. Ram Commercial Enterprises (supra) and Diwan Enterprises v. CIT (supra). These judgments are on the issue of recording satisfaction with reference to the provisions of Section 271(1)(c). The provisions of Section 271(1)(c) are materially different from the provisions of Section 271(1)(a). Section 271(1)(c) contemplates two defaults, i.e., the assessee should be guilty of either concealing the particulars of income or furnishing inaccurate particulars thereof. Recording of satisfaction means that AO must apply his mind during the course of assessment proceedings and must specifically record whether the assessee was prima facie guilty of concealing the particulars of income or furnishing inaccurate particulars thereof. Recording of such satisfaction is prerequisite for conferring jurisdiction on the AO to levy such penalty. In fact, the notice which is being issued for the purpose of penalty under Section 271(1)(c) also contains two columns as to whether the assessee had concealed the income or furnished inaccurate particulars thereof. In case the AO simply mentioned in the assessment order that the proceedings under Section 271(1)(c) have been initiated without specifying the specific default, i.e., whether the assessee had concealed the income or furnished inaccurate particulars of its income, it cannot be said that the AO had applied his mind and recorded satisfaction for the purpose of levy of penalty under Section 271(1)(c). Therefore, relying on the judgment of Hon'ble Supreme Court in the case of D.M. Manasvi v. CIT (supra), the Hon'ble Delhi High Court took the view in the abovereferred two cases that AO failed to record proper satisfaction. Therefore, the order for imposing the penalty was held to be without jurisdiction and bad in law. These two judgments were followed by the Hon'ble Punjab & Haryana High Court in the case of CIT v. Manish lion Store (supra).
9.1 Even, recording of similar satisfaction would be necessary for the purpose of levy of penalty for either of the defaults mentioned under Section 273(1)(a), 273(1)(b) and 273(1)(c) because separate defaults have been contemplated therein. If the AO simply mentions that the notice under Section 273 has been issued without recording or specifying a particular default as contemplated under Section 273(1)(a), 273(1)(b) and 273(1)(c), such order would also be bad in law because the AO has not applied his mind at the time of recording satisfaction. The above-referred two judgments of the Hon'ble Delhi High Court and judgment of Hon'ble Supreme Court including the judgment of Hon'ble Punjab & Haryana High Court in the case of DM. Manasvi v. CIT (supra) would equally apply. However, the position under Section 271(1)(a) is materially different from the provisions of Sections 271(1)(c) and 273(1)(a), 273(1)(b) and 273(1)(c) as Section 271(1)(a) contemplates only single default, i.e., filing the return of income late. It is trite law that both assessment proceedings and penalty proceedings are distinct and separate proceedings. While completing the assessment, the AO is not required to decide the issue regarding levy of penalty. The provisions of Section 274 specifically provide that no penalty should be imposed without allowing the assessee an opportunity of being heard. Thus, it is prima facie satisfaction and not the final conclusion about the levy of penalty. In response to notice issued by the AO, the assessee can explain the reasons for delay in filing the return and if there is a reasonable cause, the AO can drop the proceedings. The levy of penalty is neither automatic nor mandatory. Therefore, at the time of initiating proceedings, it is basically a prima facie satisfaction about the delay in filing the return and the final decision would be taken by the AO after receipt of reply. In case the AO records a finding in the assessment order itself as canvassed by the learned counsel that the assessee failed to furnish return of income without a reasonable cause, it would amount to prejudging the issue. The would be contrary to the provisions of Section 274 which mandates that no order for imposing penalty shall be passed without allowing an opportunity of being heard. In the present case, the AO has recorded in the assessment order that the penalty proceedings under Section 271(1)(a) have been initiated. This was followed with the notice issued under Section 271(1)(a) r/w Section 274. This amounts to due compliance with the provisions of the Act. As regards the judgment of Hon'ble Kerala High Court in the case of CIT v. Smt. P.M. Celine (supra), relied upon by the learned counsel, the same is distinguishable on facts. In that case, the AO had not recorded any satisfaction in the assessment order about the initiation of penalty proceedings under Sections 271(1)(a) and 273(c). The Tribunal referred to the ordersheet of the AO and found that there was no recording of satisfaction by the ITO in respect of these defaults committed by the assessee either in the matter of failure to file return or failure to file advance statement/estimate. In the ordersheet, the UDC simply stated the total income, computed the tax and the interest payable under Sections 139(8) and 217. In the said computation, it was written as under:
"Assessment order D.N. Challan, 271(1)(a) and 273(b) penalty notices put up."
At the bottom of the said noting by the UDC, the UDC signed and put the date 30th Oct., 1987. The ITO had not even signed or initialled therein. This clearly showed that the satisfaction was recorded by the UDC only and the satisfaction of the ITO was not at all there. The High Court also noticed that the AO had not even given any direction for the issue of the said penalty notices. Under these circumstances, the Hon'ble High Court held that the penalty imposed by the AO was without jurisdiction and liable to be quashed because the penalty proceedings were not initiated in the assessment order or even in the order-sheet. But, these are not the facts of the present case. In this case, the AO has clearly mentioned in the assessment order that the penalty proceedings under Section 271(1)(a) have been initiated. This was followed by a notice issued under Section 271(1)(a). This, in my view, is sufficient compliance with the provisions of the Act and the judgment of the Hon'ble Kerala High Court is not applicable to the facts of the present case. This ground of appeal is rejected.
9.2 As regards next submission of the learned counsel that the AO had accepted the plea of the assessee that there was sufficient cause in filing the return of income late because the assessee's applications under Section 146 had been allowed twice, I do not find any force therein. As has rightly been pointed out by the learned Departmental Representative, the AO could accept application under Section 146 if he was satisfied that the assessee was prevented by sufficient cause for making return under Sub-Sections (2) of Section 139 or did not receive the notices under Section 142(1) or Sub-Sections (2) of Section 143 or there was sufficient cause for non-complying with the aforesaid notices. Nowhere, section refers to the notice issued under Section 148. Therefore, the contention of the assessee that the AO has accepted the plea of delay in filing the return under Section 148 is without any substance.
9.3 It is also relevant to mention that the assessee has been changing its stand. First, it contended before the AO that in response to notice issued under Section 148, it had replied vide its letter that the return already filed may be treated as return filed in response to notice issued under Section 148. However, when the assessee was asked to produce that letter, it could not do so. Thereafter, when the return was eventually filed on 3rd Nov., 1984, the assessee indicated that it was a duplicate return. When the assessee was asked to furnish evidence of the original return filed, it could not do so. Now, the assessee has taken the plea that the fact the AO had accepted two applications filed under Section 146 show that the delay in filing return was accepted by the AO due to reasonable cause. The assessee has not even cared to place these applications before me to enable me to see as to what ground was taken before the AO for non-compliance with the various notices issued by AO. Even, the copies of orders passed under Section 146 have not been placed on record. Thus, such plea also remains unsubstantiated. Even otherwise, it is obvious that the assessee has been non-co-operative. This resulted in completing the assessment under Section 144 twice. Even if the assessee had filed applications under Section 146, it did not care to furnish address at which notices should be served so that there could be subsequent compliance. This only shows totally negligent and non-serious approach on the part of the assessee. Therefore, this plea and the ground of assessee are rejected.
9.4 As regards the last submission of the learned counsel that the impugned order has been passed without allowing proper opportunity, the same is also without any merit. The order for imposing the penalty shows that the show-cause notice issued on 20th May, 1999, sent by registered post was returned by the postal authorities as the premises were found locked. The penalty order also shows that even the learned counsel of the assessee was also contacted. He did not know the whereabouts of the assessee. Again, notice dt. 25th May, 1999, fixing the case for 31st May, 1999, was served by affixture because neither the assessee nor the learned counsel gave any address of the assessee. This notice also remained uncomplied with. Subsequent opportunity was also allowed by notice dt. 10th Aug., 1999, and this notice was also served by affixture. None attended before the AO. These facts clearly show that the AO had made all efforts to serve notice on the assessee through normal course. Even, the learned counsel of the assessee was contacted but he declined to indicate the address of the assessee. Thus, the AO was justified in directing the notice server to serve notice by affixture as it was not possible to serve the notice through normal means, moreso, when the assessee has all throughout been non-co-operative. I do not agree with the learned counsel that the AO must record statement of the notice server before ordering service by affixture. He is only required to satisfy himself that the service through normal means was not possible. This could be done on the written report of the notice server. The fact recorded by the AO in the penalty order that the learned counsel was contacted for finding out the address of the assessee has not been controverted by the assessee. Under these circumstances, the plea of the assessee that the order for imposing penalty has been passed without allowing proper opportunity has no merit.
9.5 Even otherwise, the purpose of allowing an opportunity to the assessee is to enable the assessee to explain the reasons for the delay in filing the return. It is not in dispute that the return was actually filed on 3rd Nov., 1984, and the same was late by 56 months. No plea has been taken before me that the assessee had submitted a letter before the AO to treat the original return in response to notice issued under Section 148. Nor it has been contended that the return filed on 3rd Nov., 1984, was a duplicate return. Thus, the factum of delay in filing the return of income late by 56 months is accepted. But, there is absolutely no explanation either before the authorities below or even before this Bench as to why the assessee could not file the return of income in time. No reasons for delay have at all been given by the assessee. Not a word has been said about the merits of the case. In the case of Smt. Kamla Vati v. CIT (1978) 111 ITR 248 (P&H), the Hon'ble Punjab & Haryana High Court has held that doctrine of mens rea has no application to the taxing statutes. Where the assessee had failed to furnish a return of income without a reasonable cause, this was sufficient for the imposition of penalty under Section 271(1)(a) of the IT Act. In the present case, the assessee has failed to do so. Therefore, it is clear that the assessee has no explanation to offer for such inordinate delay. Accordingly, the submission of the assessee that the penalty has been imposed without allowing an opportunity is without any merit. This ground of appeal is also rejected.
10. In the light of these facts and circumstances of the case and the above legal position, I am of the considered opinion that the learned CIT(A) has rightly sustained the impugned penalty. The order of the CIT(A) is upheld and the grounds of appeal of the assessee are rejected.
11. In the result, the appeal filed by the assessee is dismissed.