Income Tax Appellate Tribunal - Jabalpur
La-Medica vs Income-Tax Officer on 10 April, 1986
Equivalent citations: [1988]24ITD235(JAB)
ORDER
S.P. Kapur, Judicial Member
1. Facts material for the purposes of the present appeal are that the original assessment stood completed on 29-3-1974 under Section 143(3) of the Income-tax Act, 1961 on a total income of Rs. 14,13,606 as against returned total income of Rs. 7,83,870. With the appeal effects of the orders of learned Appellate Assistant Commissioner and that of the Income-tax Appellate Tribunal, the finally assessed income came down to Rs. 7,90,097 because the assessee got a relief of Rs. 6,23,509. Subsequently action under Section 147(a)/148 of the Act was taken since the assessee had made a voluntary disclosure under Section 14(1) of the Income-tax and Wealth-tax Ordinance, 1975 and the said disclosure also related to the assessment year under appeal viz.., 1971-72. Notice under Section 148 of the Act was issued on 21-1-1976 and served on the assessee on the same day but it had not been complied by the assessee, since in response to the above notice the assessee did not file any return of income. Assessment, as such, was framed ex parte, under Section 144/147(a) of the Act on 20-3-1980 and total income was determined at Rs. 8,40,097. Since the assessee had failed to file the return of income in compliance to notice issued and served on the assessee under Section 148 of the Act, penalty provisions were taken against the assessee under Section 271(1)(a) of the Act and for the said purpose a notice under Section 271/274 of the Act was issued on 20th March, 1980. This notice also remained uncomplied with, however, the assessee was given another opportunity vide letter dated 13-1-1982, fixing the hearing for 20-1-1982. This also remained uncomplied with but on 25-1-1982 a letter was received from the assessee bearing the date 24-1-1982, wherein adjournment was prayed for up to 2-2-1982. Assessee's request was allowed. Further request by the assessee for adjournment was also allowed and the penalty proceedings were finally fixed for final hearing for 16-3-1982. On 16-3-1982 Shri K.S. Walia representing the assessee put in an appearance, but could not offer any reasonable explanation for the default. Penalty @ 2 per cent per month of each month of default till the date of assessment was imposed and the amount of penalty worked out to Rs. 2,08,100. The assessing officer observed that under the Voluntary Disclosure Scheme, immunity from levy of penalty was available to those assessees who had paid taxes as per the provisions of Section 5 of the Ordinance and the assessee having failed to pay the taxes on the disclosed income under the Voluntary Disclosure Scheme, immunity was not available to the assessee. The default being quite patent, penalty was imposed as under :
Rs.
Tax payable on assessed income of Rs. 8,40,097
treating the assessee as unregistered firm 7,43,693
Less : Tax paid vide ITNS 150 3,27,492
---------
Payable 4,16,201
Penalty was worked out at 50 per cent of the total payable demand worked as above. The assessee appealed, but met failure at the first appellate stage, since the learned Commissioner of Income-tax (Appeals) held that the assessee did not have any explanation to offer, much less, any reasonable cause for the default of failure to file the return. The default of the assessee was held to be patent one and levy of penalty justified, but here we like to clarify that the learned Commissioner of Income-tax (Appeals) heard the appeal ex parte, of course, on merits. The assessee as yet being aggrieved, is in appeal and we have heard the parties at length.
2. Before us the substantive ground taken by the assessee, reads as under:
1. That the ex parte order as passed by the learned CIT (Appeals) against the appellant firm is bad in law and facts of the case.
The assessee has also raised grounds 2 to 10, but all these narrate the facts about the assessee having not been allowed inspection of records by the Income-tax Officer. It also speaks of the action of the learned Commissioner of Income-tax (Appeals) in not granting the assessee an adjournment and hearing the appeal ex parte.
Before the learned Commissioner of Income-tax (Appeals) also the assessee has taken only one ground, reading as under :
The Inspecting Assistant Commissioner of Income-tax has erred in law and facts of the case in imposing a penalty of Rs. 2,08,100 on your petitioner under Section 271(1)(a) of the Income-tax Act. On the facts and in the circumstances of the case no penalty should have been imposed.
3. This appeal was preferred by the assessee on 27-1-1984 and it was fixed for hearing for 30th January, 1985 and from that day onward it has been adjourned so many times at the request of the assessee and finally it came up for hearing on 17th February, 1986 ; 20th February, 1986 ; 27th February, 1986 ; 6th March, 1986 ; 14th March, 1986 ; 17th March, 1986 and 19th March, 1986 when the hearing finally concluded. Vide petition dated 21-1-1985 made under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963, the assessee wanted the following additional ground to be taken ;
That since the IAC (Asstt.) Range-IV, New Delhi, who made the assessment (out of which the penalty proceedings flow) for the above assessment year on 20-3-1980 Under Section 144/147(a) directed that the interest be charged which has been actually charged, the above penalty proceedings Under Section 271(1)(a) cannot be sustained in law, thereafter, and the entire imposition warrants to be quashed.
For this proposition strong reliance was placed on the decision of the Hon'ble Supreme Court in the case of CIT v. M. Chandra Sekhar AIR 1985 SC 114. During the course of hearing of the above petition, the learned counsel did not pursue the matter seriously since he was confronted with the legal position arising out of Section 139(8) (a) as stood substituted by the Taxation Laws (Amendment) Act, 1970 made effective from 1-4-1971. The learned counsel fairly conceded that if that was to be effective from 1-4-1971, i.e., on the first day of the assessment year relevant for the assessment year under appeal then the ratio of the decision of the Hon'ble Supreme Court in the abovementioned case will not be applicable on the facts of his client's case and accordingly the additional ground prayed for will also lose the desired significance. In view of the above legal position as also the concession, the ground need not be admitted, we hold accordingly.
4. Again another petition dated 14-2-1986 was made under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 for raising the following additional grounds :
1. That the ex parte penalty order dated 16-3-1982 are uncalled for, illegal, without jurisdiction as no notice Under Section 148 was ever served on the appellant in accordance with the law.
2. That assuming (though not admitting) that the service of Section 148 notice was proper, even then the imposition of this penalty (For the second time) is illegal because the appellant believes that similar penalty proceedings were initiated on the basis of the original assessment order passed Under Section 143(3) on 29-3-1974.
3. That in any event the method adopted in the impugned order dated 16-3-1982 is not as warranted by law because the quantum penalty imposible for the alleged default could at best be related to the URF Tax due on Rs. 50,000 by calculating the difference of URF tax that works out on Rs. 8,40,097 and on Rs. 7,90,097.
4. That plain literal interpretation adopted by the ITO while applying the provisions of Section 271(1)(i)(b) read with Explanation thereto and read with Sub-section (2) of Section 271 of IT Act, 1961 leads to manifestly absurd and unjust results which could never have been intended by the Legislature, hence the department should have given a more reasonable and rational construction to the above provisions and thereby restrict the imposition of penalty only to the extent of URF tax due on Rs. 50,000 as submitted in ground No. 3 above. Reliance K.P. Varghese v, ITO [1981] 131 ITR 597 (SC).
5. That in any event the appellant firm was entitled to full immunity under Voluntary Disclosure of Income and Wealth Act 1976, because the appellant paid the full tax due for this year in bulk amounts covering several assessment years.
5. The Department was directed by us to place on our file the copy of order for the assessment year under appeal made in the case of the assessee in penalty proceedings initiated at the time of original assessment as also copy of notice under Section 148 of the Act issued and served on the assessee as claimed by the revenue. These two documents along with copy of letter dated 25th March, 1980 addressed to the assessee by the Inspecting Assistant Commissioner of Income-tax, Range 1V-D, New Delhi, and assessee's letter dated March 13, 1980 were placed on our file. Penalty proceedings initiated under Section 271(1)(a) of the Act initiated at the original assessment stage were dropped vide orders dated 22-3-1979. Notice under Section 148 of the Act was served on the assessee and the Photostat copy placed on our file proves the same.
6. Factually speaking the additional grounds sought for by the assessee to be raised before us vide petition dated 14-2-1986 are the arguments adduced before us on behalf of the assessee during the course of hearings of this appeal and, as such, we will discuss these as assessee's contentions and not as additional grounds. The other points made on behalf of the assessee are that interest having been charged, the time for filing of the return stood extended automatically ; that the income-tax paid as per ITNS 150 being in excess to the actual demand created accrued against the assessee in the reassessment order no penalty was imposible ; that penalty proceedings initiated at the time of the original assessment having been dropped no penalty was imposible ; that penalty, if at all, imposible was to be based on the tax demand relating to addition of Rs. 50,000, i.e., the alleged item of escapement of income and that too for the period involving 148 proceedings. This contention was raised as an alternate one and as a last resort, since it was strongly contended that the assessee was entitled to immunity under the V.D. Scheme and that if that was not the case yet whether penalty is imposable on the facts and in the circumstances of the case when reassessment was based on a disclosure made by the assessee voluntarily, the issue was a controversial one and capable of two interpretations, hence in view of the decision of the Hon'ble Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192, a view favourable to the assessee was warranted. Concludingly, Shri Tiku, the learned counsel for the assessee, made a. forceful plea for no penalty.
7. On his part, the learned senior Departmeatal Representative relied upon the orders of the learned lower authorities as also Photostat copies of documents placed on our file viz., assessee's letter dated March 13, 1980 and IAC 's letter to the assessee dated 25th March, 1980 along with copy of notice under Section 148 of the Act. He also contended that once already completed assessment is re-opened, parties revert back to their original position and the reassessment is to be taken at par with an assessment and all consequences flowing out of an assessment must follow, hence the justification for the levy of penalty since the assessee had not complied with the notice served on the assessee under Section 148 of the Act.
8. The contention of the learned counsel for the assessee as to non-levy of penalty when interest has been charged under Section 139(8) of the Act no longer holds good as discussed above in the body of the order and as conceded to by the learned counsel.
9. As regards non-service of notice under Section 148 of the Act, we are satisfied that a proper notice was issued and served on the assessee and a copy of the said has been placed on our file at our behest by the Revenue. Original records were called for and these were put to the learned counsel.
10. As regards the other contentions, suffice it to say that once valid proceedings are started for re-opening of an already completed assessment the previous assessment is set aside and whole assessment proceedings start afresh. The Income-tax Officer (Assessing Officer) not only gets the jurisdiction over the whole of the subject-matter, but it becomes obligatory on him to levy tax on the entire income, i.e., the income already assessed as also the income subject-matter of escapement-V, Jaganmohan Rao v. CIT [1970] 75 ITR 373 (SC) is the authority for the above proposition and if it is so then assessment made on the assessee under Section 144/147(a) on 20th March, 1980 is to be equated with an assessment and all consequences flowing out of that must follow and since the assessee had not complied with a notice under Section 148 of the Act and had failed to file the return of income in time and as per terms of the notice under Section 148 of the Act, the assessee had to be held to be guilty of the default of having failed to furnish the return of total income and further at no stage of the proceedings right from the penalty to the proceedings before the Income-tax Appellate Tribunal, the assessee having not pleaded any reasonable cause, penalty under Section 271(1)(a) of the Act is held to be exigible and there is no escape from that.
11. The next issue remains the quantum of penalty, the contention of the assessee being that:
(i) No penalty is leviable since as per demand notice under Section 156 of the Act, no tax was due and payable on reassessment ;
(ii) Penalty is leviable on the escaped income only.
As regards the first limb, ratio of the decision of the Full Bench of the Patna High Court in the case of Jamunadas Mannalal v. CIT [1985] 152 ITR 261 is the answer. Their Lordships having discussed a plethora of case law and held that 'a registered firm is liable to penalty calculated on the basis of tax on an unregistered firm, even though the firm has paid advance tax and it is entire tax liability as a registered firm has been fully discharged by the payment of advance tax'.
As regards the second limb, once originally completed assessment was re-opened, the parties revert back to their original position, and the presently made assessment under Section 144/147(a) of the Act has to be held and equated with an assessment in view of Section 2(8) of the Act which defines, 'assessment includes re-assessment'. All consequences flowing out of this assessment dated 20th March, 1980 must follow and on the facts and in the circumstances of the present case, qua the issue involved in this appeal, penalty is exigible under Section 271(1)(a) of the Act from the date of the service of the notice under Section 148 of the Act to the date of the assessment, vis., 20th March, 1980 and the basis is to be the total assessed income and not the income subject-matter of escapement.
12. As per assessment order dated 20th March, 1980 the total income assessed and being charged to Income-tax is Rs. 8,40,097 (rounded off to Rs. 8,40,100) and this is to the basis and the penalty is to be based on the Income-tax payable on this total income, since this is the assessed income as per the assessment order dated 20th March, 1980. No two interpretations are possible, hence 88 ITR 192 is not applicable. The default period, as already stated, is to be reckoned as per the terms of 148 notice and till the date of assessment. The penalty having justifiably on facts and in law been imposed and this having been rightly upheld by the learned first appellate authority, we do concur with their reasoning and the conclusions. The appeal fails.