Income Tax Appellate Tribunal - Amritsar
Ahuja Rice & General Mills vs Deputy Commissioner Of Income-Tax on 24 September, 1998
Equivalent citations: [1999]69ITD329(ASR)
ORDER
Shri G. L. Garoo, Accountant Member
1. The appellant has filed appeal against the order passed by the CIT(A) vide order dated 12-6-1991 and taken following grounds in appeal :-
"1. That the order passed by the learned CIT(A) is illegal, bad-in-law and against facts.
2. That the order of the learned CIT(A) confirming the levy of penalty of Rs. 1,00,000 under section 271B is not exigible due to the following reasons :-
(a) it has not been established that the appellant firm failed to get its accounts audited by 31st October, 1989 when the same has been relied upon in the assessment proceeding and the auditor was not examined in pursuance to letter dated 23-12-1989.
(b) the return of income filed on 31-10-1989 was invalid as far as the defect was neither removed within the specified period desired vide notice under section 139(9) dated 4-12-1989 nor any extension was sought to remove the defect.
(c) no default has been specified for which penalty under section 271B was levied by the learned DCIT, Spl. Range, Bhatinda and upheld by the learned CIT(A), Bhatinda.
(d) it has not been established that the failure to file the audit report within the specified period was without any reasonable cause.
(3) That without prejudice to the aforesaid, the penalty of Rs. 1,00,000 levied under section 271B is excessive, exorbitant and unreasonable.
(4) The humble appellant prays for permission to add or amend any ground of appeal before disposal of the appeal."
2. The appellant has also filed additional ground. The additional ground being legal in nature is admitted.
3. The learned DR argued that the ground may not be admitted because the same was not taken before the learned CIT(A) and has not much force. This is a legal ground which relate to the basic jurisdiction of imposing penalty and as such this ground stands allowed.
4. The appellant filed return on 31-10-1989 showing loss of Rs. 20,08,422. The return was not accompanied by any paper except computation of loss. The Assessing Officer issued deficiency letter No. 421, dated 4-12-1989. Along with deficiency letter, the Assessing Officer also issued notice under section 274, read with section 271B on 7-12-1989 asking the appellant to show cause why penalty may not be levied for failing to enclose the audit report along with the return. On 26-12-1989, the appellant filed a letter from the auditor's in which it was stated that the audit was conducted before 31-10-1989 but the firm could not file the same along with return because audit was conducted on 31-10-1989. The Assessing Officer gave various opportunities to the assessee and on 20-2-1989 the assessee filed audit report under section 44AB but did not render any explanation regarding penalty proceedings under section 271B. The assessment proceedings were started by the Assessing Officer and assessment was completed under section 144 vide order dated 27-6-1990 and alongwith the assessment order, the appellant was again served with the penalty notice under section 271B read with section 274. The appellant filed explanation for late submission of audit report under section 44AB before the Assessing Officer and submitted that the audit report was filed within the time allowed by the Assessing Officer. The Assessing Officer was not convinced with the plea taken by the appellant and accordingly imposed penalty of Rs. 1.00 lakh.
5. Aggrieved against the order passed by the Assessing Officer the appellant filed appeal before the learned CIT(A). The learned CIT(A) has decided the issue with following observations :-
"4. I have given careful consideration to the arguments of the learned Counsel and I have also examined the assessment records. My findings in the matter, are as under :-
(i) At the assessment stage, the counsel for the assessee took a plea that audit report was sent along with the return from Delhi and this was detached on the way from Delhi to Fazilka. This plea was taken vide letter dated 11-2-1991 (received in the office on 13-2-1991). The relevant extract from the letter is given below :-
"... The accounts were duly audited before the specified date and the same were obtained. The copy of the audited account lost on way to Fazilka and, as such the return was filed without the copy of the audit report. Thus, there is reasonable cause for not furnishing the audit report along with the return. ..."
This explanation furnished by the then counsel is patently incorrect and misleading since the return in this case was filed at Bhatinda on 31-10-1989 as per the certificate of the auditors, the report is dated 31-10-1989 and it could not have accompanied the return since the return was sent from Delhi on 30-10-1989. It bears the signatures of the partner, Shri Hari Krishan Ahuja - which are dated 30-10-1989 at New Delhi.
(ii) Another plea taken at the assessment stage is that time is automatically extended once deficiency letter under section 139(9) is issued, is also of no avail since 271B expressly provides that audit report is to be filed along with the return of income under sub-section (1) of section 139. Thus, there is a twin requirement of law that audit report should be completed before the specified date and it should be filed along with the return of income. The plea of the counsel that report was completed by 21-10-1989 is also not borne out from the record. The Manager of the firm vide its letter dated 26-12-1989 stated that since the dealing clerk in the Auditor's office was on long leave, the report could not be submitted and the report was submitted on 20-2-1990 i.e., much after the filing of the return. The certificate of the Auditor to the effect that audit report had been completed by 31-10-1989 has not been substantiated by independence evidence. Had the report been completed on 31-10-1989 and handed over to the assessee-firm, there would be no reason for withholding the report and not despatching the same immediately, on that very date. In that case, the report would have reached the I.T. Office within 2 or 3 days of the filing of the return. But in the present case, the report was not filed even in response to deficiency letter under section 139(2) on the pretext or the other and it was ultimately filed on 20-2-1990. Thus, it cannot be said that audit was completed on 31-10-1989 and report was filed in accordance with the provisions of law.
(iii) The plea taken at the appeal's stage that there was no conscious disregard of the legal obligation and the assessee was not guilty of conduct contumacious or dishonest, is not borne out from the record. As already stated supra, the learned counsel for the assessee at the assessment stage made patently incorrect and misleading statement when he submitted that report had been attached with the return and was lost on the way to Fazilka. Thus, the case of the appellant is not covered by the decision of Hon'ble Supreme Court in the case of the Hindustan Steel Ltd. It also cannot be said, in the given circumstances, that Assessing Officer used his discretion in an injudicious or arbitrarily manner. The penalty under section 271B is clearly exigible and is accordingly confirmed."
6. We would like to take up the additional ground taken by the learned Counsel of the appellant. Section 275(1) of the Income-tax Act, deals with the limitation for imposing penalties under the chapter dealing with the penalties. Section 275(1)(c) reads as follows :-
"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."
In any other case, after the amendment to section 275 w.e.f. 1-4-1989, the concept of limitation is drastically changed. The period of limitation is to be reckoned from the end of the financial year in which proceedings related to action for imposition of penalty has been initiated or from six months from the end of month in which action for imposition of penalty is initiated, whichever expires later. In the case of the appellant, there are two important cases which are to be interpreted. The need for interpreting two different dates are linked with the calculation of period of limitation. The Assessing Officer issued penalty notice under section 274, read with section 271B on 7-12-1989 and second notice of the same default was issued on 26-7-1990. The relevant issue is as to what effect is to be given to the first notice issued on 7-12-1989. The penalty under section 271B can be initiated any time after filing of the return of income. Section 271B confers jurisdiction on the Assessing Officer the moment a person fails to get his accounts audited. The Assessing Officer will direct such person to pay by way of penalty a sum calculated at half per cent of total sale, turnover or gross receipts. The existence of proceedings under the Act is only relevant for penalties, under section 271. The wording in section 275(1)(c) related to, expiry of financial year in which proceedings, in the course of which action for imposition of penalty has been initiated are not applicable on the facts and circumstances of the case. In fact the second part of the provisions is attracted and applicable which says six months from the end of the month in which action for imposition of penalty is initiated. The latest changes in the Act by incorporating various sections like 271A, 271B, 271C, 271D, 271E, 272A(1)(a), (1)(c) and (1)(d), sections 272AA, 272BB, 272A sub-section (2) are the penalty provisions which are totally independent in itself and are not arising out of the assessment proceedings. The calculation of the penalty is also not linked with the assessed income or assessed tax. Section 275 of the Income-tax Act has given separate period of limitation for these penalties. Therefore, the period of limitation will start from the end of the month when the penalty proceedings were initiated.
7. If one goes through the penalty order there is no ambiguity regarding initiation of penalty proceedings. After filing the return of income on 31-10-1989, the Assessing Officer issued a deficiency letter dated 4-12-1989 and also a notice under section 271B read with section 274 was issued on 7-12-1989. the Assessing Officer was bound to complete the penalty proceedings within six months from the end of December, 1989 i.e., by end of June, 1990. Once the penalty notice is issued, the same has to be culminated by an order of either imposing or dropping of the penalty. The Assessing Officer has issued another notice under section 271B on 27-6-1990 without giving any observation on the fate of the first notice i.e., notice d ated 7-12-1989. Section 275 cast upon the Assessing Officer to take a serious note of a penalty notice issue because the limitation is one of the essential ingredients for passing of a valid penalty order. The learned counsel also relied on the case of Bhushan Chemicals v. Dy. CIT (Pune) [1995] 54 ITD 5 (Pune).
8. We have to analysis regarding the assumption of jurisdiction under the penalty proceedings which are independent of other proceedings. After the change in section 275, there are two types of penalties. So far as penalty under section 271 are concerned, the satisfaction is to be derived by the Assessing Officer in course of any proceedings under the Act. So far as Sections, 271A, 271B, 271C, 271D, 271E, and 271F are concerned, the jurisdiction is assumed by the Assessing Officer if he has over all jurisdiction as envisaged under sections 124, 125 or as the case may be under section 127 of the Income-tax Act. The power of jurisdiction regarding omission for which penalty is envisaged in the Act is assumed the moment a notice under section 271B is issued. After notice under section 271B is issued, the Assessing Officer is bound to issue notice under section 274 and after issue of notice under section 274, the Assessing Officer has to complete penalty within the time allowed under section 275. Therefore, we are of the opinion that the first notice issued under section 271B was the time when the Assessing Officer assumed the jurisdiction and the same was to be culminated by passing an order under section 271B within the time allowed under section 275(1)(c). Therefore, the penalty imposed by the Assessing Officer is invalid and as such is cancelled.
9. In the result the appeal of the appellant is allowed.