Punjab-Haryana High Court
Majestic Auto Limited vs Commissioner Of Income Tax. on 13 August, 1997
Equivalent citations: (1998)147CTR(P&H)282
JUDGMENT
G. S. SINGHVI, J. :
This is a petition under s. 256(2) of the IT Act, 1961 for directing the Tribunal, Chandigarh Bench, Chandigarh, to refer the following six questions of law to this Court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the levy of penalty ignoring the findings of the CIT(C), Ludhiana, recorded in the Settlement Note dt. 22nd August, 1984, and by placing reliance on the draft assessment order ?
(2) Whether, on the facts and in the circumstances of the case, could the penalty be upheld only on the basis of draft assessment order ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the levy of penalty where the initiation of penalty was on one count and the levy of penalty was on another count ?
(4) Whether, on the facts and in the circumstances of the case, was the Tribunal right in law in holding that the provisions of s. 271 of the IT Act, 1961, were applicable to the present case ?
(5) Whether, on the facts and in the circumstances of the case, there is any material to warrant the finding that the assessee-company had concealed particulars of its income or furnished inaccurate particulars thereof within the meaning of s. 271(1)(c) of the IT Act, 1961 ?
(6) Whether, on the facts and in the circumstances of the case, penalty under s. 271(1)(c) of the IT Act, 1961, was leviable even if the appellant had agreed to surrender the income to buy peace ?"
2. The assessee-petitioner is engaged in the manufacture of moped and bicycle spokes. For the asst. yr. 1981-82, the ITO (Central Circle-I), Ludhiana, prepared a draft assessment order and submitted it to the IAC (Central Circle-I), Ludhiana, after making an addition of Rs. 5,50,746 under the head (Bogus purchases sale outside the books of accounts). During the pendency of the proceedings before the IAC, the petitioner was given hearing under s. 144B(4) of the Act. It surrendered a sum of Rs. 1,68,991 in respect of premium paid to unauthorised dealers from whom various types of oils had been purchased for running generators and other machinery. The IAC issued a direction on 3rd September, 1984, to the ITO to frame the assessment of the petitioner. Pursuant to this direction the ITO finalised the assessment proceedings under s. 143(3) r/w s. 144B of the Act. While doing so, he made an addition of Rs. 1,68,991. Simultaneously he initiated penalty proceedings under s. 271(1)(c) of the Act by alleging concealment of income. The petitioner contested the notice by stating that its stand regarding purchase of oil had been accepted by the Department and, therefore, no penalty could be levied. However, the IAC did not accept the plea set up by the petitioner. He passed order dt. 18th February, 1987, and imposed penalty of Rs. 1,09,000 on the ground of concealment of the income.
3. The petitioner unsuccessfully appealed against the order of the IAC. The CIT(A) as well as the Tribunal dismissed his appeals vide their respective orders dt. 5th September, 1988 and 29th March, 1993. Thereafter, the petitioner filed rectification application under s. 254. Vide his order dt. 9th May, 1994, the Tribunal accepted the rectification application and cancelled the penalty imposed on the petitioner. Thereafter the petitioner applied to the Tribunal under s. 256(1) of the Act but could not persuade the Tribunal to refer the questions of law. By an order dt. 11th November, 1994, the Tribunal held that the questions have become academic and, therefore, the same need not be referred for the opinion of the High Court.
4. It also appears from the record that criminal complaint No. 256 of 1987 came to be filed by the Department against the petitioner and the same was pending on the date of filing of the present petition. Shri B. S. Gupta relied on the judgments of this Court in Hira Lal Ram Dayal vs. CIT (1975) 101 ITR 591 (P&H) , Kanshi Ram Wadhwa vs. ITO (1984) 145 ITR 109 (P&H) and D. N. Bhasin & Anr. vs. Union of India & Ors. (1988) 171 ITR 7 (P&H) and argued that the questions relating to imposition of penalty is a question of law which clearly arises for adjudication in the present case. Shri Gupta submitted that in spite of the cancellation of the penalty, the finding recorded by the IAC, the CIT(A) and the Tribunal are still being used against the petitioner and, therefore, the Tribunal was not correct in rejecting the petitioners request for reference of the questions to this Court. Shri R. P. Sawhney relied on P. Jayappan vs. S. K. Perumal, ITO (1984) 149 ITR 696 (SC) and argued that although cancellation of the penalty cannot lead to automatic exoneration of the petitioner, the questions sought to be raised by the petitioner are purely academic.
5. We have thoughtfully considered the rival submissions and have perused the record of the case. A look at the order passed by the Tribunal on 9th May, 1994, shows that while examining the issue relating to imposition of penalty in the context of the application filed by the petitioner under s. 254 of the Act, the Tribunal found that important material had escaped its notice and, therefore, order passed by it on the appeal filed by the assessee required correction. This is apparent from the following observations made by the Tribunal :
"We have considered the facts of the case and we find that the income at Rs. 16,51,605 appears to be determined before deducting unabsorbed depreciation, development rebate and investment allowance. The ITO in her order dt. 24th April, 1986, specified the amount of unabsorbed depreciation brought forward as under :
Asst. yr. 1977-78 : Rs. 43,407 Asst. yr. 1980-81 : Rs. 5,20,614 The aforesaid two amounts of unabsorbed depreciation of the earlier years were required to be adjusted/set off against the income of this year. Similarly, development rebate of earlier years, namely, 1974-75 and 1975-76, also was required to be adjusted for Rs. 1,050 and 1,71,065. These two amounts were also reduced from the income determined by the ITO. The third amount which was required to be reduced from the assessees income related to the unabsorbed/brought forward investment allowance of asst. yrs. 1978-79, 1979-80 and 1980-81. Since the balance income was not sufficient, part of brought forward investment allowance was adjusted/set off and the balance amount was left for being carried forward to the next assessment year. It appears that the income determined at Rs. 16,51,605 stood adjusted/set off against the unabsorbed depreciation, development rebate and investment allowance in its entirety. Thereafter, the amount of Rs. 11,75,760 under the head investment allowance and the sum of Rs. 2,58,783 in respect of claim under s. 80J still remained to be adjusted and carried forward. Looking to the subsequent event, whereby the income of the assessee became nil, or, in other words, resulted in a loss in final analysis, after giving appeal effect by the ITO, we are of the view that no penalty is exigible. The Tribunal did take note of the decision of the Punjab & Haryana High Court in the case of CIT vs. Prithipal Singh & Co. (1990) 183 ITR 69 (P&H) wherein it was held that no penalty could be imposed where the assessee filed a return declaring loss and was also assessed finally at a loss figure. In the said decision, it has also been observed that the penalty provisions of s. 271(1)(c) are attracted only in a case of an assessee having positive income and not loss. When there was no tax payable, there could not be any such penal provision so as to prove a scope of levying any penalty. Since the subsequent event whereby positive income of the assessee turned into nil and thereafter was reduced to a situation of loss, which escaped the notice of the Tribunal, we find that it was a mistake apparent from record and needs to be rectified under s. 254(2). The Tribunal only took notice of the initial assessment order passed by the ITO whereby a positive income was determined. The subsequent order passed after giving appeal effect escaped the notice of the Tribunal and, therefore, we find it appropriate to rectify the said mistake in the light of the decision of the jurisdictional High Court on the legal question of exigibility of penalty in a loss case. Since the order of the ITO dt. 24th April, 1986, makes out a case of nil income and no amount of tax appears to be payable by the assessee, the matter is squarely covered by the decision of the jurisdictional High Court (supra) and, therefore, in respectful compliance of the same, we accept the application filed by the assessee on this point and hold that no penalty is exigible. The penalty imposed is cancelled."
In view of the order passed by the Tribunal, there appears little justification for continuing with the proceedings of the criminal case registered against the petitioner. However, that is a matter which must be left to be decided by the learned Chief Judicial Magistrate, Ludhiana, before whom the case is pending.
6. As far as the question raised in this petition is concerned, we find that the orders passed by the IAC, the CIT(A) and the Tribunal in the penalty proceedings initiated against the petitioner did give rise to a question of law, but with the setting aside of the penalty the question whether there was any material to sustain the finding that the assessee had concealed the particulars of his income or had furnished inadequate particulars thereof has become purely academic and all the adverse findings will be deemed to have been reversed by the Tribunals order dt. 9th May, 1994. Thus, there is no necessity to direct the Tribunal to refer the questions formulated by the petitioner.
7. The decisions relied upon by Shri Gupta and Shri Sawhney in support of their respective submissions may have been relevant if the questions sought to be raised by the petitioner have survived. Since we have held that the questions have been reduced to be of purely academic importance, we do not find any ground to direct the Tribunal to make the reference of the aforementioned questions to this Court.
Consequently, the petition is dismissed.