1999-VIL-241-GUJ-DT

Equivalent Citation: [2000] 244 ITR 417, 159 CTR 364

GUJARAT HIGH COURT

Date: 14.12.1999

COMMISSIONER OF INCOME-TAX

Vs

HARSIDDH CONSTRUCTION PVT. LTD.

BENCH

Judge(s)  : B. C. PATEL., K. M. MEHTA 

JUDGMENT

Under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the applicant has preferred this application against the order, dated February 6, 1999, passed by the Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal"), rejecting the reference application under section 256(1) of the Act filed by the applicant.

The question sought to be referred to this court reads as under :

"Whether the Appellate Tribunal is right in law and on the facts in cancelling the penalty levied under section 272A(2)(g) on the ground that if at all any breach was committed, it was only a technical default ?"

The short facts are as under :

It is not disputed before us that the assessee deducted the amount of tax deducted at source (hereinafter referred to as "TDS") amounting to Rs. 510 (sic) within time as contemplated under section 194C of the Act. It is not disputed before us that the amount deducted was deposited into the Government account and thus so far as the payment is concerned it is not disputed that in accordance with law the payment was made to the Government treasury. Thus, there is no loss so far as revenue is concerned. Now, in the instant case, the assessee was required to comply with section 203 of the Act which reads as under :

"Every person deducting tax in accordance with the provisions of sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, section 194E, section 194EE, section 194F, section 194G, section 194H, section 194-I, section 194J, section 194K, section 195, section 196A, section 196B, section 196C and section 196D shall, within such period as may be prescribed, from the time of credit or payment of the sum, or, as the case may be, from the time of issue of a cheque or warrant for payment of any dividend to a shareholder furnish to the person to whose account such credit is given or to whom such payment is made or the cheque or warrant is issued, a certificate to the effect that tax has been deducted, and specifying the amount so deducted, the rate at which the tax has been deducted, and such other particulars, as may be prescribed."

So far as the certificate of tax deducted at source is concerned, the Income-tax Rules, 1962 (hereinafter referred to as "the Rules"), provide the time limit within which the certificates are to be despatched.

It was pointed out before the Tribunal that there was no attempt on behalf of the assessee to evade any tax liability or to cause any loss of revenue to the Government. It was further submitted that there was bona fide belief that the certificates in question were directed to be issued at the end of the accounting year when the accounts of such parties are generally completed for the entire year. In support of the contentions, several decisions were cited which are referred to in paragraph 8 (pages 32 and 33 of the paper book) of the order passed by the Tribunal while disposing of the appeal.

On behalf of the Revenue, it was contended that a provision is made with a view to see that the person in whose favour the certificates are to be issued may not suffer any loss on account of non-furnishing of certificates in time. It was submitted before us that if the contention is accepted then the provisions made under section 272A(2)(g) of the Act would become redundant.

Before the Tribunal it was pointed out that the issuance of show-cause notice was without jurisdiction. However, when the mistake was noticed on June 24, 1994, by the Deputy Commissioner of Income-tax, he issued a show-cause notice to the assessee on the same date. It is in view of this, the Tribunal held that no prejudice has been caused to the assessee and held that the proceedings were validly initiated.

The Tribunal, in its order dated September 11, 1999, examined the case on the admitted facts that in the instant case, the amount as required under the provisions of section 194C of the Act was deposited in the Government account well within the prescribed time as required under the provisions of section 194C of the Act. So far as the bona fide belief on the part of the assessee is concerned, the Tribunal expressed the view that from the facts, the inference can be drawn that there was no mala fide intention on the part of the assessee to deliberately disregard the legal obligations cast upon him. The Tribunal accepted the contention of the assessee, that there was a bona fide belief and honest impression that the certificate in question could be issued at the end of the accounting year when the accounts of the concerned parties are generally completed for the entire year. The Tribunal emphasised upon the fact that there was no loss to the Revenue or there was no evasion of tax liability. It is from this angle, the Tribunal considered the matter.

The Tribunal relied on the decision of the apex court in the case of Hindustan Steel Limited v. State of Orissa [1972] 83 ITR 26 for not imposing penalty.

The relevant provisions of the Act make it clear that one has to follow the procedure laid down under the provisions for deduction of the amount, to deposit the amount within the stipulated period with the Government treasury and, thereafter, to issue the certificate to the persons concerned. On analysis, the Tribunal found that the assessee has deducted the amount and has also deposited with the Government treasury, and only the last step of forwarding the certificate to the party concerned, was not taken under the bona fide belief that the same could be forwarded at the end of the accounting year. The Tribunal was of the view that this cannot be said to be unbelievable. So far as the third step is concerned, none has made any grievance before any authority that loss was suffered on account of the late despatch of the certificate. Thus, there is nothing on the record to show that anyone has suffered in the instant case.

On behalf of the Revenue, it was submitted that in view of the decision of the apex court in the case of CIT (Addl.) v. I. M. Patel and Co. (1992] 196 ITR 297, imposition of penalty is a must and no discretion is left with any authority.

It is required to be noted that in that case, the returns were required to be filed as per the statute on July 31, 1964, July 31, 1965, and July 31, 1966. However, the assessee filed the returns for these years on March 24, 1967. It was the filing of these belated returns which obliged the assessing authority to impose penalty under section 271(1)(a) of the Act. It transpires that for all these three years income was assessed at a higher amount than what was shown in the returns though filed belatedly. In the aforesaid case, at page 300-301, the apex court quoted the judgment in the case of Gujarat Travancore Agency v. CIT [1989] 177 ITR 455, 458 (SC). We quote below the portion which is relevant to be considered in this matter :

"In the case of a proceeding under section 271(1)(a), however, it seems that the intention of the Legislature is to emphasise the fact of loss of revenue and to provide a remedy for such loss, although no doubt an element of coercion is present in the penalty. In this connection, the terms in which the penalty. falls to be measured are significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea, it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion, there is nothing in section 271(1)(a) which requires that mens rea must be proved before penalty can be levied under that provision."

Reading the aforesaid passage it is very clear that the intention of the Legislature is to emphasise the fact that there is no loss of revenue, and to provide a remedy for such loss. From the facts of the case which we have indicated earlier, the assessee never bothered to file the return of income in time and after almost three years, returns were filed where also the assessee's income was more than the income shown in the return. While so, in the instant case, it is the admitted position that the amount is deducted under the provisions of law, and has been deposited in the Government treasury, and there is no loss of revenue but there is only failure to forward the certificate. It is under this circumstance the Tribunal thought it fit to consider whether it can be said that it is a wilful breach or the failure on the part of the assessee in not forwarding the certificate was a bona fide mistake.

The apex court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 held as under :

"Under the Act penalty may be imposed for failure to register as a dealer : section 9(1), read with section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion a the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the company in, failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out."

In essence, the apex court has pointed out that penalty will not be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.

As regards penalty under section 271 is concerned on page 1632 of the Law and Practice of Income Tax, Kanga and Palkhivala, eighth edition, the following commentary occurred :

"Penalty under clause (a) for failure to furnish a voluntary return of income is attracted only if there is taxable income according to the bona fide calculation of the assessee and not merely because the Assessing Officer arrives at a figure of taxable income in the assessment proceedings. Subject to what is stated in the preceding paragraph, absence of reasonable cause is necessary to justify a penalty---mere non-furnishing of, or delay in furnishing, a return of income is not enough. The expression 'reasonable cause' should be construed liberally so as to advance substantial justice. Mistaken professional advice constitutes reasonable cause. Clause (a) does not require mens rea to be proved."

Even taking into consideration the decision of the apex court referred to hereinabove and the peculiar facts of the case, the Tribunal arrived at a conclusion that it was a bona fide mistake. This inference is drawn from the material placed on record, viz., deducting the amount and making the payment in the Government treasury within the stipulated period. In our opinion, the inference is based on the facts, and, therefore, it would not amount to a question of law to be entertained by this court. We may note here that no complaint whatsoever has been received from anyone about the loss suffered on account of non-receipt of certificate in time.

In view of what we have stated hereinabove, we find no merit in the application, and the application is required to be rejected. Rejected.

 

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