2003-VIL-342-KAR-DT

Equivalent Citation: [2004] 266 ITR 393, 186 CTR 318, 134 TAXMANN 495

KARNATAKA HIGH COURT

Date: 23.10.2003

SHANBHAG RESTAURANT

Vs

DEPUTY COMMISSIONER OF INCOME-TAX.

BENCH

Judge(s)  : P. VISHWANATHA SHETTY., AJIT J. GUNJAL.

JUDGMENT

The judgment of the court was delivered by

P. VISHWANATHA SHETTY J.-The assessee is the appellant in this appeal. In this appeal filed under section 260A of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the appellant has called in question the correctness of the order dated September 22, 2000, a copy of which has been produced as annexure A to this appeal made in I.T.A. Nos. 941 and 943/ Bang. of 1995 by the Income-tax Appellate Tribunal, Bangalore (hereinafter referred to as "the Tribunal").

The facts of this case are very brief, which may be stated as hereunder:

The appellant (hereinafter referred to as "the assessee") is a partnership firm carrying on restaurant business. For the assessment year 1991-92, i.e., the year ending March 31, 1991, the assessee filed its return of income on August 27, 1991, admitting the income of Rs. 1,09,310 (rupees one lakh nine thousand three hundred ten only). The said assessment was taken up for scrutiny by the Assessing Officer and during the course of the scrutiny it was found that there were certain credit balances in the names of certain persons as seen from the balance-sheet. The Assessing Officer on verification of the accounts, by means of his assessment order dated February 25, 1994, held that the assessee had received loans and deposits in cash in contravention of the provisions of section 26955 of the Act, and also he had made repayment of the loans and deposits received otherwise than by an account payee cheque or account payee bank draft drawn on the names of the persons who had advanced the loan or made the deposits with the assessee; and therefore a penalty is required to be levied on the assessee under sections 2710 and 271E of the Act for failure to comply with the provisions of sections 26955 and 269T of the Act. However, he observed that action for contravention of sections 26955 and 269T of the Act would be taken up separately. Thereafter, the Deputy Commissioner of Income-tax, Hubli Range, Hubli, issued two notices dated June 8, 1994, the copies of which have been produced as annexures E and F to this appeal, to the assessee directing it to show cause as to why action should not be taken against it for contravening the provisions contained in sections 269SS and 269T of the Act. In response to the said notices, the assessee filed its reply on July 28, 1994, explaining the circumstances under which it took the loan and deposits otherwise than by way of account payee cheque or by way of account payee bank draft from several persons and also contending that in the circumstances explained by it, must be held that it had not contravened the provisions of section 26955 of the Act. It also explained the circumstances under which the repayment of the loan and deposits were made otherwise than by way of account payee cheque or by way of account payee bank draft drawn on the names of the persons who had advanced loan or made a deposit with the assessee and as such it had not contravened the provisions of section 269T of the Act. However, the Deputy Commissioner of Income-tax, after considering the explanation submitted by the assessee, made an order dated March 28, 1995, a copy of which has been produced as annexure C to this appeal, holding that the assessee had contravened the provisions of section 26955 of the Act and levying a penalty of Rs. 2,79,312 (rupees two lakhs seventy nine thousand three hundred twelve only) in exercise of the power conferred on him under section 271D of the Act. On the same day, the Deputy Commissioner of Income-tax also made an order under section 271E of the Act, a copy of which has been produced as annexure G to this appeal, taking the view that the assessee also had contravened the provisions of section 269T of the Act and levying a penalty of Rs. 1,10,500 (rupees one lakh ten thousand five hundred only). Aggrieved by the said orders annexures C and G, the assessee filed two appeals before the Commissioner of Income-tax (Appeals) (hereinafter referred to as "the Commissioner (Appeals)"). The Commissioner (Appeals), after hearing the assessee, by means of his common orders dated August 31, 1995, the copies of which have been produced as annexures H and J to this appeal, allowed the appeal filed by the assessee setting aside the orders annexures C and G passed by the Deputy Commissioner of Income-tax on the ground that the proceedings were completed beyond six months from the date of initiation of the proceedings. Aggrieved by the said order, the Revenue had preferred appeals in Nos. 941 and 943 of 1995 before the Tribunal. However, the Tribunal, in the impugned order set aside the order passed by the Commissioner (Appeals) on the ground that the conclusion reached by the Commissioner (Appeals) that the order was required to be passed within six months from the end of the month in which the action for imposition of penalty initiated, is erroneous in law. The Tribunal, further took the view that the order imposing penalty having been passed on March 28, 1995, and the financial year having expired on March 31, 1995; the conclusion reached by the Commissioner (Appeals) that the penalty levied both under sections 271D and 271E is barred by time, is unsustainable in law.

Shri G. Sarangan, learned senior counsel, challenging the correctness of the impugned order passed by the Tribunal made three submissions. Firstly, he submitted that the reasons assigned by the Tribunal to take the view that the conclusion reached by the Commissioner (Appeals) that the order was required to be passed within six months from the end of month in which the action for imposition of penalty initiated, is erroneous in law. Elaborating this submission, learned counsel pointed out that since the proceedings for penalty were initiated by issue of notices annexures E and F dated June 8, 1994, the Deputy Commissioner of Income-tax was required to pass the order within six months from the end of June, 1994, i.e., before December 31, 1994; and therefore since admittedly the orders annexures C and G imposing penalty were passed only on March 28, 1995, the conclusion reached by the Commissioner (Appeals) was correct and, therefore, the Tribunal was totally unjustified in interfering against the said order. Secondly, as an alternative submission, Shri Sarangan submitted that the period of six months for completion of proceedings initiated, in the facts and circumstances of the case, must be understood from the date of orders annexures C and G dated March 28, 1995; and since admittedly the said orders annexures C and G imposing penalty were not passed within six months from the said date, the said orders imposing penalty should be declared as illegal on the ground that they are passed beyond the period of limitation. Finally, he submitted, that in any event of the matter, the Tribunal ought to have accepted the explanation offered by the assessee for not accepting the loan and deposits otherwise than by way of account payee cheque or by way of account payee bank draft and also for repaying the said loan or deposits otherwise than by way of account payee cheque or account payee bank draft drawn in the names of the persons from whom the loans or deposits were received by the assessee; and dropped the proceedings initiated for levy of penalty. In this connection, he drew our attention to section 273B of the Act wherein it is provided that notwithstanding anything contained in sections 271D and 271E of the Act, no penalty should be imposed on the assessee for contravention of the said sections if the assessee proves that there was a reasonable cause for the failure in contravening the said provision. He also pointed out that since this contention has not been specifically formulated as a question of law at the time of admission of the appeal, this court may, in exercise of the power conferred on it under subsection (6) of section 260A of the Act, permit the assessee to urge the said contention.

However, Shri E.R. Indra Kumar, learned counsel for the respondent, strongly supported the impugned order passed by the Tribunal. It is his submission that the conclusion reached by the Commissioner (Appeals) being totally erroneous in law, the Tribunal was justified in interfering against the said order.

The substantial question of law raised for decision which was formulated by this court at the time of admission of this appeal, reads as follows:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the penalty orders under sections 271D and 271E had been passed within the period of limitation and whether the Tribunal was right in reversing the order of the Commissioner of Income-tax (Appeals), who held that the penalty orders were passed after the expiry of the period of limitation specified in section 275(1)(c) of the Income-tax Act, 1961?"

Section 275 of the Act provides for a bar for imposing penalty as provided under Chapter XXI of the Act. In other words the said provision prescribes the period by which the order imposing the penalty is required to be passed. The said section reads as follows:

"275. (1)(c) 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."

As it could be seen from clause (a) of section 275(1), the said provision provides for a limitation in case where the relevant assessment or other order is the subject-matter of appeal before the higher authorities. Clause (b) of the said section provides for limitation for making an order imposing penalty in cases where the relevant assessment or other order is the subject-matter of revision. However, clause (c) of the said section provides for contingencies in cases other than those which fall under clauses (a) and (b) of section 275(1) of the Act.

The answer to the substantial question of law formulated in this appeal, referred to above, depends upon the interpretation we are required to place on section 275(1)(c) of the Act. The reading of section 275(1)(c) of the Act makes it clear that the said section comprises of two parts. The first part provides that no order imposing penalty under Chapter XXI could be made in cases which do not fall under section 275(1)(a) and (b) 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. The second part relates to the cases which prohibit the passing of an order imposing penalty after the expiry of six months from the end of the month in which action for imposition of penalty is initiated. However, the section further provides that when proceedings for imposition of penalty are initiated, whichever period expires later, would enure to the benefit of the Revenue. In the instant case, as noticed by us earlier, the assessment order was passed on February 25, 1994. In our considered view the financial year in which the proceedings in the course of which action for imposition of penalty has been initiated is required to be understood as the proceedings relating to the assessment year. The financial year in which the proceedings, in the course of which action for imposition for penalty has been initiated, can be understood as the proceedings relating to imposition of penalty. In our considered view, the financial year in the first part of section 275(1)(c) must be understood as the financial year where the assessment order is made in the course of which proceedings for penalty could be initiated. In the present case, the assessment order was made on February 25, 1994. The financial year in respect of the assessment order, as rightly found by the Commissioner (Appeals), had expired on March 31, 1994. Therefore, if the first part of section 275(1)(c) is not applicable, the only question is whether the order imposing penalty was passed within the period prescribed in the later portion of section 275(1)(c), i.e., within six months from the end of the month in which action for imposition of penalty is initiated?

The Commissioner (Appeals), at paragraph 9 of the order has observed thus:

"The instant case falls under Category-III. Thus, in accordance with the provisions of section 275(1)(c) of the Income-tax Act, 1961, the period of limitation for the instant case was six months from the end of the month in which the action for imposition of penalty was initiated. The Deputy Commissioner of Income-tax initiated the action for imposition of penalty by issue of a show cause notice under section 271D on June 8, 1994. Thus, the penalty order under section 271D should have been passed by December 31, 1994. The Deputy Commissioner of Income-tax, however, passed the penalty order in this case on March 28, 1995. Thus, the penalty order passed by the Deputy Commissioner of Income-tax on March 28, 1995, became barred by limitation. Thus, the order under section 271D passed by the Deputy Commissioner of Income-tax was without jurisdiction and hence illegal and invalid. The same is accordingly cancelled."

We are of the considered view that the conclusion reached by the Commissioner (Appeals) is unexceptionable. He has rightly come to the conclusion that as the orders imposing the penalty were not passed within six months from the end of June, 1994, the same are barred by limitation. On a proper construction of section 27S(I)(c) of the Act, we are of the view that in cases where the proceedings initiated fall under the second part of section 275(1)(c) of the Act, the order imposing the penalty is required to be passed within six months from the end of the month in which action for imposition of penalty is initiated. In the instant case, even according to Sri Indra Kumar, the action for imposition of penalty was initiated by issue of notices annexures E and F dated June 8, 1994, by the Deputy Commissioner of Income-tax. In that event, the orders imposing the penalty should have been passed before December 31, 1994, as the six months' period from end of June, 1994, expires on December 31, 1994. Therefore, as noticed by us earlier, the conclusion reached by the Commissioner (Appeals) that the order passed imposing penalty is barred by limitation is correct. The contrary view taken by the Tribunal in the impugned order is erroneous and totally unsustainable in law. In the light of the above conclusion, the order passed by the Tribunal is liable to be set aside. Therefore, we find it unnecessary to consider the other two submissions advanced by Sri Sarangan as noticed above.

In the light of what is stated above, the order annexure A dated September 22, 2000, passed by the Tribunal is set aside and the orders annexures H and J dated August 31, 1995, passed by the Commissioner (Appeals) are hereby restored.

In terms stated above, this appeal is disposed of.

 

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