Commissioner of Income Tax vs Gupta Mills Stores

Rajes Kumar, J.—This is an appeal u/s 260A of the Income Tax Act (hereinafter referred to as the ''Act'') for the assessment year 2001-02. The appeal has been admitted on the following two questions:

Whether the learned Income Tax Appellate Tribunal was justified in law in coming to the conclusion that the penalty was time barred ignoring the fact that the initiation of penalty proceedings has to be construed with reference to the steps taken by the Joint Commissioner of Income Tax which started on 3-9-2003 and not by the Income Tax Officer''s notice dated 1-8-2003 since as enjoined by Section 271E(2), Joint Commissioner of Income Tax is the only competent authority to levy penalty u/s 271E of the Income Tax Act, 1961.

Whether the learned Income Tax Appellate Tribunal was justified in quashing the penalty after arriving at the conclusion there was no passing of money while ignoring the entries made by the assessee in his books of account indicating the reduction in the balance amount payable to the creditor.

The brief facts of the case are that there was a deposit of Rs. 4,89,450 in the name of Sri Daya Shankar with the assessee-firm. The bearer cheques were issued in the name of Sri Daya Shankar for Rs. 2,89,450 in the year under consideration. As per provisions of Section 269T of the Act, the repayment should be made through account payee cheque or account payee draft, which was not done. For the alleged default of Section 269T of the Act the Income Tax Officer, the assessing authority issued the notice on 1-8-2003 u/s 271E of the Act. Thereafter, the Income Tax Officer, Raebareli on 19-8-2003 referred the matter to the Joint Commissioner, Income Tax, Sultanpur. The Joint Commissioner, Income Tax, Sultanpur issued a notice dated 3-9-2003 to the assessee fixing the date of hearing on 11-9-2003. The assessee filed the reply which had not been accepted by the Joint Commissioner, Income Tax and vide order dated 29-3-2004 a sum of Rs. 4,89,450 was imposed towards penalty u/s 271E of the Act. The assessee filed the appeal before the Commissioner of Income Tax (Appeals) Lucknow which was dismissed vide order dated 28-2-2005. Being aggrieved by the order of Commissioner of Income Tax (Appeals), the assessee filed the appeal before the Income Tax Appellate Tribunal, Allahabad Bench, Allahabad. The Tribunal by the impugned order dated 24-8-2005 allowed the appeal. The Tribunal held as follows:

Hence after having heard both the parties A.R. and having considered the material on record and the order of the Income Tax Appellate Tribunal, and having considered the arguments, I hold that no penalty in the facts and circumstances of the case is leviable, since it is a time barring matter and there is no passing of the money.

Heard Sri D.D. Chopra, learned Senior Standing Counsel and Sri Ratnesh Chandra, learned Counsel for the assessee.

For the convenience it is useful to refer Sections 271E, 273B and 275(1)(c).

271E. Penalty for failure to comply with the provisions of Section 269T.-(1) If a person repays any loan or deposit referred to in Section 269T otherwise than in accordance with the provisions of that section, he shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit so repaid.

(2) Any penalty imposable under Sub-section (1) shall be imposed by the Joint Commissioner.

273B. Penalty not to be imposed in certain cases.-Notwithstanding anything contained in the provisions of Clause (b) of Sub-section (1) of Section 271, Section 271A, Section 271AA, Section 271B, Section 271BA, Section 271BB, Section 271C, Section 271CA, Section 271D, Section 271E, Section 271F, Section 271 FA, Section 271FB, Section 271G, Clause (c) or Clause (d) of Sub-section (1) or Sub-section (2) of Section 272A, Sub-section (1) of Section 272AA or Section 272B or Sub-section (1) or Sub-section (1A) of Section 272BB or Sub-section (1) of Section 272BBB or Clause (b) of Sub-section (1) or Clause (b) or Clause (c) of Sub-section (2) of Section 273, no penalty shall be imposable on the person or the assessee as the case may be, for any, failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.

Bar of limitation for imposing penalties.-(1) No order imposing a penalty under this Chapter shall be passed-

(a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) u/s 246 or Section 246A or an appeal to the Appellate Tribunal u/s 253, 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 the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later:

Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) u/s 246 or Section 246A, and the Commissioner (Appeals) passes the order on or after the 1st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Chief Commissioner or Commissioner, whichever is later;

(b) ** ** **

(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.

Learned Standing Counsel submitted that the order of the Tribunal in holding that the penalty order passed was barred by limitation is patently illegal. He submitted that as per the provisions of Section 275(1)(c), the limitation to pass the penalty order was up to the end of the financial year in which penalty proceeding was initiated or six months from the end of the month in which the action for imposition of penalty is initiated whichever period expires later. In the present case the assessing authority issued the notice on 1-8-2003 and the Joint Commissioner of Income Tax on 3-9-2003, therefore, the penalty could be levied by 31-3-2004. He submitted that six months period is to be calculated from the date of the notice issued by the Joint Commissioner of Income Tax who was competent to levy the penalty u/s 271E of the Act and such period expires on 1-4-2004 while penalty order was passed on 29-3-2004 well within time. He further submitted that the Tribunal has not examined the matter on merit properly and, therefore, to decide the matter afresh on merit, the matter should be sent back to the Tribunal.

Learned Counsel for the assessee submitted that the notice for the penalty was issued by the Income Tax Officer on 1-8-2003 and the penalty order was passed by the Joint Commissioner on 29-3-2004 and, therefore, in view of the Section 275(1)(c) of the Act, the order passed by the Joint Commissioner was beyond time. He, however, admitted that if the date of issuing the notice by the Joint Commissioner is to be considered which was on 3-9-2003, the order of the Joint Commissioner was within time. He further submitted that on merit the present case does not fall within the purview of Section 271E of the Act. In support of the contention he relied upon the decisions of the Delhi High Court in the case of Director of Income Tax (Exemption) Vs. All India Deaf and Dumb Society, in the case of Baidya Nath Plastic Industries (P) Ltd. and Others Vs. K.L. Anand, Income Tax Officer, and in the case of A.M. Shamsudeen Vs. Union of India (UOI) and Others,

Having heard learned Counsel for the parties, we have perused the impugned order.

From a perusal of the record, it is clear that the notice for the levy of penalty u/s 271E of the Act was issued by the Income Tax Officer on 1 -8-2003 and by the Joint Commissioner of Income Tax on 3 -9-2004. It means that the proceeding has been initiated in the financial year 2003-04 which ended on 31-3-2004. Thus, the penalty order could be passed by 31-3-2004. If the limitation is calculated on the basis of the second part of Clause (c) of Section 275(1) of the Act from the date of notice issued by the Income Tax Officer on 1-8-2003 from the end of the month, six month expired on 28-2-2004 and from the date of the notice issued by the Joint Commissioner of Income Tax on 3-9-2003 from the end of this month, six months expired on 31-3-2004. In this way, later period by which the penalty order could be passed was 31 -3-2004. In this view of the matter, the order passed on 29-3-2004 by the Joint Commissioner of Income Tax cannot be said to be barred by limitation.

In view of the above, it is not necessary for us to consider whether the period of six months should be calculated from the date of notice issued by the Income Tax Officer or by the Joint Commissioner of Income Tax who was competent to levy the penalty u/s 271E of the Act.

In this view of the matter, the order of the Tribunal is erroneous. Question No. 1 is answered in favour of the revenue and against the assessee.

So far as the question on merit is concerned, perusal of the order of the Tribunal reveals that the issue has not been properly considered by the Tribunal. The Tribunal has not recorded any finding that whether on the facts and circumstances there was any default u/s 269T of the Act and the penalty u/s 271E of the Act was leviable. The Tribunal has also not considered that there was any reasonable cause in committing default u/s 271E of the Act as required for the imposition of the penalty u/s 273B of the Act. If there was a reasonable cause, no penalty was leviable u/s 273B of the Act. In this view of the matter, the order of the Tribunal is vitiated.

In the result, appeal is allowed. The order of the Tribunal is set aside. The matter is remanded back to the Tribunal to decide appeal afresh in the light of the observation made.