TMI Blog1997 (7) TMI 215X X X X Extracts X X X X X X X X Extracts X X X X ..... orders and is also reproduced below: "the assessee's first assessment was completed on 15-1-1983, which was subsequently cancelled and a fresh assessment was made on 6-2-1984 in the same status of individual although it was proposed to be made in the status of HUF in the protective assessment. No assessment order was issued to the assessee. Hence, there was no cause for imposition of penalty under that section." 4. It was also stated subsequently that the assessee's appeals for the two years were pending before the CIT(Appeals) and, therefore, the proceedings may be stayed till disposal of the appeals. 5. The Assessing Officer (A.O.) observed that the appeals before the CIT(Appeals) had been decided and no further reply was given in response to further show-cause notices. He also observed that the first assessment was completed on 15-1-1983 but was not cancelled on 6-2-1984 as stated by the assessee, but only revised under section 155 on that date. In absence of satisfactory reply, he held that there was no reasonable cause for the delay and levied a penalty of Rs.12,509 for assessment year 1978-79 and Rs.12,395 for assessment year 1979-80. 6. It was submitted before the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l even till date and, therefore, there was no option but to pass the penalty orders. He further emphasised that the penalties were only for delay in filing of returns, and this fact stood established, and not for concealment under section 271(1)(c) of the Act. The ld. D.R. further submitted that under the law, as it stood amended from 1-4-1971, both interest under section 139(8) and penalties under section 271(1)(a) could be levied. Lastly, he submitted that there was no material on record to show family disputes, as contended before the Tribunal, and no such explanation had been given either before the Assessing Officer or before the CIT(Appeals). This explanation should, therefore, be rejected. 13. We have considered the rival submissions carefully. We will first deal with the question whether both interest under section 139(8) and penalties under section 271(1)(c) are leviable in law, together. We find that the case law relied upon by the ld. counsel for the assessee before the CIT(Appeals) and also before us relates to pre 1971 law, under which the interest was charged under a differently worded proviso to section 139(1), which was thereafter deleted. The ld. Commentary of Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he justification of a protective assessment itself. The following passage from the ld. Author Sampath Iyengar's "Law of Income Tax", Eighth edition, revised by Justice S. Ranganathan, former Judge, Supreme Court of India and former President, Income Tax Appellate Tribunal, may be usefully referred to: "It is no doubt true that the Income-tax Act nowhere provides that a protective or precautionary assessment can be raised in respect of one and the same income on two different persons. A departmental practice that has however gained judicial recognition is that, in certain circumstances, where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received either by A or B or by both together, it would be open to the relevant income-tax authorities to determine the said question by taking appropriate proceedings both against A and B. This is done so that such income may not escape taxation altogether. This has been held to be quite sensible because the revenue has to be protected against the bar of limitation. If the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount. Penalties were also levied. It was held as under: "8. Looking from another angle also the penalties cannot survive, for the reason that ITO made the assessment on the assessee on a protective basis though the return was filed by her through her guardian claiming declared income to be her income. The finding given by the ITO in that protective assessment is that the income and investment made is not the income or investment by or of the assessee but that of her father and the ITO has specifically mentioned that the same will be assessed in the hands of the father only. Levy of penalty on such protective assessment is not sustainable at all because it tantamounts to levy of protective penalties. Admittedly there is no concept or warrant of levy of any protective penalties under the provisions of the Income-tax Act, 1961. It has first to be establishment conclusively whether the income declared is of the assessee or of her father. Until this exercise is done no penalties can be levied on the present assessee on whom protective assessment has been made. No evidence is laid before us by the revenue whether the income and the investment added protectively in the assessment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the contention of the ld. D.R. that in view of a statutory limitation of time for levying of penalties under section 271(1)(a), the proceedings could not be kept pending indefinitely. What would be an equitable procedure in such circumstances? Guidance is available in the judgment of the Hon'ble Supreme Court in the case of Lalji Haridas at pages 392 390 as under: "We would, however, like to add one direction in fairness to the appellants. The proceedings taken against both the appellants should continue and should be dealt with expeditiously having regard to the fact that the matter is fairly old. In the proceedings taken against Lalji, the Income-tax Officer should make an exhaustive enquiry and determine the question as to whether Lalji is liable to pay the tax on the income in question. All objections which Lalji may have to raise against his alleged liability would undoubtedly have to be considered in the said proceedings. Proceedings against Chhotalal may also be taken by the Income-tax Officer and continued and concluded, but until the proceedings against Lalji are finally determined no assessment order should be passed in the proceedings taken against Chhotalal. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no two cases, I agree, are identical. But there is a very thin distinction between facts of this case and the facts in the case of Miss Vasudha Bajoria which were in relation to the levy of protective penalties under sections 271(1)(b), 273 and 271(1)(c) of the Act whereas in this case the penalties are levied for late filing of the returns under section 271(1)(a) of the Act. But that does not make any difference as to the applicability of the ratio decidendi of the case of Miss Vasudha Bajoria to this case because the controversy is common, that is to say; whether or not protective penalties can be levied under the penal provisions of Income-tax Act, 1961. It is elementary and almost universally accepted that it is not the conclusion arrived at of an earlier case which is binding precedent but the ratio decidendi or the principle of that decision which is binding for deciding a subsequent case. The ratio of the decision of the Calcutta Bench 'D' of this Tribunal, I repeat, in the case of Miss Vasudha Bajoria was to the effect that in law protective penalties cannot be levied and the Calcutta Bench 'D' while taking such a view has taken support from the judgment of the Calcutta Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he plea of the Revenue that penal proceedings may get time barred under section 275 of the Act for delay in searching and assessing the correct person cannot be a ground to impose and/or sustain protective penalties. In such a situation, the Revenue authorities act at their own risk and peril, and for their laches, inaction and inordinate delays protective penalties cannot be imposed or sustained protectively. 6. There is one more reason why I do not agree with the imposition of protective penalties. As is known penalty in fiscal laws is a monetary punishment awarded to a person/assessee for the act of offending or contravening a statutory provision or mandate contained in an enactment. In addition to the penal provisions, several fiscal statutes like the Income-tax Act, 1961, also contain provisions of prosecuting the offenders for violation and contraventions of certain statutory provisions, prescribing imprisonment of varying periods depending upon the severity and magnitude of the offence. Now if a person or an assessee can be penalised and punished monetarily on protective basis then he can as well on the same reasoning, analogy and principle be prosecuted and imprisoned on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Third Member under section 255(4) of the Income-tax Act, 1961:-- "1. Whether, on the facts and circumstances of the case and in law, the Assessing Officer was justified in imposing penalties for assessment years 1978-79 and 1979-80 under section 271(1)(a), when the assessment had been made on a protective basis? 2 If so, whether, on the facts and circumstances and in law, penalties imposed under section 271(1)(a) of the Act for late filing of returns for assessment years 1978-79 and 1979-80, should be set aside to CIT(Appeals) as held by Accountant Member?" 2. As regards tracing of facts of the case, there is complete unanimity among the Members. Therefore, for the purpose of appreciating the main issue in the Third Member's case, it is enough if I highlight the bare minimum facts as follows. 3. The assessee in these appeals is an individual. The assessment years involved are 1978-79 and 1979-80, for which the previous years are the financial years ending with 31-3-1978 and 31-3-1979 respectively. For assessment years 1978-79 and 1979-80, the assessments under section 143(3) were completed on 15-1-1983. It is clearly stated in the assessments, copies of which are already ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HUF, petition was filed under section 139(8) read with rule 117A before the Assistant Commissioner of Income-tax , Inv. Circle 1, Dhanbad, under which the HUF sought for waiver of interest charged for the years 1976-1977, 1977-78, 1980-81, 1981-82 and 1982-83. An order was passed by the ACIT, Inv. Cir. 1, Dhanbad, on 21-5-1992 on the said application for waiver of interest in which it was held as follows: "Considering the facts of the case and in view of the evidences produced there seems to be a reasonable cause for the delay in furnishing the returns in time and thus the interest charged in all the above assessments are hereby waived." Copy of the order dated 21-5-1992 had been filed by the assessee and is kept on record. 6. Now, the main point of difference between the learned Members was that in view of the fact that the assessment against the HUF did not as yet become final, whether the protective penalty orders can be said to be valid and whether the penalty proceedings can be ordered to be kept over by the CIT(Appeals) till the assessment proceedings against the HUF becomes final. Shortly put, the Hon'ble Accountant Member was of the opinion that such a course is permi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the total income belongs to the assessee, the further question whether such an assessee committed default under section 271(1)(a) or not is not possible to determine. Therefore, for that reason, penalty cannot be levied. In fact, this is the purport of the decision relied upon by the learned Judicial Member which are already cited above and Which were ultimately followed in Miss Vasudha Bajoria's case The ld. Accountant Member had extracted from the "Law of Income-tax", Eighth Edition, Revised by Justice S. Ranganathan, Former Judge, Supreme Court of India. But, the portion extracted in para 15 of the ld. Accountant Member's order clearly confined itself only to the assessment proceedings and not at all to penalty proceedings. So also, the Hon'ble Supreme Court's judgment in Lalji Haridas'case lays down the law and suggests the procedure to be followed in the assessment proceedings and they never suggested about the procedure to be followed in penalty proceedings. Therefore, neither the learned author's commentary nor the Supreme Court decision in Lalji Haridas's case are authorities laying down the procedure for penalty proceedings or laying down the law with regard to realisati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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