TMI Blog1993 (6) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... also filed an additional ground to the effect that the penalty levied is enormous compared to the tax deducted at source and paid to the Government and therefore, it was urged that the penalty levied is confiscatory in nature and beyond the legislative competence which is clear from the amendment brought on the statute by the Finance (No. 2) Act 1991 and although the amendment is said to be effective from 1-10-1991, it is merely clariflcatory in nature and is applicable from the day the section imposing the penalty is brought on the statute and therefore, penalties imposed should be cancelled or alternatively restricted to the tax deducted at source. As the matter involved in these appeals is highly controversial, these appeals were grouped together and heard together, so that the issue could be appreciated from all perspective. 3. In all these appeals admittedly there was delay in filing annual return contemplated by section 206 of the Income-tax Act, 1961 and in Form No. 26A. The Dy. CIT (Admn.) issued show-cause notice to the various appellants to explain as to why penalty as provided in section 272A(2)(c) should not be imposed. The appellants responded to the show-cause noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt year 1989-90 and 52 days for the assessment year 1990-91. In the case of Machan Real Estate P. Ltd. delay up to 15-10-1988 was condoned, while in the case of Motisagar Real Estates P. Ltd. it was condoned up to 15-10-1988. Only in the case of Rajkamal Constructions, no condonation was allowed by him. Thus for the remaining period of delay, minimum penalty prescribed under the Act was levied as detailed in the orders of the Dy. CIT (Admn.). 5. On appeal, the CIT(A), Pune, passed a speaking order dated 18-3-1992 in the case of Machan Real Estate Pvt. Ltd. and these reasons were followed in other files of Talera group of assessees and Siddivinayak Foods P. Ltd. The CIT(A), Kolhapur passed the order in the case of Rajkamal Constructions confirming the penalty and rejecting the plea of ignorance of law pleaded as an excuse. The CIT(A) referred to the relevant provisions of section 272A(2)(c) and section 273B and stated that the default committed by the assessees has been accepted by them and therefore, he confined himself to point out whether any reasonable cause was shown by the assessees for the delay in filing the return in Form No. 26A. Pointing out that the relevant provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to advance a reasonable cause for the failure to file Form No. 26A within the time as required by the Act and for that reason, he upheld the penalties imposed by the Dy. CIT (Admn.) on these appellants. Hence the appeals. 7. In the case of Rajkamal Constructions. it was pleaded before the CIT(A) that the firm came into existence recently and earlier the business was run as a proprietary concern and therefore, the appellant was unaware of the obligations regarding obtaining of TDS number, payment of taxes and filing annual return in Form No. 26A. However, it was submitted that the appellant had paid taxes in time and therefore, the default in not furnishing annual return in Form No. 26A should be condoned. It was also stated that the mistake was inadvertent and there was no mala fide intention in not submitting the annual return in Form No. 26A in time. As regards the quantum of penalty, amendment made by Finance (No. 2) Act, 1991 with effect from 1-10-1991 inserting proviso to section 272A(2) restricting the penalty to the amount of tax deductible or collectible at source has been brought to the notice of the CIT(A). 8. The CIT(A) rejected the plea of ignorance of law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the impression that section 285A was not attracted in his case. Reliance was placed on the order of the Tribunal, E-Bench, Delhi in the case of Northern (India) Tiles Corpn. v. LAC [1992] 42 ITD 464. It was also contended that the measure of penalty vis-a-vis the quantum deducted at source is confiscatory in nature and in this connection, he referred to the order of the CIT(A)-I, Pune dated 10-1-1992 in the case of K. G. Consultants, Pune dated 10-1-1 992 appearing in pages 7 to 13 of the common compilation wherein in similar circumstances and taking into account the fact that there was no pecuniary loss to the Government, he restricted the penalty to Rs. 200 and condoning the delay for the rest of the period. He also referred to page 25 of the common compilation where in the case of Deccan Real Estate P. Ltd. Pune, the Dy. CIT (Admn.), Pune by his order dated 16-7-1991 dropped the penalty proceedings under section 272A(2) for the assessment years 1987-88 and 1988-89. He also referred to the decision in the case of New Roshan Talkies v. Third ITO [1979] 8 TTJ. (Bom.) 481 wherein tax was deducted and paid in time and the plea of accountant's illness for the delay in filing retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he annual return under section 206 of the Income-tax Act, 1961. He referred to a show cause reply given by the assessee to the Dy. CIT (Admn.) and to the CIT (A) where in similar plea was taken by the assessee. Reference is also made to the amendment made to section 272A(2) by the Finance (No. 2) Act, 1991 with effect from 1-10-1991 restricting the penalty to the tax deducted at source. In particular, the plea of ignorance of law was reiterated before the Dy. CIT (Admn.) as seen from page 2 of the compilation filed. Similar plea was taken in another correspondence addressed to the Dy. CIT (Admn.) at page 3 of the compilation. Based on the aforesaid pleas taken by the assessee before the authorities, the learned counsel for the assessee vehemently contended that section 272A is not est. Inadvertent mistake on the part of the assessee which is a new case is reasonable cause for the delay in filing annual return. TDS payment in time amounted to reasonable cause. The quantum of penalty could not be more than tax deducted at source. The amendment made by the Finance (No. 2) Act 1991 exposes the intention of the Legislature. The Dy. CIT (Admn.) levied penalty for the entire default of 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at it is well recognised that such declaratory legislation is retrospective in the sense that it serves to clarify the meaning from the inception of the statute. He also referred to the decision of the Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji AIR 1987 SC 1353 wherein it has been held that the Court is not to legalise the illegal. In these circumstances, he vehemently urged that the penalty levied by the Dy. CIT (Admn.) and confirmed by the CIT(A) should be deleted or limited to the TDS. 12. Shri S.C. Shah, learned counsel for the assessee arguing the case of Siddivinayak Foods P. Ltd. submitted that this was the first year of business. TDS was paid within time and the penalty levied is exorbitant. He pointed out that the annual return is required to be filed under section 206 in April while TDS can be paid within two months of the expiration of the month in which the date or the credit for payment falls. He also pointed out that there were disputes between the directors and some of them resigned and some of them were removed and the auditor also resigned and thereafter annual return was filed, vide paper compilation filed pages 20 to 22. He also poi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a). 14. Coming to the arguments advanced by other counsels, he submitted that there could be no doubt about the fact that TDS was paid in time. He pointed out that if the contention of the learned counsels for the appellants that there was only a technical breach or a venial breach, if accepted as such, then section 272A would become redundant. His point was that provisions are on the statute book though there may be draconian and therefore, they are required to be implemented. He referred to the decision of the Supreme Court in the case of Gujarat Travancore Agency for the proposition that penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws. He pointed out that the judgment of the Supreme Court in the case of Hindustan Steel Ltd. dealt with the Orissa Sales Tax Act and quasi-criminal proceedings. His point was that the judgment of the Supreme Court in the case of Gujarat Travancore Agency also applies to section 272A which falls in Chapter XXI of the Income-tax Act, 1961. Therefore, he vehemently ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prospectively and not retrospectively. The Circular of the CBDT on Finance (No. 2) Act, 1991 has been relied on. He further submitted that Article 20 of the Constitution is not applicable to fiscal laws and penalty is a civil liability though penal in character. For all these reasons, he vehemently contended that the penalties were warranted and the CIT(A) was quite justified in confirming the same. 15. In reply, it was submitted by Dr. R.L. Bhutani that penalty be calculated from 1st July as conceded by the learned departmental representative. He reiterated the plea of ignorance of law and when the assessee came to know about the obligation, it filed the annual return. The TDS return filed in time was reasonable cause in view of the fact that hardship is caused to the assessee, amendment was made by the Finance (No. 2) Act, 1991 and therefore, that proviso was declaratory of the exposition of law and therefore, retrospective in nature. 16. Shri V.G. Bhide, learned counsel for the Talera group of assessees submitted that the department itself had not issued penalty notices for long time but started levying penalty which permitted the assessee to entertain the plea of ignorance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In other cases where TAN was not allotted, the returns were filed belatedly in October 1990 so far as other Talera group of cases is concerned. Thus, there is default in the matter of filing annual return by Talera group of cases. Similarly in the case of Rajkamal Constructions, TAN was applied for on 12-6-1990 but it was not allotted yet till the assessee filed annual return on 6-2-1991. In the case of Siddivinayak Foods P. Ltd. the assessee deducted tax in time and paid to the credit of the Government in time. The annual returns filed one on (sic) for asst. year 1989-90 and another on (sic) for asst. year (sic) long after revised certificate form (sic) came into force (sic) indicating annual return under section 206 is also to be delivered to the Assessing Officer. In reply dated 3-1-1990 to the show-cause notice the assessee stated that " at most could be a technical (sic) of the rule (sic) ". Thus, there is also clear default in respect of the aforesaid two concerns. 21. Now we shall consider whether the plea of ignorance of provisions of law could have been entertained by the assessee or not. Here, we want to preface our order with the remark given by the Dy. CIT (Admn.) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said to have been ignorant of the provisions requiring filing of annual returns under section 206. Even the amended Form No. 16, though it came into force from 1-4-1969, the assessees could not have become aware of such rules, unless it is brought to their notice by the concerned counsels or Chartered Accountants. In this view of the matter, therefore, the contention of the learned departmental representative that the deduction of tax and payment of tax and filing of returns under section 206 are the obverse and converse of the same coin is not acceptable, in view of the reality of the situation stated above, a fact which has been duly taken note of by the Dy. CIT (Admn.). The learned departmental representative has also not disputed the observation of their Lordships of the Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. at page 339 which has been abstracted supra. In this view of the matter, in the case of Motisagar Estate P. Ltd. for assessment year 1988-89, Meru Real Estate P. Ltd. for assessment year 1988-89, Machan Real Estate P. Ltd. for assessment year 1988-89, Talera Investment P. Ltd. for assessment year 1988-89 and Pandav Hotel P. Ltd. for assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the concession given by the learned departmental representative that penalty is to be computed from 1st of July, 1990, we direct that penalty in this case also is to be computed from 1st of July, 1990 for the sake of equity. 24. From the paper compilation filed in the case of Pandav Hotel P. Ltd. it is seen that the Dy. CIT (TDS) has dropped penalty proceedings taken under section 272A(2) for the assessment years 1987-88 and 1988-89 in the cases of Laukik Real Estates (P.) Ltd., Deccan Real Estate (P.) Ltd. and Bageecha Hotel (P.) Ltd. The Income-tax Appellate Tribunal in the case of New Roshan Talkies held that when full amount of tax has been paid within the time allowed and further accountant was ill at the relevant time it amounted to reasonable cause and therefore, penalty under section 272A(2) was not eligible. 25. Having condoned reasonable period of delay in filing of the annual return under section 206 as specified above, we shall now consider the quantum of penalty. We have recorded the vehement contentions urged on behalf of the appellants and equally so by the department. The proviso to section 272A(2) was inserted by the Finance (No. 2) Act, 1991 with effect f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 43B inserted by the Finance Act, 1987 was enacted in order to suppress the mischief and for the purpose of giving relief to an assessee who is not an unscrupulous dealer. Under the law as amended, if an assessee has paid sales-tax, additional sales-tax, central sales-tax etc. on or before the due date applicable in his case for furnishing his return of income under section 139(1) of the Income-tax Act, he shall be entitled to claim deduction of that amount. It is for this reason the amendment was held to be explanatory in nature and proviso to section 43B was held to be retrospective in its operation and Explanation 2 to section 43B inserted by Finance Act, 1989 with retrospective effect from 1-4-1984 is subject to proviso inserted by the Finance Act, 1987. In other words, rule of reasonable construction was followed and literal construction was avoided if that defeats the manifest object and purport of the Act. 26. The Supreme Court has considered the scope of Explanation 2 inserted by the Finance Act, 1979 in section 64(2) in the case of P. Doraiswamy Chetty and held at page 160 Head Notes that the assessee was entitled to carry forward to subsequent years not only his share ..... X X X X Extracts X X X X X X X X Extracts X X X X
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