High Court Of Gujarat
Patan Nagrik Sahakari Bank Ltd. vs. Director of Income-tax (CIB)
Assessment Year : 2008-09
Section : 271FA
Ms. Harsha Devani And H.B. Antani, JJ.
S.C. Appl. No. 14676 Of 2010
March 4, 2011
JUDGMENT
Ms. Harsha Devani, J. – By this petition under article 226 of the Constitution of India, the petitioner has challenged the order dated September 9, 2010, passed by the Director of Income-tax (CIB), Ahmedabad, under section 271FA of the Income-tax Act, 1961 (the Act), imposing penalty of Rs. 40,700 (Rs. 100 for each day of the default for the delay of 407 days) in filing annual information return under the Act.
2. The facts as appearing in the petition are that the petitioner is engaged in banking business as a co-operative bank at Patan. In relation to the financial year 2006-07, the petitioner received a notice dated March 15, 2010, from the Director of Income-tax (CIB) (the respondent herein) under section 271FA of the Act stating that the petitioner had, without any cause, failed to furnish annual information return (AIR) as required under sub-section (1) of section 285BA of the Act within the prescribed time limit and asking the petitioner to show cause as to why an order imposing penalty under section 271FA of the Act should not be made. The petitioner gave its reply by a letter dated April 9, 2009, stating that the petitioner was a small co-operative bank situated in a mofussil area and did not have the assistance of chartered accountants for tax matters, it had inadequate and untrained staff not conversant with the legal provisions as well as the use of computers, etc. It was further the case of the petitioner that section 285BA had come into operation for the first time in the financial year 2005-06 and was relatively a new provision for the financial year in question. Since the co-operative banks were exempt from income-tax under the provisions of section 80P(2)(a)(i) up to the assessment year 2006-07, the petitioner was not aware of other provisions like section 285BA of the Act with regard to the filing of annual information return. The petitioner was under the general impression that co-operative banks were not subject to the provisions of the Act at all and under the said belief, the petitioner could not comply with the provisions of section 285BA of the Act for filing the annual information return. It was also stated that the number of transactions for the year were substantial, viz., as many as 296 and the same had to be traced out from the records of the bank, which had taken time. According to the petitioner, under the provisions of section 273B of the Act, no penalty under section 271FA can be imposed on a person for the failure under section 285BA if he proves that there was a reasonable cause for the said failure. That the petitioner was prevented by sufficient cause in complying with the provisions of section 285BA and, therefore, no penalty could be levied. It was also contended that no loss of revenue had been caused on account of the late furnishing of the information under section 285BA of the Act.
3. The show-cause notice culminated into the impugned order dated September 9, 2010, imposing penalty of Rs. 40,700 at the rate of Rs. 100 a day for the delay of 407 days in filing the annual information return under section 271FA of the Act. Being aggrieved, the petitioner has filed the present petition challenging the said order.
4. Assailing the impugned order, Mr. J. P. Shah, learned advocate, submitted that the petitioner has been able to prove that there was reasonable cause for the failure referred to in section 271FA of the Act and as such in the light of the provisions of section 273B of the Act, the respondent was not justified in imposing penalty under section 271FA of the Act. It was submitted that the petitioner is a small bank operating in a mofussil area and does not have requisite staff or efficient staff like scheduled banks and it is very poor when it comes to modern equipment like computer, etc. Moreover, uptill the assessment year 2006-07, the petitioner bank had no income-tax liability and as such, was under the impression that the provisions of the Income-tax Act do not apply to the bank. It was submitted that the petitioner had absolutely no intention of defying or contravening the provisions of law. Inviting attention to Instruction No. 1 of 2009, dated February 12, 2009, of the Circular issued by the Central Board of Direct Taxes, it was pointed out that as per the said circular, it is apparent that the Income-tax Department had no manner of use of all the annual information returns filed up to the financial year 2006-07. It was submitted that considering the aforesaid facts, the levy of penalty was not justified. In support of his submission the learned advocate placed reliance upon the decision of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC), for the proposition that 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 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. It was, accordingly, submitted that the breach in question is technical and venial and not at all intended or deliberate. That there was reasonable cause on the part of the petitioner in not having filed the annual information return in time and as such, no penalty ought to have been imposed on the petitioner bank.
5. Referring to the impugned order which indicates that the Department, after noticing the default for the financial year 2007-08, had issued notice under section 285BA(5) of the Act on December 17, 2008, for that year, the petitioner had ignored its statutory obligation and that again a reminder notice was issued on September 11, 2009, for the financial year 2007-08 and that it was only after the second notice that the petitioner ultimately filed its return for the assessment year in question, it was submitted that it was only when the second notice was issued that the petitioner realized the seriousness of the matter and immediately took steps for filing the annual information return. Inviting attention to the facts in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC), it was pointed out that Hindustan Steel Ltd. is a big company having the best brains and chartered accountants at its disposal despite which, the said company had acted under a belief that it was not required to be registered as a dealer under the Orissa Sales Tax Act. It was submitted that in the circumstances, the petitioner which is a small bank in a mofussil area, without having the aid of chartered accountants, would be entitled to hold a bona fide belief that it was not liable to take any action under the Income-tax Act. It was, accordingly, urged that the petitioner was prevented by sufficient cause from complying with the provisions of section 285BA of the Act and as such, penalty levied on the petitioner is required to be set aside.
6. The petition was vehemently resisted by Mr. M. R. Bhatt, learned senior advocate appearing on behalf of the respondent. Inviting attention to the impugned order, it was submitted that initially for the year under consideration, the petitioner had not filed the annual information return. That after noticing the default for the financial year 2007-08, the Department had issued notice under section 285BA(5) of the Act despite which, the petitioner did not comply with the statutory requirement. It was only after the second notice was issued on September 11, 2009, that the petitioner has filed the annual information return. In the circumstances, the petitioner has consciously disregarded its statutory obligation and as such, the respondent was justified in imposing the penalty. It was submitted that on the one hand, the petitioner contends that it is a small bank situated in a mofussil area, whereas in the same breath, the petitioner contends that for the year under consideration, the number of transactions were substantial which by itself, is a contradiction. According to the learned counsel, the provisions of section 285BA of the Act have been brought on the statute book in order to provide a mechanism whereby the flow of information regarding the material financial transactions entered by a taxpayer with other persons is automatic so that the same can be utilized for widening and deepening of the tax base. As the petitioner admittedly did not provide timely information, the remedial action also could not be taken. It is in this context that the petitioner’s assertion that there was no loss in the revenue, pales into insignificance. It was urged that under the circumstances, the respondent has properly exercised his discretion and that there is no jurisdictional error on the part of the respondent. It was submitted that the respondent authority had laid a foundation of facts justifying the imposition of penalty and as such in the absence of any error in the findings recorded by the respondent, there is no warrant for exercise of discretionary powers under article 226 of the Constitution of India, as it would amount to replacing the satisfaction of the officer by the court. As regards the contention that it was only after the second notice was issued that the petitioner realized the seriousness of the matter, it was submitted that the petitioner had slept over the first notice for a considerable period of time and as such, the aspect of bona fide belief disappears.
7. As regards the decision of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26 (SC), on which reliance has been placed by the petitioner, it was submitted that in the facts of the said case, the court had found that in relation to the issue involved therein, adjudication was necessary and as such, the assessee in the said case was entitled to entertain a bona fide belief. Whereas in the facts of the present case, no adjudication is necessary and there is plain and simple statutory liability imposed on the petitioner, which it has failed to discharge within a prescribed period of limitation and even thereafter. It was submitted that in the circumstances, there being no breach of any statutory provisions or any jurisdictional error or breach of the principles of natural justice on the part of the respondent, no intervention is warranted by this court in exercise of its writ jurisdiction under article 226 of the Constitution of India.
8. Section 285BA of the Act imposes an obligation upon any person, being an assessee, who is responsible for registering or maintaining books of account or other documents containing a record of any specified financial transaction, under any law for the time being in force, to furnish an annual information return, in respect of such specified financial transaction which is registered or recorded by him during any financial year beginning on or after the April 1, 2004, and information relating to which is relevant and required for the purposes of the Act to the prescribed income-tax authority or such other authority or agency as may be prescribed. Such annual information report is required to be furnished within the prescribed time after the end of the financial year. Sub-section (5) of section 285BA of the Act lays down that where a person who is required to furnish an annual information return under sub-section (1) has not furnished the same within the prescribed time, the prescribed income-tax authority may serve upon such person a notice requiring him to furnish such return within a period not exceeding sixty days from the date of service of such notice and he shall furnish the annual information return within the time specified in the notice.
9. In the facts of the present case, it is an undisputed position that in view of the provisions of section 285BA of the Act the petitioner was required to file annual information return in relation to the financial year 2006-07 on or before August 31, 2007, and that the petitioner had failed to comply with the said statutory requirement. The Department after noticing the default for the financial year 2007-08, issued notice under section 285BA(5) of the Act on December 17, 2008, in relation to that year. However, despite the said notice, the petitioner did not comply with the same. The Department, therefore, once again issued a notice on September 11, 2009, for the financial year 2007-08 and it was only thereafter that the petitioner became serious and filed the returns for the financial year 2006-07 along with the financial year 2007-08 on October 12, 2009. Thus, admittedly, the annual information returns had been filed beyond the prescribed period of limitation. It is in the aforesaid circumstances, the penalty proceedings came to be initiated against the petitioner which culminated into the impugned order whereby, the penalty as aforesaid came to be levied on the petitioner.
10. According to the petitioner, in the light of the provisions of section 273B of the Act, the petitioner had made out a reasonable cause for not filing the annual information returns within the prescribed period of limitation and as such the penalty under section 271FA should not have been imposed. The case of the petitioner is that the petitioner bank being situated in a mofussil area and otherwise exempt from income-tax under the provisions of section 80P(2)(a)(i) of the Act, uptill 2006-07 and not having the aid of chartered accountants was not aware of the provisions of section 285BA of the Act and as such could not file the annual information returns within the prescribed period. In the light of the explanation submitted by the petitioner, it would be reasonable to believe that the petitioner was not aware of the provisions of section 285BA of the Act which were brought on the statute book in the present form with effect from April 1, 2005. However, in case where a person who is required to furnish an annual information return under sub-section (1) of section 285BA of the Act does not furnish the same within the prescribed time, sub-section (5) thereof lays down that the prescribed income-tax authority may serve upon such person a notice requiring him to furnish such return within a period not exceeding sixty days from the date of service of such notice and mandates such person to furnish the annual information return within the time specified in the notice. In the present case, the prescribed Income-tax Officer, after noticing the default in filing annual information return for the financial year 2007-08, issued notice under section 285BA(5) of the Act to the petitioner dated December 17, 2008, for that year. Upon such notice being served, the petitioner can no longer plead that it was unaware of the statutory provisions or its obligations under the same. However, even thereafter, the petitioner did not comply with the requirements of section 285BA by filing the annual information return. It was only when a second notice was issued on September 11, 2009, that the petitioner came out of its inertia and filed the annual information return. Thus, even if it is assumed that for the reasons stated above, the petitioner was not aware of its statutory obligation under section 285BA of the Act, but once the Department had issued notice under section 285BA(5) of the Act on December 17, 2008, it is thereafter not open for the petitioner to take the defence that it was not aware of its statutory obligation. Once the petitioner was made aware of its statutory obligation, the petitioner was required to file the annual information return within sixty days from the date of service of the notice under section 285BA(5) of the Act. However, it is apparent that the petitioner in conscious disregard to its statutory obligation, still did not file the annual information return and it was only after the second notice was issued, that the petitioner filed the same within a period of one month thereafter. Thus, for the period after service of the notice under section 285BA(5) of the Act, it cannot be said that the petitioner had any reasonable cause for not filing the annual information return within a period of sixty days of service of the said notice.
11. One of the contentions raised on behalf of the petitioner is that the number of transactions being substantial, the same had to be traced out from the records of the bank which had taken time. Examining this contention in the light of the facts noted hereinabove, it is the case of the petitioner that till September 11, 2009, when the second notice was issued, it did not realize the seriousness of the matter and it was only thereafter that it took steps for furnishing the annual information return. The record of the case indicates that such annual information return came to be furnished within a month from the issuance of the second notice, which by itself falsifies the case of the petitioner that there being substantial number of transactions, it took sometime to gather the information.
12. As regards the contention that in any case, the Revenue had no use for the annual information returns of the financial year 2006-07, when there is a statutory obligation on the assessee to furnish annual information return, it is bound by it. How and in what manner the income-tax authorities make use of the said information is not the look out of the petitioner. The petitioner is bound to comply with the statutory requirements as prescribed, failing which it has to face the consequences of such failure. Besides, as rightly contended on behalf of the Revenue, on account of not providing information in time, the Revenue was not in a position to take remedial action.
13. However, notwithstanding the aforesaid position, it cannot be gainsaid that the petitioner is engaged in the banking business, as a co-operative bank. It is not disputed by the respondent that the petitioner was exempt from payment of income-tax under the provisions of section 80P(2)(a)(i) uptill the assessment year 2006-07. In the circumstances, it would be quite natural that the petitioner may not have been aware of the provisions of section 285BA of the Act initially. Moreover, sub-section (5) of section 285BA lays down that where a person who is required to furnish annual information return, under sub-section (1) thereof, has not furnished the same within the prescribed time, the prescribed income-tax authority may serve upon such person a notice requiring him to furnish such return within a period not exceeding sixty days. It is an admitted position that in so far as the financial year 2006-07 is concerned, no notice under sub-section (5) of section 285BA of the Act had been issued by the prescribed income-tax authority. In the circumstances, the attention of the petitioner was not drawn to the provisions of section 285BA of the Act at the relevant time. However, once notice dated December 17, 2008, had been issued in relation to the financial year 2007-08, bringing to the notice of the petitioner the provisions of section 285BA of the Act and its statutory liability of filing the annual information return, it would, thereafter, not be open for the petitioner to plead ignorance of the provisions of the Act. In the circumstances, with effect from the date of service of notice dated December 17, 2008, under section 285BA(5) of the Act the petitioner was not entitled to entertain any bona fide belief or to plead ignorance about the provisions of section 285BA of the Act.
14. On behalf of the respondent, it has been contended that once the attention of the petitioner had been drawn to its statutory obligation, despite which the petitioner continued to ignore its statutory duty, the bona fide belief disappears and the petitioner would not be entitled to any leniency under the provisions of the Act. However, merely because the petitioner has not immediately taken steps after the issuance of the first notice on December 17, 2008, it cannot be said that the reasonable cause made out by the petitioner in respect of the period prior thereto should not be taken into consideration while considering the quantum of penalty to be imposed under section 271FA of the Act. However, with effect from the date of service of the notice dated December 17, 2008, issued under section 285BA(5) of the Act, any default on the part of the petitioner would be viewed as a conscious disregard of its statutory obligation and as such, in respect of the period subsequent thereto, the petitioner would not be entitled to the benefit of the provisions of section 273B of the Act. This view finds support in the decision of this court in the case of CIT v. Kanubhai Muljibhai Patel [2008] 306 ITR 179 (Guj) on which reliance has been placed on behalf of the petitioner. In the facts of the said case, the Tribunal had accepted the existence of reasonable cause for a part of the period of delay while rejecting the explanation for another part. The court held that existence or otherwise of a reasonable cause would always be dependent upon facts. It was further held that though penalty may be imposable, in a given set of circumstances and facts, whether penalty should be actually levied, and if yes, for what period, will have to be determined on the basis of reasonable cause. In the circumstances, the petitioner is entitled to partial relief by way of deletion of penalty till the date of service of notice dated December 17, 2008, under section 285BA(5) of the Act. However, for the remaining period, no reasonable cause as envisaged under section 273B of the Act can be said to be in existence for non-compliance with the statutory provisions.
15. For the foregoing reasons, the petition succeeds in part and is, accordingly, allowed to the following extent. The impugned order dated September 9, 2010, passed by the respondent is modified to the extent that there was a reasonable cause for the assessee in not complying with the statutory provisions of section 285BA of the Act till the date of service of the notice dated December 17, 2008. The penalty shall, therefore, be calculated at the rate of Rs. 100 for each day of default, starting from the date of service of notice dated December 17, 2008, issued under section 285BA(5) of the Act. The matter is, accordingly, remitted to the respondent for computing the penalty in the aforesaid terms.
16. Rule is made absolute accordingly, to the aforesaid extent with no order as to costs.
[Citation : 338 ITR 167]
