High Court Of Allahabad
Bhola Nath Carpets (P) Ltd. vs. CIT
Section 271B, 275(1)(b)
Asst. Year 1986-87
R.K. Agrawal & Bharati Sapru, JJ.
IT Ref. No. 55 of 1999
13th July, 2007
Counsel Appeared :
Shakeel Ahmad, for the Assessee : Shambhu Chopra, for the Revenue
JUDGMENT
R.K. Agrawal, J. :
The Tribunal, Allahabad, has referred the following question of law under s. 256(2) of the IT Act, 1961, hereinafter referred to as ‘the Act’, for opinion to this Court :
“Whether on the facts and in the circumstances the Tribunal was justified in law in holding that the penalty imposed under s. 271B on 23rd Oct., 1990, was not barred by limitation in view of the provisions of s. 275 of IT Act ?”
2. The present reference relates to the asst. yr. 1986-87 in respect of the penalty imposed under s. 271B of the Act. Briefly stated the facts giving rise to the present reference are as follows. The applicant is a private limited company engaged in the business of carpet, etc. Its accounts are required to be audited by a chartered accountant under s. 44AB of the Act. For the asst. yr. 1986-87, for which previous year of the applicant ended on 31st March, 1986, the applicant was required to get its accounts audited and to obtain the audit report by 31st July, 1986. The audit report was, however, obtained on 10th Sept., 1986 and was filed along with the return of income on 22nd Oct., 1986. The assessment for the asst. yr. 1986-87 was completed on 30th March, 1988 vide order under the provisions of s. 143 (3) of the Act. In the assessment order there was no mention of the initiation of penalty proceedings under s. 271B of the Act. It was initiated by issuance of a show-cause notice dt. 16th Jan., 1989. The explanation given by the applicant was not found to be satisfactory by the assessing authority and vide order dt. 23rd Oct., 1990 a penalty of Rs. 95,007 was imposed under s. 271B of the Act. Feeling aggrieved the applicant preferred an appeal before the CIT(A), Varanasi who vide order dt. 15th Jan., 1993 had confirmed the penalty. Still feeling aggrieved the applicant preferred a further appeal before the Tribunal. The Tribunal has dismissed the appeal.
We have heard Sri Shakeel Ahmad, learned counsel appearing for the applicant and Sri Shambhu Chopra, learned standing counsel appearing for the Revenue. Sri Shakeel Ahmad, learned counsel for the applicant, submitted that the order of penalty was barred by limitation as provided under s. 275 of the Act. The show-cause notice had not been issued before completion of the assessment proceedings and no such satisfaction was recorded in the assessment order, therefore, the levy of penalty was not justified. In support of his aforesaid plea he has relied upon the following decisions : CIT vs. Bankey Lal Hira Lal (1973) 92 ITR 587 (All); Addl. CIT vs. K.S.G. Panicker, Kerala Produce Exporting Co. (1974) 97 ITR 525 (Ker); Shanbhag Restaurant vs. Dy. CIT (2004) 186 CTR (Kar) 318 : (2004) 266 ITR 393 (Kar).
5. Sri Shambhu Chopra, learned standing counsel for the Revenue, on the other hand submitted that there is no requirement to record satisfaction in the course of the assessment proceedings while initiating the proceedings under s. 271B of the Act. Further, this penalty order is not barred by limitation. He has relied upon the following decisions : Shakti Offset Works vs. Inspecting Asstt. CIT (1967) 64 ITR 637 (Bom); K.N.K. Reddy vs. CIT (1974) 97 ITR 450 (Mysore); Shanbhag Restaurant vs. Dy. CIT (2004) 186 CTR (Kar) 318 : (2004) 266 ITR 393 (Kar); Ram Chandra Aggarwal & Anr. vs. State of Uttar Pradesh & Anr. AIR 1966 SC 1888; Babu Lal vs. Hazari Lal Kishori Lal & Ors. (1982) 1 SCC 525. We have given our anxious consideration to the various pleas raised by the learned counsel for the parties. The facts are not in dispute. We may mention here that the question of recording satisfaction in the assessment proceedings before initiating the penalty proceedings has not been referred, therefore, we refrain from deciding the said issue. Sec. 275 of the Act places bar of limitation for imposing penalties. Prior to its amendment by Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989, it read as follows :
“Sec. 275. 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 Dy. CIT(A) under s. 246 or an appeal to the Tribunal under sub-s. (2) of s. 253, after the expiration of a period of— (i) two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or (ii) six months from the end of the month in which the order of the Dy. CIT(A) or the CIT(A) or, as the case may be, the Tribunal is received by the Chief CIT or CIT, whichever period expires later; (b) in any other case, after the expiration of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. Explanation.—In computing the period of limitation for the purpose of this section,— (i) the time taken in giving an opportunity to the assessee to be reheard under the proviso to s. 129; (ii) any period during which the immunity granted under s. 245H remained in force; and (iii) any period during which a proceeding under this Chapter for the levy of penalty is stayed by an order or injunction of any Court, shall be excluded.”
The amendment made by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989 would not be applicable in the present case in view of the specific provisions contained in sub-s. (2) of s. 275 of the Act as it stood before the amendment made by the Director Tax Laws (Amendment) Act, 1987 as the penalty proceedings have been initiated on 16th Jan., 1989. Under s. 271B of the Act penalty is leviable if any person fails to get his accounts audited in respect of any previous year relevant to an assessment year as required under s. 44AB of the Act. Sec. 44AB of the Act requires to get the accounts audited before a specified date. During the assessment year in question the specified date was 31st July, 1986. The audit report was, however obtained on 10th Sept., 1986. The assessment order was passed on 30th March, 1988. In the assessment order there is no mention of issuance of penalty notice under s. 271B of the Act. Unlike provisions of s. 271(1) there is no requirement under s. 271B of the Act that before initiating the penalty proceedings the assessing authority has to be satisfied that the provisions have not been complied with. Thus, the assessing authority can initiate penalty proceedings at any time when it comes to its notice that the assessee has contravened the provisions of s. 44AB of the Act. Clause (a) of s. 275(1) of the Act would not be applicable. The present case would fall under cl. (b) of s. 275(1) of the Act, which provides that no order imposing penalty shall be passed after expiration of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed.
10. In the case of Bharat Construction Co. vs. ITO (1999) 153 CTR (MP) 414, while considering the provisions of sub-cl. (b) of s. 275 of the Act before the Madhya Pradesh High Court the assessee has challenged this notice in the present petition on the ground that it was barred by limitation prescribed under s. 275(b) of the amended IT Act. It had held as follows :
“8. It remains to be seen whether proceedings under s. 271B were necessarily required to be initiated in the assessment proceedings of the relevant assessment year. But as it is, the default contemplated by s. 271A and s. 271B are separate and distinct. Under the latter provision if the assessee fails to get his accounts audited under s. 44AB, he is liable to penalty as laid down in this section. The object is to get a clear picture of assessee’s accounts whose turnover exceeds the prescribed limit. The rates envisaged two types of defaults are also different. Therefore, without dilating on the issue further we find no difficulty in holding that impugned second notice dt. 11th Sept., 1989 cannot be ascribed to the direction of AO for initiation of penalty proceedings in his assessment order dt. 30th May, 1986. Since it is not covered by that order, it should be treated initiating penalty proceedings under s. 271B from the date it was issued and this was not barred by time under s. 275(b). This shall not, however, be construed to validate this impugned notice for all purposes, should it be suffering from some other infirmity. But, it surely is not barred by time under s. 275(b) of the Act.”
11. In the case of Bankey Lal Hira Lal (supra), this Court has held as follows : “It is contended on behalf of the assessee that if regard be had to s. 275 it must be held that the notice under s. 274(1) should be issued in the course of the assessment proceeding. Sec. 275 prescribes the period of limitation for making a penalty order. The period is two years “from the date of completion of the proceedings in the course of which the proceedings for the imposition of penalty have been commenced”. Where there is an assessment proceeding, it is urged by the assessee, the necessary implication is that the penalty proceeding must be commenced before the assessment is concluded. In our opinion, the contention is without force. No such implication can be spelled out from s. 275. The section, in its essential content, is a provision prescribing the period of limitation for making a penalty order. It is not a provision prescribing the point of commencement of the penalty proceeding. It is concerned with the order which concludes the penalty proceedings. When it refers to the completion of the proceeding in the course of which the penalty proceeding is commenced, in substance it identifies the former proceeding for the purpose of defining the point of time from which the period of limitation for making the penalty order must be computed.”
12. In the case of K.S.G. Panicker, Kerala Produce Exporting Co. (supra), the Kerala High Court has held as follows :
“A reading of s. 275 alone leaves no doubt that an order of penalty must be passed within two years of the completion of the assessment proceedings. In the case in hand, therefore, the orders should have been passed before 3rd July, 1967, the assessment having been completed on 3rd July, 1965…” It was a case of imposition of penalty for late filing of return of income in which case the satisfaction has to be recorded in course of the assessment proceedings itself. It was not the case where the satisfaction is not required to be recorded in the course of the assessment proceedings but action can be taken independently of the assessment order.
13. In the case of Shanbhag Restaurant (supra), the Karnataka High Court was considering a case of cl. (c) of s. 275(1) of the Act and has held as follows : “…..The reading of s. 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 s. 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 25th Feb., 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….” We are not concerned herein with cl. (c) of sub-s. (1) of s. 275 of the Act. In the case of Shakti Offset Works (supra), the Bombay High Court has held that the date of completion of the assessment makes no difference nor has any impact either on incurring of the liability nor for imposition of penalty. In the case of K.N.K. Reddy (supra) while considering the case of levy of penalty under s. 271 (1)(c) of the Act, the Mysore High Court has held that the period of two years prescribed under s. 275 of the Act has to be computed from the date of completion of the assessment.
16. In the case of Ram Chandra Aggarwal (supra), the apex Court has held that expression ‘proceeding’ used under s. 24 of the CPC, 1908 is not a term of art which has acquired a definite meaning. The term ‘proceeding’ indicates something in which business is conducted according to a prescribed mode.
17. In the case of Babu Lal (supra) the apex Court has held as follows : “17. The word ‘proceeding’ is not defined in the Act. Shorter Oxford Dictionary defines it as ‘carrying on of an action at law, a legal action or process, any act done by authority of a Court of law; any step taken in a cause by either party’. The term ‘proceeding’ is a very comprehensive term and generally speaking means a prescribed course of action for enforcing a legal right. It is not a technical expression with a definite meaning attached to it, but one the ambit of whose meaning will be governed by the statute. It indicates a prescribed mode in which judicial business is conducted…”
18. In the present case we find that penalty proceedings were initiated on 16th Jan., 1989. In view of the decision of this Court in the case of Bankey Lal Hira Lal (supra) the limitation of the proceeding would start from 16th Jan., 1989 when the notice for imposing penalty had been issued. In the present case the penalty proceedings have been initiated on 16th Jan., 1989 and, therefore, the proceedings would be treated to have been started on 16th Jan., 1989 and two years period would come to an end of the same on 31st March, 1991. The penalty order has been passed on 23rd Oct., 1990, which is well within the limitation. We are in respectful agreement with the view taken by the Madhya Pradesh High Court in the case of Bharat Construction Co. (supra).
19. In view of the aforesaid discussions, we answer the question referred to us in the affirmative i.e. in favour of the Revenue and against the assessee. However, there shall not be any order as to costs.
[Citation : 299 ITR 413]
