Delhi H.C : Whether, on the facts and in the circumstances of the case, was the Tribunal right in cancelling the penalty levied under s. 140A(3) ?

High Court Of Delhi

CIT vs. M.L. Narang & Anr.

Section 140A(3)

Asst. Year 1966-67

Arijit Pasayat, C.J. & D.K. Jain, J.

IT Ref. Nos. 10 & 11 of 1980

15th September, 2000

Counsel Appeared

R.D. Jolly with Ms. Premlata Bansal & Ajay Jha, for the Revenue : None, for the Assessee



Questions referred in these reference applications being identical, this judgment shall govern both of them. Pursuant to this Court’s directions in ITC Nos. 115 and 116 of 1976, under s. 256(2) of the IT Act, (in short “the Act”), in the Income-tax Appellate Tribunal Delhi Bench-D (in short “the Tribunal”) has referred the following question, in each case, pertaining to asst. yr. 1966-67, for opinion of this Court : “Whether, on the facts and in the circumstances of the case, was the Tribunal right in cancelling the penalty levied under s. 140A(3) ?”

2. Background facts, which are almost undisputed, are as follows : For the asst. yr. 1966-67, assessees, i.e., M.L. Narang and O.P. Narang, who were partners in the firm Narang & Co. submitted their returns of income. As admitted, income-tax in terms of s. 140A was not paid in each of the cases, notices were issued to the respective assessees to show cause why penal action as contemplated under s. 140A(3) should not be taken. The matter was adjourned from time to time at the request of the assessee and was posted on 16th Sept., 1970, 7th Oct., 1970 and12th Oct., 1970. On the last date, it was made clear that if no reply to the show-cause is submitted no further opportunity will be granted. Notwithstanding this clear indication, another opportunity was granted on 14th April, 1972 and 26th April, 1972, was fixed as the next date. On that date also there was an application for adjournment and the matter was adjourned to 28th April, 1972, with clear stipulation that if the amount of tax due under s. 140A has already been paid, proof thereof should be produced, otherwise is shall be presumed that the amount has not been paid. It was made clear that no further adjournment shall be allowed. However, on 28th April, 1972, there was another request for adjournment which was turned down and by order dt. 1st May, 1972, penalty was imposed. Matter was carried on in appeal before the Appellate Assistant Commissioner (in short “the AAC”). Though it was held by the AAC that penalty was leviable, direction was given to work out the tax payable and to reduce the quantum of penalty to 50 per cent of the tax payable, if calculations as given by the respective assessees were found to be correct. Matter was carried in further appeal by each of the assessees before the Tribunal. Referring to some other earlier decisions, the Tribunal was of the view that if on the date of imposition of penalty not tax was due, there is no scope for imposition of any penalty under s. 140A. It was noticed that tax in fact was paid on 29th April, 1972. Reference applications filed were turned down. But pursuant to directions given by this Court question as stated above has been referred for opinion.

We have heard the learned counsel for Revenue. There is no appearance for the assessee in spite of service of notices. Sec. 140A was inserted by s. 34 of the Finance Act, 1964. The section at the relevant time read as follows : “140A. Self-assessment.—(1) Where a return has been furnished under s. 139 and the tax payable on the basis of that return as reduced by any tax already paid under any provision of this Act exceeds five hundred rupees, the assessee shall pay the tax so payable within thirty days of furnishing the return. (2) After a provisional assessment under s. 141 or a regular assessment under s. 143 or s. 144 has been made, any amount paid under sub-s. (1) shall be deemed to have been paid towards the provisional assessment or regular assessment, as the case may be. (3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of sub-s. (1), he shall, unless a provisional assessment under s. 141 or a regular assessment under s. 143 or s. 144 has been made before the expiry of thirty days referred to in that sub-section, be liable, by way of penalty, to pay such amount as the ITO may direct, so, however, that the amount of penalty does not exceed fifty per cent of the amount of such tax or part, as the case may be : Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard.”

The requirement was to pay admitted tax within thirty days of furnishing the returns. Admittedly, for the asst. yr. 1966-67, admitted tax was not paid in terms of s. 140A. Return was filed in each case on 15th March, 1967, and tax under s. 140A became due on 14th April, 1967. Though levy of penalty is not automatic as fairly accepted by the learned counsel for Revenue, yet the assessee has to show as to what was the reason for not making the payment within the stipulated time. For this purpose, opportunity is granted to the assessee to place materials to substantiate reasons for delay in payment of admitted tax, if any. This is clear from proviso to s. 140A. Prior to amendment by the Taxation Laws (Amendment) Act, 1975 an assessee could file his return and then calculate the tax payable in accordance therewith. If he finds that such tax was in excess of Rs. 500, he was allowed to pay the same within thirty days of furnishing the return. The substitution made w.e.f. 1st April, 1976, operative till 31st March, 1989, required payment of tax before filing of return, as proof of payment of tax was required to be attached to the return itself. Payment of tax before the date on which penalty was levied per se does not constitute a reason not to levy penalty. The assessee is required to show reasonable cause as to why there was nonpayment within stipulated time.

In the instant case, the facts would go to show that several opportunities were granted to the assessees but they failed to indicate reasons for not paying the admitted tax during the stipulated time. In fact, after the last date of hearing tax is stated to have been paid. Merely because order imposing penalty was not passed on that date and between the last date of hearing and the date of order the tax was paid, that does not dilute the consequences flowing from non-compliance with the requirements of s. 140A.

The Tribunal was, therefore, not justified in its conclusion to hold that penalty was not imposable. That being the position, we answer the question referred in case in the negative, i.e., in favour of the Revenue and against the assessee.

[Citation : 247 ITR 718]

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