High Court Of Karnataka
Shanbhag Restaurant vs. DCIT
Sections 275(1)(c)
Asst. Year 1991-92
P. Vishwanatha Shetty & Ajit J. Gunjal, JJ.
IT Appeal No. 152 of 2000
23rd October, 2003
Counsel Appeared
Kamath & Kamath, for the Appellant : E.R. Indra Kumar, for the Respondent
JUDGMENT
P. Vishwanatha Shetty, J. :
The assessee is the appellant in this appeal. In this appeal filed under s. 260A of the IT Act, 1961, (hereinafter referred to as the Act), the appellant has called in question the correctness of the order dt. 22nd Sept., 2000, a copy of which has been produced as Annex-A to this appeal made in ITA Nos. 941 and 943/Bang/1995 by the Income- tax Appellate Tribunal, Bangalore (hereinafter referred to as ‘the Tribunal’)
2. Facts of this case are very brief, which may be stated as hereunder : The appellant (hereinafter referred to as ‘the assessee’) is a partnership firm carrying on restaurant business. For the asst. yr. 1991-92 i.e., the year ending 31st March, 1991, the assessee filed its return of the income on 27th Aug., 1991, admitting the income of Rs.1,09,310 (Rupees one lakh nine thousand three hundred ten only). The said assessment was taken up for scrutiny by the AO and during the course of the scrutiny if was found that there was certain credit balances in the name of certain persons as seen from the balance sheet. The AO on verification of the accounts, by means of his assessment order dt. 25th Feb., 1994, held that the assessee had received loans and deposits in cash in contravention of the provisions of s. 269SS of the Act, and also he had made repayment of the loans and deposits received otherwise than by an account payee cheque or account payee bank draft, drawn on the names of the persons who had advanced the loan or made the deposits with the assessee and, therefore, a penalty is required to be levied on the assessee under ss. 271D and 271E of the Act for failure to comply with the provisions of ss. 269SS and 269T of the Act. However, lie observed that action for contravention of ss. 269SS and 269T of the Act would be taken up separately. Thereafter, the Dy. CIT, Hubli Range, Hubli, issued two notices dt. 8th June, 1994, the copies of which have been produced as Annex.-E and F to this appeal, to the assessee directing it to show cause as to why action should not be taken against it for contravening the provisions contained in ss. 269SS and 269T of the Act. In response to the said notices, the assessee filed its reply on 28th July, 1994, explaining the circumstances under which it took the loan and deposits otherwise than by way of account payee cheque or by way of account payee bank draft from several persons and also contending that in the circumstances explained by it, must be held that it had not contravened the provisions of s. 269SS of the Act. It also explained the circumstances under which the repayment of the loan and deposits were made otherwise than by way of account payee cheque or by way of account payee bank draft drawn on the names of the persons who had advanced loan or made a deposit with the assessee and as such it had not contravened the provisions of s. 269T of the Act, However, the Dy. CIT, after considering the explanation submitted by the assessee, made an order dt. 28th March, 1995, a copy of which has been produced as Annex.-C to this appeal, holding that the assessee had contravened the provisions of s. 269SS of the Act and levying a penalty of Rs. 2,79,312 (Rupees two lakhs seventy nine thousand three hundred twelve only) in exercise of the power conferred on him under s. 271D of the Act. On the same day, the Dy. CIT also made an order under s. 271E of the Act, a copy of which has been produced as Annex.-G to this appeal, taking the view that the assessee also had contravened the provisions of s. 269T of the Act and levying a penalty of Rs. 1,10,500 (Rupees one lakh ten thousand five hundred only). Aggrieved by the said orders Annex.-C and G, the assessee filed two appeals before the CIT(A) [hereinafter referred to as the CIT(A)’]. The CIT(A), after hearing the assessee, by means of his common orders dt. 31st Aug., 1995, the copies of which have been produced as Annex.-H and J to this appeal, allowed the appeal filed by the assessee setting aside the orders Annex.-C and G passed by the Dy. CIT on the ground that the proceedings were completed beyond six months from the date of initiation of the proceedings. Aggrieved by the said order, the Revenue had preferred appeals in Nos. 941 and 943 of 1995 before the Tribunal. However, the Tribunal, in the impugned order set aside the order passed by the CIT(A) on the ground that the conclusion reached by the CIT(A) that the order was required to be passed within six months from the end of the month in which the action for imposition of penalty initiated, is erroneous in law. The Tribunal, further took the view that the order imposing penalty having been passed on 28th March, 1995, and the financial year having expired on 31st March, 1995, the conclusion reached by the CIT(A) that the penalty levied both under ss. 27ID and 27IE is barred by time, is unsustainable in law.
3. Sri G. Sarangan, learned senior counsel, challenging the correctness of the impugned order passed by the Tribunal made three submissions. Firstly, he submitted that the reasons assigned by the Tribunal to take the view that the conclusion reached by the CIT(A) that the order was required to be passed within six months from the end of month in which the action for imposition of penalty initiated, is erroneous in law. Elaborating this submission, the learned counsel pointed out that since the proceedings for penalty were initiated by issue of notices Annex.-E and F dt. 8th June, 1994, the Dy. CIT was required to pass the order within six months from the end of June 1994 i.e., before 31st Dec., 1994, and, therefore, since admittedly the orders Annex.-C and G imposing penalty were passed only on 28th March, 1995, the conclusion reached by the CIT(A) was correct and, therefore, the Tribunal was totally unjustified in interfering against the said order. Secondly, as an alternative submission, Sri Sarangan submitted that the period of six months for completion of proceedings initiated, in the facts and circumstances of the case, must, be understood from the date of orders Annex.-C and G dt. 28th March, 1995, arid since admittedly the said orders Annex.C and G imposing penalty were not passed within six months from the said date, the said orders imposing penalty should be declared as illegal on the ground that they are passed beyond the period of limitation. Finally, he submitted, that in any event of the matter, the Tribunal ought to have accepted the explanation offered by the assessee for not accepting the loan and deposits otherwise than by way of account payee cheque or by way of account payee bank draft and also for repaying the said loan or deposits otherwise than by way of account payee cheque or account payee bank draft drawn in the name of the persons from whom the loans or deposits were received by the assessee, and dropped the proceedings initiated for levy of penalty. In this connection, he drew our attention to s. 273B of the Act wherein it is provided that notwithstanding anything contained in ss. 271D and 271E of the Act, no penalty should be imposed on the assessee for contravention of the said sections if the assessee proves that there was a reasonable cause for the failure in contravening the said provision. He also pointed out that since this contention has not been specifically formulated as a question of law at the time of admission of the appeal, this Court may, in exercise of the power conferred on it under sub-s. (6) of s. 260A of the Act, permit the assessee to urge the said contention.
4. However, Sri E.R. Indra Kumar, learned counsel for the respondent strongly supported the impugned order passed by the Tribunal. It is his submission that the conclusion reached by the CIT (A) being totally erroneous in law, the Tribunal was justified in interfering against the said order.
5. The substantial question of law raised for decision which was formulated by this Court at the time of admission of this appeal, reads as follows : “Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the penalty orders under ss. 271D and 271E had been passed within the period of limitation and whether the Tribunal was right in reversing the order of the CIT(A), who held that the penalty orders were passed after the expiry of the period of limitation specified in s. 275(1)(c) of the IT Act, 1961 ?”
6. Sec. 275 of the Act provides for a bar for imposing penalty as provided under Chapter XXI of the Act. In other words the said provision prescribes the period by which the order imposing the penalty is required to be passed. The said section reads as follows : “275(1)(c) in any other case, 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, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.”
7. As it could be seen from cl. (a) of s. 275(1), the said provision provides for a limitation in case where the relevant assessment or other order is the subject-matter of appeal before the higher authorities. Clause (b) of said section provides for limitation for making an order imposing penalty in cases where the relevant assessment or other order is the subject-matter of revision. However, cl. (c) of said section provides for contingencies in cases other than which fall under cl. (a) and (b) of s. 275(1) of the Act.
8. The answer to the substantial question of law formulated in this appeal, referred to above, depends upon the interpretation we are required to place on s. 275(1)(c) of the Act. 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 cl. (sic–s.) 275(1)(a) and (b) after the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. The second part relates to the cases which prohibits 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 is 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. In our considered view, the financial year in the first part of s. 275(1)(c) must, be understood as the financial year where the assessment order is made in the course of which proceedings for penalty could be initiated. In the present case, the assessment, order was made on 25th Feb., 1994. The financial year in respect of assessment order, as rightly found by the CIT(A), had expired on 31st March, 1994. Therefore, if the first part of s. 275(1)(c) is not. applicable, the only question is whether the order imposing penalty was passed within the period prescribed in the later portion of s. 275(1)(c), i.e., within six months from the end of the month in which action for imposition of penalty is initiated ?
9. The CIT(A), at paragraph 9 of the order has observed thus : “The instant case falls under Category-III. Thus, in accordance with the provisions of s. 275(1)(c) of IT Act, 1961, the period of limitation for the instant case was six months from the end of the month in which the action for imposition of penalty was initiated. The Dy. CIT initiated the action for imposition of penalty by issue of a show cause notice under s. 271D on 8th June, 1994. Thus, the penalty order under s. 271D should have been passed by 31st Dec., 1994. The Dy. CIT, however passed the penalty order in this case on 28th March, 1995. Thus, the penalty order passed by the Dy. CIT on 28th March, 1995, became barred by limitation. Thus, the order under s. 271D passed by the Dy. CIT was without jurisdiction and hence illegal and invalid The same is accordingly cancelled.”
We are of the considered view that the conclusion reached by the CIT(A) is unexceptionable. He has rightly come to the conclusion that, as the orders imposing the penalty were not passed within six months from the end of June 1994, the same are barred by limitation. On a proper construction of s. 275(1)(c) of the Act, we are of the view that in cases where the proceedings initiated falls under second part of s. 275(1)(c) of the Act, the order imposing the penalty is required to be passed within six months from the end of the month in which action for imposition of penalty is initiated. In the instant case, even according to Sri Indra Kumar, the action for imposition of penalty was initiated by issue of notices Annex.-E and F dt. 8th June, 1994, by the Dy. CIT. In that, event, the orders imposing the penalty should have been passed before 31st Dec., 1994, as the six months period from end of Jan.,1994, expires on 31st Dec., 1994. Therefore, as noticed by us earlier, the conclusion reached by the CIT(A) that the order passed imposing penalty is barred by limitation is correct. The contrary view taken by the Tribunal in the impugned order is erroneous and totally unsustainable in law.
In the light of the above conclusion, the order passed by the Tribunal is liable to be set aside. Therefore, we find it unnecessary to consider the other two submissions advanced by Sri Sarangan as noticed above.
In the light of what is stated above, the order Annex.-A dt. 22nd Sept., 2000, passed by the Tribunal is set aside and the orders Annex.-H and J dated 31st Aug., 1995, passed by the CIT(A) is hereby restored.
In terms stated above, this appeal is disposed of.
[Citation : 266 ITR 393]
