Patna H.C : Whether in the facts and in the circumstances of the case, failure to furnish certificate can be said to be venial or technical in nature and in case it is so, it invites penalty ?

High Court Of Patna

Veena Theater vs. CIT & ANR.

Section 203A, 272A(2)(g), 273B

Asst. Year 1997-98

Chandramauli Kr. Prasad & Dr. Ravi Ranjan, JJ.

Misc. Appeal No. 204 of 2002

22nd December, 2008

Counsel Appeared :

Ajay Kumar Rastogi, for the Appellant : Harshwardhan Prasad & Rishi Raj Sinha, for the Respondents

JUDGMENT

Chandramauli Kr. Prasad, J. :

The appellant, M/s Veena Theater, Patna, hereinafter referred to as “the assessee”, is a partnership firm. For the financial year 1997-98, it failed to file certificate in Form No. 16A as required under s. 203 of the Income-tax Act, for short “the Act”. The assessee filed the certificate on 24th Dec., 1998, whereas the last date for its filing was 30th of April, 1998. There being delay of 237 days in filing the certificate in the prescribed form, the AO issued notice to it under s. 272A of the Act, calling upon the assessee to explain as to why penalty be not imposed upon it. The assessee filed its show cause, inter alia, contending that during the period of filing return and issue of certificate, one of the creditors and family members of the ex partner filed criminal case against the existing and the managing partner and in the said criminal case, they were granted anticipatory bail by the Sessions Judge, Patna, by order dt. 6th Nov., 1998, and this delayed filing the certificate in the prescribed form by 30th of April, 1998. This did not find favour with the AO and he inflicted a penalty of Rs. 29,525 by order dt. 24th Feb., 1999. The assessee preferred appeal before the CIT (A), who reduced the penalty from Rs. 29,525 to Rs. 23,700 by order dt. 14th Nov., 2000, calculated at the rate of Rs. 100 per day for delay of 237 days.

The assessee thereafter filed appeal before the Patna Bench of the Income-tax Appellate Tribunal, hereinafter referred to as “the Tribunal”. It was contended before the Tribunal on behalf of the assessee that on account of dispute between a old partner and a creditor, a warrant of arrest was issued against its managing partner and on account thereof, he was unable to perform his day-to-day work. It was further pointed out that the managing partner was granted anticipatory bail by order dt. 6th Nov., 1998, and only thereafter, the certificate in the prescribed form was filed on 24th Dec., 1998.

The Tribunal did not accept the plea of the assessee and observed that reasonable cause for failure to file the required certificate in prescribed form within time stipulated was not shown. The relevant portion of the observation of the Tribunal in this regard reads as follows : “On the basis of a complaint, the magistrate took cognizance of the offence and proceeded against them. Order dt. 6th Nov., 1998, is reflective of the fact that in the month of November, 1998, Shri Sinha and Shri Singh were apprehending their arrest and detention on the orders of a judicial magistrate. It is not the case of the assessee that since April, 1998, and thereafter till the indulgence was granted by the Sessions Judge, working partners of the assessee-firm were apprehending their arrest in the aforesaid complaint case. Therefore, the reasons projected for delay in filing Form No. 16A nowhere stands on the standards of reasonable cause for failure to file the required information in the prescribed form, within the time stipulated.” (underlining, italicized in prints, mine)

4. It was also contended before the Tribunal that tax was not only deducted in time but was also deposited in the Government treasury within time. Accordingly, it was submitted that mere non-furnishing of the certificate in the prescribed form would not attract any penalty. This submission also did not find favour with the Tribunal.

5. The assessee thereafter has preferred this appeal under s. 260A of the Act. By order dt. 10th Oct., 2006, the appeal was admitted on the following substantial questions of law : “(i) Whether the Tribunal was justified in imposing the penalty under s. 272A(2)(g) of the IT Act in the peculiar facts and circumstances of the case when the assessee was prevented by sufficient cause ?”

6. Mr. Ajay Kumar Rastogi, appears on behalf of the appellant-assessee, whereas Mr. Harshwardhan Prasad, appears on behalf of the CIT-Revenue.

7. Sec. 272A (2)(g) of the Act, inter alia, provides for imposition of penalty of a sum of Rs. 100 for every day, if the assessee fails to furnish a certificate as required by s. 203 of the Act. Proviso (2) to s. 272(2) of the Act puts a limit to the amount of penalty. Sec. 272A(2)(g) and its proviso, which are relevant for the purpose, read as follows:

“272A. Penalty for failure to answer questions, sign statements, furnish information, returns or statements, allow inspection, etc.— (1) …. ‘ (2) If any person fails—… (g) to furnish a certificate as required by s. 203 or s. 206C; or he shall pay, by way of penalty, a sum of one hundred rupees for every day during which the failure continues : Provided that the amount of penalty for failures in relation to a declaration mentioned in s. 197A, a certificate as required by s. 203 and returns under s. 206 and s. 206C and statements under sub-s. (3) of s. 200 or the proviso to sub-s. (3) of s. 206C shall not exceed the amount of tax deductible or collectible, as the case may be.”

Mr. Rastogi draws our attention to the aforesaid provision and contends that the assessee having filed the certificate, it cannot be said that it has failed to furnish the same. This submission has been noted only to be rejected. Sec. 203 of the Act, inter alia, provides for issuance of certificate in the prescribed form within a period prescribed. Undisputedly, the last date for filing the certificate was 30th April, 1998, whereas it was filed on 24th Dec., 1998. Simply because the assessee had filed the certificate later on, it cannot be said that it has not failed to file the certificate. From the aforesaid fact, there is no escape from the conclusion that the assessee had failed to furnish the certificate in the prescribed form.

Mr. Rastogi, then submits that in view of the proviso to s. 272A(2) of the Act, the assessee having furnished the certificate, penalty ought not to have been inflicted. This submission also does not need any serious consideration and deserves to be rejected outright. The proviso relied on by the counsel has been quoted in the preceding para of the judgment and from a plain reading thereof, it is evident that it limits the amount of penalty and provides that the amount shall not exceed the amount of tax deductible or collectible. The proviso referred to above does not show that in case of late filing of the certificate, penalty shall not be inflicted.

Mr. Rastogi, then submits that the assessee was prevented in filing the certificate within the time prescribed by reasonable cause and as such, the penalty as provided under s. 272A(2)(g) of the Act ought not to have been levied. In this connection, our attention has been drawn to s. 273B of the Act, which provides conditions under which penalty may not be imposed. s. 273B of the Act reads as follows : “273B. Penalty not to be imposed in certain cases.—Notwithstanding anything contained in the provisions of cl. (b) of sub-s. (1) of s. 271, s. 271A, s. 271AA, s. 271B, s. 271BA, s. 271BB, s. 271C, s. 271CA, s. 271D, s. 271E, s. 271F, s. 271FA, s. 271FB, s. 271G, cl. (c) or cl. (d) of sub-s. (1) or sub-s. (2) of s. 272A, sub-s. (1) of s. 272AA or s. 272B or sub-s. (1) or sub-s. (1A) of s. 272BB or sub-s. (1) of s. 272BBB or cl. (b) of sub-s. (1) or cl. (b) or cl. (c) of sub-s. (2) of s. 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.”

11. From a plain reading of the aforesaid provision, it is evident that notwithstanding anything contained in sub-s. (2) of s. 272A of the Act, no penalty shall be imposable on the assessee for any failure on carrying out the obligation as contained therein, if it proves that there was reasonable cause for failure. However, the question in the present case is as to whether the cause shown by the assessee is a reasonable cause or not. The AO, the CIT(A) and the Tribunal have concurrently held that the assessee has not proved that there was reasonable cause for the failure. There is no reason, much less compelling reason to upset the aforesaid finding. As stated earlier, the assessee’s plea was that as warrant was issued against its managing partner, he became irregular in day-to-day work and, therefore, did not file the certificate within time stipulated. It is relevant here to state that a complaint petition was filed impleading the managing partner as accused and it was on 6th Nov., 1998, the Court passed the order for issuance of process for arrest of the managing partner and partners of the assessee. As observed earlier, the last date for filing of certificate was 30th April, 1998, and it is not the case of the assessee that from before till the anticipatory bail was granted to them by order dt. 6th Nov., 1998, they were apprehending arrest.

12. In my opinion, “reasonable cause” in s. 273B of the Act would mean cause which has nexus to the failure of the assessee to comply with the requirement of law.

13. In that view of the matter, I concur with the finding that the assessee was not prevented by reasonable cause for its failure to file the certificate. Accordingly, our answer to the substantial questions of law formulated is in the affirmative and it is held that the assessee was not prevented by reasonable cause and, therefore, the Tribunal was justified in affirming the penalty imposed under s. 272A(2)(g) of the Act.

14. It is relevant here to state that this appeal has been admitted for hearing only on the question of law formulated aforesaid, but Mr. Rastogi submits that another substantial question of law arises for our determination and the appeal be heard on such questions also. According to him, another substantial question of law which falls for determination is as follows :

“Whether in the facts and in the circumstances of the case, failure to furnish certificate can be said to be venial or technical in nature and in case it is so, it invites penalty ?”

15. Sec. 260A(4) of the Act, inter alia, provides for hearing the appeal only on a question of law so formulated but the proviso thereof preserves the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question. Being satisfied that the aforesaid substantial question of law though not formulated, requires to be heard, we have heard the counsel on the aforesaid substantial question of law.

16. Mr. Rastogi submits that penalty is not fit to be imposed as there is no deliberate laches on part of the assessee nor can his conduct be said to be contumacious. According to him, penalty shall not be leviable as failure to furnish the certificate can at best be termed to be venial or technical in nature. In support of the submission, reliance has been placed on a decision of the Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa (1970) 25 STC 211 : (1972) 83 ITR 26 (SC) and our attention has been drawn to the following passage from the said judgment (p. 29) : “Under the Act penalty may be imposed for failure to register as a dealer s. 9(1), r/w s. 25(1) (a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. 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. Those in charge of the affairs of the company in failing to register the company as a dealer acted in the honest and genuine belief that the company was not a dealer. Granting that they erred, no case for imposing penalty was made out.”

17. Reliance has also been made on a Division Bench judgment of this Court in the case of Indian Oil Corporation Ltd. vs. State of Bihar (2003) 3 PLJR 561 and our attention has been drawn to the following passage from para 19 of the said judgment, same reads as follows : “The law is well-settled that the order imposing penalty is quasi judicial in nature and it involves exercise of judicial discretion. It is not an order which has to be passed by the authority mechanically. It is equally well-settled that unless the party, under obligation to pay tax, has acted dishonestly, intentionally, in defiance of law or in conscious disregard of obligation and is guilty of conduct contumacious, the penalty ordinarily will not be imposed. Even in a case where minimum penalty is prescribed the authority is not debarred from exercising the judicial discretion and on consideration of fact it can come to the conclusion that no case for imposition of penalty is made out. However, such power is to be exercised, when there is a technical or venial breach of the provisions of the Act or where the breach was bone fide and not intentional. This question was considered by the apex Court in the case of Hindustan Steel Ltd. vs. State of Orissa (1970) 25 STC 211 : (1972) 83 ITR 26 (SC).” I do not find any substance in the submission of Mr. Rastogi and the decisions relied on are clearly distinguishable. It is not the case of the assessee that it is not liable to file certificate as required under s. 203 of the Act for any reason. Assessee has failed to file the certificate as required under law and the cause shown by him has not been found to be reasonable cause. In my opinion, the question of venial or technical nature of breach would arise in those cases where the assessee under a bona fide belief may consider that a particular act is not required to be done or the act required to be done has in fact done, but while doing so the defect of venial or technical nature has occurred. It is not the case of the assessee that under bona fide belief it thought it is not required to file the certificate and when it has not carried out its statutory obligation, there is no escape from the conclusion that it acted deliberately in defiance of law. In such circumstance, I am of the opinion that the assessee cannot escape from the liability to pay the penalty contending that its action in not submitting the certificate is venial or technical in nature. Now referring to the authority of the Supreme Court in the case of Hindustan Steel Ltd. (supra), same is clearly distinguishable. In this case, the Supreme Court on fact found that the assessee was under the bona fide belief that it was not a dealer and under such a belief failed to register itself a dealer under Sales-tax Act and in the background thereof it was observed that penalty shall not be leviable.

So far as the decision of this Court in the case of Indian Oil Corporation Ltd. (supra) is concerned, same is also distinguishable. In the said case, the question was as to whether the assessee was required to pay tax from the date of the judgment of the Supreme Court when it upheld the validity of the Act or coming into force of the Act. This Court considered the plea of the assessee in the said case and found that the belief of the assessee was bona fide and therefore it is not a fit case in which penalty deserves to be inflicted. This should be evident from the following passage from para 21 of the judgment, in which it has been observed as follows : “The facts have already been stated above. Whether it can be said that the petitioner has acted dishonestly, deliberately and in conscious disregard to the statutory requirement. The glaring facts clearly show that there was a prolonged litigation. The petitioner bona fide believed that it was liable to pay tax from the date of the judgment of the apex Court when the Act was held to be valid piece of legislation. It made a request to that effect. It also immediately applied for registration and the authorities having considered the matter granted registration and, thereafter, it filed the returns and deposited the admitted tax for three assessment years. Even when there was a controversy about the applicability of the Act, the petitioner had deposited the ad hoc amount of admitted tax before the judgment of the apex Court and also paid the admitted tax for subsequent period. In such a situation, I am of the considered view that the petitioner in a good faith acted bona fide and once the registration was given, it filed the returns and deposited the tax for three financial years.”

21. As observed earlier, assessee has nowhere contended that under a bona fide belief it thought that it had no liability to file the certificate and that belief later on has been found to be incorrect.

22. Mr. Rastogi, then submits that tax was deducted in time and hence no loss has occurred on account of late issue of the certificate. In such circumstances, according to him, penalty ought not to have been levied. Reliance has been placed on a decision of the Punjab & Haryana High Court in the case of HMT Ltd. vs. CIT (2004) 191 CTR (P&H) 62 : (2005) 274 ITR 544 (P&H) and our attention has been drawn to the following passage from para 12 of the said judgment, which reads as follows (p. 548) : “In the present case, the TDS had been paid in time and the necessary return in respect of the same was duly filed in time with the IT Department. No loss of revenue has occurred on account of late issue of tax deduction certificates. None of the contractors has raised any grievance on account of late supply of the certificate. Keeping in view these facts and especially that the default is merely technical or venial in nature, we are satisfied that it is not a fit case for the levy of penalty for this purpose, we find support from the observations of the Supreme Court in Hindustan Steel Ltd. vs. State of Orissa (1970) 25 STC 211: (1972) 83 ITR 26 (SC).”

23. Reliance has also been placed on a decision of the Madhya Pradesh High Court in the case of CIT vs. Gabrial India Ltd. (2005) 197 CTR (MP) 281 : (2006) 282 ITR 58 (MP) and our attention has been drawn to the following passage from para 6 of the said judgment, which reads as follows (p. 60) : “We find no fault in the impugned order of the Tribunal, when it was held by the Tribunal that the explanation offered by the assessee is bona fide, genuine and sufficient to set aside the penalty. It is a clear case where no loss was occasioned to the Revenue due to some delay in issuing the certificate in favour of a person from whom the tax was deducted in time. He too never complained and used the same for his assessment in claiming the benefit. It was, therefore, a fit case where no penalty could be levied due to technical/venial breach of a provision of law. [See Hindustan Steel Ltd. vs. State of Orissa (1970) 25 STC 211 : (1972) 83 ITR 26 (SC).”

The submission advanced does not commend me and the decisions relied on are, clearly distinguishable. In the present case though the tax has been deducted at source but the necessary return was not filed in time. In the face of the assessee failing to carry out its statutory obligation, it does not lie in its mouth that on account of no loss to Revenue penalty is not fit to be inflicted. Both the decisions of Punjab & Haryana High Court and Madhya Pradesh High Court have been rendered relying on the decision of the Supreme Court in the case of Hindustan Steel Ltd. vs. State of Orissa (supra), which as observed earlier was based on the ground that the breach was bona fide. In the case of CIT vs. Gabrial India Ltd. (supra), the Madhya Pradesh High Court has found the explanation offered by the assessee to be bona fide, genuine and sufficient, which is not the case here. In view of aforesaid, the judgment of the Punjab & Haryana High Court in HMT Ltd. vs. CIT (supra) and that of the Madhya Pradesh High Court in the case of Gabrial India Ltd. (supra) are clearly distinguishable.

In the result, I do not find any merit in the appeal and is dismissed accordingly, but without any order as to costs.

[Citation : 322 ITR 260]

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