Commissioner Of Income Tax-Iii v. South Gujarat Roller Flour Mills....opponent(S)======================================

O/TAXAP/165/2005 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 165 of 2005 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ====================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ?the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ?to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ====================================== COMMISSIONER OF INCOME TAX-III....Appellant(s) Versus SOUTH GUJARAT ROLLER FLOUR MILLS....Opponent(s)====================================== Appearance: MR SUDHIR M MEHTA, ADVOCATE for the Appellant(s) No. 1RULE UNSERVED for the Opponent(s) No. 1 ====================================== CORAM: HONOURABLE MR.JUSTICE KS JHAVERIand HONOURABLE MR.JUSTICE K.J.THAKER Date : 03/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE K.J.THAKER) 1.The appellant is dissatisfied with the order dated 30[th] June 2004 passed by Income Tax Appellate Tribunal, Ahmedabad, in ITA No.810/Ahd/2003. 2.The brief facts leading to the filing of the present appeal are as follows: 2.1The assessee had not filed its annual return in Form No.26A which was due to be filed on 30.4.1989 as required under Section 206 of the Income Tax Act read with Rule 37 of the Income Tax Rules, 1962. Therefore, a show cause notice was issued on 13.3.2001 and served upon the assessee on 15.3.2001 requiring it to show cause as to why penalty under Section 272A(2) (c) of the Act should not be levied for the default. 2.2Said show cause notice was replied by the assessee stating that the accounting and legal matters were handled by the accountant and because of family dispute no attention was given by the partners. It is also stated that a person cannot be penalized for same default under various provisions of the Income Act. 2.3After considering reply of the assessee and various provisions of the Act, it was held that the defaulter had not filed the annual return in Form 26A and delay of 4015 days was caused and, accordingly, by order dated 31.7.2001, it is held that minimum penalty of Rs.4,08,700/- is to be levied. 2.4Against aforesaid order, an appeal was preferred. While disposing of said appeal, it was held that there is a delay in filing annual return in Form No.26A. Legislature has provided for penalty if there is delay in filing return in Form No.26A unless there is a “reasonable cause”. In the present case, there is no evidence for such “reasonable cause” so as to justify the delay in issuance of certificate. Accordingly, Commissioner of Income Tax (Appeals) directed the Assessing Officer to restrict the penalty under Section 272A(2)(c) of the Act to the amount of tax deducted at source and the appeal was partly allowed. 2.4Against aforesaid order, an appeal was preferred. While disposing of said appeal, it was held that there is a delay in filing annual return in Form No.26A. Legislature has provided for penalty if there is delay in filing return in Form No.26A unless there is a “reasonable cause”. In the present case, there is no evidence for such “reasonable cause” so as to justify the delay in issuance of certificate. Accordingly, Commissioner of Income Tax (Appeals) directed the Assessing Officer to restrict the penalty under Section 272A(2)(c) of the Act to the amount of tax deducted at source and the appeal was partly allowed. 2.5Being dissatisfied with the aforesaid order of Commissioner of Income Tax (Appeals), revenue preferred appeal before the Income Tax Appellate Tribunal. While disposing of the aforesaid appeal by impugned order, by considering earlier judgments, it was held that the penalty should be restricted to the amount of TDS deductible. While holding, as above, it is observed that the revenue has not contravened the fact that nature of the default is not harsh to go beyond the clarificatory nature of amendment. Accordingly, order of Commissioner of Income Tax (Appeals) was upheld by the impugned order. Against this order, present appeal is preferred by the appellant. 3.At the time of admission hearing, The following question of law came to be framed vide order dated 4[th] October 2005. “Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified in law in holding that penalty levied under section 272A(2) (c) of the Income Tax Act, 1961 should be restricted to the amount to tax deductible at source by treating the amendment to the said provision as being clarificatory in nature?” 4.The provisions of Section 273-B of the Income Tax Act have been considered by the Commissioner of Income Tax in his well-reasoned order while allowing the appeal. While considering the decision cited before him, the CIT (Appeals) has held as under: “10)After going through the facts of the case, it is noticed thati)Concerned parties have not suffered any pecuniary loss on account of non issue of certificates.i)Concerned parties have not suffered any pecuniary loss on account of non issue of certificates. ii)The default of the appellant cannot be termed so serious as to call for the harsh penalty.to call for the harsh penalty. 11)In respect of quantum of penalty to be levied, the following facts have been taken into consideration. i.Circular No.772 dated 23.12.1998 of the C.B.D.T. Which explains the provisions of Sec.272A as under: “Under the existing provisions, penalty under sub-section (2) of section 272A of the I.T.Act is imposable for failure to deliver in due time a copy of the declaration under section 197A or for failure by the person deducting tax to furnish a certificate of deduction, to the person to whom such payment is made or credit is given within the prescribed period. These defaults are continuous in nature and attract penalty at the rate of Rs.100/200 per day without any maximum limit. The Act has amended section 272A of the I.T.Act to provide that the maximum limit of penalty imposable in such cases shall not exceed the amount of tax deductible or collectible, as the case may be”. ii.The case of ITO Vs. Superintendent Engineer reported in 86 Taxman 40 (Jaipur ITAT) is also relevant. In this case, penalty was levied for delay in furnishing annual TDS return of salary for A.Y.1988-89 and 89-90. The Tribunal further observed that the quantum of penalty must be determined by reference to the law as it stood when the offence or default was committed. If the amendment is purely procedural in nature The Act has amended section 272A of the I.T.Act to provide that the maximum limit of penalty imposable in such cases shall not exceed the amount of tax deductible or collectible, as the case may be”. ii.The case of ITO Vs. Superintendent Engineer reported in 86 Taxman 40 (Jaipur ITAT) is also relevant. In this case, penalty was levied for delay in furnishing annual TDS return of salary for A.Y.1988-89 and 89-90. The Tribunal further observed that the quantum of penalty must be determined by reference to the law as it stood when the offence or default was committed. If the amendment is purely procedural in nature and affects only the machinery for levying and collecting penalty and not the very ingredients of the default, the provision will apply to the pending proceedings also. Thus, the Tribunal held that the proviso to Sec.272A(2) though inserted w.e.f. 1.10.91 are applicable to those cases of penalty also in which the proceedings are pending on that date. iii.Similarly, the decision rendered by the Pune Tribunal in the case of Motisar Estate Pvt. Ltd. reported in 47 ITD 72 is also relevant. In this case, the Assessing Officer levied penalty for delay in submitting annual TDS in Form No.26A for A.Y.1988-89, 89-90 and 90-91. Though the, contention of the department was that this provision would not be applicable to cases pertaining to period prior to 1.10.1991, the Tribunal held that the proviso has retrospective effect. The salient features of these decisions are as under: a.The benefits of a legislation which obviates hardship to the tax payer should extend to an assessee whose case is pending for final adjudication at the time of enforcement of the beneficial legislation. b.The provision of Sec.272A, prior to the amendment, were somewhat discriminatory which caused hardship to the tax prayer and created an anomalous situation. The legislature must not have intended that hardship. It was with a view to remove such type of hardship that the legislature, in its wisdom, thought it proper to come out with an amendment. c.The amendment in question, besides being beneficial to the appellant also clarifies and explains the intention of the legislature as it always was in enacting the provision of Sec.272A(2). d.The amendment brought about is purely procedural in nature providing for the machinery for having and collecting penalty. This amendment does not affect the very ingredients of the default contemplated u/s.206. Since the appeal is a continuation of the original proceedings the amendment brought about was applicable to the facts of the case and hence benefit under the amendment should be made available to the appellant and the amount of penalty should accordingly be restricted, if at all, to the amount of tax deducted at source in this case. e.In this case, the decision of the Hon'ble Supreme Court in the case of Allied Motors reported in 224 ITR 672 regarding the retrospectively of the proviso to Sec.272A(2) is also relevant.” 5.The aforesaid decision of the CIT (Appeals) came to be confirmed by the Income Tax Appellate Tribunal in its well-reasoned order by holding as under: amendment does not affect the very ingredients of the default contemplated u/s.206. Since the appeal is a continuation of the original proceedings the amendment brought about was applicable to the facts of the case and hence benefit under the amendment should be made available to the appellant and the amount of penalty should accordingly be restricted, if at all, to the amount of tax deducted at source in this case. e.In this case, the decision of the Hon'ble Supreme Court in the case of Allied Motors reported in 224 ITR 672 regarding the retrospectively of the proviso to Sec.272A(2) is also relevant.” 5.The aforesaid decision of the CIT (Appeals) came to be confirmed by the Income Tax Appellate Tribunal in its well-reasoned order by holding as under: “3.The ld.counsel for the assessee, on the other hand, contended that the ITAT, Jaipur Bench, in the case of Superintending Engineer Vs. ITO 86 Taxman 40 has held that proviso to section 272A(2) though inserted with effect from 1.10.1991 was procedural in nature, was applicable to those cases of penalties where proceedings were pending. In the instant cases, the penalties to the extent of TDS amount was retained by the CIT (A). Further the CIT (A) has considered the facts and circumstances of the case and held that the defaults of the assessee cannot be termed so serious as to call for the harsh penalty. Further reliance was placed on Circular No.772 dated 23.12.1998 of the C.B.D.T. and the decision of Pune Bench in the case of Motisar Estate Pvt. Ltd. wherein it has been held that the quantum of penalty was required to be scaled down to the amount of tax or collectible at source. 4.I have heard the rival contentions and perused the materials available on record. The above Tribunal judgments have held the subsequent amendment as clarificatory in nature to the effect that the penalty should be restricted to the amount of TDS deductible. The revenue has not controverted the fact that nature of the default is not harsh to go beyond the clarificatory nature of amendment. In consideration of all the facts, I am of the view that the CIT (A) has rightly restricted the penalties to the amount of TDS. His orders are upheld. 5.Revenue appeals are dismissed.” 6.Several grounds have been raised in support of this appeal to which we have given our patient hearing. Considering the materials on record and the submissions made by the learned advocate, we are unable to persuade ourselves to take a different view. We agree with the finding of the lower authorities that the provision of Sec.272A, prior to the amendment, were somewhat discriminatory which caused hardship to the tax prayer and created an anomalous situation and with a view to remove such type of hardship that the legislature, in its wisdom, thought it proper to come out with an amendment.The amendment brought about is purely procedural in nature providing for the machinery for having and collecting penalty. This amendment does not affect the very ingredients of the default contemplated under Section 206. Since the appeal is a continuation of the original proceedings the amendment brought about was applicable to the facts of the case, benefit under the amendment was rightly made available to the appellant and the amount of penalty was rightly restricted to the amount of tax deducted at source. Hence, the question raised before us is answered against the revenue and in favour of the assessee. This appeal sans merit and is dismissed. (K.S.JHAVERI, J.) *malek (K.J.THAKER, J)