Patto Plaza, Panaji­goa v. Hydroflex Equipment Ltd.,Pajifond, Margao.pajifond, Margao

IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NOS. 39 AND 40 OF 2002 Commissioner of Income Tax,having office at Aayakar Bhavan Patto Plaza, Panaji­Goa. ... Appellant versus 1. Hydroflex Equipment Ltd.,Pajifond, Margao.Pajifond, Margao. 2. The Income Tax AppellateTribunal Panaji Bench,Aayakar Bhavan,Tribunal Panaji Bench,Aayakar Bhavan, Patto Plaza, Panaji, Goa. ... Respondents Mr. S. R. Rivonkar, Advocate for the Appellant. None for the Respondent. CORAM : A. P. LAVANDE & N. A. BRITTO, JJ. DATE : 8TH FEBRUARY,2005 ORAL JUDGMENT(PER N.A.BRITTO, J.) These appeals are filed under Section 260­A of the Income TaxAct, 1961(the Act, for short) and were admitted on a substantial question of “Whether on the facts and in thecircumstances of the case, the findingof the ITAT that the assessee has areasonable cause in not paying the taxis based on any material evidence onrecord?” 2.Since the substantial question of law framed is common inboth the appeals, we propose to decide the same by this common Judgment.That apart, the Income Tax Appellate Tribunal, Panaji Bench, (ITAT, forshort) has also decided the same by a common Order dated 31­10­2001. 3.The Respondent No.1(assessee, for short) has chosen not tocontest these appeals. Both these appeals arise from the Orders passedby the Assessing Officer (Joint Commissioner of Income Tax) dated17­12­1998 under Section 221(1) of the Act. The Tax Appeal No.39 of2002 pertains to penalty levied by the said Assessing Officer in the sum ofRs.2,50,000/­ for the assessment year 1996­97 while Tax Appeal No.40 of2002 pertains to penalty levied for the assessment year 1997­98. 4.Since the facts are slightly dissimilar, we proceed to deal withTax Appeal No.40 of 2002, first. In this case, the assessee filed a return ofincome(for the year 1997­98) declaring nil income on 29­1­1998 which was processed under Section 143(1)(a) on 10­2­1998 with no adjustments.Later, the assessee filed a revised return declaring an income ofRs.21,36,790/­ on 31­3­1998 and the tax payable as per this return wasRs.12,56,595/­, being the self assessment tax. This tax was not paid and asa result the Assessing Officer issued a Show Cause Notice dated 23­4­1998under Section 221(1) of the Act. In reply to the said Show Cause Notice,the assessee requested for time but the same was refused by letter dated13­5­1998. The Assessing Officer, therefore, found that the assessee was indefault in payment of tax on the income declared by it and, therefore,proceeded to levy a penalty of Rs.2,25,000/­. The assessee filed an appealto the Commissioner of Income Tax(Appeals) and the said appeal wasdisposed of by Order dated 12­3­1999. In disposing of the said appeal, theCommissioner of Income Tax came to the conclusion that there was noevidence, to support the submissions made, which was brought to the noticeof the Assessing Officer in response to the said Show Cause Notice. Thesaid Commissioner further observed that even in the course of appellateproceedings the assessee had failed to furnish any evidence whatsoever inthat regard and the assessee also did not furnish the balance­sheet of theassessee­Company to support the plea regarding financial difficulty and,therefore, proceeded to dismiss the appeal observing that there was nomaterial before him to infer that there was genuine reasonable cause for thedefault in question. 5.The assessee then approached the ITAT and the ITAT byits common Order dated 31­10­2001 stated that the Assessing Officer, theCCIT(A) and the Tribunal were fact finding authorities, in seriatim, and thatthe non payment of instalments granted by the CCIT would not lead to theconclusion that the assessee had no reasonable cause and the said actssupported the financial constraints of the assessee. It further held that thevery act of the CCIT granted stay till 31­3­1998 itself showed that therewas reasonable cause on the part of the assessee for non payment of taxes.6.Section 221 of the Act deals with penalty payable when tax isin default. It reads as follows:­ “Section 221(1) ­ When anassessee is in default or isdeemed to be in default inmaking a payment of tax, heshall, in addition to the amountof the arrears and the amount ofinterest payable under sub­section (2) of Section 220, beliable, by way of penalty, to paysuch amount as the AssessingOfficer may direct, and in thecase of a continuing default, suchfurther amount or amounts asthe Assesssing Officer may, fromtime to time, direct, so, however,that the total amount of penaltydoes not exceed the amount oftax in arrears:­ Provided that before levyingany such penalty, the assesseeshall be given a reasonableopportunity of being heard: Provided further that wherethe assessee proves to thesatisfaction of the AssessingOficer that the default was forgood and sufficient reasons, nopenalty shall be levied under thesection. The explanation below theabove proviso – (1) For theremoval of doubt, it is herebydeclared that an assessee shallnot cease to be liable to anypenalty under this sub­sectionmerely by reason of the fact thatbefore the levy of such penaltyhe has paid the tax.(2) Where as a result of any finalorder the amount of tax, withrespect to the default in thepayment of which the penaltywas levied, has been whollyreduced, the penalty levied shallbe cancelled and the amount ofpenalty paid shall be refunded”. 7.Admittedly, the Show Cause Notices in this case (Tax AppealNo.40/2002) was issued by the Assessing Officer on 23­4­1998. In this casethe assessee informed the Assessing Officer by letter dated 29­4­1998 thatits Manager was hospitalised and sought time of 45 days. However, the Assessing Officer by his letter dated 13­5­1998 rejected the request for bothassessment years 1996­97 and 1997­98. The assessee took no further stepsto approach any higher authorities nor showed any cause against the saidShow Cause Notice. As far as this case is concerned, in our view the ITATwas not right in coming to the conclusion that there was reasonable causeon the part of the assessee for the non payment of taxes. As rightly held bythe Assessing Officer as well as the Commissioner of Income Tax(Appeals)there was no material placed before the Assessing Officer or for that matterbefore the Commissioner of Income Tax(Appeals) that there was anysufficient cause for the non payment of the tax payable. Although, theassessee in his Affidavit before this Court has stated that before the Tribunalthe entire evidence regarding the precarious financial position of theCompany was explained along with supporting documents, we are notinclined to accept the said statement because it is contrary to what theCommissioner of Income Tax(Appeals) has stated in his Order and there istotal silence as regards the same in the Order of the ITAT. No extension oftime was granted to the assessee in this case. 8.However, the facts, as far as Tax Appeal No.39 of 2002 isconcerned are slightly different. In this case the assessee filed return on3­9­1997 declaring total income of Rs.30,79,150/­ on which tax payablewas Rs.23,40,650/­ and due date for payment of the same was 3­9­1997. By 8.However, the facts, as far as Tax Appeal No.39 of 2002 isconcerned are slightly different. In this case the assessee filed return on3­9­1997 declaring total income of Rs.30,79,150/­ on which tax payablewas Rs.23,40,650/­ and due date for payment of the same was 3­9­1997. By letter dated 11­11­1997 the assessee sought time to pay the same ininstalments and the same was refused by the Assessing Officer by letterdated 4­12­1997. On the same day the assessee paid a sum ofRs.2.25,000/­ towards the tax and again on 5­12­1997 paid another sum ofRs.2.75,000/­ and thus Rs.5,00,000/­ in all. Although, the DeputyCommissioner by another letter dated 13­5­1998 rejected the request of theassessee for the grant of time for payment of taxes for both the years, itappears that the assessee approached the Chief Commissioner of IncomeTax, Bangalore with a request to extend time for the payment of taxes andthe said Chief Commissioner of Income Tax by his letter dated 12­2­1998was pleased to extend the time to pay the tax for the assessment year1996­97 until 31­3­1998. When this position was brought to the notice ofMr. S. R. Rivonkar, the learned Counsel for the Commissioner of IncomeTax, he has submitted that the Chief Commissioner of Income Tax had noauthority to extend the time for the payment of the tax. In our view, it doesnot lie in the mouth of the Commissioner of Income Tax(Appellant herein)to say that his own Chief Commissioner of Income Tax had no authority toextend the time for the payment of the said tax. In our view, the very act ofthe Chief Commissioner of Income Tax in granting time to the assessee till31­3­1998 showed that there was a reasonable cause on the part of theassessee for the non payment of the taxes in time. In other words, the ChiefCommissioner of Income Tax was satisfied that there were good and sufficient reasons that imposing of penalty was to be postponed at least until31­3­1998 and being so, the Assessing Officer would have been justified inissuing a Show Cause Notice only after 31­3­1998 and not prior to the saiddate i.e. to say 16­10­1997. The said Show Cause Notice was thereforepremature and the action taken thereon, therefore, could not be sustainedin law. In our view, the ITAT was right in allowing the appeal holding thatthe assessee had not committed default to warrant institution of penaltyproceedings as far as the assessment year 1996­97 is concerned. 9.Although, the assessee initially contested these appeals by filingan Affidavit, subsequentlythe assessee's Counsel Mr. E. P. Badrinarayanwithdrew his appearance and at this time, Mr. Badrinarayan undertook toinform the assessee about his withdrawal. Accordingly, the ManagingDirector of the assessee was duly notified but the Managing Director by hisapplication dated 3­1­2005 informed the Court that he is no more theManaging Director of the assessee. The assessee was lastly served by pastinga notice on the main shutter of the assessee's Office, and, yet none appearedon behalf of the assessee at the hearing of these appeals. 10.For the reasons stated hereinabove, the Orderdated 31­10­2001 of the ITAT requires to be partly disturbed.Consequently, we allow Tax Appeal No.40 of 2002 and restore the Orders dated 17­12­1998 and 12­3­1999 of the Assessing Officer and theCommissioner of Income Tax(Appeals) respectively, for the assessmentyear 1997­98. Tax Appeal No.39 of 2002 is dismissed and consequently, theOrders dated 17­12­1998 and 12­3­1999 of the Assessing Officer and theCommissioner of Income Tax(Appeals) for the assessment year 1996­97 arehereby set aside, with no order as to costs. The Assessing Officer would befree to issue a fresh Show Cause Notice for the assessment year 1996­97 incase the assessee is still sought to be penalised under Section 221(1) of theAct. A. P. LAVANDE, J. N. A. BRITTO, J. RD.