1218. Board’s instruction contained in Circular dated 15-7-1963 to the effect that no penalty be levied if, at the time of appearance before ITO, assessee proves that tax has already been paid, stands superseded in view of Explanation to the section inserted with effect from 1-10-1975
1. It has been brought to the notice of the Central Board of Direct Taxes that notwithstanding the amendment of section 221 through section 53 of the Taxation Laws (Amendment) Act, 1975, adding specific Explanation to the effect that penalty under section 221 will be exigible even in a case where the tax is paid after the due date but before the levy of penalty, some appellate authorities are cancelling the penalties on the ground that a departmental instruction issued on July 15, 1963 in F. No. 58/13/63-IT [Circular No. 18D (XLV-14) of 1963] has not been withdrawn.
2. To remove any ambiguity in this regard, it is hereby clarified that the instructions contained in F. No. 58/13/1963-IT, dated 15-7-1963 [Annex] stand superseded by the said amendment effective from October 1, 1975.
Circular : No. 262 [ F. No. 400/42/79-ITCC], dated 14-9-1979.
ANNEX – CIRCULAR DATED 15-7-1963 REFERRED TO IN CLARIFICATION
Attention is invited to the Board’s Circular No. 2-D, dated 1-3-1950, in which Income-tax Officers were informed that in cases where the tax due had been paid up before the imposition of a penalty under section 46(1) of the 1922 Act, the imposition of a penalty would not be proper. Sub-section (1) of section 221 of the 1961 Act, which corresponds to section 46(1) of the 1922 Act, goes a step further and requires the Income-tax Officer to give the assessee an opportunity of being heard before levying any such penalty. A question has been raised whether in a case an assessee, who was in default, pays up the tax due before he is given a hearing by the Income-tax Officer under the proviso to the above sub-section, it would be proper to levy a penalty on the ground that, even though there are no arrears on the date of hearing before the Income-tax Officer, a default had actually been committed on the due date. The Board have decided that no penalty should be levied if at the time of appearance before the Income-tax Officer, in connection with the hearing given under the proviso to sub-section (1) of section 221, the assessee proves that the tax has already been paid.
JUDICIAL ANALYSIS
EXPLAINED IN – The above circular was referred to in Second ITO v. R.V. Shah (HUF) [1988] 32 TTJ (Bom. – Trib.) 140. The Tribunal observed :
“3. The Revenue is aggrieved and has come up in appeal before us contending that the learned AAC erred in cancelling the penalty. The Revenue raised a specific ground contending that the learned AAC failed to note that as per Explanation to section 221(1) with effect from 1st October, 1975, the assessee shall not cease to be liable to penalty under section 221(1) merely by reason of the fact that before the levy of such penalty, the assessee has paid the tax. It is further contended that the Board’s circular having been superseded by the statutory amendment and in fact withdrawn on 14th September, 1979 vide Circular No. 262 [F. No. 400/42/79 ITCC] the order of the learned AAC is liable to be set aside and that of the ITO to be restored.
4. At the time of hearing before us, Shri P.K. Sridharan, learned senior Departmental Representative appeared for the Revenue and Shri K. Shivram learned counsel appeared for the assessees. After hearing both the parties at length, we see no merit in the appeals of the Revenue. The contention of the learned counsel of the Revenue that the earlier circular was superseded by the statutory amendment cannot be readily accepted. The Explanation is only clarificatory providing that the assessee shall not cease to be liable to any penalty under this sub-section merely by reason of the fact that before the levy of such penalty, he has paid the tax. This Explanation being clarificatory of the existing provision, it cannot automatically withdraw or supersede the privilege and right or concession conferred on the assessee by the circular. Even assuming that this circular is withdrawn by another circular of the Board dated 14th September, 1979, the assessee cannot be denied the benefit of the Board’s circular as the present penalties are levied for the assessment years 1970-71 to 1979-80 during which the circular was operative. Where a circular confers some privileges and rights on the assessee, it protects those rights till the date of its withdrawal. Although such circulars may later be recalled or withdrawn by the issuing authorities, the assessee’s right to have assessment effected or carried out in accordance with such circular cannot be prejudicially affected by the recall or withdrawal of such circulars, as held by the Kerala High Court in the case of CIT v. B.M. Edward, India Sea Foods, Cochin [1979] 119 ITR 334 (Ker.). It was further held in the case of CIT v. Geeva Films [1983] 141 ITR 632 (Ker.) that the circular which was withdrawn by Board’s instruction dated 6th April, 1972 was binding on the income-tax authorities up to the assessment year 1971-72 even though the relevant assessment order was passed after the withdrawal of the circular. Applying the principle laid down by the Hon’ble Kerala High Court, it is seen that the assessee is fully entitled to the benefit of the circular for these assessment years and the learned AAC was justified in cancelling the penalty orders.” (p. 141)
