Case Law Details
The tribunal was not right in law in its interpretation of the provisions of Section 275(1)(c) and was wrong in holding that the penalty order passed on 17.02.2004 under Section 271B was within the period of limitation prescribed under the Act.
IN THE HIGH COURT OF DELHI AT New Delhi
ITA 243/2008
SUBODH KUMAR BHARGAVA … Appellant
Versus
COMMISSIONER OF INCOME-TAX … Respondent
For the Appellant : Dr Rakesh Gupta with Ms Poonam Ahuja and Ms Aarti and Saini
For the Respondent : Ms Prem Lata Bansal
CORAM:- MR JUSTICE BADAR DURREZ AHMED and MR JUSTICE RAJIV SHAKDHER
Date of Judgment: November 26, 2008
J U D G M E N T
BADAR DURREZ AHMED, J
1. In this appeal under Section 260A of the Income-tax Act, 1961 (hereinafter referred to as “the said Act”), the following substantial question of law had been framed for our consideration:-
“That having regard to the facts and circumstances of the case, whether the Tribunal was right in law in interpreting the provisions of Section 275(1)(c) of the Income Tax Act, 1961 correctly and holding that the penalty order passed under Section 271B was within the limitation period “
2. This appeal is directed against the order dated 28.09.2007 passed by the Income-tax Appellate Tribunal in ITA No.2952/Del/2005 pertaining to the assessment year 2000-01. By virtue of Section 44AB of the said Act, the assessee was liable to get his accounts of the relevant previous year audited by an accountant as also to furnish the report of such audit in the prescribed form duly signed and verified by such an accountant before the specified date indicated in the said provision, which, at the relevant point of time, meant the 31st day of October of the assessment year. It is an admitted position that the assessee neither got his accounts audited nor did he file the audited report before the Assessing Officer as stipulated under Section 44AB.
3. The assessee filed his return of income on 22.06.2000. The said return was processed under Section 143(1) on 14.03.2002. It was not subjected to assessment under Section 143(3) of the said Act. Subsequently, on 31.07.2003, the Assistant Commissioner of Income-tax, Circle 23(1), New Delhi issued a show cause notice under Section 274 of the said Act read with Section 271B thereof. The said show cause notice indicated that the assessee had filed the return of income for the assessment year 2000-01 on 22.06.2000 and that, from the return it was apparent that the assessee had, without reasonable cause, failed to get his accounts audited or to obtain a report of such audit as per the provisions of Section 44AB of the said Act and to furnish the same within the stipulated period of time. Consequently, by virtue of the said notice, the assessee was asked to show cause as to why an order imposing penalty on him should not be made under Section 271B of the said Act. A reply was filed by the assessee on 19.01.2004 whereby the assessee contested the penalty proceedings both on merits as well as on the ground of limitation. In this appeal, we are not concerned with the findings returned by the authorities below on merits which have gone against the assessee. We are only concerned with the point of limitation which has been raised by the assessee.
4. By the order dated 17.02.2004, the said Assistant Commissioner of Income-tax rejected the pleas taken by the assessee and imposed a penalty of Rs 27,835/- on the assessee under Section 271B of the said Act. Being aggrieved by this order, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The said appeal was disposed of by an order dated 28.03.2005 dismissing the assessee?s appeal. Before the Commissioner of Income-tax (Appeals), the assessee had contended that the show cause notice was issued on 31.07.2003, whereas the penalty order under Section 275(1)(c) was passed on 17.02.2004 It was contended that this was beyond the period of six months from the end of the month in which the penalty proceedings had been initiated. Since the penalty proceedings had been initiated on 31.07.2003, the penalty order, according to the assessee, could have been passed within six months thereof, i.e., by 31.01.2004 The order was passed later on 17.02.2004 and, therefore, was time barred. This plea of the assessee did not find favour with the Commissioner of Income-tax (Appeals) who, interpreted the provisions of Section 275(1)(c) in the manner that the proceedings had been initiated on 31.07.2003 and, therefore, the penalty order could be passed within six months thereof or upto the end of the financial year in which such proceedings had been initiated, whichever period expired later. According to the Commissioner of Income-tax (Appeals), since the financial year would expire on 31.03.2004, the penalty order passed on 17.02.2004 was within time. The Commissioner of Income-tax (Appeals) confirmed the order passed by the Assistant Commissioner of Income-tax both on the point of limitation as well as on merits.
5. The assessee, still being aggrieved, preferred an appeal before the Income- tax Appellate Tribunal which was also dismissed by virtue of the impugned order both on merits as well as on the point of limitation. However, as noted above, the present appeal is only concerned with the pleas with regard to limitation and the question framed for our consideration is also in respect of this plea of limitation. The tribunal was also of the view that since the penalty proceedings were initiated on 31.07.2003, as per the provisions of Section 275(1)(c) of the said Act, the penalty order could be passed upto the end of the financial year (in this case, upto 31.03.2004), in which proceedings were initiated, or within six months from the end of the month in which the action for imposition of the penalty was initiated, whichever period expired later. The tribunal held that since the Assessing Officer had imposed the penalty on 17.02.2004, inasmuch as the end of the financial year fell later than the six month period stipulated in Section 275(1)(c), the order of penalty was within time. The tribunal held that in terms of the provisions of Section 275(1)(c), in the facts of the present case, the Assessing Officer could have passed the penalty order before the close of the financial year, i.e., on 31.03.2004 Since the penalty order was passed on 17.02.2004, the tribunal held that the same cannot be said to be time barred. The decision in the case of Shanbhag Restaurant v. Deputy Commissioner of Income-tax: 266 ITR 393 (Kar) cited by the learned counsel for the assessee was sought to be distinguished on facts by the tribunal on the ground that the proceedings in that case were under Section 271D and 271E of the said Act which were different from the provisions of Section 271B of the said Act which was applicable in the present case. The present appeal arises from this order of the tribunal.
6. Before us, the learned counsel for the assessee / appellant submitted that the Tribunal completely misconstrued the provisions of Section 275(1)(c) of the said Act in holding that the penalty order passed in the present case was within the period of limitation. The learned counsel submitted that Section 275(1)(c) contemplates two time limits for different sets of circumstances. He submitted that if one set of circumstances does not exist, then the time limit prescribed for that set of circumstances is to be ignored as being not applicable. In such a situation, the time limit prescribed for the other set of circumstances, which exists, alone has to be applied. It was also submitted that, in the present case, since the penalty proceedings had not been initiated in the course of any proceedings, the limit with regard to the expiry of the financial year in which such proceedings are completed, would have no applicability. It is only the second part of Section 275(1)(c) of the said Act which would apply in the present case and the stipulation of limitation in such a case is very clear, i.e., six months from the end of the month in which action for imposition of penalty is initiated. In the present case, the penalty proceeding was initiated by virtue of the issuance of the show cause notice on 31.07.2003 and, therefore, the period of six months from the end of July, 2003 would expire on 31.01.2004 The learned counsel submitted that a penalty order in these circumstances could have been made on or before 31.01.2004 Since the penalty order was passed on 17.02.2004, it was barred by time and, therefore, had to be set aside. In making these submissions, the learned counsel for the appellant / assessee also placed reliance on the following decisions:-
1) Shanbhag Restaurant v. Deputy Commissioner of Income-tax: 266 ITR 393 (Kar);
2) Commissioner of Income-tax v. Hissaria Brothers: 291 ITR 244 (Raj);
3) Commissioner of Income-tax v. Chhajer Packaging and Plastics P. Ltd: 300 ITR 180 (Bom).
7. Mrs Prem Lata Bansal, the learned counsel appearing on behalf of the respondent / revenue, submitted that the tribunal as well as the other authorities below had correctly interpreted the provisions of Section 275(1)(c) and had arrived at the correct conclusion that the penalty order was not barred by limitation. She supported the impugned order on the basis of the reasoning adopted by the tribunal. However, before us, she also advanced a new argument. She submitted that Section 275(1)(c) prescribes two periods of limitation and it stipulates that the one that expires later would be the relevant period before which a penalty order can be passed. In this context, she submitted that the present case is one of penalty under Section 271B of the said Act. Such penalty proceedings have not been initiated in the course of any proceeding. She further submitted that it is also not a prescription of the Act that penalty proceedings under Section 271B are to be initiated in the course of any other proceeding. Consequently, according to her, the first period of limitation as stipulated under Section 275(1)(c) of the said Act which pertains to initiation of penalty proceedings in the course of some other proceedings would not be applicable. From this, she wants us to conclude that, because there are two periods of limitation prescribed in Section 275(1)(c) and the expression “whichever period expires later” is used therein, the later of the two periods would be relevant and that, if, in a case, falling under Section 275(1)(c), only one of the two periods of limitation is applicable, then it ought to be construed as if there is no period of limitation prescribed. She submitted that in the present case, none of the clauses of Section 275(1) are applicable and since there is no time limit prescribed, the general principles ought to be followed which entail that the penalty order can be passed within a reasonable period of time. She submitted that the penalty proceeding had been initiated on 31.07.2003 and the penalty order was passed on 17.02.2004 and, therefore, it cannot be said that the order had been passed beyond a reasonable period of time. For this reason also, she submitted, that the levy of the penalty was not barred by limitation.
8. Mrs. Bansal also submitted that the three decisions cited by the learned counsel for the appellant / assessee were distinguishable inasmuch as in all those cases the penalty proceedings arose in the course of assessment proceedings. Whereas, in the present case, the penalty proceedings did not arise in the course of any other proceeding, but was pursuant to the show cause notice dated 31.07.2003 which had been issued independent of other proceedings. She, therefore, submitted that those decisions would not be applicable and that the question be decided in favour of the revenue and the appeal be dismissed.
9. Section 275(1)(c) reads as under:-
“275. Bar of limitation for imposing penalties. “(1) No order imposing a penalty under this Chapter shall be passed”
(a) xxx xxx xxx xxx ;
(b) xxx xxx xxx xxx ;
(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.
xxx xxx xxx xxx”
10. Section 275 falls within Chapter XXI which deals with “Penalties Imposable”. Sub-clauses (a) and (b) of Section 275(1), which have not been extracted above and are not attracted in the present case, relate to cases where the assessment to which the proceedings for imposition of penalty relate are the subject matter of an appeal before higher authorities or are the subject matter of a revision under Section 263 of the said Act, respectively. Sub-clause (c) of Section 275(1) covers all other cases not falling within sub-clauses (a) or (b). In this sense, Section 275(1)(c) is a residuary provision. In the present case, sub-clauses (a) and (b) are not at all attracted and, therefore, the case squarely falls within sub-clause (c). It is also necessary to point out that in respect of each of the sub-clauses (a) to (c), specific periods of limitation have been prescribed. Thus, in the first instance, it is to be seen as to under which sub-clause the case falls and then to apply the period of limitation prescribed in respect of that sub-clause. The present case falls under Section 275(1)(c) and, therefore, the period of limitation prescribed in sub-clause (c) would apply and no other.
11. Section 275(1)(c) is a residuary clause and, therefore, is supposed to cover all cases not falling under sub-clauses (a) or (b) of Section 275(1). Since the present case falls under this residuary sub-clause (c), we need to examine the period of limitation prescribed in respect thereof. As noted earlier in this judgment, there are two periods of limitation prescribed under sub-clause (c), the first period relates to those category of cases where action for the imposition of penalty has been initiated in the course of “some” proceedings. In such a situation, the period of limitation prescribed is upto the end and including the financial year in which such proceedings are completed.
12. The second part of Section 275(1)(c) pertains to all cases falling under clause (c). This is so because the action for imposition of penalty is contemplated in both parts. Penalty can only be imposed under Chapter XXI by following the procedure prescribed in Section 274 of the said Act which stipulates that no order imposing a penalty can be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. Thus, in any eventuality, before an order imposing a penalty can be passed, the assessee has to be heard or has to be given a reasonable opportunity of being heard. This can only happen when action for imposition of penalty is initiated and the assessee is put to notice with regard to such action so that he may present his point of view in opposition to such action. The only difference between the first part and the second part is that while in the first part, the action for imposition of penalty is initiated in the course of some other proceedings, under the second part, “the other” proceedings are of no relevance and the only thing to be considered is the point of time as to when the action for imposition of penalty is initiated.
13. There may be cases which fall under Section 275(1)(c) in which action for the imposition of penalty is initiated in the course of some other proceedings. There may also be cases under Section 275(1)(c) in which the action for imposition of penalty is initiated, but not in the course of some proceedings. In the former category of cases, both the periods of limitation may be applicable, whereas in the latter category, only the second period of limitation of six months from the end of the month in which action for imposition of penalty is initiated, would apply. To illustrate this, let us take the first category of cases. This is that category where the action for imposition of penalty is initiated in the course of some other proceeding. In such a situation, it is obvious that both the periods of limitation would come into play. One would be reckoned from the date on which the other proceedings are completed upto and including the end of the financial year in which that date occurs. The other period of limitation would be that which applies irrespective of the date of completion of the “other proceedings” and which is relatable simply to the date on which action for imposition of penalty is initiated. The period of limitation in such a case would be six months from the end of the month in which the action for imposition of penalty is initiated. It is clear that where penalty proceedings are initiated in the course of some other proceedings, the legislature has provided for two different periods of limitation. However, so that there is no confusion with regard to which of the two would apply, the legislature has added the expression “whichever period expires later” at the end. To explain this, let us take two examples:
Example 1:
Assume that the action for imposition of penalty is initiated on 15.03.2007 in the course of some proceedings which are completed on 25.03.2007. On the basis of the first part of Section 275(1)(c), the period of limitation would end on 31.03.2007 being the end of the financial year in which the proceedings in the course of which action for the imposition of penalty was initiated, is completed. However, taking recourse to the provisions of the second part of Section 275(1)(c), the end point of the period of limitation would be 30.09.2007. This would be so because the action for imposition of penalty was initiated on 15.03.2007, implying thereby that the end of the month would be on 31.03.2007. The period of six months from such date would end on 30.09.2007. Thus, in this example, we are faced with two dates on which limitation would end. But, because of the expression ?whichever period expires later?, the period of limitation would have to be taken as 30.09.2007 which is relatable to the date on which action for imposition of penalty was initiated and not to the date on which the proceedings, in the course of which such action was initiated, are completed.
Example 2:
Let us assume that action for imposition of penalty is initiated on 15.04.2007 in the course of proceedings which are completed on 25.05.2007. Under the first part of Section 275(1)(c), the period of limitation for passing an order imposing penalty would end on 31.03.2008 being the end of the financial year in which the proceedings, in the course of which action for imposition of the penalty had been initiated, are completed. However, in terms of the second part of Section 275(1)(c), the period of limitation would end on 31.10.2007. This is because, the period of six months would have to be reckoned from the end of the month in which action for imposition of penalty was initiated. Action for penalty in this example was initiated on 15.04.2007. The end of the month would be 30.04.2007. Consequently, the period of six months from this date would end on 31.10.2007. Thus, in this example, we are once again faced with two periods of limitation: the period ending on 31.03.2008 being the end of the financial year relatable to 25.05.2007, the date on which the proceedings were completed and 31.10.2007 being the date relatable to the initiation of the penalty proceedings. Once again, applying the expression “whichever period expires later”, the period of limitation for this example would be 31.03.2008.
14. The above two examples illustrate cases where the applicable period of limitation would be relatable either to the date of initiation of the penalty proceedings or to the date of completion of the proceedings in the course of which action for the imposition of penalty has been initiated. But there is a third / residuary category of cases where the initiation of action for imposition of penalty is not in the course of some proceedings. In such cases, the first part of Section 275(1)(c) would have no application and it is only the period of limitation prescribed in the second part which would apply. Since only one period of limitation would be applicable, the expression “whichever period expires later” would have to be read as that very period of limitation. The present case undoubtedly falls under Section 275(1)(c) and, that too, under the second part thereof. Therefore, on a plain reading and on a logical analysis of the relevant provisions of the said Act, the period of limitation during which an order imposing a penalty could have been passed in the present case would be a period of six months beginning from the end of the month in which the action for imposition of penalty was initiated. We have already noticed above that the show cause notice under Section 274 read with Section 271B of the said Act was issued on 31.07.2003. Since that happened to be the end of the month also, the period of six months would have to be reckoned from that date. That would take us to 31.01.2004 Thus, the penalty order could have been passed on any date upto and including 31.01.2004. The penalty order came to be passed on 17.02.2004, which would be hit by the bar of limitation.
15. This would be the appropriate stage to discuss the new argument raised by the learned counsel for the revenue before this court to which we have already made a reference in the earlier part of this decision. Her argument is that since Section 275(1)(c) contains the expression “whichever period expires later”, the said provision only applies to cases where a choice has to be made with regard to two periods of limitation, one relatable to the completion of the proceedings and one relatable to the date on which the penalty proceedings are initiated. She submitted that because in the present case, the first part of Section 275(1)(c) would not apply, it would be a case where there is only one period of limitation and, therefore, the expression “whichever period expires later” would be rendered meaningless. From this, she deduces that the present case would not at all fall under Section 275(1)(c) and it would be a case where no period of limitation is prescribed under the said Act and, therefore, the penalty order could be made, under general principles of limitation, within a reasonable period of time. Such an argument has only to be stated to be rejected. Section 275(1)(c) is a residuary provision and is designed to cover all cases of penalties which do not fit within sub-clauses (a) or (b) of Section 275(1). Once we recognise this fact, there is no scope for excluding the present case from the provisions of Section 275(1)(c). The expression “whichever period expires later” has to be read in context and has to be given a meaningful interpretation. This is exactly what we have done. The said expression has significance where two periods of limitation are triggered, one being later than the other. But that does not mean that in a situation where there is only one period of limitation under Section 275(1)(c), because two periods of limitation are not applicable and because the expression “whichever period expires later” has to be considered literally, such a situation would not be covered under Section 275(1)(c). The argument advanced by Mrs Bansal can be easily countered by an example. Let us assume that the action for imposition of penalty was initiated on 15.09.2007 in the course of proceedings which were completed on 11.11.2007. Going by the first part of Section 275(1)(c), the limitation for passing a penalty order would end on 31.03.2008, being the end of the financial year in which the proceedings, in the course of which action for imposition of penalty had been initiated, are completed. But, we find that even going by the second part of Section 275(1)(c), in this example, the end point of limitation would be 31.03.2008. This is so because the action for imposition of penalty was initiated on 15.09.2007. The end of the month would be 30.09.2007 and six months therefrom would end on 31.03.2008. Thus, we have a case where both the parts of Section 275(1)(c) are triggered, but the end point of limitation in either case is identical. Here too, the expression “whichever period expires later” would, if the argument of Mrs Bansal is to be accepted, be rendered otiose and, therefore, carrying her argument further, the case as illustrated by this example, would not fall within Section 275(1)(c) and would have to be governed by the general principles of limitation rather than the specific provisions indicated in Section 275(1)(c). This clearly indicates that if the argument of Mrs Bansal now sought to be raised before us is to be accepted, it would lead to absurd results.
16. We have arrived at the aforesaid conclusion without a reference to the decisions relied upon by the learned counsel for the appellant / assessee. We may now refer to them. The decision of the High Court of Karnataka in Shanbhag Restaurant (supra) is on a different footing. In that case, there was a regular assessment and in the course of assessment, the decision to initiate penalty proceedings under Sections 271D and 271E was taken. The assessment having been completed on 25.02.1994, in that case, the end of the “financial year” was construed to be 31.03.1994. The show cause notice was issued on 08.06.1994 and the court held that the penalty order ought to have been passed by 31.12.1994 (six months from the end of the month in which the notice was issued). It is clear, that the facts of that decision are different. The said decision is not relevant in the context of the arguments and factual background of the present case. However, the decision in Shanbhag Restaurant (supra) does not militate against our conclusions.
17. The decision of the Rajasthan High Court in Hissaria Brothers (supra) is also not of much relevance although the same was relied upon by the learned counsel for the appellant. This is so because the prime issue before the Rajasthan High Court was whether the case before them fell within clause (a) or clause (c) of Section 275(1). Such an issue does not arise for our consideration in the present case. For, we are only concerned with Section 275(1)(c). Therefore, not much help can be taken from the said decision of the Rajasthan High Court for the purposes of this appeal.
18. In Chhajer Packaging and Plastics Pvt. Ltd (supra), the penalty proceedings arose out of the assessment proceedings relating to the assessment year 1996-97. The assessment order was passed on 30.03.1999. Consequently, considering the first part of Section 275(1)(c), the penalty order could have been passed latest by 31.03.1999 being the end of the financial year in which the assessment proceedings were completed. The Bombay High Court noted that under the second mode of computation of limitation under the latter half of clause (c) of Section 275(1), since the penalty proceedings were initiated by a notice dated 06.04.1999, the period of limitation of six months to be computed from the last date of the month in which the penalty proceedings were initiated would end on 29.10.1999, though in our view, it should have been 31.10.1999 because we are considering calendar months. Since the order imposing penalty was passed on 13.03.2000, the Bombay High Court was of the view that, computing limitation in both permissible ways, the order was beyond the period of limitation. In the first case, the period expired on 31.03.1999 and in the second case, it expired, according to the Bombay High Court, on 29.10.1999. Considering the opening words of Section 275(1) which read “no order imposing penalty “shall be passed” the Bombay high Court held that once the period of limitation prescribed by either of the clauses (a) to (c) has expired, the departmental authorities had no powers to impose penalty.
19. It is clear that the three decisions referred to by the learned counsel for the appellant/assessee do not really fit in, as it were, in the context of the present case. At the same time, though, there is nothing in them which would contradict what we have concluded.
20. We hold that having regard to the facts and circumstances of the case, the tribunal was not right in law in its interpretation of the provisions of Section 275(1)(c) and was wrong in holding that the penalty order passed on 17.02.2004 under Section 271B was within the period of limitation prescribed under the Act. The question of law is, therefore, answered in favour of the appellant and against the revenue. Consequently, the appeal is allowed. The impugned order is set aside and the penalty of Rs 27,835/- imposed by the Assessing officer, confirmed by the Commissioner of Income-tax (Appeals) and upheld by the tribunal, is cancelled. The parties shall bear their own costs.
