RAVI TEXTILE (P) LTD. v. INSPECTING ASSISTANT COMMISSIONER
[Citation -1985-LL-0611]

Citation 1985-LL-0611
Appellant Name RAVI TEXTILE (P) LTD.
Respondent Name INSPECTING ASSISTANT COMMISSIONER
Court ITAT
Relevant Act Income-tax
Date of Order 11/06/1985
Assessment Year 1970-71, 1971-72
Judgment View Judgment
Keyword Tags initiation of penalty proceedings • private limited company • estimate of advance tax • period of limitation • allowable deduction • reason to believe • fresh assessment • mercantile basis • rate of interest • self-assessment • credit balance • income liable • time barred
Bot Summary: VICE PRESIDENT ELHENCE, J.M.: ORDER These are four appeals filed by the assessee. Shri C. S. Agarwal, the learned counsel for the assessee firstly submitted that the levy of penalties by penalty orders were time barred in terms of s. 275(a) of the Act under which the penalty orders were required to be passed within six months from the end of the month in which the order of the Tribunal was received by the CIT. He argued that the limitation for the aforesaid periods could not be reckoned afresh from the date of the order passed by the learned IAC giving affect to the decision of the Tribunal, by treating the said order passed by the IAC as a fresh order of assessment under s. 143(3) of the Act. 27th March, 1981 of the IAC. On merits, Shri Agarwal reiterated the defence put forward on behalf of the assessee before the IAC. Additionally, so far as the penalities under s. 273 are concerned, he pointed out that no estimates were filed by the assessee for both the years and the default was committed by the assessee under s. 273(b) whereas in the penalty orders, it was mentioned by the IAC as under s. 273(a). 27th Order of the IAC framing assessment separately for both March, the assessment years in the light of the order of the Tribunal. Neither the assessment order nor the remand report states the actual opening and closing balance the assessee s account in the books of H. B. Swarup. In the case of Kooka Sidhwa Co., the Calcutta High Court had held that where pursuant to the directions of the Tribunal to revise and amend the assessment, the ITO revises the assessment, the order passed by the ITO partakes the character of a fresh assessment order. After the order of the Tribunal, the assessment order was passed on 27th March, 1981 where after separate notice were issued under ss.


VICE PRESIDENT ELHENCE, J.M.: ORDER These are four appeals filed by assessee. They arise out of consolidated. orders, both dt. 4th Feb., 1984 of learned CIT (A), New Delhi, for asst. yrs. 1970-71 and 1971-72. Two appeals relate to penalty under s. 271(1) (a) of IT Act, 1961 ( Act ) and two to penalty under s. 273 of Act. 2 . assessee Ravi Textile Co., 6926, Chandrawal Road, Delhi, is private limited company. For asst. yrs. 1970-71 and 1971-72, returns were due to be filed on or before 30th June, 1970 and 30th June, 1971, whereas returns were actually filed by assessee on 3rd Oct., 1972 and 20th Dec., 1973, respectively, after delay of 26 and 29 completed months, respectively. Accordingly, ITO initiated penalty proceedings under s. 271(1) (a) for both years. For asst. yr. 1970-71, explanation of assessee was that accounts could not be closed because of certain unavoidable circumstances. For asst. yr. 1971-72, its explanation of assessee was that audit of accounts was not completed and that it was completed only on 23rd April, 1973. However, ITO did not accept these explanations and levied penalties of Rs. 19,327 and Rs. 34,568 at rate of 2 per cent month and restricted to 50 per cent of tax. 3 . On appeal, before learned CIT (A), firstly, is was stated that penalties were barred by limitation. This contention was not accepted by learned CIT (A). On merits learned CIT (A) held that so for as asst. yr. 1970- 71 was concerned, auditor s certificate was dt. 8th Oct., 1971 and that even after accounts had been audited return was filed late by about year for which no cause whatsoever had been shown. Even for earlier period, learned CIT (A) held that it had not been indicated as to what unavoidable circumstances were. So far as asst. yr. 1971-72 is concerned, learned CIT (A) observed that it was not indicated as to why audit of accounts could not be completed earlier that 23rd April, 1973. He also observed that assessee neither paid tax in advance nor by way of self-assessment or after completion of regular assessment. He, therefore held, that assessee had no reasonable cause for either of two assessment years. penalties were, therefore, confirmed. 4 . ITO also initiated penalty proceedings for both assessment years in question for assessee s failure to file estimates of advance tax payable by it. After considering assessee s explanation, ITO, holding defaults to be established levied penalties of Rs. 5,798 and Rs. 8,950 under s. 273(c) for assessment years in question. 5. On appeal, learned CIT (A) noticed that assessee-company was incorporated on 9th Oct., 1967 and that its accounting year ended on 30th Sept., 1968 relevant to asst. yr. 1969-70. He also noticed that first assessment, i.e., for asst. yr. 1969-70 was completed on 29th March, 1972 and, therefore, in respect of each of assessment years in question, assessee-company was new assessee within meaning of s. 212(3) of Act as it stood before its omission by Finance Act, 1978, w.e.f. 1st June, 1978. He, therefore, held that assessee was liable to penalty under s. 273(b) as it stood before its amendment by Finance Act, 1969, w.e.f. 1st April, 1970. Finding that penalty imposed was minimum, learned CIT (A) confirmed penalty. 6. That is how assessee-company has come up in appeals before us. Shri C. S. Agarwal, learned counsel for assessee firstly submitted that levy of penalties by penalty orders (all dt. 18th March, 1983) were time barred in terms of s. 275(a) (ii) of Act under which penalty orders were required to be passed within six months from end of month in which order of Tribunal was received by CIT (A). He argued that limitation for aforesaid periods could not be reckoned afresh from date of order passed by learned IAC giving affect to decision of Tribunal, by treating said order passed by IAC as fresh order of assessment under s. 143(3) of Act. He submitted that Tribunal had not set aside original assessment as whole but had merely desired recomputation of allowable deduction for interest and, thus, original order of assessment continued to service leaving no room for fresh order under s. 143(3). He also painted out that in original assessment orders for both years, penalty proceedings under ss. 271(1) (a) and 273 had been initiated and, therefore, there was no further occasion to again initiate proceedings in giving effect to order of IAC. He argued that fact that income had to be recomputed in accordance with order of Tribunal, did not mean that fresh assessment order had to be passed specially when Tribunal had itself not stated that assessment was being set aside as whole but had decided issues involved and left certain calculations to be worked out by lower authorities. Reliance was placed by him in support of aforesaid arguments on following decisions - Kooka Sidhwa & Co. vs. CIT (1964) 54 ITR 54 (Cal), Addl. CIT vs. N. V. Ganapathi Rao 1978 CTR (AP) 231 : (1978) 1 15 ITR 277 (AP), CIT vs. Rajinder Kumar Somani (1980) 125 ITR 756 (Del) and S. Gurdial Singh vs. WTO (1983) 6 ITD 305 (Del). He submitted that penalty orders were also not passed within six months of order dt. 27th March, 1981 of IAC. On merits, Shri Agarwal reiterated defence put forward on behalf of assessee before IAC. Additionally, so far as penalities under s. 273 are concerned, he pointed out that no estimates were filed by assessee for both years and, therefore, default was committed by assessee under s. 273(b) whereas in penalty orders, it was mentioned by IAC as under s. 273(a). So far as penalty under s. 271(1) (a) is concerned, apart from reiterating arguments made before IT authorities, Shri Agarwal relied upon following decisions CIT vs. Vegetable Products Ltd. 1973 CTR (SC) 177 : (1973) 88 ITR 192 (SC) and Addl. CIT vs. Sohanlal Dugar (1984) 41 CTR (Raj) 50 : (1985) 15 2 ITR 635 (Raj). On other hand, Shri M. M. Bharati, learned Departmental Representative placed strong reliance on orders of IT authorities. He pointed out that dispute had been restored to AO, after which he examined assessee and so whole of assessment was to be reframed. He submitted that express mention that assessment order was being set aside was not necessary. He, therefore, argued that period of limitation was to be reckoned from final order. He also pointed out that no replies had been filed by assessee to initiation of penalty proceedings made by means of original assessment orders, and that no objection was taken by assessee to initiation of penalty proceedings order dt. 27th March, 1981. Reliance was also placed by him on Division Bench decision of Tribunal in Seth Panchhi Ram & Co. vs. ITO (1984) 8 ITD 338 (Chd). 7. We have considered rival submissions as also decisions referred to above. We have also looked into original records made available to us by Departmental Representative and referred to at time of arguments. assessee s objection as to limitation may be examined first. In that connection, it is necessary to examine certain dates which are given below : 3rd Oct., Return filed for asst. yr. 1970-71. 1972 27th Assessment order passed by ITO for asst. yr. March, 1970-71. 1973 5th Order of AAC for asst. yr. 1970-71 remanding Sept., case to ITO. 1973 16th Remand report given by ITO for asst. yr. 1970- July, 71. 1974 2nd Final order passed by AAC for asst. yr. 1970-71 Dec., and separate order passed by AAC for asst. yr. 1971- 1975 72. Consolidated order passed by Tribunal in IT Appeal 24th Nos. 1188 and 1189 (Delhi) of 1976-77 for asst. yrs. 1970- May, 71 and 1971-72.Matter restored to ITO for purposes of 1978 working out actual quantum of interest for both years (vide para Nos. 11 and 20 of that orders). 27th Order of IAC framing assessment separately for both March, assessment years in light of order of Tribunal. 1981 15 Order of CIT (A) for asst. yrs. 1970-71 and 1971- th Jan., th Jan., 72 against orders dt. 27th March, 1981 of IAC. 1982 While restoring matter to ITO for purposes of working out actual quantum of interest, following observations were made by Tribunal in para Nos. 11 and 20 of its order. Paragraph No. 11 deals with asst. yr. 1970-71 and para No. 20 with asst. yr. 1971-72 : "11. After hearing parties and on looking into material on record, we hold : (i) assessee s accounting being on mercantile basis and there being n o dispute on borrowals from H. B. Swarup, liability did accrue to assessee this year on account of interest due to said creditor. (ii) Such liability is to be allowed at 12 per cent on relevant credit balance of creditor, there being no dispute between assessee and creditor that rate of interest would be 12 per cent. We, however, find that for purposes of working out actual quantum matter has to go back to ITO again though, as rightly pointed out by Shri Agarwal, this would involve some hardship to assessee. We find that it is necessary to send back matter to ITO because, firstly, as pointed out by Shri Agnihotri, claim that Rs. 5,000 had been paid back to creditor, been not made before authorities below. I would be useful to have amount between parties examined in light of this information now made available. Secondly, entries regarding interest debits noted by ITO in assessment order vary from those accorded in remand report. Neither assessment order nor remand report states actual opening and closing balance assessee s account in books of H. B. Swarup. We find, it would be necessary to reconcile account of assessee in books of creditor with account of creditor in books of assessee and then work out interest on relevant amount at 12 per cent and then allow such liability as deduction against profits this year. For this limited purpose, we are restoring matter to file of ITO. He is directed to dispose of assessee s claim in this regard in light of observations in this order. 20. next objection relates to disallowance of Rs. 34,502 on account of interest payable to H. B. Swarup. ITO effected disallowance following his order for preceding year. We have already restored dispute on such interest to ITO. Hence, we restore dispute for this year also in this regard to file of ITO (interest payable to H. B. Swarup). ITO is directed to dispose of assessee s claim in line with our observations and directions for immediately preceding year. Thus, though assessment orders were not set aside as whole, they were set aside in part, i.e., so far as question of interest was concerned. We also find from order dt. 27th March, 1981 of IAC that he also rightly treated matter as having been set aside for determining correct amount of interest. He, therefore, mentioned in that order that assessments were being framed in view of observations of Tribunal. We need not go into details of finding of IAC in that regard. In this connection it is also pertinent to notice that appeals were filled by assessee before CIT (A) against aforesaid orders dt. 27th March, 1981 of IAC which were disposed of by his order dt. 15 th Jan., 1982 by which income was reduced by Rs. 17,462 for asst. yr. 1970-71 and by Rs. 2,891 for asst. yr. 1971-72. In case of Kooka Sidhwa & Co. (supra), Calcutta High Court had held that where pursuant to directions of Tribunal to revise and amend assessment, ITO revises assessment, order passed by ITO partakes character of fresh assessment order. In case of N. V. Ganapathi Rao (supra), Hon ble Andra Pradesh High Court was considering case of remand and it is in that context that it held that period of limitation of two years applied not only to proceedings which were completed for first time by ITO but also to proceedings that ensured pursuant to remand order passed by appellate authority remanding matter to lo w e r authorities. In case of Seth Panchhi Ram & Co. (supra), assessment was completed on 17th March, 1970 but assessment as well as penalty imposed in course of assessment was set aside by Tribunal. Tribunal directed ITO to make fresh assessment. ITO completed fresh assessment on 30th Sept., 1974. penalty proceedings had to be initiated in course of de novo assessment and IAC imposed penalty under s. 271(1) (c) on 23rd May, 1977. It was held that penalty will not suffer from bar of limitation of time in present case, even though assessment orders were partially set aside, assessments were reframed and against which appeals were filed before CIT (A) (there being no further appeal to Tribunal so far as parties know) and, therefore, under s. 275(a) (i), orders imposing penalties under s. 271(1) (a) and 273(c) could be passed within two years from end of financial year in which proceedings were completed, i.e., by 31st March, 1983, because this period expired later than period which was reckonable under s. 275(a) (ii) with reference to order dt. 15 th Jan., 1982 of CIT (A). So, penalty orders were well within time. 8. next question which requires consideration is regarding initiation of penalty proceedings, for asst. yr. 1970-71. original assessment order was passed on 28th Feb., 1973. Notice was issued under s. 271(1) (a) on 26th March, 1973. On same day, another notice was issued under s. 273 for failure to file estimate and reply was called for in 15 days. On 8th Jan., 1975, another composite notice was given under ss. 271(1) (a) and 273(b) among others. After order of Tribunal, assessment order was passed on 27th March, 1981 where after separate notice were issued under ss. 273 and 271(1) (a) on 27th March, 1981. Thereafter again, notices were given on 8th March, 1973 under ss. 271(1) (a) and 273(c) among others. combined reply to show-cause notices was filed on 15 th March, 1983. In penalty order for asst. yr. 1970-71, it was mentioned that assessee furnished estimated statement of accounts of advance tax payable by it under s. 212(3A), which it knew or had reason to believe to be untrue. Actually default which was committed by assessee was that of failure to furnish statement of advance tax. IAC held that assessee had committed default under s. 273(1) (a), i.e., for furnishing statement of advance tax which it knew or had reason to believe to be untrue. Penalty was levied accordingly in amount of Rs. 2,899. So far as asst. yr. 1971-72 is concerned, original assessment was completed on 10th Dec., 1974 and notices were issued among others under ss. 273 and 271(1) (a) on 10th Dec., 1974. assessee was given 15 days time to file reply. notice under s. 273 was for failure to file estimate. Thereafter on 28th Nov., 1979, fresh notices were issued among others under ss. 273 and 271(1) (a) on 10th March, 1980. On 27th March, 1981, assessment order was passed wherein it was mentioned that among other sections, proceedings under s. 271(1) (a) and 273(1) (a) had been initiated. On day, separate notices were issued for 29th April, 1981, under s. 271(1) (a) for late filing of return and also for not filing estimate. Another notice was issued fixing 15 th March, 1983 on which date combined reply was filed by assessee . For this assessment year also, penalty order says that during course of assessment proceedings. It was noticed that assessee furnished estimate of advance tax payable by it under s. 212(2), which it knew or had reason to believe to be untrue. IAC again said that assessee had committed default under s. 273(1) (a), i.e., for furnishing statement of advance tax payable by it which it knew or had reason to believe to be untrue. penalty of Rs. 4,475 was levied. They show that though penalties were rightly initiated under s. 273(b), but matter was dealt with as if default committed by assessee was under s. 273(a). However, in appeal before CIT (A), no objection was taken on behalf of assessee in this regard and matter was argued on basis of s. 273(1) (b). 9 . We, therefore, find initiation of penalty proceedings to be quite valid. Before us, it was submitted on behalf of assessee on merits, that it had reasonable and sufficient cause for not filing estimate of income liable to advance tax and for not paying such advance tax, as assessee was wholly unaware of relevant provisions of Act in this regard. It is not under dispute that first assessment in case of assessee, i.e., for asst. yr. 1969-70, was completed on 29th March, 1972 and, therefore, for each of assessment years under consideration, assessee was new assessee within meaning of s. 212(3). assessee not having been able to substantiate ground of ignorance, there was no reason why penalty should not have been levied for default under s. 273(1) (b). We uphold same. 10. So far as penalty under s. 271(1) (a) is concerned, it was argued on behalf of assessee that for assessment years in question, there was sufficient and reasonable cause for delay in filing return because till October/April 1973, accounts chould not be closed/audited and that October/April 1973, accounts chould not be closed/audited and that thereafter owing to certain unavoidable circumstances, accountant who had been entrusted with this task, could not prepare necessary papers for filing returns of income. learned CIT (A) had found that for asst. yr. 1970- 71, auditors certificate was given on 8th Oct., 1971 and even after accounts had been audited, return was filed late by about year. same was position for asst. yr. 1971-72. assessee being private limited company, audit of its accounts was necessary and report of audit had to be filed along with returns. Considering these aspects, we are of view that so far as asst. yr. 1970-71 is concerned, there was reasonable cause for delay up to 8th Oct., 1971 for filing return and, therefore, in absence of reasonable cause, thereafter, penalty, was leviable for period 8th Oct., 1971 to 3rd Oct., 1972. Similarly, so far as asst. yr. 1971-72 is concerned, audit was made on 23rd April, 1973, and since reason for delay thereafter has not been established, penalty was leviable under s. 271(1) (a) for period 23rd April, 1973 to 20th Dec., 1974. We, therefore, uphold levy of penalty for above periods which shall be calculated by IAC. 11. In result, IT Appeal Nos. 1700 and 1701 fail and are dismissed, whereas IT Appeal Nos. 1702 and 1703 are partly allowed. *** RAVI TEXTILE (P) LTD. v. INSPECTING ASSISTANT COMMISSIONER
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