Commissioner of Income Tax vs H.P. State Co-operative Bank

Deepak Gupta, J.—This appeal has been admitted on the following question of law:

Whether, the absence of the proviso to Section 13 of the Interest-tax Act, 1974 corresponding to Explanation 3 to Section 271 (1) (c) of the income tax Act, 1961, could render the case ineligible for penalty u/s 13 of the Interest-tax Act even on the differential amount of tax sought to be evaded i.e., the difference of tax sought to be evaded on chargeable interest assessed by the Assessing Officer and chargeable interest returned by the Assessee ?

Briefly stated the facts of the case are that for the assessment year 1992-93 the Assessee filed no return under the Interest-tax Act, 1974 (hereinafter referred to as "the Act"). Notice u/s 10 of the Act was issued to the Assessee on September 12, 1995. In response to the notice the Assessee filed a return declaring chargeable interest at Rs. 7,18,86,395. The assessment was completed on February 26, 1998. The chargeable interest was assessed at Rs. 15,21,18,010. Therefore, additional demand was raised. The appeal filed by the Assessee against the assessment order was allowed to a limited extent and fresh assessment was ordered to be made. After fresh assessment the chargeable interest was determined at Rs. 16,63,05,388 on May 5, 2002.

Notice for assessment of penalty in terms of Section 13 of the Interest-tax Act was also issued to the Assessee. The Assessee filed reply to the show-cause notice. The Assessing Officer rejected the contention of the Assessee on the following grounds:

(i) The Assessee failed to file return of chargeable interest voluntarily by due date, i.e., December 31, 1992. It filed return declaring chargeable interest at Rs. 7,18,86,395 on February 19, 1996 in response to notice u/s 10 of the Interest-tax Act, 1974.

(ii) At the time of assessment, the chargeable interest has been determined at Rs. 16,63,05,388 against chargeable interest returned at Rs. 7,18,86,395.

(iii) From the Assessee''s reply dated August 9, 2002, it is clear that the Assessee has not filed any appeal against the assessment order dated February 5, 2002, and has accepted the amount of chargeable interest determined at Rs. 16,63,05,388 by the Assessing Officer.

(iv) The Assessee has not previously been assessed under the Interest-tax Act, 1974. Its return of interest-tax was due on or before December 31, 1992. But it filed return on February 19, 1996, in response to notice u/s 10 of the Interest-tax Act, 1974. Explanation 3 to Section 271 (1) (c) of the income tax Act, 1961 substituted by the Direct Tax Laws (Amendment) Act, 1989, with effect from April 1, 1989 reads as under:

Where any person who has not previously been assessed under this Act, fails, without reasonable cause, to furnish within the period specified in Sub-section (1) of Section 153 a return of his income which he is required to furnish u/s 139 in respect of any assessment year commencing on or after the first day of April, 1989, and until the expiry of the period aforesaid, no notice has been issued to him under Clause (i) of Sub-section (1) of Section 142 or Section 148 and the Assessing Officer or the Commissioner (Appeals) is satisfied that in respect of such assessment year such person has taxable income, then, such person shall, for the purposes of Clause (c) of this Sub-section, be deemed to have concealed the particulars of his income in respect of such assessment year, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice u/s 148.

Thereafter, the Assessing Officer imposed penalty equal to three times of the interest-tax sought to be evaded and accordingly imposed penalty of Rs. 1,49,67,486. The appeal filed by the Assessee was partly allowed and the penalty was reduced from three times the tax evaded to an amount equal to the tax evaded i.e., from 300 per cent, to 100 per cent. The Assessee again filed an appeal challenging the imposition of the penalty itself. This appeal was allowed by the income tax Appellate Tribunal. The relevant portion of the order of the income tax Appellate Tribunal reads as follows:

When we compare the provisions of Section 13 of the Interest-tax Act, 1974 and Explanation 3 to Section 271 (1) (c), it is observed that there is no such provision under the Interest-tax Act, 1974 corresponding to Explanation 3 to Section 271 (1) (c). It is, therefore, abundantly clear that the basis adopted for imposition of penalty by the Revenue authorities is not in accordance with the provisions of the Interest-tax Act, 1974. Since the basis for imposition of penalty u/s 13 is not in accordance with the provisions of the Interest-tax Act, 1974, we are unable to sustain the same. Penalty is accordingly cancelled.

This was the only ground on which the imposition of penalty was set aside.

There can be no dispute with the finding of the Tribunal that Section 271 (1) (c) of the income tax Act could not be taken into consideration while imposing the penalty. Section 21 of the Interest-tax Act makes certain provisions of the income tax Act applicable to proceedings under the Interest-tax Act. Section 271 is not included therein. Therefore, there can be no quarrel with the proposition that Section 271 (1) (c) was wrongly invoked by the Assessing Officer and the Commissioner of income tax. However, as is apparent from the portion of the order of the Assessing Officer quoted hereinabove, Section 271 (1) (c) was only one of the four grounds which were taken into consideration by the Assessing Officer. The Assessing Officer had also considered three other grounds which have not been considered by the Tribunal at all. Since one of the factors which was taken into consideration by the Assessing Officer could not be taken into consideration, his order may have to be set aside but the matter should have been remanded to him to determine the question as to whether the penalty is leviable in terms of Section 13 of the Interest-tax Act or not. The Tribunal could not have set aside the entire order on this ground alone.

Section 13 of the Act provides that penalty which shall not be less than the amount of tax sought to be evaded but shall not exceed three times the amount of tax sought to be evaded, can be levied in case the Assessee has concealed particulars of chargeable interest or has furnished inaccurate particulars of such interest. The provision of Section 271 (1) (c) which lays down a presumption against the Assessee in case of non-filing of return within a particular time is not applicable to interest-tax proceedings. However, de hors of Section 271 (1) (c), Section 13 does provide the grounds and procedure for levy of penalty. In case the Assessing Officer is convinced that the Assessee has concealed particulars of chargeable interest or has furnished inaccurate particulars penalty can be levied.

We accordingly decide the question in favour of the Revenue and remand the case to the Assessing Officer who shall determine the question as to whether the Assessee is liable to pay penalty and if so to what extent strictly in consonance with the provisions of Section 13 of the Interest-tax Act and totally uninfluenced by the provisions of Section 271 (1) (c) of the income tax Act.