COMMISSIONER OF Income Tax vs M.L. NARANG AND O.P. NARANG

Pasayat, C.J.

Questions referred in these reference applications being identical, this judgment shall govern both of them.

Pursuant to this court''s directions in ITCs No. 115 and 116/76, u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as ''the Act''), the Tribunal has referred the following question, in each case, pertaining to assessment year 1966-67, for opinion of this court :

"Whether, on the facts and in the circumstances of the case, was the Tribunal right in cancelling the penalty levied u/s 140A(3) ?"

Background facts, which are almost undisputed, are as follows :

For the assessment year 1966-67, assessees, i.e., M.L. Narang and O.P. Narang, who were partners in the firm Narang & Co. submitted their returns of income. As admitted, Income Tax in terms of section 140A was not paid in each of the cases, notices were issued to the respective assessees to show cause why penal action as contemplated u/s 140A(3) should not be taken. Matter was adjourned from time to time at the request of the assessed and was posted on 16-9-1970, 7-10-1970 and 12-10-1970. On the last date, it was made clear that if no reply to the show cause is submitted no further opportunity will be granted. Notwithstanding this clear indication, another opportunity was granted on 14-4-1972 and 26-4-1972 was fixed as the next date. On that date also there was an application for adjournment and the matter was adjourned to 28-4-1972 with clear stipulations that if the amount of tax due u/s 140A has already been paid, proof thereof should be produced, otherwise it shall be presumed that the amount has not been paid. It was made clear that no further adjournment shall be allowed. However, on 28-4-1972 there was another request for adjournment which was turned down and by order dated 1-5-1972 penalty was imposed. Matter was carried on in appeal before the Appellate Assistant Commissioner. Though it was held by the Appellate Assistant Commissioner that penalty was leviable, direction was given to work out the tax payable and to reduce the quantum of penalty to 50% of the tax payable, if calculations as given by the respective assessees were found to be correct. Matter was carried in further appeal by each of the assessees before the Tribunal. Referring to some other earlier decisions, the Tribunal was of the view that if on the date of imposition of penalty no tax was due, there is no scope for imposition of any penalty u/s 140A. It was noticed that tax in fact was paid on 29-4-1972. Reference applications filed were turned down. But pursuant to directions given by this court question as stated above has been referred for opinion.

We have heard the learned counsel for revenue. There is no appearance for the assessees in spite of service of notices.

Section 140A was inserted by section 34 of the Finance Act, 1964. The section at the relevant time read as follows :

"140A. Self-assessment(1) Where a return has been furnished u/s 139 and the tax payable on the basis of that return as reduced by any tax already paid under any provision of this Act exceeds five hundred rupees, the assessed shall pay the tax so payable within thirty days of furnishing the return.

(2) After a provisional assessment u/s 141 or a regular assessment u/s 143 or section 144 has been made, any amount paid under sub-section (1) shall be deemed to have been paid towards the provisional assessment or regular assessment, as the case may be.

(3) If any assessed fails to pay the tax or any part thereof in accordance with the provisions of sub-section (1), he shall, unless a provisional assessment u/s 141 or a regular assessment u/s 143 or section 144 has been made before the expiry of thirty days referred to in that sub-section, be liable, by way of penalty, to pay such amount as the Income Tax Officer may direct, so, however, that the amount of penalty does not exceed fifty per cent of the amount of such tax or part, as the case may be:

Provided that before levying any such penalty, the assessed shall be given a reasonable opportunity of being heard."

The requirement was to pay admitted tax within thirty days of furnishing the returns. Admittedly, for the assessment year 1966-67, admitted tax was not paid in terms of section 140A. Return was filed in each case on 15-3-1967 and tax u/s 140A became due on 14-4-1967. Though levy of penalty is not automatic as fairly accepted by the learned counsel for revenue, yet the assessed has to show as to what was the reason for not making the payment within the stipulated time. For this purpose, opportunity is granted to the assessed to place materials to substantiate reasons for delay in payment of admitted tax, if any. This is clear from proviso to section 140A.

Prior to amendment by the Taxation Laws (Amendment) Act, 1975 an assessed could file his return and then calculate the tax payable in accordance therewith. If he found that such tax was in excess of Rs. 500, he could be allowed to pay the same within thirty days of furnishing the return. The substitution made with effect from 1-4-1976, operative till 31-3-1989, required payment of tax before filing of return, as proof of payment of tax was required to be attached to the return itself. Payment of tax before the date on which penalty was levied per se does not constitute a reason not to levy penalty. The assessed is required to show reasonable cause as to why there was non-payment within stipulated time.

In the instant case, the facts would go to show that several opportunities were granted to the assessees but they failed to indicate reasons for not paying the admitted tax during the stipulated time. In fact, after the last date of hearing tax is stated to have been paid. Merely because order imposing penalty was not passed on that date and between the last date of hearing and date of order tax was paid, that does not dilute the consequences flowing from non-compliance with the requirements of section 140A.

The Tribunal was, Therefore, not justified in its conclusion to hold that penalty was not imposable. That being the position, we answer the question referred in each case in the negative, i.e., in favor of the revenue and against the assessees.