Sreedharan and Company Ltd. vs Commissioner of Income Tax

This original petition is filed u/s 256(2) of the Income Tax Act, 1961 (for short "the Act"), for compelling the Income Tax Appellate Tribunal, Cochin Bench, to refer the following questions of law said to arise out of the order of the Appellate Tribunal in I. T. A. No. 748/Coch, of 1986.

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in confirming the penalty of Rs. 2,24,620 levied u/s 140A(3) of the Income Tax Act, 1961 ?

(2) Whether there was material for the Tribunal to sustain the levy of penalty of Rs. 2,24,620 in view of the fact that there was paucity of funds for payment of the tax which was a reasonable cause ?"

The petitioner filed his returns for the assessment year 1984-85 on January 24, 1985. He paid only part of the tax due along with the returns of income. The Income Tax Officer, therefore, issued a show-cause notice dated July 29, 1985, requiring the petitioner to show cause why penalty u/s 140A(3) of the Act should not be imposed. The assessee gave a reply in which it was submitted that, due to increase in the auction amount of kist, it was put in financial difficulties. It was submitted that the assessee had to pay more than Rs. 56 lakhs in February-March, 1984, and more than Rs. 46 lakhs in February-March, 1985. It had also to make a security deposit to continue the business. Hence, it was pleaded that the delay in payment of the admitted tax was due to non-availability of funds. The Income Tax Officer imposed a penalty of Rs. 2,24,620 by his order dated November 14, 1985. An appeal was filed before the Commissioner of Income Tax (Appeals). The assessee submitted before the Commissioner that there was no wilful negligence on the part of the assessee as the entire tax had been paid subsequently. But the Commissioner of, Income Tax (Appeals) dismissed the appeal holding that the petitioner utilised the funds for payment of kist dues and for continuing his business instead of remitting the tax arrears. In further appeal before the Appellate Tribunal, the assessee reiterated its contentions, but without success. Aggrieved by the order of the Tribunal, the petitioner filed a petition u/s 256(1) of the Income Tax Act praying to refer the two questions hereinbefore mentioned. That application was dismissed holding that the questions whether the assessee had sufficient funds or whether there was a reasonable cause for not paying the tax are all questions of fact and, therefore, no referable question of law arose out of the order of the Tribunal. It is thereafter that this petition is filed for compelling the Appellate Tribunal to refer the questions of law hereinbefore mentioned. We heard Sri P. Balachandran for the assessee and Sri P. K. R. Menon for the Revenue.

The Appellate Assistant Commissioner found that the assessee had sufficient liquid funds, but it was utilising the same for payment of kist dues and for taking part in the arrack shop auction for carrying on its business and paucity of funds was precipitated. The Tribunal, as a matter of fact, found that the assessee had utilised the funds for advancing funds to its sister concerns instead of remitting the tax. As on April 1, 1983, the amount advanced to Sri. K. Sreedharan and Company, a sister concern, itself was more than Rs. 58 lakhs. Therefore, the difficulty for funds arose, according to the Tribunal, because the assessee had diverted the available funds to sister concerns. The Tribunal also found that the assessee had utilised the available funds for construction of a theatre and hotels. It is because of these, according to the Tribunal, that the assessee found shortage of funds for paying Income Tax. The Income Tax liability arose as and when the income was earned and the assessee who had a profit of more than Rs. 60 lakhs ought to have made provision for payment of tax at the end of the year. These are questions of fact which have been arrived at by the Appellate Tribunal after adverting to the relevant facts.

Counsel for the petitioner submitted that the Tribunal was carried away by the fact of loans made to sister concerns, but that was as on April 1, 1983. The income that has been earned during the accounting year and the tax to be paid were all within the knowledge of the assessee. Where the assessee was prevented by reasonable cause from making payment of the admitted tax, the Income Tax Officer has the discretion not to impose penalty. It is for the assessee to show that the circumstances did not call for imposition of penalty. The question whether, in a particular case, the non-payment of tax arose out of genuine difficulties beyond the control of the assessee is purely a question of fact to be decided by the authority. If a reasonable cause is shown by the assessee, the Income Tax Officer should necessarily exonerate the assessee. But this provision should not be used for non-payment of the admitted tax. In Commissioner of Income Tax Vs. Chembara Peak Estates Ltd., this court-examined a like case wherein this court held that imposition of penalty cannot be an automatic consequence of default in payment of tax. Therein, this court examined the decision in Bhauram Jodhraj Properties (P.) Ltd. Vs. Commissioner of Income Tax, Assam, wherein the plea that there was shortage of liquid cash because the assessee had invested the same in heavy construction work was not accepted as sufficient ground. Similarly, in Juggilal Kamlapat Cotton Spg. and Wvg. Mills Co. Ltd. v. CST [1979] Tax LR 1773, the Allahabad High Court held that diversion of sales tax realised to a sister concern will not constitute a reasonable ground. Ultimately, this court held that the question whether the facts of a given case will constitute good and sufficient reason for not imposing a penalty is a question of fact

On going through the appellate order in question, we are satisfied that the Tribunal did not base its findings on irrelevant considerations. Extraneous considerations have not been taken into account by the Tribunal. The Tribunal entered its findings on appreciation of the entire facts. The argument that the Tribunal referred to the loan to the sister concern as on April 1, 1983, did not appeal to us. The questions whether available funds have been siphoned off and whether, if the funds were not diverted, the assessee would have been able to discharge the liability under the Income Tax Act, have been considered by the Tribunal and a finding has been arrived at on appreciation of facts. The finding is one of fact and we find that no referable questions arise out of that finding.

The original petition is, therefore, dismissed.