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Concise Analytical Summary — ITA No.122/Agr/2012 (A.Y. 2006-07)

Factual and Procedural Background

The appeal was filed by the assessee, Union Bank of India (Mathura), against the order dated 14.10.2011 of the learned CIT(A)-I, Agra for assessment year 2006-07. The assessing officer (AO) levied penalties under section 272A(2) of the Income Tax Act for late filing or non-filing of quarterly TDS returns (Form 24Q). The matter had an earlier round of litigation (ITA No.707/Agr/2008) in which the I.T.A.T. by order dated 31.05.2011 remanded the matter to the file of the CIT(A) and directed the CIT(A) to provide an opportunity of hearing. On remand the CIT(A) (a) considered objection to the validity of the show cause notice (which had a typographical reference to clause (c) instead of clause (k) of s.272A(2)), (b) upheld the imposition of penalty after remand, and (c) computed the penalty as Rs.27,300 (Rs.7,700 for Q2, Rs.1,600 for Q3 and Rs.18,000 for Q4). Before the Tribunal the assessee raised procedural and substantive grounds challenging the validity of proceedings and asserting reasonable cause for delay (notably because quarterly e‑filing was a new requirement).

Legal Issues Presented

  1. Whether the penalty proceedings were procedurally valid despite the show cause notice mistakenly referring to clause (2)(c) instead of clause (2)(k) of section 272A of the Act (i.e., whether the notice defect was curable).
  2. Whether the AO was required to issue separate notices and separate demands for alleged defaults in relation to each quarterly statement (24Q / 26Q).
  3. Whether there was reasonable cause for the late filing or non-filing of quarterly TDS returns (Form 24Q) in view of the introduction of e‑filing and the fact that it was the first year for filing such returns, thereby precluding imposition of penalty under section 272A(2).

Arguments of the Parties

Appellant's Arguments (assessee / its authorised representative)

  • The show cause notice before imposition of penalty was invalid because it did not issue notice specifically for default under section 272A(2)(k) but referred to clause (c) — thus, the penal proceedings were vitiated by lack of proper notice.
  • The AO should have issued separate notices and separate notices of demand for alleged defaults in relation to each quarterly statement (i.e., separate processes for different statements).
  • On merits, there was reasonable cause for delay or non-filing because the requirement of filing quarterly Form 24Q was newly introduced (e‑filing system) and this was the first year for such filings; further, tax had been deducted and deposited.
  • The CIT(A) erred in treating a mis‑reference to statutory clause as a typographical error and in not cancelling the penalty in its entirety.

Assessing Officer / Revenue Position (as reflected in the record)

  • The AO levied penalty under section 272A(2)(k) for late filing/non-filing and computed the amount as Rs.27,300 (breakdown: Rs.7,700; Rs.1,600; Rs.18,000).
  • As per the remand report and proceedings, the AO did not accept a reasonable cause explanation sufficient to avoid penalty, particularly because the fourth quarter return was not filed at all and the assessee could not satisfactorily explain that failure.

CIT(A)'s Findings (as recorded)

  • The CIT(A) held the defect in the notice (reference to clause (c) instead of (k)) to be a typographical error curable under section 292B of the Income Tax Act because the body of the notice clearly described the default (non‑filing of quarterly returns).
  • On merits the CIT(A) confirmed penalty, finding negligence (particularly in relation to the absent fourth quarter filing) and upheld the AO's computation of Rs.27,300 as the correct quantum of penalty.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CIT vs Superintending Engineer, Udaipur, (2003) 260 ITR 641 (Rajasthan High Court) Distinction between negligence and inadvertent office mistake: in case of negligence, infliction of minimum or nominal penalty is a legitimate exercise of discretion; in case of inadvertent official mistake, penalty may not be a sound exercise of power against heads of public office. The CIT(A) relied on this authority to explain that where there is negligence (as he found in the present case regarding non‑filing of Q4), penalty can be imposed; this authority was used to support a discretionary approach to penalty quantum where negligence is established.
Royal Metal Printers (P) Ltd. vs. ACIT, 37 SOT 139 (I.T.A.T., Mumbai Bench) Where a return filing requirement is newly introduced and the assessee has deducted and deposited tax, a first‑time technical or venial breach supported by reasonable cause may not attract penalty under section 272A(2). The Tribunal followed this ITAT Mumbai decision and treated the present facts (first year of filing 24Q, tax deducted and deposited) as similar; on that basis the Tribunal held that penalty under s.272A(2) was not leviable and cancelled the penalty of Rs.27,300.

Court's Reasoning and Analysis

The Tribunal engaged in a stepwise analysis reflecting procedural and substantive aspects:

  1. Procedural validity of notice (grounds 1 & 2): The Tribunal noted that the CIT(A) had treated the mention of clause (2)(c) instead of clause (2)(k) in the printed notice as a typographical error and found that the body of the notice clearly explained the default (non‑filing of quarterly returns). The Tribunal further applied section 292BB (which deems notices to be duly served where the assessee has appeared or cooperated in the proceeding) to hold that procedural objections to service or form of the notice were precluded. On this basis the Tribunal confirmed the CIT(A)'s rejection of the assessee's procedural objections.
  2. Requirement of separate notices (ground 3): The Tribunal examined the statutory framework and found no provision in the Income Tax Act that requires separate show cause notices or separate demands for penalties relating to different TDS statements (24Q and 26Q). Given that the penalties for these defaults are leviable under the same section (s.272A(2)), the Tribunal confirmed the CIT(A)'s view and rejected the contention that separate notices were mandatory.
  3. Substantive question — reasonable cause (ground 4 / merits): The Tribunal reviewed the facts: Q2 was late by 77 days, Q3 late by 16 days, and Q4 was not filed at all; the assessee admitted inability to explain the Q4 default satisfactorily. The CIT(A) had found negligence by the bank's managerial staff in failing to ensure compliance, particularly for Q4, and had accordingly imposed the computed penalty of Rs.27,300.
  4. Balancing mitigating material and precedents: The Tribunal considered that the requirement to file Form 24Q was introduced by the Income Tax (10th Amendment) Rules, 2005, w.e.f. 30.03.2005, making this the first year for such quarterly e‑filing. It took note of the Royal Metal Printers decision of the ITAT, Mumbai Bench, which holds that where filing was a newly introduced requirement and tax was deducted and deposited, a first‑time technical/venial breach supported by reasonable cause may not attract penalty. The Tribunal found the facts sufficiently similar to Royal Metal Printers (noting that tax had been deducted and deposited) and consequently concluded that penalty was not leviable in the present case.
  5. Outcome of the analytical balance: Although the Tribunal affirmed the procedural rulings of the CIT(A) (notice was not invalid and separate notices were not required), on merits it applied the mitigating principle from Royal Metal Printers and cancelled the entire penalty amount of Rs.27,300.

Holding and Implications

Holding:

Appeal Allowed. The penalty of Rs.27,300 imposed under section 272A(2) is cancelled.

Direct implications:

  • The Tribunal confirmed the CIT(A)'s procedural rulings that: (a) the defective reference to clause (2)(c) instead of clause (2)(k) in the printed notice was curable (and the notice was otherwise clear as to the default), and (b) there is no statutory requirement to issue separate notices for defaults in different quarterly statements.
  • Despite confirming those procedural aspects, the Tribunal, applying I.T.A.T. Mumbai precedent (Royal Metal Printers) and considering the newness of the 24Q filing requirement and the fact that tax had been deducted and deposited, cancelled the penalty on merits as a first‑time technical breach supported by reasonable cause.
  • No broader binding precedent was established beyond the Tribunal's application of existing authorities: the decision follows and applies prior ITAT authority; it does not purport to lay down a new general principle beyond the facts of the case.

Disposition: The appeal filed by the assessee was allowed in consequence of the cancellation of the penalty (Order pronounced in open court; signed by Judicial Member Bhavnesh Saini and Accountant Member A.L. Gehlot).

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    The Manager, Union Bank of India,, Mathura v. Additional CIT,Range-3, Mathura

    PER A.L. GEHLOT, ACCOUNTANT MEMBER: This is an appeal filed by the assessee against the order dated 14.10.2011 passed by the ld. CIT(A)-I, Agra for the A.Y. 2006-07 on the following grounds:-

    1. BECAUSE, on a due consideration of facts of the case and submissions made before him, learned CIT (Appeals) erred in holding that penal proceedings were valid overruling the objection that there was no notice issued to the appellant for default under section 272A(2)(k) of the Act and the impugned order could not be ITA No.122/Agr/2012 A.Y. 2006-07. held to be valid on the strength of notice(s) specifically issued for proceedings under section 272A(2)(c) of the Act.

    2. BECAUSE, learned CIT (Appeals) has while upholding validity of impugned proceedings on the strength of notice issued under section 272A(2)(c) of the Act, grossly erred in holding that it was a typographical error, whereas such a plea has never raised, pleaded or substantiated by the AO.

    3. BECAUSE, learned CIT (Appeals) has erred in not cancelling the impugned order on the ground that the AO should have issued separate notices and separate notice of demand in respect of alleged default for each statement.

    4. BECAUSE, on due consideration of the facts and circumstances of the case, submissions made and material placed on record, learned CIT(Appeals) has erred in not deleting the penalty as imposed by the AO under section 272A(2) of the Act in its entirety.

    2. The brief facts of the case are that the assessee is a Public Sector Bank, Union Bank of India, Mathura. This is the second round of litigation. In earlier round of litigation the appeal filed by the assessee before the I.T.A.T. in ITA No.707/Agr/2008 order dated 31.05.2011 the matter was sent back to the file of CIT(A). It was the contention before the I.T.A.T. that the requisite E-TDS returns were not filed or were late filed and the A.O. levied the penalty and CIT(A) confirmed the same under section 272A(2) of the Act without providing reasonable opportunity of hearing to the assessee. The assessee did not put his presence before the A.O. and no compliance was made to the show cause notice issue by the A.O. On the direction of the I.T.A.T., the CIT(A) provided opportunity of hearing ITA No.122/Agr/2012 A.Y. 2006-07. to the assessee. The assessee furnished submissions. The CIT(A) called for the remand report from the A.O. The CIT(A) rejected the assessees contention in respect of defects pointed out in initiating penalty proceedings by issuing notice as under :- (paragraph nos.5.3 & 5.4) 5.3 In view of the above notice issued by the Addl. CIT(OSD), Range-3, Mathura, the Addl. CIT, Range-3, Mathura has further issued a notice on 07/08/2007 before levying of a penalty in which reference of the notice dated 18.04.2007 issued by Addl. CIT(OSD), Mathura has also been given. Therefore, it cannot be said that the appellant was not aware as to for what default, the notice was issued to him and there was no confusion because of wrong mentioning of the section. Considering the above mistake in the notice in which instead of clause (k), clause (c) was printed, it can be very well said that it was a typographical error because in the body of the notice, default committed by the appellant was clearly mentioned as being not filing of quarterly return for all the four quarters as mentioned in the impugned notice. In my considered opinion, such mistake are very much curable under the provision of section 292B because it has been clearly provided under the provision of this section such notice cannot be held to be invalid merely by reason of any mistake, defect or omission, if such notice is in substance and effect in inconformity with or according to the intent and purpose of Income Tax Act 1961. Since in the body of the notice, default committed by the appellant has been clearly mentioned, there is no ambiguity in the issue of notice that it was issued to give a show cause notice to the appellant to explain the reason for not filing of quarterly return and as to why for such default, a penalty should not be levied on him. Therefore, I find that the notice issued before levying of penalty u/s 272A(2)(k) is in substance and effect is in conformity with the Income Tax Act, 1961 and the clause (c) typed in the notice instead of clause (k) is just a typographic error. ITA No.122/Agr/2012 A.Y. 2006-07. 5.4 I have also considered all the case laws cited by the Ld. AR and I find that these case laws would not apply in the present case as the fact of the case of the appellant in the instant case is different than the fact of all the cases mentioned by the Ld. AR because in case of the appellant in the notice issued to him, the default committed by him has been clearly mentioned in the notice and just because a clause of the concerned section under which the penalty was proposed to be levied is mentioned wrongly because of a typographical error, such notice cannot become invalid. Same was not the case in all the case laws referred by the Ld. AR. Therefore, objection taken by the Ld. AR on technical ground arguing that the impugned order was bad in law and hence, to be cancelled, is not found to be tenable and therefore, the technical objection taken by the Ld. AR is dismissed.

    3. On merit, the CIT(A) confirmed the penalty for late filing of quarterly return 24Q for second quarter which was delayed by 77 days, 24Q for third quarter was delayed by 16 days and 24Q for fourth quarter was not filed. The relevant finding of CIT(A) is reproduced as below :- (paragraph no.6)

    6. With regard to levy of penalty for late filing of form no.24Q, the present AO has given revised computation of the amount of penalty u/s 272A(2)(k), the total of which comes to Rs.27,300/- (Rs.7,700/- for second quarter, Rs.1,600/- for third quarter and Rs.18,000/- for fourth quarter). With regard to the computation of this amount, the Ld. AR in his rejoinder filed on 12.10.2011 has stated that with regard to form no.24Q, the Ld. ITO(TDS) has not disputed the submission except for calculation of period of delay pointing delay of two more days, but has calculated quantum of penalty with regard to actual amount tax deducted. As such, facts are not disputed. Considering this submission made by the Ld. AR in the rejoinder, I find that there is no dispute on the computation of penalty u/s 272A(2)(k) for late filing of form 24Q. While going through the remand report of the AO, I also find that though there is delay in filing of quarterly return for second and third quarter but for fourth quarter, the quarterly return has not at all been filed. In this regard, the Ld. AR in his rejoinder has stated ITA No.122/Agr/2012 A.Y. 2006-07. that the appellant is at much loss to explain as to why the fourth quarter salary statement was not filed at all. He has further explained by showing the payment made to the concerned CA that the service of this CA was taken for depositing of TDS and filing of quarterly return. It has been pleaded that there was no willful negligence or malafide on the part of the appellant in the matter of compliance, despite the fact that due to passage of considerable time, the appellant is unable to explain that whether form no.24Q for fourth quarter was in fact filed or not and if not why? As far as quantum of penalty is concerned, for delay in filing of form no.24Q/not filing of form 24Q is concerned, there is no dispute and the amount has been found as correctly determined by the AO at Rs.27,300/-. Now the question is that whether for such default, there was any reasonable cause. In this regard, I find that in the submission of the Ld. AR itself, it has been admitted that there is no explanation of not filing of form no. 24Q for the fourth quarter and hence, I find that the appellant is liable for penalty of Rs.18,000/- for not filing of quarterly return of fourth quarter. As far as the default relating to late filing of form no.24Q for second quarter and third quarter amounting to Rs.7,700/- and Rs.1,600/- are concerned, it has been tried to explain that such default has occurred due to change in law and it was first year when filing of quarterly statement was prescribed. In support of this contention, some case laws was also referred. There are two orders which were earlier passed by me also in which penalty was deleted after findings that such default has occurred for first time. I have gone through these case laws and as well as my earlier orders and I find that in those case laws and in my earlier orders, there was delay in filing of quarterly return but later, it has been found that the appellant started filing quarterly return in time. However, in the present case, quarterly return for earlier two quarters were filed late but for the last quarter, the quarterly return has not at all been filed for which, the appellant has no explanation and this shows the casual attitude of the appellant in complying with the statutory law. Had the appellant been careful and he would have checked in time, whether quarterly returns are being filed or not, the default of not filing of quarterly return in 4th quarter would have not happened. It has been held by the Hon'ble Rajasthan High Court in the case of CIT Vs Superintending Engineer, Udaipur (2003) 260 ITR 641 that in case of negligence, it would be an exercise of discretion to inflict minimum or nominal penalty but in case of inadvertent office mistake, it would not be a sound exercise of ITA No.122/Agr/2012 A.Y. 2006-07. judicial or quasi-judicial power to inflict a penalty on the head of the public office. Here, in the present case, I find that there is negligence on the part of the Manager of Union Bank of India to ensure after necessary checking whether the relevant law with regard to filing of quarterly return for fourth quarter are being complied with or not, which resulted into not filing of quarterly return and therefore, in my considered opinion, the appellant is liable for minimum penalty of Rs.27,300/- computed as per the provisions of the relevant section. Therefore, I confirm levying of penalty u/s 272A(2)(k) for default of the appellant in late filing of quarterly return/not filing of quarterly return.

    4. We have heard the ld. Representatives of the parties and records perused. The ld. Authorised Representative reiterated the submissions which were made before the CIT(A). The ground nos.1 & 2 has already been rejected by the CIT(A) after detailed discussion. Even otherwise also the contention of the assessee that there is mistake in notice as regards mentioning of clause (2) of section 272A of the Act is covered by section 292BB which provides that where an assessee has appeared in any proceeding or co-operated in any enquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such case shall be precluded from taking any objection in any proceeding or enquiry under this Act that the notice was not served upon him; or not served upon him in time; or served upon him in an improper manner. In the light of the fact, we confirm the order of the CIT(A) on these ground nos.1 & 2. ITA No.122/Agr/2012 A.Y. 2006-07.

    5. As regards to ground no.3 where the contention of the assessee is that the A.O. should issue separate notices for levy of penalty for late or non-filing of form 24Q and 26Q, we do not find such a provision in the Act for issuing separate notice as failure to file these forms penalty is leviable under section 272A(2) of the Act. In the light of the fact, we confirm the order of the CIT(A) and reject ground no.3 of the appeal.

    6. Now the issue to be examined whether under the facts and circumstances there was reasonable cause or not. In this regard, the contention of the assessee that there was reasonable cause for delay in filing of returns or for not filing of the returns as new system of e-filing of quarterly returns have been introduced. The penalty in the case under consideration has been levied for late filing of Form No.24Q in respect of second and third quarter ended 15.10.2005 & 15.01.2006 and non-filing of fourth quarter ended 11.06.2006. The requirement of filing quarterly 24Q has been inserted by the Income Tax (10th Amendment) Rules, 2005 w.e.f. 30.03.2005. The I.T.A.T., Mumbai Bench in the case of Royal Metal Printers (P) Ltd. Vs. ACIT, 37 SOT 139 held that it is well settled that ordinarily an assessee is duty bound to know the provisions of statute but in the event of making a claim of ignorance of law it is for the Revenue to examine the plea judiciously keeping in mind the fact that assessee who has deducted tax and deposited the same within the ITA No.122/Agr/2012 A.Y. 2006-07. stipulated time could have normally been said to be a law abiding citizen/assessee and the delay, under such circumstances, cannot ordinarily be attributable to wanton negligence, particularly when the penalty leviable can be equivalent to the tax deducted or deductible. The delay in filing the returns, even if they are characterized as negligence on the part of the assessee, can only be considered as a technical or venial breach of law for which penalty should not be levied automatically. In the case under consideration, we notice that the requirement of filing 24Q was new one for the assessee and as being the first year of filing such return, there is no dispute about the fact that the tax has been deducted by the assessee. As held by the I.T.A.T., Mumbai Bench in the case of Royal Metal Printers (P) Ltd. Vs. ACIT (supra), that for such technical or venial breach supported by reasonable cause, penalty under section 272A(2) is not leviable. The facts of the case under consideration are similar to the facts of the case decided by

    I.T.A.T., Mumbai Bench in the case of Royal Metal Printers (P) Ltd. vs. ACIT (supra). We follow the same and in the light of that the penalty of Rs.27,300/- is cancelled.

    7. In the result, appeal filed by the assessee is allowed as indicated above. (Order pronounced in the open Court) Sd/- Sd/- (BHAVNESH SAINI) (A.L. GEHLOT) Judicial Member Accountant Member ITA No.122/Agr/2012 A.Y. 2006-07. PBN/* Copy of the order forwarded to:

    1. Appellant

    2. Respondent

    3. CIT (Appeals) concerned

    4. CIT concerned

    5. D.R., ITAT, Agra Bench, Agra

    6. Guard File. By Order Sr. Private Secretary Income-tax Appellate Tribunal, Agra True Copy

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    Comments

    The Manager, Union Bank of India,, Mathura v. Additional CIT,Range-3, Mathura
    (Sep 14, 2012)