Meters & Instruments (P.) Ltd. v. Inspecting Assistant Commissioner

Per Kathuria, AM - This appeal by the assessee for assessment year 1982-83 is directed against the order dated 18-4-1988, passed by CIT (Appeals)-XI, New Delhi and challenges the confirmation of penalty of Rs. 3,13,340, levied under section 271(1)(a) of the Income-tax Act, 1961.

2. Brief facts of the case are that the assessee was obliged to file its return of income on or before 30-6-1982. The return was however, filed on 17-5-1983 and was late by 10 completed months. The Assessing Officer initiated penalty proceedings for late submission of return, and after hearing the assessee, imposed a penalty of Rs. 3,13,340. This penalty was confirmed in appeal.

3. Before us, Shri Pradeep Dinodia, the Learned Counsel for the assessee made two- fold submissions. The first submission was that the assessee was prevented by reasonable cause for not filing the return in time inasmuch as because of financial stringency the advance tax and self-assessment tax could not be paid and consequently the assessee could not attach the challans of payment of advance tax and self- assessment tax along with the return as enjoined by section 139(9) of the Act. In this regard, reliance was placed on the Tribunal’s decision in the case of Hazarimal Lalooram v. ITO [1985] 21 TTJ (Jp.) 393. It was pointed out that (as per page 32 of the assessee’s compilation) self-assessment tax amounting to Rs. 24,495 was paid on 13-5-1983 and within 4 days, the return of income was submitted.

4. The second submission of the Learned Counsel was that the assessee had furnished an estimate of advance tax on 15-6-1981 estimating its income at Rs. 18,00,000 and revised its estimate on 15-12-1981 estimating its income at Rs. 60,00,000 on which advance tax payable worked out to Rs. 36,90,000. According to the Learned Counsel, advance tax amounting Rs. 22,15,000 was paid in instalments upto 31-3-1982 and thereafter certain amounts aggregating to Rs. 14,75,000 were paid towards advance tax upto 7-2-1983. It was submitted that the assessment was made on 22-6-1985 and thus the amounts towards advance tax aggregating in all to Rs. 36,90,000 were paid not only before the completion of the assessment, but even before filing of the return. It was submitted that in view of Explanation to section 271(1), the "assessed tax" which was the basis for levy of penalty for late submission of return had to be calculated by reducing the amounts of tax deducted at source and the amounts paid in advance under Chapter XVII-C. The submission was that according to section 218(1) of the Act, the assessee was deemed to be an assessee in default for not paying the advance tax in time and that for this default even penalty under section 221 was also levied which was later deleted in appeal. Elaborating his argument, the Learned Counsel for the assessee submitted that the payments were made only towards advance tax and that nature and character of such payments did not change. It was, therefore, submitted that the entire payment of Rs. 36,90,000 had to be treated as payment towards advance tax for which credit had to be given to the assessee and if this was done, penalty would be leviable on the-amount of Rs. 91,707 which at the rate of 20% would work out to Rs. 18,340. Reliance was placed on the following decisions :

1. CIT v. Bangalore Animal Food Corpn. Ltd. [1991] 97 CTR (Kar.) 77;

2. Swastik Engg. Works v. CIT [1973] 87 ITR 116 (Guj.); and

3. CIT v. Jaipur Udyog Ltd. [1987] 64 CTR (Raj.) 312.

5. The learned D.R., on the other hand, submitted that a perusal of the provisions of section 139(9) clearly showed that the assessee could always file a return even without attaching the challans for advance tax if such advance tax was not paid by the assessee. According to him, if the assessee claimed payment of advance tax, but did not attach copies of the challans with the return, the return could perhaps be treated as defective. The Learned D.R. also drew our attention to the provisions of section 140A(3) and submitted that if the interpretation put by the Ld. Counsel for the assessee was accepted as correct then the re-enactment of section 140A(3) of the Act with effect from 1-4-1976 would become meaningless. It was, therefore, submitted that the assessee was not prevented by a sufficient cause for not filing the return in time. As regards the payments of Rs. 14,75,000 made after 31-3-1982. it was submitted that these amounts could not be said to have been paid under Chapter XVII- C of the Act. Reliance was placed on the decision of Andhra Pradesh High Court in CIT v. P. Ramagouda Satyam Reddy & Co. [1988] Taxation 88(3)-201 for the proposition that for the purposes of levy of penalty under section 271(1)(a), only the advance tax paid in the financial year could be taken into consideration. It was also pointed out that the judgments relied upon by the Ld. Counsel for the assessee were in respect of interest under section 214 or section 215 and not under section 271(1)(a) of the Act. It was further submitted that while interest was compensatory in nature, penalty was for purposes of deterrence and in that view of the matter the payments made beyond the close of the financial year could not be considered as payments towards advance tax. He strongly supported the order of the. CIT(Appeals) and submitted that the penalty had been rightly confirmed.

6. We have carefully considered the rival submissions as also the facts on record. Penalty under section 271(1)(a) is leviable @ 2% of the "assessed tax" for every month during which the default continued. As per Explanation to section 271(1), "assessed tax" means "tax as reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C". The facts show that the assessee filed a revised estimate of advance tax on income of Rs. 60,00,000 with advance tax payable at Rs. 36,90,000. A sum of Rs. 22,15,000 was paid upto 30-3-1992 and was treated as advance tax by the departmental authorities. The following further amounts were, however, recovered from the assessee:—

The assessee claimed that these amounts though paid/recovered after 31-3-1982 had also to be considered as advance tax paid under Chapter XVII-C of the Act. But, before we discuss the elaborate arguments made by both the sides and the case law cited, we must first dispose of the first submission of the Ld. Counsel for the assessee, namely, that the assessee was prevented by sufficient cause for late submission of return.

7. The argument of the Ld. Counsel for the assessee in this regard is very simple. According to him, return of income has to be accompanied by certain documents as detailed in section 139(9) of the Act. Inviting our attention to Explanation to section 139(9), it was submitted that the return has also to be accompanied by proof of advance tax and self-assessment tax. Elaborating the submission, the Ld. Counsel argued that if the assessee filed a return of income without attaching the proof of advance tax or self-assessment tax then the return would be a defective one and if the assessee could not remove the defect within 15 days from the date of receipt of intimation from the Assessing Officer then such a return shall be treated as an invalid return. The Ld. Counsel for the assessee pointed out that because of financial stringency the assessee could not make the payment of advance tax before the expiry of the relevant financial year. It was further submitted that the same tight financial position continued even when the return had to be filed and that the assessee’s bank account was attached and the payments were recovered by the department by and by. Reliance was also placed on the Tribunal’s decision in the case of Hazarimal Lalooram ( supra) in which it was held that where the books of account were not audited and the assessee could not attach copies of the audited balance sheet and Profit and Loss A/c with the return, it could be said that he was prevented by sufficient cause for late submission of return.

8. We have given a very careful consideration to the arguments of the Ld. Counsel for the assessee, but do not find any force in the same. As rightly pointed out by the Ld. D.R., clause (c) of Explanation to section 139(9) uses the expression "tax, if any" claimed to have been at source or in advance or on self-assessment In other words, if the assessee claims to have paid any tax either at source or by way of advance tax or on self-assessment, but does not attach proof of having made such payments then the return could legitimately be treated as invalid, if the assessee did not remove the defect within 15 days of the receipt of the intimation from the Assessing Officer. The bare reading of the Explanation to section 139(9) leaves us in no doubt that what is expected of the assessee is to attach challans of payments which are claimed to have been made by the assessee and not in respect of payments which should have been made were not made by the assessee. If the assessee had not made any payments which he should have made and has not attached a challan in respect thereof, the return filed by him would not be a defective one. If the interpretation of the assessee were to be accepted that a return could not be filed without payment of advance tax. self-assessment tax etc., then the provisions of section 140A(3), re-enacted w.e.f., 1-4-1976, would be rendered meaningless. A provision of law has to be interpreted in such a way that its purpose is effectuated and not nullified or negated. We are of the considered opinion that even if the assessee had financial stringency and could not pay advance tax or self-assessment tax in time, nothing prevented it from filing the return of income on time. On a query from the Bench, the Ld. Counsel for the assessee submitted that in this case, the books of account had already been audited and audited balance sheet and Profit & Loss A/c were available. In that view of the matter, the ratio of the Tribunal’s decision in the case of Hazarimal Lalooram ( supra) is not applicable in the instant case. We, therefore, reject the arguments of the Ld. Counsel for the assessee that it was prevented by sufficient cause for not filing the return in time.

9. Reverting to the U Counsel’s arguments with regard to the payments of advance tax amounting to Rs. 14,75,000 made after 31-3-1982, it would be relevant to see the scheme of the Act relating to advance tax. Chapter XVII-C includes sections 207 to 219 of the Act. According to section 218(1) of the Act, if an assessee, who has submitted a revised estimate does not pay any instalment in accordance with the estimate on the dates specified in section 211, he shall be deemed to be an assessee in default in respect of such instalment or instalments. There is no doubt that the assessee did not pay the remaining sum of Rs. 14,75,000 on the due date and hence he became an assessee in default. The department made efforts to collect the advance tax from the assessee for which it resorted to imposing a penalty under section 211 of the Act. It is a different matter that the penalty imposed in this regard was later deleted in appeal and the revenue perhaps did not agitate against the order of the first appellate authority. Be that as it may, the amounts recovered from the assessee by coercive means were towards advance tax. Section 219 lays down that any sum other than a penalty or interest paid by or recovered from an assessee as advance tax shall be treated as payment of tax under Chapter XVII-C and given credit for. This clearly shows that for purposes of Explanation to section 271(1), the amounts recovered from the assessee towards advance tax had to be treated as advance tax paid under Chapter XVII-C of the Act.

10. As stated earlier, the assessment in the case of the assessee was made on 26-2-1985. That was, in our opinion, the first event which could be said to have changed the character of the payment towards advance tax because it was on the happening of this event that the transformation in the character of advance tax took placed and the advance tax paid could be treated as a payment of tax for the relevant assessment year. Support for this proposition is derived from the Delhi High Court decision in National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India [1981] 130 ITR 928.

11. Previously there was some debate as to whether the payments of advance tax made after the due dates of instalments, but before the expiry of the financial year could be considered as payments towards advance tax. This debate has now ceased to exist with the pronouncement of judgment by the Supreme Court in Cit v. Kohinoor Flour Mills (P) Ltd [1991] 187 ITR 585. In that case, advance tax of Rs. 1,83,000 was paid beyond the time stipulated in section 211, but before the end of the financial year and the question was whether such a payment had to be reduced for determining the basis for imposing penalty under section 273. The Supreme Court held that the assessee was entitled to claim the deduction of payment of tax of Rs. 1,83,000 made on 26-3-1965 for arriving at the basis for imposing penalty. The Supreme Court agreed with the reasoning and conclusion reached by the High Court of Gujarat (CIT v. Kohinoor Flour Mills [1975] 99 ITR 54 ). If we turn to the decision which was originally rendered by the Gujarat High Court and which came to be affirmed by the Supreme Court, it is seen that the High Court considered three possible dates for levy of penalty under section 273. The first date which was canvassed-by the revenue as the crucial date for levy of penalty was the date on which the default was committed. This date did not find favour with the Gujarat High Court. The next possible date was 1st day of April, next following the financial year in which the advance tax was payable. This was considered to be a reasonable and probable date by the High Court. The third possible crucial date was the one urged for the assessee, namely, the date of regular assessment. This date was also found to be reasonable and probable by the High Court. Since the language of the taxing provision was found to be ambiguous and capable of more meanings than one. the Gujarat High Court preferred the interpretation which was more favourable to the assessee. Though the facts of the case were that the payment had been made on 26-3-1975, which was before the close of the financial year, the ratio of that decision is that the date for default of payment of advance tax could be the date of regular assessment. The Supreme Court has agreed with the reasoning and the conclusion of the Gujarat High Court. That would mean that even if advance tax is paid after the expiry of the financial year as advance tax, the payment must be considered as a payment under Chapter XVII-C of the Act. It is only on the date of regular assessment that the payment of advance tax ceases to have an independent entity or personality and it assumes the character of payment of tax for the relevant assessment year. Taking into consideration the entire facts and circumstances of the case, we have no doubt in our mind that the payments aggregating to Rs. 14,75,000 though made or recovered after 31-3-1982 but before the filing of the return and much before the completion of regular assessment were payments towards advance tax and were covered by Chapter XVII-C of the Act. When the Andhra Pradesh High Court decided the case of P. Ramagouda Satyam Reddy & Co. (supra) on 19-11-1987, the decision of the Supreme Court in the case of Kohinoor Flour Mills (P.) Ltd. ( supra) decided on 22-11-1990 was not available. The reliance by the Ld. Counsel for the assessee on the Karnataka High Court decision in the case of Bangalore Animal Food Corpn. Ltd. ( supra) is also well-placed. In that case, it was hold that delayed payment of advance tax did not lose its character as an advance payment. Similarly, the Rajasthan High Court in the case of Jaipur Udyog Ltd. ( supra) has held that the amount of Rs. 11,00,000 directed to be paid as advance tax by the Supreme Court in November, 1965 i.e., after the expiry of the financial year retained the character of advance tax payment.

12. In view of the above discussion we hold that the assessee was entitled to get credit for the additional amount of Rs. 14,75,000 paid towards advance tax for the purpose of calculation of penalty under section 271(1)(a) of the Act. The Assessing Officer is, therefore, directed to calculate the penalty @ 20% on the amount of assessed tax after reducing a sum of Rs. 36,90,000 including Rs. 14,75,000 paid as advance tax.

13. In the result, the appeal is partly allowed.