COMMISSIONER vs. MS H.P.STATE COOP. BANK

IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA

ITA No.33 of 2006.

Date of decision:28.10.2009.

Commissioner of Income Tax

..Appellant

Versus

M/s.H.P. State Cooperative Bank

..Respondent

Coram The Hon’ble Mr. Justice Deepak Gupta, Judge. The Hon’ble Mr. Justice V.K.Ahuja, Judge. Whether approved for reporting?1 Yes For the Appellant(s).:

Mrs.Vandana Kuthiala, Advocate.

For the Respondent:

M/s.Ankush Dass, Sood & Surinder Sharma,

Advocates.

Deepak Gupta, J.(oral)

This appeal has been admitted on the following question of law:

“1.Whether absence of proviso in 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 evaded i.e. the difference of tax sough to evaded on chargeable interest assessed by the A.O. 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 under Section 10 of the Act was issued to the assessee on 12.9.1995. In response to the notice the assessee filed a return declaring

1 Whether the reporters of the local papers may be allowed to see the Judgment? Yes

2 chargeable interest at Rs.7,18,86,395/-. The assessment was completed on 26.2.1998. 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 5.5.2002.

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. 31.12.1992. It filed return declaring chargeable interest at Rs.71886395/- on 19.2.96 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.1663053388/- against chargeable interest returned at Rs.71886395.

(iii)From assessee’s reply dated 9.8.2002, it is clear that the assessee has not filed any appeal against the assessment order dated 05.2.2002 and has accepted the amount of chargeable interest determined at Rs.1663053388/- by the Assessing Officer.

(iv)The assessee has not previously been assessed under the Interest Tax Act, 1974. His return of interest Tax was due on or before 31.12.1992. But he filed return on 19.2.1996 in response to notice u/s 10 of the Interest Tax Act, 1974. The explanation 3 to section 271(1)( c) to the Income Tax Act, 1961

3 substituted by DTI (Amendment Act) 1989 w.e.f. 1.4.1989 reads as under:-

“Where any person who has not previously been assessed under this Act, fails, without reasonable cost, to furnish with in the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish under section 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, not with standing 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 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% to 100%. The assessee again filed an appeal challenging the imposition of the penalty itself. This appeal was allowed by the ITAT. The relevant portion of the order of the ITAT reads as follows:

“11.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

4 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 Interest-tax Act, 1974. Since the basis for imposition of penalty under section 13 is not in accordance with the provisions of 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 disputewith 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 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

5 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 the 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 un-

6 influenced by the provisions of Section 271(1)(c ) of the Income Tax Act.

( Deepak Gupta ), J.

October 28, 2009

( V. K. Ahuja ), J.