SH MAKHAN SINGH MUKH SEWADAR,,AMRITSAR. vs. THE INCOME TAX OFFICER,, AMRITSAR.

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. No. 40/Asr/2016 Assessment Year: 2009-10

Makhan Singh Mukh Sewadar, vs. The Income Tax Officer, Dera Sant Amir Singh, Bazar Ward 2(1), Amritsar Sattowala, Katra Karam Singh, Amritsar [PAN: BEFPS 2614A] (Appellant) (Respondent)

Appellant by : Sh. Padam Bahl (C.A.) Respondent by: Sh. Charan Dass (D.R.) Date of Hearing: 07.02.2019 Date of Pronouncement: 27.02.2019 ORDER Per Sanjay Arora, AM: This is an Appeal by the Assessee arising out of the Order by the Commissioner of Income Tax (Appeals)-1, Amritsar ‘(CIT(A)’ for short) dated 03.11.2015, dismissing the assessee’s appeal contesting the levy of penalty under section 271B of the Income Tax Act, 1961 (‘the Act’ hereinafter) for Assessment Year (A.Y.) 2009-10 vide order dated 04/3/2014.

2 ITA No. 40/Asr/2016 (AY: 2009-10) Makhan Singh, Mukh Sewadar v. ITO 3. The brief facts of the case are that the assessee, in explanation of the deposits (at Rs. 164.64 lacs) in his bank account (with HDFC Bank, Golden Temple branch, Amritsar), stated it to be in fact the receipt of Dera Sant Amir Singh, of which he is the Mukh Sewadar (Trustee/Manager). The same did not find acceptance by the Revenue, who regarded it as the assessee’s money. Assessment was accordingly made treating it as the assessee’s receipt on 17/11/2011. The gross receipt exceeding Rs. 40 lacs, there was, at the same time, violation of section 44AB of the Act obliging an assessee to get his accounts audited, attracting penalty u/s. 271B, i.e., for the failure to get the accounts audited and furnishing an audit report by the due date of filing the return of income u/s. 139(1), proceedings for which were accordingly initiated at the conclusion of the assessment by issue of notice u/s. 271B r/w s.274. The assessee, contesting the assessment in the appellate procedure, requested for keeping the said penalty proceedings in abeyance. Proceedings were accordingly kept in abeyance, i.e., in terms of section 275(1)(a), by the Assessing Officer (AO), and taken up on the disposal of the assessee’s appeal in the quantum proceedings before the Tribunal (in ITA No. 440/Asr/2012, on 28.01.2014), and the penalty levied at one-half per cent. of the gross receipt, i.e., at Rs. 82,317. The assessee’s contention in the penalty proceedings, which did not find favour with the Revenue authorities, was that his case is covered u/s. 275(1)(c), and not section 275(1)(a), so that the levy of penalty vide order dated 04.03.2014 is barred by time. The Revenue’s case is of it being covered u/s. 275(1)(a), considering which the penalty is admittedly (as also by the Sh. Bahl before us) within time.

3 ITA No. 40/Asr/2016 (AY: 2009-10) Makhan Singh, Mukh Sewadar v. ITO ‘Bar of limitation for imposing penalties. 275. (1) No order imposing a penalty under this Chapter shall be passed— (a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 264 or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later: Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 264 or section 246A, and the Commissioner (Appeals) passes the order on or after the 1st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Chief Commissioner or Commissioner, whichever is later; (b) in a case where the relevant assessment or other order is the subject-matter of revision under section 263 or section 264, after the expiry of six months from the end of the month in which such order of revision is passed; (c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.’

It is clear that the period of limitation is the later of the end of the of the financial year in which the penalty proceedings are initiated or sixth months from the end of the month in which they are so (ss. 275(1)(a)/(c)). Only the six-month bar is applicable in case of revision (sec. 275(1)(b)). Where, however, the relevant assessment order is the subject matter of appeal before the Commissioner (Appeals) or the Appellant Tribunal, the period is to be reckoned, instead of the date of the initiation of the penalty proceedings, the date of the receipt of the appellate order (s. 275(1)(a)). The exclusion of the period of adjudication under the appellate procedure is clearly to avoid multiplicity of proceedings. The imposition of penalty, where the assessment is in appeal, being inextricable related to the

4 ITA No. 40/Asr/2016 (AY: 2009-10) Makhan Singh, Mukh Sewadar v. ITO quantum proceedings, it is only deemed proper for the quantum proceedings to arrive at a finality, i.e., at least as far as the facts are concerned, so that the penalty proceedings are based on firm findings of fact, as determined in the appellate proceedings. This explains the rationale of the said exclusion u/s. 275(1)(a) as also clarified by several decisions, as by the Tribunal in Ahuja Rice & General Mills v. Dy. CIT [1999] 69 ITD 329 (Asr), the operative part of which (para 6) was also read out during hearing.

4.2 The assessee’s case is that the said exclusion cannot apply in his case as the failure to obtain and furnish the audit report u/s. 44AB, though discovered in the quantum proceedings, are independent thereof. The question therefore boils down to if it is indeed so. The obligation to get the accounts audited arises only where the assessee’s turnover or gross receipt exceeds a particular threshold limit (Rs.40 lacs for the relevant year). It is this turnover that is under dispute in the quantum proceedings, i.e., subject to the appellate process. A decision, one way or the other, i.e., of the impugned turnover being the assessee’s turnover or not – he disputing it to be his turnover, claiming it to be of the Dera, has a direct bearing on the assessee’s obligation to get his accounts audited and, consequently, the levy of penalty u/s. 271B for failure, without reasonable cause, to do so. The ratio of the tribunals’ order in the Ahuja Rice & General Mills (supra), thus, supports the Revenue’s case of the time limit being referable to section 275(1)(a), instead of that of the assessee. Why, and even as, without doubt, there is no estoppel against law, the assessee himself considers so, as that only explains his request to the Assessing Officer in the penalty proceedings for keeping the same in abeyance. That is, there an agreement or unanimity with regard to the proceedings under appeal having a direct bearing on the issue of levy of penalty. This is of course subject to a provision therefor in law, which s. 275(1)(a) provides, as the time

5 ITA No. 40/Asr/2016 (AY: 2009-10) Makhan Singh, Mukh Sewadar v. ITO limitation is otherwise mandatory. There is, further, no quarrel with the proposition that the penalty proceedings get initiated with the issue of notice u/s. 274, as held in Ahuja Rice & General Mills (supra).

4.3 Sh. Bahl, upon it be so posited by the Bench during hearing, would submit that even if not independent of the quantum proceedings, the time limitation, governed as it is by law, and mandatory, shall prevail. The plea is valid, i.e., in principle; there being, as aforesaid, no estoppel against law. The word ‘relevant’ qualifying the words ‘assessment or other order’ in section 275(1)(a) assumes relevance in this regard. Juxtaposed with the relevance and the purpose of the exclusion of the period of determination, at least on matters of fact, in quantum proceedings for concluding penalty proceedings after initiation, leaves one in no manner of doubt that the word ‘relevant’ has to be read in a broad, rather than in a narrow, sense, in keeping with the purpose and need for the said exclusion. In the present case, the quantum of turnover is fundamental to the levy of penalty. This is as the turnover, a subject matter of dispute in the quantum proceedings, is a given as far as the penalty proceedings are concerned, so that it ought not to, on facts and common principles, be proceeded with without first resolving the same. The legislative intent must be the foundation of any interpretative exercise (CIT v. Baby Marine Export [2009] 290 ITR 323 (SC)). The word ‘relevant’ in section 275(1)(a) would, in our view, imply an order which becomes relevant on account of the issue under appeal in quantum proceedings being relevant for the purpose of levy of penalty under Chapter XXI of the Act. The other decisions mentioned in the written submissions, though not relied upon or referred to during hearing, have also been though perused. The decision in Subodh Kumar Bhargava v. CIT [2009] 309 ITR 31 (Del) is on the meaning of the words ‘whichever period expires later’, which has no bearing or is not relevant in the present case; the penalty being

6 ITA No. 40/Asr/2016 (AY: 2009-10) Makhan Singh, Mukh Sewadar v. ITO admittedly in time w.r.t. s. 275(1)(a). Again, there is no dispute that the time limitation is mandatory, as held in CIT v. Chhajer Packaging & Plastics (P.) Ltd. [2008] 300 ITR 180 (Bom); that being the very premise of the instant appeal.