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Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
Before: Smt. P. Madhavi Devi & Shri S.Rifaur RahmanShri P. Murali Mohana Rao
Per Smt. P. Madhavi Devi, J.M.
This is assessee’s appeal for the A.Y 2011-12 against the order of the CIT (A)-1, Hyderabad, dated 24.04.2017 confirming the penalty levied by the Addl. CIT u/s 272A(1)(c) of the Act. The assessee has raised the following grounds of appeal: “1. The order of the Commissioner of Income Tax (Appeals)-l, Hyderabad, is erroneous both on facts and in law. 2. The Ld. CIT(A) erred in dismissing the appeal. 3. The Ld. CIT(A) erred in upholding the penalty levied of Rs.30,OOO/ – u/s 272A(1)(c). 4. The Ld. CIT(A) grossly erred in not appreciating the written submissions filed during the course of appellate proceedings on 10.09.2015. 5. The Ld. CIT(A), decided the appeal without adjudicating on the facts of the case as submitted in the written submissions made on 10.09.2015.
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The Ld. CIT(A) ought to have appreciated that the penalty levied of Rs.30,OOO/-for the said non-compliance for summons dated 03.06.2011, 06~06.2011 and 13.06.2011 is not exigible at all.
The Ld. CIT(A) ought to have appreciated that out of the three dates mentioned by the Assessing Officer, there is no single occasion in which there is noncompliance from the appellant.
The Ld. CIT(A) ought to have appreciated that there should be at least 7 days gap between the date of serve of notice and the date of hearing and that all the three dates of hearing suffer from this defect in the appellant's case.
The Ld. ClT(A), before relying on the statement of the management of M/s.American lnfoserv Pvt. Ltd., ought to have given the appellant an opportunity for cross examining the management.
Without prejudice to other grounds, the Ld. ClT(A) ought to have appreciated that the very issuance of summons u/s 131 of the Act to the appellant who is the Authorised Representative of the assessee viz., M/ s. American lnfoserv Pvt. Ltd., calling for Form 3CA, 3CD, 29B & 56F is not justified.
Without prejudice to other grounds, the Ld. ClT(A) ought to have appreciated that the Addl. ClT, Range-I, Hyderabad, who has levied the impugned penalty has no jurisdiction to issue the very notice u/s 272A(1)(c) of the Act.
The Ld. CIT(A) ought to have appreciated that no Authorised Representative, including the appellant, is legally permitted to be the custodian of books of account and other documents relating to its clients.
The Ld. ClT(A) ought to have appreciated that the original proceedings in the case of M/ s. American lnfoserv Pvt. Ltd., were before the DClT 1(1), Hyderabad, whereas the penalty was imposed on the appellant by the Addl, ClT, Range-I, Hyderabad.
Without prejudice to other grounds, the Ld. ClT(A) ought to have appreciated that the whole penalty proceedings u/s 272A(1)(c) of the Act are vitiated on the ground that there is over writing on the date of hearing in the notice issued u/ s 131 dated 27.05.2011.
Without prejudice to other grounds, the learned CIT (A) ought to have appreciated that there was a reasonable cause as stipulated in section 273B of the Act for the appellant for
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not attending in response to the summons issued u/s 131 of the Act”. 2. Brief facts of the case are that there was a survey in the case of M/s. American Infoserve Pvt Ltd u/s 133A of the Act on 25.5.2011 and thereafter, the return of income filed by the assessee on 18.09.2010 was taken for scrutiny by issuance of a notice u/s 143(2) on 1.6.2011. Thereafter, the representative of the said Company, Shri P. Murali Mohana Rao, the appellant before us, was issued summons u/s 131 for production of audit working sheets, copy of Form 3CA, 3CD, 29B and 56F of the company for the financial years 2005-06 to 2010-11 on 03.06.2011. On 3.6.2011, a letter was filed on behalf of Shri Murali Mohan Rao, stating that he is out of the country and is not available till 06.06.2011. The Dy. CIT, therefore, adjourned the case to 6.6.2011. But there was no response on the said date. Subsequently, the statements of the Director and Employees of M/s. American Infoserv Pvt. Ltd were recorded u/s 131 wherein they appear to have stated that its books of account are being maintained by the Auditor M/s. P. Murali & Co. Thereafter, another summons u/s 131 was issued on 7.6.2011 to Shri P. Murali Mohana Rao for his personal appearance and production of books of account in the case of M/s. American Infoserv Pvt. Ltd, posting the case for hearing on 13.6.2011. Since there was no response to these summons on 13.06.2011, the Dy. CIT-1(1), Hyderabad referred the matter to the Add. CIT on 16.06.2011 for initiation of penalty proceedings u/s 272A(1)(C). Accordingly, the Addl. CIT issued notice to the AR on 17.06.2011 posting the case for hearing on 01.07.2011 which was served on the AR on 21.06.2011. On 01.07.2011, Shri P. Murali Mohana Rao, along with the representative of the assessee appeared and filed a letter stating that there was a minor communication gap between him
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and the Dy. CIT, and that he was going to attend for the hearing before him. Shri Murali was directed to show compliance by way of production of books of account and other documents by 8.7.2011. However, they were not filed before the Dy. CIT. Thereafter, some more notices were also issued to the AR, but there was no response from him. However, on 9.12.2011, a letter was filed on behalf of M/s. American Infoserv Pvt. Ltd stating that the penalty is not automatic and when reasonable cause is shown by the assessee, the said penalty may not be levied. The AR also appeared on 30.12.2011 and stated that whatever information is provided by the company to him, the same was furnished by him and there is no case of any non-compliance by him to the notices/summons issued to him. However, the Addl. CIT observed that there was no cooperation from the assessee M/s. Americal Infoserve Pvt. Ltd on the date of survey and even thereafter, neither did any responsible person appear, nor were the books of account produced. Observing that Shri Murali Mohana Rao is an Auditor and is bestowed with crucial responsibility of tax audit and that he has not complied with the summons on three occasions and has not filed the audit working sheets or books of account, the Add. CIT was of the opinion that the penalty is leviable. He therefore, levied an amount of Rs.30,000 for non- compliance of the summons u/s 131 on 3.6.2011, 6.6.2011 and 13.6.2011. Aggrieved, the AR preferred an appeal before the CIT (A), who confirmed the order of the AO and the appellant Shri P. Murali Mohana Rao is in appeal before us.
The aggrieved party in person, Shri P. Murali Mohana Rao, appeared and submitted that he was representing the assessee company M/s. American Infoserv Pvt. Ltd before the AO
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and that summons u/s 131 were issued to him on 27.05.2011 for appearance and production of the documents of the assessee on 3.6.2011. He submitted that as he was out of the country on the said date, a letter was filed before the AO informing him that he will not be in India till 6.6.2011. He submitted that inspite of the said information being given, the Dy. CIT had adjourned the case to 6.6.2011 on which date he was not available in the country. He submitted that he was not aware of the statement given by the Director & Employees of the assessee company M/s. American Infoserv Pvt. Ltd u/s 131 of the Act that the books of account of the said company are with him or the reason for saying so. He submitted that the second summons u/s 131 were issued on 7.6.2011 for appearing on 13.6.2011 on which date he had appeared before the DCIT, but the Dy. CIT has recorded that there was no response to the summons and immediately on 16.6.2011, the matter was referred to the Add. CIT, Range-1, Hyderabad for initiation of penalty proceedings u/s 272A(1)(c) of the Act.
Shri P. Murali Mohan Rao submitted that the notice u/s 272A(1)(c) of the Act has to be issued for each of the noncompliance to the summons u/s 131(1) of the Act, whereas only one notice has been issued for all the three dates of hearing. He submitted that the assessee had reasonable cause for not appearing before the AO on 3.6.2011 as well as 6.6.2011 as is recorded by the Addl. CIT himself, in the penalty order. Further, he also submitted that the demand notice for penalty has been issued by the Add. CIT in violation of the procedure laid down in section 274(3) of the I.T. Act. He submitted that the Addl. CIT could not have issued the demand notice to the AR as he had no jurisdiction over him.
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The learned DR, on the other hand, supported the orders of the Addl. CIT and submitted that the AR, party-in- person, failed to explain the reasonable cause for non-compliance to the summons issued u/s 131 of the Act and that the Add. CIT had followed the due procedure in levying the penalty u/s 272A(1)(c) of the Act..
Having regard to the rival contentions and the material on record, we find that the appellant before us is the Authorised Representative of the assessee company M/s. American Infoserv Ltd. In response to the summons issued u/s 131(1) of the Act on 27.5.2011, for production of books of account and related documents on 3.6.2011, we find that the appellant had filed a letter informing that he is out of the country and will not be available till 6.6.2011. The Add. CIT has recorded this fact in the penalty order and therefore, it is not understandable as to why and how the next date of hearing was fixed on 6.6.2011 when the AO was very well aware that the appellant would not be available on that date. Therefore, we are of the opinion that the appellant had reasonable cause for non-appearance before the AO on the above dates of hearing and it cannot be considered as a case of noncompliance. As far as the summons u/s 131(1) dated 7.6.2011 for the personal appearance of the appellant and production of books of account on 13.6.2011 is concerned, the appellant’s stand is that he had appeared before the AO and that there was some communication gap between them as the AO had hearing problem and that on 1.7.2011, the assessee had appeared before the Addl. CIT and explained the reasons for non-
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compliance on 13.6.2011 and had also intimated his willingness to attend the hearing before the Dy. CIT on further dates of hearing. Thus, according to him, it cannot be a case of wilful non- compliance to the summons u/s 131 of the Act and is not a case for levy of penalty u/s 272A(1)(c) of the Act.
For the sake of clarity and ready reference, the relevant provisions are reproduced hereunder: “ section 272A(1) If any person:-
(a) being legally bound to state the truth of any matter touching the subject of his assessment, refuses to answer any question put to him by an income- tax authority in the exercise of its powers under this Act; or
(b) refuses to sign any statement made by him in the course of any proceedings under this Act, which an income- tax authority may legally require him to sign; or (c) to whom a summons is issued under sub- section (1) of section 131 either to attend to give evidence or produce books of account or other documents at a certain place and time omits to attend or produce books of account or documents at the place or time; or (d) fails to comply with a notice under sub-section (1) of section 142 o4 sub-section (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of section 142; He shall pay, by way of penalty (a sum of ten thousand rupees) for each such default or failure
(2) If any person fails- (a) to comply with a notice issued under sub-section (6) of section 94; or (b) to give the notice of discontinuance of his business or profession as required by sub-section (3) of section 176; or (c) to furnish in due time any of the returns, statements or particulars mentioned in section 133 or section 206 [ or section 206C] or section 285B; or
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(d) to allow inspection of any register referred to in section 134 or of any entry in such register or to allow copies of such register or of any entry therein to be taken; or
(e) furnish the return of income which he is required to furnish under sub-section (4A) or sub-section (4C) of section 139 or to furnish it within the time allowed and in the manner required under those sub- sections or
(f) to deliver or cause to be delivered in due time a copy of the declaration mentioned in section 197A; or (g) to furnish a certificate as required by section 203 ll[or section 206C]; or
(h) to deduct and pay tax as required by sub-section (2) of section 226; _
(i) to furnish a statement as required by sub-section (2C) of section 192;]
(j) to deliver or cause to be delivered in due time a copy of the declaration referred to in sub-section (lA) of section 206C;]
(k) to deliver or cause to be delivered a copy of the statement within the time specified in sub-section (3) of section 200 or the proviso to sub- section (3) of section 206C;]
(l) to deliver or cause to be delivered the 17[ statements] within the time specified in sub-section (1) or section 206(A)
_(m) to deliver or cause to be delivered a statement within the time as may be prescribed under sub-section (2A) of section 200 or sub- section (3A) or section 206C
He shall pay, by way of penalty, a sum [of one hundred rupees] for every day during which the failure continues: [Provided that the amount of penalty for failures in relation to (a declaration mentioned in section 197A, a certificate as required by section 203 and] returns under sections 206 and 206C and [statements under sub- section (2A) or sub-section (3) of section 200 or the proviso to sub-section (3) or under sub-section (3A) of section 206C]] shall not exceed the amount of tax deductible or collectible60, as the case may be:] [Provided further that no penalty shall be levied under this section for the failure referred to in clause (k), if such failure relates to a statement Page 8 of 12
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referred to in sub-section (3) of section 200 or the proviso to sub-section (3) of section 206C which is to be delivered or caused to be delivered for tax deducted at source or tax collected at source, as the case may be, on or after the 1st day of July, 2012.]
(3) Any penalty imposable under sub-section (1) or sub-section (2) shall be imposed— (a) in a case where the contravention, failure or default in respect of which such penalty is imposable occurs in the course of any proceeding before an income-tax authority not lower in rank than a 62[Joint] Director or a 62[Joint] Commissioner, by such income-tax authority;
(aa) in a case falling under clause (d) of sub-section (1) by the income-tax authority who had issued the notice or direction referred to therein;
(b) in a case falling under clause (f) of sub-section (2), by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner; and (c) in any other case, by the [Joint] Director or the [Joint] Commissioner
(4) No order under this section shall be passed by any income-tax authority referred to in sub-section (3) unless the person on whom the penalty is proposed to be imposed is given an opportunity of being heard in the matter by such authority”
We find that the penalty u/s 272A(1) is not automatic and compulsory. The provisions of section 272A(1) and (2) and clause (c) or (d) of sub-section (1) are covered by the provisions of 273B of the Act; as per which, where the assessee has proved that there was a reasonable case for the default, the penalty is not leviable.
Further, section 274 lays down procedure for levy of penalty as under: “Section 274 of the I.T. Act (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard. (2) No order imposing a penalty under this Chapter shall be made-
(a) by the Income- tax Officer, where the penalty exceeds ten thousand rupees;
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(b) by the Assistant Commissioner, where the penalty exceeds twenty thousand rupees, except with the prior approval of the Jt. Commissioner. (3) An income- tax authority on making an order under this Chapter imposing a penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer'.
Under sub section (1) above, no order imposing a penalty under this section shall be passed by any Income Tax authority referred to in sub-section (3) of section 272A, unless the person on whom the penalty is proposed to be imposed, is given on opportunity of being heard in the matter by such authority. This provision r.w.s 273B, therefore, presupposes that if the person is able to explain the reasonable cause for the said failure, no penalty under this section is leviable. Under sub-section (2) above, no order imposing penalty shall be made by the ITO, where the penalty exceeds Rs.10,000; and no order of penalty shall be made by the Asstt. Commissioner/Dy. Commissioner, where the penalty exceeds Rs.20,000, except with the prior approval of the Jt. Commissioner. In the case before us, the cause of action for levy of penalty has arisen on each date of default and the penalty of Rs.10,000 has been levied for each date of noncompliance. Therefore, in effect, the penalty levied is only Rs.10,000 per default and in such circumstances, it is the ITO/AO who has the power to pass the penalty order and not the Add. CIT. Therefore, we hold that the Addl. CIT had no jurisdiction to pass the penalty order in the case before us. 10. Further, we also find that the AR has given the explanation for reasonable cause for non-compliance of the summons u/s 131 for each day of the default. The fact that the assessment of the company was ultimately completed u/s 143(3)
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of the Act also proves that the assessee company has furnished the relevant details. The Coordinate Bench of the Tribunal in the case of P.C. Pantulu vs. DCIT in ITA No.276/Hyd/2017 dated 11.4.2018 had considered similar situation to hold as under:
“6. We have considered the rival contentions and perused the documents placed on record along with case law relied upon. It is true that assessee has physical disability, restricting his movements. He has authorised the AR to appear before the AO, who complied with the notices subsequently. Even though there was failure to comply with the initial two notices given, considering that AO has completed assessment u/s. 143(3) and not u/s. 144, the subsequent compliance can be considered as 'good compliance' for the earlier notices given. The Co-ordinate Bench in the case of Gloubs Infocom Limited Vs. DCIT (supra) has on similar circumstances held as under: "5. We have heard the rival submissions and perused the material on record. We find that the instant appeal is squarely covered by the decision of the Co-ordinate Bench of IT AT Delhi in the case of Akhil Bhartiya Prathmik Shikshak Sangh Bhawan trust vs ACIT 5 DTR 429 (Delhi Tribunal) wherein the Coordinate Bench in paras 2.4 and 2.5 has held as under:- "2.4 Coming to the issue of recording of satisfaction, it may be mentioned that mere initiation of penalty does not amount to satisfaction as held by Hon'ble Delhi High Court in the case of CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321 : (2000) 246 ITR 568 (Del). In absence of recording of the satisfaction in the assessment order, mere initiation of penalty will not confer jurisdiction on the AD to levy the penalty. 2.5 We also find that finally the order was passed under s. 143(3) and not under s. 144 of the Act. This means that subsequent compliance in the assessment proceedings was considered as good compliance and the defaults committed earlier were ignored by the AO. Therefore, in such circumstances, there could have been no reason to come to the conclusion that the default was willful". 6.1. Respectfully following the same, we are of the opinion that the initial non-compliance may not result in levy of penalty, as assessee has bonafide reasons for non-
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compliance. Accordingly, penalty levied is hereby cancelled. 7. It is to be observed that AO issued only one notice and levied two penalties for non-compliance on two dates. Technically speaking, each non-compliance requires separate show-cause notice/proceeding and AO cannot levy two penalties in one single proceeding. However, this is for advice of the AO to follow in future so that there cannot be any technical defects while completing penalty proceedings”.
In the case before us also, the AR hasd bonafide reasons for non-compliance and the AO had issued only one notice for non-compliance on three dates. Therefore, respectfully, following the above decision (to which one of us i.e. the JM is a signatory), we hold that the penalty is not sustainable.
In the result, the penalty is deleted for all the defaults and the assessee’s appeal is allowed.
Order pronounced in the Open Court on 6TH June, 2018.
Sd/- Sd/- (S.Rifaur Rahman) (P. Madhavi Devi) Accountant Member Judicial Member
Hyderabad, dated 6th June, 2018. Vinodan/sps Copy to: 1 Shri P.Murali Mohana Rao, P. Murali & Co. CAs, 6-3-655/2/3, 1st Floor, Somajiguda, Hyderabad 500082 2 Add.CIT, Range-1, Hyderabad 3 CIT (A)-1, Hyderabad 4 Pr. CIT – 1, Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File By Order
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