SHANBHAG RESTAURANT Vs. DEPUTY COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is the appellant in this appeal. In this appeal filed under Section 260a of the IT act, 1961, (hereinafter referred to as the Act), the appellant has called in question the correctness of the order dt. 22nd Sept. , 2000, a copy of which has been produced as Annex-A to this appeal made in ITA Nos. 941 and 943/bang/1995 by the Income-tax Appellate Tribunal, Bangalore (hereinafter referred to as 'the Tribunal')

(2.) FACTS of this case are very brief, which may be stated as hereunder; the appellant (hereinafter referred to as 'the assessee') is a partnership firm carrying on restaurant business. For the asst. yr. 1991-92 i. e. , the year ending 31st March, 1991, the assessee filed its return of the income on 27th Aug. , 1991, admitting the income of Rs. 1,09,310 (Rupees one lakh nine thousand three hundred ten only ). The said assessment was taken up for scrutiny by the AO and during the course of the scrutiny if was found that there was certain credit balances in the name of certain persons as seen from the balance sheet. The AO on verification of the accounts, by means of his assessment order dt. 25th Feb. , 1994, held that the assessee had received loans and deposits in cash in contravention of the provisions of Section 269ss of the act, and also he had made repayment of the loans and deposits received otherwise than by an account payee cheque or account payee bank draft, drawn on the names of the persons who had advanced the loan or made the deposits with the assessee and, therefore, a penalty is required to be levied on the assessee under Sections 271d and 271e of the Act for failure to comply with the provisions of Sections 269ss and 269t of the Act. However, lie observed that action for contravention of Sections 269ss and 269t of the Act would be taken up separately. Thereafter, the Dy. CIT, Hubli Range, Hubli, issued two notices dt. 8th June, 1994, the copies of which have been produced as Annex.-E and F to this appeal, to the assessee directing it to show cause as to why action should not be taken against it for contravening the provisions contained in Sections 269ss and 269t of the Act. In response to the said notices, the assessee filed its reply on 28th july, 1994, explaining the circumstances under which it took the loan and deposits otherwise than by way of account payee cheque or by way of account payee bank draft from several persons and also contending that in the circumstances explained by it, must be held that it had not contravened the provisions of Section 269ss of the Act. It also explained the circumstances under which the repayment of the loan and deposits were made otherwise than by way of account payee cheque or by way of account payee bank draft drawn on the names of the persons who had advanced loan or made a deposit with the assessee and as such it had not contravened the provisions of Section 269t of the Act, However, the Dy. CIT, after considering the explanation submitted by the assessee, made an order dt. 28th March, 1995, a copy of which has been produced as Annex.-C to this appeal, holding that the assessee had contravened the provisions of Section 269ss of the Act and levying a penalty of Rs. 2,79,312 (Rupees two lakhs seventy nine thousand three hundred twelve only) in exercise of the power conferred on him under Section 271d of the Act. On the same day, the Dy. CIT also made an order under Section 271e of the Act, a copy of which has been produced as Annex.-G to this appeal, taking the view that the assessee also had contravened the provisions of Section 269t of the Act and levying a penalty of Rs. 1,10,500 (Rupees one lakh ten thousand five hundred only ). Aggrieved by the said orders Annex.-C and G, the assessee filed two appeals before the CIT (A) [hereinafter referred to as the CIT (A)']. The CIT (A), after hearing the assessee, by means of his common orders dt. 31st aug. , 1995, the copies of which have been produced as Annex.-H and J to this appeal, allowed the appeal filed by the assessee setting aside the orders Annex.-C and G passed by the Dy. CIT on the ground that the proceedings were completed beyond six months from the date of initiation of the proceedings. Aggrieved by the said order, the Revenue had preferred appeals in Nos. 941 and 943 of 1995 before the Tribunal. However, the Tribunal, in the impugned order set aside the order passed by the CIT (A) on the ground that the conclusion reached by the CIT (A) that the order was required to be passed within six months from the end of the month in which the action for imposition of penalty initiated, is erroneous in law. The Tribunal, further took the view that the order. imposing penalty having been passed on 28th March, 1995, and the financial year having expired on 31st March, 1995, the conclusion reached by the CIT (A) that the penalty levied both under Sections 271d and 271e is barred by time, is unsustainable in law.

(3.) SRI G. Sarangan, learned senior counsel, challenging the correctness of the impugned order passed by the Tribunal made three submissions. Firstly, he submitted that the reasons assigned by the Tribunal to take the view that the conclusion reached by the CIT (A) that the order was required to be passed within six months from the end of month in which the action for imposition of penalty initiated, is erroneous in law. Elaborating this submission, the learned counsel pointed out that since the proceedings for penalty were initiated by issue of notices Annex.-E and F dt, 8th June, 1994, the Dy. CIT was required to pass the order within six months from the end of june 1994 i. e. , before 31st Dec. , 1994, and, therefore, since admittedly the orders Annex.-C and g imposing penalty were passed only on 28th March, 1995, the conclusion reached by the cit (A) was correct and, therefore, the Tribunal was totally unjustified in interfering against the said order. Secondly, as an alternative submission, Sri Sarangan submitted that the period of six months for completion of proceedings initiated, in the facts and circumstances of the case, must, be understood from the date of orders Annex.-C and G dt. 28th March, 1995, arid since admittedly the said orders Annex.-C and G imposing penalty were not passed within six months from the said date, the said orders imposing penalty should be declared as illegal on the ground that they are passed beyond the period of limitation. Finally, he submitted, that in any event of the matter, the Tribunal ought to have accepted the explanation offered by the assessee for not accepting the loan and deposits otherwise than by way of account payee cheque or by way of account payee bank draft and also for repaying the said loan or deposits otherwise than by way of account payee cheque or account payee bank draft drawn in the name of the persons from whom the loans or deposits were received by the assessee, and dropped the proceedings initiated for levy of penalty. In this connection, he drew our attention to Section 273b of the Act wherein it is provided that notwithstanding anything contained in Sections 271d and 271e of the Act, no penalty should be imposed on the assessee for contravention of the said sections if the assessee proves that there was a reasonable cause for the failure in contravening the said provision. He also pointed out that since this contention has not been specifically formulated as a question of law at the time of admission of the appeal, this Court may, in exercise of the power conferred on it under Sub-section (6) of Section 260a of the Act, permit the assessee to urge the said contention.