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Kaushal Diwan Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1983)3ITD432(Delhi)
AppellantKaushal Diwan
Respondentincome-tax Officer
Excerpt:
.....circumstances. it is trite law to mention that merely because there is a provision for levy of fine, fine must be imposed. here is a case where the assessee for the first time took up a contract. he was not being assisted by any professional people. he was a college student till recently. he filed a return. the tax was deducted at source when the government paid him the money. the assessment was completed and the refund was actually due to him. the plea that the assessee was not aware of the legal requirements cannot be brushed aside and he be made liable to a fine on the ground that ignorance of law is no excuse. the old theory that ignorance of law is no excuse docs not hold good in view of the complexity of laws in modern days. it is impossible for any one let alone well informed.....
Judgment:
1. This penalty appeal has been filed by the assessee against order dated 23-9-1980 of the Commissioner.

2. The assessee is an individual. Facts are that on 24-3-1977, the assessee entered into a contract for supply of goods/services to a certain party for Rs. 1,78,205. Under the provisions of Section 285A(1) of the Income-tax Act, 1961 ('the Act'), the assessee was required to furnish to the ITO concerned by 23-4-1977, particulars in Form No. 52, as prescribed under Rule 120 of the Income-tax Rules. The assessee failed to do so. On the other hand, he supplied to the ITO requisite information only on 6-9-1980, i.e., after a delay of 1220 days. Under the circumstance, the Commissioner initiated against the assessee proceedings for penalty Under Section 285A(2). The only plea raised by the assessee before the Commissioner was that the aforesaid contract was the first contract entered into by the assessee and that he was not aware of the legal requirement as to furnishing of information in prescribed proforma as aforesaid. The learned Commissioner took the view that unawareness of the legal provisions was not sufficient defence. The Commissioner held that though maximum penalty could be imposed in the form of fine of Rs. 44,550, he, taking into consideration that the default in question was the first default on the assessee's part, imposed a token fine of Rs. 2,000 only.

3. The assessee has come up in appeal. He appeared in person. Copy of the agreement was not made available to us by either party. Only submission made by the assessee was that shortly after completion of his career as a student, he started business as a contractor and contract in question was the first one entered into by him. The said contract was said to have been made with some Mandi Prishad. The constitution of that party is not known. We are of the view that the provisions of Section 285A were inserted by the Legislature to prevent the mischief of avoidance of tax by parties, who engaged contractors involving contracts of high value. That purpose of the Legislature would obviously be defeated, if a plea of the defaulting contractor as to his being unware of the legal provisions is accepted. In that view of the matter, it is only the quantum of penalty, reasonableness of which survives for our consideration. The delay was admittedly of 1220 days. We find that the assessment for the assessment year 1978-79 was completed on the assessee by the ITO as per order dated 8-9-1978. In the said assessment, the assessee had shown that he had received payments amounting to Rs. 47,459 under the contract in question which, in turn, gave rise to income of Rs. 4,750 only. The said version was accepted by the ITO and no tax was found payable by the assessee. The ITO had in the said order also noticed that tax had been deducted at source by the other party, with whom the assessee had entered into contract. We are, therefore, inclined to believe that after the date of filing the return for the assessment year 1978-79, the assessee could have no motive in hiding from the ITO concerned the fact about the contract. The date of filing of the return is not available. The penalty imposed by the learned Commissioner gives an approximate rate of Rs. 1.65 per day. We, therefore, direct that penalty should be so reduced as to apply fine of Rs. 1.65 per day for the period from 24-4-1977 to the date of filing of the return of total income for the assessment year 1978-79. The assessee gets relief accordingly.

5. I am in respectful disagreement with my learned brother. The penalty in question was levied under Section 285A(2) for the delay of 1220 days in furnishing the information under Section 285A(1). The assessee had submitted, while explaining the delay, that it was the first contract entered into by him and that he was not aware of the legal requirements as to the furnishing of information under Section 285A in the prescribed proforma. The penalty was levied by the Commissioner because he considered that 'unawareness' of the legal provisions was not a sufficient excuse. I am unable to agree with the learned Commissioner in this regard. The Income-tax Act is a highly complicated enactment and there would hardly be a person in the country who would be knowing all the provisions of the Act. Even the Chairman of the Central Board of Direct Taxes had occasion to say, in the recent past, while appearing before a Commission of Enquiry, that he was not aware of the entire provisions contained in the Act. This was the position obtaining in respect of the tax specialists. The assessee, however, could not be treated as a specialist. Even I, I must state, was not aware of the provision in question till this matter came before the Bench. The Courts have been now holding that ignorance of a particular law can be a reasonable excuse and it must be so held when it was a matter of tax law and its provisions were highly complicated.

6. Again it was a small matter. The ITO has passed the assessment order accepting the returned income of Rs. 4,750 and had observed that it was a 'petty' case. The whole order of the ITO comprised of 5 lines and it reads as under : Return showing an income of Rs. 4,750 has been filed. Only source of income disclosed by the assessee is contract business. Total payments received have been shown at Rs. 47,459. This appears to be a petty case as such assessment is completed under Section 143(1).

Issue ND and refund voucher after properly verifying the payment to IDS in Government account.

It was, thus, admittedly a petty case. It cannot be considered that each assessee, whether small or big, must rush to an income-tax specialist, practising as a lawyer or a chartered accountant, for his income-tax assessment especially when the income earned or being earned by him was too low. It cannot indeed be such a policy of the Government. In fact, on the other hand, an effort was being made to simplify the law so that the people could pursue their assessments before the department in a simple manner and that they do not have necessarily to depend on the professionals.

7. Again, it is not each default that must be punished and in this respect, support can be had on the observations of the Supreme Court in the case of Hindustan Steel Ltd. v. State of Orissa [1972] 83 ITR 26.

We were also told by the assessee that prior to his taking up the contract work, he was merely a college student. The contract awarded to him was with the Government and tax was also deducted at source before the payments were made in respect of the contract to the assessee. In fact, while making the assessment, the assessee was found to be entiled to a refund for the excess tax deducted at source as appears from the assessment order. Incidentally, it may also be mentioned that though the assessee had been required by the ITO to furnish the requisite information in April 1977 and the information was furnished only in September 1980, but the ITO had not considered it necessary to wait for the said information and he had completed the assessment in the meantime in September 1978 without collecting the said information.

This shows that he had not considered the information to be very necessary. The levy of the penalty has to be seen in the background of all these facts. The Commissioner had levied a penalty of Rs. 2,000 which was almost 50 per cent of the total income earned by the assessee. My learned brother has directed while reducing the penalty, that penalty be levied for the period April 1977 to the date of the filing of the return, for the reason that after the filing of the return, the assessee could have no motive in hiding from the ITO concerned the fact about the contract. I am, however, of the view, with respect, that such a motive could not have been there even earlier as tax had been deducted at source and even otherwise, it was a very small case. The normal expectation would always be that there was to be no tax liability and, in fact, this feeling or belief on the part of the assessee was found to be correct also on the completion of assessment.

It is a matter where the explanation of the assessee that he was not aware of the legal requirements under Section 285A calls for being treated as a reasonable cause for the delay in the furnishing of the information. The penalty in the circumstances shall be deleted and it is ordered accordingly.

1. As a Third Member, has to resolve the following point of controversy that arose between the members who heard the appeal: Whether, on the facts and in the circumstances of the case, a penalty under Section 285A(2) was exigible in respect of the year 1978-79 As can be seen from the above, the matter is very simple. The question is, whether the assessee is liable to pay fine under Section 285A(2).

2. The facts leading to the levy of penalty are as follows : On 24-3-1977, the assessee entered into a contract for supply of goods and/or services to a certain party for Rs. 17,820. In accordance with the provisions of Section 285A(2), the assessee was required to furnish to the ITO concerned, particulars in Form No. 52 as prescribed in Rule 120 of the Income-tax Rules. The due date was 23-4-1977. The assessee did not comply with the above provisions. However, he supplied to the ITO information on 6-9-1980. The Commissioner initiated proceedings against the assessee for levy of fine under Section 285A. The assessee pleaded that this was the first time that the assessee entered into a contract and he did not know the legal formalities regarding furnishing of information. The Commissioner rejected the plea and imposed fine of Rs. 2,000.

3. The assessee came up in appeal and he appeared in person. The learned Judicial Member held that the penalty is leviable at Rs. 1.65 per day for the period from 24-7-1977 to the date of filing of the return of total income. On the other hand, the learned Accountant Member held that no penalty was leviable. According to him, the ITO completed the assessment sometime in September 1978 and there was no difficulty for him to complete the assessment without the information required under Rule 120. It was also pointed out by the learned Accountant Member that the assessee's case was petty and that there was no professional advice taken by him. He has also taken into account that the assessee was merely a college student and that the contract was with the Government and the tax was also deducted at source.

Ultimately, a refund was due when the assessment was made. Thus, he cancelled the fine.

4. None appeared for the assessee. The learned departmental representative placed orders of both the members in extenso. He strongly relied on the order of the learned Judicial Member and contended that the assessee having committed the default was rightly made liable for the fine.

5. In my opinion, no fine is imposable in this case. It is true that the requirement of law enjoins upon an assessee, who takes a contract, to file necessary particulars and failure to do so would render him liable for the fine under Section 285A(2). One thing must be clearly remembered that every default whatever may be its nature will not end in fine or penalty merely because the default is punishable with a fine or a penalty. Whether a fine is to be imposed for the default or not depends upon various circumstances. It is trite law to mention that merely because there is a provision for levy of fine, fine must be imposed. Here is a case where the assessee for the first time took up a contract. He was not being assisted by any professional people. He was a college student till recently. He filed a return. The tax was deducted at source when the Government paid him the money. The assessment was completed and the refund was actually due to him. The plea that the assessee was not aware of the legal requirements cannot be brushed aside and he be made liable to a fine on the ground that ignorance of law is no excuse. The old theory that ignorance of law is no excuse docs not hold good in view of the complexity of laws in modern days. It is impossible for any one let alone well informed people to know all the technicalities of law. A mere breach of law which is venial in character will net lead to the inference that the assessee wantonly committed the default thereby making himself liable for the penal consequences. One has to judge the matter by taking into account the totality of circumstances. The case was rightly called as petty and I am of the firm opinion that the facts of the case do not justify levy of fine. Accordingly, I agree with the learned Accountant Member.

6. The matter will now be placed before the Bench for disposal in accordance with law.


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