ORDER
Chopra, AM.
1. These two appeals are filed by the assessee-appellant against Commissioner (Appeals) orders dated 7-1-1993 dismissing its appeals preferred against order passed by the assessing officer under sections 201(1A) and 221 of the Income Tax Act.
2. Facts in brief are these. The previous year for the relevant assessment year 1989-90 is of 21 months, i.e., 1-7-1987 to 31-3-1989. To enable transitional previous year to take effect, the appellant closed its accounts once on 30-6-1988 and then on 31-3-1989. In the Audit Report furnished with the return filed on 9-10-1990, it was mentioned that there is delay in deduction and deposit of tax by the appellant. The details in the audit report were noted as under :
Particulars
Amount (Rs.)
Date ofdeduction
Due date of deposit
Date of deposit
Interest
8,911
30-4-1988
31-8-1988
14-6-1989
Salary
1,470
7-3-1988
14-3-1988
17-3-1988
Interest
7,769
31-3-1989
31-5-1989
14-6-1989
Contract Payment
694
31-3-1989
31-5-1989
14-6-1989
Contract Payment
3,803
31-3-1989
31-5-1989
14-6-1989
Salary
2,035
2-2-1989
9-2-1989
13-2-1989
Salary
5,382
31-3-1989
7-4-1989
1-5-1989
Royalty
7,98,304
30-6-1988
7-7-1988
5-9-1988
Technical know how fee
7,00,000
31-3-1989
7-4-1989
15-9-1989
Royalty
7,89,001
31-3-1989
7-4-1989
21-10-1989
3. The appellant was issued a show-cause notice by the assessing officer. There was no reply from the assessee even though it had stated on 19-8-1991 that a reply would be given by 27-9-1991. The assessing officer accordingly levied interest at Rs. 1,30,631 under section 201(1A). Simultaneously proceedings under section 221 had also been taken identical to the dates (sic) of which proceedings under section 201(1A) were taken. Here also, there being no reply, the assessing officer held that the appellant has failed to pay the tax without good and sufficient cause. He levied penalty @ 10 per cent of the amount of tax worked out at Rs. 2,31,730.
4. The assessee went in appeal before the Commissioner (Appeals) before whom two main submissions were made, i.e., (a) since the appellant had paid a tax before issue of show-cause notice both under sections 201(1A) and 221, the default did not exist on the dates of notices; and (b) that there existed a reasonable cause in delayed deduction and deposit of tax, inasmuch as there was delay in finalising of accounts. The Commissioner of Income Tax (Appeals) rejected both the submissions. The assessee is in appeal before us.
5. The learned Authorised Representative for the assessee, Shri Syali submitted that Commissioner (Appeals) may have been right in rejecting the plea of the assessee that the default did not exist as on date of show-cause notice but he has certainly erred in summarily rejecting the plea of the appellant based upon the material on record. The following facts, which are stated to be before the Commissioner (Appeals) on the record, have been highlighted before us.
(i) That since there were two closing of accounts one on 30-6-1988 and the other on 31-3-1989, the time granted for payment of tax deducted at source in respect of credit entries based on the above dates should be two months from the end of the month in which the credit is made and not 7 days of the date of deduction as per rule 30(1)(b)(i). So construed in respect of TDS on royalty of Rs. 7,98,304 wherein entry was made on 30-6-1988, the time available was up to 31-8-1988 and not 7-7-1988, as noted by the auditors. Since the amount stood tendered by cheque on 30-8-1988, which encashed only on 5-9-1988 there is no delay in respect thereof. It is submitted that the auditor himself has taken into account the time of two months from the end of the month in which the credit is made, where the tax was deducted vis-a- vis there credit entry as on 30-6-1988 and 31-3-1989. Therefore, there was no rationale to restrict the time available to seven days vis-a- vis royalty for the period ending 30-6-1988.
(ii) Vis-a-vis technical know-how it was submitted that a lump sum of Rs. 7 lakh was deducted at source and paid as on 15-9-1989. There was no dispute as regards this item because the Commissioner (Appeals) in rejecting the reasonable cause furnished referred in specie, to “interest”, “salary” and “royalty” but did not refer to Technical know-how fee. Reason being that technical know-how fee is accepted to be incapable of calculation in the absence or ascertainment from accounts of its effective implementation.
5.1 As regards royalty for the period ending 31-3-1989 it was submitted that as per agreement with ACME Magnetic Tapes Hong Kong (copy furnished), 3 per cent of net ex-factory selling price of the product was to be paid as royalty. Clauses 4C, 5A and 5B indicate that without going into the accounts it is not possible to ascertain the amount of royalty. By way of illustration it was pointed out that the net Ex-factory sale price of the product has to be exclusive of the Excise Duty minus the cost of standard bought out components and landed cost of imported components irrespective of procurement including freight, insurance, custom duty, etc. It was submitted that since without finalisation of accounts the amount of technical know-how/royalty were not capable of being ascertained and, therefore, Commissioner (Appeals) was wrong to reject this submission without giving any reason especially when no adverse remarks is made in his conclusion vis-a-vis technical know-how.
5.2 It was further pointed out that delay in finalisation of accounts was not deliberate. During the middle of the financial year, i.e., on 21-7-1988 operations under section 132(1) were carried out by the revenue against the assessee when all books of accounts, vouchers, correspondence with parties from the period 1985 to date, were seized. Shri Syali invited our attention to the Panchnama at pages 14 to 19 of the paper book on record. He submitted that the seized material was made available for inspection (photocopies) only in October/November 1989. He drew our attention to the correspondence with the assessing officer at page 20 to 28 of the paper book. The correspondence highlights that the concerned Deputy Commissioner of Income Tax had informed the assessee that due to lack of space, the seized material have not been received from the Investigation Wing as in June 1989. On being reminded in September 1989 the assessing officer informed the assessee of receipt of records on 7-11-1989. Only after this date copies could be taken and audit progressed. It is for this reason that the audit was finalised on 25-7-1990 and return filed on 9-10-1990. Special emphasis was laid on letter dated 5-9-1989 at page 24 of the Paper Book, in which the assessee pointed out before the assessing officer that without copies of these records it was not possible to carry forward balances of the previous year to the current year and, therefore, finalisation of accounts was not possible. It was, thus, submitted that finalisation of accounts was for reasons beyond the control of the assessee and, thus, constituted a reasonable/sufficient cause. It was for this reason that tax was deducted and paid on royalty for the period ending 30-6-1988 in time, but for the period ending 31-3-1989, there was delay till finalisation of accounts. According to the learned Authorised Representative, the concern and diligence of the appellant could be ascertained from the fact that despite having been given the papers only in November 1989, as soon as it was within its powers, the assessee estimated, deducted and deposited the tax on the royalty due on 31-3-1989 in October 1989.
5.3 It is submitted that barring the three major instances of tax on royalty as on 30-6-1988 amounting to Rs. 7,98,304 for which there was no default, tax on technical know-how fee of Rs. 7 lakh and tax on royalty as on 31-3-1989 to the tune of Rs. 7,89,031, the other are three minor items with minor delay and also pertaining to the period ending 31-3-1989. They were credit entries and as such could be made only at the end of the year. Only two items of tax on salary of Rs. 1,470 was due as on 14-3-1988 and Rs. 2,035 was due on 9-2-1989 but was deposited on 17-3-1988 and 13-2-1989 respectively. The delay was marginal and explainable with reference to the facts already placed on record.
5.4 Shri Syali also addressed us at length on the approach to the levy of penalty under section 221 of the Income Tax Act with reference to non-deduction or deduction but non-payment of tax under TDS provisions. It is submitted that the approach to penalty for an assessee deemed to be in default under section 201(1) read with section 221 has to be understood in its correct perspective. Under sub-section (1) of section 201, a person responsible for deducting tax at source in the event of non-deducting or, after deduction, failing to pay, “may be” deemed to be an assessee in default. The emphasis is on the word “may”. Therefore, accordingly to Shri Syali, it is not as if in every case where there is a failure to deduct or pay the tax, as required, the provisions become automatically applicable.
5.5 Shri Syali submitted that the wording may be compared with the wording of sub-section (4) of section 220 which provides that where the amount is not paid within the prescribed time, the assessee “shall” be deemed to be in default.
5.6 Shri Syali submitted that proviso to section 201(1) expressly stipulates that although the assessee is deemed to be in default, no penalty shall be charged under section 221 unless the assessing officer is satisfied that such person had without good and sufficient cause failed to deduct and pay the taxes. Accordingly to Shri Syali, the wording of the proviso clearly indicate that initial onus is on the revenue. He submitted that no doubt onus can be discharged by preponderance of probabilities which may even cover a circumstance where no reply is given to a show cause. However, where a reply is given, be it before the assessing officer or the first appellate authority, whose powers are co-terminous, there is an obligation to make an objective analysis and to individually examine each and every default with reference to facts/explanation on record, and, only then, arrive at a conclusion discharging the onus that no good and sufficient cause existed.
5.7 In support of the submission that the onus is on the revenue, Shri Syali referred to the provisions of section 221 wherein prior to its substitution by Tax Laws (Amendment & Misc. Provisions) Act, 1986 with effect from 1-10-1986 the second proviso stood as under :
“Provided further that where the Income Tax Officer is satisfied that the default was for good and sufficient reasons, no penalty shall be levied under this section”.
He submitted that his proviso has now been substituted by another which stipulates that penalty under section 221 will be levied unless the assessee proves to the satisfaction of the assessing officer that the default was for good and sufficient reasons.
Shri Syali submitted that the object behind the change in wording is event from Circular No. 469 dated 23-9-1986 issued by the CBDT to the Taxation Laws (Amendment & Misc. Provisions) Act, 1986. It is explained [(1986) 162 ITR Statute 22 at page 36] that since the section, as it then stood, placed onus on the Department to bring on record the existence of the ingredients of penalty and that onus was almost impossible to discharge, a change in the language was warranted. The object is now embedded in the present proviso.
5.8 Since the language of the proviso to section 221, as it then stood, admittedly places onus on the department, the wording of proviso to section 201 being pari materia there is no escapement from the conclusion that the onus is on the Department. He submitted that the revenue has not discharged the onus cast upon it.
6. In reply, the learned Departmental Representative placed reliance on the decision of the lower authorities and submitted that a reasonable opportunity has been given by the assessing officer and in the circumstances, the assessee was wrong in submitting that good and sufficient cause existed.
7. We have heard the learned representatives and have also gone through the relevant record. In the present case, the fact/explanation on record have not been examined in their proper perspective. It is settled law that mere delay is not sufficient to attract provisions of section 221 CIT v. Chembara Peak Estates Ltd. (1990) 183 ITR 471 (Ker). It becomes essential to analyse with reference to material on record and give a finding to discharge the onus. It is evident that there being no default with reference to royalty as on 30-6-1988, and, there being a good and sufficient cause, i.e., the delay in finalisation of accounts on account of seizure of books of account by the department the appellant was left with no choice but to pass the entries only after receipt of copies of seized document. Having passed the entries at that time though as of date, on which accounts are being made, i.e., 31-3-1989, the delay is duly explainable being for good and sufficient cause.
8. We further note that the assessee acted bona fide and diligently, inasmuch as though the books of account were finalised as on 25-7-1990, at the earliest possible time when the details were known the appropriate entries were made in the books and tax deposited. The tax vis-a-vis technical know-how and royalty as on 31-3-1989 have been deposited on 15-9-1989 and 21-10-1989 respectively (Page 5 of the paper book). Even though the account books were not finalised on 30-6-1988, based upon the record that it could manage, the tax was paid in time. Therefore, the assessee did not back in bona fides and acted diligently as is apparent from material on record. There is, therefore, no cause for levy of penalty. The Commissioner (Appeals) has not given any separate reasoning for upholding the levy of interest under section 201(1A) but has merely referred to his order passed in respect of order under section 221. As regards royalty for the period 30-6-1988 we find that the cheque was deposited in time and there is no default once the provisions of rule 30 are invoked.
9. The question as to whether in the given circumstances, there is good and sufficient reason or not, was considered by their Lordships of the Bombay High Court in the case of Gupta Builders (P) Ltd. v. CIT (1991) 191 ITR 114 (Bom). In that case at page 120, identical argument was considered by their Lordships, inasmuch as, the assessees books of account and documents were seized by the department on 9-8-1976 and were returned in 1985 only. It was observed that in the case of a limited company, it is necessary to have its account audited and, therefore, there was nothing wrong in the petitioner taking the view that it should file its return only after the accounts were audited. The ground was held as sufficient to enable waiver of interest under section 139(8) of the Income Tax Act.
10. Be as it may, the onus placed by the law on the revenue has not been discharged but for making a mechanical order rejecting the explanation in a single sentence. This is not sufficient to uphold to levy of penalty. Onus for levy of penalty under section 221 read with section 201(1) proviso of the Income tax Act continues to be on the revenue. The explanation has been furnished before the Commissioner (Appeals) based on the material, which is on record both of the assessing officer as also of the Commissioner (Appeals), the explanation is summarily rejected without even discussing the pros and cons of each default separately. No reference is made by the Commissioner (Appeals) to the material fact of search leading to delay in finalisation of accounts thereby resulting in delay of furnishing copies of seized records. In the circumstances it cannot be said that on facts the onus has been discharged and, therefore, penalty under section 221 is exigible. On the totality of facts and circumstances, therefore, we find that penalty under section 221 cannot be upheld. It is cancelled.
10.1 Since interest under section 201(1A) is on the same ground as the levy of penalty, levy of interest is also quashed.
11. Both the appeals are allowed.