Judgment:
1. This appeal is preferred by the assesses against the order passed by the CIT(A) upholding the imposition of penalty under section 272A{2)(c) of the Income-tax Act.
2. The facts of this case are that the Annual Return, which was due to be filed on 30-4-1989 under Rule 37, read with section 206, was filed on 13-3-1990 and hence there was a delay of 324 days for which the DCIT after giving an opportunity of being heard passed a penalty order imposing the penalty of Rs. 32,400 @ Rs. 100 for each day of default.
The CIT(A) upheld the imposition of penalty but worked out the default at 316 days, instead of 324 clays and, thus, reduced the amount of penalty to Rs. 31,600. Against this order of the CVT(A), assessee has come in appeal before us.
3. The ld. A/R, appearing on behalf of the assessee, submitted that assessee deducted and deposited the Tax Deducted at Source under section 194A. Hence it was purely a technical default and since there was no mala fide intention of the assessee, this technical default should have been ignored by the DCIT and the CIT(A). It was further submitted that prior to amendment in section 206 of the I.T. Act, the provisions required "shall prepare within the prescribed time after the end of each financial year and deliver or cause to be delivered....." According to the ld. A/R, the substantive provision did not prescribe any time for filing the statement in question. Rule 37 though prescribed but cannot supersede the substantive provisions of the Act.
It was further submitted that there existed a reasonable cause in terms of section 293B (sic), inasmuch as, there was no default in past, nor in future.
3.1 In the alternative, the ld. A/R argues that without prejudice to the above even if a penalty is held to be leviable, the same must be restricted to the amount deductible/collectible. In this connection, resort is taken to the proviso introduced by Finance Act, 1991 retrospectively with effect from 1-10-1991 under section 272A(2). The ld. A/R also relies upon the decision of the Jaipur Bench of ITAT in the case of Superintending Engineer v. ITO[1996] 54 TTJ(Jp.) 608 and the decision of Mumbai Bench of the ITAT cited at ITO v. Alhusain Constructions (P.) Lid [1999] 64 TTJ (Mum.) 451 (SMC). It was also submitted that the CIT(A) has not considered the merits of the case and the submissions made by the assessee before him.
4. The ld. D/R, on the other hand, strongly relied upon the orders passed by the authorities below.
5. We have heard the rival parties and gone through the material placed on record. The undisputed fact is that assessee did deduct the tax at source as required under section 194A. The only default is of non-filing of the return under section 206, read with Rule 37 of the I.T. Rules. Once the assessee deducts the tax and deposits the same with the Government Exchequer, it is pre-supposcd that he is aware of the legal obligations cast upon him vide section 194A/206, read with Rule 37. We are, therefore, of the opinion that non-filing of the statement required under section 206 cannot absolve the assessee from the default in question. The Income-tax Rules are made to support and supplement the provisions of the I.T. Act and hence the Income-lax Rules are supplementary to the Income-tax Act. The time limit in the case of filing of statement has been specifically mentioned in Rule 37.
This is, therefore, not a case of suppression of substantive law by rules prescribed under the law. We, therefore, do not subscribe lo the view expressed by the ld. A/R that Rule 37 supersedes the main provisions of the taw under section 206, Coming to the invoking of the provisions of section 293B, it is observed that section 293B of the Income-tax Act givus power to the "Central Government or the Board to condone delays in obtaining approval". The approval for anything would not follow automatically unless the interested party requests for condoning the delay. In the instant case, assessee never approached any authority for condoning the delay for not filing the return under section 206, read with Rule 37. We, therefore, feel that invoking of the provisions of section 293B of the Act is mis-placed and not justified.
5.1 We, however, feel that the benefits under proviso to section 272A(2) though inserted by Finance Act, 1991 with effect from 1-10-1991 should be made available to the assessee on the ground that the benefit of a legislation which obviates hardships to the taxpayer, should extend to an assessee whose case is pending for final adjudication at the lime of the enforcement of the beneficial legislation. Generally, the law applicable at time of commission of an offence or default would be applicable to decide the case involving that of fence or default.
Hence, the quantum of penalty must be determined with reference to the law as it stood when the of fence was committed. Bul, although an amendment may come into force after the dale of default, it should apply to those cases of defaults also in which proceedings are still pending on the date of coming of the amendment into force provided the amendment is purely procedural and affected the machinery for levying and collecting penalty only and not the very ingredients of the default. The provisions of section 272A(2), as they stood at the lime of default committed in the present case, required the levy of penalty with reference to the period of default only without having any reference to the gravity or extent of such default. An assessee might have defaulted in not deducting the tax at source of the amount of, say a hundred rupee only and his default might have continued for, say, one month. He was to be visited with a penalty of Rs. 3,000 minimum or Rs. 6,000 maximum. There can be an another case where the assessee might have com milled such default of the amount of say, Rs. 1 lac and the default might have also continued for a period of say, one month. In this case also, the penalty leviable under this provision would work out to Rs. 3,000 minimum or Rs. 6,000 maximum. The provision of section 272A prior to insertion of the proviso were thus not only somewhat discriminatory but also caused hardship to the taxpayer and create an anomalous situation. The Legislature must not have intended that hardship. It was, perhaps, with a view to remove such type of hardships that the Legislature, in its wisdom, thought it proper to come out with an amendment which seeks to have some relation with the amount of tax "deductible" or "collectible" in the matter of quantum of penalty and tends to remove the anomalous hardships of the taxpayers. The amendment in question thus besides being beneficial to the assessees, clarifies and explains the intention of the Legislature, as it always was in enacting the provisions of section 272A(2) and aims its possible anomalous situations. The charging provisions in the present case, are contained in section 206 and the provisions contained in section 272A(2) are purely procedural providing for the machinery for levying and collecting penalty. The amendment did not affect the very ingredient of the default contemplated under section 206. We, therefore, feel that the proviso to section 272A(2) though inserted w.e.f. 1-10-1991 are applicable to the facts of the case before us.
Since appeal is continuation of the original proceedings, we hold that the proviso to section 272A(2) is applicable to the facts of this case and hence hold that benefit under this proviso should be made available to the appellant.
This being so, we direct that the amount of penalty should be restricted to the amount of tax deducted at source in this case.