TaxTMI 
TaxTMI 
1993 (7) TMI 317
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....n Bench of this Court consisting of Ramanujulu Naidu and Anjaneyulu, JJ., in Nagabandi Mallaiah v. State of A.P. [1988] 70 STC 160, was that the very same officer who passed an order of assessment to the best of his judgment should levy penalty simultaneously with the order of assessment. Following this decision, another Division Bench (Sivaraman Nair and Parvatha Rao, JJ.) in State of A.P. v. Venkateswara Oil Producers [1992] 86 STC 127 (AP) held that the penalty under sub-section (2), (3) or (4) of section 14 should be imposed only at the time when the assessment is made but not subsequent thereto. As against these two decisions, long ago, two Division Benches of this Court had taken the view that the levy of penalty need not be simultaneous and it can be levied by a different assessing authority after the assessment is made. These two cases which were noticed by the Division Bench that has made the present reference are: Sri Radhakrishna & Co. v. State of Andhra Pradesh [1962] 13 STC 117 (AP) and State of Andhra Pradesh v. Sri Immadisetty Venkateswarlu [1970] 25 STC 46 (AP). To this category, we may add one more case, i.e., a Division Bench judgment of this Court in St....
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.... to the principles of natural justice. It may be mentioned that no appeal was filed against the penalty order though such an appeal is provided for under section 19 of the APGST Act. The relevant provisions are contained in section 14 of the APGST Act: Section 14: Assessment of tax.-(1) If the assessing authority is satisfied that any return submitted under section 13 is correct and complete, he shall assess the amount of tax payable by the dealer on the basis thereof; but if the return appears to him to be incorrect or incomplete, he shall, after giving the dealer a reasonable opportunity of proving the correctness and completeness of the return submitted by him and making such inquiry as he deems necessary, assess to the best of his judgment, the amount of tax due from the dealer. An assessment under this section shall be made only within a period of four years from the expiry of the year to which the assessment relates. (1-A) (Not relevant). (2) When making an assessment to the best of judgment under subsection (1), the assessing authority may also direct the dealer to pay in addition to tax assessed a penalty as specified in sub-section (8) on the turnover th....
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.... dealer a reasonable opportunity to explain the omission to disclose the turnover or to furnish correctly any particulars and shall make such enquiry as he considers necessary." Originally it was numbered as sub-section (4-A). In the present case, we are concerned with sub-section (2) of section 14 read with sub-section (8) and sub-section (4-B). Resort to sub-section (2) could be had by the assessing authority in a case where the best judgment assessment is made under the latter part of sub-section (1). The foundation for making the best judgment assessment is that the return appears to the assessing authority to be incorrect or incomplete. When once such satisfaction is reached by the assessing authority he can proceed in the direction of making best judgment assessment. Of course, before making such assessment, it is mandatory that a reasonable opportunity of proving the correctness or completeness of the return is afforded to the dealer and appropriate enquiry is made by the assessing authority depending upon the nature of objections filed by the dealer. It is the making of best judgment assessment under sub-section (1) that gives rise to liability to pay penalty in appro....
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....the law imposing penalty in revenue matters should be fair and reasonable, an approach resting prominently on subtlities and a priori notions should be deprecated. Viewed from this angle, the requirement that penalty should be levied simultaneous with the assessment or not at all, is based upon no discernible principle of tax jurisprudence; on the other hand, many a time, it might stultify the objective of the provision and give rise to unintended situations. Supposing the assessing officer intentionally or unwittingly omits to initiate penalty proceedings simultaneous with the assessment proceedings and finalise the penal action, no penalty can be levied thereafter even in a case of large-scale evasion by a dishonest assessee. Let us again take a case where the best judgment assessment is taken up just before the expiry of the limitation period. The penalty proceedings being distinct and the method of approach in the penalty proceedings is qualitatively different from assessment proceedings, naturally the assessing authority will have to separately address himself to the question of levying penalty. Though the scope of enquiry may overlap, the nature of enquiry and the process of ....
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....y upon the findings or observations in the assessment order. For this purpose, he may even seek for deferment of the penalty proceedings till the assessment is finalised. In such a case, if an insistence is made on the passing of penalty order at any cost simultaneous with the assessment, the assessee himself might very often be handicapped. The completion of enquiry in connection with the best judgment assessment and the enquiry in connection with levy of penalty may not be possible at one and the same time. When a separate enquiry for imposition of penalty is contemplated by sub-sections (4-B) and (8) and such an enquiry is qualitatively different from an enquiry concerning assessment, the Legislature would have least intended that the levy of tax and penalty should all be rolled up into a composite or simultaneous proceeding. Keeping all these considerations in view, unless the clear language of section 14(2) suggests otherwise, it is not proper and reasonable to place an interpretation that is suggested on behalf of the assessee. The learned counsel for the petitioner Mr. M.V.K. Murthy tried to persuade us to accept the interpretation countenancing the simultaneity of assess....
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....h the imposition of penalty are to be found in the three crucial provisions, viz., sub-sections (2), (4-B) and (8). Sub-section (1) of section 14 cannot be found as a repository from which the power to issue a notice for imposition of penalty could be drawn out. The occasion for the exercise of power ought not to be confounded with the method and the actual exercise of the power. The attempt of the learned counsel to dub the penalty proceedings as an integral part of the assessment proceedings and thereby imparting the idea of simultaneity is thus a futile attempt. It is no doubt true that penalty proceedings are not wholly independent of assessment proceedings. The enquiry in the assessment and penalty proceedings may, to some extent overlap. The facts which give rise to best judgment assessment may also give rise to levy of penalty without further proof. But that is not to say that penalty partakes of the same character as tax and both are integral parts of the same process. It is well-settled that the findings in the assessment order are not conclusive in regard to penalty though they may be relevant. (Vide Commissioner of Income-tax v. Anwar Ali [1970] 76 ITR 696 (SC); AIR 1970....
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....the expression "when", this Court in the two decisions referred to supra came to the conclusion that the penalty must be imposed simultaneously with the tax by the same assessing authority. However, as long back as in 1961, this Court in Sri Radhakrishna & Co. [1962] 13 STC 117 referred to the various shades of meaning of the word "when" and held that the meaning which fits in with the context and the objective of the provision should be preferred. A perusal of the standard dictionaries would show that the word "when" need not necessarily be ascribed the limited meaning which is sought to be given by the petitioner's counsel. In 20th Century Chambers Dictionary, the meaning of the expression "when" is given as follows: "When: Adv. (interrog. and rel) and conj. at what time? at which time at or after the time that: upon or after which; while: although: at which....." In Oxford English Dictionary, the meanings of "when" are given as: " ** ** ** 4.. As compound relative, or as correlative to then (implied and sometimes expressed); at the (or a) time at which: on the (or an) occasion on which. (a) In reference to a definite actual occurrence or fact, chiefly with ver....
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....ssessment or had been under-assessed or assessed at too low a rate by reason of its not being disclosed by the dealer." Harping on the expression "such authority", a Division Bench of this Court in Pallapothu Sarveswara Rao v. State of Andhra Pradesh [1962] 13 STC 122 held that section 14(4) contemplates levy of penalty by the very same assessing authority. To get over this judgment, the Legislature amended the provision by A.P. Act 16 of 1963. The amended provision as it now stands reads as follows: "In addition to the tax assessed or fee levied under this sub-section, the assessing authority may also direct the dealer to pay a penalty as specified in sub-section (8)." Thus, the words "assessing authority" were substituted for the words "such authority", to make it clear that the penalty can be levied by any assessing authority but not necessarily the same assessing authority who assessed the escaped turnover. This amendment gives a clue to the legislative intent and focusses some light on the interpretation of section 14(2) as well. What could be reasonably inferred from the legislative history is that the Legislature never wanted to place a fetter on the power to levy pena....
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.... proceedings with utmost expedition without inviting unnecessary controversy on the question whether the time taken was proximate. Whether or not the time taken by the assessing authority in taking steps regarding the levy of penalty is reasonably proximate, is a question of fact which is to be decided by the appellate authority or the court, as the case may be, in the light of the relevant facts. It must be remembered that while deterrence against tax evasion is necessary, it is desirable to keep another salutary principle in view. That principle is that tax laws should impart an element of certainty in the interests of both the tax-payer as well as the Revenue. The prospect of levying penalty at an uncertain point of time in future despite the possession of all relevant information, is a travesty of that cardinal rule. As pointed out by the learned counsel for the petitioner with certain amount of justification, as the time passes by, the assessing officer who is best suited to the job of launching penalty proceedings may be changed and the assessee also may be handicapped in presenting his case. Keeping all these considerations in view, we are inclined to hold that there should ....
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....nt assessment is called for and what penalty if any is leviable. On the language of sub-section (2) of section 14 and the allied provisions referred to supra, such a course is not impermissible. In this connection, we may refer to a decision of this Court in Narasingh Kirana Stores v. Deputy Commercial Tax Officer ILR 1973 AP 496. In that case, there is an observation that if a penalty notice is issued even before the assessment is made, it might amount to prejudging the issue. In other words, an inference of bias could be drawn against the assessing authority. Though the ultimate conclusion in the said judgment is supportable on a different basis, these observations broadly made, do not receive our approval. A mere proposal to levy penalty on a prima facie satisfaction does not amount to prejudging the issue or approaching the issue with a foreclosed mind. There is no requirement of law that the process of initiation of penalty proceedings should necessarily start after the assessment order is passed. It cannot be said that till then, the assessing authority cannot even form a prima facie opinion especially when the facts relating to incorrect or incomplete information furnished b....
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....find it useful to press into service the findings/ observations in the assessment order. He may be able to demonstrate that the best judgment assessment was based upon the mere failure of the assessee to discharge the burden of proof cast by section 7-A but not on account of deliberate concealment of the correct figures and particulars. The assessee may therefore plead that it is not a fit case for levy of penalty even on the findings of the assessing officer. Penalty being not consequential to the assessment, the assessee can very well take the plea that by reason of simultaneous levy of penalty, he was denied the opportunity of taking aid from the contents of the assessment order itself to the extent they help him. To avoid such objections, it is desirable that as far as practicable, the penalty proceedings are concluded after the assessment is made, though they might have been initiated earlier. Otherwise, the penalty orders may often become vulnerable to attack on the ground of denial of reasonable opportunity or the like grounds. However, we do not wish to state as a proposition of law that a penalty order passed simultaneous with an assessment order would always be vitiated. ....
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....ion 14(2) being initiated along with making the best judgment assessment. If the literal and mechanical way of interpretation suggested by the learned counsel for the petitioner is to be followed, the levy of penalty should be a part of the best judgment assessment......" After referring to the proviso, the learned Judges observed that "this precludes the imposition of penalty without affording an opportunity to the assessee to explain the omission to disclose the information". The Division Bench then proceeded to say: "It is clear from the proviso that an inquiry should be made by the assessing authority before imposing penalty on the assessee. This is inconsistent with the interpretation the learned counsel for the petitioner seeks to put upon section 14(2). A combined reading of sub-section (2) and the proviso inevitably leads us to the conclusion that the proper officer, after ascertaining the turnover to the best of his judgment under section 14(1) has to examine the question of the levy of penalty and if he is satisfied that there was a case for proceeding under subsection (2), he should give a reasonable opportunity to the assessee to explain the omission to disclos....
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....ional assessment was alone competent to levy penalty. It was observed: "the making of additional assessment and the levy of penalty are involved in the same proceeding". To reinforce their view point, the learned Judges pointed out that the authority who makes the additional assessment is in the best position to judge whether the case requires the levy of penalty and, therefore, the same authority should make the assessment as well as levy the penalty. Here, the question is somewhat different. Moreover, the expression "such authority" occurring in the then existing sub-section (4) is not to be found in sub-section (2). Therefore that decision is distinguishable. However, there is an apparent contradiction between this decision and the later decision [Sri Radhakrishna & Co. case [1962] 13 STC 117 (AP)] in so far as the reasoning is concerned. That the same authority is in a best position to decide upon the levy of penalty is a principle that would hold good even in a case of penalty under sub-section (2), but when it came to sub-section (2), the learned Judges did not pursue that line of thought. On the other hand, the Division Bench observed in Sri Radhakrishna & Co. [1962] 13 STC ....
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....ry for both and it follows that the assessing authority while making the assessment by best judgment should also decide at the same time whether a penalty should be levied." Referring to the judgment of this Court in Sri Radhakrishna & Co. case [1962] 13 STC 117, the learned Judges of the Madras High Court observed: "The learned Judges in that case would seem to recognise that it was clear from the proviso to sub-section (3) that an enquiry should be made by the assessing authority before imposing penalty on the assessee. But as we said, no independent enquiry for the levying of penalty is permitted or contemplated by section 12. It follows from the two premises that penalty, if any, can only be levied as part and parcel of an assessment order, after an enquiry as prescribed by the proviso to sub-section (2) relating to assessment by a best judgment." An analysis of this decision would show that the learned Judges approved of the interpretation placed by this Court on the phraseology "when making an assessment". However, the Madras High Court dissented from the view expressed by this Court in Sri Radhakrishna & Co. case [1962] 13 STC 117, on the limited ground that ....
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....ortunity, the assessing authority is also required to make such enquiry as he considers necessary. This precludes the imposition of penalty without giving a reasonable opportunity to the assessee to explain the omission on his part and making an enquiry into it. It is not, therefore, possible to postulate that the levy of the penalty should be simultaneous with the best judgment assessment. The same view was expressed by a Division Bench of this Court in Radhakrishna & Co. v. State of Andhra Pradesh [1962] 13 STC 117....... The Division Bench also pointed out that in Sri Radhakrishna & Co. case [1962] 13 STC 117 (AP) the court was not concerned with the question whether the penalty proceedings should be started within the same period as was available for making best judgment assessment. Thus, the decision in Sri Radhakrishna & Co. [1962] 13 STC 117 (AP), found favour with the learned Judges in this case. As we already commented while discussing the case of Sri Radhakrishna & Co. [1962] 13 STC 117 (AP) the broad observation that the simultaneous levy of tax and penalty is not envisaged by section 14(2) cannot be countenanced. Now we shall refer to the case of State of A....
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....roceedings, we do not think that so long as the successor is the assessing authority within the meaning of the Act, the legality of levy can be assailed on the ground that he is not competent to levy penalty. We are no doubt referred to the decision of this Court in Pallapothu Sarveswara Rao v. State of Andhra Pradesh [1962] 13 STC 122. But that case was attracted by section 14(4) and the interpretation turned on the words 'such authority' used therein........... The rule in that case, therefore, has no application to the facts of the present case which is concerned with sub-sections (1) and (2) of section 14 and not with sub-section (4)." The learned Judges then made the following crucial observations: "It is wrong to think that the 'assessing authority' used in sub-section (2) implies the same person or officer who had made the original assessment. It cannot be accepted on principle also that the person who imposes penalty should be the same as the person who had made the assessment order. If immediately on making the assessment, the officer is transferred or the jurisdiction is conferred on another authority, certainly such authority is competent to take up the case fro....
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....cher or declaration, etc. whether before finalising the assessment, or thereafter; whereas penalty under sub-section (8) of section 14 can be levied only at the time of, or subsequent to, the making of the assessment order." No doubt, the penalty with which the Division Bench was concerned in that case was the penalty under section 7-A but not under section 14. However, the enunciation of law by the learned Judges, though in the form of a passing observation, in our view, represents the correct legal position. We shall now advert to the more recent decisions of this Court-Nagabandi Mallaiah v. State of A.P. [1988] 70 STC 160 and State of A.P. v. Venkateswara Oil Producers [1992] 86 STC 127. In the first of the cases, an identical question arose before the Division Bench consisting of Ramanujulu Naidu and Anjaneyulu, JJ. In that case, the best judgment assessment was finalised on February 16, 1968. Nearly 2 1/2 years later, the successor-assessing authority issued a penalty notice under section 14(2). The order imposing penalty was passed on March 31, 1971. Relying on the language of section 14(2), the learned Judges took the view that levy of penalty should be simultaneous wi....