Commissioner Of Income Tax (Central), Ludhiana v. Shri Rakesh Nain Trivedi

ITA No. 290 of 2014 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 290 of 2014 Date of Decision: 29.10.2015 Commissioner of Income Tax (Central), Ludhiana ....Appellant. Versus Shri Rakesh Nain Trivedi ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment?the judgment? 2.To be referred to the Reporters or not?3.Whether the judgment should be reported in the Digest?3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE SHEKHER DHAWAN. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. Mr. Ravish Sood, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This appeal has been filed by the revenue under Section260A of the Income Tax Act, 1961 (in short “the Act”) against the orderdated 26.3.2014 (Annexure A-III) passed by the Income Tax AppellateTribunal, Amritsar Bench, Amritsar (hereinafter referred to as “theTribunal”) in ITA No. 300(ASR)/2013 for the assessment year 2008-09,claiming the following substantial question of law:- “Whether on the facts and in the circumstances of thecase, the Hon'ble ITAT was right in law in cancellingthe order u/s 263 of the Income Tax Act, 1961 byholding that the order passed by the Assessing Officer is not erroneous and prejudicial to the interest ofrevenue, on the issue of penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 read withExplanation 5A which had not been initiated by theAssessing Officer during the course of theassessment proceedings on the ground that due datefor filing return includes return filed u/s 139(4) of I.T.Act? 2.Briefly stated, the facts necessary for adjudication of theinstant appeal as narrated therein may be noticed. The assesseederives income from real estate business. On 11.12.2008, search andseizure operation under Section 132 of the Act was conducted at thepremises of the assessee. Notice under Section 153A of the Act wasissued to the assessee who filed his return of income on 31.3.2009 forthe assessment year 2008-09 at ` 78,16,530/-. The Assessing Officerframed the assessment vide order dated 8.12.2010 (Annexure A-I) underSection 153A of the Act accepting the returned income. TheCommissioner of Income Tax (Central) (for brevity “the CIT”) vide orderdated 12.3.2013 (Annexure A-II) in exercise of powers under Section263 of the Act set aside the assessment order holding that the same waserroneous and prejudicial to the interest of the revenue. Theassessment order was cancelled by the CIT on the ground that i) thecommission of ` 47,925/- had been paid without deduction of TDS andwas not allowable; ii) Penalty under Section 271(1)(c) of the Act had notbeen initiated; and iii) Penalty under Section 271A and 271B of the Acthad not been initiated. Accordingly, the CIT directed the AssessingOfficer to re-frame the order in accordance with the provisions of the Act. ITA No. 290 of 2014-3- Feeling aggrieved, the assessee filed an appeal before the Tribunal.The Tribunal vide order dated 26.3.2014 (Annexure A-III) partly allowedthe appeal of the assessee holding that the assessee was not liable todeduct the TDS as his receipt did not exceed ` 40 lacs in the earlieryear. Further, the Tribunal observed that the CIT cannot direct theAssessing Officer to initiate penalty proceedings under Section 271(1)(c)of the Act and that the penalty proceedings under Sections 271A and271B of the Act are not related to the assessment and can be initiated atany time and, therefore, the assessment framed is not effected and thereis no scope to apply provisions of Section 263 of the Act. Hence thepresent appeal by the revenue. ITA No. 290 of 2014-3- Feeling aggrieved, the assessee filed an appeal before the Tribunal.The Tribunal vide order dated 26.3.2014 (Annexure A-III) partly allowedthe appeal of the assessee holding that the assessee was not liable todeduct the TDS as his receipt did not exceed ` 40 lacs in the earlieryear. Further, the Tribunal observed that the CIT cannot direct theAssessing Officer to initiate penalty proceedings under Section 271(1)(c)of the Act and that the penalty proceedings under Sections 271A and271B of the Act are not related to the assessment and can be initiated atany time and, therefore, the assessment framed is not effected and thereis no scope to apply provisions of Section 263 of the Act. Hence thepresent appeal by the revenue. 3.Learned counsel for the revenue in support of its case hasrelied upon the judgment of Allahabad High Court in Commissioner ofIncome Tax v. Surendra Prasad Agrawal (2005) 275 ITR 113 (All). Onthe other hand, learned counsel for the assessee has placed relianceupon the judgments in Commissioner of Income Tax v. J.K. D's Costa(1984) 147 ITR (St.) 1 (SC), Commissioner of Income Tax v. SubhashKumar Jain (2011) 335 ITR 364 (P&H), Additional Commissioner ofIncome Tax v. J.K.D' Costs (1982) 133 ITR 7 (Delh), Commissionerof Income Tax v. Jagriti Aggarwal (2011) 339 ITR 610 (P&H) andCommissioner of Income Tax v. Jagtar Singh Chawla (2013) 215Taxman 154 (P&H). 4.We have heard learned counsel for the parties. 5.After hearing learned counsel for the parties, we find theissue that arises for consideration of this Court in this appeal is could theCIT in exercise of power under Section 263 of the Act hold the order of the Assessing Officer to be erroneous and prejudicial to the interest ofthe revenue where the Assessing Officer had failed to initiate penaltyproceedings while completing assessment under Section 153A of theAct. 6.It may be noticed that the said issue is no longer res integra.This Court in Commissioner of Income Tax v. Subhash Kumar Jain(2011) 335 ITR 364 agreeing with the view of High Courts of Delhi inAdditional CIT v. J.K.D.'Costa (1982) 133 ITR 7 (Del), Commissionerof Income Tax v. Sudershan Talkies (1993) 201 ITR 289 (Del) andCommissioner of Income Tax v. Nihal Chand Rekyan (2000) 242 ITR45 (Del), Rajasthan in Commissioner of Income Tax v. KeshrimalParasmal (1986) 157 ITR 484 (Raj), Calcutta in Commissioner ofIncome Tax v. Linotype & Machinery Ltd. (1991) 192 ITR 337 (Cal)and Gauhati in Surendra Prasad Singh and others v. Commissionerof Income Tax (1988) 173 ITR 510 (Gau.) whereas dissenting with thediametrically opposite approach of Madhya Pradesh High Court inAdditional Commissioner of Income Tax v. Indian Pharmaceuticals(1980) 123 ITR 874 (MP), Additional Commissioner of Income Tax v.Kantilal Jain (1980) 125 ITR 373 (MP) and Addl. CWT v. NathoolalBalaram (1980) 125 ITR 596 (MP) had concluded that where the CITfinds that the Assessing Officer had not initiated penalty proceedingsunder Section 271(1)(c) of the Act in the assessment order, he cannotdirect the Assessing Officer to initiate penalty proceedings under Section271(1)(c) of the Act in exercise of revisional power under Section 263 ofthe Act. The relevant observations recorded therein read thus:- “9.Now adverting to the second limb, it may be noticed that the Delhi High Court in judgment reportedin Addl. CIT vs. J.K.D.'Costa (1981) 25 CTR (Del) 224: (1982) 133 ITR 7 (Del) has held that the CIT cannotpass an order under s. 263 of the Act pertaining toimposition of penalty where the assessment orderunder s. 143(3) is silent in that respect. The relevantobservations recorded are: “9.Now adverting to the second limb, it may be noticed that the Delhi High Court in judgment reportedin Addl. CIT vs. J.K.D.'Costa (1981) 25 CTR (Del) 224: (1982) 133 ITR 7 (Del) has held that the CIT cannotpass an order under s. 263 of the Act pertaining toimposition of penalty where the assessment orderunder s. 143(3) is silent in that respect. The relevantobservations recorded are: “It is well established that proceedings for thelevy of a penalty whether under s. 271(1)(a) orunder s. 273(b) are proceedings independent ofand separate from the assessmentproceedings.Thoughtheexpression"assessment" is used in the Act with differentmeanings in different contexts, so far as s. 263is concerned, it refers to a particular proceedingthat is being considered by the Commissionerand it is not possible when the Commissioner isdealing with the assessment proceedings andthe assessment order to expand the scope ofthese proceedings and to view the penaltyproceedings also as part of the proceedingswhich are being sought to be revised by theCommissioner. There is no identity between theassessment proceedings and the penaltyproceedings; the latter are separateproceedings, that may, in some cases, follow asa consequence of the assessment proceedings. As the Tribunal has pointed out, though it isusual for the ITO to record in the assessmentorder that penalty proceedings are beinginitiated, this is more a matter of conveniencethan of legal requirement. All that the lawrequires, so far as the penalty proceedings areconcerned, is that they should be initiated in thecourt of the proceedings for assessment. It issufficient if there is some record somewhere,even apart from the assessment order itself,that the ITO has recorded his satisfaction thatthe assessed is guilty of concealment or otherdefault for which penalty action is called for.Indeed, in certain cases it is possible for theITO to issue a penalty notice or initiate penaltyproceedings even long before the assessmentis completed though the actual penalty ordercannot be passed until the assessmentfinalised. We, therefore, agree with the viewtaken by the Tribunal that the penaltyproceedings do not form part of the assessmentproceedings and that the failure of the ITO torecord in the assessment order his satisfactionor the lack of it in regard to the leviability ofpenalty cannot be said to be a factor vitiatingthe assessment order in any respect. Anassessment cannot be said to be erroneous or prejudicial to the interest of the revenuebecause of the failure of the ITO to record hisopinion about the leviability of penalty in thecase.” 10.Special leave petition against the said decisionwas dismissed by the Apex Court ((1984) 147 ITR (St)was dismissed by the Apex Court ((1984) 147 ITR (St) 1. The same view was reiterated by the Delhi HighCourt in CIT vs. Sudershan Talkies (1993) 112 CTR(Del) 165 : (1993) 201 ITR 289 (Del) and followed inCIT vs. Nihal Chand Rekyan (1999) 156 CTR (Del) 59 : (2000) 242 ITR 45 (Del). The Rajasthan High Courtin CIT vs. Keshrimal Parasmal (1985) 48 CTR (Raj)61 : (1986) 157 ITR 1984 (Raj), Gauhati High Court inSurendra Prasad Singh & Ors. vs. CIT (1988) 71 CTR(Gau) 125 : (1988) 173 ITR 510 (Gau) and CalcuttaHigh Court in CIT vs. Linotype & Machinery Ltd.(1991) 192 ITR 337 (Cal) have followed the judgmentof Delhi High Court in J.K.D's Costa's case (supra). 11.However, Madhya Pradesh High Court in Addl.CIT vs. Indian Pharmaceuticals (1980) 123 ITR 874(MP) which has been followed by the same HighCourt in Addl. CIT vs. Kantilal Jain (1980) 125 ITR373 (MP) and Addl. CWT vs. Nathoolal Balaram(1980) 125 ITR 596 (MP) has adopted diametricallyopposite approach. 12.We are in agreement with the view taken by theHigh Courts of Delhi, Rajasthan, Calcutta and Gauhati, and express our inability to subscribe to theview of Madhya Pradesh High Court. 11.However, Madhya Pradesh High Court in Addl.CIT vs. Indian Pharmaceuticals (1980) 123 ITR 874(MP) which has been followed by the same HighCourt in Addl. CIT vs. Kantilal Jain (1980) 125 ITR373 (MP) and Addl. CWT vs. Nathoolal Balaram(1980) 125 ITR 596 (MP) has adopted diametricallyopposite approach. 12.We are in agreement with the view taken by theHigh Courts of Delhi, Rajasthan, Calcutta and Gauhati, and express our inability to subscribe to theview of Madhya Pradesh High Court. 13.Accordingly, it is held that the initiation ofproceedings under s. 263 was not justified. TheTribunal was right in holding that after examining therecord of the assessment in exercise of powers unders. 263, where the CIT finds that the AO had notinitiated penalty proceedings, he cannot direct the AOto initiate penalty proceedings under s. 271(1)(c) ofthe Act.” 7.In view of the above, equally we are unable to subscribe tothe view adopted by Allahabad High Court in Surendra PrasadAggarwal's case (supra) where judgment of Madhya Pradesh HighCourt in Indian Pharmaceuticals' case (supra) noticed hereinbeforehas been concurred with. 8.Accordingly, it is held that the initiation of proceedings underSection 263 of the Act was not justified and we uphold the order of theTribunal cancelling the revisional order passed by the CIT. 9.Consequently, the appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE October 29, 2015gbs (SHEKHER DHAWAN) JUDGE