Txa/52/2014 Of Gangadhar Narsingas Agrawal ( Huf ) v. The Assistant Commissioner Of Income Tax

1 IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO.52 OF 2014 Gangadhar Narsingas Agrawal (HUF),a Hindu Undivided Family having itsaddress at Anand Bhavan, Station Road, Post Box 107, Margao, Goa – 403 601. .... Appellant. V/s. The Assistant Commissioner of Income ….Tax, Circle – 1, Margao, Goa.Respondent. Mr. Ashok A. Kulkarni with Ms. Vinita Palyekar, Advocates for theappellant. Ms. Amira Abdul Razaq, Standing Counsel for the respondent. Coram : M. S. SONAK & SMT. M.S. JAWALKAR, JJ. Date : 4[th] February, 2020. Oral Judgment: (Per M.S. Sonak, J.) : Heard Mr. Ashok Kulkarni along with Ms. VinitaPalyekar, the learned Counsels for the appellant and Ms. AmiraAbdul Razaq, the learned Standing Counsel for the respondent. 2 2.This appeal was admitted on 9.9.2014 by making aspeaking Order and incorporating therein the substantial questions oflaw. Accordingly, for convenience of reference, we transcribe theOrder dated 9.9.2014: “Question is whether Order dated 16.11.2000passed by CIT (Appeals) which remands the matterback to AO completely wipes out the earlier orderappealed against. 2. In earlier order, the Assessee was not permitteddeduction of Rs.1,40,00,000/- on account of minerefilling charges and initiated Section 271proceedings. CIT (Appeals) found some fault in theexercise of jurisdiction by AO and remanded thematter back. However, in the process CIT (Appeals)did not observe anything expressly on the directionabout initiating the penalty proceedings. 3. A fresh order was thereafter passed by AOwithout observing on need to initiate Section 271proceedings therein. Perhaps on the strength of theearlier observation, the penalty proceedings havebeen taken up. The objection of Assessee is earlierorder did not survive and in absence of any specificdirection to initiate such proceedings in laterassessment order, the initiation itself is barred. 4. We have heard the respective counsels. 3 5. Admit on the following substantial questionsof law: 1. Whether on the facts and in thecircumstances of the case, there was jurisdiction inthe respondent to levy the impugned penalty? 2. Whether on the facts and in thecircumstances of the case, the Tribunal was right inlaw in giving a finding that as at the relevant time,the Commissioner of Income Tax (Appeals) had thepower to partially set aside an order of assessmentand any finding in the order of assessment so setaside as regards satisfaction as no concealmentsurvives after such set aside? 6. Advocate Ms. Desai waives notice for therespondent”. 3. The appellant in the present case filed a return of income disclosing a loss of Rs.13,32,280/- and net agricultural income ofRs.10,500/- for the Assessment Year 1997-1998 before the concernedAssessment Officer (AO). By Order dated 8.2.2000, made underSec.143 (3) of the Income Tax Act, 1961 (said Act), the AO,disallowed the mining land restoration charges in an amount ofRs.1,40,00,000/- and added back this amount to the return income.In the said Order dated 8.2.2000, the AO, also made the followingendorsement, which was to form a part of the Order: 4 4.The appellant, aggrieved by the aforesaid Order dated8.2.2000 instituted an appeal before the Commissioner (Appeals).The Appeal Memo in this appeal is produced before us. The AppealMemo makes no reference to the endorsement in relation to theissuance of the Notice under Section 271 (1) (c) or to the initiationof any penalty proceedings. Order of the Commissioner of IncomeTax (Appeals) dated 16.11.2000 also records that the only objectionraised in the appeal was against the disallowance of Rs.1,40,00,000/-being the provision made for the expenses on restoration of landaffected by mining. 5.This appeal, as noted earlier, was disposed of by theCommissioner (Appeals) vide Order dated 16.11.2000. 4 4.The appellant, aggrieved by the aforesaid Order dated8.2.2000 instituted an appeal before the Commissioner (Appeals).The Appeal Memo in this appeal is produced before us. The AppealMemo makes no reference to the endorsement in relation to theissuance of the Notice under Section 271 (1) (c) or to the initiationof any penalty proceedings. Order of the Commissioner of IncomeTax (Appeals) dated 16.11.2000 also records that the only objectionraised in the appeal was against the disallowance of Rs.1,40,00,000/-being the provision made for the expenses on restoration of landaffected by mining. 5.This appeal, as noted earlier, was disposed of by theCommissioner (Appeals) vide Order dated 16.11.2000. 6.In pursuance of the aforesaid remand the (AO) madeOrder dated 30.3.2001 giving effect to the Order of theCommissioner (Appeals) dated 16.11.2000. This time, the AO, uponreconsideration of the matter in terms of the remand Order, onceagain, disallowed the amount of Rs.1,40,00,000/- for which theappellant had made a provision towards mining land restorationcharges, thereby maintaining the returned income at Rs.54,49,180/-. 5 In this Order dated 30.3.2001, there was no specific reference topenalty or the initiation of penalty. 7.The AO, however, by a separate Order dated 28.5.2001,imposed penalty of Rs.40,00,000/- upon the appellant in exercise ofpowers under Section 271 of the said Act. 8.The appellant instituted an appeal before theCommissioner (Appeals) against the AO's Order giving effect to theOrder of the Commissioner (Appeals) dated 30.3.2001. However, on7.1.2002, the appellant, withdrew this appeal. Accordingly, the Orderof the AO dated 30.3.2001 maintaining the appellant's income atRs.54,49,180/- or in other words, maintaining the disallowance ofRs.1,40,00,000/-, attained finality. 9.The appellant also instituted a separate appeal before theCommissioner (Appeals) questioning the Order dated 28.5.2001imposing penalty upon the appellant in the amount ofRs.40,00,000/-. 10.The Commissioner (Appeals) vide Order dated 8.1.2002allowed the appellant's appeal by agreeing with the appellant'scontention that the Order dated 16.11.2000 made by the 6 Commissioner (Appeals) in the first round of litigation hadcompletely set aside and even obliterated the Assessment Order dated8.2.2000. The Commissioner (Appeals) reasoned that since the entireOrder had been set aside, even the endorsement regards issue ofpenalty notice stands set aside. 11.Accordingly, the AO's Order dated 28.5.2001 levyingpenalty upon the appellant was set aside. 12.The respondent – Revenue appealed to the Income TaxAppellate Tribunal Panaji Bench (ITAT) against the Order dated8.1.2002 made by the Commissioner (Appeals) setting aside the levyof penalty. This was disposed of by Order dated 7.4.2006, theoperative portion of which, is contained in paragraphs 6 and 7,which reads as follows: “6.In the light of above discussion, byconsidering the facts of the case, we are of the viewthat CIT (A) has cancelled the levy of penaltymerely on technical ground without discussing themerit of the case which is not desirable. Therefore,we deem fit to set aside the order of the CIT (A)and restore the matter to him to decide the penaltyappeal also on merit, but by providing reasonableopportunity to the assessee. For the similar reasons,the cross objection filed by the assessee is also 7 allowed. 7.In the result, appeal filed by the departmentand cross objection filed by the assessee are allowedfor statistical purposes as stated above andannounced in the open court. 13.The appellant, thereupon instituted Tax AppealNo.68/2006 before this Court contending that the ITAT was obligedto first decide the issue of jurisdiction to initiate the penaltyproceedings, instead of simply remanding the matter to theCommissioner (Appeals) to decide the matter on the issue ofjurisdiction as well as merits. 7 allowed. 7.In the result, appeal filed by the departmentand cross objection filed by the assessee are allowedfor statistical purposes as stated above andannounced in the open court. 13.The appellant, thereupon instituted Tax AppealNo.68/2006 before this Court contending that the ITAT was obligedto first decide the issue of jurisdiction to initiate the penaltyproceedings, instead of simply remanding the matter to theCommissioner (Appeals) to decide the matter on the issue ofjurisdiction as well as merits. 14.Tax Appeal No.68/2006 was disposed of by this Courtvide Judgment and Order dated 19.2.2018, accepting the appellantsaforesaid contentions. The matter was once again remanded to ITATto decide the issue of jurisdiction of the AO in levying penalty. Theoperative portion of the Judgment and Order dated 19.2.2018 isfound in paragraphs no.7, 8 and 9 which read as follows: “7.After having perused the order passed byCIT (A) and ITAT, it is obvious that the ITAT hascommitted error of law which is apparent on theface of record in the sense that the core issue which 8 was challenged by the revenue was about thejurisdiction of Assessment Officer in levyingpenalty without issuance of penalty proceedings. 8.After the said issue had been decided infavour of the respondent herein, then, the questionof remand would have arisen. We, therefore, deemit necessary again to remand the matter to theAppellate Tribunal with a direction to decide theissue of jurisdiction of Assessment Officer. 9.With this direction, the appeal is allowedand disposed of”. 15. In pursuance of the remand as aforesaid, the ITAT, has passed the impugned Judgment and Order dated 28.8.2013, inwhich, it has held that the AO, in the facts and circumstances of thepresent case, had jurisdiction to levy penalty and that theendorsement regarding initiation of Penalty proceedings contained inthe AO's initial Order dated 8.2.2000 was not wiped out by theOrder dated 16.11.2000 made by the Commissioner (Appeals). 16.Aggrieved by the impugned Judgment and Order dated28.8.2013, the appellant instituted the present Tax Appeal, which, asnoted earlier came to be admitted vide Order dated 9.9.2014 on theaforesaid substantial questions of law. 9 17.Although, this Court, has framed two substantialquestions of law in its Order dated 9.9.2014, it is apparent that theissue raised by both the questions is really one and the same namelywhether in the facts and circumstances of the present case, did theAO have jurisdiction to impose penalty upon the appellant basedupon the initiation of the penalty proceedings as endorsed in AO'sOrder dated 8.2.2000, which Order was subject matter of appealbefore the Commissioner (Appeals) and which appeal came to bedisposed of vide Order dated 16.11.2000? 18.Mr. Kulkarni, the learned Counsel for the appellantsubmits that the Order dated 16.11.2000 made by the Commissioner(Appeals), upon being read in its entirety, clearly suggests that theAO's Order dated 8.2.2000 was set aside in its entirety, i.e. includingthe endorsement for initiation of penalty proceedings. He submitsthat merely because expressions like “set aside” or “quash” may nothave been used by the Commissioner (Appeals), that does not meanthat the AO's Order was not in fact set aside or quashed in itsentirety. He submits that it is necessary to read the Order in itsentirety and in the context in which it was delivered. He submits thatfrom this it is apparent that the endorsement in the initiation ofpenalty proceedings was at least impliedly set aside by theCommissioner of Income-Tax (Appeals) in its Order dated 10 16.11.2000. He relies on Commissioner of Income-Tax Vs. BhanTextile P. Ltd.[1], V. K. Packaging Industries Vs. Tax RecoveryOfficer and others,[2] and Commissioner of Income-Tax Vs.Basumati (P) Ltd.,[3] in support of his contentions. 10 16.11.2000. He relies on Commissioner of Income-Tax Vs. BhanTextile P. Ltd.[1], V. K. Packaging Industries Vs. Tax RecoveryOfficer and others,[2] and Commissioner of Income-Tax Vs.Basumati (P) Ltd.,[3] in support of his contentions. 19.Mr. Kulkarni, by way of elaboration submits that theOrder of the AO merges in the Order of the Commissioner (Appeals)and not the other way round as held by the ITAT in the impugnedOrder. He also submits that the original endorsement for theinitiation of the penalty proceedings was on the basis of theassessment in the Order dated 8.2.2000. Once, the assessment wasset aside by the Commissioner (Appeals) though impliedly, and thematter was remanded for reconsideration, obviously, the Order ofinitiation of proceedings would not survive. He submits that the AOin his Order dated 30.3.2001 giving effect to the Order of theCommissioner (Appeals) has not applied his mind afresh and issuedany notice for the initiation of the penalty proceedings, which is asine qua non for sustaining any order for imposition of penalty. Mr.Kulkarni submits that these are good and weighty reasons foranswering the substantial questions of law in favour of the appellantand against the revenue. 1(2008) 300 ITR 176 (Delhi) 2(2004) 266 ITR 283 3(1989) 180 ITR 175 11 20.Ms. Razaq, the learned Standing Counsel for therespondent defends the impugned Order made by ITAT on the basisof the reasoning reflected therein. She submits that the issue raised bythe appellant is hyper technical and it ignores the substance of theremand Order dated 16.11.2000. She submits that in this case, theappellant has taken part in the penalty proceedings without anydemur or protest. She therefore submits that this appeal warrantsdismissal. 21.Rival contentions now fall for our determination. 22.The entire appeal turns on the interpretation of theOrder dated 16.11.2000 made by the Commissioner (Appeals), inthe appeal against AO's Order dated 8.2.2000. The AO, as notedearlier, by his Order dated 8.2.2000 has not only disallowed themining land restoration charges and ordered the same to be addedback to the return income, but further ordered the initiation of thepenalty proceedings under Sec.271 (1) (c) of the said Act. 23.The appellant in his appeal against the AO's Orderdated 8.2.2000 had raised no formal grounds to the initiation ofpenalty but had only attacked the Order, insofar as it made adisallowance of Rs.1,40,00,000/- being the provision made for expenses on restoration of land affected by mining. This is quite clearnot only from the Appeal Memo handed in by the learned Counselfor the appellant but also from the Order dated 16.11.2000 made bythe Commissioner (Appeals). 24.The crucial portion of the Order dated 16.11.2000 is tobe found in paragraphs 7 and 8, which read as follows: “7.The AO has assumed without any tangiblebasis that in the case of Gogte Minerals, theamount of pit filling expenses was actually spent.The fact is that the whole question of deductibilityof expenditure, its quatum and point of time ofaccrual was reverted back to the assessing authorityin the said case. Since the AO in the present casehas not addressed the question whether the relevantmine was abandoned in this year and whether aliability otherwise arose in this year and what wasthe basis of quantification of liability at such a hugefigure, the matter deserves to be reconsidered byhim in accordance with the law in the light of theabove discussion. He is directed to ascertain theyear of allowability and the precise basis ofquantification of provision at Rs.1,40,00,000/- inthe light of the factors governing the case on thelast day of the relevant accounting year when thisprovision was made and allow the liability only if,and to the extent, it could be said to be a realliability in praesenti crystallized on or before thelast day of the relevant accounting year. For this, 13 the AO will afford a reasonable opportunity to theappellant. 13 the AO will afford a reasonable opportunity to theappellant. 8. The appeal is disposed of accordingly. Forstatistical purposes, it may be treated as partlyallowed”. 25.According to us, the aforesaid portion suggests that theCommissioner (Appeals) basically directed the AO to revisit the issueof disallowance but did not specifically interfere with or set aside theendorsement relating to the issuance of notice under Section 271 (1)(c) of the IT Act. From the tenor of the Order dated 16.11.2000, it isclear that the Commissioner (Appeals) did not wish to interfere withthe endorsement at the stage of disposal of the appeal as theendorsement would undoubtedly lose its efficacy, in case, uponremand, the AO were to revoke the disallowance to the extent ofRs.1,40,00,000/- thereby reducing the returned income to that whichwas originally declared by the appellant at the time of filing of theinitial returns for the Assessment Year 1997-1998. 26.The Order dated 16.11.2000, upon contextual readingand understanding also suggests that in case, upon remand, the AOwere to maintain his original position of disallowing the amount ofRs.1,40,00,000/-, thereby maintaining the return income at 14 Rs.54,49,180/-, then, obviously, there could be no jurisdictional barto the continuance of the penalty proceedings, initiated by theendorsement which is to be found in the AO's Order dated 8.2.2000.If the Order dated 16.11.2000 is read and interpreted in this fashion,then, it is difficult to agree with Mr. Kulkarni's submissions or totake a view at variance with that taken by ITAT in the impugnedOrder dated 28.8.2013. 27.Mr. Kulkarni, is quite right in his submission, that in theabsence of the words like “quash” or “set aside” do not really makeany significant difference when evaluating the substance of an orderas has been held in Bhan Textile P. Ltd. (supra). However, thisprinciple will have to be extended to determining the substance of theOrder dated 16.11.2000 in its entirety and not merely to the extentwhich benefits only appellant assessee. Therefore, applying theprinciple that it is the substance of the Order which is important andnot the mere form, we find that the interpretation of the ITAT in theimpugned Order, is the interpretation which promotes suchsubstance over mere form and therefore there is really no case madeout to interfere with the impugned Order made by the ITAT. 28.Mr. Kulkarni, quite correctly urged that the observationmade by ITAT on aspect of merger is incorrect. Ms. Razaq, also did 15 not defend such observation. In fact, it is settled by the Hon'ble ApexCourt in the case of Kunhayammed Vs. State of Kerela,[4] that it isthe decree of the Trial Court which merges in that of the AppellateCourt and the effect of the merger is that in the eyes of law it dies acivil death. However, based only upon the stray erroneousobservation, there is no case made out to interfere with the impugnedOrder made by the ITAT. In fact, what the ITAT has held is thatthere was no merger, insofar as the endorsement for the initiation ofpenalty was concerned. If, upon remand, the AO were to maintainhis earlier assessment, then, the endorsement was sufficient to conferjurisdiction to continue with the penalty proceedings, without thenecessity of the issuance of the fresh endorsement to that effect. 29.As noted earlier, in this case the AO not only maintainedthe earlier income as determined in his Order dated 8.2.2000 buteven the appeal instituted by the appellant against the same waswithdrawn by the appellant. In such circumstances, we are unable toagree with the contentions of Mr. Kulkarni that at the stage ofmaking order giving effect to the Order of the Commissioner(Appeals), there was necessity of making a fresh Order or there was anecessity of issuing a fresh notice for initiating the penaltyproceedings. Such a contention appears to emphasise entirely on 29.As noted earlier, in this case the AO not only maintainedthe earlier income as determined in his Order dated 8.2.2000 buteven the appeal instituted by the appellant against the same waswithdrawn by the appellant. In such circumstances, we are unable toagree with the contentions of Mr. Kulkarni that at the stage ofmaking order giving effect to the Order of the Commissioner(Appeals), there was necessity of making a fresh Order or there was anecessity of issuing a fresh notice for initiating the penaltyproceedings. Such a contention appears to emphasise entirely on form than on substance, even, though it is the case of the appellantthat it is the substance which must prevail over the form, when itcomes to the interpretation of the Order dated 16.11.2000. 30.In the case of Basumati (P) Ltd. (supra) very clearly, theAppellate Court, had set aside the entire Order made by the AssessingOfficer. V. K. Packaging Industries (supra) only explains thedoctrine of merger, again by relying upon Kunhayammed (supra).Both these decisions, therefore, do not advance the cause of theappellant any further. 31.In view of the aforesaid discussions, we answer thesubstantial questions of law against the appellant in favour of theRevenue. The appeal is therefore dismissed and the parties aredirected to appear before the Commissioner (Appeals) on 9[th] March,2020 at 11.00 a.m., in order to enable the Commissioner (Appeals)to decide on merits whether penalty of Rs.40,00,000/- was correctlylevied upon the appellant. 32.We make it clear that all contentions of the parties on themerits of the Order dated 28.5.2001, levying penalty upon theappellant are left open for determination by the Commissioner(Appeals) on their own merits and in accordance with law. 17 33.The appeal is accordingly disposed of in the aforesaidterms. There shall be no order as to costs. SMT. M.S. JAWALKAR, J. M. S. SONAK, J. af*