Wp(C)/2643/2022 Of Mallelil Industries Private Limited v. Sri.jose Joseph, Learned Standing Counsel For The

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS TUESDAY, THE 15 DAY OF FEBRUARY 2022 / 26TH MAGHA, 1943 WP(C) NO. 2643 OF 2022 PETITIONER: MALLELIL INDUSTRIES PRIVATE LIMITED,MALLELIL HOUSE, ATTACHAKKAL P.O., PATHANAMTHITTA , KERALA 689 691, REPRESENTED BY ITS MANAGING DIRECTOR SREEDHARAN NAIR RAGHAVAN PILLAI. BY ADVS.SRI.ANIL D. NAIRSMT.TELMA RAJUSMT.EDATHARA VINEETA KRISHNANSRI.ARAVIND SREEKUMAR RESPONDENT: ADDITIONAL/JOINT/DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX,INCOME TAX OFFICER, NATIONAL FACELESS ASSESSMENT CENTRE, NATIONAL E-ASSESSMENT CENTRE-NeAC ROOM NO. 402, 2ND FLOOR, E-RAMP, NEAR GATE NO.10, JAWAHARLAL NEHRU STADIUM, DELHI 110003. BY ADV.SRI.JOSE JOSEPH, SC FOR INCOME TAXTHIS WRIT PETITION (CIVIL) HAVING COME UP FORADMISSION ON 27.01.2022, THE COURT ON 15.02.2022 DELIVEREDTHE FOLLOWING: BECHU KURIAN THOMAS, J. -------------------------------- W.P.(C) No.2643 of 2022 --------------------------------- Dated this the 15[th] day of February, 2022 “C.R.” JUDGMENT Can an assessing officer, while considering an assessment,consequent to a remand ordered by the revisional authorityunder section 263 of the Income Tax Act 1961 (for short, 'theAct'), impose a penalty under section 271(1)(c) of the Act?Though an alternate remedy of appeal is available to thepetitioner, the jurisdiction of this Court under Article 226 of theConstitution of India is invoked, contending that the answer tothe question posed above is in the negative, thereby renderingthe entire exercise leading to the impugned order was withoutjurisdiction. 2. Petitioner is an assessee under the Act and carries on its business of quarrying and sale of rock aggregates. For theassessment year 2015-16, the revised return filed by thepetitioner was accepted and the assessment was completed W.P.(C) No.2643/22 under section 143(3) of the Act on 30.12.2016. Subsequently, inexercise of the powers under section 263 of the Act, the PrincipalCommissioner of Income Tax, Kottayam, called for and examinedthe proceedings that resulted in the assessment order and foundthe assessment order erroneous and prejudicial to the interest ofrevenue. Therefore, the assessment order was set aside andremanded to the assessing officer for passing fresh assessmentorder. Pursuant thereto, by order dated 23.12.2019, a freshorder of assessment was issued, assessing the total income ofthe petitioner after disallowing the existing depreciation claimed.On 01.03.2021, a show-cause notice was issued to the petitionerproposing to impose a penalty. After considering the objectionsfiled by the petitioner, Ext.P6 order was issued, imposing apenalty upon the petitioner. The impugned order of penaltyissued under section 271(1)(c) is produced as Ext.P6. 3. Sri.Anil D.Nair, learned counsel for the petitioner,vehemently contended that the order of penalty is ex faciewithout jurisdiction or authority since the assessmentproceedings having been initiated pursuant to the proceedingsunder section 263 of the Act, cannot confer authority upon the W.P.(C) No.2643/22 -:4:- 3. Sri.Anil D.Nair, learned counsel for the petitioner,vehemently contended that the order of penalty is ex faciewithout jurisdiction or authority since the assessmentproceedings having been initiated pursuant to the proceedingsunder section 263 of the Act, cannot confer authority upon the W.P.(C) No.2643/22 -:4:- assessing officer to initiate proceedings for imposing penalty.Learned Counsel based his contentions on the fact that theoriginal assessment order had not expressed the satisfaction ofthe assessing officer necessary to initiate proceedings forimposing penalty under section 271(1)(c) of the Act. Accordingto the learned counsel, the subsequent order of assessmentissued consequent to the order under section 263 of the Actcannot confer the jurisdiction upon the assessing officer toinitiate proceedings for imposing penalty. Learned Counsel reliedupon the decisions in Commissioner of Income Tax v. SuperMetal Re-Rollers (P) Ltd. [(2004) 265 ITR 82 (Del.)], Addl.Commissioner of Income Tax v. J.K.D's Costa [(1982) 133ITR 7 (Del.) Commissioner of Income Tax v. KeshrimalParasmal [(1986 157 ITR 484 (Raj.)], Commissioner ofIncome Tax v. C.R.K. Swamy [(2002) 254 ITR 158 (Mad.)]Commissioner of Income Tax v. Parmanand M.Patel[(2005) 278 ITR 3 (Guj.)] Commissioner of Income Tax(Central), Ludhiana v. Rakesh Nain Trivedi [(2016) 282 CTR205 (Punjab & Haryana)]. 4. Sri.Jose Joseph, learned Standing Counsel for the W.P.(C) No.2643/22 respondent, submitted that the order assailed in this writ petitioncan be the subject matter of an appeal and hence the petitionerhas an efficacious and alternative remedy under the statute andalso that recourse to Article 226 of the Constitution was notwarranted. He further submitted that the order of assessmentissued after remand clearly expressed the satisfaction of theassessing officer that penalty proceedings ought to be initiated,which satisfies the requirements of section 271(1)(c) of the Actand hence there is no lack of jurisdiction. 5. I have considered the rival contentions. 6. A perusal of Ext.P2 order issued under section 263 of the Act reveals that the earlier assessment order was set aside inits entirety, and a fresh assessment order was directed to beissued. It was observed in the said order that virtually noenquiries were made by the assessing officer at the time ofassessment and only a very ‘sketchy order’ was passed. 7. Though the learned counsel for the petitionervehemently asserted that Ext.P2 order was not an open remandbut only a limited remand solely to consider the question ofexcess depreciation claimed/allowed, I cannot agree. A perusal W.P.(C) No.2643/22 -:6:- of Ext.P2 order reveals that the aforesaid argument is incorrect. In this context, it is appropriate to refer to some of theobservations in Ext.P2 order issued under section 263 of the Act. “3. The Assessing Officer has failed to make even asingle inquiry with regard to nature of the additionalincome and how the same has been accounted for in thebooks of accounts of the assessee. Whether theundisclosed income is taxable under section 68, 69A or69B etc. Virtually there is nothing on records to showeven a single query raised by the DCIT or replied to bythe assessee during the course of assessmentproceedings. No questionnaire has been issued nor anyqueries with regard to return of income of the assesseewere raised. Even Order sheet is also silent about suchinquiries. ………………….. The assessment records showthat it is prima facie a summary assessment. 4. From the above it appears that the AO has notadhered to the basic principles of assessment and hascompleted the assessment in a hurried manner thoughthe assessment was not even getting time barred.” 8.After the above observations, it was further mentioned in paragraph 6 of Ext.P2 as follows: 4. From the above it appears that the AO has notadhered to the basic principles of assessment and hascompleted the assessment in a hurried manner thoughthe assessment was not even getting time barred.” 8.After the above observations, it was further mentioned in paragraph 6 of Ext.P2 as follows: “6. The hearing was fixed for 22-10-2018.Shri Suresh Kumar CA attended the proceedingsu/s.263. When confronted on the above issues on thebasis of available records, he admitted that virtually noinquiries were made by the AO at the time ofassessment and only a very sketchy order was passed.He stated that the assessee has no objection if thematter is revised to the file of the AO provided theassessee is given a reasonable opportunity of beingheard............... Considering the no objection of the assessee, theassessment order dated 30-12-2016 is set aside to theAO for re-assessment by passing Speaking Order andexamination of impounded material and other legalissues emerging out of facts of the case.” 9. Finally, in the concluding paragraph, the following areobserved: “10. Accordingly, the order dated 21-06-2017 is setaside with the direction to pass a fresh assessment orderon the above issues, expeditiously without waiting for thefag end of time baring date, after affording a reasonableopportunity to being heard to the assessee.” 10. A reading of the aforesaid observations clearlyindicates that the initial order of assessment was wholly setaside and the proceedings were remanded as an open remand.The contention that the words “on the above issues” in theconcluding paragraph of Ext.P2 order indicates a limited remand,cannot be accepted. On a reading of Ext.P2 order in its entirety,it is explicit that there were no limited issues for the assessingofficer to decide. In my considered opinion, Ext.P2 order was anopen remand, conferring power upon the assessing officer topass fresh orders of assessment on all the issues. 11. Consequent to Ext.P2, the assessing officer issuedExt.P3 order of assessment, wherein he has expressed his W.P.(C) No.2643/22 -:8:- satisfaction that this is a fit case where penalty under section271(1)(c) of the Act, for concealment of income, ought to beinitiated. As a consequence of the said satisfaction expressed inExt.P3 assessment order, the notice of penalty was issued asExt.P4. Thereafter Ext.P6 order was issued imposing a penaltyupon the petitioner. 12. Since I have already held that Ext.P2 order was anopen remand, I find that the assessing officer, while issuingExt.P3 order of assessment, was vested with all the powersincluding the jurisdiction to express his satisfaction for initiatingpenalty proceedings, as has been held in Commissioner ofIncome Tax, Madras and Others v. S.V.Angidi Chettiar (AIR1962 SC 970). In the aforementioned judgment, while dealingwith section 28 of Act 11 of 1922, it was held that the power toimpose penalty depends upon the satisfaction of the Income TaxOfficer in the course of proceedings under the Act and theproceedings for penalty ought not to be commenced before theconclusion of proceedings for assessment.The followingobservations in the aforesaid judgment are significant in respectof the nature of satisfaction required while initiating proceedings for imposing penalty: for imposing penalty: “The power to impose penalty under S.28 depends upon thesatisfaction of the Income Tax Officer in the course ofproceedings under the Act; it cannot be exercised if he is notsatisfied about the existence of conditions specified in cls. (a),(b) or (c) before the proceedings are concluded. The proceedingsto levy penalty has, however, not to be commenced by theIncome-tax Officer before the completion of the assessmentproceeding by the Income- tax Officer. Satisfaction beforeconclusion of the proceedings under the Act, and not the issue ofa notice or initiation of any step for imposing penalty is acondition for the exercise of the jurisdiction. There is noevidence on the record that the Income-tax Officer was notsatisfied in the course of the assessment proceeding that the firmhad concealed its income. The assessment order is dated the10[th] of November, 1951, and there is an endorsement at the footof the assessment order by the Income-tax Officer that actionunder S. 28 had been taken for concealment of income indicatingclearly that the Income Tax Officer was satisfied in the course ofthe assessment proceeding that the firm had concealed itsincome.” 13. In the context of the circumstances arising in this case, it is profitable to bear in mind the distinction between theproceedings under section 263 and the initiation of penalty undersection 271(1)(c). There is no quarrel that while issuing ordersunder section 263 of the Act, the Principal Commissioner ofIncome Tax cannot direct penalty to be imposed. However,when in the exercise of powers under section 263 of the Act, anassessment order was set aside and remanded back to theassessing officer, all the powers of an original assessing officergets vested by operation of law. In such proceedings, if the W.P.(C) No.2643/22 -:10:- assessing officer expresses his satisfaction that penaltyproceedings can be initiated, then, that satisfaction is certainlyexpressed before conclusion of proceedings under the Act and iswithin his authority. 14. The satisfaction recorded by the assessing officer inExt.P3 that proceedings for penalty must be initiated undersection 271(1)(c) is clearly within his jurisdiction, despite thefact that the original assessment order did not mention anythingabout initiating penalty proceedings. Ext.P3 assessment orderissued after remand, is a proceeding under this Act and satisfiesthe ingredients of section 271(1)(c) and hence, the assessingofficer was vested with the jurisdiction to record his satisfactionand thereafter initiate penalty proceedings. 15. The decisions in Commissioner of Income Tax v. Super Metal Re-Rollers (P) Ltd. [(2004) 265 ITR 82 (Del.)],Addl. Commissioner of Income Tax v. J.K.D's Costa [(1982)133 ITR 7 (Del.) Commissioner of Income Tax v. KeshrimalParasmal [(1986 157 ITR 484 (Raj.)], Commissioner ofIncome Tax v. C.R.K. Swamy [(2002) 254 ITR 158 (Mad.)]Commissioner of Income Tax v. Parmanand M.Patel W.P.(C) No.2643/22 -:11:- [(2005) 278 ITR 3 (Guj.)] Commissioner of Income Tax(Central), Ludhiana v. Rakesh Nain Trivedi [(2016) 282 CTR205 (Punjab & Haryana)] are all cases where the assessmentorder had not recorded the satisfaction for initiating penaltyproceedings. In the above cases, such a satisfaction was eitherrecorded in proceedings under section 263 of the Act or directedto initiate penalty. The facts in those cases are totally differentand the principle laid down therein have no application to thecase on hand. W.P.(C) No.2643/22 -:11:- [(2005) 278 ITR 3 (Guj.)] Commissioner of Income Tax(Central), Ludhiana v. Rakesh Nain Trivedi [(2016) 282 CTR205 (Punjab & Haryana)] are all cases where the assessmentorder had not recorded the satisfaction for initiating penaltyproceedings. In the above cases, such a satisfaction was eitherrecorded in proceedings under section 263 of the Act or directedto initiate penalty. The facts in those cases are totally differentand the principle laid down therein have no application to thecase on hand. 16. Coming to the instant case, nowhere in Ext.P2 order hasthe Principal Commissioner of Income Tax expressed hissatisfaction for initiating penalty proceedings. On the contrary,he merely set aside the assessment order in its entirety andremanded the case for a fresh consideration by the assessingofficer. Thus, while issuing the order of assessment, as perExt.P3, the assessing officer was bestowed with all powers as inan original assessment, including the power to express hissatisfaction for initiating penalty proceedings. In such a view ofthe matter, I find that the initiation of proceedings for imposingpenalty and the consequent imposition was within the jurisdiction -:12:- and authority of the assessing officer. Hence there is no merit inthe challenge raised. Accordingly, I dismiss this writ petition. However, liberty of the petitioner to pursue its statutory remedies against the orderimposing penalty (Ext.P6) shall not be affected and if any suchappeal is preferred, the same shall be considered and disposedof in accordance with law, untrammelled by any of theobservations made in this judgment. Sd/- vps BECHU KURIAN THOMAS JUDGE -:13:- APPENDIX PETITIONER'S/S' EXHIBITS EXHIBIT P1 TRUE COPY OF THE ASSESSMENT ORDER DATED30.12.2016 FOR THE YEAR 2015-16 PASSEDBY THE DEPUTY COMMISSIONER OF INCOME TAXTHIRUVALLA. EXHIBIT P2 TRUE COPY OF THE ORDER DATED 26.10.2018UNDER SEC. 263 WAS PASSED BY THE PRL.COMMISSIONER OF INCOME TAX, KOTTAYAM. EXHIBIT P3TRUE COPY OF THE ORDER DATED 23.12.2019WAS PASSED BY THE ASST. COMMISSIONER OFINCOME TAX, THIRUVALLA.WAS PASSED BY THE ASST. COMMISSIONER OFINCOME TAX, THIRUVALLA. EXHIBIT P4TRUE COPY OF THE SHOW CAUSE NOTICE DATED01.03.2021 FOR PENALTY UNDER SEC.271(1)(c) WAS ISSUED BY THE RESPONDENT.01.03.2021 FOR PENALTY UNDER SEC.271(1)(c) WAS ISSUED BY THE RESPONDENT. EXHIBIT P5TRUE COPY OF THE REPLY TO THE SHOW CAUSENOTICE WAS FILED BY THE PETITIONER DATED25.08.2021.NOTICE WAS FILED BY THE PETITIONER DATED25.08.2021. EXHIBIT P6TRUE COPY OF THE ORDER DATED 12.01.2022UNDER SEC.271(1)(c) WAS ISSUED.UNDER SEC.271(1)(c) WAS ISSUED.