M/s. PRSSB Services Ltd, Ahmedabad V. ITO, Ward-3(1)(4), Ahmedabad

CO 27/AHD/2020

AI Insights

The case involves an appeal by the Income Tax Officer against the decision of the Commissioner of Income Tax (Appeals), which had deleted a penalty of Rs. 70,80,195 imposed on M/s PRSSB Services Ltd. The penalty was originally levied under Section 271(1)(c) of the Income Tax Act, concerning the disallowance of a claim of Long Term Capital Gain as exempt under Section 10(38), treating it instead as business income. The Tribunal referenced a prior decision where the original assessment order, which led to the penalty, was quashed due to lack of fresh tangible material and merely a change of opinion by the Assessing Officer. Consequently, the Tribunal found no basis for the penalty and dismissed both the appeal and the Cross Objection.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125392 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-08-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-08-2023
• Assessment Year: 2008-2009
• Appeal Filed On: 27-02-2020
• Other Referred Cases: PCIT vs. Fibers and Fabrics International (P.) Ltd., CIT v Shah Alloys, CIT v Atul Ltd., CIT v Babul Harivadan Parikh, CIT (Exemptions) v. Ahmedabad Urban Development Authority, Roy Durlabhji, CIT v. Shishpal, ITO v. Magic software Enterprises India (P.) Ltd., LRs Management v. DCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained investment; Business income; Transfer pricing; Tangible material; Difference of opinion; Change of opinion; Set aside
• Section: 147; 69; 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I. T .A . N o .1 31 0 / Ah d/2 0 1 9 Wit h C . O. N o. 2 7/ A h d /2 0 20 ( A s s es s me n t Y e a r : 20 0 8 - 0 9) I nc o me Ta x Of f ic e r , War d- 3 ( 1 ) (4 ), Ah me da bad V s . M/ s . P R S SB S e r vi c e s Lt d. , Sa kar - 1 , 5 t h F lo o r , Eas t Wi ng , O p p. G a nd h i gr a m R ail w a y Sta ti on , N a v ar a n gp ur a , A h me da ba d [ P AN N o. A A AC P9 12 5 G ] (Appellant/Respondent) .. (Respondent/Cross Objector) Appellant by : Written Submission Respondent by: Shri Ashok Kumar Suthar, Sr. D.R. D a t e of H ea r i ng 03.08.2023 D a t e of P r o no u n ce me nt 09.08.2023 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: The appeal has been filed by the Revenue and the Cross Objection filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-9, (in short “Ld. CIT(A)”), Ahmedabad in Appeal No. CIT(A)-9/10611/ITO Wd-3(1)(4)/16-17 vide order dated 09.07.2019 passed for Assessment Year 2008-09. 2. The Revenue has taken the following grounds of appeal:- “1. The Ld.CIT(A) has erred in law and on facts in deleting the penalty of Rs. 70,80,195/- imposed u/s 271(1)(c) of the Act on the issue of disallowance of claim of Long Term Capital Gain as exempt u/s 10(38) of the Act, treating it as business income of the assessee. ITA No. 1310/Ahd/2019 & C.O. No. 27/Ahd/2020 ITO vs. M/s. PRSSB Services Ltd. Asst. Year –2008-09 - 2 - 2. On the facts and circumstances of the case, Ld CIT(A) ought to have upheld the order of the Assessing Officer. 3. It is, therefore, prayed that the order of Ld CIT(A) may be set aside and that of the Assessing Officer be restored.” 3. This is an appeal filed by the Revenue and the assessee’s Cross Objection with respect to order passed by Ld. CIT(A) deleting the penalty of Rs. 70,80,195/- imposed under Section 271(1)(c) of the Act on the issue of disallowance of claim of Long Term Capital Gain as exempt under Section 10(38) of the Act, treating it as “business income” of the assessee. 4. At the outset, the Counsel for the assessee drew our attention to letter dated 03.08.2023 filed by the assessee in which the assessee submitted that the present penalty proceedings were initiated pursuant to order under Section 147 of the Act dated 29.03.2016. However, since the aforesaid order under Section 147 of the Act has been quashed by Hon’ble Tribunal vide its order dated 07.12.2022 in Appeal No. ITA 1030/Ahd/2019, the penalty proceedings, therefore, do not survive. Accordingly, it was submitted that the penalty appeal preferred by the Department may therefore be quashed. 5. It would be useful to reproduce the relevant extracts of the order passed by ITAT Ahmedabad in the case of ITO vs. M/s. PRSSB Services Ltd. vide order dated 07-12-2022 for ready reference:- ITA No. 1310/Ahd/2019 & C.O. No. 27/Ahd/2020 ITO vs. M/s. PRSSB Services Ltd. Asst. Year –2008-09 - 3 - “9.1 From the above reasons recorded by the AO, it is revealed that the proceedings under section 147 of the Act were initiated on the verification of the case records which were available with the AO during the original assessment proceedings framed under section 143(3) of the Act. In the reason recorded there no whisper that the AO was having any fresh tangible material. Thus, the reopening of the assessment was initiated on the basis of same set of document already available with the AO at the time of regular assessment which is nothing but change of opinion. To our considered opinion reopening of assessment cannot be initiated in absence of fresh material or based on change of opinion. In holding so we draw support and guidance from the judgment of Hon’ble Supreme Court in the case of PCIT vs. Fibers and Fabrics International (P.) Ltd. reported in 139 taxmann.com 562 where the Hon’ble Supreme Court upheld the following finding of the Hon’ble Karnataka High Court: 11. It is pertinent to mention that no material was gathered in the survey proceeding to suggest that expenditure incurred towards sales commission is not an allowable expenditure and disallowance made in respect of the expenditure for the subsequent Assessment Year 2006-07 cannot be a ground for reopening the assessment. The tribunal has therefore, rightly recorded the findings of fact that there is no tangible material on the basis of which assessment for Assessment Year 2005-06 was reopened and the assessment of the subsequent Assessment Year is based on the inferences drawn from certain facts which cannot be construed as tangible material. The reasons mentioned in the notice for reassessment are based on mere change of opinion ITA No. 1310/Ahd/2019 & C.O. No. 27/Ahd/2020 ITO vs. M/s. PRSSB Services Ltd. Asst. Year –2008-09 - 4 - and therefore, the reopening of the assessment proceeding is not permissible in the facts and circumstances of the case. The aforesaid finding cannot be said to be perverse. For the aforementioned reasons, the substantial questions of law involved in this appeal are answered against the revenue and in favour of the assessee. 9.1 The principles laid down by the Hon’ble Karnataka High court and subsequently confirmed by Hon’ble Supreme Court in the case cited above are squarely applicable to the facts of the present case. Admittedly, the AO on verification of the same set of documents which were available during the original proceedings formed reasons to believe that there is an escapement of income on account of exemption claimed on the sale of shares. In view of the above, we hold that the proceedings initiated under section 147 of the Act are not sustainable and therefore liable to be quashed for the reasons discussed above. Hence, the ground of cross objection raised by the assessee is hereby allowed. 9.2 As the assessee succeeds on the technical ground raised by it in cross objection, we do not find any reason to give independent finding on objection raised by it in the memo of appeal on merit. As such, the other objection raised by the assessee becomes infructuous and therefore we dismiss the same.” 6. We observe that the ITAT Ahmedabad in assessee’s own case has deleted the quantum additions in favour of the assessee. Accordingly, since the very basis/foundation on which penalty u/s 271(1)(c) of the Act had ITA No. 1310/Ahd/2019 & C.O. No. 27/Ahd/2020 ITO vs. M/s. PRSSB Services Ltd. Asst. Year –2008-09 - 5 - been levied on the assessee itself has been vacated, then the consequential penalty imposed u/s 271(1)(c) of the Act is also liable to be vacated. 7. In the case of CIT v Shah Alloys 35 taxmann.com 532 (Gujarat), the Gujarat High Court held that penalty cannot be imposed when addition made, which was basis for penalty, was set aside. In the case of CIT v Atul Ltd. 44 Taxmann.com 320 (Gujarat), the Gujarat High Court held where in course of appellate proceedings, revenue authorities admitted that quantum addition on account of transfer pricing difference which was basis for imposition of penalty had already been deleted, impugned penalty order based on said addition also deserved to be set aside. In the case of CIT v Babul Harivadan Parikh 37 Taxmann.com 52 (Gujarat), the Gujarat High Court held that where revenue authorities passed a penalty order on basis of addition made to assessee's income under section 69A, in view of fact that said addition had been deleted by Tribunal in quantum appeal, penalty order so passed by authorities below was also liable to be quashed. In the case of CIT (Exemptions) v. Ahmedabad Urban Development Authority 103 taxmann.com 82 (SC), the Hon’ble Supreme Court held that where AO having rejected assessee claim for exemption under sections 11 and 12, passed a penalty order under section 271(1)(c) for raising a false claim, in view of fact that assessee succeeded in quantum appeal and, thus, High Court set aside penalty order as well, SLP filed against said decision was to be dismissed. In the case of Roy Durlabhji 211 ITR 470 (Rajasthan), the High Court held that where in quantum appeal, additions had already been deleted, no penalty under section 271(1)(c) could be levied. In the case of CIT v. Shishpal 126 Taxman 5 (Rajasthan), ITA No. 1310/Ahd/2019 & C.O. No. 27/Ahd/2020 ITO vs. M/s. PRSSB Services Ltd. Asst. Year –2008-09 - 6 - addition was made as unexplained investment under section 69 and penalty was imposed under section 271(1)(c).The aforesaid addition was deleted in quantum appeal. The High Court held that since the very foundation for imposition of penalty had become non-existent, penalty would not survive. In the case of ITO v. Magic software Enterprises India (P.) Ltd. 101 taxmann.com 53 (Pune - Trib.) where AO passed penalty order under sec. 271(1)c) on basis of transfer pricing adjustment made by TPO, in view of fact that assumption of jurisdiction by TPO was held invalid by Tribunal and, as a result, quantum addition was also deleted, impugned penalty order had no legs to stand and, thus, same also deserved to be set aside. In the case of LRs Management v. DCIT 149 taxmann.com 32 (Rajkot - Trib.), it was held that Where quantum addition made by AO was deleted by Tribunal, there remained no basis for levy of penalty under Section 271(1)(c) of the Act. 8. In view of the facts of the instant case and the settled legal proposition on the subject that once the quantum proceedings itself have been decided in favour of the assessee, there is no scope of levy of penalty u/s 271(1)(c) of the Act, we are here by dismissing the appeal filed by the Department. 9. In the result, the appeal filed by the Revenue is dismissed. C.O. No. 27/Ahd/2020(A.Y. 2008-09):- 10. So far as assessee’s Cross Objection is concerned, the same is merely in support of the order of the Ld. CIT(A), which we have set-aside as per ITA No. 1310/Ahd/2019 & C.O. No. 27/Ahd/2020 ITO vs. M/s. PRSSB Services Ltd. Asst. Year –2008-09 - 7 - the observations and findings recorded by us in the foregoing paragraphs. Hence, the Cross Objection of the assessee is dismissed as infructuous. 11. In the combined result, the appeal filed by the Revenue is dismissed and the Cross Objection filed by the assessee is also dismissed. This Order pronounced in Open Court on 09/08/2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 09/08/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 04.08.2023 (Half Dictated and the remaining part is sent by Hon’ble Member via Mail) 2. Date on which the typed draft is placed before the Dictating Member 04.08.2023 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S 07.08.2023 5. Date on which the fair order is placed before the Dictating Member for pronouncement .08.2023 6. Date on which the fair order comes back to the Sr.P.S./P.S 09.08.2023 7. Date on which the file goes to the Bench Clerk 09.08.2023 8. Date on which the file goes to the Head Clerk.......................................... 9. The date on which the file goes to the Assistant Registrar for signature on the order.......................... 10. Date of Despatch of the Order..........................................