Shri Shantilal Vallavdas Patel, Panchmahal V. The CIT-III, Baroda

ITA 2442/AHD/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5820 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 27-04-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 14-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH MEENA
• Assessee Lawyers: M J SHAH
• Keywords: Opportunity of being heard; Principle of natural justice; Initiation of penalty proceedings; Assessment record; Revised return
• Section: 44AD; 143(3); 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .., , BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.2442/AHD/2013 ( / ASSESSMENT YEAR : 2009-10) SHRI SHANTILAL VALLAVDAS PATEL 75, ASHIRWAD SOCIETY COLLEGE ROAD GODHRA, DIST.PANCHMAHAL / VS. THE CIT-III RACE COURSE CIRCLE BARODA $ ./ ./ PAN/GIR NO. : ADUPP 6674 Q ( $' / APPELLANT ) .. ( ($' / RESPONDENT ) $') / APPELLANT BY : SHRI M. J. SHAH, AR ($'*) / RESPONDENT BY : SHRI OM PRAKASH MEENA, SR.DR +,*- / DATE OF HEARING 27/04/2017 ./0*- / DATE OF PRONOUNCEMENT 18/ 05/2017 / O R D E R PER PRADIP KUMAR KEDIA, AM: THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 19/07/2013 PASSED UNDER S.263 OF THE INCOME TAX ACT, 1961 (HER EINAFTER REFERRED TO AS 'THE ACT') BY THE COMMISSIONER OF INCOME TAX (CI T IN SHORT) FOR ASSESSMENT YEAR ASSESSMENT YEAR (AY) 2009-10. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER:- ITA NO.2442/AHD /2013 SHANTILAL VALLABDAS PATEL VS.CIT ASST.YEAR 2009-10 - 2 - 1. ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN VI EW OF WRITTEN SUBMISSION OF THE APPELLANT, THE LEARNED CO MMISSIONER OF INCOME TAX, III, BARODA IN THE COURSE OF REVISIONAR Y PROCEEDINGS, HAS ERRED IN ENHANCING LUMP SUM DISALLOWANCES BY RS .5,29,379 ON ACCOUNT OF LABOUR CHARGES AND EARTH WORK CHARGES AS AGAINST A SUM OF RS.2,00,000 DISALLOWED BY THE LEARNED ASSESS ING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF WRITTEN SUBMISSION OF THE APPELLANT, THE LEARNED CO MMISSIONER OF INCOME TAX, III, BARODA, IN THE COURSE OF REVISIONA RY PROCEEDINGS, HAS ERRED IN DIRECTING A LUMP SUM DISALLOWANCE OF R S.36,154 ON ACCOUNT OF FREIGHT CHARGES COMPUTED AT 10% OF CASH ELEMENT COMPUTED AT RS.3,61,543 FROM OUT OF TOTAL FREIGHT C HARGES OF RS.8,61,542 AS CLAIMED BY THE APPELLANT IN RETURN O F INCOME. 3. THE LEARNED COMMISSIONER OF INCOME TAX, III, BA RODA, HAS ERRED IN DIRECTING THE LEARNED ASSESSING OFFICER TO INITIATE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C0 OF THE ACT, IN VIEW OF FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, PRINCIPL ES OF NATURAL JUSTICE AND WRITTEN SUBMISSION OF THE APPELLANT A A LSO VARIOUS JUDICIAL RULINGS ON THE SUBJECT. 3. IN THIS CASE, THE CIT HAS INVOKED JURISDICTION C ONFERRED UPON HIM UNDER S.263 OF THE ACT ON VARIOUS ISSUES AS RAISED IN THE GROUNDS OF APPEAL. A SHOW-CAUSE NOTICE (SCN) WAS ISSUED ALLEG ING THAT THE ASSESSMENT ORDER DATED 21/12/2011 PASSED UNDER S.14 3(3) OF THE ACT FOR ITA NO.2442/AHD /2013 SHANTILAL VALLABDAS PATEL VS.CIT ASST.YEAR 2009-10 - 3 - THE AY 2009-10 IS ERRONEOUS AS WELL PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 4. WITH REFERENCE TO GROUND NO.1, IT IS THE CASE OF THE ASSESSEE THAT THE CIT COMMITTED ERROR IN ENHANCING LUMP-SUM DISAL LOWANCES BY RS.5,29,379/- ON ACCOUNT OF LABOUR CHARGES AND EART H-WORK CHARGES AS AGAINST A SUM OF RS.2 LACS DISALLOWED BY THE ASSESS ING OFFICER (AO) IN THE COURSE OF ASSESSMENT PROCEEDINGS UNDER S.143(3) OF THE ACT IN EXERCISE OF REVISIONARY POWER. 5. THE LD.AR FOR THE ASSESSEE MR.M.J. SHAH REFERRED TO THE ASSESSMENT ORDER PASSED UNDER S.143(3) AND SUBMITTE D THAT THE AO HAD DISALLOWED RS.2 LACS OUT OF LABOUR CHARGE OF RS.51, 10,231/- ON THE GROUND THAT THE EXPENSES WERE NOT FOUND TO BE VERIF IABLE. THUS, IT IS CLEAR THAT THE AO APPLIED HIS JUDICIAL MIND ON THE ISSUE AND ARRIVED AT A DECISION OF ESTIMATED DISALLOWANCES. COPY OF PAY-R OLL SHEETS OF LABOUR CHARGES WERE FURNISHED TO SUPPORT THE LABOUR CHARGE S FROM WHICH CERTAIN DEFECTS IN THE FORM OF SIGNATURE OF THE SAME LABOUR ER HAD VARIANCE IN DIFFERENT MONTHS WAS OBSERVED BY THE CIT. ADDRESS ES OF LABOURERS WERE ALSO NOTED BY THE CIT AS NOT ASCERTAINABLE ETC. T HE CIT HAS QUESTIONED THE ACTION OF THE AO OF ESTIMATED DISALLOWANCE ON T HE GROUND THAT THERE IS NO BASIS FOR QUALIFYING THE DISALLOWANCE AT RS.2 LA KHS ONLY AND ITA NO.2442/AHD /2013 SHANTILAL VALLABDAS PATEL VS.CIT ASST.YEAR 2009-10 - 4 - ACCORDINGLY INVOKED JURISDICTION FOR DISALLOWANCE A T ENHANCED FIGURE IN LINE WITH PRESUMPTIVE PROFIT RATE SPECIFIEDUNDER S. 44AD OF THE ACT. 6. WE HAVE EXAMINED THE ISSUE AND PERUSED THE ASSES SMENT ORDER AND THE ORDER OF THE CIT UNDER S.263 APPEALED AGAINST. AT THE OUTSET, WE OBSERVE THAT THE ACTION OF THE CIT IN INVOKING THE PROVISIONS OF SECTION 263 FOR A BETTER ESTIMATION OF ESTIMATED DISALLOWAN CE IS CONTRARY TO THE PRE-REQUISITES PROVIDED IN THE PROVISIONS OF SECTIO N 263 OF THE ACT. WE FIND THAT THE AO HAS CLEARLY APPLIED ITS MIND TO TH E FACTS AND THE CIRCUMSTANCES OF THE CASE AND PERUSED THE RECORDS P LACED BEFORE IT AND REVISTED BY THE CIT. NON-APPLICATION OF JUDICIAL M IND ON THE FACTS IS NOT ALLEGED IN THE INSTANT CASE. WHAT IS SOUGHT TO BE PADDLED BY THE CIT IS THAT THE AO OUGHT TO HAVE MADE ESTIMATIONS ON THE H IGHER SIDE. SUCH ACT OF THE CIT IS NOT PERMISSIBLE UNDER S.263 OF THE AC T. THE SCOPE OF PROVISIONS OF SECTION 263 IS NO LONGER RES INTEGRA . AN ORDER CAN BE INTERFERED WITH BY THE DESIGNATED AUTHORITY UNDER S .263 ONLY WHEN THE ORDER WHICH IS SUBJECT MATTER OF REVISION IS BOTH E RRONEOUS AS WELL AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. BOTH THE CONDITIONS PRECEDENT FOR EXERCISING THE JURISDICTION UNDER S.263 ARE TO BE SEEN IN CONJUNCTION. AN ORDER OF ASSESSMENT PASSED BY THE AO CANNOT BE I NTERFERED WITH FOR REVISION OF AN ESTIMATION MADE BASED ON FACTS AVAIL ABLE ON RECORD. THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVE RY TYPE OF MISTAKE OR ERROR PURPORTEDLY COMMITTED BY THE AO. THE PURPORT ED ERROR COMMITTED ITA NO.2442/AHD /2013 SHANTILAL VALLABDAS PATEL VS.CIT ASST.YEAR 2009-10 - 5 - BY THE AO IN THE INSTANT CASE DO NOT HAVE ANY EXACT ING SPECIFICATIONS. THE CIT MERELY SEEKS TO ROPE IN HIS OPINION ON THE ESTIMATION WHICH IS A ACT OF OVERREACH OF POWER AND THUS NOT SUSTAINABLE IN LAW. 7. IN THE RESULT, GROUND NO.1 OF APPEAL OF THE ASSE SSEE IS ALLOWED. 8. GROUND NO.2 SIMILARLY CONCERNS DIRECTION TO THE AO FOR DISALLOWANCE OF AN ESTIMATED 10% TOWARDS CASH ELEME NT OUT OF FREIGHT CHARGES CLAIMED BY THE ASSESSEE. THE CIT HAS ALLEG ED THAT GENUINENESS OF FREIGHT CHARGES HAVE NOT BEEN ENQUIRED INTO AND NO DISALLOWANCE HAS BEEN CARRIED OUT TOWARDS CASH ELEMENT. WE SEE NO L OGIC IN SUCH ALLEGATIONS. THE CIT HAS COME TO SUCH CONCLUSION B ASED ON THE MATERIAL PLACED IN THE ASSESSMENT RECORD. HE MERELY SEEKS T O SUBSTITUTE HIS OPINION BY THE OPINION OF THE AO ON THE ISSUE. THE NATURE OF EXPENSE HAS TO BE SEEN WHICH IN THE INSTANT CASE IS FREIGHT CHA RGES WHICH ARE TYPICALLY PAID IN CASH IN THE PRESENT SOCIO-ECONOMIC ENVIRONM ENT. THE PAYMENT IN CASH DOES NOT IN ANY MANNER IMPLY THAT SOME ADHOC D ISALLOWANCE IS ALWAYS CALLED FOR. THE AO HAS TAKEN A VIEW IN ADMI TTING THE AFORESAID FREIGHT CHARGES WHICH IS PLAUSIBLE. THUS, ACTION O F THE CIT CANNOT BE APPROVED. 9. GROUND NO.2 IS ACCORDINGLY ALLOWED. ITA NO.2442/AHD /2013 SHANTILAL VALLABDAS PATEL VS.CIT ASST.YEAR 2009-10 - 6 - 10. GROUND NO.3 CONCERNS THE FAILURE OF THE AO TO I NITIATE PENALTY PROCEEDINGS UNDER S.271(1)(C) ON ADDITIONS/DISALLOW ANCES WHILE PASSING THE ASSESSMENT ORDER. THE CIT HAS SOUGHT TO EXERCI SE ITS JURISDICTION UNDER S.263 OF THE ACT TO CORRECT THE AFORESAID FAI LURE OF THE AO. WE NOTE THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR O F ASSESSEE IN THE CASE OF EASY TRANSCRIPTION & SOFTWARE PVT.LTD. VS. CIT IN ITA NOS.327 & 759/AHD/2015 DATED 10/01/2017 RELIED UPON BY THE LD .AR FOR THE ASSESSEE. 10.1. WE OBSERVE THAT THE IDENTICAL ISSUE HAS BEE N DISCUSSED IN DETAIL BY THE COORDINATE BENCH OF THE TRIBUNAL WHERE ONE OF U S IS A PARTY TO ARRIVE AT A CONCLUSION THAT THE DESIGNATED AUTHORITY UNDER S.263 IS NOT ENTITLED TO CORRECT THE LAPSE OF THE AO IN FAILURE TO INITIATE PENALTY PROCEEDINGS UNDER S.271(1)(C) OF THE ACT. 10.2. THE RELEVANT PARA OF THE ORDER OF THE ITAT I N THE SAID CASE IS EXTRACTED HEREUNDER:- 10. SECTION 263 ENABLES THE CONCERNED PR.CIT / CIT TO REVIEW THE RECORDS OF ANY PROCEEDINGS AND ORDER PASSED THEREON BY THE ASSESSI NG OFFICER. IT EMPOWERS THE COMMISSIONER CONCERNED TO CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THE ACT AND IF HE CONSIDERS THAT ANY ORDER PASSED T HEREIN BY THE AO IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE RE VENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MA KING OR CAUSING TO BE MADE SUCH ENQUIRY AS HE DEEMS NECESSARY, PASS SUCH ORDER THER EON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY, INCLUDING AN ORDER ENHANCING OR MODIF YING THE ASSESSMENT, OR CANCELING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. TH US, THE REVISIONAL POWERS ITA NO.2442/AHD /2013 SHANTILAL VALLABDAS PATEL VS.CIT ASST.YEAR 2009-10 - 7 - CONFERRED ON THE CIT UNDER S. 263 ARE OF WIDE AMPLI TUDE WITH A VIEW TO ADDRESS THE REVENUE RISKS WHICH ARE OBJECTIVELY JUSTIFIABLE. 11. AS PER THE ARGUMENTS, THE LEGAL ISSUE THAT EMER GES FOR ADJUDICATION IS WHETHER THE COMMISSIONER UNDER THE UMBRELLA OF REVISIONARY POWERS IS ENTITLED TO UPSET THE FINALITY OF ASSESSMENT PROCEEDINGS BEFORE THE AO WH O HAS OMITTED TO INITIATE PENALTY PROCEEDINGS IN RESPECT OF DEFAULTS STIPULATED UNDER SECTION 271(1)(C) WHEN THE CIRCUMSTANCES FOR DOING SO EXISTS. THE OTHER INTEGR AL ISSUE THAT ARISES IS WHETHER SCOPE OF ASSESSMENT INCLUDES INITIATION OF PENALTY PROCEEDINGS UNDER S. 271(1)(C) OR NOT. THERE ARE LONG LINE OF JUDICIAL PRECEDENTS ON THE ISSUE BOTH FOR AND CONTRA. THE HONBLE GUJARAT HIGH ALSO HAD OCCASION TO DEAL WITH THE ISSUE RELEVANT TO ASSESSMENT YEAR 1982-83 IN CIT VS. PARMANAD M. PATEL 278 ITR 3 (2005) WHEREIN THE DECISION WAS RENDERED IN FAVOUR OF THE ASSESSEE. RIDING ON THE DECISION OF THE HONBLE GURARAT HIGH COURT, THE CO-ORDINATE BENCH OF TRIBUN AL IN J. P. CONSTRUCTION VS. CIT ITA NO. 1304/ AHD./ 2009 ORDER DATED 24.07.2009 [ A Y 2005-06] CANCELLED THE ACTION OF THE CIT UNDER SECTION 263 WHEREIN THE ASSESSMENT ORDER WAS SET ASIDE FOR FRAMING ASSESSMENT AFRESH IN ORDER TO INITIATE PENALTY UNDE R S. 271(1)(C) OF THE ACT. THE ASSESSEE HEREIN SEEKS TO PLACE RELIANCE ON THE DECI SION OF GUJARAT HIGH COURT IN PARMANAND PATEL ( SUPRA) FOLLOWED BY TRIBUNAL IN JP CONSTRUCTION. THE REVENUE ON THE OTHER HAND SEEKS TO DISPUTE THE POSITION OF LAW AS READ BY THE HONBLE JURISDICTIONAL HIGH COURT IN PARMANAND M. PATEL CAS E (SUPRA) ON THE GROUNDS OF AMENDMENT CARRIED OUT IN S. 271(1)(C). THE REVENUE SUBMITS THAT THE IMPUGNED DECISION IN PARMANAND PATEL CASE WAS RENDERED PRIOR TO AMENDMENT CARRIED OUT IN SECTION 271(1)(C). POST AMENDMENT, THE PR. CIT/ CIT IS ALSO INSERTED AS A DESIGNATED AUTHORITY FOR THE PURPOSES OF EXERCISING POWERS UND ER S. 271(1)(C). THUS THE HANDICAP WHICH FORMED THE BASIS FOR OUTCOME IN PARMANAND PAT EL STANDS ADDRESSED BY THE LEGISLATIVE AMENDMENT. IT IS THEREFORE CONTEND ED THAT IN VIEW OF THE LEGISLATIVE CHANGES, THE DECISION IN PARMANAND PATEL HAS LOST I TS PROPOSITION. CONTINUING FURTHER, NEGATING THE RATIO OF DECISION OF TRIBUNAL IN J P CONSTRUCTION (SUPRA), THE REVENUE SUBMITS THAT THE AFORESAID ITAT ORDER HAS B EEN SET ASIDE AND REMANDED BACK TO ITAT FOR FRESH ADJUDICATION IN CIT VS. J P CONST RUCTION IN TAX APPEAL NO. 2581 OF 2009 ORDER DATED 22/10/2013 BY THE HONBLE GUJARAT HIGH COURT TAKING COGNIZANCE OF THIS LEGISLATIVE AMENDMENT. 11.1. HAVING REGARD TO THE CONTROVERSY INVOLVED, IT WOULD BE DESIRABLE TO REPRODUCE HEREUNDER THE RELEVANT PARAS OF THE ORDER OF THE TR IBUNAL IN J P CONSTRUCTION CASE IN ITA NO.1304/AHD/2009 TO BEGIN WITH. 4. HEARD BOTH PARTIES AND PERUSED THE RECORD. CA REFULLY GOING THROUGH THE IMPUGNED ORDER OF THE LEARNED CIT, WE FIND THAT SIN CE THE ASSESSING OFFICER HAS NOT INITIATED PENALTY PROCEEDINGS U/S.27191)9C) ON THE ADDITION OF RS.1,72,73,488 WHICH ITA NO.2442/AHD /2013 SHANTILAL VALLABDAS PATEL VS.CIT ASST.YEAR 2009-10 - 8 - WAS OFFERED BY THE ASSESSEE IN THE REVISED RETURN, THE LEARNED CIT BY INVOKING POWER U/S.263 HAS SET ASIDE THE ASSESSMENT FOR FRAMING TH E SAME AFRESH. THEREFORE, THE QUESTION TO BE DECIDED IN THE PRESENT CASE IS WHE RE THE ASSESSING OFFICER HAS FAILED TO INITIATE PENALTY PROCEEDINGS U/S.271(1)(C) OF TH E ACT IN THE ASSESSMENT PROCEEDINGS, WHETHER THE CIT IS EMPOWERED U/S.263 TO SET ASIDE T HE ASSESSMENT AND DIRECT THE ASSESSING OFFICER TO FRAME THE ASSESSMENT AFRESH? SUCH A QUESTION IS NO MORE RES INTEGRA. IN THE CASE ADDL.CIT VS. J.K. DCOSTA [19 2] 133 ITR 7 (DELHI) FOLLOWED IN ACIT V. ACHAL KUMAR JAIN (142 ITR 606) AND CIT V. N IHAL CHAND REKYAN [2000] 242 ITR 45 (DELHI) AND IN ADDL.CIT VS. SUDARSHAN TA LKIES (1993) 200 ITR 153 (DELHI); ALSO BY HONBLE MADRAS HIGH COURT IN CIT VS. C.K.K.SWAMI (254 ITR 158); SARDA PRASAD SINGH V. CIT (173 ITR 510 (GAUH ATI), IT HAS BEEN HLED THAT IF THE COMMISSIONER FINDS, WHILE EXAMINING THE RECORDS OF AN ASSESSMENT ORDER UNDER SECTION 263, THAT THE ASSESSING OFFICER HAS NOT INI TIATED PENALTY PROCEEDINGS, HE CANNOT DIRECT INITIATION OF PENALTY PROCEEDINGS BEC AUSE PENALTY PROCEEDINGS ARE NOT A PART OF ASSESSMENT PROCEEDINGS. THE COMMISSIONER C ANNOT PASS AN ORDER UNDER SECTION 263 P0ERTAINING TO PENALTY. HONBLE SUPREM E COURT HAS DISMISSED SPECIAL LEAVE PETITION AGAINST THE DELHI HIGH COURT DECISIO N IN ADDL.CIT VS. J.K. DCOSTA [REPORTED IN (1984) 147 ITR (ST) 1)]. IN THE CASE OF CIT V. DR.SURESH G.SHAH (289) ITR 110 (GUJ) FOLLOWING ITS EARLIER JUDGEMENT IN TH E CASE OF CIT V. PARMANAND M.PATEL (2005) 198 CTR (GUJ) 641/278 ITR 3 (GUJ), H ONBLE GUJARAT HIGH COURT HAS HELD THAT WHILE EXERCISING POWERS UNDER SECTION 263, CIT IS NOT COMPETENT TO DIRECT INITIATION OF PENALTY PROCEEDINGS UNDER S.27 1(1)(A) OR S.273(2)(C) OF THE ACT. IN THE CASE OF CIT V. PARMANAND M.PATEL (SUPRA), H ONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT THE CIT IS NOT EMPOWERED TO RECORD SA TISFACTION BY INVOKING S.271(10(C) OF THE ACT AND IF HE IS NOT ENTITLED TO DO SO, ON H IS OWN, HE CANNOT DO IT BY DIRECTING THE ASSESSING AUTHORITY. THE COURT OBSERVED THAT I N OTHER WORDS, WHAT THE CIT HIMSELF CANNOT DO, HE CANNOT GET IT DONE THOUGH THE ASSESSING AUTHORITY BY EXERCISING REVISIONAL POWERS. 5. IN VIEW OF THE ABOVE, SINCE THE CIT HAS SET ASI DE THE ASSESSMENT FOR FRAMING ASSESSMENT AFRESH IN ORDER TO INITIATE LEVY PENALTY U/S.271(1)(C) OF THE ACT, THE ORDER PASSED U/S.263 IS NOT IN ORDER AND THEREFORE, WE CA NCEL THE SAME. 11.2. AS NOTED EARLIER, THE HONBLE GUJARAT HIGH CO URT HAS QUASHED AND SET ASIDE THE IMPUGNED TRIBUNAL ORDER AND REMANDED THE MATTER BACK TO THE ITAT FOR ITS FRESH CONSIDERATION IN THE LIGHT OF AMENDMENT IN S. 271(1 )(C) OF THE ACT. THE SHORT ORDER THEREON IN TAX APPEAL NO.2581 OF 2009 IS REPRODUCED HEREUNDER TO APPRECIATE THE ISSUE IN PERSPECTIVE. PRESENT TAX APPEAL HAS BEEN PREFERRED BY THE APPE LLANT REVENUE CHALLENGING THE IMPUGNED JUDGMENT AND ORDER DATED 24TH JULY 2009 PA SSED BY THE INCOME TAX ITA NO.2442/AHD /2013 SHANTILAL VALLABDAS PATEL VS.CIT ASST.YEAR 2009-10 - 9 - APPELLATE TRIBUNAL, AHMEDABAD {TRIBUNAL FOR SHORT } IN I.T.A NO. 1304/AHD/2009 WITH RESPECT TO A.Y 2005-06 ON THE FOLLOWING QUESTI ON OF LAW :- WHETHER THE APPELLATE TRIBUNAL IS RIGHT IN LAW AND ON FACTS IN SETTING ASIDE THE ORDER PASSED BY THE COMMISSIONER OF INCOME TAX U/S. 263 OF THE ACT WHEN THE ASSESSING OFFICER FAILED IN INITIATING PRO CEEDINGS U/S. 271 [1](C) OF THE ACT ? HAVING HEARD MS. PAURAMI SHETH, LEARNED ADVOCATE APPEARING FOR THE APPELLANT- REVENUE AND SHRI MANISH J. SHAH, LEARNED ADVOCATE A PPEARING ON BEHALF OF THE RESPONDENT AND CONSIDERING THE IMPUGNED JUDGMENT AN D ORDER DATED 24TH JULY 2009 PASSED BY THE TRIBUNAL, IT APPEARS THAT WHILE ALLOW ING THE APPEAL PREFERRED BY THE ASSESSEE, THE TRIBUNAL HAS RELIED UPON THE DECISION IN CASE OF CIT V. PARMANAND M. PATEL, REPORTED IN 278 ITR 3 (GUJ). IT IS NOT IN DISPUTE THAT THE DECISION IN CASE OF P ARMANAND M. PATEL [SUPRA] WAS RENDERED CONSIDERING PRE-AMENDED SECTION 271 [1 ] OF THE INCOME-TAX ACT, 1961 {ACT FOR SHORT}. IT IS ALSO NOT IN DISPUTE THAT T HE TRIBUNAL WAS REQUIRED TO CONSIDER POST-AMENDED PROVISION OF SECTION 271 [1] OF THE AC T. UNDER THE CIRCUMSTANCES, THE IMPUGNED JUDGMENT AND ORDER PASSED BY THE TRIBUNAL CANNOT BE SUSTAINED AND THE SAME DESERVES TO BE QUASHED AND SET-ASIDE, AND THE MATTER IS REQUIRED TO BE REMANDED TO THE TRIBUNAL FOR DECIDING THE APPEAL BY CONSIDERING THE AMENDMENT IN SECTION 271 [1] OF THE ACT. LEARNED ADVOCATES APPEA RING ON BEHALF OF RESPECTIVE SIDES ARE NOT IN A POSITION TO DISPUTE THE SAME AND AS SUCH ARE NOT DISPUTING THE ABOVE. IN VIEW OF THE ABOVE AND WITHOUT EXPRESSING ANYTHIN G ON THE MERITS ON BEHALF OF THE EITHER PARTIES AND SOLELY ON THE AFORESAID G ROUND, THE IMPUGNED JUDGMENT AND ORDER DATED 24TH JUNE 2009 PASSED BY THE TRIBUNAL I S HEREBY QUASHED AND SET-ASIDE AND THE MATTER IS REMANDED TO THE TRIBUNAL TO DECID E AND DISPOSE OF THE SAID APPEAL AFRESH IN ACCORDANCE WITH LAW ON MERITS AND CONSID ERING THE AMENDED SECTION 271 [1] OF THE ACT. PRESENT TAX APPEAL IS ACCORDINGLY ALLOWED TO THE AF ORESAID EXTENT WITH NO ORDER AS TO COSTS. 12. IN THE WAKE OF DEVELOPMENTS NARRATED ABOVE, TH E CONTROVERSY HAS RESURFACED AGAIN AND ISSUE HAS BECOME OPEN TO DEBATE HAVING RE GARD TO THE AMENDMENT IN S. 271(1)(C), WHICH WE SEEK DWELL UPON. 13. ON PERUSAL OF THE DECISION OF HONBLE GUJARAT H IGH COURT IN PARMANAND PATEL CASE (PRE AMENDED LAW), WE NOTE THAT BASIS FO R HOLDING THAT THE CIT LACKS JURISDICTION UNDER S. 263 TO CANCEL THE ASSESSMENT FOR FAILURE OF THE AO TO INITIATE PENALTY PROCEEDINGS WERE MULTIFOLD. THE PROPOSITION S EMERGING THEREIN ARE BROADLY SUMMARIZED AS UNDER: ( A ) S. 271(1)(C) CONFERS DISCRETIONARY JURISDICTION O N THE AO OR THE CIT(APPEALS) TO INITIATE PENALTY PROCEEDINGS. THE PROVISION DOES NOT EMPOWER ANY OTHER AUTHORITY ITA NO.2442/AHD /2013 SHANTILAL VALLABDAS PATEL VS.CIT ASST.YEAR 2009-10 - 10 - TO EXERCISE DISCRETION. EVEN WHILE BEING A SUPERIOR AUTHORITY, THE ADMINISTRATIVE CIT IS NOT A DESIGNATED AUTHORITY TO FORM SATISFACTION PRIOR TO AMENDMENT OF S. 271(1)(C) EFFECTIVE FROM 1-6.2002. THE CIT IS THUS NOT PERMIT TED SUBSTITUTE SATISFACTION ARRIVED AT BY AO, IN EXERCISE OF REVISIONAL POWERS. IN THE ABSENCE OF POWERS CONFERRED TO INVOKE THE PENALTY PROVISION, THE CIT COULD NOT DIR ECT THE AO TO DO SO IN COLOURABLE EXERCISE OF POWERS. ( B ) THE SATISFACTION FOR DEFAULT COMMITTED AS STIPULA TED UNDER CLAUSE (C) TO S. 271(1)(C) HAS TO BE ARRIVED AT IN THE COURSE OF AN Y PROCEEDINGS AND NOT SUBSEQUENT THERETO. THUS, THE STAGE OF FORMING SATISFACTION IS BEFORE CONCLUSION OF THE PROCEEDINGS UNDER THE ACT. ( C ) SECTION 271(1)(C) REQUIRES THE SPECIFIED AUTHORI TY TO BE SATISFIED IN THE COURSE OF ANY PROCEEDINGS WHICH MEANS ANY PROCEEDINGS BE FORE ANY OF THE AUTHORITY. THE CIT CANNOT CREATE PROCEEDINGS. ( D ) THE ASSESSMENT AND PENALTY PROCEEDINGS ARE SEPAR ATE AND DISTINCT PROCEEDINGS. THEREFORE, THE CIT CANNOT SET ASIDE THE ASSESSMENT ORDER FOR THE SOLE PURPOSE OF INITIATION OF PENALTY PROCEEDINGS IN EXERCISE OF RE VISIONAL JURISDICTION. AS A COROLLARY, ASSESSMENT ORDER CAN NOT BE SET ASIDE TO INITIATE A ND IMPOSE PENALTY NOTWITHSTANDING THE FACT THE IMPOSITION OF PENALTY IS LAWFUL. 14. A READING OF LATER JUDGMENT OF GUJARAT HIGH COU RT IN J P CONSTRUCTION(SUPRA) WOULD SHOW THAT THE HONBLE COURT HAS REMANDED THE MATTER ONLY IN RESPECT OF PROPOSITION (A) ENUMERATED ABOVE. AS A NECESSARY IM PLICATION, OTHER PROPOSITIONS CONTINUE TO APPLY AND HAVE NOT FADED INTO INSIGNIFI CANCE. UNDER S. 263, THE CIT CONCERNED CAN EXAMINE THE RECORD OF ANY PROCEEDINGS AND ORDER PASSED CONSEQUENT THERETO CAN BE SET ASIDE ON FULFILLMENT OF CONDITIO NS AS STIPULATED THEREIN. IN THE INSTANT CASE, THE PROCEEDING AND CONSEQUENT ORDER I S ASSESSMENT ORDER. AS NOTED BY JURISDICTIONAL HIGH COURT, PENALTY PROCEEDINGS ARE SEPARATE AND DISTINCT. THERE IS NO IDENTITY BETWEEN THE TWO. PENALTY PROCEEDINGS CAN B E INITIATED DURING THE CURRENCY OF ASSESSMENT OF PROCEEDINGS TILL THE CONCLUSION OF A SSESSMENT PROCEEDINGS. EXCEPT FOR A LEGAL BAR THAT PENALTY PROCEEDINGS CANNOT BE INIT IATED SUBSEQUENT TO THE CONCLUSION OF ASSESSMENT PROCEEDINGS, THERE IS NO OTHER PERCEP TIBLE DEPENDENCE QUA THE ASSESSMENT ORDER. AS A SEQUEL THERETO, IN OUR CONSI DERED VIEW, IT IS NOT OPEN TO CIT TO EXERCISE THE REVISIONAL POWERS TO CREATE A NON EXIS TENT PROCEEDINGS UNDER S. 263 BY HOLDING THE ASSESSMENT PROCEEDING AS ERRONEOUS IN S O FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. PERTINENT TO SAY, SECTION 263 CREATES, DEFINES AND REGULATES THE REVISIONAL POWERS OF THE CIT CONCERNED AND IS THUS A SUBSTANTIVE PROVISION. HENCE, THE STRICT REQUIREMENTS OF A JURISDICTIONAL PROVISI ON CAN NOT BE COMPROMISED. WE ARE ITA NO.2442/AHD /2013 SHANTILAL VALLABDAS PATEL VS.CIT ASST.YEAR 2009-10 - 11 - ALIVE TO THE SITUATION THAT IN THE ABSENCE OF THE R EVISIONAL POWER, THE REVENUE IS PROBABLY DEPRIVED OF ANY REMEDY TO CURE THE LAPSE C OMMITTED BY THE AO IN APPROPRIATE CASES. THIS HOWEVER, WILL NOT ALTER THE POSITION OF LAW SPELT IN THIS REGARD. HOWSOEVER, CLEAR THE LEGISLATIVE INTENT MAY BE, THE REQUIREMENTS OF A SUBSTANTIVE PROVISION CANNOT BE BYPASSED TO GIVE EF FECT TO SUCH INTENT. IT IS TRITE THAT LEGISLATIVE CASUS OMISSUS CANNOT BE SUPPLIED BY JUD ICIAL INTERPRETIVE PROCESS. 15. THE ACTION OF CIT UNDER S. 263 IS REQUIRED TO B E STRUCK DOWN FOR OTHER REASON ALSO. AS NOTED ABOVE, ARRIVING AT THE SATISFACTION IS THE FOUNDATION OF ACTION UNDER S. 271(1)(C) OF THE ACT. ADMITTEDLY, THE CIT IS A DESI GNATED AUTHORITY TO FORM SATISFACTION POST AMENDMENT. NEVERTHELESS, THE IMPUGNED SATISFA CTION TOWARDS DEFAULT ENUMERATED IN 271(1)(C ) IS REQUIRED TO BE FORMED N OT LATER THAN THE CONCLUSION OF PROCEEDING BEFORE IT I.E. ASSESSMENT PROCEEDING IN THE INSTANT CASE. THUS THE DESIGNATED AUTHORITIES WOULD BECOME FUNCTUS OFFICIO ONCE THE PROCEEDINGS ARE CONCLUDED. ADMITTEDLY, THE ASSESSMENT PROCEEDINGS W ERE CONCLUDED AND POST FACTO SATISFACTION IS NOT PERMISSIBLE. THE PENALTY PROCEE DINGS BEING DISTINCT AND SEPARATE, THE ASSESSMENT PER SE CAN ALONE BE REVIEWED IN ACCO RDANCE WITH LAW. HOWEVER, THE COMPLETED ASSESSMENT CANNOT BE SET ASIDE TO ENABLE THE SUBORDINATE AUTHORITY TO INITIATE A SEPARATE AND DISTINCT PROCEEDING IN CONF LICT THE SCOPE OF AUTHORITY VESTED UNDER S. 263. THE COMMISSIONER IN EXERCISE OF HIS R EVISIONAL POWERS CANNOT ARROGATE TO HIMSELF A STATUS TO SURROGATE THE OTHER AUTHORIT IES AND SUPPLANT THEIR ROLES UNDER THE ACT. THE COMMISSIONER IS NOT A SUBSTITUTE OF TH E OTHER STATUTORILY PRESCRIBED FORA WITH CODIFIED FUNCTIONS DISCHARGEABLE IN TERMS OF T HE PRESCRIBED PROCEDURE IN THE SITUATIONS COMPREHENDED THEREBY. WHEN READ IN CONJU NCTION WITH THE DECISION OF PARMANAND PATEL (SUPRA), THE LANGUAGE OF SECTION 26 3 IS NOT CAPABLE OF AND DOES NOT ADMIT OF A CONSTRUCTION TO EMPOWER THE CIT TO SET A SIDE AN ASSESSMENT ORDER TO INITIATE A DISTINCT PENALTY PROCEEDING. THE LEGISL ATURE, IN OUR VIEW, HAS ALLOWED THIS POSITION TO BE SUSTAINED SO FAR EXCEPT EXPANDING TH E SCOPE OF AUTHORITY UNDER S. 271(1)(C) TO INCLUDE ADMINISTRATIVE CIT WITHIN ITS AMBIT. 16. BEFORE WE PROCEED TO CONCLUDE THE ISSUE, WE ALS O TAKE NOTE THE DECISION IN THE CASE OF CIT VS. SURENDRA PRASAD AGRAWAL 275 ITR 113 (ALL.); INDIAN PHARMACEUTICALS (1980) 123 ITR 874(MP); RA HIMMATSINGKA & CO. 340 I TR 253(PAT.); SARA ENTERPRISES (MAD.) 224 ITR 169 ETC. REFERRED TO AND RELIED UPON ON BEHALF OF THE REVENUE. IN ALL THESE CASES, IT WAS HELD THAT THE C IT ADMINISTRATION IS ENTITLED TO INVOKE S. 263 TO CANCEL THE ASSESSMENT WHERE THE PE NALTY WAS EITHER DROPPED OR THE AO OMITTED TO INITIATE THE PENALTY PROCEEDINGS. HO WEVER, IN THE SAME VAIN, WE NOTICE THAT THERE ARE MANY DECISION IN FAVOUR OF THE ASSES SEE ON THE SAME SUBJECT NAMELY CIT VS. SARAYA DISTILLERY 115 ITR 34 (ALL.); ADDL. CIT VS. J.K, DCOSTA (1981) 133 ITR 7(DEL.) [ SLP DISMISSED AGAINST THE AFORESAID D ECISION] WHICH WERE REFERRED TO ITA NO.2442/AHD /2013 SHANTILAL VALLABDAS PATEL VS.CIT ASST.YEAR 2009-10 - 12 - AND FOLLOWED IN OTHER DECISIONS OF HONBLE DELHI H IGH COURT. THE HONBLE GUJARAT HIGH COURT HAS TAKEN NOTE OF VARIED DECISIONS OF DI FFERENT HIGH COURTS WHILE DETERMINING THE ISSUE IN FAVOUR OF THE ASSESSEE. TH E PROPOSITIONS LAID DOWN BY THE HONBLE GURARAT HIGH COURT WILL PREVAIL OVER THE CO NTRARY PROPOSITIONS. WE SIMULTANEOUSLY TAKE NOTE THE DECISION OF HONBLE PA TNA HIGH COURT IN THE CASE OF R.A. HIMMATSINGKA & CO. VS. CIT (2010) 340 ITR 253 (AY 2004-05) RELIED UPON BY REVENUE WHEREIN THE IT WAS EXPLAINED THAT EXPRESSIO N PROCEEDINGS EMPLOYED IN SECTION 263 IS WIDER THAN THE EXPRESSION ASSESSMEN T. HOWEVER, IN OUR VIEW, NOTHING TURNS ON THIS. THE DECISION WAS RENDERED IN A CASE WHERE THE PENALTY PROCEEDINGS WERE DULY INITIATED AND LATER DROPPED WHICH WAS SUB JECT MATTER OF S. 263. JUDICIAL UTTERANCES WERE MADE IN THE CONTEXT OF THE CASE THE REIN. 17. TO SUM UP, IN THE LIGHT OF VARIOUS PROPOSITIONS CULLED OUT FROM DECISION OF HONBLE GUJARAT HIGH COURT IN PARMANAND PATEL ( SUP RA) WE ARE DISPOSED TO HOLD THAT NON INITIATION OF PENALTY PROCEEDINGS UNDER S. 271(1)(C) WHILE FRAMING ASSESSMENT IS NOT A GOOD GROUND FOR INVOKING REVISI ONAL POWERS CONFERRED UNDER S. 263 OF THE ACT. TO REITERATE, WHEN PROCEEDED IN STR ICT REQUIREMENT OF THE PROVISION, THE CIT CAN NOT, AFTER THE CONCLUSION OF THE ASSESS MENT PROCEEDINGS, MAKE UP MIND OR ARRIVE AT THE REQUIRED AFFIRMATIVE CONCLUSION TOWAR DS INITIATION OF PENALTY PROCEEDINGS IN SUBSTITUTION OF THE LAPSE COMMITTED BY THE AO. SECTION 271(1)(C) READ IN CONJUNCTION WITH S. 263 OF THE ACT, GIVES AN UNM ISTAKABLE IMPRESSION THAT WHILE IN THE WAKE OF AMENDMENT UNDER S. 271(1)(C) W.E.F 1-6- 2002, IT MAY BE LAWFUL FOR THE ADMINISTRATIVE CIT TO IMPOSE PENALTY, THAT BY ITSEL F WOULD NOT BE SUFFICIENT TO HOLD THAT THE CIT IS ENTITLED TO EXERCISE REVISIONAL POW ERS BY TREATING THE ASSESSMENT ORDER AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REV ENUE. THERE MUST EXIST AN ORDER, WHICH IS SOUGHT TO BE REVISED BY THE COMMISSIONER. IF THERE IS NO ORDER, QUESTION OF REVISING THE ORDER DOES NOT ARISE. IN THE INSTANT C ASE, THERE IS NO ORDER IN SO FAR AS PENALTY PROCEEDINGS ARE CONCERNED. THE PROCEEDINGS IN RESPECT OF ASSESSMENT AND PENALTY ARE DIFFERENT AND DISTINCT NOTWITHSTANDING THE PRECONDITION THAT LATER HAS TO BE INITIATED IN THE COURSE OF FORMER PROCEEDINGS. THOU GH EXPRESSION ASSESSMENT IS USED IN THE ACT WITH DIFFERENT MEANINGS IN DIFFERENT CON TEXT, IN SO FAR AS SECTION 263 IS CONCERNED, IT REFERS TO THAT PARTICULAR PROCEEDING WHICH IS BEING CONSIDERED BY THE COMMISSIONER. IT IS NOT POSSIBLE TO EXPAND THE SCOP E OF ASSESSMENT PROCEEDING AND ASSESSMENT, WHICH IS SUBJECT MATTER OF REVISION, FO R THE PURPOSES OF INITIATING A NEW AND DISTINCT PENALTY PROCEEDINGS OF ONEROUS NATURE. FAILURE OF AO TO INITIATE OR IMPOSE PENALTY CANNOT BE A FACTOR CAPABLE OF VITIAT ING THE ASSESSMENT ORDER IN ANY RESPECT. AN ASSESSMENT, IN OUR CONSIDERED VIEW, CAN NOT BE SAID TO BE ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE OWING TO SUC H FAILURE WITH RESPECT TO INITIATE A DISTINCT PROCEEDINGS WITH A VIEW TO EVALUATE IMPOSI TION OF PENALTY THEREIN. IN VIEW OF THE FORGOING DISCUSSION, THE PR. CIT/ CIT IS NOT CO MPETENT TO DIRECT THE AO TO REDO ITA NO.2442/AHD /2013 SHANTILAL VALLABDAS PATEL VS.CIT ASST.YEAR 2009-10 - 13 - THE ASSESSMENT WITH A VIEW TO INITIATE AND LEVY PEN ALTY IN RESPECT OF ERRONEOUS CLAIM OF DEDUCTION UNDER S. 10B. 10.3. IN THE LIGHT OF THE ISSUE ALREADY EXAMINED E ARLIER, WE FIND MERIT IN THE GRIEVANCE OF THE ASSESSEE. AS A RESULT, GROU ND NO.3 OF THE ASSESSEES APPEAL IS ALLOWED. 11. IN THE RESULT, ORDER OF THE CIT PASSED UNDER S. 263 OF THE ACT IS SET ASIDE AND QUASHED AND ACCORDINGLY THE APPEAL OF TH E ASSESSEE IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 18 / 05/2017 SD/- SD/- (..) ( ) ( S.S. GODARA ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 18/ 05 /2017 4..+,.+../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 567- 8- / CONCERNED CIT 4. 8- ( ) / THE CIT(A)-III, BARODA 5. 9:-+67 , 670 , 5 / DR, ITAT, AHMEDABAD 6. <, / GUARD FILE. / BY ORDER, (9-- //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD