SHRI PRAFULLA GADGE, Nagpur V. A,C.I.T CENT CIR. 1(2), Nagpur

ITA 246/NAG/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1321 (ITAT-NAGPUR)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 13-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R NINAWE
• Keywords: Opportunity of being heard; Initiation of penalty proceedings
• Section: 153A; 234B; 132; 139

Judgement Text

1 ITA NO. 246/NAG/2016. IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. (S.M.C.) I.T.A. NO. 246/NAG/2016 ASSESSMENT YEAR : 20 06 - 07 . SHRI PRAFULLA GADGE, ASSTT. COMMISSIONER OF INCOME - TAX, NAGPUR. VS. CENTRAL CIRCLE - 1(2), NAGPUR. PAN AEQPG8983G. APPELLANT. RESPONDENT. APPELLANT BY : SHRI MUKESH AGRAWAL. RESPONDENT BY : SHRI A.R. NINAWE. . DATE OF HEARING : 1 3 - 10 - 2016 DATE OF PRONOUNCEMENT : 1 3 TH OCT., 2016 O R D E R. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(APPEALS) - 3, NAGPUR DATED 01 - 03 - 2016 AND PERTAINS TO ASSESSMENT YEAR 2006 - 07. THE GROUNDS OF APPEAL READ AS UNDER : 1. THE LEARNED CIT(APPEALS) ERRED IN UNDERSTANDING THE FACTS OF THE CASE WITH RESPECT TO PENALTY PROCEEDINGS U/S 271AAA AND PENALTY PROCEEDINGS U/S 271(1)(C). 2. THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING THE PENALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. THE ASSESSEE HAS ALSO F ILED ADDITIONAL GROUND AS UNDER : THAT THE LD. CIT(APPEALS) HAS ERRED IN CONFIRMING PENALTY U/S 271(1)(C) OF I.T. ACT ON INCOME OF RS. 26,96,183/ - FOR WHICH NEITHER ANY SATISFACTION IS RECORDED BY LD. AO IN ASSESSMENT ORDER NOR ANY SHOW CAUSE NOTICE IS ISSUED. 2 ITA NO. 246/NAG/2016. 2. AT THE OUTSET IN THIS CASE LEARNED COUNSEL OF THE ASSESSEE STATED THAT THE ADDITIONAL GROUND HAS BEEN TAKEN OUT OF ABUNDANT CAUTION. HE SUBMITTED THAT THE SAME RELATES TO THE NON RECORDING OF SATISFACTION FOR INITIATION OF PENALTY U/S 271(1)(C) . HE SUBMITTED THAT THE SUBJECT MATTER OF ADDITIONAL GROUND HAS ALREADY BEEN RAISED BEFORE THE LEARNED CIT(APPEALS) AND HE HAS DECIDED THE SAME AGAINST THE ASSESSEE. THAT THE GROUNDS OF APPEAL RAISED IN THE MAIN GROUNDS OF APPEAL ALSO COVER THIS ASPECT. F URTHER LEARNED COUNSEL SUBMITTED THAT THIS IS A PURELY LEGAL ISSUE AND ON THE ANVIL OF HONBLE APEX COURT DECISION IN THE CASE OF NTPC LTD , (229 ITR 383) THE SAME MAY KINDLY BE ADMITTED. 3. HEARD THE LEARNED D.R. 4. UPON CAREFUL CONSIDERATION I FIND THAT THE MAIN GROUNDS OF APPEAL RAISED BY THE ASSESSEE D ULY ENCOMPASS THE MATTER RAISED IN ADDITIONAL GROUND AND THAT THE ASSESSEE HAS OUT OF ABUNDANT CAUTION RAISED THIS GROUND . A CCEPTING THE ARGUMENT THAT IT IS A PURELY LEGAL ISSUE , O N THE ANVIL OF HONBLE APEX COURT DECISION IN NTPC LTD. , I ADMIT THE SAME. 5. IN THIS CASE THE ASSESSMENT ORDER WAS PASSED AS UNDER : _____________________ ____ _ _______________ L _ THE ASSESSEE FILED HIS RETURN OF INCOME ON 20 . 12.20 06 DECLARING TOTAL INCOME OF RS . 1232460/ - . 2 . A SEARCH U/S 132 WAS CARRIED OUT AT THE PREMISES OF VAS GROUP OF COMPANIES , THEIR ASSOCIATED CONCERN AS WELL AS THE DIRECTORS . THE RESIDENCE OF THE ASSESSEE WAS ALSO SEARCHED. T HE SEARCH OPERATION WAS STARTED ON 23 . 7 . 2007 AND THE SAME W AS COMPLETED ON 24 . 8 . 2007 . THE ASSESSEE IS PROMOTER DIRECTOR OF T HE VASTU GROUP OF COMPANIES . 3 . PURSUANT TO THE SEARCH , NOTICE U/S 153A WAS ISSUED ON 15 . 2 . 2008 . THE ASSESSEE FILED RETURN OF INCOME IN RESPONSE TO NOTICE U/S 153A DECLARING TOTAL INCOME AT RS 4019614/ - . 1. 4 . NO TI CE U / S 143 ( 2) AND 142 ( 1 ) WERE IS S UED T I ME TO TIME . SH V IJ AY AGA R WA L CA AND SH ANI L SAWALKAR CA AND SH GANESH CHAKKARWAR ADVOCATE ATTENDED TIME TO TIME AND EXPLAINED THE CASE. 5 . SUBJECT TO THE ABOVE REMARKS , TOTAL INCOME OF THE ASSESSEE I S COMPUTED AS UNDER : - 3 ITA NO. 246/NAG/2016. (IN RS.) TOTAL INCOME AS PER RETURN OF INCOME. 40 ,19,610/ - ASSESSED U / S . 143 ( 3) R W S 153A OF TH E I . T . ACT , 1961 . GIVE / CREDIT TO PRE PAID TAXES . CHARGE INTEREST U/S 234A , 234B , 234C AND 2340 . ISSUE DEMAND NOTICE/ REFUND TO THE ASSESSEE . T HE ASSESSEE DECLA R ED RS 2 6~ 6 1 83 / - DU RIN G THE COURSE OF SEA R CH . THEREFORE THE ASSESSEE I S LI ABLE FOR PENALTY U/S 271AAA . PENALTY PROCEEDINGS U / S 271 AAA HAS BEEN INITIATED SEPARATELY . THE ASSESSEE DID NOT DECLARE I NTEREST INCOME OF RS 24900/ - O N FOR A N D BANK I NTEREST OF RS 5270 / - I N THE REGULAR RETURN OF I NCOME U / S 13 9 . THEREFORE PENA L TY P R OCEED I NGS U / S 271 ( 1 )(C ) HAS BEEN IN I T I ATED SEPARATELY I N RESPECT OF INT E R EST INCOME NOW I NCLUDED IN THE RETURN OF INCOME IN RESPONSE T O NOTICE U / S 153A . . THE ORDER HAS BEEN PASSED WITH TH E AP PR OVAL OF ADD L CIT CENTRAL RANGE 1 , NAGPUR . THE APPROVAL U / S 15 3 0 IS RECEIVED V I DE LETTER DATED 2 1 .1 2 . 2009 . 6. PENALTY PROCEEDINGS WERE ACCORDINGLY INITIATED. IN THE PENALTY ORDER THE AO DID NOT MAKE ANY WHISPER OF PENALTY U/S 271AAA. HOWEVER, HE LEVIED A PENALTY OF RS.9,77,163/ - U/S 271(1)(C) BY INVOKING EXPLANATION 5A TO SECTION 271(1)(C). 7. THE ASSESSEE APPEALED BEFORE THE LEARNED CIT(APPEALS) INTER ALIA SUBMITTING THAT THE AO HAS ISSUED NOTICE AS WELL AS RECORDED SATISFACTION IN ASSESSMENT ORDER REGARDING INITIATION OF PENALTY U/S 271AAA, BUT HAS LEVIED PENALTY U/S 271(1)(C). HOWEVER, LEARNED CIT(APPEALS) DID NOT ACCEPT THE SAME. HE HELD AS UNDER : THE INTENTION OF THE AO AP PEARS TO HAVE BEEN TO INITIATE PENALTY U/S 271(1)(C) FOR THE CONCEALED AMOUNT OF RS.26,96,183/ - THOUGH THE AO HAS MENTIONED AND INITIATED THE SAME U/S 271AAA. THE JUDGMENTS RELIED UPON BY THE ASSESSEE ARE PERUSED THE CONSIDERED CAREFULLY. THE JUDGMENT IN T HE CASE OF CARIO INTERNATIONAL VS. DCIT IS ON A DIFFERENT ISSUE WHERE THE HONBLE ITAT HAS HELD THAT THE PROVISION OF SECTION 271AAA LAY DOWN THAT IT IS ONLY THE AO WHO MAY DIRECT TO IMPOSED PENALTY AS ENVISAGED WHEREAS THE PROVISIONS OF SECTION 271(1) STI PULATE THAT AO OR THE COMMISSIONER (APPEALS) OR THE COMMISSIONER CAN PROCEED TO IMPOSE PENALTY U/S 271(1)(C). THE HONBLE ITAT HAS HELD THAT THERE IS A CLEAR DISTINCTION BETWEEN THE TWO PROVISIONS. IN FACT, GOING BY THE DECISION OF 4 ITA NO. 246/NAG/2016. HONBLE ITAT, CIT(A) C AN TAKE A DECISION ON INITIATION OF PENALTY U/S 271(1)(C). ON MERITS, THE LEARNED CIT(APPEALS) CONFIRMED THE PENALTY LEVIED. 8. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 9. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT IN THE ASSESSMENT ORDER THE AO HAS CLEARLY MENTIONED HIS SATISFACTION THAT THE ASSESSEE IS LIABLE FOR PENALTY U/S 271AAA. FOR PENALTY U/S 271(1)(C) HE HAS RECORDED SATISFACTION FOR INITIATION OF PENALTY ONLY WITH RESPECT TO FDR INTEREST OF RS.24,900/ - AND BANK INTEREST OF RS.5270/ - . LEARNED COUNSEL FURTHER SUBMITTED THAT THE NOTICE ISSUED DATED 21 - 12 - 2009 WAS A SHOW CAUSE NOTICE U/S 271AAA FOR AN AMOUNT OF RS.26,96,183/ - . LEARNED COUNSEL FURTHER SUBMITTED THA T ANOTHER NOTICE WAS ISSUED ON 21 - 12 - 2009 BEING SHOW CAUSE NOTICE U/S 271(1)(C) WHICH READS AS UNDER : WHEREAS IN THE COURSE OF PROCEEDINGS BEFORE ME FOR THE A.Y. 2006 - 07 IT APPEARS THAT YOU HAVE CONCEALED THE PARTICULARS OF YOUR INCOME OR FURNISHED INAC CURATE PARTICULARS OF SUCH INCOME. YOU ARE REQUESTED TO APPEAR BEFORE ME AT 11.00 A.M. ON 15/02/2010 AND SHOW - CAUSE WHY AN ORDER IMPOSING A PENALTY ON YOU SHOULD NOT BE MADE UNDER 271 OF THE INCOME - TAX ACT, 1961. IF YOU DO NOT WISH TO AVAIL YOURSELF OF THI S OPPORTUNITY OF BEING HEARD IN PERSON OR THROUGH AN AUTHORIZED REPRESENTATIVE, YOU MAY SHOW - CAUSE IN WRITING ON OR BEFORE THE SAID DATE, WHICH WILL BE CONSIDERED BEFORE ANY SUCH ORDER IS MADE UNDER SECTION 271 OF THE ACT. 10. REFERRING TO THE ABOVE, LEAR NED COUNSEL OF THE ASSESSEE SUBMITTED THAT FROM THE ASSESSMENT ORDER AS WELL AS NOTICE, IT IS CLEAR THAT THE AO HAS RECORDED THE SATISFACTION FOR ISSUE OF NOTICE U/S 271AAA. AS AGAINST THE ABOVE THE PENALTY ORDER DOES NOT MENTION ANY THING ABOUT PENALTY U/ S 271AAA. HOWEVER, PENALTY HAS BEEN LEVIED U/S 271(1)(C) AMOUNTING TO RS.9,77,163/ - . LEARNED COUNSEL FURTHER REFERRED T HE FOLLOWING CASE LAWS FROM THE HONBLE KARNATAKA HIGH COURT AND HONBLE ALLAHABAD HIGH COURT FOR THE PROPOSITION THAT JURISDICTION FAILS WHEN THERE IS AN IMPROPER NOTICE WHICH IS WITH REFERENCE TO 5 ITA NO. 246/NAG/2016. DIFFERENT SECTIONS AND THE ACTUAL PENALTY WILL BE LEVIED IS WITH REFERENCE TO A DIFFERENT SECTION : I) SAFINA HOTELS (P) LTD. VS. CIT 237 TAXMAN 0702 (KAR.) II) CIT VS. TRIVENI EN GINEERING AND INDUSTRIES LTD. 369 ITR 0660 (ALL). 11. PER CONTRA LEARNED D.R. RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 12. UPON CAREFUL CONSIDERATION I FIND THAT READING OF THE ASSESSMENT ORDER CLEARLY REVEALS THAT THE AO HAS RECORDED SATISFACTION FOR INITIATION OF PENALTY U/S 271AAA FOR AN AMOUNT OF RS.26,96,183/ - WHICH WAS DECLARED DURING THE COURSE OF SEARCH. FURTHER MORE THE AO ALSO RECORDED SATISFACTION FOR INITIATION OF PENALTY U/S 271(1)(C) FOR INTEREST AMOUNT OF RS.24,900/ - ON FDR AND BANK I NTEREST OF RS.5270/ - . TWO NOTICES WERE ISSUED ON 21 - 12 - 2009. ONE WAS WITH REFERENCE TO INITIATION OF PENALTY U/S 271AAA FOR A DECLARED AMOUNT OF RS.26,96,183/ - . ANOTHER NOTICE WAS ISSUED U/S 271(1)(C) FOR CONCEALING PARTICULARS OF INCOME OR FURNISHING I NACCURATE PARTICULARS OF INCOME. READING OF NOTICE AS WELL AS ASSESSMENT ORDER TOGETHER CLEARLY REVEALS THAT THE AO HAS INITIATED PENALTY PROCEEDINGS, RECORDED A SATISFACTION AND ISSUED NOTICE FOR PENALTY U/S 271AAA FOR AN AMOUNT OF RS.26,96,183/ - . AS AGA INST THE ABOVE, PENALTY U/S 271(1)(C) WAS WITH REFERENCE TO INTEREST OF RS.26,900/ - ON FDR AND BANK INTEREST OF RS.5270/ - . AS AGAINST THE ABOVE IN THE PENALTY ORDER AO DID NOT MAKE ANY WHISPER TO THE NOTICE OR PENALTY U/S 271AAA. HE ST RAIGHT - AWAY REFERRE D TO THE ASSESSEES RETURN MENTIONING THAT THE ASSESSEE INCLUDED INCOME OF RS.26,96,183/ - WHICH WAS DECLARED DURING THE COURSE OF SEARCH. ULTIMATELY INVOKING PROVISIONS OF EXPLANATION 5A TO SECTION 271(1)(C) THE AO IMPOSED A PENALTY OF RS.9,77,163/ - . 1 3. FROM THE ABOVE IT IS CLEAR THAT THE PENALTY LEVIED U/S 271(1)(C) HAS NO REFERENCE WHATSOEVER TO THE SATISFACTION RECORDED U/S 271(1)(C) REGARDING CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS BY THE ASSESSEE. 6 ITA NO. 246/NAG/2016. MOREOVER THE AO IN THE ASS ESSMENT ORDER HAS IN UNAMBIGUOUS TERM MENTIONED TH AT PENALTY WAS TO BE LEVIED U/S 271AAA. THIS ANOMALY BETWEEN RECORDING OF SATISFACTION IN A DIFFERENT SECTION AND LEVY OF PENALTY IN A DIFFERENT SECTION HAS BEEN BRUSHED ASIDE BY THE LEARNED CIT(APPEALS) BY HOLDING THAT THE INTENTION OF THE AO APPEARS TO HAVE BEEN TO INITIATE PENALTY U/S. 271(1)(C) FOR THE CONCEALED AMOUNT OF RS.26,96,183/ - THOUGH THE AO HAS MENTIONED AND INITIATED THE SAME U/S 271AAA . 14. IN MY CONSIDERED OPINION THE AFORESAID INFERENCE OF THE LEARNED CIT(APPEALS) IS WHOLLY BASED ON SURMISES AND CONJECTURE WITH NO REFERENCE TO AN IOTA OF FACTS AS EMERGING FROM THE ASSESSMENT ORDER AND THE RECORDS. SUCH AN ORDER IS NOT AT ALL SUSTAINA BLE. IN THIS REGARD THE DECISION OF HONBLE HIGH COURTS RELIED UPON BY THE LEARNED COUNSEL OF THE ASSESSEE ARE ALSO RELEVANT. I N THE CASE OF SAFINA HOTELS (P) LTD. (SUPRA) THE HONBLE KARNATAKA HIGH COURT HAS EXPOUNDED THAT WHEN NOTICE WAS ISSUED PROPOSING TO LEVY PENALTY U/S 271(1)(B) WHEREAS ORDER WAS PASSED BY THE AO U/ S 271(1)(C) , IT CLEARLY INDICATED THAT THERE WAS NO APPLICATION OF MIND BY THE AO WHILE ISSUING NOTICE U/S 274. HENCE IT WAS HELD THAT THE AO HAD NO JURISDICTION TO PASS PENALTY ORDER U/S 271(1)(C) WITHOUT ISSUING PROPER NOTICE AS REQUIRED UNDER LAW. 1 5 . FURTHER MORE THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. TRIVENI ENGINEERING AND INDUSTRIES LTD. (SUPRA) HAS EXPOUNDED AS U NDER : (HEAD NOTES ONLY). HELD, IN RESPECT OF HEADS WHERE AO CONSIDERED IT APPROPRIATE TO INITIATE PENALTY PROCEEDINGS U/S 271(1)(C), HE MADE SPECIFIC DIRECTION TO THAT EFFECT IN RESPECT OF CLAIM OF INTEREST ON SDF LOAN, THERE WAS NO DIRECTION BY AO A BSENCE OF REFERENCE TO INITIATION OF PROCEEDINGS U/S 271(1)(C) WAS NOT INADVERTENT OMISSION EVEN IN CONCLUDING PART OF HIS ORDER, AO ISSUED DIRECTION FOR INITIATING PENALTY NOTICE U/S 271(1)(C) AS HELD BY SUPREME COURT IN MAK DATA PRIVATE LIMITED VS. CIT, AO HAD TO SATISFY HIMSELF IF PENALTY PROCEEDINGS SHOULD BE INITIATED OR NOT DURING COURSE OF ASSESSMENT PROCEEDINGS AND NOT REQUIRED TO RECORD HIS 7 ITA NO. 246/NAG/2016. SATISFACTION IN PARTICULAR MANNER OR REDUCE IT INTO WRITING THERE WAS NO DIRECTION WHATSOEVER BY AO I N RESPECT OF SPECIFIC HEAD OF INTEREST ON THE SDF LOAN, ON WHICH THE PENALTY WAS DELETED BY ITAT OMISSION IN CASE OF SDF LOAN WAS IN SHARP CONTRAST TO THOSE ITEMS WHERE AO SPECIFICALLY DIRECTED INITIATION OF PENALTY PROCEEDINGS U/S 271(1)(C) ITAT WAS JUSTIFIED IN DELETING PENALTY U/S 271(1)(C) IN RESPECT OF THE SDF LOAN. 1 6 . WHILE EXAMINING THE PRESENT APPEAL ON THE ANVIL OF AFORESAID CASE LAWS, IT IS AMPLY CLEAR THAT THE AO HAD CLEARLY INDICATED IN THE ASSESSMENT ORDER AS WELL AS IN THE SHOW CAUSE N OTICE THAT PENALTY U/S 271AAA WAS BEING PROPOSED FOR A SUM OF RS.26,96,183/ - . HOWEVER, IN THE PENALTY ORDER, PENALTY WAS LEVIED U/S 271(1)(C) FOR THE AFORESAID AMOUNT. FROM THE AFORESAID CASE LAW IT IS EVIDENT THAT THE AO HAD NO JURISDICTION TO LEVY PENAL TY U/S 271(1)(C) IN THIS CASE AS THE NOTICE AS WELL AS SATISFACTION WAS FOR PENALTY U/S 271AAA. HENCE PENALTY LEVIED IN THIS CASE IS LIABLE TO BE QUASHED ON JURISDICTION ITSELF. ACCORDINGLY RESPECTFULLY FOLLOWING THE PRECEDENTS AS ABOVE, I HOLD THAT THE A O HAD NO JURISDICTION TO LEVY PENALTY U/S 271(1)(C). ACCORDINGLY I QUASH THE PENALTY LEVIED IN THIS CASE. SINCE THE PENALTY HAS ALREADY BEEN DELETED ON THE GROUND OF JURISDICTION ITSELF, THE DECISION ON MERIT IS ONLY OF ACADEMIC SIGNIFICANCE. AS SUCH THE SAME IS NOT BEING ENGAGED INTO. 15. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF OCT., 2016. SD/ - ( SHAMIM YAHYA) ACCOUNTANT MEMBER. NAGPUR, DATED: 13 TH OCT. , 2016. 8 ITA NO. 246/NAG/2016. COPY FORWARDED TO : 2. SHRI PRAFU LLA GADGE, 202, SAI NAMAN APARTMENT, OLD SUBHEDAR LAYOUT, NAGPUR - 440023. 3. A.C.I.T., CENTRAL CIRCLE - 1(2), NAGPUR. 4. C.I.T. - (CENTRAL) , NAGPUR. 5. CIT(APPEALS), - 3 , NAGPUR. 6. D.R., ITAT, NAGPUR. 7. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGIS TRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. WAKODE.