AI Insights
The case involves M/s Pee Pee Foods Pvt. Ltd., the appellant, contesting the imposition of a surcharge by the Income Tax Officer (ITO) following an order under section 154 of the Income Tax Act, 1961. The surcharge was initially levied in a consequential order dated 05.04.2011, which was meant to give effect to the directions of the Hon'ble Settlement Commission. The assessee filed a rectification application on 01.07.2016, referencing a Supreme Court decision that surcharge was not applicable for searches conducted before June 2002, specifically citing the case of Vatika Township (P) Ltd. The ITO dismissed this application as time-barred, a decision upheld by the CIT(A). However, the Tribunal found that the rectification application was indeed within the permissible time frame, as it should be calculated from the date of the rectification order dated 18.03.2014, not the original order dated 05.04.2011.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 127497 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
4 month(s) 6 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
25-05-2023
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
Not Allotted
Next Hearing Date
22-05-2023
Assessment Year
2000-2001
Appeal Filed On
18-01-2023
Judgement Text
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH ‘B’ CHANDIGARH BEFORE: SHRI A.D.JAIN, VICE PRESIDENT AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No. 26/CHD/2023 नधा रण वष / Assessment Year : 2000-01 M/s Pee Pee Foods Pvt. Ltd., 43, Grain Market, Sector 26, Chandigarh. बनाम VS The ITO, Ward 5(1), Chandigarh. थायी लेखा सं./PAN /TAN No: AABCP1346G अपीलाथ /Appellant यथ /Respondent नधा रती क ओर से/Assessee by : Shri Sudhir Sehgal, Advocate राज व क ओर से/ Revenue by : Shri Akashdeep, JCIT, Sr.DR तार"ख/Date of Hearing : 23.05.2023 उदघोषणा क तार"ख/Date of Pronouncement : 26.05.2023 आदेश/ORDER PER VIKRAM SINGH YADAV,A.M. This is an appeal filed by the assessee against the order of the CIT(A)-3, Gurgaon dated 31.10.2022 wherein the assessee has taken the following grounds of appeal : 1. That the Ld. CIT(A) has erred in dismissing the appeal of the assessee on the ground that application u/s 154 was not filed within four years. 2. That the finding of the CIT(A) is incorrect as he has failed to appreciate that that the assessee had filed original rectification application on 01.07.2016, against the order u/s 154, dated 18.03.2014 and, thus, the application was well within the time. 3. Notwithstanding the above said grounds of appeal, the Ld. CIT(A) has failed to address the binding judgment of Hon'ble Apex Court and Others as cited before him on merits. 4. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off. ITA 26/CHD/2023 A.Y.2000-01 Page 2 of 11 2. During the course of hearing, the ld. AR submitted that the assessee moved an application before the Hon'ble Settlement Commission and thereafter an order u/s 245D(4) was passed by the Hon'ble Settlement Commission on 14.02.2011 for the block assessment period 01/04/1989 to 29/02/2000 and thereafter the AO passed a consequential order dated 05.04.2011 to give effect to the order of the Hon'ble Settlement Commission. It was submitted that while giving effect to the order of the Hon'ble Settlement Commission, the AO applied surcharge on the taxes and which was subsequently paid by the assessee. It was submitted that thereafter an order u/s 154 was passed by the AO dated 18.03.2014 raising further demand on the assessee. 3. It was submitted that in terms of the decision of the Hon'ble Supreme Court in case of Vatika Township (P) Ltd. (2014) 367 ITR 466 which was pronounced on 15.09.2014, surcharge is not chargeable in respect of search conducted before June, 2002 and in the present case, the search was conducted on 29.02.2000. 4. It was submitted that subsequently, the assessee moved an application u/s 154 dated 18.06.2016, which was filed on 01.07.2016, requesting for necessary relief from levy of surcharge drawing support from the decision of the Hon'ble Supreme Court in the case of Vatika Township (P) Ltd. It was further submitted that in the said application which was filed within the prescribed ITA 26/CHD/2023 A.Y.2000-01 Page 3 of 11 period of four years, the assessee also relied upon the CBDT Circular no. 68 dated 17/11/1971 which clearly provides that any subsequent interpretation of law by the Hon'ble Supreme Court would constitute a mistake apparent from record and the AO was directed to act upon any rectification application moved by the assessee provided the same has been filed within time. 5. It was submitted that the AO dismissed the application so filed u/s 154 holding that the same is barred by limitation and while doing that, he has considered the assessee's later application dated 17.10.2018 and has omitted to take into consideration the assessee’s earlier application filed within time in the year 2016. 6. It was submitted that being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the finding of the AO holding that there is no order passed by the AO dated 18.03.2014 on record and thus, taking into account the AO’s order dated 5/04/2011 for counting the limitation period and has been held that the application is again barred by limitation. It was submitted that the order u/s 154 dated 18.03.2014 is very much part of the assessment record and has also been submitted before the Bench as part of assessee's Paper Book. Further the assessee places reliance on the decision of Hon'ble Supreme Court in case of Hind Wire Industries Ltd. ITA 26/CHD/2023 A.Y.2000-01 Page 4 of 11 reported in 212 ITR 639 wherein it has been held that the limitation has to be computed from the date of the later rectification order. It was, accordingly, submitted that the judgement of the Hon'ble Supreme Court in case of Vatika Township was pronounced on 15.09.2014 and the assessee moved an application in 2016 which is well within the limitation period. Further reliance was placed on the Hon'ble Calcutta High Court decision in the case of EIH vs CIT reported in 64 taxmann.com 392 wherein it was held that “the period of four years as provided in sub-section (7) of Section 154 shall start from the date of later amended order and not from the date of the original order”. It was, accordingly, submitted that the orders so passed by the ld. CIT(A) be set aside and the rectification application so filed by the assessee be allowed. 7. Per contra, the ld. DR has relied on the order of the lower authorities. It was submitted that the cause of action wherein surcharge has been levied by the AO arises pursuant to the order passed by the AO dated 05.04.2011 and given that the assessee has moved the rectification application only on 01.07.2016, the same is clearly barred by limitation. Further reliance was placed on the order and the findings of the lower authorities. 8. We have heard the rival submissions and perused the material available on record. The search in case of the assessee ITA 26/CHD/2023 A.Y.2000-01 Page 5 of 11 was conducted on 29/02/2000 and the block assessment period is thus 01/04/1989 to 29/02/2000 and it is not in dispute that the surcharge is not leviable in view of the decision of the Hon’ble Supreme Court in case of Vatika Township(supra) wherein it was held that the proviso to section 113 inserted by the Finance Act, 2002 was prospective in nature with effect from 01/06/2002 provided the rectification application has been filed within the limitation period. 9. In the instant case, the AO passed the consequential order to give effect to the directions of the Settlement Commission on 05/04/2011 which was followed by the rectification order u/s 154 dated 18/03/2014. The assessee moved a rectification application on 01/07/2016 seeking rectification of order giving effect to the directions of the Settlement Commission stating that in view of the decision of the Hon’ble Supreme Court in case of Vatika Township, surcharge is not leviable. Thereafter, another application was moved on 18/10/2018 drawing reference to earlier application dated 01/07/2016 and seeking refund of taxes already paid including the surcharge. The AO took into consideration the latter application filed by the assessee dated 18/10/2018 and held that the same is barred by limitation and the ld CIT(A) confirmed the findings of the AO holding that the application dated 18/10/2018 is barred by limitation for the reason that what is available on record is the consequential order ITA 26/CHD/2023 A.Y.2000-01 Page 6 of 11 passed by the AO dated 05/04/2011 and there is no copy of order passed by the AO u/s 154 dated 18/03/2014 on record. During the course of hearing, the ld AR taken us through the order passed by the AO u/s 154 dated 18/03/2014 available at APB page 7 and therefore, the existence of the said order is no more in dispute and also not being contested by the ld DR. Here, it is relevant to note that the surcharge has been levied in terms of the original order dated 05/04/2011 and thereafter, due to delay in deposit of taxes, the assessee was asked to pay interest u/s 245D(6A) and additional demand of Rs 40,321/- was raised in terms of rectification order u/s 154 dated 18/03/2014. 10. In the said factual background, the limited canvass of the dispute before us is which of the two orders of the AO is sought to be rectified by the assessee and whether the same is within the limitation period. In other words, whether the original order dated 05/04/2011 to give effect to the directions of the Settlement Commission or the rectification order passed by the AO u/s 154 dated 18/03/2014 is sought to be rectified. 11. In case of Hind Wire Industries Ltd. Vs CIT (supra), the matter relating to interpretation of provisions of Section 154(7) came up for consideration before the Hon'ble Supreme Court and it was held that the word “order” has not been qualified in any way and it doesn’t necessarily mean the original order and it can ITA 26/CHD/2023 A.Y.2000-01 Page 7 of 11 be any order including the amended or rectified order and the relevant findings read as under: 6. What falls for consideration in the present case is the interpretation of the expression "from the date of the order sought to be amended" in sub-s. (7) of s. 154 as it stood then. It is obvious that the word 'order' has not been qualified in any way and it does not necessarily mean the original order. It can be any order including the amended or rectified order. A similar expression in r. 38 of the Mysore Sales Tax Act fell for consideration in International Cotton Corpn. vs. CTO (1975) 2 SCR 345. Dealing with the point raised, this Court held as under : "The other attack that the rectification order is beyond the point of time provided in r. 38 of the Mysore Sales Tax Rules is also without substance. What was sought to be rectified was the assessment order rectified as a consequence of this Court's decision in Yaddalam's case. After such rectification the original assessment order was no longer in force and that was not the order sought to be rectified. It is admitted that all the rectification orders would be within time calculated from the original rectification order. Rule 38 itself speaks of "any order" and there is no doubt that the rectified order is also "any order" which can be rectified under r.38". This decision was endorsed in Dy. CTO vs. H.R. Sri Ramulu 1977 CTR (SC) 118 : (1977) 39 STC 180 (SC) when this Court observed there as follows : "The reason for that is that once an assessment is reopened, the initial order for assessment ceases to be operative. The effect of reopening the assessment is to vacate or set aside the initial order for assessment and to substitute in its place the order made on reassessment. The initial order for reassessment cannot be said to survive, even partially, although the justification for re-assessment arises because of turnover escaping assessment in a limited field or only with respect to a part of the matter covered by the initial assessment order. The result of reopening the assessment is that a fresh order for reassessment would have to be made including for those matters in respect of which there is no allegation of the turnover escaping assessment. As it is, we find that in the present case, the assessment orders made under s. 12A were comprehensive orders and were not confined merely to matters which had escaped assessment earlier. In the circumstances, the only orders which could be subject-matter of revision by the appellant were the orders made under s. 12A of the Act and not the initial assessment orders. In the case of J. Jaganmohan Rao vs. CIT/CEPT (1970) 75 ITR 373 (SC), this Court dealt with s. 34 of the Indian IT Act, 1922, which relates to reassessment in the case of income escaping assessment. It was held by this Court that once assessment is reopened, the previous under-assessment is set aside and the whole proceedings start afresh. Ramaswamy, J., speaking for the Court observed : "Sec. 34 in terms states that once the ITO decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under s. 22(2) and may proceed to assess, or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under sub-s. (2) of s. 22 the previous s under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under s. 34(l)(b), the ITO had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year." ITA 26/CHD/2023 A.Y.2000-01 Page 8 of 11 In the case of CST vs. H.M. Esufali H.M. Abdulali 1973 CTR (SC) 317 : (1973) 32 STC 77 (SC) : (1973) 90 ITR 271 (SC), this Court dealt with reassessment made under s. 10 of the MP Gen. ST Act, 1958. It was held that when reassessment is made, the former assessment is completely reopened and in its place fresh assessment is made. Hegde, 3., speaking for the Court, observed: "What is true of the assessment must also be true of reassessment because reassessment is nothing but a fresh assessment. When reassessment is made under s. 19, the former assessment is completely reopened and in its place fresh assessment is made. While reassessing a dealer, the assessing authority does not merely assess him on the escaped turnover, but it assesses him on his total estimated turnover. While making reassessment under s. 19, if the assessing authority has no power to make best judgment assessment, all that the assessee need do to escape reassessment is to refuse to file a return or refuse to produce his account books. If the contention taken on behalf of the assessee is correct, the assessee can escape his liability to be reassessed by adopting an obstructive attitude. It is difficult to conceive that such could be the position in law." What fell for consideration in this decision were ss. 12A, 21, 21(2) and 21(3) of the Mysore ST Act. The relevant provisions of s. 12A are as under : "(1) Where for any reason the whole or any part of the turnover of a dealer has escaped assessment to tax or licence fee or has been assessed at a lower rate than the rate at which it is assessable, the assessing authority may, subject to the provisions of sub-s. (2) at any time within a period of five years from the expiry of the year to which the tax or licence fee relates, assess to the best of its judgment, the tax or licence fee payable on the turnover referred to after issuing a notice to the dealer and after making such enquiry as it considers necessary." Sec. 21 of the said Act deals, inter alia, with revisional powers of the Dy. Commissioner. Sub-ss. (2) and (3) of that section read as under : "(2) The Dy. Commissioner may of his own motion call for and examine the record of any order passed or proceeding recorded under the provisions of the Act by a CTO subordinate to him and against which no appeal has been preferred to him under s. 20, for the purpose of satisfying himself as to the legality or propriety of such order or as to the regularity of such proceeding and pass such order with respect thereto as he thinks fit. (3) In relation to an order of assessment passed under this Act, the power under sub-s. (1) and (2) shall be exercisable only within a period of four year from the date on which the order was passed." While holding that the expression "the date on which the order was passed" in sub-s. (3) of s. 21, did not qualify the word "order" and hence the period of four years has to be calculated from the date of the rectified order, this Court referred to its earlier decision in International Cotton case (supra) and also followed the decision of this Court in H.M. Esufali H.M. Abdulali's case (supra) as under : "What is true of the assessment must also be true of reassessment because reassessment is nothing but a fresh assessment. When reassessment is made under s. 19, the former assessment is completely reopened and in its place fresh assessment is made. While reassessing a dealer, the assessing authority does not merely assess him on the escaped turnover but it assesses him on his total estimated turnover. While making reassessment under s. 19, if the assessing authority has no power to make best judgment assessment, all that the assessee need do to escape reassessment is to refuse to file a return or refuse to produce his account books. If the contention taken on behalf of the assessee is correct, the assessee can escape his liability to be reassessed by adopting an obstructive attitude. It is difficult to conceive that such could be the position in law." ITA 26/CHD/2023 A.Y.2000-01 Page 9 of 11 The Court while dealing with the provisions of the MP Gen. ST Act, 1958 quoted s. 19 and r. 33(1) and (2) which read as under: "19. Assessment of turnover escaping assessment.—(1) Whereas an assessment has been made under the Act repealed by s. 52 and if for any reasons any sale or purchase of goods chargeable to tax under this Act or any Act repealed by s. 52 during any period has been under assessed or has escaped assessment or assessed at a lower rate or any deduction has been wrongly made therefrom, the Commissioner may, at any time within five calendar years from the date of order of assessment, after giving the dealer a reasonable opportunity of being heard and after making such enquiry as he considers necessary, proceed in such manner as may be prescribed to reassess within a period of two calendar years from the commencement of such proceedings, the tax payable by such dealer and the Commissioner may, where the omission leading to such reassessment is attributable to the dealer, direct that the dealer shall pay, by way of penalty in addition to the amount of tax so assessed, a sum not exceeding that amount : Provided that in the case of an assessment made under any Act repealed by s. 52, the period for reassessment, escapement or wrong deduction shall be provided in such Act notwithstanding the repeal thereof : Provided further that any reassessment proceedings pending on the date of commencement of the MP Gen. ST (Amendment) Act, 1978 (No. 25 of 1978) be completed in accordance with the provisions in force before the date of such commencement and within a period of two calendar years from the date of such commencement." "33. Manner of assessment and reassessment and imposition of penalty.—(1) Where— (a) a registered dealer has rendered himself liable to tax and penalty under sub-s. (1) of s.14A, or (a-i) a dealer has failed to comply with a notice issued under sub-s. (1) of s. 17, or (b) a registered dealer has failed without sufficient cause to furnish prescribed returns for any period by the prescribed date as required by sub-s. (1) of s. 17, or (c) a registered dealer has rendered himself liable to best judgment assessment under cls. (a) and (b) of sub-s. (4) of s. 18, or (d) a dealer has rendered himself liable to best judgment assessment under sub- s. (6) or sub-s. (7) of s. 18, or (e) a dealer being liable to pay tax, has wilfully failed to apply for registration, or (f) the sale or purchase of goods by a dealer during any period has been under- assessed or has escaped assessment or has been assessed at a lower rate or any deduction has been wrongly made therefrom within the meaning of sub-s. (1) of s. 19, or (g) a dealer has deliberately concealed his turnover of sale or purchase in respect of any goods or has furnished a false return, then in every such case, the assessing authority shall serve on the dealer a notice which shall as far as may be, be in Form XVI specifying the default, escapement or concealment, as the case may be, and calling upon- him to show cause by such date, ordinarily not less than 30 days from the date of service of ITA 26/CHD/2023 A.Y.2000-01 Page 10 of 11 the notice as may be fixed in that behalf, why he should not be assessed or reassessed to tax and/or penalty should not be imposed upon him and directing him to produce on the sale date his books or account and other documents which the assessing authority may require and any evidence which he may wish to produce in support of his objection: Provided that no such notice shall be necessary where the dealer, having appeared before the assessing authority, waives such notice. (2) On the date fixed in the notice issued under sub-r. (1) or in case the notice is waived on such date which may be fixed in this behalf the assessing authority shall after considering the objections raised by the dealer and examining such evidence as may be produced by him and after taking such other evidence as may be available, assess or reassess the dealer to tax and/or impose a penalty or pass any other suitable order". 7. In view of these authorities taking the view that the word ' any' in the expression "order sought to be amended" would mean even the rectified order, we are satisfied that the High Court was wrong in setting aside the decision of the Tribunal. Shri G. Vishwanatha Iyer, learned senior counsel cited before us the decisions of the Calcutta, Gujarat, Madras and Orissa High Courts in Bharat Textile Works & Ors. vs. ITO 1978 CTR (Guj) 435 : (1978) 114 ITR 28 (Guj), Ahmedabad Sarangpur Mills Co. Ltd. vs. A.S. Manohar, ITO (1976) 102 ITR 712 (Guj), Kothari (Madras) Ltd. vs. Agrl. ITO (1988) 74 CTR (Mad) 73 : (1989) 177 ITR 538 (Mad) and CIT vs. Kalinga Tubes (1991) 187 ITR 394 (Ori) respectively in support of his contention that the word "order" used in the expression "order sought to be amended" would mean the original order of the assessment. As against this, Dr. Shankar Ghose, learned senior counsel referred us to the decisions of the Patna and Karnataka High Courts in Bihar State Road Transport Corpn. vs. CIT (1986) 55 CTR (Pat) 270 : (1986) 162 ITR 114 (Pat) and CIT vs. Mysore Iron & Steel Ltd. (1985) 46 CTR (Kar) 93 : (1986) 157 ITR 531 (Kar) respectively which decisions have taken the contrary view. However, in view of the decisions of this Court referred to above, we are 'of the opinion that the view taken by the Tribunal in the present case is the correct one. We, therefore, set aside the impugned order of the High Court and restore that of the Tribunal. The appeals are allowed accordingly with no order as to costs.” 12. In the instant case, as we have noted above, the assessee first moved the rectification application on 01/07/2016 and at that point in time, the AO has already passed a suo-moto rectification order u/s 154 dated 18/03/2014 and therefore, the earlier order passed by the AO dated 05/04/2011 merged into the rectification order dated 18/03/2014. In view of the same, even though the surcharge was levied in terms of the first order, ITA 26/CHD/2023 A.Y.2000-01 Page 11 of 11 the order so sought to be rectified by the assessee is the rectified order dated 18/03/2014 wherein the surcharge continued to be levied on the assessee besides additional interest. Therefore, the rectification application dated 01/07/2016 is well within the limitation period as so prescribed and is not barred by limitation. The surcharge is hereby directed to be deleted and the AO is directed to provide the necessary relief to the assessee. In the result, the appeal of the assessee is allowed. Order pronounced in the Open Court on 26 th May,2023. Sd/- Sd/- (A.D.JAIN ) (VIKRAM SINGH YADAV) VICE PRESIDENT ACCOUNTANTMEMBER “Poonam” आदेश क琉 灹ितिलिप अ灡ेिषत/ Copy of the order forwarded to : 1. अपीलाथ牸/ The Appellant 2. 灹瀄यथ牸/ The Respondent 3. आयकर आयु猴/ CIT 4. िवभागीय 灹ितिनिध, आयकर अपीलीय आिधकरण, च瀃डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड榁 फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar
Other Referred Cases
Vatika Township (P) Ltd. vs. CIT, Hind Wire Industries Ltd. vs. CIT, EIH vs CIT
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