M/s. Star Electricals, Bangalore V. Assistant Commissioner Of Income Tax, Circle- 10(1), Bangalore

ITA 2646/BANG/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0443 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-07-2021
• Assessment Year: 2007-2008
• Appeal Filed On: 27-12-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Opportunity of being heard; Reassessment proceedings
• Section: 40(a)(ia); 147; 144

Judgement Text

ITA NO.2646&2647/BANG/2019 M/S. STAR ELECTRICALS, BANGALORE & M/S. YESHODA ELECTRICALS, BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL CBENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.2646/BANG/2019 ASSESSMENTYEAR:2007-08 M/S. STAR ELECTRICALS SY.NO.120/2, KODATHI GATE MULLUR ROAD OFF SARJAPURA ROAD BANGALORE 560 035 PAN NO :AAEFS1483K VS. ACIT CIRCLE-10(1) BANGALORE APPELLANT RESPONDENT ITA NO.2647/BANG/2019 ASSESSMENT YEAR: 2007-08 M/S. YESHODA ELECTRICALS SY.NO.120/2, KODATHI GATE MULLUR ROAD OFF SARJAPURA ROAD BANGALORE 560 035 PAN NO :AAAFY0757E VS. ACIT CIRCLE-10(1) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI GURUSWAMY H., A.R. RESPONDENT BY : SHRI PRADEEP KUMAR, D.R. DATE OF HEARING : 20.07.2021 DATE OF PRONOUNCEMENT : 20.07.2021 ITA NO.2646&2647/BANG/2019 M/S. STAR ELECTRICALS, BANGALORE & M/S. YESHODA ELECTRICALS, BANGALORE PAGE 2 OF 6 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: BOTH THE APPEALS FILED BY THE RESPECTIVE ASSESSEES ARE DIRECTED AGAINST THE ORDERS PASSED BY LD. CIT(A) IN THEIR RE SPECTIVE HANDS CONFIRMING THE DEMAND RAISED BY WAY OF PENALTY U/S 221(1) OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT] FOR AY 20 07-08. SINCE THE ISSUE URGED IN THESE APPEALS AND THE UNDERLYING FAC TS ARE IDENTICAL IN NATURE, BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. 2. THE LD. A.R. APPEARING FOR THE ASSESSEES SUBMITT ED THAT THE A.O. HAD REOPENED THE ASSESSMENT OF BOTH THE ASSESS EES FOR AY 2007-08 AND PASSED THE ASSESSMENT ORDER IN THEIR RE SPECTIVE HANDS U/S 144 R.W.S. 147 OF THE ACT BY MAKING DISALLOWANC ES U/S 40(A)(IA) OF THE ACT AND ALSO DISALLOWING MARKETING EXPENDITU RE. ACCORDINGLY, THE A.O. RAISED A DEMAND OF RS.3.39 CRORES IN THE H ANDS OF M/S. STAR ELECTRICALS AND RS.5.09 CRORES IN THE HANDS OF M/S. YESHODA ELECTRICALS. BOTH THE ASSESSEES DID NOT PAY THE TA X DEMANDED BY THE AO. THEY CHALLENGED THE ASSESSMENT ORDER BY FIL ING APPEAL BEFORE LD CIT(A) AND THEN BEFORE ITAT. BEFORE THE TRIBUNAL, BOTH THE ASSESSEES CHALLENGED THE VALIDITY OF REOPENING OF ASSESSMENT ALSO. 3. IN THE MEAN TIME, THE A.O. ALSO PASSED PENALT Y ORDER IN THE HANDS OF BOTH THE ASSESSEES BY LEVYING PENALTY U/S 221(1) OF THE ACT, SINCE THEY HAVE NOT PAID TAXES DEMANDED IN THE ASSESSMENT ORDER. THE AO LEVIED PENALTY OF RS.36.31 LAKHS IN THE HANDS OF M/S. STAR ELECTRICALS AND RS.55.06 LAKHS IN THE HAN DS OF M/S. YESHODA ELECTRICALS U/S 221(1) OF THE ACT. THE APP EALS FILED BY THE ITA NO.2646&2647/BANG/2019 M/S. STAR ELECTRICALS, BANGALORE & M/S. YESHODA ELECTRICALS, BANGALORE PAGE 3 OF 6 ASSESSEES CHALLENGING THE ABOVE SAID LEVY OF PENALT Y BEFORE LD CIT(A) WERE DISMISSED AND HENCE THE ASSESSEES HAVE FILED THESE APPEALS BEFORE THE TRIBUNAL. 4. THE LD. A.R. SUBMITTED THAT THE APPEAL FILED BY M/S STAR ELECTRICALS AGAINST QUANTUM ASSESSMENT ORDERS BEFOR E THE TRIBUNAL WAS NUMBERED AS 1177/BANG/2016 AND THAT FILED BY M/ S. YESHODA ELECTRICALS WAS NUMBERED AS 1175/BANG/2016. HE SUB MITTED THAT THE TRIBUNAL HAS SINCE DISPOSED OF BOTH THE APPEALS BY A COMMON ORDER DATED 3.2.2021. IN THE ABOVE SAID COMMON OR DER, THE TRIBUNAL HAS HELD THAT THE REASSESSMENT PROCEEDINGS INITIATED IN AY 2007-08 IN THE HANDS OF BOTH THE ASSESSEES WERE INV ALID. ACCORDINGLY, THE ASSESSMENT ORDERS PASSED IN THE HA NDS OF BOTH THE ASSESSEES HAVE BEEN QUASHED. THE LD. A.R. SUBMITTE D THAT THE TAX DEMAND RAISED IN THE ASSESSMENT ORDER SHALL BECOME NIL, AS A RESULT OF THE ORDERS PASSED BY THE TRIBUNAL. SINCE THE IM PUGNED PENALTY HAS BEEN LEVIED U/S 221(1) OF THE ACT FOR NON-PAYME NT OF TAX DEMANDED IN THE ASSESSMENT ORDER AND SINCE THE ASSE SSMENT ORDER ITSELF HAS BEEN QUASHED IN THE HANDS OF BOTH THE AS SESSEES, THERE WILL BE NO PENDING TAX DEMAND AND CONSEQUENTLY, THE IMPUGNED PENALTY CANNOT STAND ON ITS OWN. ACCORDINGLY, THE LD A.R PRAYED FOR QUASHING OF IMPUGNED PENALTY ORDERS. 5. WE HEARD LD D.R AND PERUSED THE RECORD. IN THES E TWO CASES, THE AO HAS LEVIED PENALTY U/S 221(1) OF THE ACT. T HE PROVISIONS OF SEC.221 READ AS UNDER:- 221. PENALTY PAYABLE WHEN TAX IN DEFAULT.(1) WHEN AN ASSESSEE IS IN DEFAULT OR IS DEEMED TO BE IN DEFAULT IN MAKING A P AYMENT OF TAX, HE SHALL IN ADDITION TO THE AMOUNT OF THE ARREARS AND THE AMOUN T OF INTEREST PAYABLE UNDER SUB-SECTION (2) OF SECTION 220, BE LIABLE, BY WAY OF PENALTY, TO PAY SUCH AMOUNT AS THE ASSESSING OFFICER MAY DIRECT, AN D IN THE CASE OF A CONTINUING DEFAULT, SUCH FURTHER AMOUNT OR AMOUNTS AS THE ASSESSING OFFICER MAY, FROM TIME TO TIME, DIRECT, SO, HOWEVER, THAT T HE TOTAL AMOUNT OF PENALTY DOES NOT EXCEED THE AMOUNT OF TAX IN ARREARS : ITA NO.2646&2647/BANG/2019 M/S. STAR ELECTRICALS, BANGALORE & M/S. YESHODA ELECTRICALS, BANGALORE PAGE 4 OF 6 PROVIDED THAT BEFORE LEVYING ANY SUCH PENALTY, THE ASSESSEE SHALL BE GIVEN A REASONABLE OPPORTUNITY OF BEING HEARD : PROVIDED FURTHER THAT WHERE THE ASSESSEE PROVES TO THE SATISFACTION OF THE ASSESSING OFFICER THAT THE DEFAULT WAS FOR GOOD AND SUFFICIENT REASONS, NO PENALTY SHALL BE LEVIED UNDER THIS SECTION. EXPLANATION.FOR THE REMOVAL OF DOUBT, IT IS HEREBY DECLARED THAT AN ASSESSEE SHALL NOT CEASE TO BE LIABLE TO ANY PENALT Y UNDER THIS SUBSECTION MERELY BY REASON OF THE FACT THAT BEFORE THE LEVY O F SUCH PENALTY HE HAS PAID THE TAX. (2) WHERE AS A RESULT OF ANY FINAL ORDER THE AMOUNT OF TAX, WITH RESPECT TO THE DEFAULT IN PAYMENT OF WHICH THE PENALTY WAS LEV IED, HAS BEEN WHOLLY REDUCED, THE PENALTY LEVIED SHALL BE CANCELLED AND THE AMOUNT OF PENALTY PAID SHALL BE REFUNDED. A PERUSAL OF ABOVE SAID PROVISIONS WOULD SHOW THAT THE ASSESSEE IS LIABLE TO PAY PENALTY UNDER SEC.221(1), IF THE ASSE SSEE IS IN DEFAULT OR IS DEEMED TO BE IN DEFAULT IN MAKING A PAYMENT O F TAX. IN THE INSTANT CASES, THE PENALTY PROCEEDINGS U/S 221(1) H AS BEEN INITIATED BY THE AO, SINCE BOTH THE ASSESSEES HAVE FAILED TO PAY THE DEMAND RAISED IN THE REASSESSMENT ORDER AND HENCE THEY HAV E BECOME ASSESSEE IN DEFAULT. HOWEVER, THE PROVISIONS OF SUB. SEC. (2) FURTHER STATE THAT THE PENALTY LEVIED SHALL BE CANC ELLED, WHERE AS A RESULT OF FINAL ORDER THE AMOUNT OF TAX, WITH RESPECT TO THE DEFAULT IN PAYMENT OF WHICH THE PENALTY WAS LEVIED, HAS BEE N WHOLLY REDUCED. 6. IN THE INSTANT CASES, AS ON TODAY, THE ASSESSMEN T ORDERS HAVE BEEN QUASHED BY THE TRIBUNAL, VIDE ITS ORDER DATED 03-02-2021 (REFERRED ABOVE) IN THE HANDS OF BOTH THE ASSESSEES BY HOLDING THAT REOPENING OF ASSESSMENT IS INVALID. HENCE, AS ON T ODAY, THE DEMAND HAS BECOME NIL. ACCORDINGLY, AS PER THE PR OVISIONS OF SUB. SEC. (2) OF SEC. 221, THE PENALTY LEVIED U/S 221(1) IS LIABLE TO BE CANCELLED, IF THE ORDERS PASSED BY THE TRIBUNAL BEC OMES FINAL ORDER, I.E., THE OPERATION OF SUB. SEC (2) WOULD DEPEND UP ON THE QUESTION ITA NO.2646&2647/BANG/2019 M/S. STAR ELECTRICALS, BANGALORE & M/S. YESHODA ELECTRICALS, BANGALORE PAGE 5 OF 6 AS TO WHETHER THE ORDERS PASSED BY THE TRIBUNAL HAV E BECOME FINAL OR NOT? IF THE REVENUE HAS ACCEPTED THE ORDERS PAS SED BY THE TRIBUNAL IN THE HANDS OF BOTH THE ASSESSEES, THEN T HE SAME WILL RESULT IN A FINAL ORDER, IN WHICH CASE, THE IMPUGNE D PENALTY LEVIED U/S 221(1) OF THE ACT SHALL BE LIABLE TO BE CANCELL ED. 7. ON THE CONTRARY, IF THE REVENUE CHALLENGES T HE ORDERS PASSED BY THE TRIBUNAL BY FILING APPEALS BEFORE HONBLE HI GH COURT, THEN THE QUESTION AS TO WHETHER THE ORDER OF THE TRIBUNA L IS FINAL ORDER OR NOT WOULD DEPEND UPON THE OUTCOME OF THE APPEALS. 8. KEEPING IN MIND ABOVE SAID LEGAL POSITION, W E HOLD THAT THE IMPUGNED PENALTY LEVIED IN THE HANDS OF BOTH THE AS SESSEES IS LIABLE TO BE QUASHED. WE ORDER ACCORDINGLY. HOWEVER, IN THE EVENT OF REVERSAL OF ORDERS PASSED BY THE TRIBUNAL IN THE QU ANTUM PROCEEDINGS IN THE HANDS OF BOTH THE ASSESSEES FOR AY 2007-08, THE IMPUGNED PENALTY LEVIED U/S 221(1) IN THE HANDS OF BOTH THE ASSESSES SHALL REVIVE. IN THAT EVENT, BOTH THE PAR TIES ARE LIBERTY TO PROSECUTE THEIR RESPECTIVE CASES IN ACCORDANCE WITH THE LAW. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSES SEES ARE TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH JUL, 2021. SD/- (N.V. VASUDEVAN) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 20 TH JUL, 2021. VG/SPS ITA NO.2646&2647/BANG/2019 M/S. STAR ELECTRICALS, BANGALORE & M/S. YESHODA ELECTRICALS, BANGALORE PAGE 6 OF 6 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.