Shri V.K.Natesan, Alappuzha V. DCIT, Cochin

ITA 506/COCH/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4308 (ITAT-COCHIN)
• Duration Of Justice: 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2010
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 26-08-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 16-10-2009
• Court: TRIBUNAL
• Department Lawyers: A K THATAI
• Assessee Lawyers: R KRISHNA IYER
• Keywords: Period of limitation; Retrospective amendment; Difference of opinion; Assessment record
• Section: 143(3); 260A; 27

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BE NCH, COCHIN BEFORE DR.O.K.NARAYANAN, VICE PRESIDENT(BZ), TH IRD MEMBER) I.TA.NO.506/COCH/2009 & S.P. NO. 84/COCH/2009 ASSESSMENT YEAR : 2004-05 SHRI V.K.NATESAN, ALLEPPEY [PAN; ACPPN 4832N] VS. THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL, CIRCLE-2 KOCHI. (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI R.KRISHNA IYER, CA REVENUE BY SHRI A.K.THATAI, CIT-DR O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE. THIS APPE AL IS ARISING OUT OF THE REVISION ORDER PASSED U/S. 263 PASSED BY THE COMMISSIONER OF INCOME-TAX, CENTRAL, KOCHI. THE SAID ORDER U/S. 263 OF THE INCOME-TAX ACT, 1961, WA S PASSED ON 18 TH AUGUST 2009. THE RELEVANT ASSESSMENT YEAR IS 2004-05. 2. THE ASSESSEE IN THIS CASE HAD FILED HIS RETURN OF INCOME ON 29.10.2004 FOR RS. 6,86,025/-. THE INCOME COMPUTED AND RETURNED BY TH E ASSESSEE, INCLUDED INCOME FROM HOUSE PROPERTY, BUSINESS AND OTHER SOURCES. INITIA LLY, THE RETURN WAS PROCESSED U/S. 143(1) OF THE INCOME-TAX ACT, 1961. LATER ON, THE F ILE WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S. 143(3) ON 26.12.2006. ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 2 3. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASS ESSING OFFICER NOTICED CERTAIN CREDITS REFLECTED IN THE BANK STATEMENTS FILED BY T HE ASSESSEE. ON ENQUIRY, THE ASSESSEE REPLIED THAT CREDITS WERE SALE PROCEEDS OF SHARES I N FEDERAL BANK HELD BY THE ASSESSEE AND HIS FAMILY MEMBERS. BUT THE ASSESSING OFFICER TREATED THOSE CREDITS AS PART OF THE TAXABLE INCOME OF THE ASSESSEE ON THE GROUND THAT EVIDENCES WERE NOT PRODUCED BY THE ASSESSEE TO ESTABLISH THE BONA FIDES OF THE SALE O F SHARES OF FEDERAL BANK AS EXPLAINED BY THE ASSESSEE. AN AMOUNT OF RS. 13,99,528/- WAS THUS ADDED AS SHORT TERM CAPITAL GAINS. 4. THIS ADDITION WAS CONFIRMED IN FIRST APPEAL BY T HE CIT(A). ON SECOND APPEAL FILED BY THE ASSESSEE, THE INCOME TAX APPELLATE TR IBUNAL ALSO CONFIRMED THE ADDITION OF RS. 13,99,528/-. NOW, THE ISSUE OF ADDITION IN THE QUANTUM ASSESSMENT HAS BEEN TAKEN BY THE ASSESSEE IN APPEAL BEFORE THE HONBLE HIGH COU RT OF KERALA U/S. 260A OF THE INCOME- TAX ACT, 1961. 5. AS THE ADDITION TO THE RETURNED INCOME WAS MADE, THE ASSESSING AUTHORITY HAS INITIATED PENALTY PROCEEDINGS U/S. 271(1)(C), IN TH E ASSESSMENT ORDER ITSELF. EVEN THOUGH, PENALTY U/S. 271(1)(C) WAS INITIATED BY THE ASSESSI NG OFFICER, ORDER IMPOSING THE PENALTY . UNDER THAT SECTION WAS NOT PASSED BY THE ASSESSING OFFICER AFTER THE ASSESSMENT OR AFTER THE CIT(A) HAS PASSED HIS ORDER CONFIRMING THE ADDI TION. THE ASSESSING OFFICER WAS CONTEMPLATING THE FATE OF THE ADDITION BEFORE THE A PPELLATE TRIBUNAL, IN THE SECOND APPEAL FILED BY THE ASSESSEE. ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 3 6. WHEN THE TRIBUNAL HAS ALSO CONFIRMED THE ADDITIO N, THE ASSESSING OFFICER RAKED UP THE ISSUE OF PENALTY PROPOSED U/S. 271(1)(C). ON TA KING UP THIS ISSUE OF THE PENALTY PROPOSED U/S. 271(1)(C), THE ASSESSING OFFICER THRO UGH HIS PROCEEDINGS RECORDED IN THE ORDER SHEET OF THE RELEVANT FILE DROPPED THE PENAL TY PROPOSAL ON 25.2.2009. THE ENDORSEMENT MADE BY THE ASSESSING OFFICER DROPPING THE PENALTY AS REFLECTED IN THE ORDER SHEET IS REPRODUCED BELOW:- ASSESSEES REPLY DATED 30.12.2006 SEEN. ALSO, THE ITATS ORDER DATED 8.8.2008, IN THE FILE PERUSED. IT IS NOTICED THAT THE APPEA L AGAINST THE ITATS ORDER FILED BY THE ASSESSEE, IS PENDING BEFORE THE HONBLE HIGH C OURT OF KERALA AND THAT THE MATTER AGAINST MAKING THE COST OF SHARES ON ESTIM ATE, IS AGITATED ON APPEAL. AS RECOURSE TO SECTION 275(1A) CAN BE RESORTED TO DEP ENDING ON THE FATE OF THE ASSESSEES APPEAL BEFORE THE HIGH COURT, THE PENA LTY PROCEEDINGS NOW PENDING U/S. 271(1)(C) IN THIS CASE ARE DROPPED. 7. ON EXAMINATION OF THE ASSESSMENT RECORDS OF THE CASE, THE COMMISSIONER OF INCOME-TAX (CENTRAL) KOCHI CAME TO THE CONCLUSION T HAT THE ORDER OF THE ASSESSING AUTHORITY DROPPING THE PENALTY IS ERRONEOUS AND PRE JUDICIAL TO THE INTERESTS OF THE REVENUE. THE COMMISSIONER OF INCOME-TAX OBSERVED T HAT IN THE LIGHT OF THE PROVISIONS OF LAW CONTAINED IN SECTION 275(1)(A), THE ORDER IM POSING PENALTY U/S. 271(1)(C) WAS REQUIRED TO BE PASSED WITHIN SIX MONTHS FROM THE EN D OF THE MONTH IN WHICH THE ORDER OF THE TRIBUNAL WAS RECEIVED BY THE COMMISSIONER OF IN COME-TAX. HE FURTHER OBSERVED THAT INSTEAD OF DECIDING THE ISSUE OF PENALTY WITHIN THE SAID PERIOD OF LIMITATION OF SIX MONTHS, ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 4 THE ASSESSING OFFICER HAS DROPPED THE PENALTY PROPO SAL RELYING ON THE PROVISIONS OF LAW STATED IN SECTION 275(1A). THE CIT FOUND THAT THE A SSESSING AUTHORITY HAD THE IMPRESSION THAT SECTION 275(1A) AUTHORISED THE ASSE SSING OFFICER TO INITIATE AND LEVY PENALTY EVEN AFTER RECEIPT OF THE ORDER OF THE HON BLE HIGH COURT/SUPREME COURT. THE COMMISSIONER OF INCOME-TAX OBSERVED THAT THE ABOVE IMPRESSION MADE BY THE ASSESSING AUTHORITY IS AGAINST THE PROVISIONS OF LAW CONTAINE D IN SECTION 275(1A). HE HELD THAT A PLAIN READING OF SECTION 275(1A) SHOWS THAT AN ORDE R OF PENALTY ALREADY PASSED IN A CASE COULD BE REVISED ON THE BASIS OF THE ORDER OF THE H IGH COURT OR THE SUPREME COURT BUT NO ORDER IMPOSING PENALTY ON MERITS COULD BE PASSED FO R THE FIRST TIME AFTER THE EXPIRY OF THE LIMITATION OF SIX MONTHS PROVIDED IN 275(1)(A). THE COMMISSIONER, THEREFORE, HELD THAT AS NO ORDER U/S. 271(1)(C) HAS BEEN PASSED IN THE PRES ENT CASE, SECTION 275(1A) CANNOT BE INVOKED BY THE ASSESSING OFFICER TO WAIT TILL THE O RDER IS PASSED BY THE HONBLE HIGH COURT IN THE APPEAL FILED BY THE ASSESSEE . HE HELD THAT SECTION 275(1A) COMES INTO PLAY ONLY IN A CASE WHERE THE ASSESSING OFFICER HAS ALREADY PASS ED AN ORDER WITHIN THE TIME LIMITATION PRESCRIBED IN. 275(1)(A). HE ACCORDINGLY HELD THAT THE ORDER RECORDED BY THE ASSESSING OFFICER IN THE ORDER SHEET ON 25.2.2009 IS ERRONEOU S AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE PARTICULARLY WHEN THE ADDITION IS IN RESPEC T OF UNDISCLOSED INCOME ON SALE OF SHARES AS CONFIRMED BY THE TRIBUNAL. ACCORDINGLY, HE SET ASIDE THE ORDER OF THE ASSESSING OFFICER DATED 25.2. 2009 DROPPING THE PROPOSED PENA LTY AND DIRECTED TO PASS A FRESH ORDER ON MERITS AND AS PER LAW. 8. THE ASSESSEE HAS COME IN APPEAL BEFORE THE TRIBU NAL AGAINST THE ABOVE ORDER OF THE COMMISSIONER PASSED U/S. 263 OF THE INCOME TAX ACT, 1961. ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 5 9. THE HONBLE JUDICIAL MEMBER WHO AUTHORED THE ORD ER IN THE APPEAL FILED BY THE ASSESSEE, HELD AT THE FIRST INSTANCE THAT THE ASSUM PTION OF JURISDICTION U/S. 263 BY THE COMMISSIONER OF INCOME-TAX IS JUSTIFIED. THE RELEVA NT CONCLUSION ARRIVED AT BY THE LD. JUDICIAL MEMBER AS REFLECTED IN PARAGRAPH 5 OF HIS ORDER IS EXTRACTED BELOW:- WE HAVE HEARD RIVAL SUBMISSIONS AND FIND THAT THE CONTENTION OF THE LD. DR IS QUITE JUSTIFIED IN SO FAR AS THE ASSUMPTION OF THE JURISDICTION U/S. 263 BY THE COMMISSIONER OF INCOME-TAX IS CONCERNED. THE DECI SIONS OF THE APEX COURT IS DIRECTLY ON THE ISSUE AND WHICH RELATE TO 271C PEN ALTY, WHEREIN THE HONBLE SUPREME COURT HELD THAT 263 CAN BE INVOKED UNDER THE GIVEN SET OF FACTS. THERE FORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE SUPREME COURT, CITE D SUPRA, WE ARE OF THE VIEW THAT THE ASSUMPTION OF JURISDICTION U/S. 263 BY THE COM MISSIONER OF INCOME-TAX IS QUITE JUSTIFIED. 10 . UPHOLDING THE JURISDICTION OF THE COMMISSIONER OF INCOME-TAX U/S. 263, THE LD. JUDICIAL MEMBER PROCEEDED TO EXAMINE THE CASE ON ME RITS. HE HAS NOT ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE ORDER U/S. 263 CANNOT BE PASSED FOR THE REASON THAT THE ASSESSING OFFICER HAS NOT PASSED ANY ORDER U/S. 271 (1)(C) HE AGREED WITH THE ARGUMENT OF THE REVENUE THAT THE ORDER RECORDED BY THE ASSESSIN G AUTHORITY IN THE ORDER SHEET OF THE FILE DROPPING THE PROPOSED PENALTY IS AN ORDER FOR THE PURPOSE OF SECTION 263 AND SUBJECT TO THE REVISIONAL JURISDICTION OF THE COMMISSIONER OF INCOME-TAX. REGARDING THE SATISFACTION RECORDED BY THE ASSESSING OFFICER TO I NITIATE PENALTY, AGAIN, THE LD. JUDICIAL ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 6 MEMBER REJECTED THE CONTENTION OF THE ASSESSEE REL YING ON SECTION 271(1B) INSERTED BY THE FINANCE ACT, 2008 WITH RETROSPECTIVE EFFECT FRO M 1.4.1989 WHEREBY THE DIRECTION GIVEN IN THE ASSESSMENT ORDER ITSELF IS A SATISFACT ION RECORDED BY THE ASSESSING AUTHORITY FOR INITIATION OF PENALTY. BUT ON THE QUESTION WHE THER THE ORDER OF THE ASSESSING OFFICER DROPPING THE PROPOSED PENALTY, WAS PREJUDICIAL TO T HE INTERESTS OF THE REVENUE, THE LD. JUDICIAL MEMBER HELD THAT THE SAID ORDER IS NOT PRE JUDICIAL TO THE INTERESTS OF THE REVENUE. 11. THE LD. JUDICIAL MEMBER IN PARA 7 OF HIS ORDER HAS HELD THAT THE ASSESSING OFFICER WAS, INFACT, KEEPING THE ISSUE OF PENALTY IN ABEYAN CE TILL THE MATTER ATTAINED FINALITY BEFORE THE HONBLE HIGH COURT OF KERALA IN THE APPE AL FILED BY THE ASSESSEE . HE FOUND THAT THE ASSESSING OFFICER HAS KEPT THE FREEDOM WIT H HIM TO INITIATE THE PENALTY PROCEEDINGS, IF NECESSITATED, AS AND WHEN THE JUDGM ENT OF THE HONBLE COURT IS PRONOUNCED IN THE APPEAL FILED BY THE ASSESSEE. HE, THEREFORE, GAINED AN IMPRESSION THAT THE ORDER OF THE ASSESSING OFFICER IS NOT PREJUDICI AL TO THE INTERESTS OF THE REVENUE. 12. GOING FURTHER, ON THIS MATTER, THE LD. JUDICIAL MEMBER RELIED ON A JUDGMENT OF THE HONBLE HIGH COURT OF KERALA RENDERED IN A SALES TA X MATTER IN THE CASE OF KKS KHADER MOHIDEEN VS. STATE OF KERALA, 130 STC 61 (KER.) I N THE SAID CASE, THE COURT HAS HELD THAT THE ORDER BECOMES PREJUDICIAL TO THE INTERESTS OF THE REVENUE WHEN, AS A CONSEQUENCE OF THE ORDER, THE LAWFUL REVENUE DUE TO THE STATE, COULD NOT BE LEVIED OR REALISED. AS THE PENALTY PROCEEDINGS HAVE BEEN KEPT IN ABEYANCE ALON E, THE LD. JUDICIAL MEMBER HELD THAT THE ORDER CANNOT BE TREATED AS PREJUDICIAL TO THE I NTERESTS OF THE REVENUE. ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 7 13. THEREAFTER HE RELIED ON THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD., 243 ITR 83 WHEREIN THE COURT HAS HELD THAT BOTH THE CONDITIONS PRESCRIBED U/S. 263 MUST BE SATISFIED TO THE REVISE AN ORDER OF A SUBORDINATE AUTHORITY. THE ORDER SHOULD BE PREJUDICIAL TO THE INTERESTS OF THE REVENUE AS WELL AS THE ORDER SHOULD BE ERRONEOUS. AS IN THE PRESENT CASE, THE ORDER OF THE ASSESSING AUTHORITY IS NOT PREJUDICIAL TO THE INTERESTS OF THE REVENUE, TH E LD. JUDICIAL MEMBER HELD THAT THE REVISION ORDER PASSED BY THE COMMISSIONER OF INCOME -TAX IN THE PRESENT FILE IS NOT SUSTAINABLE IN LAW. HE, ACCORDINGLY, QUASHED THE O RDER OF THE COMMISSIONER. AS THE APPEAL ITSELF HAS BEEN DECIDED IN FAVOUR OF THE ASS ESSEE , THE LD. JUDICIAL MEMBER HELD THAT THE STAY PETITION FILED BY THE ASSESSEE BECOM ES INFRUCTUOUS. IN RESULT, HE ALLOWED THE APPEAL FILED BY THE ASSESSEE. 14. THE LD. ACCOUNTANT MEMBER DID NOT AGREE WITH THE ORDER PASSED BY THE LD. JUDICIAL MEMBER. HE AGREED WITH THE ARGUMENT OF THE REVENUE THAT WHERE AN ORDER OF THE TRIBUNAL U/S. 271(1)(C) IS CONTEMPLATED BY THE ASSE SSING AUTHORITY, THE ORDER SHOULD BE PASSED WITHIN THE PERIOD OF LIMITATION PROVIDED IN 275 (1)(A) AND THE ASSESSING AUTHORITY CANNOT DROP THE PROPOSED PENALTY TO KEEP IT IN ABEY ANCE BY INVOKING SECTION 275(1A). RELYING ON THE JUDGMENT OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF RANCHHODBHAI HARIBHAI JADAV VS. ACIT, 238 ITR 949, THE LD. ACC OUNTANT MEMBER, TRIED TO EXPLAIN THE LEGAL POSITION THAT STOOD BEFORE 13.7.2006 AND AFTE R INSERTION OF SECTION 275 (1A) BY THE TAX LAWS (AMENDMENT) 2006 WITH EFFECT FROM 13.7.200 6. THE COURT HAS HELD IN THE SAID CASE AS FOLLOWS:- ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 8 ONCE THE ORDER SETTING ASIDE THE ASSESSMENT ORDER IN THE COURSE OF WHICH PENALTY PROCEEDINGS HAVE BEEN INITIATED HAS BECOME FINAL, THE PENALTY PROCEEDINGS INITIATED IN RESPECT OF SUCH PROCEEDINGS HAVE BEEN INITIATED HAS BECOME FINAL, THE PENALTY PROCEEDINGS INITIATED IN RESPECT OF SUCH P ROCEEDINGS CANNOT SURVIVE TO BE DEALT WITH BY THE ASSESSING OFFICER THEREAFTER. I F THE ORDER OF PENALTY HAD BEEN MADE WHILE AN ORDER DETERMINING TAXABLE INCOME IS IN EXISTENCE, THE REMEDY OF THE ASSESSEE IS TO GET IT SET ASIDE IN APPROPRIA TE PROCEEDING. WHEN IT IS BROUGHT TO NOTICE THAT THERE IS NO ASSESSMENT OF I NCOME IN THE HANDS OF THE ASSESSEE OR THE SAME HAS BEEN SET ASIDE, THE PENA LTIES TOO ARE LIABLE TO BE SET ASIDE. BUT IF NO ORDER IN THE PENALTY PROCEEDINGS HAS BEEN MADE BEFORE THE ORDER OF ASSESSMENT OF INCOME IN RESPECT OF WHICH SUCH P ROCEEDINGS HAVE BEEN INITIATED IS SET ASIDE, PENALTY CANNOT BE LEVIED THEREAFTER . IF THE ORDER SETTING ASIDE ASSESSMENT IS SUBJECTED TO FURTHER APPEAL, THERE MAY BE JUSTIFICATION FOR KEEPING THE PROCEEDINGS FOR IMPOSING PENALTY PENDING UNTI L THE FINAL OUTCOME OF THE APPEAL AND THEN TO MAKE AN ORDER TO ACCORD WITH TH E TAXABLE INCOME AS DETERMINED. IN SUCH A CASE, THE LIMITATION PRESCRI BED UNDER SECTION 275 WILL BE WITH EFFECT FROM THE RECEIPT OF SUCH ORDER BY T HE COMMISSIONER 15. IT IS TO REMEDY THE ABOVE POSITION AS EXPLAINED BY THE HONBLE GUJARAT HIGH COURT THAT SECTION 275(1A) HAS BEEN INSERTED BY THE TAX L AWS (AMENDMENT), 2006 WHEREBY A PENALTY ORDER ALREADY PASSED COULD SURVIVE INSPITE OF THE OUTCOME OF THE ORDER OF THE DIFFERENT APPELLATE AUTHORITIES. BUT MODIFICATION COULD ONLY BE MADE IN TUNE WITH THE ORDERS OF THE HIGHER APPELLATE AUTHORITIES. THE LD . ACCOUNTANT MEMBER RELIED ON THE ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 9 CBDT CIRCULAR NO.1/2007 DATED APRIL 27, 2007 IN 29 0 ITR (ST) 73 AND CONCLUDED THAT THERE IS NO AUTOMATIC REVIVAL U/S. 275(1A) IF NO OR DER HAS ALREADY BEEN PASSED BY THE ASSESSING AUTHORITY. HE HELD THAT IT IS ONLY WHER E THERE IS ALREADY A PENALTY ORDER PASSED ON MERIT THAT THE REVENUE CAN REVISE THE SAME BY VI RTUE OF SECTION 275(1A). THERE BEING NO PENALTY ORDER ON MERITS IN THE PRESENT CASE, THE SAME CANNOT BE SUBJECT TO MODIFICATION OR REVISION CONSEQUENT TO THE DECISION OF THE HIGH COURT OR THE SUPREME COURT. 16. ACCORDINGLY, HE AGREED WITH THE REVISION ORDER BY THE COMMISSIONER U/S. 263 AND DISMISSED THE APPEAL BY THE ASSESSEE. 17. AS THE HONBLE MEMBERS WHO HEARD THE CASE, HAVE DIFFERED IN THEIR VIEWS, A REFERENCE WAS MADE TO THE HONBLE PRESIDENT, INCOM E TAX APPELLATE TRIBUNAL U/S. 255(4) OF THE INCOME TAX ACT, 1961. BOTH THE MEMBER S HAVE FRAMED SEPARATE QUESTIONS. THE QUESTION FRAMED BY HONBLE JUDICIAL MEMBER IS EXTRACTED BELOW:- WHETHER THE ASSUMPTION OF JURISDICTION BY THE LD. COMMISSIONER OF INCOME-TAX U/S. 263 IS JUSTIFIED UNDER THE GIVEN SET OF FACTS THAT THE ASSESSING OFFICER KEPT THE PENALTY PROCEEDINGS IN ABEYANCE TILL THE DECISION OF THE HONBLE HIGH COURT? 18. THE QUESTION FRAMED BY THE HONBLE ACCOUNTANT M EMBER IS THE ONE BELOW:- WHETHER THE ASSUMPTION OF JURISDICTION BY THE LD. COMMISSIONER OF INCOME-TAX U/S. 263 IS JUSTIFIED UNDER THE GIVEN SET OF FACTS AND CIRCUMSTANCES OF THE CASE? ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 10 19. THE HONBLE PRESIDENT HAS REFERRED BOTH THE QUE STIONS TO THE THIRD MEMBER. I AM NOMINATED AS THE THIRD MEMBER, THROUGH THE ORDER OF THE HONBLE PRESIDENT DATED 20.5.2010. THIS IS HOW I AM SEIZED OF THE MATTER. 20. I HEARD SHRI R. KRISHNA IYER, THE LD. CHARTERED ACCOUNTANT, APPEARING FOR THE ASSESSEE AND SHRI A.K.THATAI, THE LD. COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENUE. 21. SHRI R.KRISHNA IYER, AFTER REFERRING TO THE FIN DINGS ARRIVED AT BY THE LD. MEMBERS, CONTENDED THAT THE REVISION ORDER PASSED BY THE COM MISSIONER IS NOT SUSTAINABLE IN LAW FOR THE FOLLOWING REASONS:- I) THE ORDER IMPOSING PENALTY HAS NOT BEEN PASSED. II) NO SATISFACTION HAS BEEN RECORDED ON THE NOTI CE ISSUED BY THE ASSESSING AUTHORITY. III) THE ISSUE OF PENALTY HAS BEEN DECIDED BY THE A SSESSING OFFICER BY DROPPING THE PROPOSED PENALTY. IV) PENALTY HAS NOT BEEN LEVIED WITHIN THE PERIOD OF LIMITATION PROVIDED U/S. 275(1)(A). V) THE COMMISSIONER OF INCOM E TAX HAS NO JURISDICTION IN REVISION TO DIRECT THE ASSESSING OFFICER TO I NITIATE PENALTY PROCEEDINGS. ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 11 22. THE LD. CHARTERED ACCOUNTANT HAS RELIED ON A COMMON ORDER BY THE ITAT, COCHIN BENCH IN THE CASE OF M/S. CANNANORE COOPERATIVE HOS PITAL SOCIETY LTD.VS. ACIT IN 441TO 461/COCH/2009 DATED 13 TH OCTOBER, 2009 WHERE THE TRIBUNAL HAS HELD THAT TH E ORDERS OF THE ASSESSING OFFICER DROPPING THE PROPOS ED PENALTY PROCEEDINGS COULD NOT BE HELD PREJUDICIAL TO THE INTERESTS OF THE REVENUE. H E HAS RELIED ON ANOTHER ORDER OF THE ITAT, COCHIN BENCH, IN I.T.A. NO. 571/COCH/2006 ON 22.2.2007 IN THE CASE OF DR. T.MURALEEDHARAN WHERE THE TRIBUNAL HAS HELD THAT TH E ACTION OF THE ASSESSING OFFICER DROPPING THE PENALTY PROCEEDINGS INITIATED AGAINST THE ASSESSEE U/S. 158BFA(2) CANNOT BE SAID TO BE ERRONEOUS AS WELL AS PREJUDICIAL TO T HE INTERESTS OF THE REVENUE. THE LD. CHARTERED ACCOUNTANT FURTHER SUBMITTED THAT THE ORD ER OF THE TRIBUNAL IN I.T.A. NO. 571/COCH/2006 HAS BEEN UPHELD BY THE HONBLE HIGH C OURT OF KERALA IN THE JUDGMENT OF THEIR LORDSHIPS DATED 4.1.2010 IN I.T.A. 1515/2009 . 23. SHRI A.K.THATAI, THE LD. COMMISSIONER, ON THE O THER HAND, CONTENDED THAT THE DECISIONS RELIED ON BY THE LD. CHARTERED ACCOUNTANT ARE NOT APPLICABLE TO THE PRESENT CASE AS THOSE DECISIONS WERE RENDERED IN THE LIGHT OF DI FFERENT SET OF ESSENTIAL FACTS GOVERNING THOSE CASES. HE ARGUED THAT IN THOSE CASES, THE QUE STION CONSIDERED BY THE TRIBUNAL WAS THAT WHETHER THE DECISION ARRIVED AT BY THE ASSESSI NG AUTHORITY ON MERIT OF THE ISSUE THAT PENALTY PROCEEDINGS HAVE TO BE DROPPED, COULD BE RE VISED UNDER THE JURISDICTION U/S. 263 OF THE ACT? HE ARGUED THAT IN THOSE CASES, THE ASSE SSING OFFICER HAS DROPPED THE PENALTY PROCEEDINGS AFTER EXAMINING THE MERITS OF THE CASE. IN THE PRESENT CASE, THE CIRCUMSTANCES ARE DIFFERENT. THE ASSESSING OFFICER HAS NOT DROPPED THE PENALTY PROCEEDINGS AFTER EXAMINING THE MERITS OF THE CASE. HE DROPPED THE PENALTY PROCEEDINGS ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 12 ON ANOTHER GROUND THAT THE PROCEEDINGS COULD BE REV IVED, IF NECESSARY, AFTER THE HONBLE HIGH COURT DELIVERS ITS JUDGMENT IN THE APPEAL FILE D BY THE ASSESSEE. THE ASSESSING OFFICER HAS RELIED ON THE PROVISION OF LAW CONTAINED IN SEC TION 275(1A). THE LD. COMMISSIONER EXPLAINED THAT THE CRUCIAL DIFFERENCE IN THE FACTS OF THE PRESENT CASE COMPARED TO THE DECISION RELIED UPON BY THE LD. CHARTERED ACCOUNTAN T LIES HERE. IN THE PRESENT CASE, THE CRUCIAL ISSUE IS WHETHER RELIANCE PLACED BY THE ASS ESSING AUTHORITY ON SECTION 275(1A) TO DROP THE PENALTY PROCEEDINGS IS JUSTIFIED OR NOT. IT IS THE CASE OF THE LD. COMMISSIONER THAT A REVIVAL OF THE PENALTY PROCEEDINGS COULD BE ATTEMPTED TO U/S. 275(1A), ONLY IF THERE ALREADY EXISTS AN ORDER U/S. 271(1)(C) PASSED WITHI N THE TIME LIMIT PRESCRIBED IN SECTION 275 (1)(A) OF THE ACT. HE EXPLAINED THAT SECTION 27 5(1A) HAS NO OPERATION IF NO ORDER HAS BEEN PASSED WITHIN THE TIME LIMIT PRESCRIBED IN. 27 5 (1) (A). HE EXPLAINED THAT IT IS ON THIS POINT THAT THE CIT HAS HELD THAT THE ORDER OF THE ASSESSING AUTHORITY IS ERRONEOUS AS THE PROPOSAL TO LEVY THE PENALTY IS DROPPED. IT HAS RESULTED IN LOSS OF REVENUE TO THE DEPARTMENT. THE ORDER IS THEREFORE PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 24. HE, THEREFORE, CONTENDED THAT THE CIT HAS PASSE D THE REVISION ORDER U/S. 263 STRICTLY IN ACCORDANCE WITH LAW AND THE LD. ACCOUNT ANT MEMBER HAS RIGHTLY UPHELD HIS ORDER. 25. I HEARD BOTH THE SIDES IN DETAIL AND CONSIDERED THE MATTER. 26. THE JUDICIAL MEMBER HAS PASSED HIS ORDER IN TWO PARTS. IN THE FIRST PART, THE LD. MEMBER HAS EXAMINED WHETHER THE JURISDICTION ASSUME D BY THE COMMISSIONER OF ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 13 INCOME-TAX U/S. 263 WAS JUSTIFIED OR NOT. HE HELD IT WAS JUSTIFIED. IN THE SECOND PART OF THE ORDER, THE LD. MEMBER HAS CONSIDERED WHETHER TH E ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTERES TS OF THE REVENUE. HE FOUND THAT THE ORDER WAS NOT PREJUDICIAL TO THE INTERESTS OF THE R EVENUE. HE HAS RELIED ON THE DECISION IN THE CASE OF MALABAR INDUSTRIAL CO.LTD., 243 ITR 83 AND QUASHED THE REVISION ORDER OF THE CIT. 27. THEREFORE, IT IS SEEN THAT THE LD. JUDICIAL MEM BER HAS UPHELD THE LEGALITY OF THE REVISION ORDER, BUT CANCELLED THE ORDER ON THE ME RITS OF THE ISSUE. 28. THE LD. ACCOUNTANT MEMBER HAS ALSO UPHELD THE J URISDICTION ASSUMED BY THE COMMISSIONER OF INCOME-TAX IN PASSING THE REVISION ORDER U/S. 263. FURTHER HE HAS UPHELD THE ORDER ON MERITS, TOO. HE TOTALLY DISMIS SED THE APPEAL. 29 AS AGREED BY THE LD. CHARTERED ACCOUNTANT APPEAR ING FOR THE ASSESSEE (PAGE 4 OF ASSESSEES PAPERBOOK), BOTH THE MEMBERS ARE OF THE VIEW THAT ASSUMPTION OF JURISDICTION U/S. 263 BY THE COMMISSIONER OF INCOME-TAX IS JUSTI FIED. . ON THE ISSUE OF ASSUMPTION OF JURISDICTION U/S. 263, BOTH THE HONBLE MEMBERS HAV E HELD IN FAVOUR OF THE REVENUE. THEY HAVE HELD IN THEIR SEPARATE ORDERS THAT THE JU RISDICTION U/S. 263 HAS BEEN RIGHTLY EXERCISED BY THE COMMISSIONER OF INCOME-TAX. THERE FORE, THERE IS NO DIFFERENCE OF OPINION BETWEEN THE TWO HONBLE MEMBERS ON THIS ISS UE. BUT STILL, INTERESTINGLY, THE QUESTIONS FRAMED BY THE LD. MEMBERS, BRING OUT AN I MPRESSION THAT THE HONBLE MEMBERS HAVE A DIFFERENCE OF OPINION ON THIS PERTINENT POIN T. ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 14 30. THIS IS CLEAR FROM THE QUESTIONS FRAMED BY THE HONBLE MEMBERS AS EXTRACTED BELOW: PER JUDICIAL MEMBER: WHETHER THE ASSUMPTION OF JURISDICTION BY THE LD. COMMISSIONER OF INCOME-TAX U/S. 263 IS JUSTIFIED UNDER THE GIVEN SET OF FACTS THAT THE ASSESSING OFFICER KEPT THE PENALTY PROCEEDINGS IN ABEYANCE TILL THE DECISION OF THE HONBLE HIGH COURT? PER ACCOUNTANT MEMBER: WHETHER THE ASSUMPTION OF JURISDICTION BY THE LD. COMMISSIONER OF INCOME-TAX U/S. 263 IS JUSTIFIED UNDER THE GIVEN SET OF FACT S AND CIRCUMSTANCES OF THE CASE? 31. NOW, SHORTLY SPEAKING, THE QUESTIONS INDEPENDEN TLY FRAMED BY THE HONBLE MEMBERS FOR THE ADJUDICATION OF THE THIRD MEMBER IN FACT DO NOT BRING OUT ANY DIFFERENCE OF OPINION. THE QUESTIONS HAVE BEEN FRA MED ON AN ISSUE WHERE THERE IS NO DIFFERENCE OF OPINION AT ALL. 32. THEREFORE, AS THE THIRD MEMBER, THERE IS NOTH ING BEFORE ME TO ANSWER BETWEEN THE TWO QUESTIONS FRAMED BY THE LD. MEMBERS. I HAVE NO THING TO CHOOSE BETWEEN THE VIEWS EXPRESSED BY THE LD. MEMBERS ON THIS POINT. THIS I S FOR THE SIMPLE REASON THAT THE QUESTIONS FRAMED BY THE LD. MEMBERS RELATED TO THE LEGALITY OF THE JURISDICTION EXERCISED BY THE COMMISSIONER U/S. 263 AND ON WHICH ISSUE, AB SOLUTELY THERE IS NO DIFFERENCE OF OPINION BETWEEN THE MEMBERS. THE QUESTIONS HAVE BE EN FRAMED ON AN ISSUE WHERE THERE ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 15 IS NO DISSENT AT ALL. THEREFORE, THESE QUESTIONS RE FERRED TO BY THE LD. MEMBERS DO NOT INVITE ANY ANSWER AT ALL. 33. NOW WHERE IS THE DISSENT IN THE VIEWS OF THE HO NBLE MEMBERS? THE DISSENT IS INFACT IN RESPECT OF THE QUESTION WHETHER THE ASSES SING OFFICER WAS JUSTIFIED IN RELYING ON SECTION 275(1A) FOR KEEPING IN ABEYANCE THE PENALTY PROCEEDINGS? THIS IS THE DIFFERENCE OF OPINION BETWEEN HONBLE MEMBERS LIABLE TO BE PLA CED BEFORE THE THIRD MEMBER FOR ADJUDICATION. 34. THEREFORE, AS THE THIRD MEMBER, I AM CONSTRAINE D TO REFRAME THE QUESTION AS FOLLOWS:- WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE COMMISSIONER OF INCOME-TAX IS JUSTIFIED ON MERITS TO SET ASIDE TH E ORDER OF THE ASSESSING OFFICER DROPPING THE PENALTY PROCEEDINGS IMPOSED U/S. 271(1)(C), EVEN THOUGH, THE COMMISSIONER OF INCOME-TAX HAS RIGHTL Y EXERCISED HIS JURISDICTION U/S. 263. 35. IN OTHER WORDS, IN PITH AND SUBSTANCE, THE QUES TION TO BE CONSIDERED BY THE THIRD MEMBER IS THAT, DE HORS THE VALIDITY OF ASSUMPTION OF JURISDICTION U/S. 263, WHETHER THE REVISION ORDER PASSED BY CIT IS SUSTAINABLE IN LAW ON THE MERITS OF THE ISSUE OR NOT. LET ME ATTEMPT TO ANSWER THE ABOVE QUESTION. ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 16 36. SECTION 275 (1)(A) PROVIDES FOR LIMITATION IN T HE MATTER OF IMPOSING PENALTY WHERE THE QUANTUM ORDER HAS BEEN THE SUBJECT MATTER OF AP PEAL BEFORE THE CIT(A) OR THE APPELLATE TRIBUNAL. THE SAID SECTION 275(1) (A) PRE SCRIBES THE PASSING OF ORDERS IMPOSING PENALTY WITHIN THE PRESCRIBED LIMIT. IF NO ORDER I S PASSED WITHIN THE TIME LIMIT, NO PENALTY CAN BE IMPOSED. IT IS ALSO A POSSIBLE VIEW TO ARGU E THAT WHERE THE ISSUE OF PENALTY HAS NOT BEEN EARLIER DECIDED BY THE CONCERNED AUTHORITY, TH E MATTER COULD STILL BE KEPT IN ABEYANCE IN THE LIGHT OF THE PROVISION OF LAW CONTA INED IN 275(1A). THE SAID SECTION 275(1A) PERMITS THE CONCERNED AUTHORITY, NOT ONLY F OR ENHANCING OR REDUCING OR CANCELLING OR DROPPING THE PROCEEDINGS FOR IMPOSITI ON OF PENALTY BUT ALSO FOR IMPOSING PENALTY. THEREFORE, ALL SORTS OF EXERCISES CONTEM PLATED IN A PENALTY MATTER ARE CAPABLE OF BEING INITIATED/PROCEEDED U/S. 275(1A) IF THE CO NNECTED MATTER IN APPEAL BEFORE THE HIGH COURT OR THE SUPREME COURT. THEREFORE, IT IS POSSIBLE THAT THERE COULD BE A VIEW THAT IT IS POSSIBLE U/S. 275(1A) FOR THE ASSESSING OFFICER TO INITIATE PENALTY PROCEEDINGS AFTER THE OUTCOME OF THE APPEAL FILED BEFORE THE HO NBLE HIGH COURT. 37. I WOULD LIKE TO MAKE IT CLEAR THAT, BY AND LARG E, I AGREE WITH THE VIEW OF THE REVENUE AND THE LD. ACCOUNTANT MEMBER, ON THE SCOPE OF SECTION 275(1A). BUT THE POINT I TRIED TO BRING OUT IN THIS PARTICULAR CASE IS THA T A JOINT READING OF SECTIONS 275(1)(A) AND 275(1A) ARE CAPABLE OF BEING INTERPRETED IN MORE TH AN ONE WAY. IT IS A POSSIBLE VIEW THAT SECTION 275(1A) ALLOWS THE ASSESSING AUTHORITY TO IMPOSE PENALTY EVEN AFTER THE APPEAL IS DETERMINED BY THE HONBLE HIGH COURT. TH E ABOVE VIEW HAS BEEN ADOPTED BY THE ASSESSING AUTHORITY. IT IS A SETTLED POSITION OF LAW THAT WHERE TWO VIEWS ARE POSSIBLE, THE VIEW ADOPTED BY THE ASSESSING OFFICER CANNOT BE HELD TO BE ERRONEOUS. IN THE FACTS AND ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 17 CIRCUMSTANCES OF THE CASE, I AM NOT ABLE TO AGREE W ITH THE ARGUMENTS OF THE REVENUE THAT THE ORDER PASSED BY THE ASSESSING AUTHORITY IN DROP PING THE PROPOSED PENALTY PROCEEDINGS IS ERRONEOUS. AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD., 243 ITR 83, THE ORDER COULD BE REVISED ON LY IF IT IS NOT ONLY PREJUDICIAL TO THE INTERESTS OF THE REVENUE BUT ALSO ERRONEOUS. IN TH E PRESENT CASE, THE ORDER CANNOT BE HELD TO BE ERRONEOUS. THEREFORE, THE REVISION ORDER PA SSED BY CIT IS NOT SUSTAINABLE IN LAW. 38. BEFORE PARTING WITH THE CASE, I MAKE IT CLEAR T HAT I MAY NOT AGREE WITH THE VIEW OF THE HONBLE JUDICIAL MEMBER THAT DROPPING OF PENALT Y IS NOT PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE DECISIONS RELIED UPON BY THE LD. CHARTERED ACCOUNTANT ALONGWITH THE JUDGMENT OF THE HONBLE HIGH COURT IN THE CASE OF D R. MURALIDHARAN, ARE DELIVERED IN DIFFERENT CONTEXTS. IN THOSE DECISIONS CONSIDERED BY THE TRIBUNAL AND HIGH COURT, THE ASSESSING AUTHORITIES HAD DROPPED THE PENALTY PROCE EDINGS, AFTER EXAMINING THE CONTENTIONS OF THE ASSESSEES ON MERITS. IN THOSE CASES, THE ASSESSING AUTHORITIES WERE NOT KEEPING IN ABEYANCE THE PENALTY PROCEEDINGS IN THE LIGHT OF THE LAW STATED IN SECTION 275(1A). WHEREAS IN THE PRESENT CASE, THE PENALTY PROCEEDINGS HAS BEEN DROPPED AND KEPT IN ABEYANCE NOT ON MERITS BUT RELYING ON THE L AW STATED IN SECTION 275(1A). 39. AS ALREADY STATED, I AGREE WITH THE LD. JUDICIA L MEMBER IN QUASHING THE REVISION ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX. IN DOING SO, I HAD TO DEVIATE FROM THE QUESTIONS FRAMED BY THE HONBLE MEMBERS, FOR THE RE ASON THAT THE REAL DISPUTE IS NOT REFLECTED IN THE QUESTIONS REFERRED. THE QUESTIONS RELATED TO AN ISSUE IN WHICH THERE IS NO DISPUTE. KNOWING THE LIMITATIONS OF JURISDICTION A VAILABLE TO THE THIRD MEMBER, I HAD TO ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 18 MANAGE MY WAY THROUGH, TO ENABLE ME TO DELIVER THE ULTIMATE ANSWER WHETHER I AGREE WITH THE ORDER OF THE LD. JUDICIAL MEMBER OR I AGRE E WITH THE ORDER OF THE LD. ACCOUNTANT MEMBER. WHATEVER IS THE COURSE OF ACTION AND THE NA TURE OF DISCUSSION ON LAW AND FACTS, THE LIMITED ROLE ASSIGNED TO THE THIRD MEMBER IS TO AGREE WITH ANY ONE OF THE ORDERS PASSED BY THE HONBLE MEMBERS. THE THIRD MEMBER CA NNOT GO BEYOND THAT. AS I WAS CONSTRAINED TO AGREE WITH ANY OF THE ORDERS OF THE LD. MEMBERS, I WAS COMPELLED TO REFRAME THE QUESTIONS ON THE ACTUAL POINT OF DIFFER ENCE BETWEEN THE TWO MEMBERS AND TO COME TO A CONCLUSION ON MY OWN REASONING. I AGREE WITH THE ORDER OF THE LD. JUDICIAL MEMBER FOR THE REASON THAT I HAVE HELD THAT THE ORD ER OF THE ASSESSING OFFICER IS NOT ERRONEOUS. THE FINDING OF THE JUDICIAL MEMBER IS T HAT THE ORDER IS NOT PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN FACT, I HAVE NOT EXAM INED THAT ISSUE. I HAVE HELD THAT THE ORDER IS NOT ERRONEOUS ON THE BASIS OF MY OWN REASO NING. RIGHTLY OR WRONGLY, I HAD TO TAKE THIS MUCH FREEDOM, IN THE LIGHT OF THE TEXTURE OF THE ORDERS PASSED BY THE LD. MEMBERS AND IN THE NATURE OF QUESTIONS FRAMED BY T HEM. 40. THE REGISTRY IS DIRECTED TO PLACE THIS FILE BEF ORE THE REGULAR BENCH WITH NOTICE TO BOTH THE PARTIES SO THAT CONSEQUENTIAL ORDERS MAY B E PASSED BY THE REGULAR BENCH. ORDER PRONOUNCED ON WEDNESDAY, THE 14 TH OF JULY 2010 AT KOCHI. SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT PLACE: KOCHI DATED 14TH JULY 2010 GJ ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 19 ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 20 ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 21 ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 22 ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 23 ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 24 ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 25 ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 26 ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 27 ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 28 ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 29 ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 30 ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 31 ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 32 ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 33 . ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 34 BY ORDER (ASSISTA NT REGISTRAR) ITA.NO. 506/COCH./2009 & S.P. NO. 84/COCH/2009 35