Manubhai Jivrajbhai Balar Legal Representative of Late Shri Jivrajbhai H.Balar, Surat V. Income tax Officer Ward 3(2)(4), Surat

ITA 692/SRT/2018

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1464 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 28-07-2022
• Assessment Year: 2006-2007
• Appeal Filed On: 22-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RASESH SHAH
• Keywords: Principle of natural justice; Bonafide belief; Period of limitation; Cost of acquisition; Initiation of penalty proceedings; Condonation of delay; Set aside
• Section: 271(1)(c); 139(1); 139(4); 153C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM ITA No. 690/SRT/2018 Assessment Year: (2004-05) (Physical Court Hearing) Manubhai Jivrajbhai Balar, Legal Representative of Late Shri Jivrajbhai H. Balar, “Balar House” Near Athwa Zone Office, Opp. Jalaram Dairy, Athwalines, Surat-395001. Vs. The ITO, Ward-3(2)(4), Surat. (Appellant) (Respondent) èथायीलेखासं./जीआइआरसं./PAN/GIR No.: ABOPB8649M ITA No. 691/SRT/2018 Assessment Year: (2005-06) (Virtual Court Hearing) Manubhai Jivrajbhai Balar, Legal Representative of Late Shri Jivrajbhai H. Balar, “Balar House” Near Athwa Zone Office, Opp. Jalaram Dairy, Athwalines, Surat-395001. Vs. The ITO, Ward-3(2)(4), Surat. (Appellant) (Respondent) èथायीलेखासं./जीआइआरसं./PAN/GIR No.: ABOPB8649M ITA No. 692/SRT/2018 Assessment Year: (2006-07) (Virtual Court Hearing) Manubhai Jivrajbhai Balar, Legal Representative of Late Shri Jivrajbhai H. Balar, “Balar House” Near Athwa Zone Office, Opp. Jalaram Dairy, Athwalines, Surat-395001. Vs. The ITO, Ward-3(2)(4), Surat. (Appellant) (Respondent) èथायीलेखासं./जीआइआरसं./PAN/GIR No.: ABOPB8649M Assessee by Shri Rasesh Shah, CA Respondent by Shri Shaurya Shaswat Shukla, Sr. DR Date of Hearing 29/07/2022 Date of Pronouncement 07/10/2022 Page | 2 ITA 690 to 692/SRT/2018/AYs.2004-05 to 2006-07 Manubhai Jivrajbhai Balar आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned three appeals filed by the Assessees, pertaining to the different Assessment Years (AYs) 2004-05 to 2006-07, are directed against the common order passed by the Learned Commissioner of Income Tax (Appeals)-3, Surat [in short “the ld. CIT(A)”] dated 16.02.2015 which in turn arise out of penalty orders passed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). 2. Since, the issues involved in all the appeals are common and identical; therefore, these appeals have been clubbed and heard together and are being disposed of by this consolidated order. For the sake of convenience, the grounds as well as the facts narrated in ITA No.690/SRT/2018, for AY.2004-05, have been taken into consideration for deciding the above appeals en masse. 3. The Grounds of appeals raised by the assessee in the lead case (in ITA No.690/SRT/2018) are as follows: “1) The Commissioner of Income Tax (Appeals) erred in law and on facts in levying penalty equivalent to 100% of tax on returned income by invoking Explanation 3 to Section 271(1) without appreciating the law on the issue properly. ”2) The order of Commissioner of Income Tax (Appeals) levying the penalty by invoking Explanation 3 to section 271(1) is bad in law as no show cause notice was issued to the assessee for invoking the said Explanation, specifically, on the fact that Assessing Officer has not invoked the above Explanation in his penalty order. 3) The appellant craves leave to add, amend, alter, delete, substitute or modify any or all of the Grounds of Grounds of Appeal.” 4. At the outset, Learned Counsel for the assessee informs the Bench that all these three appeals filed by the assessee are barred by limitation by one thousand two hundred sixty six days (1266 days). The assessee moved a petition for condonation of delay and filed affidavit also. The contents of the affidavit filed by assessee are reproduced below: “I, MANUBHAI J. BALAR, legal representative of late Shri Jivrajbhai H. Balar, aged about 60 years, occupation business, residing at 4, Utkanth Apartment, Near Page | 3 ITA 690 to 692/SRT/2018/AYs.2004-05 to 2006-07 Manubhai Jivrajbhai Balar Civil Court Building, Athwalines, Surat do hereby solemnly affirm and declare on oath: (1) That the appeal papers comprising of the Assessment Order, Grounds of Appeal before the ld. CIT(Appeals), the appellate Order passed by the Hon'ble CIT (Appeals) as well as the grounds of appeal preferred before the Hon'ble ITAT by the Department in connection with the deletion of penalty u/s 271(1)(c) of the Act in Assessment Year 2004-05 in the case of late Shri Jivrajbhai H. Balar were sent to the office of Advocate Shri Manish J. Shah at Ahmedabad for assigning the appeal. (2) That while preparing the appeal it was noticed by Advocate Shri Manish J. Shah that the issue pertaining the penalty confirmed u/s 271(1)(c) read with Explanation 3 was decided against the assessee and that the same fact had inadvertently skipped the notice of the assessee as well as the advisors who were under the bonafide belief that it was an appeal which was decided in favour of the assessee and the appellant before the Hon'ble ITAT at Surat was only the Department. (3) That the above issue was brought to my notice by Advocate Shri Manish J. Shah and it was advised to file an appeal against the levy of penalty u/sec. 271(1)(c) read with Explanation 3 and pray for condonation of delay and further pray that this appeal may kindly be heard alongwith the relevant appeals preferred by the Department. (4) That is was on account of a bonafide belief on the part of the assessee that penalty u/sec. 271(1)(c) was deleted in toto by the Hon'ble CIT(Appeals) the impugned appeal was not filed earlier and that there was no malafide intention on the part of the assessee gain any undue advantage by delayed filling of the said appeal. (5) That the above stated statements are true and correct to the best of my knowledge and belief. I know that making of false affidavit is a criminal offence.” 5. Based on the contents of the affidavit, Learned Counsel submitted that assessee was not aware that penalty has been initiated against him by the Department. The assessee came to know about initiation of penalty, when he approached the advocate Shri Manish J. Shah, who has explained the assessee that under Explanation 3 of section 271(1)(c) of the Act, the penalty proceeding was initiated against the assessee by the ld. CIT(A). After getting the advice from the advocate, the assessee filed this appeal before this ITAT. The Ld. Counsel for the assessee contended that during the appellate proceedings, notice of penalty has not been issued to the assessee, that is, the penalty notice under section 271(1)(c) has not been issued to the assessee, therefore, assessee was not aware about the initiation of penalty by the CIT(A) and that is why the delay has occurred. The Ld. Page | 4 ITA 690 to 692/SRT/2018/AYs.2004-05 to 2006-07 Manubhai Jivrajbhai Balar Counsel therefore argued that it is the mistake of the ld CIT(A)/ the Revenue authorities, not to issue any notice on the assessee, therefore assessee was not informed about the initiation of penalty hence this negligence of the revenue authorities has resulted into such huge delay in filing the appeal. Such negligence of Revenue Authorities should not be put on the assessee to explain the reason for delay in filing the appeal. The ld Counsel further pointed out that had the Revenue Authorities wanted to initiate the penalty proceedings against the assessee, the Revenue Authorities would have issued the notice to the assessee on time. Thus, ld Counsel contended that to explain the reasons of such huge delay, the burden should be shifted on the Revenue Authorities and there is no burden on the assessee to explain such delay, as the Revenue Authorities did not issue notice on the assessee to initiate penalty proceedings against the assessee. 6. Learned Counsel further stated that since, the penalty notice was not issued to the assessee; therefore, assessee has not taken any step to file the appeal before the Tribunal. However, when the assessee took the advice from the advocate and the advocate advised the assessee that penalty has been initiated by the ld. CIT(A) and soon after getting the advice from the advocate, assessee has immediately filed appeal before the Tribunal. Therefore, delay in filling the appeal has occurred mainly due to non-issuance of penalty notice to the assessee by the Revenue Authorities, hence delay may be condoned. 7. On the other hand, Learned Senior Departmental Representative (Ld. Sr. DR) for the Revenue submitted that penalty was initiated by the ld. CIT(A) and although the notice was not issued to the assessee, however, the ld. CIT(A) has specially mentioned in his order vide para no. 35.1 at page no.27 of his order, that penalty under section 271(1) (c ) of the Act is initiated on the assessee, hence there is no burden on the Revenue Authorities to explain the delay. Moreover, to issue the penalty notice is just a formality, in fact the penalty was initiated by ld CIT(A) therefore the assessee ought to have filed the appeal on time. This way, ld DR submitted that such huge delay should not be condoned. 8. We have heard both the parties on this preliminary issue. Since the notice was not issued to the assessee, therefore assessee was not aware whether a penalty Page | 5 ITA 690 to 692/SRT/2018/AYs.2004-05 to 2006-07 Manubhai Jivrajbhai Balar proceeding was initiated against him or not and therefore he could not file appeal before the Tribunal on time, hence such delay should be condoned. For that reliance can be placed on the judgment of the Hon'ble Supreme Court in the case of M. K. Prasad vs P. Arumugam, Civil Appeal No.4779 of 2001, order dated 30.07.2001, wherein it was held as follows: “In construing S.5 it is relevant to bear in mind two important considerations. The first consideration is that the expiration of the period of limitation prescribed for making an appeal gives rise to a right in favour of the decree-holder to treat the decree as binding between the parties. In other words, when the period of limitation prescribed has expired the decree holder has obtained a benefit under the law of limitation to treat the decree as beyond challenge, and this legal right which has accrued to the decree-holder by lapse of time should not be light heartedly disturbed. The other consideration which cannot be ignored is that if sufficient cause for excusing delay is shown discretion is given to the court to condone delay and admit the appeal. This discretion has been deliberately conferred on the court in order that judicial power and discretion in that behalf should be exercised to advance substantial justice. As has been observed by the Madras High Court in Krishna v. Chathappan, ILR 3 Mad 269: "Section 5 gives the court a discretion which in respect of jurisdiction is to be exercised in the way in which judicial power and discretion ought to be exercised upon principles which are well understood; the words ’sufficient cause’ receiving a liberal construction so as to advance substantial justice when no negligence nor inaction nor want of bonafide is imputable to the appellant." Again in The State of West Bengal v. The Administrator, Howrah Municipality & Ors. [1972 (1) SCC 366 and G.Ramegowda, Major & Ors. v. Special Land Acquisition Officer, Bangalore [1988 (2) SCC 142 this Court observed that the expression "sufficient cause" in Section 5 of the Limitation Act must receive a liberal construction so as to advance substantial justice and generally delays be condoned in the interest of justice where gross negligence or deliberate inaction or lack of bonafide is not imputable to the party seeking condonation of delay. Law of limitation has been enacted to serve the interests of justice and not to defeat it. Again in N. Balakrishnan v. M.Krishnamurthy [1998 (7) SCC 123] this Court held that acceptability of explanation for the delay is the sole criterion and length of delay is not relevant. In the absence of anything showing malafide or deliberate delay as a dilatory tactics, the court should normally condone the delay. However, in such a case the court should also keep in mind the constant litigation expenses incurred or to be incurred by the opposite party and should compensate him accordingly. In that context the court observed: "It is axiomatic that condonation of delay is a matter of discretion of the court. Section 5 of the Limitation Act does not say that such discretion can be exercised only if the delay is within a certain limit. Length of delay is no matter, acceptability of the explanation is the only criterion. Sometimes delay of the shortest range may be uncondonable due to a want of acceptable explanation whereas in certain other cases, delay of a very long range can be condoned as the explanation thereof is satisfactory. Once the court accepts the explanation as sufficient, it is the result of positive exercise of discretion Page | 6 ITA 690 to 692/SRT/2018/AYs.2004-05 to 2006-07 Manubhai Jivrajbhai Balar and normally the superior court should not disturb such finding, much less in revisional jurisdiction, unless the exercise of discretion was on wholly untenable grounds or arbitrary or perverse. But it is a different matter when the first court refuses to condone the delay. In such cases, the superior court would be free to consider the cause shown for the delay afresh and it is open to such superior court to come to its own finding even untrammelled by the conclusion of the lower court." In the instant case, the appellant tried to explain the delay in filing the application for setting aside the ex-parte decree as is evident from his application filed under Section 5 of the Limitation Act accompanied by his own affidavit. Even though the appellant appears not to be as vigilant as he ought to have been, yet his conduct does not, on the whole, warrant to castigate him as an irresponsible litigant. He should have been more vigilant but on his failure to adopt such extra vigilance should not have been made a ground for ousting him from the litigation with respect to the property, concededly to be valuable. While deciding the application for setting aside the ex- parte decree, the court should have kept in mind the judgment impugned, the extent of the property involved and the stake of the parties. We are of the opinion that the inconvenience caused to the respondent for the delay on account of the appellant being absent from the court in this case can be compensated by awarding appropriate and exemplary costs. In the interests of justice and under the peculiar circumstances of the case we set aside the order impugned and condone the delay in filing the application for setting aside ex-parte decree. To avoid further delay, we have examined the merits of the main application and feel that sufficient grounds exist for setting aside the ex-parte decree as well. Consequently, the appeal is allowed by setting aside the orders impugned. The appellant’s application for condoning the delay and for setting aside the ex-parte decree shall stand allowed subject to payment of exemplary costs of Rs.50,000/- to be paid to the opposite side within a period of 30 days. If the costs are not paid within the time specified, this appeal shall be deemed to have been dismissed and the ex- parte decree passed against the appellant revived. We may clarify that the costs awarded by this order are in addition to the amount of Rs.10,000/- deposited in this Court for payment to the respondent vide order dated 3.11.2000.” 9. We note that reasons given in the affidavit for condonation of delay were convincing and these reasons would constitute reasonable and sufficient cause for the delay in filing these appeals. We, therefore, condone the delay in all these three appeals and admit these appeals for hearing on merit. 10. Succinct facts are during the appellate proceedings, the learned CIT(A) has initiated penalty as per Explanation 3 to Section 271(1)(c) of the Act, observing as follows: “35.1 However, no return of income in these cases were filed u/s 139(1) or 139(4) (except AY 2008-09) and the time limit u/s 153(1) had expired from AY. 2004-05 to AY.2006-07, before the notices u/s 153C were issued. Therefore, penalty equivalent to 100% of tax on returned income for AY.2004-05, 2005-06 and 2006- 07 is confirmed in view of Explanation-3 to section 271(1)(c).” Page | 7 ITA 690 to 692/SRT/2018/AYs.2004-05 to 2006-07 Manubhai Jivrajbhai Balar 11. Aggrieved by the above order of learned CIT(A), the assessee is in appeal before us. 12. Shri Rasesh Shah, Ld. Counsel for the assessee begins by pointing out that no doubt, in the appellate proceedings, ld. CIT(A) has initiated the penalty as per Explanation 3 to Section 271(1)(c) of the Act, as no return of income in these three cases were filed u/s 139(1) or 139(4) of the Act and the time limit u/s 153(1) of the Act, had also expired to file return of income for assessment years 2004-05 to AY.2006-07. However notice of penalty under section 271(1)(c) of the Act, has not been issued to these assessees till date. Therefore, assessee was not aware, as to on what account he is being penalized and what are the charges on the assessee? Therefore, penalty proceedings initiated by the ld. CIT(A) is vitiated on account of non-issuance of notice under section 271(1)(c) of the Act, and hence the penalty initiated by ld CIT(A) should be quashed. 13. On merits, Learned Counsel pleads that no penalty is leviable under section 271(1)(c) of the Act, in respect of addition made by AO on account of land premium payable, cost of acquisition, cost of improvement and cost of transfer, as there has been no suppression of material facts, in respect of these issues. To support his stand, ld Counsel relied on the Judgment of Hon`ble Supreme Court in the case of Reliance Petro Products Ltd. (reported in 322 ITR 158), wherein it was held that mere making of a claim in the return of income, does not amount to concealment. Therefore, the penalty levied in all above three assessment years may be cancelled. 14. Learned Counsel further contended that Tribunal has deleted the quantum addition, vide order dated 31.05.2022 in ITA No.150 to 154, in case of assessee (Jivrajbhai Harkhabhai Balar), therefore penalty should not survive, hence such penalty should be quashed. 15. On the other hand, Ld. DR for the Revenue submitted that since the penalty proceeding was initiated by the ld. CIT(A), as the assessee has not filed the return of income under section 139(1) or under section 139(4) of the Act. Therefore, it is concealment income on the part of assessee, as per Explanation 3 to section Page | 8 ITA 690 to 692/SRT/2018/AYs.2004-05 to 2006-07 Manubhai Jivrajbhai Balar 271(1)(c) of the Act. Therefore, ld CIT(A) was right in imposing the penalty under section 271(1)(C ) of the Act. However, ld. DR for the Revenue, has fairly agreed that during the appellate proceedings, the ld. CIT(A) has not issued notice under section 271(1)(c) of the Act to initiate the penalty. 16. We have heard both the parties and perused the material available on record. We note that no return of income has been filed by assessees in these three cases under section 139(1) or u/s section 139(4) of the Act. We also note that the time limit under section 139(1) has expired for AY.2004-05 to AY.2006-07 before the notice under section 153C was issued to the assessee by the Revenue authorities. 17. The Assessing Officer completed assessment under section 143(3)/153C on 31.12.2009. The Assessing Officer while passing assessment order initiated penalty under section 271(1)(c) of the Act. The Assessing Officer levied penalty under section 271(1)(c) vide order dated 23.12.2012 for concealing income and furnishing inaccurate particulars of income, @100% of tax sought to be evaded. On further appeal before ld. CIT(A), deleted the penalty levied by Assessing Officer holding that in respect of additions on account of premium payable, cost of acquisition, cost of improvement and cost of transfer, there has been no ‘suppression’ of material facts. The ld CIT(A) also relied on the judgment of Hon`ble Supreme Court in the case of Reliance Petro Products Ltd. (reported in 322 ITR 158) and stated that mere making of a claim does not amount to concealment. Therefore, the penalty levied in all above assessment years were cancelled in respect of additions pertaining to these items. 18. However, during the appellate proceedings, ld. CIT(A) has initiated penalty equivalent to 100% of tax on return of income for AY.2004-05, 2005-06 and 2006-07, as per Explanation 3 to section 271(1)(c) of the Act. We note that so far initiation of penalty proceedings are concerned, no doubt it is correct. However, we note that assessee has not been issued any notice under section 271(1)(c) of the Act, before imposing of penalty by ld CIT(A), therefore, assessee was not aware whether any penalty proceeding has been initiated against him or not. That is, Page | 9 ITA 690 to 692/SRT/2018/AYs.2004-05 to 2006-07 Manubhai Jivrajbhai Balar penalty under section 271(1)(c) was imposed by ld CIT(A) during the appellate proceedings, vide para no. 35.1 of the order of ld CIT(A), without issuing notice to the assessee under section 271(1)(c) of the Act. It is mandatory to issue the notice under section 271(1)(c) of the Act to the assessee and to inform the assessee by way of penalty notice that penalty has been initiated against him. Had the penalty notice been issued to the assessee, the assessee would have replied to the Revenue authority and would have filed submissions in his favour. Since no penalty notice has been issued to the assessee, therefore there is no occasion to defend the case by the assessee, hence it is against the principle of natural justice. The principle of natural justice requires that assessee should be intimated about the charges initiated against him, by way of penalty notice under section 271(1)(c) of the Act. Since, the assessee has not been informed and no notice under section 271(1)(c) of the Act, has been issued, therefore, it is violation of principle of natural justice and hence on this point alone, the penalty initiated by the ld. CIT(A) is bad in law. 19. We note that it is settled position of law, as held by the Hon'ble Bombay High Court in the case of Mohd. Farhan A. Shaikh,[2021] 125 taxmann.com 253 (Bombay) that where assessment order clearly records satisfaction for imposing penalty on one or other, or both grounds mentioned in section 271(1)(c), a mere defect in notice, not striking off irrelevant matter would vitiate penalty proceedings. Here in the assessee’s case what the talk about striking off irrelevant limb/charge in the penalty notice, the penalty notice itself was not issued to the assessee, before imposition of penalty by ld CIT(A)? Therefore, the penalty proceedings, initiated against the assessee does not have any leg to stand. 20. We note that Tribunal has deleted the quantum addition, vide order dated 31.05.2022 in ITA No.150 to 154, in case of assessee (Jivrajbhai Harkhabhai Balar). We find that once, the addition made in the assessment order is deleted by Tribunal, the satisfaction of ld. CIT(A) that the assessee has taxable income, is held be wrong. Therefore, penalty imposed on such satisfaction would not survive. Hence, penalty needs to be deleted. Therefore, we delete the penalty imposed under section 271(1)(c) of the Act. Page | 10 ITA 690 to 692/SRT/2018/AYs.2004-05 to 2006-07 Manubhai Jivrajbhai Balar 21. Since, we have adjudicated the issue by taking the lead case in ITA No. 690/SRT/2018 for AY.2004-05, and the facts and grounds of appeals raised in other appeals in ITA Nos. 691 to 692/SRT/2018 for AYs.2005-06 to 2006-07 are similar and identical, therefore, our instant adjudication are mutatis mutandis applicable to these other appeals also. 22. In the result, appeals filed by assessees are (in ITA Nos.690, 691 and 692/SRT/2018) allowed. Registry is directed to place one copy of this order in all appeals folder / case file(s). Order is pronounced in the open court on 07/10/2022 by placing the result on the Notice Board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 07/10/2022 SAMANTA Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat