Abhilash Synergetic Constructiuons & Eports Pvt. Ltd., Visakhapatnam V. THE ACIT, CIRCLE - 3(1), Visakhapatnam

ITA 718/VIZ/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80154 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 16-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Assessee Lawyers: C SUBRAMANYAM
• Keywords: Question of law; Initiation of penalty proceedings; Reasonable cause; Reason to believe
• Section: 143(3); 147; 263; 63; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH , VISAKHAPATNAM BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 718/VIZ/2013 ASSESSMENT YEAR : 2007-08 ABHILESH SYNERGETIC CONSTRUCTIONS & EXPORTS PVT. LTD., VISAKHAPATNAM PAN AAFCA9530M ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 3(1), VISAKHAPATNAM (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI C. SUBRAMANYAM REVENUE BY SHRI K.V.N. CHARYA DATE OF HEARING 01-07-2014 DATE OF PRONOUNCEMENT 01-07-2014 O R D E R PER J. SUDHAKAR REDDY, A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT-I, VISAKHAPATNAM, DATED 31/10/2013 PASSED U/S 2 63 OF THE I.T. ACT, 1961, FOR THE ASSESSMENT YEAR 2007-08. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS A PR IVATE LIMITED COMPANY AND IS IN THE BUSINESS OF CONSTRUCTION OF FLATS. IT FILED ITS RETURN OF INCOME U/S 139(1) OF THE ACT ON 30 TH OCTOBER, 2007 ADMITTING INCOME OF RS. 23,61,460/- AND CLAIMED DEDUCTION OF ITS ENTIRE U/ S 80IB(10) OF THE ACT. THE AO PASSED AN ORDER U/S 143(3) READ WITH SECTION 147 ON 25/03/13 DETERMINING THE TOTAL INCOME AT RS. 23,61,460/-. 3. THEREAFTER, THE CIT-I, VISAKHAPATNAM ISSUED A SH OW CAUSE NOTICE DATED 21/10/2013 AND INITIATED PROCEEDINGS U/S 263 OF THE ACT. THE CIT-I, VISAKHAPATNAM PROPOSED TO REVISE THE ORDER OF THE A O PASSED U/S 143(3) READ WITH SECTION 147 DATED 25/03/13 ON THE GROUND THAT THE AO OMITTED TO 2 ITA NO. 718/VIZ/2013 ABHILASH SYNERGETIC CONSTRUCTIONS & EXPORTS PVT. LT D. INITIATE CONCEALMENT PENALTY PROCEEDINGS U/S 27(1)( C) OF THE ACT IN THE ABOVE REFERRED ASSESSMENT ORDER AND SUCH NON-INITIA TION OF PENALTY PROCEEDINGS FOR CONCEALMENT U/S 271(1)(C) HAS RENDE RED THE SAID ASSESSMENT ORDER ERRONEOUS AND HAS EFFECT OF SERIOU SLY PREJUDICING INTERESTS OF THE REVENUE. THE CIT-I, VISAKHAPATNAM NOTED IN HIS ORDER THAT THE LEGAL ISSUE WHETHER NON-INITIATION OF PENALTY P ROCEEDINGS U/S 271(1)(C) FOR CONCEALMENT OF INCOME RESULTS IN THE ASSESSMENT ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE OR NOT HAS BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE BY THE VARIOU S HIGH COURTS IN THE FOLLOWING CASES, ON WHICH RELIANCE PLACED BY THE AS SESSEE: I) ADDL. CIT VS. J.K.D COSTA [1982] 133 ITR 73 (D EL.) II) CIT VS. KESHRIMAL PARASMAL [1986] 157 ITR 484 (RAJ) III) SURENDRA PRASAD SINGH VS. CIT [988] 173 ITR 5 10 (GAU.) IV) CIT VS. LINOTYPE & MACHINERY LTD. [1991] 192 I TR 337 (CAL.) V) CIT VS. C.R.K. SWAMI (2002) 254 ITR 158 (MAD.) FURTHER, THE CIT NOTED THAT THE ALLAHABAD HIGH COUR T IN THE CASE OF CIT VS. SURENDRA PRASAD AGARWAL, (2005) 275 ITR 113 AFT ER CONSIDERING THE DIVERGENT VIEWS OF VARIOUS HIGH COURTS, TOOK A VIEW IN FAVOUR OF THE REVENUE. THE CIT-I, VSAKHAPATNAM ALSO NOTED THAT IT AT, VIZAG BENCH HAS TAKEN A VIEW IN FAVOUR OF THE ASSESSEE IN THE C ASE OF AMBICA CHEMICAL PRODUCTS, 86 ITD 1 BY HOLDING THAT TO INIT IATE OR NOT TO INITIATE PENALTY PROCEEDINGS IS A JUDICIAL DISCRETION TO BE EXERCISED BY THE AO AFTER APPLYING HIS MIND. AFTER NOTING THE CONFLICTING JUD ICIAL OPINION, THE CIT-I, VISAKHAPATNAM PREFERRED TO FOLLOW THE DECISIONS IN THE CASE OF SURENDRA PRASAD AGARWAL (SUPRA), ADDL. CIT VS. SARAIYA DISTI LLERY, [1978] 115 ITR 34 AND INDIAN PHARMACEUTICALS [1980] 123 ITR 874 ON THE GROUND THAT THESE DECISIONS ARE BASED ON TWO OF THE JUDGMENTS O F THE HONBLE SUPREME COURT AND DECIDED THE ISSUE IN FAVOUR OF TH E REVENUE. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 3 ITA NO. 718/VIZ/2013 ABHILASH SYNERGETIC CONSTRUCTIONS & EXPORTS PVT. LT D. 1.0 THE ORDER PASSED BY THE CIT U/S 263 OF THE IT A CT, DATED `31/10/2013 IS AGAINST THE PROVISIONS OF LAW AND FA CTS AND EVIDENCE ON RECORD. 1.1 THE LEARNED CIT ERRED IN OBSERVING THAT NON-INI TIATION OF PENALTY PROCEEDINGS BY THE AO IN THE ORDER PASSED U/S 143(3 ) WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENU E, THIS WAY WRONGLY ASSUMED JURISDICTION U/S 263 OF THE IT ACT. 1.2 THE LEARNED CIT WAS NOT JUSTIFIED IN NOT FOLLOW ING THE JUDICIAL DECISIONS CITED FOR THE PROPOSITION THAT THE ADMINI STRATIVE COMMISSIONER WOULD NOT GET JURISDICTION U/S 263 OF THE IT ACT IN DIRECTING THE AO TO INITIATE PENALTY PROCEEDINGS U/ S 271(1)(C) OF THE ACT. 1.3 FOR THE ABOVE AND ANY OTHER GROUND OR GROUNDS O F APPEAL THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED T HAT THE ORDER PASSED BY THE LEARNED CIT U/S 263 MAY BE TREATED AS NOT VALID IN THE EYE OF LAW AND PASS SUCH OTHER ORDER AS THE HONBLE ITAT MAY DEEM FIT AND PROPER ON THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE. 5. WE HAVE HEARD SHRI C. SUBRAMANYAM, LEARNED COUNS EL FOR THE ASSESSEE AND SHRI K.V.N. CHARYA, LEARNED DR, ON BEH ALF OF THE REVENUE. ON CAREFUL CONSIDERATION OF THE FACTS OF THE CASE A ND ON PERUSAL OF THE RECORD AND THE ORDERS OF THE REVENUE AUTHORITIES A S WELL AS THE CASES CITED, WE ARE OF THE CONSIDERED OPINION THAT THE DE CISIONS OF THE HONBLE DELHI HIGH COURT, RAJASTHAN HIGH COURT, GAUHATI HIG H COURT, CALCUTTA HIGH COURT AND MADRAS HIGH COURT REFERRED TO ABOVE HAVE TO BE FOLLOWED FOR THE REASON THAT NON-INITIATION OF PENALTY PROCE EDINGS OF CONCEALMENT IN AN ASSESSMENT ORDER, IN OUR CONSIDERED VIEW, DOES N OT RENDER THE ASSESSMENT ORDER ERRONEOUS. 5.1 IN THE CASE OF ADDL. CIT VS. J.K.D. COSTA (SUPR A), THE HONBLE DELHI HIGH COURT HELD AS UNDER: IT IS WELL ESTABLISHED THAT PROCEEDINGS FOR THE LEV Y OF A PENALTY WHETHER UNDER S. 271(1)(A) OR UNDER S. 273(B) ARE P ROCEEDINGS INDEPENDENT OF AND SEPARATE FROM THE ASSESSMENT PRO CEEDINGS. THOUGH THE EXPRESSION ASSESSMENT IS USED IN THE ACT WITH DIFFERENT MEANINGS IN DIFFERENT CONTEXTS, SO FAR AS S. 263 IS CONCERNED, IT REFERS TO A PARTICULAR PROCEEDINGS THAT BEING CONSI DERED BY THE CIT AND IT IS NOT POSSIBLE, WHEN THE CIT IS DEALING WIT H THE ASSESSMENT PROCEEDINGS AND THE ASSESSMENT ORDER, TO EXPAND THE SCOPE OF 4 ITA NO. 718/VIZ/2013 ABHILASH SYNERGETIC CONSTRUCTIONS & EXPORTS PVT. LT D. THESE PROCEEDINGS AND TO VIEW THE PENALTY PROCEEDIN GS ALSO AS PART OF THE PROCEEDINGS WHICH ARE BEING SOUGHT TO BE REV ISED BY THE CIT. THERE IS NO IDENTITY BETWEEN THE ASSESSMENT PROCEED INGS AND THE PENALTY PROCEEDINGS; THE LATTER ARE SEPARATE PROCEE DINGS, THAT MAY IN SOME CASES, FOLLOW AS A CONSEQUENCE OF THE ASSES SMENT PROCEEDINGS. ALL THAT THE LAW REQUIRES, SO FAR AS T HE PENALTY PROCEEDINGS ARE CONCERNED, IS THAT THEY SHOULD BE I NITIATED IN THE COURSE OF THE PROCEEDINGS FOR ASSESSMENT. IT IS SUF FICIENT IF THERE IS SOME RECORD SOMEWHERE, EVEN APART FROM THE ASSESSME NT ORDER ITSELF, WHERE THE ITO HAS RECORDED HIS SATISFACTION THAT THE ASSESSEE IS GUILTY OF CONCEALMENT OR OTHER DEFAULT FOR WHICH PENALTY ACTION IS CALLED FOR. INDEED IN CERTAIN CASES IT IS POSSIBLE FOR THE ITO TO ISSUE A PENALTY NOTICE OR INITIATE PENALTY PROCEEDINGS EV EN LONG BEFORE THE ASSESSMENT IS COMPLETED THOUGH THE ACTUAL PENALTY O RDER CANNOT BE PASSED UNTIL THE ASSESSMENT IS FINALISED. THEREFORE , THE PENALTY PROCEEDING DO NOT FORM PART OF THE ASSESSMENT PROCE EDINGS AND THE FAILURE OF THE ITO TO RECORD IN THE ASSESSMENT ORDE R HIS SATISFACTION OR THE LACK OF IT IN REGARD TO THE LEVIABILITY OF P ENALTY CANNOT BE SAID TO BE A FACTOR VITIATING THE ASSESSMENT ORDER IN AN Y RESPECT. AN ASSESSMENT CANNOT BE SAID TO BE ERRONEOUS OR PREJUD ICIAL TO THE INTEREST OF THE REVENUE BECAUSE OF THE FAILURE OF T HE ITO TO RECORD HIS OPINION ABOUT THE LEVIABILITY OF PENALTY IN THE CASE. THE MERE FACT THAT THERE IS SOME MINOR OMISSION OR MISTAKE IN THE ASSESSMENT ORDER CANNOT JUSTIFY THE ACTION OF THE CIT IN SETTI NG ASIDE THE WHOLE OF THE ASSESSMENT ORDER. SUCH A WHOLESALE CANCELLAT ION OF THE ASSESSMENT WITH A DIRECTION TO MAKE A FRESH ASSESSM ENT IS CALLED FOR ONLY IN CASE WHERE THERE IS SOMETHING TOTALLY O R BASICALLY WRONG WITH THE ASSESSMENT WHICH IS NOT CAPABLE OF BEING R EMEDIED BY AMENDMENTS TO THE ASSESSMENT ORDER ITSELF. IN THE P RESENT CASE HAVING COME TO THE CONCLUSION THAT THERE WAS A DEFE CT IN THE ASSESSMENT ORDER IN SO FAR AS THE QUESTION OF LEVY OF INTEREST WAS NOT CONSIDERED BY THE ITO, ALL THAT THE CIT HAD TO DO WAS TO DIRECT THE ITO TO CONSIDER THE QUESTION ON MERITS AND IN A CCORDANCE WITH LAW AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEI NG HEARD. IT WAS NOT FURTHER NECESSARY FOR HIM, NOR DID THE CIRCUMST ANCES OF THE CASE JUSTIFY, THAT THE WHOLE ASSESSMENT SHOULD BE SET AS IDE. SETTING ASIDE OF ASSESSMENT WHOLESALE WILL HAVE FAR REACHING CONS EQUENCES AND THE JURISDICTION UNDER S. 263 SHOULD NOT BE EXTENDE D SO TO RESULT IN SUCH FAR REACHING CONSEQUENCES EXCEPT WHERE THE CIR CUMSTANCES CALL FOR SUCH A REMEDIAL ACTION. 5.2 IN THE CASE OF CIT VS. KESHRIMAL PARASMAL (SUPR A), THE HONBLE RAJASTHAN HIGH COURT HELD AS UNDER 8. THUS, THE POSITION BOILS DOWN TO THIS THAT THE VIEW TAKEN IN J. K. D'COSTA'S CASE (SUPRA) HAS BEEN CONFIRMED BY THE SU PREME COURT AND ACCORDING TO THIS CASE, THE CIT IS NOT ENTITLED TO SET ASIDE THE ASSESSMENT ORDER PASSED BY THE ITO ON THE GROUND TH AT THERE WAS 5 ITA NO. 718/VIZ/2013 ABHILASH SYNERGETIC CONSTRUCTIONS & EXPORTS PVT. LT D. NO MENTION OF INITIATION OF PENALTY PROCEEDINGS IN THE ASSESSMENT ORDER AND THE CIT IN THE PROCEEDINGS UNDER S. 263 O F THE ACT CANNOT DIRECT THE ITO TO MAKE FRESH ASSESSMENT TO INITIATE PENALTY PROCEEDINGS. AS THE POSITION STANDS CONCLUDED AND S ETTLED BY THE SUPREME COURT, THE QUESTION WHICH IS NOW SOUGHT TO BE REFERRED BY THE CIT CANNOT BE SAID TO BE A SUBSTANTIAL QUESTION OF LAW ARISING OUT OF THE TRIBUNAL'S ORDER. IT IS ONLY A QUESTION OF ACADEMIC NATURE. 5.3 IN THE CASE OF SURENDRA PRASAD SINGH (SUPRA), T HE HONBLE GAUHATI HIGH COURT HELD AS UNDER: THE ORDER OF THE ADDL. CIT SHOWS THE ITO HAS NOT IN ITIATED PENALTY PROCEEDINGS UNDER S. 273, THEREFORE, ASSESSMENTS AR E HELD VITIATED. TO PASS ORDER IN SUCH TERMS MAY IN A GIVEN CASE BE ABUSE OF POWER OF THE PARLANCE OF ADMINISTRATIVE LAW A COLOURABLE EXERCISE OF POWER. SUCH AN UNDERQUALIFIED DIRECTION TO THE ITO TO INIT IATE PROCEEDING TO LEVY PENALTY CANNOT BE JUSTIFIED. THE ADDL. CIT WAS NOT JUSTIFIED IN SETTING ASIDE THE ASSESSMENT ORDER. ADDL. CIT VS. J.K. D' COSTA (1981) 25 CTR (DEL) 224 : (1982) 133 ITR 7 (DEL) : TC57R.244 FOLLOWED. CONCLUSION DIRECTION TO LEVY PENALTY UNDER SS. 271(1) AND 273 CANNOT BE GIVEN BY CIT IN REVISION UNDER S. 263. 5.4 IN THE CASE OF CIT VS. LINOTYPE & MACHINERY LTD , (SUPRA), THE HONBLE CALCUTTA HIGH COURT HELD AS UNDER: PENALTY PROCEEDINGS DO NOT FORM PART OF ASSESSMENT PROCEEDINGS. RECORDING BY THE ITO OF SATISFACTION OR DIRECTION T O ISSUE A NOTICE UNDER S. 273 FOR DEFAULT COMMITTED UNDER S. 273(A) FOR FAILURE TO FILE AN ESTIMATE OF ADVANCE TAX AND PAY THE TAX IS NOT A N INTEGRAL PART OF THE ASSESSMENT ORDER SO THAT FAILURE TO DO SO WOULD RENDER IT IPSO FACTO ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF THE REVENUE. IN THE CONTEXT OF S. 263, THE EXPRESSION 'ASSESSMENT' REFE RS TO THE PARTICULAR 'PROCEEDING' WHICH IS TO BE CONSIDERED. THE COMMISSIONER, IN DEALING WITH ASSESSMENT PROCEEDING S AND THE ASSESSMENT ORDER, CANNOT EXPAND HIS POWERS TO DEAL WITH PENALTY PROCEEDINGS WHEN THEY ARE NOT BEFORE HIM. IN THE AS SESSMENT ORDER, THE ITO DID NOT RECORD THAT THE PENALTY PROCEEDINGS HAD BEEN INITIATED. HE MAY INITIATE PATENTLY PROCEEDINGS BY RECORDING A DIRECTION TO THAT EFFECT IN THE ORDER SHEET, BUT NO PENALTY CAN BE IMPOSED AS A MATTER OF COURSE. THE ITO MUST BE SATI SFIED AS TO WHETHER THE FACTS WARRANT INITIATION OF PENALTY PRO CEEDINGS AND, IF SO, WHETHER ANY PENALTY SHOULD BE IMPOSED. HE HAS A DIS CRETION AS TO WHETHER PENALTY SHOULD BE IMPOSED OR NOT. HE MAY LE VY PENALTY AFTER 6 ITA NO. 718/VIZ/2013 ABHILASH SYNERGETIC CONSTRUCTIONS & EXPORTS PVT. LT D. BEING SATISFIED THAT THE CASE ATTRACTS THE PROVISIO NS FOR PENALTY. FOR FAILURE OF THE ITO TO RECORD IN THE ASSESSMENT ORDE R HIS SATISFACTION OR THE LACK OF IT, THE ASSESSMENT ORDER CANNOT BE S AID TO BE ERRONEOUS OR PREJUDICIAL TO THE INTERESTS OF THE RE VENUE. THE ITO MUST RECORD HIS OPINION ABOUT THE LEVIABILITY OF TH E PENALTY ON THE FACTS OF THE CASE. THE ITO HAS TO BE SATISFIED THAT THE ASSESSEE HAD FURNISHED A STATEMENT OF ADVANCE TAX PAYABLE BY HIM WHICH HE KNEW OR HAD REASON TO BELIEVE TO BE UNTRUE. IT WAS FOR T HE ITO TO FIND OUT WHETHER THERE WAS ANY REASONABLE CAUSE PREVENTING T HE ASSESSEE FROM FILING THE REVISED ESTIMATE UNDER S. 212(2). I T CANNOT BE PRESUMED IN THE ABSENCE OF ANY RECORDING BY THE ITO THAT THE ASSESSEE DID NOT FURNISH ANY EXPLANATION TO THE SAT ISFACTION OF THE ITO. THEREFORE ON THE FACTS OF THIS CASE, IT MUST B E HELD THAT THE CIT CANNOT INVOKE HIS POWER UNDER S. 263 ON THE GROUND THAT THE ORDER PASSED BY THE ITO IS ERRONEOUS, IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. CONCLUSION CIT HAS NO POWER TO INVOKE S. 263 FOR ITOS FAILURE TO TAKE ACTION UNDER S. 273(A). 5.5 IN THE CASE OF CIT VS. C.R.K. SWAMI (SUPRA), TH E HONBLE MADRAS HIGH COURT HELD AS UNDER: ORDER OF THE TRIBUNAL HOLDING THAT THE ADDITION TO INCOME WAS NOT JUSTIFIED, HAVING BECOME FINAL, REVISION OF ASSESSE E UNDER S. 263 BY THE CIT ON THE GROUND THAT PENALTY PROCEEDINGS HAD NOT BEEN INITIATED WAS UNSUSTAINABLE; FAILURE ON THE PART OF THE ASSESSING AUTHORITY TO INITIATE PENALTY PROCEEDINGS WOULD NOT GIVE JURISDICTION TO THE CIT TO PASS AN ORDER UNDER S. 263. 5.6 THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF SURENDRA PRASAD AGARWAL (SUPRA) HAS TAKEN A CONTRARY VIEW. THERE IS NO JUDGMENT OF THE JURISDICTIONAL HIGH COURT ON THIS ISSUE. WE FIND TH AT THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. J.K .D. COSTA (SUPRA) HAS BEEN CONFIRMED BY THE HONBLE SUPREME COURT. THIS I S CLEAR FROM THE OBSERVATIONS OF THE JUDGMENT OF THE HONBLE RAJASTH AN HIGH COURT IN THE CASE OF KESHRIMAL AND PARASMAL (SUPRA). IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT, WE HAVE NO OTHER ALTERNATIVE , BUT, TO UPHOLD THE CONTENTION OF THE ASSESSEE. 7 ITA NO. 718/VIZ/2013 ABHILASH SYNERGETIC CONSTRUCTIONS & EXPORTS PVT. LT D. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 02/07/2014. SD/- SD/- (SAKTIJIT DEY) (J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 2 ND JULY, 2014 KV COPY TO:- 1) ABHILASH SYNERGETIC CONSTRUTIONS & EXPORTS PVT. LTD., 47-3-7, ROSHINI PALANCE, 5 TH LANE, DWARAKANAGAR, VISAKHAPATNAM. 2) ITO, WARD 1(2), VIJAYAWADA.ACIT, CIRCLE 3(1), VISAKHAPATNAM. 3) CIT I, VIJAYAWADA 4) ADDL. CIT, RANGE 3, VISAKHAPATNAM 5)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T.,