Kaveri Associates V. The Assistant Commissioner of Income Tax Circle 5(1)

ITA/375/2013

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The case involves M/s. Kaveri Associates, a partnership firm engaged in construction, which did not commence any business until the end of the Assessment year 1999-00. The firm received advances for a construction project and declared 'NIL' income for that year. The Assessing Officer later assessed the income at Rs.75,50,000, which was upheld through various appeals. The core issue in this appeal was the validity of the penalty under Section 271(1)(c) of the Income Tax Act, 1961, particularly concerning the jurisdiction and the notice issued for the wrong assessment year. The High Court's decision hinged on the procedural correctness of the notice and the distinct nature of penalty and assessment proceedings.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 798985 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 31-08-2020
• Assessment Year: misc
• Other Referred Cases: PCIT VS. DECCAN MINING SYNDICATE PVT. LTD, CIT VS. SSA'S EMERALD MEADOWS, CIT VS. V.S.LAD & SONS, CIT VS. KURIAN HUSSAIN IBRAHIMJI MITHIBORWALA, CIT VS. VEERABHADRAPPA SANGAPPA & CO., CIT VS. MANJUNATHA COTTON AND GINNING FACTORY, K.NATARAJAN VS. DCIT, KRITA ENGINEERING PVT LTD VS. ACIT, SAFINA HOTELS PVT. LTD. VS. CIT, S.P.PRASAD VS. ACIT, S.CHANDRASHEKAR VS. ACIT, CIT VS. B.N.KESHAV, GAYATHRI EXPORTS VS. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: A SHANKAR; M LAVA
• Keywords: Assessment Year; Concealment of income; Income Tax; Jurisdiction; Penalty proceedings
• Section: 147; 143(3); 271(1)(c); 274; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 31ST DAY OF AUGUST 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.375 OF 2013 BETWEEN: M/S. KAVERI ASSOCIATES REP. BY ITS MANAGING PARTNER SRI. RISHABCHAND BHANSALI NO.10, T.N. SETTY LANE AVENUE ROAD CROSS BANGALORE-560002. ... APPELLANT (BY SRI. A. SHANKAR, SR. COUNSEL A/W SRI. M. LAVA, ADV.,) AND: THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 5(1), UNITY BUILDING ANNEXE 6TH FLOOR, MISSION ROAD BANGALORE-560027. ... RESPONDENT (BY SRI. K.V. ARAVIND, ADV.) - - - THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 28.03.2013 PASSED IN ITA NO.161/BANG/2012, FOR THE ASSESSMENT YEAR 1999-2000, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. 2 (I) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.161/BANG/2012 DATED 28-03-2013. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee. The subject matter of the appeal pertains to the Assessment year 1999-00. The appeal was admitted by a bench of this Court vide order dated 17.03.2014 on the following substantial questions of law: (i) Whether there is proper assumption of jurisdiction for penalty proceedings when the appellant has not been put to notice of the correct limb under Section 271(1)(c) for which the penalty has been initiated on the facts and circumstances of the case? (ii) Whether the Tribunal was justified in law in not appreciating that two 3 orders of penalty cannot be passed for one Assessment year and further whether it is permissible in law to issue notice under Section 271(1)(c) for the Assessment year 2002-03 but pass an order of penalty for the Assessment year 99-00 and consequently whether there is valid assumption of jurisdiction under Section 27(1)(c) under the facts and circumstances of the case? (iii) Whether the Tribunal was justified in law in holding that the appellant had not discharged the onus placed on him in view of Explanation 1 to Section 271(1)(c) of the Act more so when the appellant had demonstrated that the amounts have been refunded back to the creditors on the facts and circumstances of the case? (iv) Whether the Tribunal was correct in holding that mere disbelief of an 4 explanation will be sufficient to impose penalty and without independently appreciating the facts justifying imposition of penalty, consequently failed to appreciate the fact that the penalty proceedings are independent of the assessment proceedings when it is settled law that penalty proceedings are not automatic on the facts and circumstances of the case? (v) Without prejudice whether the authorities failed to appreciate that most of the advances have been repaid and evidenced by confirmation in registered sale deeds. Without further prejudice, the Tribunal failed to appreciate that eth amounts advanced by Sri.K.Ratanlal and Smt.Kanchan Kanwar are Income Tax assesses and had the capacity to advance the monies and consequently no penalty could be levied on such 5 amounts on the facts and circumstances of the case? (vi) Whether the Tribunal was justified in law in confirming the penalty under Section 271(1)(c)of the Act of Rs.26,42,500/- when the said penalty is neither legally tenable nor factually permissible in law and consequently passed a perverse order under the facts and circumstances of the case? 2. Facts leading to filing of this appeal briefly stated are that assessee is a partnership firm constituted under the deed of partnership dated 16.03.1996. The business of the firm is to construct, develop, build and sell flats, shop, residential and commercial complex, godown and office etc. The assessee did not commence any business since its inception till the end of 31.03.1999. The only activity carried on by the assessee during the year 6 was commencement of a construction of a shopping center in Arcot Srinivasachar street, Bangalore towards which advances to the tune of Rs.75,50,000/- were received by the assessee from various persons. The assessee for the Assessment year 1999-00 declared his income as ‘NIL’. By an order dated 21.03.2005, the Assessing Officer determined the income of the assessee at Rs.75,50,000/- under Section 143(3) read with Section 147 of the Act. Being aggrieved, the assessee filed an appeal before Commissioner of Income Tax (Appeals), which was dismissed by an order dated 29.09.2009. The order of the Commissioner of Income Tax (Appeals) was upheld by the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’, for short) vide order dated 29.03.2010. 7 3. The assessee thereupon approached this court by filing an appeal, which was dismissed by a bench of this court vide order dated 10.07.2012. The assessee thereupon approached the Supreme Court by filing Special Leave Petition, which was dismissed vide order dated 09.11.2012. The Assessing Officer thereafter, passed orders under Section 271(1)(c) of the Act vide order dated 28.03.2011 and 31.03.2011. The assessee being aggrieved, by the aforesaid order filed an appeal before Commissioner of Income Tax (Appeals), which was dismissed by order dated 07.12.2011. The order of the Commissioner of Income Tax (Appeals) was upheld by the Tribunal vide order dated 28.03.2013. In the aforesaid factual background, this appeal has been filed. 8 4. Learned Senior counsel for the assessee submitted that if first substantial question of law is answered in favour of the assessee, the remaining substantial questions of law have been rendered academic. It is submitted that the notice under Section 274 read with Section 271(1)(c) was issued for the Assessment year 2002-03 and not for impugned assessment year 1999-00 and therefore, the notice is per se bad in law and the order of penalty passed on the basis of the aforesaid notice is without jurisdiction. It is also pointed out that in the notice, there is no mention that the assessee has concealed the particulars of income or has furnished inaccurate particulars of income and therefore, the notice is bad in law. It is also urged that penalty proceedings and assessment proceedings are distinct and since, the assessee had not commenced the business, the assessee could 9 not have earned any income, which had not been accounted for. However, the aforesaid aspect of the matter has not been appreciated. It is also contended that most of the amounts taken as advance and added under Section 68 of the Act was refunded and consequently, the question of treating the same as concealed income for the purposes of levy of penalty is illegal. It is also submitted that the issue with regard to validity of the proceeding initiated under Section 271(1)(c) of the Act against the assessee is no longer res integra and is covered by decisions of Supreme Court in ‘PCIT VS. DECCAN MINING SYNDICATE PVT. LTD’, 262 TAXMAN 305 (SC), ‘CIT VS. SSA’S EMERALD MEADOWS’, 242 TAXMAN 180 (SC), ‘CIT VS. V.S.LAD & SONS’, SLP (CIVIL) CC 1129/2014 DT.03.03.2014 (SC), ‘CIT VS. KURIAN HUSSAIN IBRAHIMJI MITHIBORWALA’, 82 ITR 10 821 (SC) and ‘CIT VS. VEERABHADRAPPA SANGAPPA & CO.,’, SLP(C)NO.13898/2014 DATED 11.07.2016 (SC) and decisions of this court in ‘CIT VS. MANJUNATHA COTTON AND GINNING FACTORY’, 359 ITR 565 (KAR), ‘K.NATARAJAN VS. DCIT IN ITA 176-181/2009 DT. 17.11.2014 (KAR), ‘KRITA ENGINEERING PVT LTD VS. ACIT IN ITA 225/2011 DT. 19.12.2018 (KAR). ‘SAFINA HOTELS PVT. LTD. VS. CIT 237 TAXMAN 702 (KAR), ‘S.P.PRASAD VS. ACIT IN ITA 170-175/2010 DT. 20.11.2018 (KAR), ‘S.CHANDRASHEKAR VS. ACIT’, 396 ITR 538 (KAR), ‘CIT VS. B.N.KESHAV IN ITA 21/2003 DATED 03.04.2008 (KAR), and ‘GAYATHRI EXPORTS VS. ACIT IN ITA 640/2015 DATED 24.04.2018 (KAR). 11 5. On the other hand, learned counsel for revenue has supported the order passed by the authorities. It is however fairly submitted that in case, first substantial question of law is answered in favour of the assessee, the remaining substantial questions of law are rendered academic. 6. We have considered the submissions made by learned counsel on both the sides and have perused the record. It is pertinent to note that the assesssee since, its inception till the end of previous year i.e., 31.03.1999 did not commence any business. The notice under Section 274 read with Section 271(1)(c) was issued for Assessment year 2002-03 and not for the Assessment year in question that is 1999-00. Besides this, it is noteworthy that there was no mention in the notice that the assessee has concealed the income or 12 furnished inaccurate particulars of income. The authorities have failed to appreciate that the penalty proceeding and the assessment proceeding are distinct and since, the assessee had not commenced the business, therefore, it could not have earned income, which had not been accounted for. The Tribunal has failed to take into account the well settled legal principles that mere disbelief of an explanation will not be sufficient to impose penalty. For the aforementioned reasons and in view of well settled legal principles referred to by learned Senior counsel for the assessee, the first substantial question of law is answered in the negative and in favour of the assessee. In view of our answer to the first substantial question of law, the remaining substantial questions of law have remained academic and therefore, it not necessary to answer the same. 13 7. In view of preceding analysis, the order dated 28.03.2013 passed by the Income Tax Appellate Tribunal to the extent it is against the assessee as well as the order passed by the Assessing Officer dated 28.03.2011 and 31.03.2011 and order of Commissioner of Income Tax (Appeals) dated 07.12.2011 are hereby quashed. In the result, the appeal is disposed of. Sd/- JUDGE Sd/- JUDGE ss "