RAMGOPAL OCHHAVLAL MAHESHWARI V. THE DEPUTY COMMISSIONER OF INCOME TAX

TAXAP/1258/2018

AI Insights

The case involves Ramgopal Ochhavlal Maheshwari, the appellant, who challenged the penalty of Rs.30,00,000 imposed by the Deputy Commissioner of Income Tax under Section 271AAB of the Income Tax Act, 1961. The penalty was levied following a search operation under Section 132 of the Act, which revealed undisclosed income. The appellant contested the penalty at various levels, including the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, both of which upheld the penalty. The High Court's decision focused on the procedural correctness of the penalty imposition and the substantive compliance with legal requirements, ultimately dismissing the appeal.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 683615 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 16-07-2019
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: VAIBHAVI PARIKH
• Keywords: Assessment Year 2013-14; Income tax appellate tribunal; Penalty; Search and seizure; Tax appeal; Undisclosed income
• Section: 143(3); 142(1); 143(2); 132; 274; 14A; 260A; 271AAB; 8D; 271AAA

Judgement Text

"C/TAXAP/1258/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1258 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA Sd/- and HONOURABLE MR.JUSTICE A.C. RAO Sd/- ============================================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2 To be referred to the Reporter or not ? NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? NO ============================================================================== RAMGOPAL OCHHAVLAL MAHESHWARI Versus THE DEPUTY COMMISSIONER OF INCOME TAX ============================================================================== Appearance: MS VAIBHAVI K PARIKH for the Appellant(s) No. 1 MRS MAUNA M BHATT for the Opponent(s) No. 1 ============================================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO Date : 16/07/2019 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. This Tax Appeal under Section 260A of the Income Tax Act, 1961, is at the instance of an assessee and is directed against Page 1 of 15 C/TAXAP/1258/2018 JUDGMENT the order passed by the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot, dated 13th December 2017 in the ITA No.362/RJT/2016 for the Assessment Year 2013-14. 2. The assessee has proposed the following substantial question of law for the consideration of this Court : “Whether in the facts and circumstances of the case, the order passed by the Income Tax Appellate Tribunal is perverse inasmuch as it confirms the penalty of Rs.30,00,000/- under Section 271AAB of the Act which was levied without issue of notice under Section 274 read with Section 271AAB of the Act ?” 3. It appears from the materials on record that the search under Section 132 of the Act was carried out at the premises of the appellant on 23rd August 2012. The case was selected for scrutiny and notice under Section 142(1) of the Act was issued dated 9th May 2013. In response to the notice, the return of income showing the total income of Rs.3,86,51,830=00 was filed by the appellant on 26th February 2014. The notice under Section 143(2) of the Act was issued dated 21st April 2014. A detailed questionnaire was issued on 24th June 2014 along with notice under Section 142(1) of the Act. The assessment proceedings were completed and a disallowance of Rs.3,99,492=00 was made under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. The Assessing Officer initiated proceedings under Section 271AAA of the Act on the premises that the disclosure was made during the course of the search. In the course of the search carried out on 23rd August 2012, a stock of 99,779 kgs. belonging to the proprietary Page 2 of 15 C/TAXAP/1258/2018 JUDGMENT concern of the appellant was recovered and the same was declared as income at the rate of Rs.300=00 per kg. amounting to Rs.2,99,33,955=00 against which the appellant had made a disclosure of Rs.3,00,00,000=00. The notice under Section 274 read with Section 271AAA of the Act was issued on 13th February 2015, calling upon the appellant to show-cause why penalty should not be levied under Section 271AAA of the Act. Later, a corrigendum to the order under Section 143(3) of the Act was issued on 3rd July 2015, by which the section under which the penalty proceedings were initiated in the order under Section 143(3) of the Act was to be read as Section 271AAB instead of Section 271AAA of the Act. The corrigendum further stated that the penalty notice under Section 274 of the Act stood modified to that extent. The Assessing Officer recorded his satisfaction that the case of the appellant fell under Section 271AAB(1) of the Act and consequently, levied a penalty of Rs.30,00,000=00 at 10% of the undisclosed income. 4. Being aggrieved by the order passed by the Assessing Officer, the appellant preferred an appeal before the Commissioner of Income Tax (Appeals). The appeal preferred by the appellant came to be dismissed by the CIT(A), thereby affirming the order passed by the Assessing Officer. 5. Being aggrieved by the order passed by the CIT(A), the appellant preferred an appeal before the Income Tax Appellate Tribunal. The Tribunal also dismissed the appeal and thereby affirmed the order passed by the CIT(A). 6. In such circumstances referred to above, the appellant is here before this Court with the present Tax Appeal. Page 3 of 15 C/TAXAP/1258/2018 JUDGMENT 7. We take notice of the order passed by a coordinate bench dated 15th October 2018, which reads as follows : “1. Appellant-assessee has challenged the judgement of the Income Tax Appellate Tribunal confirming the penalty imposed by the Assessing Officer under section 271AAB of the Income Tax Act, 1961. Two grounds are raised before us. Firstly, that the Tribunal proceeded on wrong factual assertion that notice under section 271AAB was issued by the Assessing Officer though after the assessment was completed. Counsel for the appellant pointed out that the Assessing Officer had initially issued notice under section 271AAA of the Act along with order of assessment but, later on, issued a corrigendum providing that reference to the section would be read as 271AAB instead of 271AAA. In fact, no separate notice under section 271AAB was ever issued. Second contention of the counsel was that, in any case, sanction, for initiation of penalty proceedings as required under the law, was not obtained. 2. In our opinion, the first contention of the appellant cannot be accepted. Even if the Tribunal has provided on the wrong basis assuming incorrectly that a separate notice under section 271AAB was issued, the petitioner cannot argue, in facts of the present case, that the entire proceedings were vitiated. This is so for the reason that admittedly the Assessing Officer, after having initially issued notice under section 271AAA, shortly issued corrigendum correcting the reference to the statutory provision as 271AAB. This was thus a case of pure correction of typographical error. The petitioner cannot argue that no valid notice under the law Page 4 of 15 C/TAXAP/1258/2018 JUDGMENT was issued. Concededly such correction also took-place long before the penalty proceedings proceeded further and culminated into the order of penalty imposed by the Assessing Officer after giving full opportunity of defending to the assessee. 3. We are however inclined to examine the assessee's second contention regarding prior sanction. In this respect also, our inquiry would be whether initial notice though erroneously titled as one under section 271AAA of the Act was proceeded by sanction. 4. Notice for final disposal returnable on 26.11.2018. ” 8. Thus, in the order dated 15th October 2018 referred to above, it has been made explicitly clear that the inquiry was confined only as regards the question, whether the initial notice titled as one under Section 271AAA of the Act was proceeded by sanction or not ? 9. The grounds of challenge as raised in the memo of this Appeal are as under : “(a) The Income Tax Appellate Tribunal has factually erred in holding that a show cause notice dated 03.07.2015 was issued to the appellant under Section 274 read with Section 271AAB of the Act. No such notice was issued. (b) The Income Tax Appellate Tribunal found from the paper-book submitted by the appellant that at least one notice dated 03.07.2015 under Section 274 read with Section 271AAB was issued. However, in the index of the Page 5 of 15 C/TAXAP/1258/2018 JUDGMENT paper-book submitted by the appellant, the one-page document dated 03.07.2015 is titled “Copy of notice (corrigendum) received on 03/07/2015.” Hence, this is referring to the corrigendum issued under Section 143(3) of the Act alone. (c) It is also evident from the Corrigendum issued under Section 143(3) of the Act itself that the Assessing Officer did not intend to issue a fresh show cause notice under Section 274 of the Act. The Corrigendum simply mentions that “Accordingly, the penalty notice u/s.274 dated 13.02.2015 also stands modified.” (d) There is no mention of notice dated 03.07.2015 under Section 274 read with Section 271AAB of the Act even in the penalty order dated 16.07.2015 or in the order of the CIT(A) dated 21.07.2016. If such notice were issued, the penalty order would surely have mentioned it. The very first mention of such a notice is in the order of the Income Tax Appellate Tribunal itself. This further cements the fact that no such notice was issued.” 10. The further grounds of challenge are that the order of the Income Tax Appellate Tribunal is perverse inasmuch as it : (a) Confirms the levy of penalty under Section 271AAB of the Act on a factually erroneous basis, i.e., that a show cause notice was issued to the appellant under Section 274 read with Section 271AAB of the Act. The Income Tax Appellate Tribunal mentioned at numerous instances in its order that a fresh notice was issued under Section 271AAB Page 6 of 15 C/TAXAP/1258/2018 JUDGMENT of the Act which demonstrates that issue of fresh notice was a crucial factor in its decision. (b) Erroneously notes that the essential difference between Section 271AAA and Section 271AAB of the Act is a paradigm shift in quantification of penalty. In doing so, the Income Tax Appellate Tribunal fails to appreciate that both the provisions are materially different, not just with respect to quantification. This is further supported by the fact that Section 271AAB of the Act was inserted by an amendment. With such a marked difference between the two provisions, it is inconceivable that penalty be imposed without adequate notice and following due process of law. (c) Holds the reference to an obliterated provision to be a mere technical defect. It is submitted that mentioning the wrong provision in the show cause notice is a violation of principles of natural justice as is denies the appellant its right to a hearing and cannot be held to be a mere technical defect. (d) Errs in holding that reference to Section 271AAA of the Act instead of Section 271AAB of the Act is a curable defect under Section 292B of the Act.” 11. The Tribunal, in its impugned order, observed as under : “11. As can be seen, both erstwhile section 271AAA as well as newly inserted s.271AAB concern penalty proceedings where search has been initiated on or after specified date and certain undisclosed income pertains to 'specified Page 7 of 15 C/TAXAP/1258/2018 JUDGMENT previous year' is detected in distinction to normal provisions concerning penalty. Penalties either under s.271AAA or s.271AAB are leviable in respect of undisclosed income pertaining to specified previous year regardless of the fact that the return was filed subsequently which duly included the impugned undisclosed income. We also notice that the circumstances for initiation of penalty proceedings both under s.271AAA and s.271AAB are broadly similar. The circumstances that holds the key to invoke either s.271AAA or s.271AAB is identical namely ‘existence of undisclosed income attributable to ‘specified previous year’. The essential difference between the two lies in paradigm shift in quantification of penalty. 12. Significantly, the circumstance for imposition of penalty is not in challenge. The circumstance namely existence of undisclosed income and pertaining to ‘specified previous year’ is conceded and also included in the return of income. Thus, the pre-requisite for application of both s.271AAA & s.271AAB are equally met. The search in the instant case was initiated on 23/08/2012 when penalty provision under s.271AAA was brought to naught (w.e.f. 01/07/2012) and replaced by a new section 271AAB. Thus, section 271AAB alone was in vogue at the relevant time of initiation of search. As a corollary, the penalty proceedings could not have been initiated by the AO with the aid of a non-existent section 271AAA of the Act at the relevant time. While the applicability of both s.271AAA as well as 271AAB is founded on identical circumstance, the quantification of penalty could be done only with reference of s.271AAB in Page 8 of 15 C/TAXAP/1258/2018 JUDGMENT force. The AO has attempted to correct this bonafide error in making initial reference to a wrong section by suitable ‘corrigendum’ issued in this regard. The assessee has impugned this action. At this juncture, we also find from the paper-book submitted by the assessee that AO has admittedly issued atleast one notice dated 03/07/2015 of the Act for penalty in contemplation. A proper notice under correct section has thus been eventually served on the assessee albeit after assessment but prior to passing of penalty order. The assessee has duly responded to the original notice under s.271AAA as well as this notice under s.271AAB and has co-operated with the AO in continuance of proceedings. The assessee has not questioned the AO on jurisdictional aspect but has merely contended on merits as to why provision of section 271AAB should not apply to the assessee. As noted earlier, the pre-requisites or circumstances for issuance of notice both under erstwhile s.271AAA and current s.271AAB being identical, the mistake in making reference to an obliterated provision is in the realm of mere technical defect. This being so, the basis for assumption of jurisdiction remains intact and is not vitiated. The error in making reference to wrong section in our considered view being purely technical do not impinge upon substratum in any manner and thus a curable defect rectifiable under s.292B. In other words, the mistake committed by AO in making reference to a non est provision is a curable defect in view of the fact that cause existing for invoking both section are identical. The mistake and defect in penalty notice was corrected to bring it conformity with the intent and purpose for which the penalty proceedings Page 9 of 15 C/TAXAP/1258/2018 JUDGMENT were initiated originally. The mistake being technical, the assessee is precluded from taking any objection in regard in terms of section 292B of the Act. 13. We are also called upon to dwell upon a pertinent question raised on behalf of the assessee as to whether such modification in the basis of invoking of penalty proceedings qua s.271AAA/271AAB is permissible post- assessment. It is outlined on behalf of the assessee that ‘requisite satisfaction’ drawn by the AO in respect of initiation of penalty in the course of assessment proceedings was with reference to section 271AAA of the Act. However, after the completion of the assessment, the ‘satisfaction’ stands suo motu modified and drawn afresh with reference to section 271AAB which is not permissible. The answer to this question lies in position of law as the point of time of forming ‘satisfaction’ for the purposes of S.271AAB. Section 271(1B) of the Act provides a clue in this regard. It inter-alia enjoins requirement of formation of ‘satisfaction’ towards existence of circumstances for initiation of penalty proceedings in the course of assessment proceedings with reference to penalty provisions of S.271(1)(c) of the Act. In distinction, the penalty proceedings in the present case concerns section 271AAA or section 271AAB. It is critical here to note that no specific bar is provided in law to form ‘satisfaction’ with reference to these special provisions prior to the completion of the assessment. Thus, requirement of forming ‘satisfaction’ in this course of assessment proceedings cannot be read for the purposes of s.271AAA/271AAB. In other words, the satisfaction Page 10 of 15 C/TAXAP/1258/2018 JUDGMENT towards applicability of s.271AAA or 271AAB can be legally derived at the stage later to completion of assessment in contrast to fetters placed in respect of normal penal provisions under s.271(1)(c) of the Act. Subsequent formation or modification in purported ‘satisfaction’ after completion of assessment is thus not prohibited under s.271(1B) of the Act in so far as s.271AAA/s.271AAB is concerned. The legislative intent and scope for imposition of penalty under s.271(1)(c) is entirely different from what is envisaged under of provisions of section 271AAB applicable to search cases. The penalty under s.271(1)(c) and s.271AAA/271AAB are mutually exclusive in the sense that in view of specific exclusions provided in s.271AAA/ 271AAB, operation of s.271(1)(c) gets suspended in matters falling in the scope of under s.271AAA/271AAB. As a sequel, even if it is presumed that 'satisfaction' was wrongly drawn with reference to 271AAA at the time of framing the assessment, the AO was well within its mandate to form it post-assessment qua s.271AAB. To reiterate, the show- cause notice in the instant case has been initially issued under sunset provision of s.271AAA of the Act and thereafter revised by issuing fresh notice under s.271AAB of the Act seeking explanation from the assessee as to why penalty should not be imposed. Having regard to the statutory framework, we do not see any statutory impediment in formation or modification of the basis of ‘satisfaction’ post-assessment. To reiterate, there is no mandate in law to issue notices under s.271AAA/s.271AAB in the course of assessment proceedings. It is sufficient to issue show-cause notice under s.271AAB before actual Page 11 of 15 C/TAXAP/1258/2018 JUDGMENT imposition of penalty before or after the assessment. The action of the AO is therefore not at loggerheads with the framework of statutory procedure in this regard. An opportunity is found to have been given and availed by the assessee before imposition of penalty. Therefore, no subversion of principle of natural justice can also be inferred. The error committed initially is thus not fatal and do not vitiate the entire proceedings owing to non- application of s.271(1B) of the Act. Such correction of human error to enforce provision of s.271AAB, in our view, is within the pale of statutory competence of AO in the absence of any specific prohibitions in law. Therefore, we do not see any merit in plea raised. 14. Undisputedly, the assessee was found to be in possession of unaccounted stock in the course of search conducted under s.132 of the Act which culminated in disclosure of unaccounted income of Rs.3 crores. The AO has fairly and most liberally applied concessional treatment as provided under penal provision of s.271AAB of the Act towards such an unaccounted income qua far stiffer penalty applicable under the normal provisions provided under s.271(1)(c) of the Act. The undisputed nature of undisclosed income found and also conceded in the statement recorded under s.132(4) of the Act followed by the return of income does not leave any room for doubt that the remedy for loss of probable revenue detected in the course of search was obtained by following due process of law. 15. Noticeably, the penalty order under s.271AAB was passed with the approval of superior authority i.e. Joint Page 12 of 15 C/TAXAP/1258/2018 JUDGMENT Commissioner of Income tax as provided under s.274(2) of the Act. While facts towards approval of competent authority (JCIT) for issuance of corrigendum/fresh notice is not placed before us, no statutory requirement in this regard was brought to our notice. Hence, issuance of notice under s.271AAB without approval do not in our view vitiate the penalty proceedings. 16. The assessee has placed few judgements in the paper- book which however, were not adverted to in the course of hearing. Having noted that peculiar facts of the case vis-a- vis totally dissimilar facts existing in the case laws cited, we do not see any necessity to deal with same. Whereas in the present case a ‘corrigendum’ has been issued together with fresh notice to correct the irregularity of technical nature, the assessee has also cooperated with enquiry and not raised any objection nor he could have. Besides, as concluded, notice under s.271AAB can be issued post assessment unlike proceedings under 271(1)(c) of the Act. No prior approval of superior authority is shown to be needed for mere initiation of penalty proceedings under s.271AAB. Thus, subsequent notice under s.271AAB is not found to be marred with any irregularity of substantive nature. In contrast to these facts, the facts in the case laws cited are totally different and found to be no assistance to assessee.” 12. Mr.M.R.Bhatt, the learned senior standing counsel appearing for the Revenue, has vehemently opposed this Tax Appeal. Mr.Bhatt submitted that the order passed by the coordinate bench referred to above makes it clear that the only Page 13 of 15 C/TAXAP/1258/2018 JUDGMENT inquiry which the Court thought fit to undertake was, whether the initial notice, though erroneously titled as one under Section 271AAA of the Act, was proceeded by sanction or not. 13. Mr.Bhatt placed on record for our perusal the submission of draft penalty orders for approval put forward by the Assistant Commissioner of Income Tax, Central Circle-1, Rajkot, before the Joint Commissioner of Income Tax, Central Range, Rajkot. Mr.Bhatt also placed on record for our perusal the approval of the penalty order under Section 271AAB of the Act passed by the Joint Commissioner of Income Tax, Central Range, Rajkot. 14. The third paragraph of the order passed by the coordinate bench dated 15th October 2018 referred to above created some confusion in our mind. The word 'sanction' in para-3 created the confusion. Mr.Bhatt, the learned senior standing counsel appearing for the Revenue, clarified that the coordinate bench wanted to inquire, whether the order of penalty ultimately came to be approved or not. 15. The two documents which have been placed on record today indicate that the penalty order passed in the case of the appellant herein was approved by the Joint Commissioner of Income Tax. 16. Mr.Himani in the last pointed out that in para-6 of the assessment order, there is a reference as regards the issue of notice under Section 271AAA of the Act. According to Mr.Himani, when the corrigendum came to be issued stating that Section 271AAA should be read as Section 271AAB of the Act, at that Page 14 of 15 C/TAXAP/1258/2018 JUDGMENT point of time also, a fresh notice ought to have been issued under Section 274 of the Act. 17. According to Mr.Himani, the penalty notice could not have been corrected by way of corrigendum. In short, it appears that the submission of Mr.Himani is that the appellant should have been heard even before the issue of the corrigendum. 18. We are not impressed by the aforesaid submission of Mr.Himani. In fact, there is no substantial difference between Section 271AAA and Section 271AAB of the Act, except that Section 271AAA would apply in cases where search has been initiated under Section 132 on or after the first day of June 2007 but before the first day of July 2012, whereas Section 271AAB would apply in cases where search has been initiated under Section 132 on or after the first day of July 2012. 19. We are of the view that no interference is warranted with the order passed by the Appellate Tribunal. The Appellate Tribunal could not be said to have committed any error, much less an error of law, in passing the impugned order. 20. In view of the aforesaid, this Tax Appeal fails and is hereby dismissed. (J. B. PARDIWALA, J.) (A. C. RAO, J.) /MOINUDDIN Page 15 of 15 "