Income Tax Appellate Tribunal - Mumbai
Thistle Properties P. Ltd , Mumbai vs Assessee on 6 February, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "I", MUMBAI
BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
ITA No. 6873/Mum/2008
(Assessment year : 2006-07)
M/s Thistle Properties Pvt. Vs Asst. Commissioner of
Ltd., Income Tax Central Circle
B-124, Vardhman Complex, 45,
L.B.S. Marg, Fitwell Aayakar Bhavan, M K Road,
Compound, Vikhroli (W), Mumbai -400 020
Mumbai -400 083
PAN: AABCT 4274 D
(Appellant) (Respondent)
Appellant by : Shri Dharmesh Shah
Respondent by : Shri Pankaj Kumar
Date of Hearing : 06-02-2013
Date of Pronouncement : 20-02-2013
ORDER
PER VIVEK VARMA, JM:
Instant appeal is against the sustaining the penalty of Rs. 29,46,055/-, out of penalty levied at Rs. 44,19,083/- by the AO, u/s 271(1)(c) of the Income Tax Act. Along with the grounds against the levy and sustaining the penalty, the assessee has raised a technical ground, which reads as under:
1. The Ld. Commissioner of Income-tax (Appeals) ought to have appreciated the Assessing Officer has completed the assessment proceedings without service of notice u/s. 143(2) of the Act and hence the assessment made by him is null and void.
2. The basic facts are that the assessee is engaged in the business of development of residential units and had undertaken the development of housing project at Sl. No. 2 Opposite Baner Telephone Exchange, Baner, Pune. The assessee declared sales of Rs.
6,08,02,250/- and claimed deduction u/s 80IB(10) of the Income Tax Act at Rs. 80,16,478/-.
2 M/s. Thistle Properties Pvt. Ltd.
ITA No. 6873/Mum/20083. In the course of assessment proceedings, the AO sought to examine the genuineness of the claim of deduction u/s 80IB(10) and made enquiries in that regard. The AO collected evidences from various sources and took statements of some of the residents/occupants of the society, developed by the assessee and found that the assessee breached the basic requirement of the deduction that the residential unit shall not exceed 1500 sq.ft. From the enquiries made by the AO, it was revealed that all the residential units were more then 1500 sq. feet. It is also a fact that certain residents/occupants stated that they bought two separate units and demolished the wall separating the two flats and converted the two flats, into one single unit, as per the requirement of the family occupying the flat(s). There were certain other residents/occupants, who stated that at the time of buying the flat, they asked the developer, i.e. the assessee to make the flat in accordance with their requirement, even if the area of the flat exceeded 1500 sq. ft.
4. Before the appellate authorities and in penalty proceedings, the assessee produced the floor plan as approved by the municipal corporation and agreements with the buyers and the completion certificate, as received from the local authority and sought to prove, that in so far as the assessee was concerned, the assessee had sold spaces which was less then 1500 sq.ft. and which met with the eligibility for the rightful claim u/s 80IB(10).
5. These submissions did not find favour with any revenue authority at any stage and the addition as made by the AO was confirmed. Even the coordinate Bench in ITA no. 1082/Mum/2008, gave a finding that, "all the 104 units have been sold in adjoining pairs to 52 families and all the buyers have been shown either same person or husband and wife". The coordinate Bench, therefore, sustained the disallowance of deduction u/s. 80IB(10). Although the order of the 3 M/s. Thistle Properties Pvt. Ltd.
ITA No. 6873/Mum/2008coordinate Bench is dated 01.04.2011, but the revenue authorities had already proceeded with the penalty proceedings and its appellate proceedings. Now that the coordinate Bench has come to a conclusion that the deduction was rightly denied, the present appeal gathers importance on two counts, i.e. (a) whether the assessee gave inaccurate particulars of income in the return and, (b) whether the explanation given by the assessee, found to be incorrect, had a mala fide content right from its inception.
6. From the perusal of evidence placed before us, all the units have been sold to 52 persons, as found out by the coordinate Bench in ITA no. 1082/Mum/2008. The fact that 104 units had been constructed by the assessee, strictly in accordance with floor plan, as approved by the local authority. The area per flat, as disputed by the revenue authorities had been duly approved by the local authorities and the assessee procured completion certificate. These documents, were produced before the revenue authorities, therefore, in so far as furnishing of inaccurate particular in our opinion, the assessee does not and cannot fall in the first limb of the section. Now, the issue wrests on Explanation 1 of section 271(1)(c), here it is seen that there has been a violation in clause (f) of section 80IB(10), as noted in ITA no. 1082/Mum/2008 (supra), in the quantum appeal of the assessee. Be that it may, the issue is whether there was a mala fide intent on the part of the assessee. To answer the question, the AR placed before us copy of order in the case of Vandana Enterprises vs ITO, in ITA no. 1251/Mum/2007, wherein on identical facts, as that of the assessee, the coordinate Bench at Mumbai, allowed the claim of deduction u/s 80IB(10). In this case also, the flats were sold in pairs, which exceeded 1000 sq. ft. The AR, therefore, pleaded that since the facts are similar, the ratio derived from this order, may be applied in so far as the bona fide intention, for the purposes of Explanation 1 to section 271(1)(c) and the instant penalty appeal is concerned, wherein the revenue 4 M/s. Thistle Properties Pvt. Ltd.
ITA No. 6873/Mum/2008authorities have sustained the disallowance and consequently sustained the penalty.
7. The issue, identical to that of the assessee was the subject matter in the case of Emgeen Holdings Pvt. Ltd. vs DCIT, in ITA no. 3594 & 3595/Mum/2009, wherein the coordinate Bench accepted the contentions of the assessee and allowed the deduction.
8. The AR further placed reliance on the decision of ITO vs S.N. Shah Family Trust in ITA no. 2572/Mum/2007, wherein the penalty had been levied on exactly same facts as that of the assessee, and the coordinate Bench at Mumbai, observed, "9. Now, let us deal with the an other objection of the A.O. that the assessee has completed the building project in such a way that two units/flats can be sold to members of the same family like husband-wife, father-mother and same can be combined as a one residential unit. Now, this issue has been considered by the co-ordinate Bench in the case of Emgeen Holdings P. Ltd. vs. Dy. CIT Mumbai 47 SOT 98 and it is held that the amendment introduced to sec 80IB(10) w.e.f. 1.04.2010 is prospective in nature and deduction u/s 80IB(10) cannot be denied merely because end-user by buying more than one unit on the name of the different family members has made one larger residential unit. The assessment year before us is 2003-04, hence, the amendment made to sec 80IB(10) that if by virtue of putting the restriction on the allotment of the residential unit by insertion of clauses (e) & (f) of Explanation below 80IB(10) is only applicable on the assessment year 2010-11. So far as argument of the Ld. D.R. that the assessee suo motu withdrew the claim of deduction as it was wrong claim, in our humble opinion the said argument is not correct as per the record before us. The A.O. has reproduced the letter dated 24.02.2006, it is stated in the said letter that the assessee who is managing trusty is 75 years of age and was suffering from paralytic stroke and thus due to his sickness and immobility as well as CZR, it is very difficult to complete the entire project and to buy peace he is withdrawing the claim. As per the facts on record, we find that the claim of the assessee cannot be said to be a wrong though it has withdrew. On the perusal of the record, in our opinion, the assessee's claim was based on the interpretation of sec. 80IB(10). Moreover, some of the objections of the A.O. for allowing the claim of the assessee are contrary to the decisions of the Tribunal. Nothing is there on record to suggest that the assessee consciously made the wrong claim. From the letter given to the A.O., we find that due to the serious health problems the assessee withdrew the claim and nowhere it is stated that the assessee withdrew the claims because the same were wrong one. After giving our anxious consideration to the entirety of facts, we are of the opinion that this is not a case 5 M/s. Thistle Properties Pvt. Ltd.
ITA No. 6873/Mum/2008where it can be said that the assessee has concealed the particulars of income or filed inaccurate particulars of income. We find no reason to interfere with the order of Ld. CIT (A) and accordingly the same is confirmed".
9. The AR also relied on the decision Telebuild Construction (P) Ltd. vs ACIT, ITA no. 1164/Mum/2006, reported in 13 SOT 218 (Mum), which finds referred to in the case of S N Shah Family Trust (supra), here also the penalty has been deleted by the ITAT.
10. Based on these factual aspects and referring to the cases cited, the AR pleaded that the instant case is not fit for levy and sustaining of the penalty u/s 271(1)(c).
11. The DR has placed reliance on the facts as emerging from the various orders of the revenue authorities and submitted that the penalty was rightly imposed on the assessee.
12. Having heard the rival contentions and perusing all the material placed before us, we must observe that we cannot exit from the assessee's own quantum order, wherein, the coordinate Bench has sustained the disallowance. This is true and cannot be ignored, but at the instant moment, we are adjudicating penalty proceedings, which though arise from the quantum, but it has a separate form and has to be dealt with separately. In these circumstances, on the one hand we cannot ignore the assessee's own quantum order by the ITAT, on the other hand, we cannot ignore the other various cases referred to by the AR, wherein, on identical facts, either the deduction has been allowed/restored or in penalty appeals, penalty has been knocked off. These cases, in so far as the penalty are concerned cannot be ignored and have to be taken into consideration.
13. Coming to the issue of violence done to clause (f) to section 80IB(10), which has been the implied reason for decline, of the deduction u/s 80IB(10), by the Assessing Officer, i.e. that size of the 6 M/s. Thistle Properties Pvt. Ltd.
ITA No. 6873/Mum/2008residential unit was in excess of 1,500 sq. ft which, in turn, proceeds on the basis that the flats have been sold to the family members, should be treated as one unit. In our considered opinion, we cannot accept this approach, for the purposes of looking at the issue from the point of view of offering inaccurate particulars.
14. We have noted that the size of each flat, as per the building plan, as duly approved by the authorised authorities was less than 1,500 sq. ft. From the entire gamut of facts, as produced before us, it has never been the case of the revenue, that each flat, on standalone basis was not an independent residential unit. Therefore, even if flats were constructed or planned in such a way that two flats could indeed be merged into one larger unit, as long each flat was an independent residential unit, deduction u/s 80IB(10) could not be denied. We have to take into consideration, the fact that what section 80IB(10) refers to is 'residential unit' and, the expression 'residential units' must have the same connotations as assigned to it by local authorities granting approval to the project. Undoubtedly, the local authority has approved the building plan with residential units of less than 1,500 sq. ft, and granted completion certificate. This leaves no scope of confusion, about the factual position that the units in question were not more then 1,500 sq. ft.
15. It has been argued on behalf of the department, in quantum appeal, before the coordinate Bench that there was violence committed to clause (f) to section 80IB(10), which prohibits/bars the assessee, against sale of more than one flat in a housing project to members of a family. When we see the amendment, we find that this amendment was inserted in the statute with effect from 01.04.2010, and, in our opinion, this amendment in law can only be treated as prospective in effect.
7 M/s. Thistle Properties Pvt. Ltd.
ITA No. 6873/Mum/200816. What is, therefore, clear, is that, so far as pre amendment position is concerned, as long a residential unit has less than specified area and is as per the duly approved plans and is capable of being used for residential purposes on standalone basis, deduction u/s 80IB(10) cannot be denied, in respect of the same, merely because the ultimate buyer, by buying more than one such unit in the name of family members, has merged these residential units into a larger residential unit of a size which is in excess of specified size, as provided under section 80IB(10). That precisely is the case before us, wherein the revenue authorities denied the deduction, which was sustained by the coordinate Bench of the Tribunal and the impugned penalty has been levied.
17. It is important to take note the crux of the amendment, by the virtue of which, the legislature put certain restrictions on sale of residential units to certain family members of a person, who has been sold a residential unit in the housing project. Section 80IB(10) now provides a disabling condition, that in a case, where a residential unit in the housing project is allotted to any person being an individual, no other residential unit in such housing project is allotted to any of the following person, namely (i) the individual or the spouse, or the minor children of such individual, (ii) the HUF in which such individual is a karta' (iii) any person representing such individual, the spouse or minor children of such individual, or the HUF in which such individual is a karta. When we read the objects for bringing in the intended legislation, it says, extracted from (314 ITR(St) 203), "Further, the object of the tax benefit for housing projects is to build housing stock for low and middle income households. This has been ensured by limiting the size of the residential unit. However, this is being circumvented by the developer by entering into agreement to sell multiple adjacent units to a single buyer. Accordingly, it is proposed to insert new clauses in the said sub-section to provide that the 8 M/s. Thistle Properties Pvt. Ltd.
ITA No. 6873/Mum/2008undertaking which develops and builds the housing project shall not be allowed to allot more than one residential unit in the housing project to the same person, not being an individual, and where the person is an individual, no other residential unit in such housing project is allotted to any of the following person:- (i) Spouse or minor children of such individual; (ii) The Hindu undivided family in which such individual is the karta; (iii) Any person representing such individual, the spouse or minor children of such individual or the Hindu undivided family in which such individual is the karta. This amendment will take effect from the 01.04.2010 and shall accordingly apply in relation to assessment year 2010-2011 and subsequent years". It is thus clear that the aforesaid amendment has been brought with prospective effect i.e. from 1st day of April, 2010, and there is no indication whatsoever to suggest that these restrictions need to be applied with retrospective effect.
18. The amendment, though, seeks to plug a loophole, but the remedy is with effect from 01.04.2010, i.e. from assessment year 2010- 2011, because unless stated otherwise, the law is always prospective. It will, therefore, be contrary to the scheme of law to proceed on the basis that wherever adjacent residential units are sold to family members, all these residential units are to be considered as one unit. If law permitted so, there was no need of the insertion of clause (f) to section u/s 80IB(10). It will be unreasonable to proceed on the basis that legislative amendment was infructuous or uncalled for.
19. In the light of our observations, as above, we, are of considered opinion that neither on presumption of inaccurate particulars, nor concealment of facts and nor on the violation of Explanation 1, to section 271(1)(c), penalty u/s 271(1)(c), is exigible on the assessee.
9 M/s. Thistle Properties Pvt. Ltd.
ITA No. 6873/Mum/200820. We also take into consideration all the cases cited, as referred to by the AR, we find, Hon'ble Supreme Court of India in the case of Reliance Petroproducts Pvt. Ltd. vs DCIT, reported in 322 ITR 158 went to the extent of holding that in case of a wrong claim that had been made, even in such a situation, the penalty cannot be levied.
21. In the light of the facts and the cases cited before us and placing reliance on the case of Reliance Petroproducts Pvt. Ltd. vs DCIT (supra), respectfully following the same, we hold that penalty is not leviable.
22. In the circumstance, we set aside the order of the CIT(A) and direct the AO to cancel the penalty.
23. In the result, the grounds as raised on merits, in the appeal, as filed, are allowed.
24. The assessee vide its letter dated nil, received on 01.10.2012 has filed an additional ground of appeal, wherein, it has been agitated that notice u/s 143(2) was not served on the assessee and hence the assessment was bad in law and void ab initio.
25. This ground was duly argued and adjudicated by the coordinate Bench in detail. The coordinate Bench, rejected the arguments of the AR, holding, "(a) The authorized representative of the assessee had attended in response to the notice dated 12.08.2005 and also attended on 07.03.2006. Since the assessee's representative had attended in the subsequent occasion, the defect of non-service of the notice u/s 143(2) of the Act stands cured.
(b) The objection relating to service of notice was not taken before the Hon'ble CIT(A) and the ground relating to the same was held as not pressed. Under these circumstances, having chosen not to raise the objection before the lower authority, the appellant cannot agitate the issue before the Tribunal".
10 M/s. Thistle Properties Pvt. Ltd.
ITA No. 6873/Mum/200826. It was pointed out by the AR that the impugned issue was agitated by the assessee in penalty proceedings as well. On a query from the Bench, as to whether the issue, decided in quantum proceedings, could be agitated in penalty proceedings, the AR submitted that similar issues came up in the following cases,
(a) Jainarayan Babulal v. CIT [140 ITR 399 (Bom)]
(b) Dhiraj Suri v. Addl. CIT [98 ITD 187 (Del)]
(c) Suresh B. Dedhia v. DCIT [ITANo.16/Mum/2009] Dt. 03.12.2010
(d) Tidewater Marine International Inc. v. DCIT [96 ITD 406(Del)] In the cases at Serial no. (b) and (c), the issue of validity of assessment proceedings was also challenged in the quantum proceedings. Even though the said issue was not favourably decided by the appellate authorities in quantum proceedings, the same were considered in the penalty proceedings".
27. The AR argued that the issue with regard to service of notice u/s 143(2) attacks the very jurisdiction, and even if the assessee acquiesced and attended the proceedings before the AO, despite the non service of notice, the defect continues to be fatal and cannot be cured, and even the provision of section 292BB, as amended, cannot come to the rescue of the department. This view has been taken by the Hon'ble Delhi High Court in the cases of CIT vs Virender Kumar Aggarwal and which has been followed in the case of CIT vs Salman Khan by the Hon'ble Bombay High Court and also in the case of CIT vs Kuber Tobacco Products (P) Ltd. (Delhi HC) and other decision of the coordinate Bench at Mumbai.
28. In the submissions placed before us, the AR also placed reliance on the decision of Hon'ble Bombay High Court in the case of Jainarayan Balulal vs CIT, reported in 140 ITR 399, wherein, "Assessment proceedings are taxing proceedings are criminal proceedings in their very nature. A decision given in an assessment proceeding cannot possibly be dining upon the authority who tries the assessee for an offence. It is open to the Income-tax Officer in penalty proceedings to consider his earlier finding that a particular receipt constituted income for a particular assessment year, but he is not bound by that finding. If any other evidence is produced in penalty proceedings, it is open to the Income-tax Officer to come to a different conclusion".
11 M/s. Thistle Properties Pvt. Ltd.
ITA No. 6873/Mum/200829. In the case of Dhiraj Suri vs Add. CIT, reported in 98 ITD 187 (Del.), it was held that "if block assessment is without jurisdiction, no penalty can be levied u/s 158BFA(2) and it was held, "7. On a careful consideration of the rival contentions with regard to the admission of the additional ground, we are of the view that the same should be admitted. The assessee has canvassed the validity of the block assessment both in the appeal against the block assessment both in the appeal against the block assessment and in the appeal before the CIT (A) against the levy of penalty. This is clear from paras 4 to 6 of the CIT (A) sustaining the penalty. There is reference in this paragraph to the assessee's plea that the block assessment was without jurisdiction as there was no search warrant in the assessee's case. The CIT (A) has actually rejected the plea following his order in the appeal against the block assessment, which implies that the assessee had taken the plea even in the appeal against the block assessment. Thus, the point has already been taken before the income-tax authorities and there is no element of surprise. In fact, even without the help of the additional ground, the assessee could have in our opinion canvassed the validity of the block assessment within the scope of the first and third grounds of the original grounds of appeal. Further, the additional ground does not involve an investigation into the facts. The panchnama and the search warrant are a matter of record. That apart this goes to the very root of the matter. In the case of P.V. Dosh vs CIT, 113 ITR 22, it was held that a jurisdictional provision which is mandatory and enacted in the public interest could never be waived. It was further held that there was no question of any finality of the orders of the income-tax authorities or the Tribunal because jurisdiction cannot be conferred by consent by consent. The question of jurisdiction is thus of vital importance and it would be open to assessee to raise the question of validity assessment on account of lack of jurisdiction, at any time and at any stage of the proceedings. With particular reference to penalty provision, it has been held by the Bombay High Court in the case of Jainarayan Babulal vs CIT, 170 ITR 399 that it is open to the assessee to set up the question of validity of the assessment in the appeal against the levy of penalty. In Jaidayal Pyarelal, Kanpur vs. CIT, UP [(1973) Tax Law Reporter 880], the Allahabad High Court held with reference to a new plea taken in penalty proceedings, which was not taken in the regular assessment proceedings, as under:
"It is thus clear that the regular assessment order is not the final word upon the pleas taken therein or which might have been taken at that stage. The assessee is entitled to show cause in penalty proceedings and to establish by the material and relevant facts, which may go to affect his liability or the quantum of penalty. He cannot be held to be debarred from taking appropriate pleas simply on the ground that such a plea was taken in the regular assessment proceedings".
In view of the importance of the question of validity of the assessment and since the matter involves a pure legal question not involving any investigation into facts, we admit the additional ground for decision".
30. The coordinate Bench at Mumbai in the case of Suresh B Dedhia vs DCIT in IT(SS)A. No. 16/Mum/2009, placing reliance on the decision of Dhiraj Suri (supra), quashed the penalty.
12 M/s. Thistle Properties Pvt. Ltd.
ITA No. 6873/Mum/200831. The AR, therefore, pleaded that in these circumstances and taking into consideration the above citations, it has to be held that the levy of penalty, relying on illegal assessment proceedings must be quashed.
32. The DR, placed heavy reliance on the orders passed by the revenue authorities as well as by the coordinate Bench in the quantum proceedings and submitted that a considered view has been taken on the issue by the coordinate Bench, where the decision was rightly taken and since a considered view has already been taken, there is no justification or scope to raise the issue once again in the instant proceedings. The DR, therefore, submitted that the additional ground neither deserves to be admitted nor does it deserve to be adjudicated upon. Concluding his arguments, the DR submitted that the additional ground, as raised, deserves to be rejected.
33. We have heard the arguments of the contesting parties and are of the view that the issue raised in the additional ground pertains to jurisdiction, which in our considered opinion is of prime importance for the prosecution of any proceedings. We are aware that the coordinate Bench has given a detailed finding on the impugned issue. We also find that the coordinate Bench proceeded on two points of view, i.e. "(a) The authorized representative of the assessee had attended in response to the notice dated 12.08.2005 and also attended on 07.03.2006. Since the assessee's representative had attended in the subsequent occasion, the defect of non-service of the notice u/s 143(2) of the Act stands cured.
(b) The objection relating to service of notice was not taken before the Hon'ble CIT(A) and the ground relating to the same was held as not pressed. Under these circumstances, having chosen not to raise the objection before the lower authority, the appellant cannot agitate the issue before the Tribunal".
34. Although, at this stage, we cannot sit on the justification of the above adjudication, which, in our opinion, can lie only with the Hon'ble High Court u/s 260A, but, we are considering a situation, 13 M/s. Thistle Properties Pvt. Ltd.
ITA No. 6873/Mum/2008wherein penalty could be exigible, when the initiation is on defective proceedings. The issue has been dealt with in the case of Suresh B. Dedhia vs ITO in IT(SS)A No. 16/Mum/2009, "9. The Delhi C-Bench of the Tribunal in the case of Tidewater Marine International Inc. vs. DCIT (supra) had considered the issue at para 9, wherein it is stated as follows :
"The basic question arises for consideration whether the assessee having failed to raise the question of validity of assessment either before the Assessing Officer in the assessment proceedings or in the quantum appeal and having neither raised this issue before the Assessing Officer in the penalty proceedings or in the appellate proceedings against the penalty order could raise the question of validity of assessment order before the Tribunal at this stage."
After considering the judicial precedent on the issue at para 14 the Tribunal held as follows :
"In view of the above legal position, we are of the view that it is open to the assessee to set up/raise the question of validity of assessment in the appeal against the levy of penalty. Since the question of validity of assessment made in the matter is raised, which is a pure question of law and not involving any investigation into the facts as the same are on record, we admit the additional ground raised by the assessee for decision".
35. In Tidewater Marine International Inc. vs DCIT, reported in 96 ITD 406 (Del) it has been observed, "There could never be a waiver of a mandatory provision for the simple reason that in such cases jurisdiction could not be conferred on the authority by mere consent but only on conditions precedent for the exercise of jurisdiction being fulfilled. If jurisdiction cannot be conferred by consent, there would be no question of waiver, acquiescence or estoppel or the bar of res judicata being attracted because the order in such cases would lack inherent jurisdiction and would be a void order or a nullity. If an original order is without jurisdiction it would be a nullity confirmed in further appeals. The appellate order of the Tribunal thereon would also be a nullity and the Tribunal cannot confer any jurisdiction on the Income-tax Officer by making a remand order".
36. On the issue of point (a) above, i.e., where the assessee had acquiesced to the jurisdiction, which otherwise was defective and illegal, the entire proceeding is null and void, is an accepted judicial principal. From the quantum order, we have seen that the department, at no stage, has been able to prove the valid service of notice u/s 143(2) on the assessee. There are catena of decisions by the Hon'ble Supreme Court of India, which lay down the ratio that the first default by the department on jurisdictional issue cannot be cured 14 M/s. Thistle Properties Pvt. Ltd.
ITA No. 6873/Mum/2008subsequently through acquiesce. We may here refer to the case of Institute of Chartered Accountants vs L.K. Ratna, reported in 164 ITR 1, wherein the Hon'ble Supreme Court of India held, "that where the Executive Council of the Institute failed to give an opportunity of hearing to the member, guilty of conduct, the order of punishment was bad". The Hon'ble Supreme Court, relied on the decision of Leary vs National Union of Vehicle Builders (1971) 1 Ch. 34, wherein it was finally held, "As a general rule, at all events, I hold that a failure of natural justice in the trial body cannot be cured by sufficiency of natural justice in an appellate body".
37. In the same line, we may also refer to the case of Tin Box Company vs CIT, reported in 249 ITR 216, wherein, the Hon'ble Supreme Court of India, taking note of the finding of fact by the ITAT, "We will straightway agree with the assessee's submission that the ITO had not given to the assessee proper opportunity of being heard", reversed the order of the ITAT and High Court, wherein it was held that before the CIT(A), the assessee had full opportunity of being heard. The Hon'ble Supreme Court of India, held, "We, therefore, do not agree with the Tribunal and the High Court that it was not necessary to set aside the order of assessment .....".
38. We have referred to the above decisions, merely to demonstrate that after coming to the conclusion that there was no proof of service of notice, but the assessee took part in the proceedings, did not cure the initial defect, as has been pointed out that the notice u/s 143(2) was not served on the assessee. In our considered opinion, the entire case, still stands on shaky foundation, and penalty having been consequentially imposed on proceedings, which are legally infirm, cannot be sustained, taking into consideration that penalty is a collateral proceeding and as held by the Hon'ble Supreme Court of India in the case of Chiranjilal Shrilal Goenka vs Jagjit Singh, reported 15 M/s. Thistle Properties Pvt. Ltd.
ITA No. 6873/Mum/2008in (1993) 2 SCC 507 that, "validity of decree which goes to the root of the matter, its validity can be set up even at the stage of execution or in collateral proceedings".
39. Taking into consideration, the above cited decisions, we are of the considered view that the penalty initiated and levied u/s 271(1)(c), on illegal foundation, does not deserve to survive. On merits, as well, we have taken a definite view, as per para 22, wherein, we have directed the AO to cancel the penalty.
40. We, therefore, admit additional ground of appeal, on technical and legal issue, and relying on our observations made above, we quash the initiation of the penalty proceedings and consequentially cancel the penalty.
41. The appeal filed by the assessee, therefore, allowed.
Order pronounced in the open Court on 20th February, 2013.
Sd/- Sd/-
(D. KARUNAKARA RAO) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai: 20th February, 2013
Copy to:
1) The Appellant
2) The Respondent
3) The CIT (A)Cen.-III, Mumbai.
4) The CIT Central-IV, Mumbai.
5) The DR, "I" Bench Mumbai.
6) Copy to Guard File
By Order
/ / True Copy / /
Asst. Registrar,
ITAT, Mumbai
*Chavan