Income Tax Appellate Tribunal - Mumbai
Jayesh V. Sheth, Mumbai vs Cit 16, Mumbai on 20 September, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "J", MUMBAI
BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND
SHRI MANOJ KUMAR AGGARWAL, HON'BLE ACCOUNTANT MEMBER
ITA NO.3920/MUM/2017 (A.Y: 2010-11)
ITA NO.3921/MUM/2017 (A.Y: 2011-12)
ITA NO.3922/MUM/2017 (A.Y: 2012-13)
Shri Jayesh V. Sheth v. The Commissioner of Income Tax - 16,
Gokul Apartment, Aayakar Bhavan, M.K.Marg,
Next to Farroq High School, Mumbai-400 021
Kavinpada., Jogeshwari (West)
Mumbai - 400 102
PAN: AAPPS 1968 N
(Appellant) (Respondent)
Assessee by : Shri Sanjay R.Parikh, C.A
Department by : Shri Arju Garodia
Date of Hearing : 13.09.2017
Date of Pronouncement : 20.09.2017
ORDER
PER C.N. PRASAD (JM)
1. These appeals are filed by the assessee against the orders of the Learned Commissioner of Income Tax -16 Mumbai dated 27.03.2017 for the Assessment Years 2010-11, 2011-12 and 2012-13 passed u/s. 263 of the Act.
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2. In all these appeals the assessee raised the following common grounds: -
"A) Principles of natural justice violated
1) The Learned Commissioner of Income Tax - 16, Mumbai (CIT) erred on facts and in law in passing an order u/s. 263 without serving a show cause notice on the appellant and hence the order u/s. 263 is bad in law.
2) The appellant prays that the order u/s. 263 passed by the CIT without serving a notice on the appellant, may be held to be bad in law.
B) Without Prejudice, holding that the order u/s. 143(3) r.w.s.
147 is erroneous and prejudicial to the interest of the revenue.
3) Without prejudice to the above, the learned CIT erred on facts and in law in holding that the order u/s. 143(3) r.w.s. 147 is bad in law in as much as the AO failed to initiate penalty proceedings u/s. 271(1)(C).
4) The appellant prays that your honour hold that the order u/s. 143(3) r.w.s. 147 is neither erroneous nor prejudicial to the interest to the revenue and hence no revision u/s. 263 was called for on that account.
3. At the outset the Learned Counsel for the assessee submits that order u/s 263 of the Act was passed by the Learned Commissioner of Income Tax without serving the show cause notice on the assessee, therefore the order passed is bad in law. However, the Ld. DR before us submits that notice was issued to the assessee by speed post and it was served on the assessee and copy of acknowledgment proof of service is 3 ITA NO.3920 to 3922/MUM/2017 Jayesh V. Sheth furnished by the Ld.DR. In the circumstances we dismiss this ground of appeal of the assessee.
4. Coming to the merits, the Learned Counsel for the assessee submits that order u/s 263 of the Act was passed by the Learned Commissioner of Income Tax holding that the Assessment Orders passed u/s. 143(3) r.w.s. 147 for the Assessment Orders 2010-11, 2011-12 and 2012-13 are erroneous in so far as prejudicial to the interest of the Revenue as no penalty u/s. 271(1)(c) of the Act was initiated by the Assessing Officer. Learned Counsel for the assessee submits that the assessments were set aside only for the reason that the Assessing Officer did not initiate penalty proceedings u/s. 271(1)(c) of the Act. Learned Counsel for the assessee placed reliance on the Hon'ble High Court of Punjab and Haryana in the case of CIT v. Rakesh Nain Trivedi [128 DTR 309] and submits that Hon'ble High Court held that where the Commissioner of Income Tax finds that the Assessing Officer had not initiated penalty proceedings u/s. 271(1)(c) of the Act in the Assessment Order he cannot direct the Assessing Officer to initiate penalty proceedings u/s. 271(1)(c) of the Act in exercising the revisional power u/s 263 of the Act.
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5. Ld. DR vehemently supported the orders of the Learned Commissioner of Income Tax in passing the order u/s 263 of the Act holding that the assessments are erroneous as the Assessing Officer failed to initiate penalty proceedings. Ld. DR placed reliance on the Hon'ble Allahabad High Court in the case of CIT v. Surendra Prasad Agarwal [275 ITR 113]. In reply the Learned Counsel for the assessee submits that in view of the conflicting view the view in favour of the assessee should be taken. He placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Vegetable products [82 ITR 1].
6. We have heard the rival submissions, perused the order of the Learned Commissioner of Income Tax and decisions relied upon. In this case the assessments for the Assessment Years 2010-11, 2011-12 and 2012-13 were completed u/s. 143(3) r.w.s. 147 of the Act on 31.03.2015. While completing the reassessments the Assessing Officer made addition towards notional income from house property, disallowance u/s. 14A and addition towards unsecured loans for the Assessment Year 2012-13 and disallowance under section 14A and addition towards notional income from house property and disallowance u/s. 14A for the Assessment Year 2010-11. The Assessing Officer did not initiate penalty proceedings u/s. 271(1)(c) of the Act at the disallowance/addition made in the Assessment Orders. According to the Learned Commissioner of Income 5 ITA NO.3920 to 3922/MUM/2017 Jayesh V. Sheth Tax the Assessing Officer should have initiated penalty proceedings u/s. 271(1)(c) of the Act and since he has not initiate penalty proceedings he held that the omission on the part of the Assessing Officer to initiate penalty proceedings during the course of assessment has rendered Assessment Orders erroneous and prejudicial to the interest of Revenue. Thus the Learned Commissioner of Income Tax directed the Assessing Officer to pass a fresh Assessment Order. The issue before us now to be decided is whether the Learned Commissioner of Income Tax has power u/s 263 of the Act to direct the Assessing Officer to initiate the penalty proceedings u/s. 271(1)(c) of the Act. We find similar issue has come up in the case of Dharmanandan Diamonds Pvt. Ltd v. ACIT in ITA.No.1624/Mum/2014 dated 23.03.2017 and the Coordinate Bench following decision of the Hon'ble Gujarat High Court in the case of CIT v. Paramanand M Patel [278 ITR 3] and the Hon'ble Punjab and Haryana High Court in the case of CIT v. Subhash Kumar Jain [335 ITR 364] set aside the order of the Learned Commissioner of Income Tax passed u/s 263 of the Act in directing the Assessing Officer to initiate penalty proceedings u/s. 271(1)(c) of the Act observing as under:-
"4. We have heard the rival submissions, perused the orders of the authorities below. The question to be addressed in this appeal is whether the Ld. Commissioner has power u/s 263 of the Act to direct the Assessing Officer to initiate penalty proceedings u/s 271(1)(c) of the Act. The Ld. Commissioner passed order u/s 263 holding that the omission on the part of the Assessing Officer to initiate penalty 6 ITA NO.3920 to 3922/MUM/2017 Jayesh V. Sheth proceedings during the course of assessment has rendered the assessment order erroneous and prejudicial to the interest of the revenue. He placed reliance on the decision of Allahabad High Court in the case of CIT Vs. Surendra Prasad Agarwal [275 ITR 113]. The Allahabad High Court held that omission of the Assessing Officer to initiate penalty proceedings in the course of assessment, rendered assessment order erroneous and prejudicial to the interest of the revenue and Ld. Commissioner has jurisdiction to revise such an order u/s 263 of the Act. However, we find that this decision of the Allahabad High Court has been considered and dissented by the Gujarat High Court in the case of CIT Vs. Paramanand M Patel (supra) and held that the Ld. Commissioner cannot set aside the assessment and direct the Assessing Officer to initiate penalty proceedings. Similar view has been taken by the Punjab and Haryana High Court in the case of CIT Vs. Subash Kumar Jain (supra). There are divergent views of the High Courts on the subject. Therefore, following the order of the Hon'ble Supreme Court in the case of CIT Vs. Vegetable Products [82 ITR 1], when two views are possible, the view in favour of the Assessee is to be followed. Therefore, respectfully following the decision of the Gujarat High Court in the case of CIT Vs. Paramanand Patel (supra) and the decision of Punjab & Haryana High Court in the case of CIT Vs. Subash Kumar Jain (supra) we set aside the order of the Commissioner passed u/s 263 in directing the Assessing Officer to initiate penalty proceedings u/s 271(1)(c) of the Act."
7. In the case of CIT v. Rakesh Nain Trivedi (supra) the Hon'ble Punjab and Haryana High Court concluded that where the Commissioner of Income Tax finds that the Assessing Officer had not initiated penalty proceedings u/s. 271(1)(c) of the Act in the Assessment Order he cannot direct the Assessing Officer to initiate penalty proceedings u/s. 271(1)(c) of the Act in exercising of revisional power u/s 263 of the Act. The Hon'ble High Court held as under: -
"5. After hearing learned counsel for the parties, we find the issue that arises for consideration of this Court in this appeal is could the CIT in exercise of power under s. 263 of the Act 7 ITA NO.3920 to 3922/MUM/2017 Jayesh V. Sheth hold the order of the AO to be erroneous and prejudicial to the interest of the Revenue where the AO had failed to initiate penalty proceedings while completing assessment under s.153A of the Act.
6. It may be noticed that the said issue is no longer res integra. This Court in CIT vs. Subhosli Kumar Jam (supra) agreeing with the view of High Courts of Delhi in Addl. CIT vs. J.K. D'Costa (supra), CIT vs. Sudershan Talkies (1993) 112 CTR (Del) 165: (1993) 201 ITR 289 (Del) and CIT vs. Nihal Chartd Rekyan (1999) 156 CTR (Del) 59: (2000) 242 ITR 45 (Del), Rajasthan in CIT vs. Keshrimal Parasmal (1985) 48 CTR (Raj) 61 (1986) 157 ITR 484 (Raj), Calcutta in CIT vs. Linotype & Machinery Ltd. (1991) 192 ITR 337 (Cal) and Gauhati in Sureridra Prasad Singh & Ors. vs. CIT (1988) 71 CTR (Gau) 125: (1988) 173 ITR 510 (Gau) whereas dissenting with the diametrically opposite approach of Madhya Pradesh High Court in Addl. CIT vs. Indian Pharmaceuticals (1980) 123 ITR 874 (MP), Addll. CIT vs. Karttilal Jam (1980) 125 ITR 373 (MP) and Addi. CWT vs. Nathoolal Balaram (1980) 125 ITR 596 (MP) had concluded that where the CIT finds that the AO had not initiated penalty proceedings under s.271(1)(c) of the Act in the assessment order, he cannot direct the AO to initiate penalty proceedings under s.271(1)(c) of the Act in exercise of revisional power under s.263 of the Act. The relevant observations recorded therein read thus "9. Now adverting to the second limb, it may be noticed that the Delhi High Court in judgment reported in Addl. CIT vs. J.K. D'Costa (1981) 25 CTR (Del) 224: (1982) 133 ITR 7 (Del) has held that the CIT cannot pass an order under s.
263 of the Act pertaining to imposition of penalty where the assessment order under s. 143(3) is silent in that respect. The relevant observations recorded are:
"It is well established that proceedings for the levy of a penalty whether under s.271(1)(a) or under s. 273(b) are proceedings independent of and separate from the assessment proceedings. 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 proceeding that is being considered 8 ITA NO.3920 to 3922/MUM/2017 Jayesh V. Sheth by the CIT and it is not possible when the CIT is dealing with the assessment proceedings and the assessment order to expand the scope of these proceedings and to view the penalty proceedings also as part of the proceedings which are being sought to be revised by the CIT. There is no identity between the assessment proceedings and the penalty proceedings: the latter are separate proceedings, that may, in some cases, follow as a consequence of the assessment proceedings. As the Tribunal has pointed out, though it is usual for the ITO to record in the assessment order that penalty proceedings are being initiated, this is more a matter of convenience than of legal requirement. All that the law requires, so far as the penalty proceedings are concerned, is that they should be initiated in the Court of the proceedings for assessment. It is sufficient if there is some record somewhere, even apart from the assessment order itself, that the ITO has recorded his satisfaction that the assessed 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 even long before the assessment is completed though the actual penalty order cannot be passed until the assessment finalized. We, therefore, agree with the view taken by the Tribunal that the penalty proceedings do not form part of the assessment proceedings and that the failure of the ITO to record in the assessment order his satisfaction or the lack of it in regard to the le- viability of penalty cannot be said to be a factor vitiating the assessment order in any respect. An assessment cannot be said to be erroneous or prejudicial to the interest of the Revenue because of the failure of the ITO to record his opinion about the leviability of penalty in the case."
10. Special leave petition against the said decision was dismissed by the apex Court [(1984) 147 ITR (St) 1]. The same view was reiterated by the Delhi High Court in CIT vs. Sudershan Talkies (1993) 112 CTR (Del) 165: (1993) 201 ITR 289 (Del) and followed in CIT vs. Nthal Chand Rekyan (1999) 156 CTR (Del) 59: (2000) 242 ITR 45 (Del). 9
ITA NO.3920 to 3922/MUM/2017 Jayesh V. Sheth The Rajasthan High Court in CIT vs. Keshrirnal Parasmal (1985) 48 CTR (Raj) 61: (1986) 157 ITR 484 (Raj), Gauhati High Court in Surendra Prasad Singh & Ors. vs. CIT (1988) 71 CTR (Gau) 125: (1988) 173 ITR 510 (Gau) and Calcutta High Court in CIT vs. Linotype & Machinery Ltd. (1991) 192 ITR 337 (Cal) have followed the judgment of Delhi High Court in J.K. D'Costa's (1981) 25 CTR (Del) 224: (1982) 133 ITR 7 (Del) case.
11. However, Madhya Pradesh High Court in Addl. CIT vs. Indian Pharmaceuticals (1980) 123 ITR 874 (MP) which has been followed by the same High Court in Addl. CIT vs. Kantilal Join (1980)125 ITR 373 (MP) and Addl. CWT vs. Nathoolal Balaram (1980) 125 ITR 596 (MP) has adopted diametrically opposite approach.
12. We are in agreement with the view taken by the High Courts of Delhi, Rajasthan, Calcutta and Gauhati, and express our inability to subscribe to the view of Madhya Pradesh High Court.
13. Accordingly, it is held that the initiation of proceedings under S.263 was not justified. The Tribunal was right in holding that after examining the record of the assessment in exercise of powers under s.263, where the CIT finds that the AO had not initiated penalty proceedings, he cannot direct the AO to initiate penalty proceedings under s. 271(1)(c) of the Act.'
7. In view of the above, equally we are unable to subscribe to the view adopted by Allahabad High Court in Surendra Prasad Aggarwal's case (supra) where judgment of Madhya Pradesh High Court in Indian Pharmaceuticals' case (supra) noticed hereinbefore has been concurred with.
8. Accordingly, it is held that the initiation of proceedings under s.263 of the Act was not justified and we uphold the order of the Tribunal cancelling the revisional order passed by the CIT."
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8. Thus, respectfully following the above decisions we set aside the orders passed u/s. 263 of the Act by the Learned Commissioner of Income Tax for the Assessment Years 2010-11, 2011-12 and 2012-13 which are under consideration before us.
9. In the result the appeals of the assessee are partly allowed.
Order pronounced in the open court on the 20th September, 2017.
Sd/- Sd/-
(MANOJ KUMAR AGGARWAL) (C.N. PRASAD)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai / Dated 20/09/2017
VSSGB, SPS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
//True Copy//
BY ORDER,
(Asstt. Registrar)
ITAT, Mum