Income Tax Appellate Tribunal - Bilaspur
Dr. Dharamveer Singh Dhillon vs Commissioner Of Income Tax on 15 February, 2008
Equivalent citations: (2008)116TTJ(NULL)141
ORDER
K.S.S. Prasad Rao, J.M.
1. This appeal is filed by the assessee having been aggrieved by the order of the CIT dt. 19th Dec., 2007 for the asst. yr. 2005-06 in the case of the assessee passed under Section 263 of the IT Act.
2. The assessee has raised the following grounds in its appeal:
1. That on the facts and the circumstances of the case, the proceeding under Section 263 is illegal and bad in law, because the proper opportunity had not been given to the assessee, without service of any notice to the assessee or his authorized person; order so passed under Section 263 is bad in law and against the principle of natural justice.
2. That all the issues mentioned in the aforesaid order under Section 263 were duly discussed, considered and examined by the AO during the penalty proceeding at the time of hearing and applied his mind then only he passed the penalty order under Section 271(1)(c), therefore the action of the CIT under Section 263 is against the law and void ah initio.
3. Both the parties were heard regarding the issues raised by the assessee in the appeal and its legal implication.
4. During the course of hearing, the learned Representative of the assessee has vehemently argued contending, inter alia, that the learned CIT has not given proper opportunity to the assessee to ventilate its stand before him, in reply to the notice received by the assessee under Section 263(1). This is evident from the observation of the CIT in para 3 to the effect that detailed notice under Section 263(1) of the IT Act was issued on 3rd Dec, 2007 fixing the hearing on 13th Dec, 2007 and on 18th Dec, 2007. The assessee did not comply with the same, neither did he file any written submission and that I hold in the interest of justice and in the present case, no further opportunity can be given to the assessee and accordingly I am proceeding to dispose of the same on the merits of the case. This decision indicates that the CIT has not even verified whether the notice issued by him to the assessee was served on him, moreso, in the absence of any material made out in the order that the said notice is served to the assessee. The provision, contained in Section 263 clearly and categorically mentions that the CIT(A) has to pass any order under Section 263 only after hearing the assessee on the notice issued initiating the proceedings under Section 263. Apparently, the CIT has not followed the primary requirements as required under the provisions contained in Section 263. The order passed by the CIT is void ab initio for want of giving opportunity, much less reasonable opportunity to the assessee to ventilate its stand against initiation of proceedings under Section 263 against him.
5. Apart from this, adverting to the merits, he pointed out that as car be seen from the order itself, the assessee has filed the return under Section 139 on 31st July, 2005 tendering income of Rs. 7,38,602. The additional income of Rs. 1.21 crores was not included in the return, This was taken by the CIT as concealment of income and also presumed as furnishing of inaccurate particulars. Further, it was observed by the CIT that notice under Section 148 of the IT Act dt. 6th Sept., 2006 was issued to the assessee and in response to that notice, the assessee has filed return on 13th Dec, 2006 disclosing income of Rs. 1,28,51,986 which is including the additional income offered during the search. This was taken wrongly by the CIT as not voluntary but in response to notice issued under Section 148. From this, he is inferring that the assessee could not offer the additional income in the absence of notice under Section 148. This was wrongly taken by the CIT as concealment. Thereafter, he proceeded to compare the income originally returned by the assessee and the income in response to notice under Section 148 and came to the wrong conclusion that the assessee has concealed both particulars of income and furnished inaccurate particulars of income as mentioned within the scope of Section 271(1)(c). He further pointed out that in the penalty order passed by the AO, the AO has categorically found that the assessee has discharged the primary onus cast upon by virtue to Expln. 1 to Section 271(1)(c) and in the absence of concrete evidence against the rebuttal presumption, no penalty can be levied merely on the ground of surrender alone. While coming to this conclusion, the learned AO considered the provision contained in Expln. 5(2) to Section 271(1)(c) and also the Hon'ble Madras High Court's decision rendered in the case of CIT v. S.D.V. Chandru . Therefore, the observation of the CIT in the impugned order in para 6 that the AO has passed the penalty order in utter haste and failed in the process to examine the facts properly and thereby it is suffering from infirmities as stated therein. Therefore, either on law or on facts, the order passed by the CIT is not sustainable for legal scrutiny and hence the same is liable to be set aside by allowing the appeal of the assessee.
6. Contrary to this, the learned Departmental Representative vehemently argued supporting the order passed by the CIT and accordingly sought for upholding the same by dismissing the appeal of the assessee. On careful consideration of the materials made available before the Tribunal and analyzing the same in the light of the rival submissions of both the parties, it is found that the undisputed facts relating to the issue are that the assessee has filed return under Section 139 for the assessment year under consideration on 31st July, 2005 showing return of income of Rs. 7,38,602 and the additional income of Rs. 1.21 crores offered by the assessee during the course of search conducted prior to the filing of the return was not included in this. Later on, when the assessee was served with the notice of reopening under Section 148, the assessee has filed its return of income disclosing the total income at Rs. 1,28,51,986 including the additional income offered by him during the search. This return was processed by passing the assessment order dt. 29th Dec, 2006 and ultimately taxable income in the hands of the assessee was ascertained at Rs. 1,31,51,986 making an addition of Rs. 3 lakhs. This was accepted by the assessee. As can be seen from the impugned order, the CIT has not mentioned anything about the service of notice issued to the assessee on 3rd Dec, 2007 or 14th Dec, 2007. The representative of the assessee has categorically submitted before us that the first notice dt. 3rd Dec, 2007 was served to the assessee by affixture on 11th Dec, 2007 wherein the hearing is fixed on 13th Dec, 2007. The second notice dt. 14th Dec, 2007 fixing the case for hearing on 18th Dec, 2007 categorically specified that the first notice dt. 3rd Dec, 2007 was served by affixture and the second notice is attempted to be served on the assessee by speed post dt. 17th Dec, 2007 from Bilaspur wherein the hearing was fixed on 18th Dec, 2007. Soon after getting information about this, the assessee enquired about the stage of the case and was informed that the order under Section 263 was passed on 19th Dec, 2007, the very next day of the hearing. From this chronology of the undisputed events in the absence of any material made out in the order about the personal service of the notice to the assessee, it can only be said that there is no opportunity given by the CIT, much less proper and reasonable opportunity given by the CIT to the assessee, to reply to the notice issued by him under Section 263. The provision contained in Section 263 categorically mentions that the CIT can pass the order under Section 263 after giving the assessee an opportunity of being heard and after taking or causing to be made such enquiry as he deems necessary. This provision clearly imposes an obligation on the part of the CIT while invoking the powers under Section 263 to give an opportunity to the assessee of hearing. As can be seen from the above undisputed facts, it is clear that notice dt. 3rd Dec, 2007 fixing the hearing of the Section 263 proceedings on 13th Dec, 2007 was served on the assessee by affixture on 11th Dec, 2007 and the notice issued on 14th Dec, 2007 wherein it was mentioned that the first notice dt. 3rd Dec, 2007 was served by affixture on 11th Dec, 2007 and the second notice was sent by speed post dt. 17th Dec, 2007 as fortified by the filing of the cover's xerox copy at p. 39 of the paper book filed by the assessee before the Tribunal.
7. The CIT is admittedly sitting at Bilaspur whereas the assessee is staying at Korba. At the relevant time, the assessee is actually staying in Bhiwani, Haryana, as can be seen from the xerox copy of the cover of speed post filed at p. 39 of the paper book. So, when hearing is fixed on 18th Dec, 2007 and notice was issued on 14th Dec, 2007 and sending the same notice by speed post on 17th Dec, 2007 is itself nothing but disregarding the" mandatory provision laid down under Section 263 and it was not properly complied by the CIT.
8. Therefore, it is clear that the CIT has not followed the mandatory provision of giving sufficient opportunity of hearing to the assessee before passing order under Section 263. Hence, on this primary aspect itself, the order passed by the. CIT is found not valid under law as it is passed in derogation of mandatory provision in the Act.
9. Apart from that, adverting to the merits of the issue undisputedly the C assessee has offered income surrendered in the course of search,' in the return filed by him, in response to the notice issued under Section 148. During the course of the assessment proceedings it was categorically contended by the assessee before the AO that the return filed by the assessee in response to notice issued under Section 148 can be taken as revised return substituting the original return and this contention of the assessee was accepted by the AO and he ultimately passed the assessment order dt. 28th Dec, 2006 determining the taxable income at the hands of the assessee at Rs. 1,31,51,986 on addition of Rs. 3 lakhs to the income returned by the assessee. This order was accepted by the assessee, having filed no appeal before the appellate authority. While passing the assessment order, though it is mentioned at the fag end of the order as to initiation of penalty under Section 271(1)(c) of the IT Act, there is no satisfaction whatsoever as required under Section 271(1)(c) was made in the assessment order. However, the assessee has appeared in the penalty proceedings and contested the same before the AO and specifically pleading that in view of surrender of the offered income during the search in the return filed, in response to the reopening proceedings, the assessee is entitled for benefit under Expln. 5(2) to Section 271(1)(c). After due verification of the contention with reference to various pronouncements relied on by the assessee, it was observed by the AO at p. 2 of the penalty order that the assessee has no mens rea in not disclosing the income offered during the search, in the original return filed by him and further found that mens rea being the primary requirement for penalty proceedings in quasi criminal cases the mens rea is to be established to levy penalty against the assesses.
10. As in the present case that being not satisfied, the AO has found that no penalty is leviable against the assessee and accordingly dropped the penalty proceedings. While arriving at this conclusion he has relied on the provision contained in Expln. 5(2) to Section 271(1)(c) and the decision of the Hon'ble Madras High Court rendered in the case of Chandra (supra) wherein it was held that when the assessee admitted the undisclosed income represented by the assets found during the search and there is payment of taxes, no penalty can be imposed. In support of this, the assessee has relied on the copy of the computation statement enclosed with the return filed in response to the notice under Section 148 placed at pp. 15 and 16 of the paper book filed before the Tribunal. In the 2nd page of the said computation, a note was written after completion of the computation of the tax payable by the assessee to the effect that there is a search under Section 132 conducted by the Department resulting in seizure of Rs. 53 lakhs and was in the possession of the Department and the same is requested to be considered as tax payable as per the return of income, since the tax is payable only because of surrendered income of Rs. 1.21 crores only and there remained only an amount of Rs. 1,77,044 balance tax payable. This aspect of the case was not at all disputed by the Department in any proceedings. Since more than 90 per cent of the tax payable by the assessee under the return in question filed in response to notice under Section 148, the benefit under Expln. 5(2) to Section 271(1)(c) is definitely available to the assessee as was rightly found by the AO in the penalty order respectfully relying on the Hon'ble Madras High Court's decision rendered in the case of Chandru stated supra. Therefore, in this view of the matter also, the order passed by the AO in dropping the penalty proceedings of the assessee can never be said at any stretch of imagination as based on haste much less in utter haste as held by the CIT in para 6 of the impugned order.
11. On the other hand, from the observations made by the CIT in para 3 of p. 2 of the order coupled with the copies of the envelope of notice issued under Section 263 for service to the assessee, it is clear that the CIT is in haste in passing the impugned order even without following the mandatory requirement of giving an opportunity to the assessee as stated supra in Section 263.
12. Therefore, we are of the considered view that the order passed by the CIT is not at all in accordance with law applicable thereto and on the other hand, it is nothing but a hasty action taken by him which is evident from issuance of notice dt. 14th Dec, 2007 fixing the hearing on 18th Dec, 2007 and dispatching the said notice by speed post dt. 17th Dec, 2007 from Bilaspur to the assessee residing at Korba. Accordingly the order of the CIT is hereby set aside by allowing the appeal of the assessee.
13. In the result, the appeal of the assessee is allowed.