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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HONBLE KUL BHARAT & HONBLE MANISH BORAD
PER MANISH BORAD, AM.
The above captioned appeal relating to Assessment Year 2010-
11 is directed against the orders of Ld. Pr. Commissioner of Income
Tax -2, Bhopal (in short ‘CIT(A)’), dated 28.02.2018, which is
arising out of order u/s 143(3) r.w.s 147 of the Income Tax Act (In
short the ‘Act’) dated 30.03.2016 framed by ITO-4(4), Bhopal.
Shyam Pratap Singh Shekhawat ITA No.304/2018 2. Brief facts of the case as culled out from the records are that
the assessee is an individual and retired from defence services. He
also derives income from house property and income from business
and profession. Original return of income was filed on 29.07.2010
showing income of Rs.3,19,179/- The case was reopened u/s 147
by issuing notice u/s 148 on 24.03.2015 and in pursuance to
same, the assessee has filed the return showing income of
Rs.7,43,010/- and attached the tax audit report along with the
return. Assessment u/s 143(3)/ 147 was completed vide order
dated 30.03.2016. Addition of Rs. 1,00,000/- was made in this
assessment. Notice u/s 263 of the Income Tax Act, 1961 was issued
by the Principle Commissioner of Income Tax-2, Bhopal on
02.02.2018 for the reasons that the assessee in the return filed in
compliance to notice u/s 148 of the Act has increased his income
by Rs.4,05,697/- but the Assessing Officer has not initiated penalty
proceedings u/s 271 (1)(c) of the Act. Ld. PCIT also observed that
Interest of Rs.1,229/- received by the assessee u/s 244A on Income
Tax refund for A.Y. 2008-09 has been not offered for taxation.
After considering the submissions of the assessee the Ld. PCIT
framed order u/s 263 of the Act directing the Ld. A.O to frame the 2
Shyam Pratap Singh Shekhawat ITA No.304/2018 assessment denovo as per the finding given in the order u/s 263 of
the Act.
Aggrieved assessee is now in appeal before the Tribunal
raising following grounds of appeal;
That on the facts and in the circumstances of the case, the order passed u/s 263 of the Act by the Principle Commissioner of Income Tax-2, Bhopal is unjust, unfair and bad in law as the reasons stated in the order are not proper and sufficient for setting aside the assessment and the order passed by the Assessing Officer u/s 143(3)/147 of the Act is not erroneous and prejudicial to the interest of revenue. 2. That under the circumstances, the order u/s 263 passed by the Principal Commissioner of Income Tax is bad in law because the same was passed for the reason that the Assessing Officer failed to initiate penalty proceedings during assessment proceedings though this basis is not sufficient for setting aside the assessment completed u/s 143(3)/147 of the Act. 3. That the order passed u/s 263 is also not correct because the same was passed for the reason that the assessee has not offered the interest of Rs.1229/- u/s 244A on income tax refund for A.Y.2008-09 though the assessee has not received any interest on such refund as the same was not reflecting in Form 26AS. 4. That the appellant craves leave to add, to urge, to alter or to amend any of the ground of appeal on or before the date of hearing.
At the outset Ld. Counsel for the assessee was fair enough to
concede that the issue raised in this appeal is squarely covered
Shyam Pratap Singh Shekhawat ITA No.304/2018 against the assessee by the judgment of Hon’ble jurisdictional High
Court in the case of ACIT vs. Indian Pharmaceuticals (1980) 123
ITR 0874 wherein the Hon’ble High Court held “that the
Commissioner was right in exercising jurisdiction conferred on him
u/s 263 of the Act as the Ld. A.O during the course of assessment
proceedings failed to take notice of the facts attracting the penalty
u/s 271(1)(c) of the Act which alternatively ended in an order of
assessment being erroneous”.
Ld. Departmental Representative vehemently argued and
supporting the order of Ld. PCIT and also contention made by the
Ld. Counsel for the assessee.
We have heard rival contentions and perused the records
placed before us. Through this appeal the assessee has challenged
the order u/s 263 of the Act framed by Ld. PCIT. The facts in brief
are that the assessment u/s 143(3) r.w.s. 147 of the Act were4
completed on 30.03.2016 assessing income at Rs.11,22,890/-. The
case was reopened u/s 148 of the Act for mismatch between TDS
claimed by the assessee and data available at 26AS. In compliance
u/s 148 of the Act the assessee filed revised return of income at 4
Shyam Pratap Singh Shekhawat ITA No.304/2018 Rs.10,22,892/-. Additions were made by Ld. A.O but he failed to
initiate penalty proceedings u/s 271(1)(c) of the Act. Subsequently
Ld. PCIT exercising power u/s 263 of the Act observed that the Ld.
A.O failed to initiate penalty proceedings u/s 271(1)(c) of the Act
and also the assessee has not offered the interest income of income
tax refund for taxation. On the basis of these two observations Ld.
PCIT held the order of the Ld. A.O as erroneous and gave direction
to pass the assessment order afresh.
Now we have to adjudicate the issue that whether the failure
on the part of Ld. A.O to initiate penalty proceedings is a sufficient
reason for the Ld. PCIT to pass an order u/s 263 of the Act for
revising the assessment order.
Ld. Counsel for the assessee fairly accepted that the similar
issue has been decided by the Hon’ble jurisdictional High Court in
favour of the revenue in the case of ACIT v/s Indian
Pharmaceuticals (supra). The relevant extract of the judgment of
Hon’ble jurisdictional High Court is extracted below;
“7. In CIT v. Bhikaji Dadabhai and Co. [1961] 42 ITR 123, their Lordships of the Supreme Court were considering the provisions of the Hyderabad 5
Shyam Pratap Singh Shekhawat ITA No.304/2018 Act, which were similar to the provisions contained in the Indian I.T. Act, Their Lordships quoted the view taken by the High Court :
" The Hyderabad Income-tax Act also used the expression ' assessment' in different senses. In certain sections, for instance sections 31 and 39, the expression is used as in the sense of mere computation of income ; in other sections it is used in the sense of determination of liability and in certain other sections in the sense of machinery for imposing liability and procedure in that behalf. By the Finance Act, 1950, the Hyderabad Income-tax Act was expressly kept alive in respect of periods which include the assessment year in question for purposes of levy, assessment and collection of income-tax. The High Court expressed the view that the word 'assessment' in Section 13(1) included the whole procedure for imposing liability upon the taxpayer but not to the procedure for imposing a penalty, They thought that the Hyderabad Income-tax Act dealt with liability to pay income-tax and penalty in distinct provisions, both relating to imposition and recovery and that if the Legislature had intended to keep alive the Hyderabad Income-tax Act for all purposes including the levy of penalty with respect to any particular year or years of assessment, it could have said so in terms clear and unambiguous instead of limiting the operation only to ' levy, assessment and collection '. In the view of the High Court, imposition of penalty was not a necessary concomitant or incident of the process of assessment, levy and collection of tax.
The High Court proceeded upon the view that by saving the Hyderabad Income-tax Act for the purposes of levy, assessment and collection of income-tax, the entire procedure for imposing liability to pay tax and for collection of tax was saved, but penalty not being tax, provisions relating to imposition of and collection of penalty did not survive the repeal of the Hyderabad Income-tax Act."
Shyam Pratap Singh Shekhawat ITA No.304/2018 and thereafter following the decision in C. A. Abraham v. ITO [1961] 41 ITR 425 (SC) quoted with approval (at p. 127):
"The expression 'assessment' used in these sections (provisions of Chapter IV of the Indian Income-tax Act) is not used merely in the sense of computation of income and there is in our judgment no ground for holding that when by Section 44, it is declared that the partners or members of the association shall be jointly and severally liable to assessment, it is only intended to declare the liability to computation of income under Section 23 and not to the application of the procedure for declaration and imposition of tax liability and the machinery for enforcement thereof...By Section 28, the liability to pay additional tax which is designated penalty is imposed in view of the dishonest or contumacious conduct of the assessee. "
and on this basis allowed the appeal. It is, therefore, clear that according to the view of their Lordships of the Supreme Court the word "assessment" is not used in the Indian I.T. Act in the narrow sense of computing income only but is used in a wider perspective and, therefore, when proceedings for assessment are pending before the ITO, if facts attracting the provisions of Section 271(1)(a) come to his notice while proceeding with the assessment, it is necessary for the ITO to invoke the provisions for the recovery of penalty.
Learned counsel for the assessee referred to the Note at page 1207 in Kanga and Palkhivala's " The Law and Practice of Income-tax ", seventh edn., Vol. I, wherein the observations of their Lordships of the Supreme Court in C.A. Abraham v. ITO [1961] 41 ITR 425 have been analysed and it appears that the learned author has suggested that tax and penalty are distinct and different concepts and has noted some cases of their Lordships of the Supreme Court. But in the present case we are not concerned with the observations in [1961] 41 ITR 425 about penalty being 7
Shyam Pratap Singh Shekhawat ITA No.304/2018 described as additional tax, but we are only concerned with the meaning of the word "assessment" and learned counsel for the assessee could not contend that that view taken by their Lordships of the Supreme Court has been given up in subsequent decisions.
The decision reported in M. A. Abdul Waheed v. CCT [1972] 30 STC 277 on which reliance has been placed by the Tribunal is a sales tax matter. In that decision, a Division Bench of the Madras High Court took the view that under Section 12(2) of the Tamil Nadu General Sales Tax Act power is conferred to make the assessment and once the assessment is made the power has been exercised properly as, according to their Lordships, the assessment could not be set aside on the ground that the assessing officer overlooked the provisions of Section 12(3) of that Act and failed to exercise the power while making the assessment. In that case, their Lordships were dealing with the Tamil Nadu Sales Tax Act and it is not clear as to what is the scheme of assessment in that law. So far as the I.T. Act is concerned, the scheme of assessment as considered by their Lordships of the Supreme Court is not restricted to the mere computation of income and tax but a number of other things and, therefore, in the proceedings for assessment if the ITO fails to take notice of the facts attracting the provisions contained in Section 271(1)(a), it could not be said that his failure to take notice of the facts which were before him attracting the provisions of Section 271(1)(a) does not amount to an error prejudicial to the interests of the revenue.
It was contended by learned counsel that even if the ITO omitted to take note of the facts attracting the provisions under Section 271(1)(a) during the proceedings of assessment it may be that some error in the proceedings has been committed. But so far as the order of assessment is concerned, according to learned counsel, failure to take action under Section 271(1)(a) could not be said to be an error if the order of assessment otherwise is found to be in order. This contention of learned counsel for the assessee cannot be accepted in view of the wide meaning given to the term "assessment" as laid down by their Lordships of the 8
Shyam Pratap Singh Shekhawat ITA No.304/2018 Supreme Court in the cases referred to above. It is also not disputed before us that the proceedings of assessment are, not only computation of income and tax but various other things which fall within the scheme of Chap- XIV which talks of procedure for assessment. And it also could not be disputed that when Section 271(1) talks of "proceedings pending" it will include the proceedings for assessment within the scheme of Chap. XIV of the Act, and the proceedings of assessment under the scheme of this law ultimately culminating in an order of assessment.
Section 263(1) of the Act reads :
" 263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. "
Under this provision, jurisdiction is conferred on the Commissioner to call for and examine the record of any proceeding under this Act and on such examination if he finds that the order passed therein by the ITO is erroneous in so far as it is prejudicial to the interests of the revenue, he may revise the order after following the procedure prescribed under this provision. If, therefore, the ITO during the pendency of the proceedings has omitted to take notice of facts attracting Section 271(1)(a) of the Act during the pendency of proceedings which ultimately ended in an order of assessment, the order would be erroneous and in this view of the matter, the Commissioner was right in exercising jurisdiction conferred on him under Section 263 of the Act.
In this view of the matter, therefore, our answer to the question referred to us is in the negative. In the circumstances of the case parties shall bear their own costs.
Shyam Pratap Singh Shekhawat ITA No.304/2018 9. From going through the above referred judgment and
examining the fact of the instant appeal we find that in this case
also Ld. A.O failed to initiate the penalty proceedings u/s 271(1)(c)
of the Act towards the income concealed by the assessee. Therefore
in our considered view Ld. PCIT was right in exercising the power
conferred to him u/s 263 of the Act and setting aside the
assessment order u/s 143(3) of the Act treating it as erroneous and
prejudicial to the interest of revenue. Accordingly the grounds
raised by the assessee are liable to be dismissed.
In the result appeal of the assessee is dismissed.
The order pronounced in the open Court on 26.07.2019.
Sd/- Sd/-
( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER �दनांक /Dated : 26 July, 2019 /Dev
Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file. By order Assistant Registrar, ITAT, Indore