PATEL CHEMICALS WORKS vs. ASSESSING OFFICER

On 3-4-2000, this appeal came to be admitted by TAXAP/77219/1999 2/10 this Court and in the said order of admission the following eight questions were formulated by this Court for determination : “(1) Whether the Tribunal erred in upholding the imposition of penalty on the basis of the decision in Mc Dowell and Co. CTO (1985) 154 ITR 148? (2) Whether the Tribunal erred in holding that the contracts with the sister concerns were sham transactions ? (3) Whether the Tribunal erred in holding that the appellant had diverted its income to sister concerns ? (4) Whether the Tribunal erred in applying sec.6 of the Indian Evidence Act when the assessee had filed its return in a statutory form as required ? (5) Whether the Tribunal erred in confirming the Commissioner's order for one charge when the penalty order was for another charge and the show cause notice was for still another charge? (6) Whether the Tribunal erred in holding that explanation 1 to sec. 271(1)(c) was applicable in this case ? (6A) Whether the Tribunal erred in holding that TAXAP/77219/1999 3/10 the appellant's transactions with sister concerns were sham transactions although the income from those transactions were taxed in the hands of the sister concerns on substantive basis? (7) Whether the Tribunal erred in confirming the Commissioner's order on a basis different from the basis of his order, thus making a new order to the detriment of the assessee in the assessee's appeal?”

Heard the learned advocate for the appellant – assessee and the learned Senior Standing Counsel appearing for the respondent. Though the submissions have been made by both sides on various issues raised by the aforesaid questions in light of the view that the Court is inclined to adopt it is not necessary to set out the facts and the contentions in elaborate detail.

Assessment Year in question is 1982-83. 4. The assessee firm returned total income of Rs.95,965/- as per the Return of Income filed on 15-07-1982. Vide assessment order dated 30-03-1985 the assessment was framed at total income of Rs.2,59,383/- which, inter-alia, included addition of Rs.1,61,018/- stated to be on account of diversion of profits by the sham transaction with sister concerns of the assessee firm. According to TAXAP/77219/1999 4/10 the Assessing Officer, out of total sales of Rs.18,98,928/- the assessee firm had effected sales to the tune of Rs.11,00,547/- to three sister concerns at the prices which were lower than the prices charged by the assessee to the persons other than three sister concerns.

The assessee carried the matter in successive appeals before the Commissioner (Appeals) and the Tribunal but did not succeed. The Tribunal's order in quantum proceedings was brought before this Court by way of Income-Tax Reference No. 220 of 1989 wherein the following question of law was raised. “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in finding that tax was avoided without ascertaining whether there is any revenue loss on account of non-inclusion of the income in question in the assessee's assessment and its inclusion in the assessment of the sister concerns?”

The High Court vide its judgment rendered on 14-07-2003 answered the question in the affirmative i.e. in favour of the revenue and against the assessee.

The quantum proceedings have rested at this stage.

The present appeal pertains to penalty levied by the Assessing Officer at a sum of Rs.2,12,332/- under Section 271(1)(c) of the Income-Tax Act, 1961

One of the principal contentions raised in the penalty proceedings relates to the very same income arising out of the sale transactions, being taxed in the hands of three sister concerns and thus, the assessee not being liable to penalty, income in question having been declared by three sister concerns. The said contention has been reproduced by the Tribunal in paragraph No.6.1 of impugned order dated 08-09-1999. The contention has been dealt with by the Tribunal in its impugned order in the following terms : “The last contention of the ld. Counsel which remains to be considered is based on so called principle of double taxation as argued by the assessee. The ld. Counsel urged that since the profits diverted by the assessee to the sister concerns have already been assessed in the hands of the sister concerns, these can not be assessed again in the hands of the assessee firm and on this ground penalty, according to the ld. Counsel, cannot be sustained u/s. 271(1) (c). In our considered opinion the plea based on the concept of double taxation, suffers from an inherent infirmity inasmuch as it proceeds on TAXAP/77219/1999 6/10 the erroneous presumption that the Revenue is debarred from assessing the income belonging to the assessee in the hands of the assessee on the ground that the said income has been declared by another person and the same has been assessed by the AO. It is well established by various judicial pronouncements of the Hon'ble 130-ITR-244 (SC) : ITO Vs. Rattanlal and Others (1984) 145-ITR-183 (SC) and the ITO Vs. Bachulal Kapoor 60-ITR-74. The Apex Court observed in the case of ITO Vs. Ch. Atchaiah (1996) 218-ITR-239 (SC) as under : “We are of the opinion that under the present Act, the Income-tax Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By “right person”, we mean the person who is liable to be taxed, according to law, with respect to a particular income. The TAXAP/77219/1999 7/10 expression “wrong person” is obviously used as the opposite of the expression “right person”. Merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing the right person with respect to that income. This is so irrespective of the fact which course is more beneficial to the Revenue.” In view of the aforesaid settled legal position, the contention of the ld. Counsel is entirely

It is in the aforesaid context that Question No. (6A) as appearing hereinbefore assumes importance. The contention raised on behalf the assessee has been misconstrued by the Tribunal and dealt with as if the Tribunal was deciding the quantum appeal by referring to the various decisions to hold that income is liable to be taxed in the hands of the right person regardless of whether the same income has been declared and taxed in the hands of a different person. In so far as assessment proceedings are concerned, there can be no dispute with the aforesaid proposition.

However, when the issue is raised in penalty proceedings the factum of the very same income having been offered for tax by different entity and having been taxed substantially in the hands of other

Instead of recording any final decision one way or the other in the present proceedings, it would be just and fair to both the sides if the tribunal is TAXAP/77219/1999 9/10 called upon to record a specific finding in this regard, namely, if the income from the transactions with the three sister concerns had already been taxed on a substantive basis in hands of the three sister concerns whether it was open to the Revenue to levy penalty under Section 271(1)(c) of the Act.

On other questions various submissions were made by both the sides. But the Court finds that for recording a correct and complete finding, the appeal is required to be restored to the file of the Tribunal instead of sending only one issue to be decided by the Tribunal. Therefore, all respective contentions available to both the sides on facts and in law are left open without recording any opinion in this regard so as to enable the parties to raise all the contentions of facts and law before the Tribunal when the appeal is heard by the Tribunal. This is necessary as the issues are interlinked and any segregation, or partial decision may result in prejudice to one or the other side.

In the circumstances, in light of the view that the Court has adopted, all other questions are left unanswered leaving it open to the Tribunal to decide the entire penalty appeal afresh. Accordingly, I.T.A. No.2553/AHD/1993 for the assessment year 1982-83 stands restored to the file of Income-Tax Appellate Tribunal, Ahmedabad Bench upon the order dated 6-8-1999 being quashed and set aside. The Tribunal shall decide the entire appeal

The appeal stands disposed of accordingly, with no order as to costs. (D.A. Mehta, J.) (Bankim N. Mehta, J) /JVSatwara/