C I T JAIPUR vs. LATE SHRI GYAN CHAND JAIN THROUGH LRS

The instant appeal is directed against order of the learned Income Tax Appellate Tribunal dated 7.3.2014. It relates to the assessment year 1998-99. The Tribunal deleted penalty u/sec. 271 (1)(c) of the Income Tax Act amounting to Rs.29,02,743/-.

Brief facts noticed are that the respondent-assessee furnished return of income declaring total income of Rs.61,800/- on 30.10.1998, however, the assessment was completed on a total income of Rs.1,00,31,240/-. Thereafter proceedings u/sec. 263 were initiated by the Commissioner of Income Tax (Admn.), and 2 finding that the claim of depreciation was wrongly allowed so also other expenses by the Assessing Officer on Tractor, Jeep, Ring Machine, Dumper, Road Roller etc. @ 40% as against 25% and the other issues, the original assessment was set aside. It was noticed by the Assessing Officer that after the order passed by the Tribunal on merits pursuant to order passed u/sec. 263 by the AO, the income has been substantially enhanced to what was declared by the assessee and pursuant thereto, penalty proceedings u/sec. 271 (1)(c) were initiated. The AO, on merits found that after order of the Tribunal, following additions were sustained :- (a) Commission - Rs.19,93,474/- (b) Hire Charges (1658971/- + 1,60,000) - Rs.18,18,971/- (c) Insurance Expenses - Rs. 1,97,199/- (d) Repairs, Maintenance & Petrol Expenses - Rs. 19,280/- (e) Telephone & Trunk Calls - Rs. 20,000/- (f) Traveling - Rs. 5,000/- (g) Income from GCJ Securities Pvt. Ltd. - Rs.20,70,004/- (h) Income from other sources - Rs. 7,629/- (i) Unsecured Loans - Rs. 5,19,521/- (j) Security Deposits - Rs.24,92,238/- ------------------ Total Rs.97,65,209/- ------------------

The AO issued show-cause notice u/sec. 271(1)(c) as to why penalty be not imposed as assessee has concealed the particulars of income or has deliberately furnished inaccurate particulars of such income. However, the AO noticed that the assessee has not controverted many of the additions and the reply was also lacking

The said order was assailed before the CIT(A) who after analysing the material, upheld the findings of the AO that penalty has rightly been imposed as the assessee has deliberately furnished inaccurate particulars of income or has wrongly claimed the expenses which were not in accordance with the provisions of the Act. However, the CIT(A) sustained penalty leviable only on the commission income of Rs.19,93,474/-, and directed to levy minimum penalty of the tax sought to be evaded on the concealed income on Rs.19,93,474/-.

Both the AO as well as the respondent-assessee preferred appeals before the Tribunal.

Before the Tribunal for the first time the assessee raised a legal ground as ground no.1(b) on the premise that the penalty order is required to be treated as void ab initio for the reason that the AO has not obtained requisite prior approval of Joint Commissioner before passing order imposing penalty under 4 Chapter XXI of the Income Tax Act and that since the AO has not taken prior approval of Joint Commissioner, the entire proceeding has been vitiated and the order imposing penalty becomes null and void. On behalf of the Revenue it was contended that where Addl. CIT is functioning as AO, penalty imposed by him are not subject matter of jurisdictional dispute before the appellate authorities and the approval by Addl. CIT was just and proper. Further that the said legal issue was not raised before the lower authorities and, therefore, it could not have been raised for the first time before the Tribunal.

The Tribunal, analysing the provisions vide impugned order dated 7.3.2014 held that since the penalty imposed was without obtaining prior approval of Joint CIT, and that the approval was obtained from Addl. CIT, which was without jurisdiction and authority, the penalty order in question was quashed by the Tribunal, and having held so the Tribunal did not decide the other grounds raised on merits.

Following question was admitted by this Court :- “Whether the Tribunal was justified in holding that the prior approval taken for levy of penalty from Additional Commissioner does not fulfill the mandate under Sec.274 which provide for taking approval from Joint Commissioner in complete defiance of the definition of 5 “Joint Commissioner of Income Tax” provided u/S.2 (28C) of the Act, which includes “Additional Commissioner of Income Tax ?”

Learned counsel for the Revenue at the outset contended that the order of the Tribunal is perverse and without considering the plain and simple language of sec. 274(2) r/w sec. 2(28C) and sec. 2 (19C). Elaborating his arguments he further contended that sec. 274(2) speaks that where the penalty exceeds Rs.10,000/- no order can be passed without prior approval of Joint Commissioner. He further contended that as per sec. 2(28C) 'Joint Commissioner' means a person appointed to be a Joint Commissioner of Income Tax or an Addl. Commissioner of Income Tax. He thus contended that taking into consideration the conjoint reading of sec. 274(2) and sec. 2(28C) Addl. CIT includes Joint Commissioner and in the instant case the AO has rightly taken approval of the Addl. CIT Range-3 Jaipur on 28.6.2007 which is also part of the appeal memo and thus contended that the Tribunal is wholly unjustified in holding that the Addl. CIT was not an authority authorised by law to grant approval and it was the Joint Commissioner, who was required to accord sanction. He relied upon the judgments rendered in Dharam Pal Singh Rao v. Income-tax Officer [2004] 271 ITR 223, Farrukhabad Gramin Bank v. Addl. CIT & Anr.

Per contra, learned counsel for the assessee contended that the order of Tribunal is just and proper and is not required to be interfered with and the legal issue which went to the root of the matter was rightly raised, admitted and deliberated by the Tribunal. He further contended that plain and simple language of sec. 274(2) clearly speaks about obtaining approval of Joint Commissioner and Joint Commissioner is separately defined under the Income-tax Act, therefore, approval had to be obtained from Joint Commissioner alone and not by Addl. Commissioner.

He further contended that sec. 116 clearly specifies about income tax authorities and Addl. CITs, Joint CITs or the AOs have different roles to play and Addl. CIT might be a higher officer in hierarchy than the Joint CIT but permission under the law having not been obtained of Joint CIT, the Tribunal was justified in holding the penalty proceedings to be void ab initio. He relied upon Brij Mohan v. CIT [1979] 120 ITR 1 (SC), Varkey Chacko v. CIT [1993] 203 ITR 885, Anirudhsinghji Karansinghji Jadeja & Anr. v. State of Gujarat AIR 1995 SC 2390(1), CIT v. Pawan

In so far as the issue raised by the learned counsel for the assessee about the tax effect and the Circular dated 10.12.2015, it was contended by the learned counsel for the Revenue that this is a case of penalty imposed to the extent of Rs.29,02,743/- which may have been reduced by the CIT (A), but before the Tribunal and before this Court the issue raised is of the penalty on merits. He contended that penalty levied being in excess of Rs.20 lac, the case does not fall within the limits as mentioned in the said Circular.

We have heard the learned counsel for the parties and perused the material on record.

It would be appropriate to quote relevant sections, namely 2(1C), 2(19B), 2(28C), 116(cca), 117(1), 151, and 274(2) of the Income Tax Act, 1961 :-

In this Act, unless the context otherwise requires,— (1C) "Additional Commissioner" means a person appointed to be an Additional Commissioner of Income-tax under sub-section (1)

(1) The Central Government may appoint such persons as it thinks fit to be income-tax authorities.

(1) No notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice. (2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. (3) For the purposes of sub-section (1) and sub-section (2), the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner or the Joint Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.

(2) No order imposing a penalty under this Chapter shall be made— (a) by the Income-tax Officer, where the penalty exceeds ten thousand rupees; (b) by the Assistant Commissioner or Deputy Commissioner, where the penalty exceeds twenty thousand rupees,

On a bare perusal of the above definitions and sec. 2(28C) read with 274(2) in particular, it is clear that 'Joint Commissioner' means a person appointed to the post of Joint Commissioner of Income-Tax and includes Addl. Commissioner of Income-Tax and granting approval by the Addl. Commissioner of Income-Tax u/sec. 274(2)(b) of the Act on a permission sought by the AO before imposing penalty u/sec. 271(1)(c), in our view is accorded by the authority competent under the law.

Taking into consideration above, the Tribunal in our view erred in quashing the penalty order merely on the premise that Addl. CIT does not find place in Sec. 274(2)(b) and imposition of penalty is bad and void ab initio.

We may also deal with the contention raised by the learned counsel for the assessee about the Circular dated 10.12.2015. In our view the said Circular may not be applicable for the reason that the Revenue has assailed the penalty amounting to Rs.29,02,743/- and not only the penalty reduced by the CIT(A). Before the Tribunal, both the Revenue as well as the assessee preferred appeals and the entire penalty as referred to hereinbefore, was in issue before the Tribunal and now before this Court. Therefore, we

The judgments relied upon by the assessee basically are the principles of interpretation of the provisions of law, before us when the provision is self explicit clear and plain language is unambiguous, need no interpretation.

The judgment in the case of Brij Mohan v. CIT (supra), was a case relating to the change of law before and after amendment made in sec. 271(1)(c) clause (iii) of the Finance Act, 1968. In our view, this case is not relevant for the present purpose.

On the facts and in view of the law analysed hereinbefore, the order of Tribunal is not sustainable in law and deserves to be quashed and accordingly quashed.

The appeal accordingly succeeds, the question of law is answered in favour of the Revenue and against the assessee. No costs. (J.K. Ranka) J. (Ajay Rastogi) J. db 51 [All corrections made in the judgment/order have been incorporated in the judgment/order being emailed.] Deepankar Bhattacharya PS