THE CIT vs. M/S. LMP PRECISION ENGINEERINGCO.P.LTD.

The brief facts leading to this reference are such that the assessee company is engaged in the manufacture of rigs. For the assessment year 1986-87, it filed the original return on 26.8.1986 declaring total income of Rs.20,48,807. The assessment was completed under Section 143(3) determining total income at Rs.56,14,730/-. Subsequent to the survey conducted by the Department, the assessee filed a revised return on 14.2.1984 disclosing income of Rs.38,48,807/-. The return was regularized by issue of a notice under Section 148 and the assessment was completed under Section 143(3) read with Section 147, determining total income at Rs.38,96,280/-. The Assessing Officer initiated penalty proceedings and finally levied a penalty of Rs.6,00,000/- under Section 273(2) (a) by an order dated 5.12.1991. 2. The assessee went in appeal before the C.I.T.(A) and the C.I.T.(A) vide his order No.CAS/943/91-91 dated 20.7.1992 dismissed the appeal. Not satisfied with this order, the assessee preferred an appeal before the I.T.A.T. The Tribunal vide its common order ITA No.3710 and 3711/Ahd/92 and ITA No.267/Ahd/93 dated 23.8.96 had deleted the penalty order on legal point without going into the merits of the case. According to the Tribunal, the penalty proceedings under Section 273 can be initiated only during `regular assessment' and in this case the penalty proceedings under Section 273 have been initiated in the reassessment stage which cannot be termed as `regular assessment.'

On the above facts, the following question is referred: “Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that penalty u/s 273(a) (aa) cannot be levied as it has been initiated

Learned advocate Mr.Mehta for the applicant submitted that the penalty proceedings under Section 273 of the I.T.Act was initiated in the original assessment order passed under Section 143(3) on 18.6.1987. However, because of the pendency of appeal before the Tribunal against original assessment order, penalty was not finalized. Finally, the order of Tribunal dated 17.5.1991 was received in C.I.T.'s office on 17.6.1991 which provided full six months time for finalizing the penalty order. While finalizing the penalty (on 5.12.91), the A.O. naturally considered the reassessment order which was in existence by that time (15.4.91) for working out the quantum. Therefore, it is factually incorrect to say that the penalty proceeding under Section 273 culminating in levy of penalty under Section 273(2)(aa) was initiated during reassessment proceedings.

Learned advocate Mr.Soparkar relied upon the decisions in the case of French Dyes and Chemicals (India) Pvt.Ltd. V/s Commissioner of Income-Tax, reported in 1991 ITR 609 (Bombay) wherein in head-note it is mentioned as under: “PENALTY-FAILURE TO PAY ADVANCE TAX- PENALTY IS VELIABLE ONLY IN THE COURSE OF “REGULAR ASSESSMENT” - ”REGULAR ASSESSMENT” MEANS AN ASSESSMENT UNDER SECTION 143 OR SECTION 144 – MEANS THE INITIAL OR FIRST ORDER OF ASSESSMENT AND NOT ANY SUBSEQUENT ORDER OF ASSESSMENT – INCOME-TAX ACT, 1961, ss.143, 144, 210, 273.”

He further relied on the decision in the case of Commissioner of Income-Tax V/s Smt.Padam Kumari Surana, reported in 1994 ITR 155 wherein in paragraph 6 it is mentioned that: “We find substance in the submission of the assessee's counsel and are unable to widen the meaning of the aforesaid expression by importing into it something not provided for. Under this definition, only a proceeding which is taken under sections 143 and 144 is covered. The Legislature, if it had desired to empower the income-tax authorities to impose penalty, even in reassessment proceedings, it could have provided for the same. The Allahabad High Court in CIT v.Smt.Jagjit Kaur[1980]126 ITR 540, held that the assessments made under section 147(a) read with section 143(3) were not “regular assessments” within the meaning of section 273(b) read with section 212(3) and, therefore, the levy of penalty was not valid. We are in agreement with the aforesaid view and hold that we cannot read the words “regular assessment” as occurring in section 273 as justifying the levy of penalty in the proceedings under section 147(b). The same view was taken by the Punjab and Haryana High Court in Smt.Kamla Vati v. CIT[1978]111 ITR 248 and by the Patna High Court in the case of CIT v.Ram Chandra Singh [1976] 104 ITR 77.”

He also relied on the decision in the case of D.Swarup. Income-Tax Officer, Companies Circle, Bombay V/s Gammon India Ltd., reported in 1983 ITR 841 in which in paragraph 9 is mentioned that: “By way of illustration, one more provision may be referred to. That provision is contained in s.263 of the Act, which deals with the revisional juri iction of the Commissioner. Sub- section (2) of section 263 specifically provides that “no order shall be made under sub-section (1)(a) to revise an order of reassessment made under section 147”. The illustrations pointed out by Mr.Dastur highlight the fact that a “regular assessment” under ss.143 and 144 and reassessment under s.147 have been separately dealt with in the different provisions of the Act. Therefore, having regard to the terminology used in s.273, it will be difficult to hold that the words “regular assessment” in s.273 should also take in reassessment made under s.147.”

The learned Tribunal has given the findings in paragraph 7 of the impugned order which reads as under:

On hearing the learned counsel for the parties and perusing the papers, we are of the opinion that this was reassessment and therefore the provisions of Section 273(2)(aa) will not be applicable in the reassessment proceedings. Hence, this reference is answered in favour of the assessee and against the department. (K.S.JHAVERI, J.) (K.J.THAKER, J) Srilatha