THE COMMISSIONER OF INCOME TAX vs. SANJIV KUMAR,LUDHIANA

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.R. No. 31 of 2002 DATE OF DECISION: FEBRUARY 04, 2008 The Commissioner of Income-tax (Central), Ludhiana .....PETITIONER Versus Shri Sanjiv Kumar, Ludhiana ....RESPONDENT CORAM: HON'BLE MR.JUSTICE SATISH KUMAR MITTAL HON'BLE MR.JUSTICE RAKESH KUMAR GARG --- Present: Mr. Sanjiv Bansal, Advocate, for the revenue. .. SATISH KUMAR MITTAL, J. Pursuant to the directions given by this Court vide order dated February 26, 2001 passed in ITC No.157 of 1996 filed by the revenue, to draw up a statement of the case and refer the following substantial question of law to this Court, the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as `the ITAT') has referred the said question for the opinion of this Court:- “Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in cancelling the penalties levied u/s 271(1)(a), 273(2)(aa) and 271(1)(c) merely holding that since the entire addition made by the Assessing Officer has been deleted by the Income-tax Appellate Tribunal, there is no case for sustaining the penalties without appreciating the fact that reference application u/s 256(2) filed against the deletion of addition is pending before the Hon'ble High Court for adjudication?” In the present case, for the Assessment Year 1981-82, the assessee filed its original return of income on 24.08.1981 declaring an income of Rs.55,574/-. The assessment was completed under Section 143 (3) of the Income Tax Act (hereinafter referred to as `the Act') on the declared income on 30.9.1983. Subsequently, the case was reopened

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-2- under Section 148 of the Act on certain information when it was noticed that the assessee had understated the purchase price of 810 shares of M/s. Angoora Wool Combers Pvt. Ltd. The Assessing Officer issued notice on 10.5.1985 to the assessee. Pursuant to the return filed by the assessee on 19.2.1986, the Assessing Officer initiated and levied penalty under Section 271(1)(a) for late submission of return. Penalty under Section 271(1)(c) was levied for concealment of income and also under Section 273(2)(aa) for default in payment of advance tax and for filing untrue estimate of the advance tax. The Assessing Officer, after issuing notice under Section 148 of the Act, proceeded to make fresh assessment and made an addition of Rs.1,14,502/- on account of under-valuation of the purchase price of shares. The value of each share was fixed at Rs.149.36. Feeling aggrieved against the aforesaid order, the assessee went in appeal which was partly allowed by the Commissioner of Income Tax (Appeals). Against that order, the assessee further filed an appeal before the ITAT. The ITAT vide order dated 5.6.1990 deleted the entire addition while relying upon its earlier decision dated 4.4.1990 passed in ITA No.175 of 1986 in the case of Shri Dharam Pal and it was held that the issue involved regarding the price of the share was squarely covered by the said decision. In view of the said order, the assessee went in appeal against the levy of aforesaid three penalties with the plea that when the entire addition stands deleted , there was no case whatsoever for levy of penalty under any of the three different provisions of the Act. The Commissioner of Income Tax (Appeals) allowed the appeal and deleted all the penalties. The revenue filed an appeal against the said order. The

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-3- same was also dismissed by the ITAT while holding that after the entire addition was deleted, there was no case for sustaining the penalty under any of the three provisions of the Act. It has further held that since the very basis had disappeared, the levy of penalty was cancelled. During the course of arguments, it has not been disputed that the addition made by the Assessing Officer on account of price of the share was deleted by the ITAT and that order has become final. After hearing the counsel for the revenue and going through the reference as well as the finding recorded by the ITAT pertaining to the deletion of the addition made by the Assessing Officer as also the order deleting the penalty, we are of the opinion that once the entire addition has been deleted, then there remains no case for penalty whatsoever. The very basis of issuance of notice had disappeared. Once the addition was deleted, there was no requirement for the assessee to file the return showing higher income. Admittedly, present case is not a case of concealment of income nor the revenue has been able to establish such fact. Therefore, in our opinion, the ITAT has rightly come to the conclusion that after the entire addition was deleted, there was no case for sustaining the penalty under any of the three provisions of the Act. Accordingly, the reference is answered against the revenue and in favour of the assessee. Disposed of accordingly. (SATISH KUMAR MITTAL) JUDGE

February 04, 2008 (RAKESH KUMAR GARG) vkg JUDGE