THE COMMISSIONER OF INCOME TAX,KANNUR vs. M/S.CANNANORE CO-OP.HOSPITAL SOCIETY

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ITA/138/2010HC KeralaKLHC01026830201021 July 2010Bench: HONOURABLE MR.JUSTICE. P.S.GOPINATHAN,HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Tribunal was justified in cancelling the suo motu revisional order issued by the Commissioner. The court found that the assessee, a co-operative society running a hospital, had been in existence for 26 years without its notice by the department, and its assessments showed heavy losses. The court felt that the department should have been lenient given the 25-year delay in detection and the technical violation of delay in audit, which the Assessing Officer had correctly addressed by dropping the penalty. Since the Tribunal found no justification for the penalty on merits, the High Court saw no need to consider the questions of law pertaining to the Tribunal's jurisdiction. The appeals were accordingly dismissed.

What were the facts?

The assessee, M/s. Kannur Co-operative Hospital Society Ltd., a co-operative sector hospital established in 1980, had its assessment completed showing heavy losses. The society did not file returns for 26 years, and its existence was only brought to the notice of the Income Tax Department in 2006 through a survey. The Assessing Officer had previously dropped a proposed penalty. The Commissioner of Income Tax, Kannur, issued a suo motu revisional order under Section 263 of the Income Tax Act, levying penalty, which was challenged before the Income Tax Appellate Tribunal (ITAT). The ITAT cancelled the revisional order. The Commissioner has appealed this decision before the High Court.

What were the issues?

1. Whether the Tribunal was justified in cancelling the suo motu revisional order issued by the Commissioner under Section 263 of the Income Tax Act, which sought to levy penalty under Section 271B, a penalty previously dropped by the Assessing Officer? Assessee's Contention: The judgment does not explicitly record the assessee's contentions before the High Court. However, the High Court's reasoning implies that the assessee likely argued for leniency given the long period of non-detection by the department and the fact that the hospital was incurring heavy losses. Revenue's Contention: The Commissioner initiated revisional proceedings under Section 263, indicating a belief that the Assessing Officer's order dropping the penalty was erroneous and prejudicial to the revenue. The appeal by the Revenue before the High Court suggests they argued that the Tribunal erred in cancelling the revisional order and levying penalty.

Which sections of the Income-tax Act were involved?

Section 263,Section 271B

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN WEDNESDAY, THE 21ST JULY 2010 / 30TH ASHADHA 1932 ITA.No. 138 of 2010() --------------------- ITA.442/2009 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT ---------------------------------------- THE COMMISSIONER OF INCOME TAX, KANNUR. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT ------------------------ M/S.KANNUR CO-OPERATIVE HOSPITAL SOCIETY LTD,TALAP,KANNUR-2.

THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ALONG WITH ITA NO.139/2010 & CONN. CASES ON 21/07/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. .................................................................... I.T. Appeal Nos.138,139,141,142 & 175 of 2010 .................................................................... Dated this the 21st day of July, 2010. JUDGMENT Ramachandran Nair, J. Question raised is whether the Tribunal was justified in cancelling suo moto revisional order issued by the Commissioner under Section 263 of the Income Tax Act levying penalty under Section 271B which was dropped by the Assessing Officer. On facts, we find that the respondent is a hospital in the Co-operative sector, the assessment of which is completed on heavy loss. Further, the Co-operative Society running the hospital which started in 1980, did not file return for 26 years and only in 2006 in a survey the existence of the assessee came to the notice of the Income Tax Department. Penalty proposed by the Commissioner in suo moto proceedings is the one considered and dropped by the Assessing Officer. A Co-operative Society's accounts are to be audited mainly by the Auditors appointed under the statute and in several cases we find inordinate delay in finalisation of auditing of Society's accounts by the statutory Auditor. The department only encouraged the omissions on the part of the assessee because for 25

ITA 138/10 & conn. 2 years the assessee's existence was not noticed by the department. We feel when assessment is commenced after detection after 25 years of running a Co-operative Hospital, the department should be lenient and this is exactly what the Assessing Officer did by dropping penalty for the technical violation of delay in audit. Assessments are completed on heavy losses. Since respondent is a Co-operative society running a hospital on heavy losses, we do not think there is any justification to interfere with the orders of the Tribunal cancelling the suo moto revisional orders issued by the Commissioner to levy penalty. Sicne the Tribunal has found on facts no justification for penalty on merits, there is no need for us to consider the questions of law raised pertaining to jurisdiction of the Tribunal. Accordingly appeals are dismissed. C.N.RAMACHANDRAN NAIR Judge P.S.GOPINATHAN Judge pms

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