ROYAL CRYSTAL DEALERS PRIVATE LIMITED vs. INCOME TAX OFFICER

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CW/9560/2022HC RajasthanRJHC02051284202205 January 2024Bench: ARUN BHANSALI,ASHUTOSH KUMAR4 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the penalty order dated March 25, 2022, was passed on a mistaken assumption that no response was filed by the petitioner, whereas the response was factually part of the Authority's record. This indicated a mechanical exercise and non-application of mind. The Court found that the respondents' stand that this aspect did not fall within the parameters of Section 154 was unsustainable. Once it was factually found that an incorrect statement regarding the filing of the response was made, which was fundamental to the decision, the Authority should have accepted the mistake and recalled the order. Based on the respondent's counsel's submission that the petitioner's response was indeed on record, the Court found that the order dated March 25, 2022, was passed ignoring the reply. Consequently, the rectification order dated June 10, 2022, was set aside, and the penalty order dated March 25, 2022, was also set aside. The respondents were directed to pass a fresh order after providing an opportunity of hearing to the petitioner. The Court expressly left undecided the merits of the penalty proceedings themselves, as the matter was remanded for fresh consideration.

What were the facts?

The petitioner, Royal Crystal Dealers Private Limited, is aggrieved by a penalty order dated March 25, 2022, a rectification order dated June 10, 2022, and a consequent demand notice dated March 25, 2022. The penalty order under Section 271(1)(c) was passed by the Income Tax Officer (ITO) observing that no reply or adjournment was sought by the assessee. The petitioner had filed an appeal against an order under Section 144/263, which was decided against them. The petitioner then filed a Section 154 application seeking rectification, contending that a reply was indeed filed and the appeal had not been decided. The ITO partly accepted the rectification, correcting the fact about the appeal decision but stating that the issue of whether a reply was filed was outside the scope of Section 154.

What were the issues?

1. Whether the Income Tax Officer erred in passing the penalty order under Section 271(1)(c) on the assumption that no reply was filed by the assessee, when a reply was factually on record. (Question of fact and law, turning on Section 271(1)(c) and principles of natural justice). 2. Whether the Income Tax Officer erred in rejecting the rectification application under Section 154 of the Income Tax Act, 1961, on the aspect of whether a reply was filed, despite the reply being part of the record. (Question of law, turning on Section 154). Assessee's contentions: The petitioner argued that the penalty order was passed on a factually incorrect premise that no reply was filed, despite acknowledgments showing the reply was submitted. The denial to rectify this mistake under Section 154 was unsustainable, and the impugned orders should be quashed. Revenue's contentions: The respondents reiterated the ITO's stand that the issue of whether a reply was filed did not fall within the parameters of Section 154, and thus the application was rightly rejected to that extent.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 144,Section 263,Section 154

AI-generated summary — verify with the full judgment below

[2024:RJ-JP:698-DB] HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Civil Writ Petition No. 9560/2022 Royal Crystal Dealers Private Limited, Principal Place Of Business At D-Block, Multimetals Limited Campus, 6-7 Heavy Industrial Area, Kansua Road, Kota-324003 Rajasthan Through Its Director Rajesh Kumar Patil, S/o Sh. Raja Ram Patil, Aged About 54, R/o H.no. A 249, Shelke Sadan, Opp. Bala Ji Market, Rangbari Road, Veersavarkar Nagar, Kota-324005, Rajasthan ----Petitioner Versus 1. Income Tax Officer, Ward - 2(1), Dainik Navjyoti Building, Rawatbhata Road, Kota, Rajasthan. 2. National Faceless Assessment Centre, 4Th Floor, Mayur Bhawan, Conaught Place/circus, New Delhi-110001 ----Respondents For Petitioner(s) : Mr. Sanjay Jhanwar, Sr. Adv. assisted by Ms. Vrinda Balotia Mr. Rajat Sharma For Respondent(s) : Mr. Shantanu Sharma with Ms. Bhawna Laddha HON'BLE MR. JUSTICE ARUN BHANSALI HON'BLE MR. JUSTICE ASHUTOSH KUMAR Order 05/01/2024 1. This petition has been filed by the petitioner aggrieved of the penalty order dated 25.03.2022, the rectification order dated 10.06.2022 and consequent demand notice dated 25.03.2022. 2. The order impugned dated 25.03.2022 (Annexure-7) under Section 271(1)(c) of the Income Tax Act, 1961(‘the Act’) was passed by the Authority inter-alia observing that till the finalization of the order, neither the assessee filed any reply, nor any adjournment was sought.

[2024:RJ-JP:698-DB] (2 of 4) [CW-9560/2022] 3. The Authority further observed that the assessee had filed the appeal against the order passed under Section 144/263 of the Act and the appeal was decided against the assessee against the order dated 22.12.2019 passed by the CIT (A) and went on to levy the penalty. Pursuant to the said order, the demand notice was also issued to the petitioner. 4. The petitioner filed an application under Section 154 of the Act seeking rectification of the order dated 25.03.2022 (Annexure- 7) inter-alia on the grounds that the reply was filed by the petitioner before the Authority and that the appeal had not been decided. 5. The respondents vide order dated 10.06.2022 (Annexure-11) on the application seeking rectification, though indicated that there was a mistake qua the fact about decision of the appeal and rectified the same, however, on the aspect as to whether the reply was filed or not, it was observed that the said aspect has to be decided by CIT (A) in the appeal and the said aspect cannot be rectified under Section 154 of the Act. 6. Learned senior counsel appearing for the petitioner made submissions that it was the specific case of the petitioner before the Authority under Section 154 of the Act that the reply was filed, whereas, the order under Section 271 indicated that no reply was filed and the said Authority has proceeded on the assumption that no response was filed, which aspect was factually incorrect. He has drawn attention of this Court to the acknowledgments at pages 41, 42 and 63 of the paper-book in this regard. 7. Submissions have been made that despite the fact that the reply was part of the record of the Authority, denial to rectify the

[2024:RJ-JP:698-DB] (3 of 4) [CW-9560/2022] said mistake, cannot be sustained and therefore, the orders impugned deserve to be quashed and set aside. 8. Reply to the petition has been filed inter-alia reiterating the stand as taken by the Authority while partly accepting the application for rectification. 9. Submissions have been made that the fact as to whether the reply has been filed or not, does not fall within the parameters of the Section 154 of the Act and, therefore, the application to that extent has been rightly rejected. 10. Vide order dated 21.12.2023, learned counsel for the respondents was directed to verify the claim made by the petitioner about filing of the response before the said Authority as reflected in the acknowledgments at pages 41, 42 and 63 of the Act. 11. Today, learned counsel for the respondents has fairly submitted that the response as claimed by the petitioner have been filed and forms part of the record of the Authority. 12. In view of the above fact situation, when it is apparent that the order dated 25.03.2022 (Annexure-7) was passed by the Authority on the assumption that no response was filed, whereas, the response filed by the petitioner form part of the record of the Authority, the same clearly reflects a mechanical exercise and non-application of mind to the record available before the Authority. 13. In so far as the maintainability of the application and/or the said aspect not falling within the parameters of the Section 154 of the Act is concerned, the stand taken by the Officer as well as the respondents cannot be sustained. Once it is found as a fact that

[2024:RJ-JP:698-DB] (4 of 4) [CW-9560/2022] factually incorrect statement pertaining to filing of the response, which is fundamental to the decision to be made by the Authority has been wrongly indicated in the order, the Authority in all humility should have accepted the mistake committed by him and once an application under Section 154 of the Act was filed, he should have immediately recalled the order passed by him and should have proceeded in accordance with law thereafter. 14. Be that as it may, as it has been factually found, based on the submissions made by learned counsel for the respondents, that the response filed by the petitioner forms part of the record of the respondents and the order dated 25.03.2022 (Annexure-7) has been passed by ignoring the response filed by the petitioner, the petition deserves to be allowed. 15. Consequently, the order impugned dated 10.06.2022 (Annexure-11) partly rejecting the rectification application is set aside. As a consequence to the finding about the reply of the petitioner being available on record of the Authority and the order dated 25.03.2022 (Annexure-7) having been passed ignoring the said reply, the order dated 25.03.2022 (Annexure-7) is also set aside. The respondents are directed to pass a fresh order after providing an opportunity of hearing to the petitioner in accordance with law. 16. The application No.01/2023 also stands disposed of. (ASHUTOSH KUMAR),J (ARUN BHANSALI),J AARZOO ARORA /24

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