M/S KARIA BUILDERS ,PUNE vs. ITO WARD 14(3), PUNE

Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds:

The Ld. Counsel for the assessee referring to the above additional ground submitted that the additional ground so raised is purely legal in nature which goes to the root of the matter and all necessary facts are already available on record. Referring to the decision of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) and in the case of Jute Corporation Of India Ltd vs Commissioner Of Income Tax And Anr (1991) 187 ITR 688 (SC) he submitted that the additional ground raised by the assessee should be admitted.

After hearing both the sides and considering the fact that the additional ground raised by the assessee is purely legal in nature and all the material facts are already available on record and no new facts are required to be investigated, therefore, in view of the decision of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (supra) and in the case of Jute Corporation Of India Ltd vs Commissioner Of Income Tax And Anr (supra), the additional ground raised by the assessee is admitted for adjudication.

Referring to the following decisions, he submitted that the assessee can always challenge the validity of assessment proceedings during the penalty proceedings: i) Mrs. Vasundhara Shailesh Joshi vs. DCIT vide & 96/PUN/2016, for assessment years 2009-10 & 2010-11, order dated 27.03.2018

He submitted that once such assessment is considered as invalid, then the penalty proceedings u/s 271D of the Act cannot be sustained. For the above proposition, he relied on the following decisions: i) CIT v. Manoharlal Thakral [(2018) 93 taxmann.com 156 (P&H HC)] ii) Ravi Nirman Nigam Ltd. v. ACIT [ITA No. 4140/Mumbai/2023] dated 28.06.2024 iii) Vijayaben G. Zalavadia v. JCIT [ITA No.458 463/Ahd/2020] dated 11.05.2022 iv) Pravin Nilkanth Barode v. ΙΠΟ [ΙΤΑ No. 371/Nagpur/2024] dated 20.12.2024 v) Shri Umakant Sharma v. JCIT [ITA No. 364/Indore/2022] dated 19.07.2023 vi) CIT v. Standard Brands Ltd. [285 ITR 295 (Del HC)]

He accordingly submitted that since the penalty is barred by limitation, the same is not sustainable. Even otherwise also, since the assessment proceedings have to be quashed on account of non-obtaining the approval from the prescribed competent authority, such assessment is a nullity and once the assessment order is invalid, the penalty proceedings u/s 271D are also invalid.

The Ld. DR on the other hand supported the orders of the Assessing Officer and the Ld. CIT(A) / NFAC.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find in the instant case the Assessing Officer passed the order u/s 147 r.w.s. 144B of the Act on 16.05.2023. Before completion of the assessment, a notice u/s 274 r.w.s. 271D of the Act was issued to the assessee on 17.08.2022 which reads as under:

Thus, the penalty proceedings were initiated on 17.08.2022. We find the JCIT in the show cause notice for penalty u/s 271D of the Act issued on 13.02.2023 has also mentioned the time barring date i.e. 28.02.2023 for levy of penalty. The Annexure to the notice dated 13.02.2023 reads as under:

The provisions of section 275(1)(c) of the Act have already been reproduced in the preceding paragraphs. As per the said provisions the last date for levy of penalty u/s 271D is 28.02.2023. Even the Annexure to the notice dated 13.02.2023 also clearly and unequivocally states the last date for levy of penalty as 28.02.2023, however, such penalty u/s 271D has been levied by the Assessing Officer on 29.03.2023. Therefore, the same is clearly beyond the prescribed due date. Since the penalty order has not been passed within the statutory period i.e. on or before 28.02.2023 but has been passed on 29.03.2023, therefore, such penalty order being barred by limitation, is not in accordance with law and has to be quashed. We, therefore, quash the penalty levied u/s 271D of the Act by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC.

Even otherwise also, a perusal of the notice u/s 148 of the Act dated 28.07.2022 issued for the assessment year 2017-18 shows that the same has been approved by the PCIT-4, Pune vide letter dated 27.07.2022 which is mentioned at page 2 of the notice u/s 148 and which reads as under:

This notice is being issued after obtaining the prior approval of the Pr.CIT- 4, Pune accorded on date : 27/07/2022 vide Reference No.PN/Pr.CIT4/148/Proposal/2022-23/1272.

Even the Assessing Officer at page 4 of the assessment order has also mentioned as under: “The assessee replied during the proceedings, but the Jurisdictional Officer was not satisfied with his reply and therefore, the JAO concluded the following in his order U/s 148 A(d) of the IT Act dated 28.07.2022: 06. In view of the above facts, the information in my possession as mentioned above suggests that by not showing cash loan of Rs.1,00,00,000/-, the assessee has not shown its correct income. Therefore, assets to the tune of Rs.1,00,00,000/- has escaped assessment. Therefore this is a fit case for issue of notice u/s 148.

This order is passed with prior approval of Pr.CIT-4, Pune vide Letter No.PN/PCIT-4/Proposal/2022-23/1272 dated 27/07/2022.”

Provisions of section 151 as it stood at the relevant time read as under: “Sanction for issue of notice. 151. Specified authority for the purposes of section 148 and section 148A shall be,—

Since the notice has been issued beyond the period of three years from the end of the relevant assessment year, therefore, in view of the provisions of section 151, the competent authority for granting the approval for issue of notice u/s 148 of the Act is the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. Since the approval in the instant case has been granted by the PCIT instead of any of the above authorities, therefore, such approval being not in accordance with law, the re-assessment proceedings are invalid. For the above proposition, we rely on the decision of the Hon’ble Delhi High Court in the case of Bhagwan Sahai Sharma vs. DCIT (supra) where it has been held that section 151 mandates that where more than three years have elapsed from end of relevant assessment year, notice under section 148 requires prior approval of the Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General. The Hon’ble High Court further held that TOLA would have no relevance for determining the specified authority whose approval was mandatory under section 151 for issuance of a notice under section 148 and the bifurcation of those powers would continue unaltered and unaffected by TOLA.

We find the Hon’ble Bombay High Court in the case of Cipla Pharma and Life Sciences Ltd. vs. DCIT (supra) has held as under:

The record clearly indicates that the sanction in the present case was issued by the Principal Commissioner which can only be in respect of cases if three years or less than three years have elapsed from the end of the relevant assessment year, as would fall under the provisions of clause (i) of Section 151 of the Act. As in the present case the assessment year in question is 2016-17 and the impugned notice itself has been issued on 30 July, 2022, it is issued after a period more than 3 years having elapsed from the end of the said assessment year, hence, clause (ii) of Section 151 of the Act was applicable, which required the sanction to be issued by either Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General for issuance of notice under Section 148 of the Act.

As rightly pointed out at the bar, such issue fell for consideration of the Division Bench of this Court in Siemens Financial Services Pvt. Ltd. (supra), wherein the Division Bench considered the provisions of Section 151 of the Act read with the provisions of Section 148A(b), the latter provision clearly providing that prior to issuance of any notice under Section 148 of the Act, the assessing officer shall provide an opportunity of being heard to the assesse only after considering the cumulative effect of Section 148A(b) read with Section 151 of the Act and as provided under sub-clause (d), the assessing officer shall decide on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under Section 148 by passing an order, with the prior approval of specified authority within one month from the end of the month in which the reply is received. It is held that the sanction of the specified authority has to be obtained in accordance with the law existing when the sanction is obtained and, therefore, the sanction is required to be obtained by applying the amended section 151(ii) of the Act and since the sanction has been obtained in terms of section 151(i) of the Act, the impugned order and impugned notice are bad in law and should be quashed and set aside.

Insofar as the respondent's case based on the notification dated 31 March, 2020 issued under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (for short, 'TOLA') was concerned, the Court held that such notification was a subordinate legislation and it could not override the statute enacted by the Parliament and in that regard, the position in law was discussed by the Division Bench in paragraph 27 of the said decision.

In the present case, it is not in dispute that an appropriate sanction of the specified authority as per the provisions of Section 151(ii) of the Act was not obtained and for such reason, certainly, as held by this Court in Siemens Financial Services Pvt. Ltd. (supra), the impugned notices would be rendered bad and illegal. The petition accordingly needs to succeed on such ground of the Court requiring to delve on such issues of challenge as raised by the petitioner as also prior procedure adopted in that regard.

In the light of the above discussion, the petition needs to succeed. It is accordingly allowed by the following order:- Order i. The impugned notice dt. 30th July, 2022 issued under s. 148 of the Act is quashed and set aside, as also the impugned order dt. 30th July, 2022 passed by the AC under s. 148A(d) of the Act is quashed and set aside. ii. Rule is made absolute in the aforesaid terms. iii. Since we have disposed of the petition on the limited ground, we have no considered the other grounds. iv. Disposed of. No costs.”

The various other decisions relied on by the Ld. Counsel for the assessee also supports his case to the proposition that the improper approval obtained u/s 151 of the Act vitiates the entire reopening proceedings. We, therefore, hold that the re-assessment proceedings being not in accordance with law, have to be quashed.

Once it is held that there is no valid assessment order / valid assessment proceedings, then the penalty proceedings u/s 271D of the Act are not sustainable. We find the Hon’ble Delhi High Court in the case of CIT vs. Standard Brands Ltd. (supra) has held that once the assessment is not sustained, penalty action is not permissible.

We find an identical issue had come up before the Mumbai Bench of the Tribunal in the case of Ravi Nirman Nigam Ltd. vs. ACIT (supra) where the Tribunal has held that the penalty proceedings initiated u/s 271D of the Act do not survive once the assessment is held to be invalid. The relevant observations of the Tribunal from para 9 to 10.1 read as under: “9. We have heard the rival contentions and perused the material on record. Admittedly, it is a fact on record that the reassessment proceedings, u/s. 147 of the Act in the course of which penalty proceedings u/s. 271D and 271E were initiated have been quashed as void ab initio by the Co-ordinate Bench. This fact was put forth before the ld. CIT(A) by the assessee but has been negated to upheld the penalty imposed by the ld. Assessing Officer. Based on these facts, we have perused the order of the Hon’ble Apex Court in the case of Jayalakshmi Rice Mills (supra), and find that it clearly applies in the present case to hold that with the quashing/annulling of the reassessment order passed in the case of the assessee by the ITAT, the penalty initiated there in u/s. 271D did not survive. 10. We also take note of the distinguishing facts brought before us in respect of the judicial precedents relied upon by the ld. Sr. DR and we agree with the same. We also note that the contentions put forth by the ld. Sr. DR have been dealt with by the Co-ordinate Bench of ITAT in the case of Karan Empire Pvt. Ltd. (supra) in paragraph 9, wherein it is noted as under: “ though undeniably, there is a difference in the facts of both the cases as in the case before the Hon’ble Apex Court, the assessment had been set aside with the direction to frame a fresh assessment. While in the present case before us, the assessment order passed has been held to be invalid, the proposition laid by the Hon’ble Apex Court Hon’ble Apex Court still

Since the assessee can always challenge the validity of assessment proceedings during the penalty proceedings as per the decision of Hon’ble Bombay High Court in the case of B.R. Bamasi vs. CIT (supra) and the decision of the Hon’ble Gujarat High Court in the case of P.V. Doshi vs. CIT (supra) and the various other decisions relied on by the Ld. Counsel for the assessee in the paper book and since we have already held that the re-assessment proceedings are not in accordance with law on account of not obtaining the approval from the competent authority as per the provisions of section 151 of the Act, therefore, the penalty proceedings initiated u/s 271D of the Act do not survive. In view of the above discussion, the penalty proceedings initiated by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC are not in accordance with law and are liable to be quashed. We, therefore, hold that the penalty levied by the Assessing Officer and sustained by the Ld. CIT(A) / NFAC being not in accordance with law is liable to be deleted. We accordingly direct the Assessing Officer to cancel the penalty levied u/s 271D of the Act. The original grounds and the additional grounds raised by the assessee are accordingly allowed.

In the result, the appeal filed by the assessee is allowed.