RAMACHANDRAN A. POTHI,MUMBAI vs. JCIT 24 (2), MUMBAI

The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the Assessing Officer in passing rectification order under section 154 of the Act that due to typing error penalty under section 271(1)(c) of the Act for concealment of income remain to be typed. For this, assessee has raised the following ground No.1: -

Brief facts are that for the relevant Assessment Year 2009-10 assessment was framed under section 143(3) of the Act vide order dated 29.1102011 in which the Assessing Officer made the addition on the following:-

But no penalty was initiated in regard to addition on account of purchases debited as correction charges, disallowed at ₹1,36,101/-. However, on 01.12.2011 the Assessing Officer issued corrigendum Shri Ramachandran A Pothi; AY 09-10 cum order under section 154 of the Act correcting the mistake in the order and the relevant mistake in regard to initiation of penalty proceedings under section 271(1)(c) for concealment of income was rectified as under:-

Aggrieved, against this corrigendum cum order under section 154 of the Act dated 02.12.2011, the assessee preferred the appeal before CIT(A), who after a lapse almost 8 years passed the order on 30.10.2019 confirming the action of the Assessing Officer. The CIT(A) held that non-initiation of penalty proceedings under section 271(1)(c) of the Act is a mistake apparent from record. For this, he observed in Para 4,1.5 and 4.1.6 as under:-

We have heard the rival contentions and gone through the facts and circumstances of the case. First of all, we have to consider whether initiation of penalty proceedings under section 271(1)(c) of the Act is debatable point of law or not? We are aware that a debatable point of law cannot be construed as a mistake apparent from record. The existence of conditions stipulated in section 271(1)(c) of the Act is a sine qua non for initiation of penalty proceedings and should be discernible from the assessment order. Penalty proceedings are distinct and separate from assessment proceedings. Initiation of penalty requires due application of mind of the Assessing Officer and initiation of penalty under section 271(1)(c) of the Act depends upon the fulfillment of certain conditions Shri Ramachandran A Pothi; AY 09-10 stipulated by the section and therefore, it is a clear point of law and matter of judgment on part of the assessing authority whether a particular case is a fit case for levy of penalty. Accordingly, where there exists a debatable issue and the ultimate action depends upon the wisdom of the assessing authority, it cannot be termed as mistake apparent from record. In the present case, what the Assessing Officer has rectified is his omission of judgment or a decision on facts which were under process of assessment. Such an omission of a judgment to initiate penalty proceedings cannot be presumed to be a mistake apparent from record. The quantum addition had been discussed at length in the assessment order where there was no mention of any concealment of income. Initiation of penalty entails reasoning and alternative arguments and therefore, failure to initiate the same is not a mere mistake apparent from record.

Further in the present case, on a perusal of the assessment order, it is abundantly clear that in respect of those heads where the Assessing Officer considered it appropriate to initiate penalty proceedings under section 271(1)(c) of the Act, he made a specific direction to that effect. In other words, in respect of issue of unexplained cash credits of ₹ 9,40,000/- there has been a specific direction by the Id. Assessing Officer to initiate penalty proceedings for concealment of income in the assessment order. Therefore, the absence of a reference to the initiation of proceedings under section 271(1)(c) of the Act is not an inadvertent omission since it is clear that in respect of other issue of cash credits, where the Assessing Officer did consider it appropriate to initiate penalty proceedings, he Shri Ramachandran A Pothi; AY 09-10 made an observation to that effect and accordingly, failure to initiate penalty proceedings for this issue of claim of correction charges is not any 'mistake apparent from record. Also, the Id. Assessing Officer has treated the failure of initiation of penalty proceedings as a 'typing error' which is not tenable.

We are of the view that as per the provisions of the Act, recording of satisfaction before initiating penalty under section 271(1)(c) of the Act is must. In the context of penalty provisions of section 271(1)(c) of the Act, there has been an ongoing dispute between the Revenue and the taxpayers on whether the Assessing Officer is required to record his satisfaction before initiating penalty proceedings. Conflicting views were taken by the Hon'ble Delhi High Court and the Hon'ble Allahabad High Court in the cases of CIT vs. Ram Commercial Enterprises Ltd. (2001) 167 CTR (Del) 321 and Shyam Biri Works (P) Ltd. vs. CIT (2003) 185 CTR (All) 510 respectively. The Hon’ble Delhi High Court had taken a view that the assessing authority had to form its own opinion and record its satisfaction before initiating penalty proceedings whereas the Hon'ble Allahabad High Court was unable to agree with the view of the Hon'ble Delhi High Court and rendered that although the Assessing Officer must have satisfaction as required under section 273 of the Act. It is not necessary for him to record that satisfaction in writing before initiating penalty proceedings under section 273 of the Act. In view of the said conflicting judicial opinion on this issue, section 271(1B) of the Act was inserted vide Finance Act, 2008 w.e.f. 01.04.1989 which reads as follows: Shri Ramachandran A Pothi; AY 09-10 "(1B) Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under Clause

As per the amendment, a mere direction for initiating of penalty proceedings under sub- Section (1) of Section 271, shall be deemed to constitute satisfaction of the Assessing Officer for initiating penalty proceedings under sub-Section (1) of that Section. However, a combined reading of the provisions of section 271(1)(c) and 271(IB) of the Act makes it clear that the assessment order should contain at least a direction for initiation of penalty proceedings to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under Section 271(1)(c) of the Act. Even post Section 271(1B) of the Act, still a prima facie satisfaction of Assessing Officer that the case may deserve imposition of penalty should be discernible from the order passed during the course of assessment proceedings Ms. Madhushree Gupta vs. Union of India [2009] 317 ITR 107 (Delhi). The Hon’ble Delhi High Court also pointed out that Section 271(1)(c) of the Act has to be read in consonance of Section 271(1B) of the Act. If Section 271(1B) Act is read in isolation, the Assessing Officer would be in such a situation to pick a case for initiation of penalty merely because there is an addition or disallowance without arriving at a prima facie satisfaction with respect to infraction by the Shri Ramachandran A Pothi; AY 09-10 assessee of clause (c) of sub- Section (1) of Section 271 of the Act: A requirement which is mandated by the provision itself. Section 271(IB) of the Act clearly indicates that initiation of penalty under section 271(1)(c) of the Act is not an inherent right given to the Assessing Officer but has to be expressly stated in the assessment order after due application of mind on being satisfied for the default committed by the assessee.

Thus, to initiate a penalty proceedings or not is a matter of application of mind and satisfaction to that effect by the Assessing Officer. If after applying his mind, the Assessing Officer made himself satisfied that there was no concealment/furnishing of inaccurate particulars of income and accordingly, did not initiate the penalty proceedings in the body of assessment order, he cannot proceed for penalty proceedings. The absence of 'direction' for initiation of penalty proceedings under Section 271(1)(c) of the Act in the body of assessment order, cannot even be ratified by issue of notice under Section 271(1)(c) read with section 274 of the Act along with assessment order or by taking recourse to Section 154/292B of the Act, otherwise it will render Section 271(IB) of the Act meaningless and otiose. Therefore, a combined reading of both the penalty provisions demonstrates the principle that the Assessing Officer ought to have arrived at a prima fade satisfaction for concealment of income and also given a direction for initiation of penalty anywhere in the body of the assessment order. Accordingly, in background of the above legislative history and in absence of any iota of evidence in the assessment order that the Assessing Officer had a prima facie Shri Ramachandran A Pothi; AY 09-10 satisfaction per section 154 of the Act which is not permissible as per law.

It is once again reiterated that the assessment order should contain at least a direction for initiation of penalty proceedings to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under Section 271(1)(c) of the Act. In the present case, the Assessing Officer initiated the penalty proceedings separately by way of rectification order under section 154 of the Act after the assessment proceedings were already concluded on 29.11.2011. It is pertinent to note that any order passed under section 154 of the Act cannot be said to be an 'assessment made under section 143 or 144 of the Act which is the definition of 'regular assessment' as given in section 2(40) of the Act. Moheema Ltd. (No. 2) vs. CIT [1990] 182 ITR 377 (Gauhati). Accordingly, in view of the above, the initiation of penalty proceedings vide rectification order under section 154 of the Act is not only bad in law but also not a 'mistake apparent from record'.

A plain reading of the provision of section 154 of the Act reveals that there shall essentially exist any 'mistake apparent from the record' to invoke the section. Accordingly, at this juncture, it is important to interpret that what does mistake' and 'apparent from record' construe for the purpose of section 154 of the Act. A 'mistake' is an ordinary word, but in the Income Tax law, it has a special signification. It comprehends errors which are discerned. It is something which a duly and judiciously instructed mind can find out from the record. One of the meanings given for the word 'mistake is Shri Ramachandran A Pothi; AY 09-10 that it is an omission made not by design but mischance and a 'mistake apparent' is a mistake that is manifest, plain or obvious, a mistake that can be realized without a debate or a dissertation. [District Excise Officer vs. ITO [1998] 66 ITD 168 (Delhi Trib.)]

Accordingly, a combined interpretation of both the terminologies, ‘mistake’ and ‘apparent from record’, makes it clear that any 'mistake apparent from record' must be an obvious and patent mistake and not something which can he established by a long- drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not a mistake apparent from the record T.S. Balaram, Income-tax Officer Vs. Volkart Brothers [1971] 82 ITR 50 (SC). It would necessarily mean an obvious error which is incapable of argument or debate. [District Excise Officer v. ITO [1998] 66 ITD 168 (Delhi Trib.)] A careful reading of the above interpretations makes it amply clear that any mistake in order to be rectified has to be something which is apparent, in other words, glaring, conspicuous and self- evident from the face of the records which is incapable of any debate or argument. In the context of section 154 of the Act, it would mean that any mistake apparent from the record should he evident on a reasonable reading of the record to show that there has been committed by the Id. Assessing Officer, a mistake in the order which needs to be rectified. Having attained clarity on the above phenomena, the question now arises as to whether failure of initiation of penalty proceedings under section 271(1)(c) of the Act can be construed as 'a mistake apparent from the record' as per the provisions of section 154 of the Act. Accordingly, in view of the Shri Ramachandran A Pothi; AY 09-10 above, the initiation of penalty proceedings vide rectification order under section 154 of the Act is not only bad in law but also not a 'mistake apparent from record'. Hence, the appeal of assessee is allowed. 15. In the Result, the appeal of the assessee is allowed. Order pronounced in the open court on 08.10.2021. (भनोज कुभाय अग्रवार / MANOJ KUMAR AGGARWAL) (भहावीय स िंह /MAHAVIR SINGH) (रेखा दस्म / ACCOUNTANT MEMBER) (उऩाध्मक्ष / VICE PRESIDENT) भुिंफई, ददनािंक/ Mumbai, Dated:08.10.2021 ुदीऩ यकाय ,व .ननजी चिव/ Sudip Sarkar, Sr.PS आदेश की प्रतिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A) 3. आमकय आमुक्त / CIT 4. 5. ववबागीम प्रनतननचध, आमकय अऩीरीम अचधकयण, भुिंफई / DR, ITAT, Mumbai गार्ा पाईर / Guard file. 6. आदेशान सार/ BY ORDER, त्मावऩत प्रनत //// उप/सहायक पुंजीकार (Astt.