GTL LTD,NAVI MUMBAI vs. ACIT LTU-2, MUMBAI

The assessee preferred the appeal before ITAT, which is listed before ‘G’ Bench vide which is a quantum appeal. The assessee requested for grant of stay against the operation of the order under section 250 of the Act dated 01.10.2018 passed by the CIT(A) or in alternative, stay the proceedings which is pending before CIT(A) pursuant to the said order until the Tribunal dispose off the appeal filed by the assessee against the order passed by CIT(A) under section 250 of the Act on quantum / merits of the case. This stay application was listed before first time on 08.03.2019, wherein the learned CIT Departmental Representative stated that he wanted a factual remand report from the AO and on that date, he undertook on behalf of the Department, not to pass any penalty order and the matter was adjourned to 15.03.2019. On 15.03.2019, the Bench adjourned the matter to 22.03.2019 and directed both the parties in open court that interim order dated 08.03.2019 will continue till that date. On 22.03.2019, the Bench passed order sheet entry as the CIT Departmental 4 & SAs No. 203 & 121/Mum/2019 Representative wanted to file factual report from the AO which was not filed at that time. The Bench noted as under: - “The Bench, vide order dated 8th March 2019, has noted that learned CIT-DR wanted to file a factual remand report from the Assessing Officer, which has not yet been filed. The learned Authorised Representative submitted, despite pendency of the quantum appeal before the Tribunal and there being no compulsion of the penalty proceeding getting time barred, learned Commissioner (Appeals) is bent upon passing a penalty order under section 271(1)(c) of the Act immediately just to create a demand against the assessee. On a query from the Bench, the learned Departmental Representative, on instruction, submitted that learned Commissioner (Appeals) would be completing the penalty proceedings shortly. Since, the issues relating to maintainability of the present stay application as well as prima-facie reason for seeking stay requires detailed hearing from both the sides; we put up the aforesaid stay application for hearing on 29th March 2019. Learned Commissioner (Appeals) is directed to keep the penalty proceedings initiated under section 271(1)(c) of the Act in abeyance till the date of next hearing. Both parties informed.”

The proceedings before CIT(A) in regard to penalty proceedings under section 271(1)(c) of the Act was initiated vide notice issue under section 274 read with section 271(1)(c) of the Act dated 27.12.2018. The CIT(A)-3, Mumbai fixed the date of hearing of appeal on 16.01.2019. This penalty notice was replied by the assessee vide letter dated 20-02-2019, wherein apart from the merits, requested to keep the penalty proceedings in abeyance until the disposal of quantum appeal by the Tribunal. It was contended before CIT(A) in its written submission dated 20.02.2019 by the assessee that as per the provisions of section 275(1) of the Act, the penalty proceedings will not get time barred and the time limit for passing of an order of penalty under section 271(1)(c) of the Act would be six months from the end of the month in which the order of the Tribunal is received by the Revenue. Before CIT(A), the assessee relied on the decision of Hon’ble Gujarat High Court in the case of ACIT vs. GE India Industrial (P.) Ltd. (2013) 358 ITR 410 (Gujarat). Therefore, it was urged before CIT(A) that as per the provisions of section 275(1)(a), since the penalty proceedings are not getting time barred till six months from the end of the month in which the order of the Tribunal is received by the CIT(A), the penalty proceedings be kept in abeyance in order to avoid multiplicity of proceedings. Further, the assessee vide letter dated 11.03.2019 appraised the CIT(A) about the interim stay order of the Tribunal on the stay application of the assessee and the relevant text of the letter of assessee reads as under: - 6 & SAs No. 203 & 121/Mum/2019 “In this regards we would like to state that, the assessee company had filed stay application before Ld. ITAT, Mumbai asking for stay against the operation of the order passed under section 250 of the Act dated 01.10.2018. The matter has come up for hearing on 8th March 2019. During the course of hearing before the bench, the Ld. Members heard the matter. The matter was part heard and adjourned by one week and re-fixed on 15h March 2019. The Ld. Members vide order sheet noting gave directions to obtain the factual remand report from AO and asked CIT(A) not to pass any penalty order and to keep the penalty proceedings in abeyance till further order by Ld. ITAT.

On 18.03.2019, again the CIT(A) was apprised of the proceedings before the Tribunal and the relevant text of the letter reads as under: - “With respect to the captioned assessment year, the order under section 250 of the Act was 7 & SAs No. 203 & 121/Mum/2019 passed on 01/10/2018. Against the said order, we tiled a stay before the Hon'ble Income Tax Appellate Tribunal ("ITAT") on 07/03/2019 requesting a stay on penalty proceedings Initiated vide the said order. The stay application was scheduled for hearing before the Hon'ble ITAT on 08/03/2019. On the said date the matter was part heard and was rescheduled for hearing on 15/03/2019 for want of remand report on request of the Department Representative. The Hon'ble Bench was pleased to grant a stay on the penalty proceedings initiated by Your Honour during the Interim period. On March 15, 2019, the matter was again part heard and is now rescheduled for hearing on March 22, 2019. The Hon'ble Bench, vide an order sheet noting has given the following directions:

The Department is to intimate the Hon'ble ITAT as to whether the penalty order shall be passed by the Assessing Officer or by Your Honour.

No order levying penalty shall be passed by and the penalty proceedings Initiated by Your Honour shall be kept in abeyance till further directions by Hon'ble ITAT.

In view of the above factual position, the learned Counsel for the assessee Shri Yogesh Thar, stated that the CIT(A) was apprised 11 & SAs No. 203 & 121/Mum/2019 of the directions of the Tribunal vide interim order not to dispose off appeal till the interim order in existence. However, the CIT(A) passed the order imposing penalty under section 271(1)(c) of the Act dated 25.03.2019 even though, interim order of the Tribunal was in force. The learned Counsel stated that the assessee informed the entire situation to CIT(A) by filing a letter containing the directions of ITAT before CIT(A) on 18.03.2019 and subsequent letters. The subsequent letters dates 25.03.2019 on three (3) occasions i.e. at 12.30 PM, at 5 PM and at 5.58 PM were not received by the staff of the CIT(A) in Tapal. This shows, the conduct of the Revenue that they were very well aware of the directions of the Tribunal but in zeal to pass the penalty order under section 271(1)(c) of the Act, they were refusing these letters. In such scenario, the learned Counsel for the assessee drew our attention to the observations of the Hon’ble Bombay High court in the case of Piramal Fund Management Pvt. Ltd. vs. DCIT in writ petition No. 526 of 2016 vide order dated 17.03.2016, wherein Hon’ble High court has deprecated the conduct of the Revenue authorities by observing as under: - “6. We find this conduct on the part of the Assessing Officer to accept a stay application and not immediately give acknowledgement of its receipt is unacceptable. The least that is expected of an civil servant is to be fair and civil. In the absence of the above, his conduct is not one becoming of an Officer belonging to the prestigious Indian Revenue Service. The least 12 & SAs No. 203 & 121/Mum/2019 that is expected of an officer is that when a person files an application/ letter, which is accepted by him, an acknowledgement should be forthwith given to the party filing the application or letter. In case he refuses to accept the letter he should endorse on the letter/ application the reason why it is not being accepted with a line or two for the refusal to accept. In case he does accept it and give an acknowledgement he can deal with the applications / letters as is appropriate in accordance with law. We believe that what has happened in this case is an aberration. However, the Chief Commissioner of Income Tax would ensure that his Officers do not behave in such an high handed and unfair manner, not expected of civil servants.”

The learned Counsel for the assessee stated that similar is the position in the present case. When these facts were confronted to the learned Sr. Departmental Representative Chaudhary Arun Kumar Singh could not controvert any of the averments made by the learned Counsel for the assessee or the factual position placed before us with documentary evidence. The learned Sr. Departmental Representative has not denied any of the fact that the directions of the Tribunal were before CIT(A) and he was very much aware about the interim order of the Tribunal. Let say the starting point was the date of 08.03.2019 when the first interim order was 13 & SAs No. 203 & 121/Mum/2019 passed by Tribunal, wherein Revenue undertook not to pass any penalty order, by the CIT(A), as they want the factual remand report from the Assessing Officer. From the letter dated 11.03.2019 and letter dated 18.03.2019 it is clear that CIT(A) was very much aware about the directions of the Tribunal because they have acknowledged the receipt of the letter written by the assessee dated 18.03.2019 and appeal was adjourned to 25.03.2019. In such situation, we are of the view that the conduct of the Revenue for not accepting the subsequent letters dated 25.03.2019, containing the directions of the Tribunal, is not expected from Government Department. Hon’ble Bombay High court in the case of Piramal Fund Management Pvt. Ltd. (supra) has considered the similar situation and deprecated the Department. Apart from this, we do not want to say anything to the Department.

Since, pending this stay petition and despite the directions of the Tribunal to keep the penalty proceedings initiated in abeyance till the next date of hearing, the CIT(A) passed the order under section 250 of the Act levying the penalty under section 271(1)(c) of the Act amounting to ₹ 74.91 crores.

Be that as it may, now we will take up the stay application No. 203/Mum/2019, stating the demand of ₹ 74.91 crores created by the CIT(A) in term of the penalty order passed by him under section 271(1)(c) of the Act. Levying the penalty in respect of enhancement made on account of disallowance under section 37(1) of the Act on pro-rata basis by computing the proportionate interest disallowance 14 & SAs No. 203 & 121/Mum/2019 of ₹ 230.91 crores on the amount of total investment of the assessee amounting to ₹ 2639.75 crores existing the interest free funds of ₹ 1296.65 crores being the aggregate of share capital and reserve of ₹ 1343.10 crores. At this stage, the learned Counsel for the assessee took us through the penalty order passed by CIT(A) under section 271(1)(c) of the Act dated 25.03.2019, wherein the CIT(A) has discussed the facts relating to enhancement of income and decision on proposed enhancements taken during the course of appellate proceedings in quantum. According to the learned Counsel, the CIT(A) in Para 3 at page 7 to 11 reproduced the submissions of the assessee given vide letter dated 20.02.2019, wherein the assessee after containing the facts urged that the penalty proceedings be kept in abeyance until the disposal of quantum appeal decided by ITAT. He again refer to the quantum appeal filed before ITAT by the assessee vide for AY 2013-14, wherein the enhancements was challenged by assessee and enhancements was made on account of disallowance of interest under section 36(1)(iii) of the Act. The learned Counsel for the assessee stated that the assessee before CIT(A) also filed copy of the decision of Hon’ble Gujarat High Court in the case of GE India Industrial (P.) Ltd. (supra), wherein Hon’ble High court has held that ITAT in exercise of its power under section 254 of the Act would have jurisdiction and/ or power of doing of such acts, or employing such means as are essentially necessary to its execution and that statutory powers carries with the duty in proper cases to make such orders for staying proceedings inclusive of 15 & SAs No. 203 & 121/Mum/2019 penalty proceedings, as will prevent appeal if successful from being rendered nugatory and the Tribunal has power to grant stay as incidental or ancillary to its appellate jurisdiction. Hon’ble Gujarat High Court has also cautioned that Tribunal while exercising such power of stay, it has to be satisfied that there is strong prima facie case is made out and the entire purposes of appeal would be frustrated or rendered nugatory by allowing such reactionary proceedings/ penalty proceedings to continue, during pendency of appeal. Hon’ble High court has upheld the order of Tribunal by stating the penalty proceedings considering the provisions of section 275 (1)(a) of the Act, wherein the CIT(A) will get the further six- month time to disposed of the penalty proceedings from the end of the month in which the order of the Tribunal is received by the Revenue when the Tribunal has stayed the penalty proceedings, during the pendency of the appeal before it. Hon’ble High Court held that it cannot be said that the Tribunal has exceeded in its jurisdiction.

Despite this, the CIT(A) levied the penalty under section 271(1)(c) of the Act but without adverting the facts of the case at all on merits. The learned Counsel for the assessee drew attention to pages 11-14 of the CIT(A)’s order para 4, wherein the CIT(A) simply discussed the provisions of section 271(1)(c) of the Act and not even single word about the factual aspect or the merits of the case in respect to enhancement made on account of disallowance of interest expenditure under section 36(1) (iii) of the Act. The learned 16 & SAs No. 203 & 121/Mum/2019 Counsel for the assessee stated that even the principle of natural justice was violated by the CIT(A) that the assessee was only arguing before CIT(A) that there is a direction from Tribunal to keep the aforesaid proceedings in abeyance till the disposal of stay application by the Tribunal. The directions of the Tribunal are already noted above. It was contended by the learned Counsel that the assessee has filed appeal against the levy of penalty imposed by CIT(A) under section 271(1)(c) of the Act and appeal is listed as ITA No. 1864/Mum/2019. It was contended that even on merits the assessee has contested in its written submission that as far as enhancement was proposed on source of income which was not covered in original assessment with respect to disallowance of interest expenditure, a detailed note on how the investments were made with a commercial rationale in order to push the assessee’s own revenue and assuming without accepting that borrowings were utilized for such investment, they have only resulted in enhancing the revenue of the assessee. The learned Counsel explained the chronology of events occurring after filing of stay applications which are presented before us.

When the above factual position was confronted to the learned Sr. Departmental Representative Chaudhary Arun Kumar Singh, he could not controvert any of the above factual aspects brought to our notice by the learned Counsel for the assessee.

From the above factual position, it is observed that the assessee has intimated directions given by the ITAT to the CIT(A)

According to us, the CIT(A) has gone by interim directions given by the Tribunal, which is intimated by the assessee to the CIT(A) vide various letters, documents but the directions given by ITAT were disregarded by the CIT(A) and order imposing the penalty under section 271(1)(c) of the Act was passed vide order dated 25.03.2019. This order of penalty was challenged by assessee before Tribunal by filing an appeal on 01.04.2019. In this appeal, the assessee has raised the levy of penalty on merits and argued that the order passed by CIT(A) is ab initio null and void as it is in complete disregard to ITAT’s directions and also in violation of principle of Natural Justice. For this assessee has raised the following two grounds: - Ground No. I: order passed under section 271(1)(c) of the Act in complete disregard to the Hon’ble ITAT’s directions is bad in law and therefore ab initio null and void.

We have heard rival contentions and gone through the facts and circumstances of the case. Before us, the learned Sr. Departmental Representative Chaudhary Arun Kumar Singh could not argue anything controverting the factual position that the CIT(A) passed he order in complete disregard to the ITAT’s directions. Admitted fact is that the assessee intimated the directions given by the ITAT to CIT(A) vide every possible means i.e. by writing letters, even letter dated 11.03.2019, wherein it is clearly noted by the assessee that the Tribunal has directed to obtain the factual report from the AO and required CIT(A) not to pass any penalty order and keep the proceedings in abeyance till further order vide order sheet dated 08.03.2019. This was noted by the CIT(A) while adjourning the matter to 18.03.2019. Subsequently, on 18.03.2019 again, the same was repeated and the CIT(A) adjourned the matter to 19 & SAs No. 203 & 121/Mum/2019 25.03.2019 and this was noted by the office of CIT(A). The CIT(A) refused to accept the letter containing the directions of ITAT dated 22.03.2019 which was filed by assessee before CIT(A) but he passed the order on that very date i.e. 25.03.2019. This order was received by assessee on 27.03.2019. However, the CIT(A) disregarded the directions of Tribunal and passed the order imposing penalty under section 271(1)(c) of the Act.

We have noted this type of attitude of Revenue’s authorities have been deprecated by Hon’ble Bombay High Court in the case of Piramal Fund Management Pvt. Ltd. (supra). Hon’ble Supreme Court in the case of Union of India vs. Kamlakshi Finance Corporation, AIR 1992 SC 711, wherein the Hon’ble Supreme Court has laid down the proposition that judicial discipline requires that the order of higher authority should be followed. Hon’ble Supreme Court held as under:

Sri Reddy is perhaps right in saying that the officers were not actuated by any mala fides in passing the impugned orders. They perhaps genuinely felt that the claim of the assessee was not tenable and that, if it was accepted, the Revenue would suffer. But what Sri Reddy overlooks is that we are not concerned here with the correctness or otherwise of their conclusion or of any factual malafides but with the fact that 20 & SAs No. 203 & 121/Mum/2019 the officers, in reaching in their conclusion, by- passed two appellate orders in regard to the same issue which were placed before them, one of the Collector (Appeals) and the other of the Tribunal. The High Court has, in our view, rightly criticised this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. It cannot be too vehemently emphasised that it is of utmost importance that, in disposing of the quasi-judicial issues before them, revenue officers are bound by the decisions of the appellate authorities; The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not "acceptable" to the department - in itself an objectionable phrase - and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been 21 & SAs No. 203 & 121/Mum/2019 suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.

The impression or anxiety of the Assistant Collector that, if he accepted the assessee's contention, the department would lose revenue and would also have no remedy to have the matter rectified is also incorrect. Section 35- E confers adequate powers on the department in this regard. Under Sub-section (1), where the Central Board of Direct Taxes come across any order passed by the Collector of Central Excise with the legality or propriety of which it is not satisfied, it can direct the Collector to apply to the Appellate Tribunal for the determination of such points arising out of the decision or order as may be specified by the Board in its order. Under Sub- section(2) the Collector of Central Excise, when he comes across any order passed by an authority subordinate to him, if not satisfied with this legality or propriety, may direct such authority to apply to the Collector (Appeals) for the determination of such points arising out of the decision or order as may be specified by the Collector of Central Excise in his order and there is a further right of appeal to the department. The 22 & SAs No. 203 & 121/Mum/2019 position now, therefore, is that, if any order passed by an Assistant Collector or Collector is adverse to the interests of the Revenue, the immediately higher administrative authority has the power to have the matter satisfactorily resolved by taking up the issue to the Appellate Collector or the Appellate Tribunal as the case may be. In the light of these amended provisions, there can be no justification for any Assistant Collector or Collector refusing to follow the order of the Appellate Collector or the Appellate Tribunal, as the case may be, even where he may have some reservations on its correctness. He has to follow the order of the higher appellate authority. This may instantly cause some prejudice to the Revenue but the remedy is also in the hands of the same officer. He has only to bring the matter to the notice of the Board or the Collector so as to enable appropriate proceedings being taken under Section.35-E (1) or (2) to keep the interests of the department alive. If the officer's view is the correct one, it will no doubt be finally upheld and the Revenue will get the duty, though after some delay which such procedure would entail.

In view of the above, we are of the view that the interim order passed by Tribunal vide dated 08.03.2019 and the same repeated on 15.03.2019 and again it was repeated on 22.03.2019 are binding on the CIT(A) as all the Revenue Authorities as Income Tax Authorities are functioning under the jurisdiction of ITAT. The Principle of judicial discipline requires that the order of the higher authorities should be followed unreservedly by the subordinate authorities as held by Hon’ble Supreme Court in the case of Kamlakshi Finance Corporation (supra). Here, the CIT(A) has utterly disregarded the directions of the Tribunal and passed the penalty order under section 271(1)(c) of the Act and hence, in law therefore ab initio null and void.

As regards to the violation of Principle of natural justice, the assessee contested that no opportunity to the assessee was allowed to substantiate its case on merits. The contention of the assessee was that it is clear from the chronology of events occurring quantum and the order passed, as it is reflected in the chart filed before us, we noted that the hearing with respect to penalty proceedings was schedule on 25.03.2019 and the assessee attended on this date and filed letters by which intimating CIT(A) about the directions given by the Tribunal to stay the penalty proceedings and withholding in passing penalty order till the interim order is lifted. However, the CIT(A) without considering the letters filed by the assessee and without giving opportunity of being heard to the assessee passed the penalty order. We are in agreement with 24 & SAs No. 203 & 121/Mum/2019 the arguments of the learned Counsel that the aforesaid penalty order passes without giving fair and reasonable opportunity of hearing to the assessee and thereby violating all the Principles of Natural Justice. According to us, no opportunity was provided to the assessee to explain as to why the penalty should not be levied in the present case and principle of natural justice requires that before levying any penalty the authorities should give sufficient opportunity to the assessee to explain the facts of the case and show cause as to why the propose penalty should not be levied in view of the facts of the case and legal position. Considering the above facts and the order of CIT(A), passed in utter defiance of the interim directions of the Tribunal. We are of the view that the order of CIT(A) cannot be sustained and hence quashed. Even otherwise, the order of CIT(A) which is passed in violation of natural justice and even the order of CIT(A) is totally non-speaking on the merits of the case. We are of the view that provision of section 250(6) provides that the order of CIT(A) in disposing off the appeal states the points arising in the appeal and the decision on authorities therein and reasons for such decision. Where the CIT(A) while disposing off the appeal by its order, did not consider the points and without discussing the issues raised and without recording the reasons as to why contention has been rejected or accepted, it can be said that the appeal is disposed off in a most casual and cavalier manner and therefore, the matter is to be restored back for fresh disposal as per law and needless to say, allowing reasonable opportunity of being to the assessee.

Now, we are fixing the appeal against the addition enhanced by CIT(A) in respect to quantum in for hearing 22.07.2019. We direct the CIT(A), not to pass the penalty order u/s 271(1)(c) of the Act till 31.12.2019. But, Revenue will make every endeavor to get this appeal disposed off quickly, rather the Revenue will not seek adjournment on 22.07.2019 on which date the appeal is fixed. Hence, this Stay Application No. 121/Mum/2019, arising out of ITA No. 588/Mum/2019 is allowed accordingly. The appeal in ITA No. 588/Mum/2019 will come up for hearing on 22.07.2019