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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI VIJAY PAL RAO & SHRI B.M. BIYANI
These three appeals by assessee are directed against the three separate orders of the Commissioner of Income Tax (Appeal), National Faceless Appeal Centre, Delhi arising from reassessment order passed u/s 147 r.w. section 143(3), penalty order passed u/s 271E of the Act and assessment order passed u/s 143(3) for A.Ys. 2008-09, 2009-10 & 2014-15 respectively. For A.Y.2008-09 the assessee has raised following grounds of appeal:
ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. “1.On the facts and in the circumstances of the case, the honourable CIT(A) was not justified in confirming the issue of notice u/s. 148 and in confirming the reassessment.
On the facts and in the circumstances of the case, the honourable CIT(A) was not justified in upholding that the receipt from job work of mixing of rubber at Rs. 34,19,894 was not the business receipts/income and in confirming the same was income from other sources. 3.On the facts and in the circumstances of the case, the honourable CIT(A) was not justified in confirming the disallowance of expenses of Rs. 42,65,430 towards expenses of Power & Fuel . 4.The appellant craves leave to add, to alter and/or to modify the grounds of appeal
on or before the date of hearing.”
2. Ground no.1 is regarding validity of reopening of the assessment.
2.1 Ld. AR of the assessee has submitted that the assesse is engaged in the business of manufacturing and trading of Bicycle/Rickshaw tubes and rubber mixing and trading and export of tyre & tube. For the assessment year 2008-09 the assesse filed its return of income on 30.09.2008 declaring loss of Rs.1,89,50,337/- . Initially the scrutiny assessment u/s 143(3) was completed on 20.12.2010 and income of the assessee was assessed at loss of Rs.1,80,10,110/- thereafter, the AO reopened the assessment by issuing notice u/s 148 on 19.02.2013. Ld. AR has referred to the reason recorded by the AO for reopening of the assessment and submitted that the AO proposed to assess the income escaped assessment on account of power and fuel expenses ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. claimed against unit-1. He has referred to the profit and loss account of unit –I as well as unit-II at page no.35 & 42 of the paper book and submitted that the assessee has given all the details recorded in the books of account and particularly in the profit and loss account as well as Schedule of the financials. He has referred to schedule -10 and submitted that the assessee has claimed manufacturing expenses which includes power and fuel expenses of Rs. 42,65,430/- incurred by the assessee in respect of the rubber mixing job work and income for rubber mixing work has been duly shown in the profit and loss account as other income. Thus, Ld. AR has submitted that all the particulars were disclosed and produced before the AO during scrutiny assessment u/s 143(3) and therefore, the reopening of the assessment is not valid as the same is based on change of opening. Ld. AR has submitted that no new facts has come to the knowledge of the AO to form the belief that the income assessable to tax as escaped assessment after completion of scrutiny assessment u/s 143(3). The claim of power and fuel expenses was already examined in the original assessment and therefore, it is a case of change of opinion. During original assessment, the assessee through point No. 1, 7 and 9 submitted the fact of disclosing job work income of Rs. 34,19, 894 / as other income in the P&L account and also explained the reason for excessive claim of power & fuel expenditure against the income. He has submitted that it is a settled proposition of law that section 147 does not allow the re-assessment of an income merely because of the fact that the assessing officer has a change of opinion with ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. regard to interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Section 147 confers the power to re- assess and not the power to review. In support of his contention he relied upon the following decisions: a. CIT vs Kelvinator of India Ltd. (2010) 187 taxmann312(SC) b. ITO vs Tech span (P.) Ltd. (2018) 404 ITR 10(SC) c. Mukand Limited vs Union of India (Bombay, HC) d. Murlimanohar Ramkishan Mundhra vs ITO e. PCIT vs Fibres and Fabrics International (P.) Ltd [2022] 139 taxmann.com 562 (SC) f. CIT vs. Eicher Ltd. 294 ITR 310 2.3 Thus, Ld. AR submitted that though in the assessment order u/s. 143(3), the Id.AO did not discuss the said matter however, that would not permit the AO to review the order. In CIT vs Eicher Ltd. 294 ITR 310 (Del.), it was held that even if the AO did not apply his mind on matter submitted before him the assessee cannot be made to suffer the consequences of that lapse. Reopening was not justifiable. He has also relied upon the following decisions:
(i) KLM Royal Dutch Airlines 292 ITR 49 (Del.), (ii)CLT vs Goetze (India) Ltd. 229 CTR 167 (Del.)
2.4 He has further submitted that there is only one electricity meter in both units. The genuineness of the total electricity expenses is not disputed. Unit-II though 100% export Oriented Unit ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. (EOU) yet no deduction u/s 10B is claimed as the assessee has declared loss therefore, it cannot be said to be a case of diversion of profit to eligible unit. Ld. AR has pointed out that the AO has given the reasons for making disallowance of power and fuel expenses by treating the income of mixing work as income from other sources however, the expenditure incurred for earning the said income is otherwise allowable deduction u/s 57 of the Act therefore, it is a revenue neutral claim of the assesse. Thus, he has pleaded that reopening of the assessment is not valid and liable to be quashed.
On the other hand, ld. DR has submitted that the assesse did not raise any objection before the AO against the notice issued u/s 148 despite the fact that the assessee was provided the reasons recorded by the AO for reopening of the assessment. He has relied upon the impugned order of the CIT(A).
We have considered rival submissions as well as relevant material on record. There is no dispute that in the case of assessee the scrutiny assessment was completed u/s 143(3) on 20.12.2010. Thereafter the AO reopened the assessment by recording the reasons for reopening which are reproduced in the assessment order itself as under:
"In this case the return of income was filed on 30/09/2008 declaring LOSS of Rs. (1,89,50,337/-). The assessment was finalized w/s 143(3) of the Act on 20.12.2010 determining the total income at Rs. (1,80,10,110/-). Case record revealed that that as per schedule -10 for Unit-I, Expenditure under Power and fuel was debited as Rs. Page 5 of 25 ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. 4265430/-, whereas, the accounts shows NIL sales, purchase and stock for the year. Since there was no business operation, the exp. was not an allowable expenditure, and should be added back. In view of above, I have reason to believe that an income of Rs. 4265430/- Chargeable 10 tax has escaped assessment for A.Y. 2008-09 within the meaning of section 147 of the Income Tax Act, 1961."
5. The AO has stated in the reasons recorded that the case record revealed that as per schedule -10 of Unit-I expenditure under power and fuel was debited at Rs.42,65,430/- whereas the accounts shows NIL sales purchase and stock for the year. All these facts stated in the reasons recorded are taken by the AO from the assessment record itself which manifest that after completing scrutiny assessment u/s 143(3) the AO has reopened the assessment on the basis of the same facts and records available with him and no new material or facts which were not available before the AO at the time of scrutiny assessment were came to his knowledge. Thus, it is a case where the assessee produced entire material before the AO at the time of scrutiny assessment u/s 143(3) and nothing new has come to the knowledge of the AO after completing assessment u/s 143(3). Therefore, it is a clear case of change of opinion to reopen the assessment based on the same facts and records available with the AO. The Hon’ble Supreme Court in case of CIT vs. Kelvinator of India ltd. (supra) has upheld the judgment of Hon’ble Delhi High Court on this issue. Similar view has been taken by the Hon’ble Supreme Court in case of ITO vs. Tech Span P. Ltd. (supra). By considering all these decisions the Page 6 of 25 ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. Hon’ble Delhi High Court in case of CIT vs. Eicher Ltd. (supra) has analysed and decided this issue in para 10 to 18 as under:
“10. The Tribunal noted the fact that for the earlier assessment years 1988- 89 to 1991-92, the revenue had accepted the decision arrived at by the Assessing Officer. Adverting to the letter sent by the assessee on 8-11-1995, the Tribunal came to the conclusion that the assessee had disclosed all relevant material facts at the time when the original order of assessment was made and in the letter dated 8-11-1995, the assessee had explained its stand regarding non-taxability of the amount. Since there was a full and true disclosure by the assessee, there was no reason for the Assessing Officer to come to the conclusion that income chargeable to tax had escaped assessment. In other words, the Tribunal was of the view that the case was really one of change of opinion.
11. Learned counsel for the revenue relied upon Consolidated Photo & Finvest Ltd. v Asstt. CIT [2006] 281 ITR 394, wherein a Division Bench of this Court considered the case law and came to the conclusion that in principle a mere change of opinion would be applicable only to a situation where the Assessing Officer had taken a conscious decision on the matter in issue. It was held that it would have no application where the assessment order does not record a finding on the aspect which formed the basis for reopening the assessment.
In response, learned counsel for the assessee drew our attention to CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1, wherein the Full Bench of this Court had taken a completely contrary view and it was submitted that the Division Bench did not follow the Full Bench. It was pointed out that the Full Bench held that when a regular order of assessment is passed in terms of section 143(3) of the Act, a presumption can be drawn that such an order has been passed on due application of mind. Reference was also made to section 114(e) of the Indian Evidence Act for drawing a presumption to the effect that judicial acts and official acts are performed in a regular manner. The Full Bench was of the view that if it be held: ". . .that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong."
Before the Full Bench, a decision of the Gujarat High Court, ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. namely, Praful Chunilal Patel v. M.J. Makwana, Asstt. CIT [1999] 236 ITR 832, was relied upon by learned counsel for the revenue and the Full Bench clearly stated that it was with respect, unable to accept the view propounded in that judgment. Notwithstanding this, in Consolidated Photo and Finvest Ltd., the Division Bench found itself in respectful agreement with the view of the Gujarat High Court.
Subsequently, a similar issue came up before another Division Bench of this Court in KLM Royal Dutch Airlines v. Asstt. Director of Income-tax [2007] 159 Taxman 191. The Division Bench noted the conflict between the decision of the Full Bench and the Division Bench of this Court and quite naturally concluded that since the view expressed by the Division Bench cannot be reconciled with the view of the Full Bench, it must be held that the Division Bench did not lay down the correct law. Following the view expressed in KLM Royal Dutch Airlines’ case (supra), we are of the view that it would not be correct on our part to overlook the decision of the Full Bench in Kelvinator of India Ltd.’s case (supra) and rely upon the decision of the Division Bench in Consolidated Photo & Finvest Ltd.’s case (supra). That would be subversive of judicial discipline.
15. In Hari Iron Trading Co. v. CIT [2003] 263 ITR 437, a Division Bench of Punjab and Haryana High Court observed that an assessee has no control over the way an assessment order is drafted. It was observed that generally, the issues which are accepted by the Assessing Officer do not find mention in the assessment order and only such points are taken note of on which the assessee’s explanations are rejected and additions/disallowances are made. We agree.
Applying the principles laid down by the Full Bench of this Court as well as the observations of the Punjab and Haryana High Court, we find that if the entire material had been placed by the assessee before the Assessing Officer at the time when the original assessment was made and the Assessing Officer applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened. On the other hand, if the Assessing Officer did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of that lapse.
ITANo.275 to 277/Ind/2023 RVT Technologies Ltd.
Insofar as the present appeal is concerned, we find that the assessee had placed all the material before the Assessing Officer and where there was a doubt, even that was clarified by the assessee in its letter dated 8-11- 1995. If the Assessing Officer, while passing the original assessment order, chose not to give any finding in this regard, that cannot give him or his successor in office a reason to reopen the assessment of the assessee or to contend that because the facts were not considered in the assessment order, a full and true disclosure was not made. Since the facts were before the Assessing Officer at the time of framing the original assessment, and later a different view was taken by him or his successor on the same facts, it clearly amounts to a change of opinion. This cannot form the basis for permitting the Assessing Officer or his successor to reopen the assessment of the assessee.
In sum and substance, this was the decision rendered by the Tribunal and we do not find any fault in the view taken. Consequently, we are of the view that since the case is one of a mere change of opinion that does not justify the Assessing Officer’s reopening the assessment of the assesse.” 5.1 Thus, it is settled proposition of law that reopening of assessment based on change of opinion is not permissible and the same is liable to be quashed. The facts available on record regarding the expenditure incurred by the assessee and corresponding mixing work income are not disputed by the AO and therefore, it is not a case of inflating the expenditure or claiming bogus expenditure as a power and fuel expenses are all supported by undisputed facts and record of consumption of power. Even otherwise if the income from mixing work is considered as income from other sources the expenditure incurred on power and fuel for doing mixing work is allowable claim u/s 57 of the Act or at least the claim of the assessee is bona fide claim on a debatable issue. Therefore, once the AO has allowed this claim in the scrutiny assessment u/s 143(3) then reopening of the assessment to ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. disallow the said claim without any new facts or record is not permissible being change of opinion. Hence, we hold that the reopening of the assessment is not valid and the same is quashed. Since the reopening of the assessment is quashed therefore, the issues raised by the assessee on merits becomes infructuous.
6. For A.Y.2009-10 the assessee has raised following grounds of appeal:
“1. On the facts and in the circumstances of the case, the honourable CIT(A) was not justified in confirming the penalty order u/s. 271E passed by the AO, which was illegal, invalid and untenable-in-law. 2.On the facts and in the circumstances of the case, the honourable CIT(A) was not justified in upholding that during the year, the appellant repaid the loan totaling Rs. 1,55,30,000 in cash to M/s Ralson Chit Fund at Rs. 1,23,30,000 and M/s. Sumanagar Nidhi Ltd at Rs. 32,00,0000. He was therefore not justified in confirming the penalty of Rs. 1,55,30,000 3.On the facts and in the circumstances of the case, the honorable CIT(A) was not justified in confirming the arguments of the AO that the evidence/ material produced by the appellant before the above-said jurisdictional authority was considered during the assmt. Proceedings. 4.On the facts and in the circumstances of the case, the honorable CIT(A) was not justified in upholding that the appellant violated the provisions of sec. 269T and in confirming the penalty levied u/s. 271E in the hands of the appellant. 5.The appellant craves leave to add, to alter and/or to modify the grounds of appeal on or before the date of hearing.”
7. The AO has levied penalty u/s 271E of the Act for violation of the provisions of section 269T on account of repayment of the loans Page 10 of 25 ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. otherwise then by an account payee cheques or account payee bank draft. The assessee challenged the action of the AO before the CIT(A) but could not succeed. Ld. AR of the assessee has submitted that during the year under consideration the assessee company repaid loan of various concerned either through cheques or RTGS. He has referred to page no.12 to 27 of the paper book and submitted that all the loans were repaid by the assessee either through RTGS or through cheques. He has further submitted that the AO has even not recorded the satisfaction in the assessment order passed u/s 143(3) for initiating the penalty u/s 271E for default of section 269T of the Act. After a gape of three years from the assessment order passed u/s 143(3), the ACIT issued show cause notice on 03.12.2014 u/s 271E which is not valid as barred by limitation as well as without recording any satisfaction. He has relied upon the judgment of Hon’ble Supreme Court in case of CIT vs. Jain Laxmi Rice Mills 64 taxmann.com 75(SC) as well as decision of this Tribunal in case of Umakant Sharma vs. JCIT dated 19.07.2023 in to 366/Ind/2022 and submitted that it was held that the penalty levied u/s 271D without recording any satisfaction is not valid and liable to be quashed. He has also relied upon following decisions:
(i)Mohd. Atiq vs Income-Tax Officer, 46 ITR 452 (All.) (ii)Jagdish Chandra Suwalka vs JCIT [2023] 154 taxmann.com 504 (Jaipur - Trib.) (iii) JCIT v. Jitendra Singh Rathore [2013] 352 ITR 327(Raj)
ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. (iv) CIT v. Hissaria Brothers [2016] 386 ITR 719 (SC) (v) Omec Engineers vs CIT [2008] 294 Taxman 599 (Jharkhand) (vi) CIT v. Ratna Agencies [2006] 284 ITR 609 (vii) CIT vs Lakshmi Trust Co. 303 ITR 99 (Mad.). (viii) Shreenath Builders v. Dy. CIT [2000] 111 Taxman 142 (Mag.) 7.1 Thus, Ld. AR has submitted that even otherwise when the repayment was through RTGS the same is through banking channel and cannot be held as a violation of section 269T of the Act. He has pointed out that this mode of payment was included subsequently vide amendment however, it is only a technical and venial breach. He has relied upon the judgment of Hon’ble Jharkhand High Court in case of Omec Engineers vs. CIT 294 taxman 599 and submitted that the penalty cannot be imposed merely on technical mistake by the assessee which has not resulted for any loss of revenue. Further when the transactions are genuine and bona fide and there was no evasion of tax then the penalty u/s 271E is not leviable. Thus, ld. AR has submitted that when all the transactions are through banking channel either through cheques or through RTGS then the penalty levied by the AO is not sustainable and liable to be deleted.
8. On the other hand, Ld. DR has relied upon the orders of the authorities below.
We have considered rival submissions as well as relevant material on record. The AO has initiated penalty proceedings u/s Page 12 of 25 ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. 271E of the Act only on the basis that the auditor has certified that it is not possible for him to verify whether acceptance of loan or deposit otherwise then by an account payee cheques or account payee bank draft as necessary evidence is not in the possession of the assessee. This fact is recorded by the AO as under:
“In the instant case, the Auditor has certified that it is not possible for him to verify whether acceptance of loan or deposit otherwise than by an account payee cheque or account payee bank draft as the necessary evidence is not in the possession of the assessee. It is clear that the assessee has repaid the loan or deposit amounting to Rs.1,55,30,000/- otherwise than by an account payee cheque or account payee bank draft in contravention of provisions of the section 269T. Therefore, the assessee is liable for penalty u/s 271E equivalent to the amount of such loan or deposit repaid.” 9.1 In response to show cause notice the assessee has explained that transactions are made through account payee cheques or through RTGS as evident from the ledger account of the parties in the books of accounts. The assesse produced copy of the ledger giving all relevant details. The Summary of the payment is as under:
Party Date Mode of Amount payment Sumangar 01.01.2009 RTGS 25,00,000 Nidhi Pvt. ltd. 5,00,000 ITANo.275 to 277/Ind/2023 RVT Technologies Ltd.
2,00,000 Ralson Chit 1,23,30,000 Fund & Finance Ltd.
Total 1,55,30,000 9.2 These payments of details are duly reflected in the respective ledger accounts in the books of the assesse. Further at page 12 to 27 of the paper book the said record was also produced by the assessee during the penalty proceedings. Once the assessee has brought on record the fact that the repayment of the loans are through account payee cheques and RTGS then though the payment through RTGS may not be a mode which is prescribed u/s 271E r.w.s 269T of the Act at the relevant point of time however, that is not less than mode of account payee cheques as provided u/s 269T of the Act. That is why the, electronic mode of transfer of money through the bank is subsequently inserted by Finance Act 2014 w.e.f 01.04.2014. Therefore, this mode of transfer of money prior to 01.04.2014 can equally be regarded as compliance of provisions of section 269T of the Act. Hence, once this fact was brought before the AO as well as CIT(A) that the payment were made either through cheques or through RTGS then the penalty in respect of the payment made through banking channel is not leviable. Even otherwise these facts and records establish that these are genuine transactions and there is no scope of any evasion ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. of tax or loss of revenue as all the transactions are duly reflected in the bank account of the recipients and therefore, the same would fall in the ambit of reasonable explanation provided in section 273B of the Act.
9.3 As regards the validity of the penalty for want of satisfaction we find that the assessment order is completely silent about any violation of section 269T or initiation of penalty u/s 271E of the Act. This is undisputed fact that the AO has not recorded any satisfactory in the assessment order passed u/s 143(3) on 5th December 2011 and thereafter ACIT issued show cause notice u/s 271E on 03.12.2014. The Hon’ble Supreme Court in case of CIT vs. Jain Laxmi Rice Mills (supra) has upheld the judgment of Hon’ble High Court as well as this tribunal in para 2 to 5 as under:-
“2.The assessee carried out this order in appeal. The Commissioner of Income Tax (Appeals) allowed the appeal and set aside the assessment order with a direction to frame the assessment de novo after affording adequate opportunity to the assessee. 3.After remand, the Assessing Officer passed fresh assessment order. In this assessment order, however, no satisfaction regarding initiation of penalty proceedings under Section 271E of the Act was recorded. It so happened that on the basis of the original assessment order dated 26.02.1996, show cause notice was given to the assessee and it resulted in passing the penalty order dated 23.09.1996. Thus, this penalty order was passed before the appeal of the assessee against the original assessment order was heard and allowed thereby setting aside the assessment order itself. It is in this backdrop, a question has arisen as to whether the penalty order, which was passed on the basis of original assessment order and when that assessment order had been set aside, could still survive.
ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. 4.The Tribunal as well as the High Court has held that it could not be so for the simple reason that when the original assessment order itself was set aside, the satisfaction recorded therein for the purpose of initiation of the penalty proceeding under Section 271E would also not survive. This according to us is the correct proposition of law stated by the High Court in the impugned order. 5.As pointed out above, insofar as, fresh assessment order is concerned, there was no satisfaction recorded regarding penalty proceeding under Section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271(1)(c) of the Act. Thus, insofar as penalty under Section 271E is concerned, it was without any satisfaction and, therefore, no such penalty could be levied. These appeals are, accordingly, dismissed.”
9.4 Further this tribunal in case of Shri Umakant Sharma vs. JCIT(supra) has considered an identical issue in para 8 to 11 as under:
“8. We have considered rival submissions and carefully perused the relevant material on record. There is no dispute that the assessee has not filed any return of income for the assessment year under consideration. The penalty u/s 271D of the Act has been levied on 23.01.2017 which is after 8 years from the end of the assessment year under consideration. The limitation for the penalty levied under chapter XXI has been provided in section 275 of the Act which reads as under: “275. 1 Bar of limitation for imposing penalties (1) 2 ] No order imposing a penalty under this Chapter shall be passed- (a) 3 in a case where the relevant assessment or other order is the subject- matter of an appeal to the Deputy Commissioner (Appeals) or the Commissioner (Appeals) under section 246 or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of 4 the Deputy Commissioner (Appeals) or] the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later; ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. [Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Ap- peals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after the 1st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the "[Principal Chief Commissioner or] Chief Commissioner or "[Principal Commissioner or] Commissioner, whichever is later (b) in a case where the relevant assessment or other order is the subject- matter of revision under section 263, after the expiry of six months from the end of the month in which such order of revision is passed; (c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later.] (IA) In a case where the relevant assessment or other order is the subject- matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A or an appeal to the Appellate Tribunal under section 253 or an appeal to the High Court under section 260A or an appeal to the Supreme Court under section 261 or revision under section 263 or section 264 and an order imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty is passed before the order of the Commissioner (Appeals) or the Appellate Tribunal or the High Court or the Supreme Court is received by the "Principal Chief Commissioner or] Chief Commissioner or the "[Principal Commissioner or] Commissioner or the order of revision under section 263 or section 264 is passed, an order imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty may be passed on the basis of assessment as revised by giving effect to such order of the Commissioner (Appeals) or, the Appellate Tribunal or the High Court, or the Supreme Court or order of revision under section 263 or section 264: Provided that no order of imposing or enhancing or reducing or cancelling penalty or dropping the proceedings for the imposition of penalty shall be passed- (a) unless the assessee has been heard, or has been given a reasonable opportunity of being heard; (b) after the expiry of six months from the end of the month in which the order of the Commissioner (Appeals) or the Appellate Tribunal or the High ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. Court or the Supreme Court is received by the "[Principal Chief Commissioner or] Chief Commissioner or the "[Principal Commissioner or] Commissioner or the order of revision under section 263 or section 264 is passed; Provided further that the provisions of sub-section (2) of section 274 shall apply in respect of the order imposing or enhancing or reducing penalty under this sub-section] 2. The provisions of this section as they stood immediately before their amendment by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988 ), shall apply to and in relation to any action initiated for the imposition of penalty on or before the 31st day of March, 1989 .] 2 Explanation.- In computing the period of limitation for the purposes of this section,- (i) the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129; (ii) any period during which the immunity granted under section 245H remained in force; and (iii) any period during which a proceeding under this Chapter for the levy of penalty is stayed by an order or injunction of any court, shall be excluded.]]”
9. The limitation for passing the order imposing penalty under chapter- XXI has been provided by considering all possible situation where the assessment order or other order is subject matter of appeal of the order is revised under section 263 or assessment order or other orders are subject matter of appeal before the Hon’ble High Court or Hon’ble Supreme Court. Thus, it is clear that section 275, pre supposes the existence of assessment proceedings/revision proceedings or appeal proceedings arising from the assessment order or revision order and the limitation is provided as per outcome of these proceedings. In absence of assessment in the case of the assessee the initiation of penalty is not valid and further when the satisfaction for initiation of the penalty on the part of the AO is absent in the case of the assessee then the penalty levied u/s 271D is not valid. The Hon’ble Supreme Court in case of CIT vs. Jain Laxmi Rice Mills (supra) has held as under: “The Tribunal as well as the High Court has held that it could not be so for the simple reason that when the original assessment order itself was set aside, the satisfaction recorded therein for the purpose of initiation of the penalty proceeding Under Sec. 271E would also not survive. This, according to us, is the correct proposition of law stated by the High Court in the impugned order.
ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. As pointed out above, insofar as, fresh assessment order is concerned there was no satisfaction recorded regarding penalty proceeding under Section 271E of the Act, though in that order the Assessing Officer wanted penalty proceeding to be initiated under Section 271(1)(c) of the Act. Thus, Insofar as penalty under Section 271E is concemed, it was without any satisfaction and, therefore, no such penalty could be levied.”
Thus, the Hon’ble Supreme Court has affirmed the view of the Hon’ble High Court that in absence of satisfaction recorded regarding the penalty proceedings u/s 271E of the Act the order of levy of penalty is not valid. The Ahmedabad Bench of the Tribunal in case of Vijayaben G. Zalavadia vs. JCIT (supra) has considered an identical issue as under: “6. We have heard the respective parties and also perused the relevant materials available on record.
We find that on the identical set of facts the Punjab and Haryana High Court was pleased observe the following while upholding quashing of penalty by the Tribunal: “3. We have heard learned counsel for the appellant.
4. The only point for consideration in this appeal is whether the assessee had contravened the provisions of Section 269T of the Act by making repayment of loan/deposits of Smt. Kusum Lata Thakral, through account payee cheque or account payee drafts to M/s. Babyloan Builders Pvt. Ltd., Gurgaon and, therefore, penalty under Section 271E was leviable.
The Assessing Officer had levied the penalty amounting to Rs. 11,02,6107- which has been deleted by the Tribunal. The Tribunal while deleting the penalty recorded that the return of the assessee was processed as on 31.12.2003 and the notice u/s. 274 read with section 271E of the Act was issued on 12.06.2007. Such notice was issued when there was no proceedings pending before the Assessing Officer. Relying upon Delhi High Court judgment in CIT v. Standard Brands Ltd. [20061 285 ITR 295/155 Taxman 383, the Tribunal further observed that action for penalty may be permissible only after regular assessment has been framed and since no regular assessment order had been passed in this case, the recourse to penalty proceedings under Section 27IE were not justified. The findings recorded by the Tribunal read thus:- "Having heard the parties and having perused the material on record, we find the grievance of the assessee to be correct. In this case, the return of the assessee was processed u/s. 143(l)(a) of the Income-tax Act, on 31.12.2003. Notice u/s. 274 read with 271E of the Act was issued to the assessee on 12.06,2007. It being a case of processing the return of income, there is no finding in the AO's order with regard to the applicability or ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. otherwise of section 269T of the IT Act to the assessee's case. It was within the purview of the AO to bring the assessee's case to scrutiny and to make regular assessment u/s. 143(3) of the Act. It was also within the power of the AO at the appropriate stage to initiate proceedings u/s. 147 of the Act against the assessee. No such action was taken. Rather, the penalty was imposed on the basis of the finding in the case of assessee's wife."
No error or perversity could be shown in the aforesaid findings recorded by the Tribunal. Moreover, the assessee had taken a plea before the Assessing Officer that there was a reasonable cause for the assessee to have made direct payment of Rs. 14,02,600/- to M/s. Babyloan Builders Private Ltd., Gurgaon. It was pleaded that some of the repayments made by the assessee were inter company transfer for group housing and purchase of flat and at times payments were made after closure of banking hours. It was further submitted that the payments made were genuine and no tax evasion was involved and the default, if any, was of technical nature. The explanation being plausible one, it cannot be said that there was no reasonable cause within the meaning of Section 273B of the Act. No substantial question of law arises in this appeal.
We find substances in the submissions made by the Ld. A.R. particularly after considering the order passed by the Hon’ble Punjab and Haryana High Court as cited hereinabove. In fact, on the identical set of facts the penalty under Section 271E was deleted by the Tribunal and further upheld by the Hon’ble High Court.
9. Having regard to the facts and circumstances of the case and the ratio laid down in the order passed by the Punjab and Haryana High Court we do not hesitate to hold that the impugned penalty under Section 271E is not permissible in the absence of regular assessment framed against the assessee by the Revenue. Hence, the same is not found to be sustainable in the eye of law and, thus, quashed. The appeal preferred by the assessee is, therefore, allowed.”
Therefore, it is pre-requisite condition that the initiation of penalty 271D/271E of the Act, there must be assessment proceedings or proceeding arising from assessment order are pending in the case of the assessee. Accordingly in the facts and circumstances of the case and following the judgment of Hon’ble Supreme Court as well as Coordinate Bench of the Tribunal in case of Vijayaben G. Zalavadia vs. JCIT (supra), we hold that the penalty levied u/s 271D of the Act without any assessment proceedings in the case of the assessee is not valid and liable to be quashed. We order accordingly.”
ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. 9.5 Accordingly in view of the facts and circumstances as discussed above as well as the decisions relied upon by the assesse we hold that the penalty levied by the AO u/s 271E is not sustainable and the same is deleted.
10. For A.Y.2014-15 the assesse has raised following grounds:
“On the facts and in the circumstances of the case the honourable CIT(A) was not justified in confirming the disallowances against the various heads as under:
Bonus Rs.45,763.00
2.Employees state insurance Rs.1,09,460.00
3.Employees PF Rs.9,89,874.00
11. The assessee is aggrieved by the impugned order of the CIT(A) confirming the disallowance of bonus, ESI and employees PF. The details of which are given in the ground of appeal above.
11.1 As regard the PF & ESI at the time of hearing Ld. AR of the assessee has fairly submitted that this issue is now covered against the assessee by the judgment of Hon’ble Supreme Court in case of Checkmate Services (P.) Ltd. v. CIT (supra) wherein, this issue has been decided in favour of the revenue in Para 51 to 55 as under:
“51. The analysis of the various judgments cited on behalf of the assessee i.e.,CIT v. Aimil Ltd. [2010] 188 Taxman 265/321 ITR 508 (Delhi); CIT v. Sabari Enterprises [2008] 298 ITR 141 (Kar.); CIT v. Pamwi Tissues Ltd. [2009] 313 ITR 137 (Bom.); CIT v. Udaipur Dugdh Utpadak Sahakari Sangh Ltd. [2013] 35 taxmann.com 616/217 Taxman 64 (Mag.)/[2014] Page 21 of 25 ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. 366 ITR 163 and Nipso Polyfabriks (supra) would reveal that in all these cases, the High Courts principally relied upon omission of second proviso to Section 43B (b). No doubt, many of these decisions also dealt with section 36(va) with its explanation. However, the primary consideration in all the judgments, cited by the assessee, was that they adopted the approach indicated in the ruling in Alom Extrusions. As noticed previously, Alom Extrutions did not consider the fact of the introduction of Section 2(24)(x) or in fact the other provisions of the Act.
When Parliament introduced section 43B, what was on the statute book, was only employer's contribution (Section 34(1)(iv)). At that point in time, there was no question of employee's contribution being considered as part of the employer's earning. On the application of the original principles of law it could have been treated only as receipts not amounting to income. When Parliament introduced the amendments in 1988-89, inserting section 36(1)(va) and simultaneously inserting the second proviso of section 43B, its intention was not to treat the disparate nature of the amounts, similarly. As discussed previously, the memorandum introducing the Finance Bill clearly stated that the provisions - especially second proviso to Section 43B - was introduced to ensure timely payments were made by the employer to the concerned fund (EPF, ESI, etc.) and avoid the mischief of employers retaining amounts for long periods. That Parliament intended to retain the separate character of these two amounts, is evident from the use of different language. Section 2(24)(x) too, deems amount received from the employees (whether the amount is received from the employee or by way of deduction authorized by the statute) as income - it is the character of the amount that is important, i.e., not income earned. Thus, amounts retained by the employer from out of the employee's income by way of deduction etc. were treated as income in the hands of the employer. The significance of this provision is that on the one hand it brought into the fold of "income" amounts that were receipts or deductions from employees income; at the time, payment within the prescribed time - by way of contribution of the employees' share to their credit with the relevant fund is to be treated as deduction (Section 36(1)(va)). The other important feature is that this distinction between the employers' contribution (Section 36(1)(iv)) and employees' contribution required to be deposited by the employer (Section 36(1)(va)) was maintained - and continues to be maintained. On the other hand, section 43B covers all deductions that are permissible as expenditures, or out-goings forming part of the assessees' liability. These include liabilities such as tax liability, cess duties etc. or interest liability Page 22 of 25 ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. having regard to the terms of the contract. Thus, timely payment of these alone entitle an assessee to the benefit of deduction from the total income. The essential objective of section 43B is to ensure that if assessees are following the mercantile method of accounting, nevertheless, the deduction of such liabilities, based only on book entries, would not be given. To pass muster, actual payments were a necessary pre-condition for allowing the expenditure.
The distinction between an employer's contribution which is its primary liability under law - in terms of section 36(1)(iv), and its liability to deposit amounts received by it or deducted by it (Section 36(1)(va)) is, thus crucial. The former forms part of the employers' income, and the later retains its character as an income (albeit deemed), by virtue of section 2(24)(x) - unless the conditions spelt by Explanation to section 36(1)(va) are satisfied i.e., depositing such amount received or deducted from the employee on or before the due date. In other words, there is a marked distinction between the nature and character of the two amounts - the employer's liability is to be paid out of its income whereas the second is deemed an income, by definition, since it is the deduction from the employees' income and held in trust by the employer. This marked distinction has to be borne while interpreting the obligation of every assessee under section 43B.
In the opinion of this Court, the reasoning in the impugned judgment that the non-obstante clause would not in any manner dilute or override the employer's obligation to deposit the amounts retained by it or deducted by it from the employee's income, unless the condition that it is deposited on or before the due date, is correct and justified. The non-obstante clause has to be understood in the context of the entire provision of Section 43B which is to ensure timely payment before the returns are filed, of certain liabilities which are to be borne by the assessee in the form of tax, interest payment and other statutory liability. In the case of these liabilities, what constitutes the due date is defined by the statute. Nevertheless, the assessees are given some leeway in that as long as deposits are made beyond the due date, but before the date of filing the return, the deduction is allowed. That, however, cannot apply in the case of amounts which are held in trust, as it is in the case of employees' contributions- which are deducted from their income. They are not part of the assessee employer's income, nor are they heads of deduction per se in the form of statutory pay out. They are others' income, monies, only deemed to be income, with the object of ensuring that they are paid within the due date specified in the ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. particular law. They have to be deposited in terms of such welfare enactments. It is upon deposit, in terms of those enactments and on or before the due dates mandated by such concerned law, that the amount which is otherwise retained, and deemed an income, is treated as a deduction. Thus, it is an essential condition for the deduction that such amounts are deposited on or before the due date. If such interpretation were to be adopted, the non-obstante clause under section 43B or anything contained in that provision would not absolve the assessee from its liability to deposit the employee's contribution on or before the due date as a condition for deduction.
In the light of the above reasoning, this court is of the opinion that there is no infirmity in the approach of the impugned judgment. The decisions of the other High Courts, holding to the contrary, do not lay down the correct law. For these reasons, this court does not find any reason to interfere with the impugned judgment. The appeals are accordingly dismissed.” 11.2. Accordingly in view of the judgment of Hon’ble Supreme Court we do not find any error or illegality in the impugned order of the CIT(A) for disallowance/additions made on account of delay in payment of employees contribution to ESI and PF.
12. As regard the disallowance of bonus Ld. AR of the assessee has submitted that the AO has not discussed this issue in the assessment order and made unilateral disallowance on the ground that bonus is payable but not paid of Rs.45,763/-. The Ld. AR has submitted that the payment was made in the subsequent year and therefore, the AO may be directed to verify from the record of the subsequent year and then to allow the claim of the assessee in the subsequent year.
13. On the other hand Ld. DR has raised no objection if the AO is directed to verify the claim of the assesse as payment is made in the ITANo.275 to 277/Ind/2023 RVT Technologies Ltd. subsequent year and consequently same may be allowed in the subsequent year subject to verification of the facts.
14. Accordingly we set aside this issue to the record of the AO for verification of actual payment made by the assesse in the subsequent year as well as any claim is made or allowed in the subsequent year. Hence, the AO after verification of the facts to consider and decide this issue as per law.
In the result, appeal for A.Y2008-09 & 2009-10 are allowed and for A.Y.2014-15 is partly allowed for statistical purposes.
Order pronounced in the open court on 30. 04.2024.