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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: Shri Joginder Singh, & Shri Ashwani Taneja
आदेश / O R D E R
Per Joginder Singh (Judicial Member) Both these appeals are by the Revenue, aggrieved by the impugned orders dated 05/11/2013 and 16/03/2012 of the Ld. First Appellate Authority, Mumbai. The only ground raised in the present appeals is with respect to direction to the Assessing Officer to re-compute the quantum of deduction u/s 80HHC of the Income Tax Act, 1961 (hereinafter the Act) without reducing the deduction u/s 80IB of the Act ignoring the provisions of section 80IA(9) of the Act.
During hearing of these appeals, the ld. DR, Shri B.S. Bist, defended the addition made by the Assessing Officer. On the other hand, the ld. counsel for the assessee, Smt. Snehal Shah, claimed that the impugned issue is covered by the decision of the Tribunal, order dated 23/10/2013 (ITA No.3926 & 3927/Mum/2012). This factual assertion was not controverted by the ld. DR. 2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 23/10/2013 (Assessment year 1999-2000 & 2000-01) for ready reference and analysis:-
“Both these appeals are filed by the assessee. They are directed against two separate orders dated 16/3/2012 passed by Ld. CIT, Cir.4, Mumbai in respect of assessment year 1999-2000 and 2000-01 respectively under the “I.
The Learned Commissioner of Income Tax (Central)-IV (“CIT-(Central)”) erred in invoking the provision of section 263 without having jurisdiction to do so, thereby rendering the order void ab initio, illegal and bad in law and as such the order passed u/s 263 is liable to be quashed. Without prejudice to above ground, II.
1. The CIT-(Central) erred in passing an order u/s 263 without giving proper opportunity of being heard and without appreciating the fact that the order passed by the AO was neither erroneous nor prejudicial to the interest of the revenue Without prejudice to above ground, III.
1. The CIT- (Central) erred in passing an order u/s 263 setting aside the Assessment Order without appreciating the fact that the order passed by the AO was neither erroneous nor prejudicial to the interest of the revenue. Without prejudice to above ground, IV.
1. The CIT-(Central) erred in setting aside the order of the Assessing officer and directing him to reframe the assessment in accordance with the law.”
2. It was pointed out that the facts and circumstances of both the cases are similar, therefore, for the sake of convenience the facts regarding A.Y 1999-2000 are discussed below.
Assessment under section 143(3) of the Act was completed by the AO initially on 23/1/2002, wherein total income of the assessee was determined at Rs.2,94,03,980/- by allowing the claim of deduction under section 80HHC of the Act. Later on notice under section 147 was issued on the basis of Taxation Law (Amendment) Act 2005 r.w.s. CBDT Circular No.2 of 2006 dated 27/7/2006. Accordingly, total income was recomputed at Rs.7,81,75,917/-. Aggrieved, assessee filed an appeal before Ld. CIT(A), who upheld the order of AO. Against the said order of Ld. CIT(A) appeal was filed before ITAT and ITAT directed the AO to furnish the copies of reasons recorded for reopening of the case so that the assessee may be able to raise objection and then to proceed to assess the assessee as per law. In pursuance of directions of ITAT the assessment again was finalized vide order dated 16/12/2010 passed under section 143(3) r.w.s. 147, whereby income of the assessee was again assessed at the same figure of Rs.7,81,75,917/- by disallowing the claim of assessee under section 80 HHC on DEPB.
4 & 935/Mum/2014 M/s Roha Dyechem Ltd. 3.1 It is for the said assessment order Ld. CIT has invoked section 263 in respect of assessment years 1999-2000 and 2000-01. Ld. CIT has found from the record that in earlier assessment order which was dated 27/7/2006 the AO had initiated penalty proceedings under section 271(1)(c) of the Act. However, in subsequent assessment order dated 16/12/2010 the AO did not initiate penalty proceedings under section 271(1)(c). Referring to the decision of Hon’ble Allahabad High Court in the case of Surendra P. Agarwal, 275 ITR 113 in which it is held that failure of the AO to initiate penalty proceedings in the course of assessment proceedings will render the assessment order as erroneous and prejudicial to the interest of revenue. In response to show cause notice issued in this regard the assessee relied on Circular No.2 of 2006 date 17/1/2006 in which it was clarified that no penalty should be levied in respect of fresh demand raised consequent to enactment of Taxation Law (Amendment) Act 2005 on account of failure in the returned/assessed income attributable to profits on sale of DEPB credits or DFRC. The circular further states that in such cases where penalty has been initiated, the penalty proceedings shall be dropped. Referring to the said circular it was pleaded that the assessment order passed by AO dated 16/12/2010 cannot be held to be erroneous even though penalty proceedings were initiated in the order dated 27/7/2006 on the same issue.
3.2 However, Ld. CIT has rejected such contention of the assessee on the ground that section 80I/80IB deduction allowable to assessee at Rs.4,87,82,254/- has been reduced from deduction allowable under section 80HHC at Rs.12,80,15,828/- and accordingly deduction under section 80HHC was allowed at Rs.7,92,33,574/- only instead of Rs.12,80,15,828/- by invoking section 80 HHC (4B). It is further observed by Ld. CIT that penalty proceedings under section 271(1)(c) were initiated in original order against aforementioned disallowance. The failure of the AO to initiate penalty under section 271(1)(c) in the order dated 16/12/2010 with reference to the disallowance of deduction in view of section 80HHC(4B) has rendered the assessment order erroneous and prejudicial to the interest of revenue. The circular relied upon by assessee only relates to non-leviablity of penalty under section 271(1)(c) with regard to 5 & 935/Mum/2014 M/s Roha Dyechem Ltd. disallowance under section 80HHC on DEPB credits only. Since the AO has failed to initiate such penalty proceedings which could be initiated only during the course of assessment proceedings, the assessment order passed by AO become erroneous as well as prejudicial to the interest of revenue. For these reasons he has set aside the assessment order for both the years to the file of Assessing Officer with a direction to reframe assessment in accordance with law after providing sufficient opportunity of being heard to the assessee.
After narrating the facts Ld. AR submitted that according to well established law penalty proceedings are independent and separate from the assessment proceedings inasmuch as assessee is allowed to adduce fresh evidence during the penalty proceedings. Therefore, failure on the part of AO to initiate proceedings cannot vitiate the assessment order particularly when assessed income remain unchanged and consequently cannot be a matter of revision by the Commissioner under section 263 of the Act. He in this regard referred to the decision of Hon’ble Delhi High Court in the case of J.K.D’Costa 133 ITR 7(Del), wherein CIT invoked power for the reasons that AO failed to initiate penalty proceedings during the course of assessment proceedings. It was held that penalty proceedings are separate from assessment proceedings. There is no identity between the two. Though it is usual for the AO to record in the assessment order that penalty proceedings are to be initiated, this is mere a matter of convenience than of legal requirement. All that the law requires, so far as the penalty proceedings are concerned, is that they should be initiated in the course of proceedings for assessment. Failure of the ITO to record in the assessment order his satisfaction or the matter in regard to the leviability of penalty cannot be said to a factor vitiating the assessment order in any respect. An assessment cannot be said to be erroneous or prejudicial to the interest of revenue because of the failure of the ITO to record his opinion about the leviability of penalty in the case. Ld. AR submitted that Special Leave Petition filed by the department against aforementioned decision of Hon’ble Delhi High Court has been dismissed by Hon’ble Supreme Court and reference in this regard was made to CIT v. Sudershan Talkies (201 ITR 289 (Delhi) CIT v. Nihal Chand Rekyan (242 ITR 45(Delhi) CiT v. Keshrimal Parsmal (157 ITR 484 (Rajasthan) Surendra Prasad Singh v. CIT (173 ITR 510 (Gauhati) CIT v. Linotype and Machinery Ltd. (192 ITR 337(Calcutta). CIT v. Subhash kumar Jain (335 ITR 364(Punjab & Haryana)
4.1 Ld. AR further referred to the decision of Hon’ble Delhi High Court in the case of Addl. CIT vs. Achal Kumar Jain, 142 ITR 606, in which it was observed that though it was true that the satisfaction of the ITO, before the conclusion of the assessment proceedings, was the condition precedent for an exercise of the jurisdiction to impose penalty, non-expression of such a satisfaction in the assessment order could not invalidate it. It was held that Ld. CIT was wrong in invoking the provisions of section 263.
4.2 Ld. AR further mentioned to the decision of Hon’ble Gujarat High Court in the case of Parmanand M. Patel, 278 ITR 3, wherein even considering the decision relied upon by Ld. CIT [Surendra P. Agarwal(supra)] it was held that the initiation of penalty is under the exclusive domain of AO and Ld. CIT is not empowered to record satisfaction by invoking section 271(1)(c) and if he is not entitled to do so on his own, he cannot do it by directing the AO to initiate the proceedings and in this manner section 263 proceedings were held to be invalid. He submitted that similar view was taken by Hon’ble Gujarat High Court in subsequent decision in the case of Dr. Suresh G. Shah vs. CIT, 289 ITR 110. Ld. AR also referred to the following decisions to contend that non- initiation of penalty proceedings under section 271(1)(c) in the assessment order did not render the assessment order erroneous as well as prejudicial to the interest of revenue:
CIT vs. C.R.K Swamy (2003) (254 ITR 158) (Mad) J.P.Constructions , (2009) ITAT Ahmedabad 4.3 Ld. AR further referred to the decision of Hon’ble Supreme Court in the case of Malabar Industrial Co. vs. CIT, 243 ITR 83(SC) to contend that for invoking power under section 263 two conditions are required to be 7 & 935/Mum/2014 M/s Roha Dyechem Ltd. fulfilled simultaneously, which are that the assessment order should be erroneous as well as prejudicial to the interest of revenue. Thus Ld. AR submitted that the only ground on which Ld. CIT has directed the AO to initiate concealment penalty is on account of reduction in 80IA benefit by invoking the provisions of section 80IA(9) which in the opinion of Ld. CIT, has rendered the assessment order erroneous as well as prejudicial to the interest of the revenue. He submitted that the AO after proper application of mind has arrived at a conclusion that it is not a fit case where penalty should be initiated having regard to the fact that there was a full disclosure in respect of claim coupled with the fact that the issue involved was highly debatable in nature. Therefore, Ld. AR submitted that Ld. CIT has wrongly invoked jurisdiction under section 263 of the Act.
4.4 Without prejudice to above arguments it was submitted that at the time of passing the order under section 263, the sole issue is reduction of benefit under section 80IA on which Ld. CIT has directed the AO to initiate penalty proceedings. He submitted that the issue has already been decided by ITAT in favour of the assessee in assessee’s own case relying upon decision of Jurisdictional High Court in the case of Associated Capsules Ltd. vs. DCIT (332 ITR 42). He submitted that this order of ITAT was available when Ld. CIT has passed order under section 263. Therefore, Ld. AR pleaded that Ld. CIT was not justified in holding that the order passed by Ld. AO was erroneous and prejudicial to the interest of revenue. Ld. AR in this regard also referred to the order of Tribunal dated 20/05/2011 passed in MA No.73/Mum/2011 in respect of assessment year 2001-02, copy of which has been annexed as Annexure-H, wherein the Tribunal following the aforementioned decision of Hon’ble Bombay High Court in the case of Associated Capsules Ltd. vs. DCIT(Supra) has held that the deduction under section 80 IA and 80 HHC combined together should not exceed the total income shown by the assessee. Thus it was submitted by Ld. AR that the orders passed by Ld. CIT under section 263 should be set aside and quashed.
On the other hand Ld. DR relied upon the orders passed by Ld. CIT.
8 & 935/Mum/2014 M/s Roha Dyechem Ltd.
We have carefully considered the rival submissions in the light of the material placed before us. We have also carefully gone through the order passedby Ld. CIT. The power under section 263 has been invoked by Ld. CIT on the ground that concealment penalty is leviable on the assessee to the extent its claim under section 80 HHC was reduced by the deduction granted under section 80I/80IB of the Act. He in this regard has mentioned to the provisions of section 80 HHC(4B). He held that according to circular relied upon by the assessee concealment penalty cannot be levied on disallowance of deduction under section 80 HHC on DEPB credits. According to Ld. CIT the failure of AO to initiate concealment penalty proceedings on the amount which is claimed and allowed as deduction under section 80I/80IB while computing the deduction under section 80HHC has rendered the assessment order as erroneous as well as prejudicial to the interest of revenue.
7.1 On these facts we have to consider that whether Ld. CIT was right in invoking power under section 263 which have been pressed only for the reason that AO has failed to initiate concealment penalty proceedings. Ld. CIT for this purpose has relied upon the decision in the case of Surendra P. Agarwal(supra). On the other hand, there are several decisions in which a clear proposition has been laid down that non-initiation of penalty proceedings cannot render the assessment order as erroneous. These decisions have been discussed in detail while recording the arguments of the Ld. AR. It is pertinent to mention here that the Hon’ble Supreme Court has dismissed the SLP filed by the department against the decision of Hon’ble Delhi High Court in the case of J.K.D’ Costa(supra). This point has been taken note in the decision of Hon’ble Gauhati High Court in the case of Surendra Prasad Singh vs. CIT, 173 ITR 510. However, the aforementioned decision of Hon’ble Allahabad High Court in the case of Surendra P. Agarwal (supra) has dissented with the aforementioned decision of Hon’ble Delhi High Court. Several other High courts have also expressed the view that non-initiation of penalty proceedings during the course of assessment proceedings does not render the assessment order erroneous so as to make entitle the CIT to invoke section 263. These decisions have also been mentioned in the above part of this order while
9 & 935/Mum/2014 M/s Roha Dyechem Ltd. recording the arguments of the assessee. Therefore, there is catena of decisions which favour the view that non-initiation of penalty proceedings during the course of assessment proceedings cannot render the assessment order as erroneous. According to well established law if there are two views, the view favourable to assessee is to be adopted particularly when the opinion of Jurisdictional High Court or Apex Court is not available on that view. Reference in this regard can be made to the decision of Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Ltd., 88 ITR 192. In this view of the situation it has to be held that Ld. CIT has wrongly invoked jurisdiction under section 263.
7.3 There is one more aspect of the matter. Ld. CIT while holding that assessment order is erroneous has observed that concealment penalty is leviable with respect to amount of deduction under section 80 IB by which deduction under section 80 HHC has been reduced. We found that this issue has already been considered by the Tribunal in the miscellaneous application filed by the assessee. Following the decision of Hon’ble Bombay High Court in the case of Associated Capsules vs. DCIT(Supra), the issue has been decided in favour of the assessee as per following observations:
“9. Ground No.3: After hearing both the parties, we find we find that the AO reduced deduction u/s.8OHHC, while computing deduction u/s.801B(10) in view of the provisions of section 801B(13) r.w.s. 801A(9). The action of the AO has been confirmed by the Id. CIT[A). 1.0. The Ld. Counsel of the assessee submitted that this issue is covered in favour of the assessee by the decision of the Hon’ble Bombay High Court in the case of Associated Capsules Pvt. Ltd. vs. DCIT in IT.Appeal No.3036 of 2010, dated 10th January, 2011.
On the other hand, Id. DR relied on the order of the CIT[A].
After considering the rival submissions, we find that the Honble Bombay High Court in the case of Associated Capsules Pvt. Ltd. vs. DCIT [supra], has decided the issue vide para-39 which reads as under: “In the result, we hold that section 80-IA(9) does not affect the computability of deduction under various provisions under heading “C” of Chapter VI-A, but it affects the allowability of deductions computed under various provisions under heading C of Chapter VI-A, so that the aggregate deduction under section 80-IA and other provisions under heading “C” of Chapter VI-A do not exceed 100 per cent. of the profits of the business of the assessee. Our above view is also supported by the Central Board of Direct Taxes Circular No. 772 dated
10 & 935/Mum/2014 M/s Roha Dyechem Ltd. December 23, 1998 ([1999] 235 TR (St.) 35), wherein it is stated that section 80- IA(9) has been introduced with a view to prevent the taxpayers from claiming repeated deductions in respect of the same amount of eligible income and that too in excess of the eligible profits. Thus, the object of section 80-IA(9) being not to curtail the deductions computable under various provisions under heading C of Chapter VI-A, it is reasonable to hold that section 80-IA(9) affects allow-ability of deduction and not computation of deduction. To illustrate, if Rs.100 is the profits of the business of the undertaking, Rs. 30 is the profits allowed as deduction under section 80-IA(1) and the deduction computed as per section 80HHC is Rs. 80/-, then, in view of section 80-IA(9), the deduction under section 80HHC would be restricted to Rs. 70/-, so that the aggregate deduction does not exceed the profits of the business”. Respectfully following the said decision, we decide the issue in favour of the assessee and direct the Assessing Officer to compute the deduction as held by the Hon’ble Bombay High Court in para-39 above” In the result, the miscellaneous application is allowed. Order pronounced in the open court on this day of 20/5/2011. Therefore, if similar issue has already been decided in favour of assessee by the ITAT in which addition itself has been deleted then how the non- initiation of concealment penalty will render the assessment order erroneous. Thus, there is a force in the alternative contention of Ld. AR that the issue on which Ld. CIT has invoked power under section 263 was already decided in favour of the assessee. It may be mentioned here that when Ld. CIT invoked jurisdiction under section 263, the aforementioned order of Tribunal was available on record. For this reason also we hold that power under section 263 has wrongly been exercised.
7.4 Keeping in view the above discussions the impugned orders passed by Ld. CIT under section 263 are held to be invalid and are quashed.
In the result, the appeals filed by the assessee are allowed.”
2.2. We find that the appeal of the Revenue is based upon invoking revisional jurisdiction u/s 263 of the Act and that order has been quashed by the Tribunal in the aforesaid order dated 23/10/2013. Thus, both the appeals of the revenue do not survive being infructuous, therefore, both the appeals of the Revenue are dismissed.
This order was pronounced in the open in the presence of ld. representative from both sides at the conclusion of the hearing on 21/06/2016.
Sd/- Sd/- (Ashwani Taneja) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 21/06/2016 f{x~{tÜ? P.S/.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//