M Dhara & Brothers, Howrah vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL "A" BENCH: KOLKATA [Before Shri P. K. Bansal, AM & Shri Mahavir Singh, JM]

I.T.A No.2881/Kol/2013 Assessment Year: 2009-10 M. Dhara & Brothers Vs. Commissioner of Income-tax-XVI (PAN: AAFFM3283Q) Kolkata. (Appellant) (Respondent)

Date of hearing: 08.04.2015 Date of pronouncement: 30.04.2015

For the Appellant: Shri K. M. Roy, FCA For the Respondent: Shri Varinder Mehta, CIT, DR

ORDER Per Shri Mahavir Singh, JM:

This appeal by assessee is arising out of revision order passed by CIT-XVI, Kolkata vide M. No. CIT-XVI/263/13-14/3755-758 dated 17.12.2013. Assessment was framed by ACIT, Circle-48, Kolkata u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2009-10 vide his order dated Nil.

2. The only issue in this appeal of assessee is against the revision order passed by CIT u/s. 263 of the act for revising the assessment framed by AO. For this, assessee has raised following effective ground no.2:

"2. That the proposed initiation of penalty is beyond the purview and scope of section 263."

3. We have heard both the sides and gone through facts and circumstances of the case. At the outset, Ld. Counsel for the assessee stated that he is challenging only the issue of initiation of penalty proceedings u/s. 271D of the Act for violation of section 269SS of the Act in the revision order passed by CIT u/s. 263 of the Act. He drew our attention to para 10 and 10.1 of section 263 order, which read as under:

2 ITA No.2881/K/2013 M. Dhara & Brothers. AY 2009-10

"10. It IS also found from the records that the assessee had taken unsecured loan of Rs.6,00,000/- in total from various persons in cash and each of the case the loan amount was above Rs. 20,000/- i.e., in violation of Sec. 269SS. The assessee in the course of proceeding u/s. 263 admitted that 'we have taken cash loan in excess of Rs. 20,000/- during our extreme exigency which may kindly be condone by your honour......'

10.1. From the record it is seen that the AO had collected loan confirmation for the unsecured loan but failed to see that the loan was taken in cash and the aggregate of loan amount totalling to Rs.6,00,000/- in fifteen cases were above Rs. 20,000/- in each cases which were in violation of provision of Sec. 269SS of the Act and attracted penalty u/s 271 D. Failure to notice the violation of Sec 269SS and non levy of penalty u/s. 271D was erroneous and prejudicial to the interest of revenue."

After going through the above direction of CIT u/s. 263 of the Act to initiate penalty proceedings u/s. 271D of the Act for violation of provision of section 269SS of the Act, Ld. Counsel for the assessee on this proposition filed copy of judgment of Hon'ble Calcutta High court in the case of CIT Vs. Linotype & Machinery Ltd. (1991) 192 ITR 337 (Cal) wherein exactly on similar proposition Hon'ble Calcutta High court has dealt the issue at para 6 & 7 of its order, which read as under:

"6. At the hearing, Dr. Pal, learned counsel, has drawn our attention to the decision of the Delhi High Court in the case of Addl. CIT v. J. K. D'Costa [1982] 133 ITR 7.

7. There also a similar question arose and the Commissioner of Income-tax invoked the provisions of Section 263 of the Act. The Division Bench of the Delhi High Court held as follows (at p. 11) :

"The only question before us is whether the Tribunal was right in revoking the order of the Additional Commissioner in so far as it pertains to the question of penalties under Sections 271(1)(a) and 273(b). Here, we find ourselves in complete agreement with the view taken by the Tribunal. It is well-established that, proceedings for the levy of penalty whether under Section 271(1)(a) or under Section 273(b) are proceedings independent of and separate from the assessment proceedings. Though the expression 'assessment' is used in the Act with different meanings in different contexts, so far as Section 263 is concerned, it refers to a particular proceeding that is being considered by the Commissioner and it is not possible when the Commissioner is dealing with the assessment proceedings and the assessment order to expand the scope of these proceedings and to view the penalty proceedings also as part of the proceedings which are being sought to be revised by the Commissioner. There is no identity between the assessment proceedings and the penalty proceedings ; the latter are separate proceedings, that may, in some cases, follow as a consequence of the assessment proceedings. As the Tribunal has pointed out, though it is usual for the Income-tax Officer to record in the assessment order that penalty proceedings are being initiated, this is more a matter of convenience than of legal requirement. All that the law requires, so far as the penalty 3 ITA No.2881/K/2013 M. Dhara & Brothers. AY 2009-10

proceedings are concerned, is that they should be initiated in the course of proceedings for assessment. It is sufficient if there is some record somewhere, even apart from the assessment order itself, that the Income-tax Officer has recorded his satisfaction that the assessee is guilty of concealment or other default for which penalty action is called for. Indeed, in certain cases it is possible for the Income-tax Officer to issue a penalty notice or initiate penalty proceedings even long before the assessment is completed though the actual penalty order cannot be passed until the assessment is finalised. We, therefore, agree with the view taken by the Tribunal that the penalty proceedings do not form part of the assessment proceedings and that the failure of the Income-tax Officer to record in the assessment order his satisfaction or the lack of it in regard to the leviability of penalty cannot be said to be a factor vitiating the assessment order in any respect. An assessment cannot be said to be erroneous or prejudicial to the interests of the Revenue because of the failure of the Income-tax Officer to record his opinion about the leviability of penalty in the case."

Finally, Hon'ble Calcutta High Court has decided the issue in para 9, 10 and 11 as under:

"9. Penalty proceedings do not form part of assessment proceedings. Recording by the Income-tax Officer of satisfaction or direction to issue a notice under Section 273 of the Income-tax Act, 1961, for default committed under Section 273(a) for failure to file an estimate of advance tax and pay the tax is not an integral part of the assessment order so that failure to do so would render it ipso facto erroneous or prejudicial to the interests of the Revenue. In the context of Section 263, the expression "assessment" refers to the particular "proceeding" which is to be considered. The Commissioner, in dealing with assessment proceedings and the assessment order, cannot expand his powers to deal with penalty proceedings when they are not before him.

10. In our view, the Tribunal in this case has come to a correct conclusion. In the assessment order, the Income-tax Officer did not record that the penalty proceedings had been initiated. He may initiate penalty proceedings by recording a direction to that effect in the order sheet, but no penalty can be imposed as a matter of course. The Income-tax Officer must be satisfied as to whether the facts warrant initiation of penalty proceedings and, if so, whether any penalty should be imposed. He has a discretion as to whether penalty should be imposed or not. He may levy penalty after being satisfied that the case attracts the provisions for penalty. For failure of the Income-tax Officer to record in the assessment order his satisfaction or the lack of it, the assessment order cannot be said to be erroneous or prejudicial to the interests of the Revenue. The Income-tax Officer must record his opinion about the leviability of the penalty on the facts of the case. The Income-tax Officer has to be satisfied that the assessee had furnished a statement of advance tax payable by him which he knew or had reason to believe to be untrue.

11. The Commissioner of Income-tax held that the Income-tax Officer should have taken action under Section 273(a) because the assessee failed to file a revised estimate, under Section 212(2) and pay tax accordingly. The Commissioner of Income-tax also held that the assessee did not file any explanation for failure to file a proper revised estimate as envisaged under Section 212(2). Nor did the assessee 4 ITA No.2881/K/2013 M. Dhara & Brothers. AY 2009-10

file any explanation to the satisfaction of the Income-tax Officer that the assessee had reasonable cause which prevented it from filing the revised estimate and thus warranting waiver of penalty under Section 273(a). It was for the Income-tax Officer to find out whether there was any reasonable cause preventing the assessee from filing the revised estimate under Section 212(2). It cannot be presumed in the absence of any recording by the Income-tax Officer that the assessee did not furnish any explanation to the satisfaction of the Income-tax Officer. In our view, on the facts of this case, it must be held that the Commissioner of Income-tax cannot invoke his power under Section 263 on the ground that the order passed by the Income-tax Officer is erroneous, in so far as it is prejudicial to the interests of the Revenue.

Since the issue is settled by the above proposition of law by Hon'ble Calcutta High court in the case of Linotype & Machinery Ltd., supra, respectfully following the same, we allow this issue of assessee's appeal.

4. In the result, appeal of assessee is allowed.

5. Order is pronounced in the open court on 30.04.2015.

Sd/- Sd/- (P. K. Bansal) (Mahavir Singh) Accountant Member Judicial Member

Dated : 30th April, 2015

Jd.(Sr.P.S.)

Copy of the order forwarded to:

1. APPELLANT - M. Dhara & Brothers, 8/2, I.R, Bellius Lane, Kadamtala, Howrah-711101.

2 Respondent - CIT, Kol-XVI, Kolkata.

3. The CIT(A), Kolkata

4. ACIT, Circle-48, Kolkata

5.

DR, Kolkata Benches, Kolkata

/True Copy, By order,

Asstt. Registrar.