IN THE INCOME TAX APPELLATE TRIBUNAL
`H' : NEW DELHI
DELHI BENCH `H
G.D.AGRAWAL, VICE PRESIDENT AND
BEFORE SHRI G.D.AGRAWAL,
GARG, JUDICIAL MEMBER
SHRI CHANDRA MOHAN GARG,
Nos.4109/Del/2011 & 4110/Del/2011
ITA Nos
Years : 2005-
Assessment Years 2006-07
2005-06 & 2006-
Shri Vineet Sharma, Vs. Commissioner of income Tax
144, Savita Vihar, (Central)-II, New Delhi
(Central)-
Delhi 110 092. (Presently jurisdiction of
PAN : ABJPS1169C. Commissioner of Income Tax-Tax-XII,
New Delhi).
(Appellant) (Respondent)
Appellant by : Shri Sanjay Mehra, FCA.
Respondent by : Shri R.S. Meena, CIT-DR.
ORDER
G.D.AGRAWAL, VP :
PER G.D.AGRAWAL,
These two appeals by the assessee are directed against the
order of learned Commissioner of Income Tax, Central-II, New Delhi
dated 10th March, 2011 for the AY 2005-06 & 2006-07.
2. There is a delay of 118 days in filing the appeals. The assessee
has filed applications for condonation of delay in which he has
submitted that he has been suffering from heart ailments and, in the
past, has undergone surgery. That since April, 2011, he is not keeping
good health and was advised to take bed rest and avoid stress. That
the order framed under Section 263 was received by his son who did
not communicate the same to the assessee for the above reasons.
Later on, upon receipt of the notice dated 23.08.2011, the assessee
came to know about it for the first time. Therefore, the appeals could
not be filed within the specified limit. In support of the above
2 ITA-4109 & 4110/D/2011
contentions, the assessee has placed on record the documents in the
form of medical certificates placed at paper book page Nos. D-5 to D-
16. It was, therefore, requested that the delay in filing the appeals
may be condoned.
3. Learned DR objected to the condonation of delay.
4. After considering the submissions of both the sides and keeping
in view the judgment of Hon'ble Supreme Court in the case of
Collector, Land Acquisition Vs. MST. Katiji and Others [1987] 167 ITR
471, we are satisfied that the assessee was prevented by sufficient
cause in filing the appeals in time. The assessee has filed ample
documentary evidence in the form of medical certificates, prescription
etc. in support of its claim that he is not keeping good health for the
past few years. Accordingly, we condone the delay in filing the
appeals.
5. In these two appeals, common grounds are raised by the
assessee which read as under:-
"1. On the facts and circumstances of the case and in
law, the Hon'ble Commissioner of Income-tax, Central-II,
New Delhi (hereinafter referred to as the Hon'ble CIT) erred
in initiating proceedings under section 263 of the Act and
hence, the order passed by the Hon'ble CIT under section
263 of Act is bad in law and void ab initio.
2. That on the facts and circumstances of the case and
in law the Hon'ble Commissioner of Income Tax (Central)-II,
Delhi erred in utilizing information furnished by the
appellant during proceeding under section 264 of the Act
to infer that penalty order dated 26.06.2009 framed u/s
271(1)(c) of Income Tax Act, 1961 by Assistant
Commissioner of Income Tax, (hereinafter referred to as
the Ld. Assessing Officer) is erroneous and prejudicial to
the interest of revenue.
3 ITA-4109 & 4110/D/2011
3. On the facts and circumstances of the case and in
law, the Hon'ble CIT erred in holding that since the
quantum amount for levy of penalty has been wrongly
taken by the assessing officer and hence, has erred in
remanding the matter back to the ld. Assessing Officer.
4. On the facts and circumstances of the case and in
law, the CIT erred in initiating proceedings under section
263 arising out of same order dated 271(1)(c) pending
adjudicating before him in proceedings under section 264
of the Act in appellant's own case.
5. That on the facts and circumstances of the case and
in law the Hon'ble Commissioner of Income Tax (Central)-II,
Delhi erred in concluding that the penalty order dated
26.06.2009 framed u/s 271(1)(c) of Income Tax Act, 1961
by ld. A.O. is erroneous and prejudicial to the interest of
revenue.
6. That on the facts and circumstances of the case and
in law the Hon'ble Commissioner of Income Tax (Central)-II,
Delhi erred in initiating and concluding proceedings under
section 263 during the pendency of proceedings u/s 264 of
the Income Tax Act.
7. That the grounds of appeal as herein are without
prejudice to each other."
6. At the time of hearing before us, it is stated by the learned
counsel that search under Section 132 of the Income-tax Act, 1961 was
conducted at the business/residential premises of the assessee on
10/11.01.2007. That in response to notice under Section 153A, the
assessee filed the return of income disclosing the income of
`20,32,637/- and `3,17,01,205/- for AY 2005-06 and 2006-07
respectively. The same was accepted under Section 143(3) read with
Section 153A of the IT Act. The Assessing Officer, vide order dated
26.06.2009, levied penalty under Section 271(1)(c) amounting to
`2,69,280/- and `1,04,73,075/- for AY 2005-06 and 2006-07
respectively. The penalty was levied on the income of `8,00,000/- and
4 ITA-4109 & 4110/D/2011
`3,11,67,633/- for AY 2005-06 and 2006-07 respectively because that
was the total concealed income worked out by the Assessing Officer as
per penalty order. Against the penalty order, the assessee filed
application under Section 264 on 06.08.2009 before the CIT, Central-II
for quashing the penalty order. On the other hand, the CIT, Central-II
initiated proceedings under Section 263 of the Act vide notice dated
03.03.2011. The assessee furnished the reply before the CIT on
09.03.2011. However, the CIT passed order under Section 263 on
10.03.2011 in which he set aside the penalty order and directed the
Assessing Officer to dispose of the matter in accordance with the
provisions of the IT Act. That the CIT treated the assessee's
application under Section 264 as infructuous vide order dated
10.03.2011 on the ground that the penalty order has already been set
aside in proceedings under Section 263. The assessee, aggrieved with
the action of the Assessing Officer, is in appeal before the ITAT.
7. At the time of hearing before us, the learned counsel for the
assessee argued at length. His arguments were two-fold :-
(i) That the jurisdiction under Section 263 can be exercised by the
CIT only if the order of the Assessing Officer is erroneous as well as
prejudicial to the interests of the Revenue. That under Section
271(1)(c), the Assessing Officer is vested with the discretion to levy
penalty under Section 271(1)(c) in respect of the income which is
concealed by the assessee or the income in respect of which
inaccurate particulars have been furnished. The Assessing Officer has
been vested with the discretion to levy the penalty at the rate of 100%
to 300% of the tax sought to be evaded. Now, in the case of the
assessee, the assessee offered the additional income of `18,20,505/-
and `3,13,85,360/- in AY 2005-06 and 2006-07 respectively. That the
income returned in response to notice under Section 153A in which
5 ITA-4109 & 4110/D/2011
these additional incomes were included was duly accepted by the
Assessing Officer in the order passed under Section 143(3). That in the
penalty order, the Assessing Officer worked out the concealed income
at `8,00,000/- for AY 2005-06 and `3,11,67,633/- for AY 2006-07. That
the only basis of passing the order under Section 263 is that the
Assessing Officer has not levied the penalty on the entire additional
income disclosed in the return furnished in response to notice under
Section 153A. It is vehemently contended by the learned counsel that
the penalty under Section 271(1)(c) is leviable only in respect of the
concealed income and not in respect of every income. That the
Assessing Officer has been given discretion under Section 271(1)(c) to
levy the penalty in respect of the income concealed. That in the
penalty order, the Assessing Officer has clearly mentioned "The total
concealment works out to Rs.8,00,000/-." in AY 2005-06 and "The total
concealment works out to Rs.3,11,67,633/-." in AY 2006-07. Thus,
when in the opinion of the Assessing Officer the entire additional
income is not the concealed income and he has levied the penalty on
substantial portion of the additional income disclosed, it cannot be said
that the order of the Assessing Officer is erroneous as well as
prejudicial to the interests of the Revenue. If the view of the Assessing
Officer is accepted, then levy of penalty would be automatic in respect
of the entire additional income disclosed by the assessee after the
search. In the case under consideration, if we read the penalty order,
it would be evident that in paragraph 1 itself, the Assessing Officer has
given the details with regard to income assessed by him and the
search conducted at the assessee's premises. He also mentions about
the total undisclosed income declared during the course of search by
the group. Thereafter, at page 2, he has discussed the legal position
with regard to levy of penalty and then he finally works out the penalty
on the total concealed income as worked out by him. That merely
because the Assessing Officer has not given the working of concealed
6 ITA-4109 & 4110/D/2011
income by him, it cannot be said that his order is either erroneous or
prejudicial to the interests of the Revenue. In support of this
contention, he relied upon the following decisions:-
(a) CIT Vs. Max India Ltd. [2007] 295 ITR 282 (SC).
(b) CIT Vs. Gabriel India Ltd. [1993] 203 ITR 108 (Bombay).
(ii) That against the penalty order in both the years, the assessee
had filed the petition under Section 264 before the CIT. That the CIT,
instead of disposing the application of the assessee under Section 264,
kept it pending with him, thereafter initiated proceedings under
Section 263, passed the order under Section 263 in which gave
direction to the Assessing Officer to enhance the penalty and then
dismissed the assessee's application under Section 264 holding the
same to be infructuous. The same is not as per the spirit of Section
264. He also furnished before us the fresh penalty order passed in
pursuance to the order under Section 263 wherein the penalty has
been enhanced and levied on the income of `18,18,429/- for AY 2005-
06 & `3,13,69,743/- for AY 2006-07. He, therefore, submitted that the
order of learned CIT passed under Section 263 in both the years may
be quashed.
8. Learned DR, on the other hand, supported the order of the
learned CIT passed under Section 263. He submitted that if we read
the assessment order as well as penalty order, it is obvious that the
Assessing Officer intended to levy the penalty on the entire
unaccounted income unearthed as a result of search. He referred to
page 2 of the assessment order for AY 2005-06 wherein the Assessing
Officer has noticed that the assessee group had offered an income of
`16 crores as unaccounted income. However, as the disclosure is the
consequence of search, the Assessing Officer formed an opinion that
7 ITA-4109 & 4110/D/2011
the assessee had concealed the income and accordingly, he initiated
penalty proceedings under Section 271(1)(c). Similarly, in the penalty
order also, on last page, the Assessing Officer has recorded the finding
"if a penalty cannot be levied subsequent to unearthing of additional
income detected during a search, it would be an open incentive to all
to conceal their income till such time it is detected by the department
and get away with just the tax liability and "nil" penalty". He stated
that from the combined reading of the finding in the assessment order
as well as in penalty order, it is obvious that the Assessing Officer
intended to levy the penalty on the entire income unearthed as a
result of search. Therefore, the levy of penalty under Section 271(1)(c)
on the income which was less than the income unearthed as a result of
search and which was offered as an additional income in the returned
income under Section 153A was a patent mistake committed by the
Assessing Officer. This was a factual mistake which came to the
knowledge of the CIT when he called for the record. That the CIT may
call for the record suo motu or during some other proceedings. That
when he examined the record, he found that the penalty order of the
Assessing Officer was erroneous and prejudicial to the interests of the
Revenue and, therefore, he set aside the same to the file of the
Assessing Officer for passing fresh penalty order in accordance with
law. The same should be sustained.
9. We have carefully considered the arguments of both the sides
and perused the material placed before us. There is no dispute that
against the penalty orders passed under Section 271(1)(c), the
assessee did not file any appeal but filed revision petition under
Section 264. During the pendency of the revision petition with him,
the CIT initiated proceedings under Section 263. In the order under
Section 263, he set aside the matter to the file of the Assessing Officer
and then he dismissed the assessee's petition filed under Section 264
8 ITA-4109 & 4110/D/2011
holding the same to be infructuous. He held the penalty order under
Section 271(1)(c) to be erroneous on the ground that the Assessing
Officer had not levied the penalty in respect of the entire additional
income offered in the return filed in response to notice under Section
153A. In the fresh penalty order passed in pursuance to order under
Section 263, the Assessing Officer levied the penalty on the entire
additional income disclosed in the return filed in response to notice
under Section 153A. These facts have also been recorded by the
Assessing Officer in the fresh penalty order passed under Section
271(1)(c) on 30th September, 2011. For ready reference, the same is
reproduced below:-
"The assessee moved revision petition under Section 264
on 06/08/2009 before the CIT Central-II for quashing the
penalty order. On the other hand, CIT, Central-II initiated
proceedings u/s 263 of the Act observing that in the
penalty order, the A.O. had erroneously taken the figure of
`concealed income' at Rs.8,00,000/- as against additional
undisclosed income offered by the assessee in the return
of income at Rs.17,88,427/-. Ld.CIT, Central-II, New Delhi
concluded the proceedings under Section 263 of the Act
vide order dt. 10-03-2011 thereby setting aside the order
dt. 26.06.2009 of the AO and restoring back the matter to
the file of the AO. Assessee's petition under Section 264 of
the Act was also disposed off on the same date wherein it
was observed:
"In the interest of natural justice the penalty order is set-
aside and the proceedings are restored back to the file of
the A.O. with the directions to dispose off the matter in
accordance with the provisions of income tax Act, vis-a-viz
judicial pronouncements on the issue after affording proper
opportunity to the assessee"."
10. That Section 264 of the Act reads as under:-
"264. (1) In the case of any order other than an order to
which section 263 applies passed by an authority
9 ITA-4109 & 4110/D/2011
subordinate to him, the Commissioner may, either of his
own motion or on an application by the assessee for
revision, call for the record of any proceeding under this
Act in which any such order has been passed and may
make such inquiry or cause such inquiry to be made and,
subject to the provisions of this Act, may pass such order
thereon, not being an order prejudicial to the assessee, as
he thinks fit."
11. From the above, it is evident that under Section 264, the CIT can
revise any order passed by any authority subordinate to him on his
own motion or on the application made by the assessee. He can pass
the order as he thinks fit not being an order prejudicial to the assessee.
Thus, it is very clear that under Section 264, the CIT cannot pass any
order which is prejudicial to the assessee. Now, in the case under
appeal before us, it is evident that the assessee moved revision
petition under Section 264 before the CIT, Central-II for quashing the
penalty order. On the other hand, the CIT, Central-II initiated
proceedings under Section 263 of the Income-tax Act and passed order
thereon which was prejudicial to the interests of the assessee. That
Section 264 of the Income-tax Act debars the CIT from passing any
order which is prejudicial to the assessee. Therefore, in our opinion,
when the CIT cannot pass the order prejudicial to the assessee under
Section 264, once the assessee approached him for getting relief under
Section 264, if he is allowed to pass order under Section 263
prejudicial to the assessee, it would make prohibition under Section
264 that the CIT cannot pass the order prejudicial to the assessee as
nullity. Therefore, in our opinion, on the facts of the assessee's case,
the order under Section 263 cannot be sustained.
12. That even on facts, in our opinion, the order under Section 263 is
not liable to be sustained because it is a settled position that penalty
under Section 271(1)(c) is not to be levied on every income. The
10 ITA-4109 & 4110/D/2011
penalty is to be levied only when the conditions prescribed under
Section 271(1)(c) are satisfied. Even when we see the language of
Section 271(1)(c), even on concealed income, the levy of penalty is not
automatic because discretion has been given to the Assessing Officer
to levy or not to levy the penalty which would be clear from the use of
the words "may" in Section 271(1)(c). Moreover, he has also been
given discretion to levy the penalty at the rate ranging between 100%
to 300% of the tax sought to be evaded. Therefore, if the Assessing
Officer had levied the penalty under Section 271(1)(c) on the part of
the additional income, it cannot be said that the order of the Assessing
Officer is erroneous as well as prejudicial to the interests of the
Revenue within the meaning of Section 263. If we look at the facts of
the case, we find that on the substantial portion of the additional
income, the penalty has already been levied. In AY 2006-07, the
income disclosed in response to notice under Section 153A and which
was accepted also under Section 143(3) was `3,17,01,205/-, out of
which, the Assessing Officer has already levied the penalty for
concealment on the income of `3,11,67,633/-. That in AY 2005-06, the
income returned in response to notice under Section 153A was
`20,32,637/- which was assessed also and, out of which, penalty has
been levied on the income of `8,00,000/-. Thus, we find that on the
substantial portion of the income assessed, penalty under Section
271(1)(c) has been levied. In the penalty order, the Assessing Officer
has discussed each and every fact as well as legal position in detail
and, at the end, he has also mentioned the amount of concealment
worked out by him and then calculated penalty thereon. That merely
because in the opinion of the CIT, the penalty would have been levied
on the entire returned/assessed income, it cannot be said that the
assessment order was either erroneous or prejudicial to the interests of
the Revenue.
11 ITA-4109 & 4110/D/2011
13. That Hon'ble Apex Court in the case of Max India Ltd. (supra)
held as under:-
"The phrase "prejudicial to the interests of the Revenue" in
section 263 of the Income-tax Act, 1961, has to be read in
conjunction with the expression "erroneous" order passed
by the Assessing Officer. Every loss of revenue as a
consequence of an order of the Assessing Officer cannot be
treated as prejudicial to the interests of the Revenue. For
example, when the Assessing Officer adopts one of two
courses permissible in law and it has resulted in loss of
revenue, or where two views are possible and the
Assessing Officer has taken one view with which the
Commissioner does not agree, it cannot be treated as an
erroneous order prejudicial to the Revenue, unless the
view taken by the Assessing Officer is unsustainable in
law."
14. That Hon'ble Bombay High Court in the case of Gabriel India Ltd.
(supra) at pages 114 & 115 of 203 ITR observed as under:-
"From the aforesaid definitions it is clear that an order
cannot be termed as erroneous unless it is not in
accordance with law. If an ITO acting in accordance with
law makes a certain assessment, the same cannot be
branded as erroneous by the Commissioner simply
because, according to him, the order should have been
written more elaborately. This section does not visualise a
case of substitution of the judgment of the Commissioner
for that of the ITO, who passed the order, unless the
decision is held to be erroneous. Cases may be visualised
where the ITO while making an assessment examines the
accounts, makes enquiries, applies his mind to the facts
and circumstances of the case and determines the income
either by accepting the accounts or by making some
estimate himself. The Commissioner, on perusal of the
records, may be of the opinion that the estimate made by
the officer concerned was on the lower side and left to the
Commissioner, he would have estimated the income at a
figure higher than the one determined by the ITO. That
would not vest the Commissioner with power to re-examine
the accounts and determine the income himself at a higher
12 ITA-4109 & 4110/D/2011
figure. It is because the ITO has exercised the quasi-judicial
power vested in him in accordance with law and arrived at
a conclusion and such a conclusion cannot be termed to be
erroneous simply because the Commissioner does not feel
satisfied with the conclusion. It may be said in such a case
that in the opinion of the Commissioner the order in
question is prejudicial to the interests of the revenue. But
that by itself will not be enough to vest the Commissioner
with the power of suo motu revision because the first
requirement, viz., that the order is erroneous, is absent."
15. In our opinion, on the facts of the assessee's case, the ratio of
both the decisions of Hon'ble Apex Court and Hon'ble Bombay High
Court would be squarely applicable. The Assessing Officer had levied
the penalty on substantial portion of the income assessed. Merely
because the Commissioner is of the opinion that the penalty levied by
the Assessing Officer is on the lower side and left to the Commissioner
he would have levied the penalty on the entire income assessed would
not vest the Commissioner with the power of suo motu revision under
Section 263. In view of the above, we, respectfully following the
decision of Hon'ble Apex Court as well as Hon'ble Bombay High Court
cited supra, quash the orders passed under Section 263.
16. The assessee has also filed an application for admission of
following additional grounds:-
"That, on the facts and circumstances of the case, while
disposing of the present appeal against the order passed
U/s 263, directions may be given for consequential relief in
respect of order passed U/s 264 which has been disposed
off on the ground that the penalty proceedings have been
restored to the AO by way of order passed U/s 263 under
challenge before this Hon'ble Tribunal,
That, on the facts and circumstances of the case,
directions may be given to restore the revisions petition
U/s 264 which is dismissed as infructuous in consequence
13 ITA-4109 & 4110/D/2011
of the order passed U/s 263 of the Income Tax Act under
challenge in this appeal.
That on the facts and circumstances of the case, such
other relief and directions may be given pertaining to the
CIT's orders under sections 264 of the Act as may be
deemed appropriate by this Hon'ble Tribunal."
17. At the time of hearing before us, it is stated by the learned
counsel that the additional grounds are in the nature of consequential
relief and these grounds should arise only when the orders under
Section 263 are quashed. He submitted that since the Assessing
Officer passed the order under Section 263 setting aside the penalty
order, he dismissed the assessee's application filed under Section 264
holding the same to be infructuous. It is submitted by the learned
counsel that if the orders under Section 263 are quashed, then as a
consequence, the assessee's application under Section 264 should be
directed to be revived and disposed of on merits in accordance with
law.
18. Learned DR, on the other hand, stated that this appeal before
the ITAT is against the order under Section 263. There is no appeal
pending before the ITAT against the order under Section 264 and,
therefore, the ITAT is not competent to issue any direction with regard
to order under Section 264.
19. We have heard both the parties and perused the material placed
before us. We find that in the additional grounds, the assessee is
claiming the relief against the dismissal of order passed under Section
264. Though the relief claimed is only consequential in nature but, as
rightly pointed out by the learned DR that we do not have any
jurisdiction to give any direction with regard to order passed under
Section 264, therefore, we refrain ourselves from giving any direction
14 ITA-4109 & 4110/D/2011
with regard to order passed under Section 264. However, suffice it to
say that all natural consequences of quashing of the order under
Section 263 would follow. With these observations, we dispose of the
additional grounds of the assessee.
20. In the result, the appeals of the assessee are allowed pro tanto.
Decision pronounced in the open Court on 8th November, 2013.
Sd/- Sd/-
GARG)
(CHANDRA MOHAN GARG) (G.D.AGRAWAL)
JUDICIAL MEMBER VICE PRESIDENT
Dated : 08.11.2013
VK.
Copy forwarded to: -
1. Appellant : Shri Vineet Sharma,
092.
144, Savita Vihar, Delhi 110 092.
2. (Central)-II,
Respondent : Commissioner of income Tax (Central)-
New Delhi (Presently jurisdiction of
Tax-XII, New Delhi).
Commissioner of Income Tax-
3. CIT
4. CIT(A)
5. DR, ITAT
Assistant Registrar
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