CIT v. Braj Bhushan Cold Storage

Case Laws Analysis
Applied on Malabar Industrial Co. Ltd. v. CIT 2000 TaxPub(DT) 1227 (SC)

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The Tax PublishersIT Ref. No. 118 of 1991 2005 TaxPub(DT) 1262 (All-HC) : (2005) 004 (I) ITCL 0329 : (2005) 275 ITR 0360 : (2005) 197 CTR 0490 : (2005) 145 TAXMAN 0585 CIT v. Dr. Ashok Jain () INCOME TAX --Penalty under section 271(1)(c)----LIMITATIONLaw applicable--Assessee filed loss return. However, the AO assessed the income at positive figure making addition in respect of cash credits. He initiated penalty proceedings under section 271(1)(c). But the same was dropped on the ground, that the tax payable by the assessee was nil. However, the said order was revised by the CIT under section 263 and he directed the AO to complete the proceeding which was initiated on 28-3-1980 and dropped on 29-9-1984. The AO completed the penalty proceeding by taking recourse to clause (b) of section 275 which was amended by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989. The Tribunal quashed the penalty order on the ground of limitation. Held: In the present case penalty proceedings were initiated on 28-3-1980, and were dropped on 28-9-1984, the limitation had already expired much before substituted clause (b) came on the statute book which was with effect from 1-4-1989. One cannot give any retrospective operation to clause (b) as substituted with effect from 1-4-1989, as the penalty proceeding had become barred by time. The AO cannot give any retrospective operation to clause (b) of section 275 as substituted with effect from 1-4-1989 and thus penalty order was time barred. Income Tax Act, 1961 s.271(1)(c) Income Tax Act, 1961 s.275 INCOME TAX --Revision under section 263----REVISABLE ORDEROrder dropping penalty proceedings--Held: Order dropping penalty proceedings under section 271(1)(c), on the ground that tax payable by assessee was nil, could be revised under section 263 by the CIT. Income Tax Act, 1961 s.263 Income Tax Act, 1961 s.271(1)(c) INCOME TAX --Appeal (High Court)----SUBSTANTIAL QUESTION OF LAWBlock assessment--While computing undisclosed income in block period the AO made certain additions. The CIT(A) and the Tribunal accepted the factual explanation coupled with the evidence tendered by the assessee and held that since having been properly explained, they could not be included while computing the total income of the assessee. Held: No substantial question of law arose from order of the Tribunal deleting additions on facts of the case. Income Tax Act, 1961 s.260A Income Tax Act, 1961 s.158BC CIT v. Braj Bhushan Cold Storage In the Allahabad High Court R. K. Agrawal & Prakash Krishna JJ. ITR No. 118 of 1991 27 January 2005 Counsel: A.N. Mahajan, for the Commissioner. None appeared, for the Assessee. JUDGMENT The Income Tax Appellate Tribunal, Allahabad, has referred the following questions of law under section 256(1) of the Income Tax Act, 1961, (hereinafter referred to as 'the Act'), for the opinion to this court. 'Whether the Tribunal was right in holding that under the facts and circumstances of the case the Commissioner of Income Tax cannot revise under section 263 the order under section 271(1)(c) passed by the Income Tax Officer because he had dropped the penalty proceedings? Whether the Income Tax Appellate Tribunal was justified in holding that penalty under section 271(1)(c) to be passed as a result of the impugned order under section 263 will be barred by time ?' The reference relates to the assessment year 1977-78 relating to the penalty proceeding under section 271(1)(c) of the Act. Briefly stated the facts giving rise to the present reference are as under : The respondent-assessee is a registered firm. For the assessment year 1977-78 it had filed a return of loss of Rs. 1,65,850. The assessing authority had completed the assessment on a total income of Rs. 25,601. The addition of Rs. 1,95,105 was made on account of unexplained cash credits. He initiated penalty proceedings under section 274/271(1)(c) of the Act. The CIT(A) confirmed the addition of Rs. 1,70,705 and the income was reduced to Rs. 4,855. The assessing authority had dropped the penalty proceeding on the ground that the tax payable by the assessee was nil. The Commissioner of Income Tax, Agra, examined the assessment record and the penalty records of the assessee and found that the order of the assessing authority dropping the penalty is prima facie erroneous and prejudicial to the interests of the revenue. After issuing a show-cause notice and giving opportunity of hearing the Commissioner of Income Tax passed an order under section 263 of the Act and held that prima facie the addition of Rs. 1,70,705 was confirmed by the CIT(A) which represented unexplained cash credit and the amount was treated as undisclosed income of the firm attracting the provisions of section 271(1)(c) of the Act. He further held that the assessing authority has not applied his mind on the question whether on this addition, penalty under section 271(1)(c) of the Act was imposable or not and he has merely dropped the penalty proceedings on a technical ground that there was no tax effect and thus no penalty was leviable. He further held that the order passed by the Income Tax Officer is erroneous and prejudicial to the interests of the revenue. He accordingly set aside the order dropping the penalty proceeding with a direction to the assessing authority to complete the proceeding in the light of the directions given in the order. Feeling aggrieved the assessee preferred an appeal before the Tribunal. The Tribunal has allowed the appeal on two grounds, namely, that the Commissioner of Income Tax had no right to revise under section 263 an order passed under section 271(1)(c) wherein the proceedings have been dropped. Secondly, the penalty order passed under section 271(1)(c) as a result of the order passed under section 263 will be barred by time. Heard Sri A.N. Mahajan, learned standing counsel for the revenue and perused the record. Nobody appears for the respondent-assessee. Sri Mahajan submitted that the addition of Rs. 1,70,705 had been upheld by the CIT(A) which represented unexplained cash credit but has been treated as the concealed income of the assessee. He further submitted that the assessing authority has failed to take into consideration Explanation 4(a) to section 271(1)(c) of the Act while dropping penalty proceeding. In any event he submitted that where the penalty proceeding has been dropped, if it is erroneous and prejudicial to the interests of the revenue, the order can always be revised by the Commissioner of Income Tax in exercise of powers under section 263 of the Act. In support of the aforesaid plea he has relied upon the decision of the Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83. He further submitted that the provision of limitation provided under section 275 of the Act would not be applicable to a case where the order dropping the penalty proceeding has been revised under section 263 of the Act, inasmuch as in exercise of powers under section 263 of the Act there may be instances where the limitation provided for imposition of penalty may have expired and thus the power under section 263 of the Act cannot be nullified on this ground. Having heard Sri A.N. Mahajan, learned standing counsel for the revenue, we find that it is not in dispute that the penalty proceeding has been initiated during the course of the assessment proceeding itself. However it was dropped by the assessing authority on 28-9-1984. We find that clause (a) to Explanation 4 of section 271(1)(c) of the Act provides that the amount of tax sought to be evaded in a case where the amount of income, in respect of which particulars have been concealed, or incomplete particulars have been furnished exceeds the total income assessed means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income. Thus, the view of the assessing authority that as the tax effect was nil the order dropping the penalty proceedings was erroneous and also prejudicial to the interests of the revenue. The Income Tax Officer while dropping the penalty proceeding has not taken into consideration clause (a) to Explanation 4 of section 271(1)(c) of the Act. In the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) the court has held that incorrect assessment of fact and incorrect application of law will satisfy the requirement of the order being erroneous. In the same category will fall the order passed without applying the principles of natural justice or without application of mind and if due to an erroneous order of the Income Tax Officer, the revenue is losing the tax lawfully payable by a person, it would be certainly prejudicial to the interests of the revenue. Thus the Tribunal was not justified in holding that the order dropping the proceeding was neither prejudicial nor against the interests of the revenue. So far as the question of limitation is concerned we find that under section 275 of the Act as it stood during the relevant period the limitation for imposition of penalty has been provided, which reads as under: '275. No order imposing a penalty under this Chapter shall be passed (a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Appellate Assistant Commissioner or the CIT(A) under section 246 or an appeal to the Appellate Tribunal under sub-section (2) of section 253, after the expiration of a period of (i) two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or (ii) six months from the end of the month in which the order of the Appellate Assistant Commissioner or the CIT(A) or, as the case may be, the Appellate Tribunal is received by the Commissioner, whichever period expires later; (b) in any other case, after the expiration of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed. 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 re-heard 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.' From the reading of the aforesaid provision it will be seen that Parliament has taken care to extend the period of limitation in respect of an order passed in appeal either by the Appellate Assistant Commissioner, Commissioner of Income Tax or by the Tribunal, but it had not made any provision extending the period of limitation or providing further limitation for completing the assessment proceeding where the order under section 263 of the Act has been set aside or not. This anomaly was removed by Parliament by substituting clause (b) by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1-4-1989. Clause (b) as substituted now takes care of all orders which obviously includes an order of penalty also which may be passed pursuant to the order under section 263 of the Act. Clause (b) of the Act reads as under : '(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.' Thus, after 1-4-1989, if limitation for passing the penalty pursuant to the order under section 263 is available, the order could have been passed after the expiry of six months from the end of the month in which the order under section 263 had been passed. However, as in the present case penalty proceeding were initiated on 28-3-1980, and were dropped on 28-9-1984, the limitation had already expired much before substituted clause (b) came on the statute book which was with effect from 1-4-1989. We cannot give any retrospective operation to clause (b) as substituted with effect from 1-4-1989, as the penalty proceeding had become barred by time. We do not find any reason to give any retrospective effect even by necessary implication. In view of the foregoing discussion we are, therefore, of the view that the Tribunal was justified in holding that the penalty order passed as a result of the order passed under section 263 of the Act would be barred by limitation. Therefore, we answer the first question referred. to us in the affirmative, i.e., in favour of the revenue and against the assessee. We answer the second question referred to us in the negative, i.e., in favour of the assessee and against the revenue. In view of the divided success there shall be. however, no order as to costs. OPEN SUBSCRIBE FOR FULL CONTENT

The Tax PublishersIT Ref. No. 118 of 1991
2005 TaxPub(DT) 1262 (All-HC) : (2005) 004 (I) ITCL 0329 : (2005) 275 ITR 0360 : (2005) 197 CTR 0490 : (2005) 145 TAXMAN 0585

CIT v. Dr. Ashok Jain ()

INCOME TAX

--Penalty under section 271(1)(c)----LIMITATIONLaw applicable--Assessee filed loss return. However, the AO assessed the income at positive figure making addition in respect of cash credits. He initiated penalty proceedings under section 271(1)(c). But the same was dropped on the ground, that the tax payable by the assessee was nil. However, the said order was revised by the CIT under section 263 and he directed the AO to complete the proceeding which was initiated on 28-3-1980 and dropped on 29-9-1984. The AO completed the penalty proceeding by taking recourse to clause (b) of section 275 which was amended by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989. The Tribunal quashed the penalty order on the ground of limitation. Held: In the present case penalty proceedings were initiated on 28-3-1980, and were dropped on 28-9-1984, the limitation had already expired much before substituted clause (b) came on the statute book which was with effect from 1-4-1989. One cannot give any retrospective operation to clause (b) as substituted with effect from 1-4-1989, as the penalty proceeding had become barred by time. The AO cannot give any retrospective operation to clause (b) of section 275 as substituted with effect from 1-4-1989 and thus penalty order was time barred.

Income Tax Act, 1961 s.271(1)(c)

Income Tax Act, 1961 s.275

INCOME TAX

--Revision under section 263----REVISABLE ORDEROrder dropping penalty proceedings--Held: Order dropping penalty proceedings under section 271(1)(c), on the ground that tax payable by assessee was nil, could be revised under section 263 by the CIT.

Income Tax Act, 1961 s.263

Income Tax Act, 1961 s.271(1)(c)

INCOME TAX

--Appeal (High Court)----SUBSTANTIAL QUESTION OF LAWBlock assessment--While computing undisclosed income in block period the AO made certain additions. The CIT(A) and the Tribunal accepted the factual explanation coupled with the evidence tendered by the assessee and held that since having been properly explained, they could not be included while computing the total income of the assessee. Held: No substantial question of law arose from order of the Tribunal deleting additions on facts of the case.

Income Tax Act, 1961 s.260A

Income Tax Act, 1961 s.158BC

CIT v. Braj Bhushan Cold Storage

In the Allahabad High Court R. K. Agrawal & Prakash Krishna JJ.

ITR No. 118 of 1991 27 January 2005

Counsel: A.N. Mahajan, for the Commissioner. None appeared, for the Assessee.

JUDGMENT

The Income Tax Appellate Tribunal, Allahabad, has referred the following questions of law under section 256(1) of the Income Tax Act, 1961, (hereinafter referred to as 'the Act'), for the opinion to this court.

'Whether the Tribunal was right in holding that under the facts and circumstances of the case the Commissioner of Income Tax cannot revise under section 263 the order under section 271(1)(c) passed by the Income Tax Officer because he had dropped the penalty proceedings?

Whether the Income Tax Appellate Tribunal was justified in holding that penalty under section 271(1)(c) to be passed as a result of the impugned order under section 263 will be barred by time ?'

The reference relates to the assessment year 1977-78 relating to the penalty proceeding under section 271(1)(c) of the Act.

Briefly stated the facts giving rise to the present reference are as under :

The respondent-assessee is a registered firm. For the assessment year 1977-78 it had filed a return of loss of Rs. 1,65,850. The assessing authority had completed the assessment on a total income of Rs. 25,601. The addition of Rs. 1,95,105 was made on account of unexplained cash credits. He initiated penalty proceedings under section 274/271(1)(c) of the Act. The CIT(A) confirmed the addition of Rs. 1,70,705 and the income was reduced to Rs. 4,855. The assessing authority had dropped the penalty proceeding on the ground that the tax payable by the assessee was nil.

The Commissioner of Income Tax, Agra, examined the assessment record and the penalty records of the assessee and found that the order of the assessing authority dropping the penalty is prima facie erroneous and prejudicial to the interests of the revenue. After issuing a show-cause notice and giving opportunity of hearing the Commissioner of Income Tax passed an order under section 263 of the Act and held that prima facie the addition of Rs. 1,70,705 was confirmed by the CIT(A) which represented unexplained cash credit and the amount was treated as undisclosed income of the firm attracting the provisions of section 271(1)(c) of the Act. He further held that the assessing authority has not applied his mind on the question whether on this addition, penalty under section 271(1)(c) of the Act was imposable or not and he has merely dropped the penalty proceedings on a technical ground that there was no tax effect and thus no penalty was leviable. He further held that the order passed by the Income Tax Officer is erroneous and prejudicial to the interests of the revenue. He accordingly set aside the order dropping the penalty proceeding with a direction to the assessing authority to complete the proceeding in the light of the directions given in the order.

Feeling aggrieved the assessee preferred an appeal before the Tribunal. The Tribunal has allowed the appeal on two grounds, namely, that the Commissioner of Income Tax had no right to revise under section 263 an order passed under section 271(1)(c) wherein the proceedings have been dropped. Secondly, the penalty order passed under section 271(1)(c) as a result of the order passed under section 263 will be barred by time.

Heard Sri A.N. Mahajan, learned standing counsel for the revenue and perused the record. Nobody appears for the respondent-assessee.

Sri Mahajan submitted that the addition of Rs. 1,70,705 had been upheld by the CIT(A) which represented unexplained cash credit but has been treated as the concealed income of the assessee. He further submitted that the assessing authority has failed to take into consideration Explanation 4(a) to section 271(1)(c) of the Act while dropping penalty proceeding. In any event he submitted that where the penalty proceeding has been dropped, if it is erroneous and prejudicial to the interests of the revenue, the order can always be revised by the Commissioner of Income Tax in exercise of powers under section 263 of the Act. In support of the aforesaid plea he has relied upon the decision of the Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83.

He further submitted that the provision of limitation provided under section 275 of the Act would not be applicable to a case where the order dropping the penalty proceeding has been revised under section 263 of the Act, inasmuch as in exercise of powers under section 263 of the Act there may be instances where the limitation provided for imposition of penalty may have expired and thus the power under section 263 of the Act cannot be nullified on this ground.

Having heard Sri A.N. Mahajan, learned standing counsel for the revenue, we find that it is not in dispute that the penalty proceeding has been initiated during the course of the assessment proceeding itself. However it was dropped by the assessing authority on 28-9-1984. We find that clause (a) to Explanation 4 of section 271(1)(c) of the Act provides that the amount of tax sought to be evaded in a case where the amount of income, in respect of which particulars have been concealed, or incomplete particulars have been furnished exceeds the total income assessed means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income. Thus, the view of the assessing authority that as the tax effect was nil the order dropping the penalty proceedings was erroneous and also prejudicial to the interests of the revenue. The Income Tax Officer while dropping the penalty proceeding has not taken into consideration clause (a) to Explanation 4 of section 271(1)(c) of the Act. In the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) the court has held that incorrect assessment of fact and incorrect application of law will satisfy the requirement of the order being erroneous. In the same category will fall the order passed without applying the principles of natural justice or without application of mind and if due to an erroneous order of the Income Tax Officer, the revenue is losing the tax lawfully payable by a person, it would be certainly prejudicial to the interests of the revenue. Thus the Tribunal was not justified in holding that the order dropping the proceeding was neither prejudicial nor against the interests of the revenue.

So far as the question of limitation is concerned we find that under section 275 of the Act as it stood during the relevant period the limitation for imposition of penalty has been provided, which reads as under:

'275. No order imposing a penalty under this Chapter shall be passed

(a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Appellate Assistant Commissioner or the CIT(A) under section 246 or an appeal to the Appellate Tribunal under sub-section (2) of section 253, after the expiration of a period of

(i) two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or

(ii) six months from the end of the month in which the order of the Appellate Assistant Commissioner or the CIT(A) or, as the case may be, the Appellate Tribunal is received by the Commissioner,

whichever period expires later;

(b) in any other case, after the expiration of two years from the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed.

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 re-heard 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.'

From the reading of the aforesaid provision it will be seen that Parliament has taken care to extend the period of limitation in respect of an order passed in appeal either by the Appellate Assistant Commissioner, Commissioner of Income Tax or by the Tribunal, but it had not made any provision extending the period of limitation or providing further limitation for completing the assessment proceeding where the order under section 263 of the Act has been set aside or not. This anomaly was removed by Parliament by substituting clause (b) by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1-4-1989. Clause (b) as substituted now takes care of all orders which obviously includes an order of penalty also which may be passed pursuant to the order under section 263 of the Act. Clause (b) of the Act reads as under :

'(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.'

Thus, after 1-4-1989, if limitation for passing the penalty pursuant to the order under section 263 is available, the order could have been passed after the expiry of six months from the end of the month in which the order under section 263 had been passed. However, as in the present case penalty proceeding were initiated on 28-3-1980, and were dropped on 28-9-1984, the limitation had already expired much before substituted clause (b) came on the statute book which was with effect from 1-4-1989. We cannot give any retrospective operation to clause (b) as substituted with effect from 1-4-1989, as the penalty proceeding had become barred by time. We do not find any reason to give any retrospective effect even by necessary implication.

In view of the foregoing discussion we are, therefore, of the view that the Tribunal was justified in holding that the penalty order passed as a result of the order passed under section 263 of the Act would be barred by limitation. Therefore, we answer the first question referred. to us in the affirmative, i.e., in favour of the revenue and against the assessee. We answer the second question referred to us in the negative, i.e., in favour of the assessee and against the revenue. In view of the divided success there shall be. however, no order as to costs.

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