TaxTMI 
TaxTMI 
2010 (7) TMI 479
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....res to the tune of Rs. 11,25,955 was filed. Ultimately, this was added and in appeal this was confirmed. In other words, the quantum attained finality. 3. While completing the regular assessment under section 143(3) on 26-12-2006, the Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Income-tax Act on the ground that income from capital gain was not included in the return. However, vide order dated 25-2-2009, Assessing Officer dropped the penalty proceedings in view of section 275(1A) having found that the appeal has been filed against the order of the Income-tax Appellate Tribunal confirming the quantum assessment, which is pending before the Hon'ble Jurisdictional High Court. It is the contention of the assessee that as per section 275(1)(a) an order imposing penalty under section 271(1)(c) cannot be passed after six months from the end of the month in which the order of the Income-tax Appellate Tribunal is received by the Commissioner of Income-tax. Hence, the case of the assessee is that the penalty proceedings were initiated, but no order imposing penalty was passed. Hence, section 263 of the Income-tax Act cannot be invoked for an order droppin....
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....se (1B) to section 271 inserted by the Finance Act, 2008 with retrospective effect from1-4-1989 reads as under : "Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under clause (c) of sub-section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause(c)." Thus, after the amendment, the direction given in the assessment order itself will satisfy the satisfaction of the Assessing Officer for initiation of penalty. 7. While dropping the penalty through order sheet entry dated25-2-2009, it is observed as under : "The assessee's reply dated 30-12-2006seen. Also the ITAT's order dated 8-8-2008in the file perused. It is noticed that appeal against the ITAT's order is filed by the assessee is pending before the Hon'ble High Court of Kerala and that the matter against making the cost of the shares on estimate is agitated on appeal. As recourse to section 275(1A) can be resorted to dependin....
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....as by the Hon'ble Kerala High Court, we are of the view that section 263 action by the Commissioner of Income-tax to an order passed by the Assessing Officer who kept the penalty proceedings in abeyance till the outcome of the decision pending before the Hon'ble jurisdictional High Court, we see that there is no prejudice caused to the department. Under the above circumstances, we are in agreement with the contention of the ld. counsel appearing for the assessee that section 263 is not justified under the given set of facts and circumstances. On merits, the twin conditions have not been satisfied for invoking section 263. Hence, respectfully following the decisions of the Hon'ble Supreme Court as well as the Hon'ble jurisdictional High Court, we quash section 263 order passed by the Commissioner of Income-tax, Central,Kochi, dated18-8-2009 for the assessment year 2004-05. 12. Since we have disposed of the appeal of the assessee itself, Stay Petition filed by the assessee becomes infructuous. 13. In the result, the appeal of the assessee is allowed and the Stay petition is dismissed as infructuous. Per Sanjay Arora, Accountant Member. - I have perused the order proposed by ....
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.... the entire provision of section 275 of the Act. The same does not sanction the keeping in abeyance of any penalty proceedings beyond a period of six months of the date of the conveyance of the appellate order by the Appellate Tribunal, the second appellate authority, i.e., in the quantum proceedings for the relevant year. It is only where a penalty order on merits can be passed by the Assessing Authority consequent to an adverse outcome in the assessee's appeal under section 260A, that it could be said that it had, by resort to section 275(1A), only kept the matter in abeyance, thus not prejudicing the revenue's interest. Section 275(1A) only enables modification of a penalty order, including an order dropping the penalty proceedings, where the same is passed on merits in the first instance and within the prescribed time limit in its respect For example, where the penalty proceedings under section 27I(1)(c) stand dropped in view of the non-recording of satisfaction of concealment of, or furnishing inaccurate, particulars of income, or the quantum proceeding being itself annulled, et. at. However, having so dropped the penalty proceedings, which are subject to time limitation, ther....
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....he outcome of the assessee's appeal by the Hon'ble High Court is not warranted in law where, as in the present case, the said proceedings stand dropped by the revenue not on merits, but rather only on the presumption of an automatic revival under section 275(1A). It is only where there is a penalty order on merits that the revenue, claiming to be favourably impacted by the appellate order or revision order in quantum proceedings, could revise the same by virtue of section 275(1A), and the said section have application. There being no penalty order on merits in the present case, the same cannot be subject to modification or revision consequent to the decision by the High Court or the Supreme Court. Conclusion In view of the foregoing, I express my full agreement with the view expressed by the ld. CIT and, accordingly, hold his action under section 263 in setting aside the order dropping penalty proceedings, to frame the penalty order afresh on merits and as per law as justified in law, so that the same merits being upheld and, accordingly, hold so. Reference under section 255(4) of the Income-tax Act, 1961 As there is a difference of opinion between the members who heard....
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.... 5. As the addition to the returned income was made, the assessing authority has initiated penalty proceedings under section 271(1)(c), in the assessment order itself. Even though, penalty under section 271(1)(c) was initiated by the Assessing Officer, order imposing the penalty under that section was not passed by the Assessing Officer after the assessment or after the CIT(A) has passed his order confirming the addition. The Assessing Officer was contemplating the fate of the addition before the Appellate Tribunal, in the second appeal filed by the assessee. 6. When the Tribunal has also confirmed the addition, the Assessing Officer raked up the issue of penalty proposed under section 271(1)(c). On taking up this issue of the penalty proposed under section 271(1)(c), the Assessing Officer through his proceedings recorded in the order sheet of the relevant file dropped the penalty proposal on25-2-2009. The endorsement made by the Assessing Officer dropping the penalty as reflected in the order sheet is reproduced below :- "Assessee's reply dated 30-12-2006seen. Also, the ITAT's order dated 8-8-2008, in the file perused. It is noticed that the appeal against the ITAT's order....
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....ng Officer in the order sheet on25-2-2009 is erroneous and prejudicial to the interests of the revenue particularly when the addition is in respect of undisclosed income on sale of shares as confirmed by the Tribunal. Accordingly, he set aside the order of the Assessing Officer dated25-2-2009 dropping the proposed penalty and directed to pass a fresh order on merits and as per law. 8. The assessee has come in appeal before the Tribunal against the above order of the Commissioner passed under section 263 of the Income-tax Act, 1961. 9. The Hon'ble Judicial Member who authored the Order in the appeal filed by the assessee, held at the first instance that the assumption of jurisdiction under section 263 by the Commissioner of Income-tax is justified. The relevant conclusion arrived at by the ld. Judicial Member as reflected in paragraph 5 of his order is extracted below :- "We have heard rival submissions and find that the contention of the ld. DR is quite justified insofar as the assumption of the jurisdiction under section 263 by the Commissioner of Income-tax is concerned. The decisions of the Apex Court is directly on the issue and which relate to section 271C penal....
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.... held that the order becomes prejudicial to the interests of the revenue when, as a consequence of the order, the lawful revenue due to the State, could not be levied or realised. As the penalty proceedings have been kept in abeyance alone, the ld. Judicial Member held that the order cannot be treated as prejudicial to the interests of the revenue. 13. Thereafter he relied on the judgment of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra), wherein the Court has held that both the conditions prescribed under section 263 must be satisfied to the revise an order of a subordinate authority. The order should be prejudicial to the interests of the revenue as well as the order should be erroneous. As in the present case, the order of the assessing authority is not prejudicial to the interests of the revenue, the ld. Judicial Member held that the revision order passed by the Commissioner of Income-tax in the present file is not sustainable in law. He, accordingly, quashed the order of the Commissioner. As the appeal itself has been decided in favour of the assessee, the ld. Judicial Member held that the Stay Petition filed by the assessee becomes inftuctuous....
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....spite of the outcome of the order of the different appellate authorities. But modification could only be made in tune with the orders of the higher appellate authorities. The ld. Accountant Member relied on the CBDT Circular No. 1/2007 dated 27-4-2007 in 290 ITR (ST.) 73 and concluded that there is no automatic revival under section 275(1A) if no order has already been passed by the assessing authority. He held that it is only where there is already a penalty order passed on merit that the revenue can revise the same by virtue of section 275(1A). There being no penalty order on merits in the present case, the same cannot be subject to modification or revision consequent to the decision of the High Court or the Supreme Court. 16. Accordingly, he agreed with the revision order by the Commissioner under section 263 and dismissed the appeal by the assessee. 17. As the Hon'ble Members who heard the case, have differed in their views, a reference was made to the Hon'ble President, Income-tax Appellate Tribunal under section 255(4) of the Income-tax Act, 1961. Both the Members have framed separate questions. The question framed by Hon'ble Judicial Member is extracted below :- "Wh....
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....nue. The ld. Chartered Accountant further submitted that the Order of the Tribunal in ITA No. 571/Coch./2006 has been upheld by the Hon'ble High Court of Kerala in the judgment of Their Lordships dated4-1-2010 in ITA No. 1515/2009. 23. Shri A.K. Thatai, the ld. Commissioner, on the other hand, contended that the decisions relied on by the ld. Chartered Accountant are not applicable to the present case as those decisions were rendered in the light of different set of essential facts governing those cases. He argued that in those cases, the question considered by the Tribunal was that whether the decision arrived at by the assessing authority on merit of the issue that penalty proceedings have to be dropped, could be revised under the jurisdiction under section 263 of the Act? He argued that in those cases, the Assessing Officer has dropped the penalty proceedings after examining the merits of the case. In the present case, the circumstances are different. The Assessing Officer has not dropped the penalty proceedings after examining the merits of the case. He dropped the penalty proceedings on another ground that the proceedings could be revived, if necessary, after the Hon'ble Hi....
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....oo. He totally dismissed the appeal. 29. As agreed by the ld. Chartered Accountant appearing for the assessee (page 4 of assessee's Paperbook), both the Members are of the view that assumption of jurisdiction under section 263 by the Commissioner of Income-tax is justified. On the issue of assumption of jurisdiction under section 263, both the Hon'ble Members have held in favour of the revenue. They have held in their separate orders that the jurisdiction under section 263 has been rightly exercised by the Commissioner of Income-tax. Therefore, there is no difference of opinion between the two Hon'ble Members on this issue. But still, interestingly, the questions framed by the ld. Members, bring out an impression that the Hon'ble Members have a difference of opinion on this pertinent point. 30. This is clear from the questions framed by the Hon'ble Members as extracted below : Per Judicial Member : "Whether the assumption of jurisdiction by the ld. Commissioner of Income-tax under section 263 is justified under the given set of facts that the Assessing Officer kept the penalty proceedings in abeyance till the decision of the Hon'ble High Court?" Per Accountant Member....
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....a) prescribes the passing of orders imposing penalty within the prescribed limit. If no order is passed within the time limit, no penalty can be imposed. It is also a possible view to argue that where the issue of penalty has not been earlier decided by the concerned authority, the matter could still be kept in abeyance in the light of the provision of law contained in section 275(1A). The said section 275(1A) permits the concerned authority, not only for enhancing or reducing or cancelling or dropping the proceedings for imposition of penalty but also for "imposing penalty". Therefore, all sorts of exercises contemplated in a penalty matter are capable of being initiated/proceeded under section 275(1A) if the connected matter in appeal before the High Court or the Supreme Court. Therefore, it is possible that there could be a view that it is possible under section 275(1A) for the Assessing Officer to initiate penalty proceedings after the outcome of the appeal filed before the Hon'ble High Court. 37. I would like to make it clear that, by and large, I agree with the view of the revenue and the ld. Accountant Member, on the scope of section 275(1A), But the point I tried to brin....