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Star Diamond Tools Vs. First Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1982)1ITD696(Mum.)
AppellantStar Diamond Tools
RespondentFirst Income-tax Officer
Excerpt:
.....the assessee was in default, and as the income tax officer had not taken action to initiate penalty proceedings, impliedly he had not applied his mind and decided not to do so, the order of the income tax officer was, therefore, erroneous and prejudicial to revenue. the commissioner was, therefore, within jurisdiction to take action under section 263.1. the assessee has made this appeal against the order of the commissioner passed under section 263 of the income-tax act, 1961 ("the act"), directing the ito to charge interest under section 139(8) of the act and also to initiate penalty proceedings under section 271(1)(a) of the act.2. the relevant facts, in brief, are that the assessee is a registered firm. it filed the return and the ito completed the assessment on 15-1-1979. the.....
Judgment:
Where assessing officer mentioned to charge the interest under section 139(8) but omitted to compute the same and did not initiate penalty proceedings therefore the order was erroneous and prejudicial so as to be revised.

Charging of interest under section 139(8) was compensatory and when the Income Tax Officer had made refund to the assessee, then there was no question of charging interest under section 139(8). It was further observed that, as it was manifest that the delay in the filing of the return was not explained, the assessee was in default, and as the Income Tax Officer had not taken action to initiate penalty proceedings, impliedly he had not applied his mind and decided not to do so, the order of the Income Tax Officer was, therefore, erroneous and prejudicial to revenue. The Commissioner was, therefore, within jurisdiction to take action under section 263.

1. The assessee has made this appeal against the order of the Commissioner passed under Section 263 of the Income-tax Act, 1961 ("the Act"), directing the ITO to charge interest under Section 139(8) of the Act and also to initiate penalty proceedings under Section 271(1)(a) of the Act.

2. The relevant facts, in brief, are that the assessee is a registered firm. It filed the return and the ITO completed the assessment on 15-1-1979. The assessment order shows that he gave credit for advance tax paid of Rs. 38,720 and ordered to charge interest under Sections 217(1 A) and 139(8) of the Act, and ordered for the issuance of notice under Section 274 read with Section 273(c) of the Act.

3. However, the Commissioner, on a perusal of the assessment records, found that the assessment order passed by the ITO in the assessee's case on 15-1-1979 for the assessment year under consideration was erroneous and prejudicial to the interests of the revenue for the following reasons : a. The return of income vyas due on 30-6-1976. It was filed on 11-4-1977. Tax on total income of Rs. 1,99,640 as unregistered firm works out to Rs. 1,30,282. After deducting advance tax paid in time, balance tax payable works out to Rs. 1,05,162 or Rs. 1,05,100 as per Rule 117A on which interest under Section 139(8) at the rate of 12 per cent per annum for the period from 1-7-1976 to 31-3-1977 was leviable. While completing the assessment, the Income-tax Officer did not charge interest as per the provisions of Section 139(8).

b. The provisions of Section 271(1)(a) were attracted in this case and the ITO failed to initiate penalty proceedings under this section.

Accordingly, he issued a notice under Section 263 on the assessee. In response to it, Shri. V.H. Patil, learned counsel for the assessee, attended and contended that since the advance tax paid was much more than the tax payable on the basis of the total income assessed for the year, there was a refund to which the assessee was entitled and the result of the assessment order was a refund to the assessee, and as such, there was no loss to the revenue by the late filing of the return, and, therefore, there was no justification for charging interest under Section 139(8) or for the initiation of penalty proceedings under Section 271(1)(a).

The Commissioner did not accept these contentions ; hence, he rejected these on the ground that the assessee was a registered firm but the interest under Section 139(8) and penalty under Section 271(1)(<7) had to be charged on the basis of computation of tax due by the assessee as an unregistered firm and the point raised for determining the issue was that since the assessee had filed its return late, interest under Section 139(8) had to be charged. Accordingly, he directed the ITO to charge interest under Section 139(8) as well as to initiate penalty proceedings under Section 271(1)(a).

4. The assessee being aggrieved has preferred this appeal. Shri. V.H.Patil, learned counsel for the assessee, contends that the Commissioner can take action under Section 263 if the assessment order of the ITO is erroneous insofar as prejudicial to the interest of the revenue, and when in the assessment order there is no mention for initiation of the penalty proceedings under Section 271(1)(a) and for charging interest under Section 139(8), then his jurisdiction is ousted if he takes action on the plea that the ITO had not charged the interest under Section 139(8) and failed to initiate penalty proceedings under Section 271(1)(a). He further contends that when the refund is made by the ITO, then there is no basis for charging interest under Section 139(8) as interest under Section 139(8) is charged if the revenue's money is utilised by the assessee in his business by late filing of the return, and over here, there is no such position.

He further contends that the penalty proceedings can be initiated in the assessment proceedings, and if these are not initiated in the assessment proceedings, then the ITO has no jurisdiction to initiate such proceedings, and as such, the Commissioner cannot vest the ITO with the jurisdiction which he is not having.

Furthermore he contends that if there is no order regarding charging of interest under Section 139(8), then the assessment order is not erroneous at all. He relies on the decision of the Hon'ble Karnataka High Court in the case of CIT v. Executors of the Estate of Late H.H.Rajkuverba Dowager Maharani Saheb of Gondal [1978] 115 ITR 301, and that of the Tribunal in IT Appeal No. 204 (Bom.) of 1979 for the assessment year 1974-75 dated 2-6-1980.

On the other hand, Shri Bhargava, learned departmental representative, relies on the decision of the Hon'ble Andhra Pradesh High Court in the case of CIT v. Karkhana Zinda Tilismath [1980] 123 ITR 814 stating therein that even if there is no mention in the order of the ITO charging interest under Section 139(8) or for initiation of penalty proceedings under Section 271(1)(a), then the Commissioner is within his powers to direct him to do so, under Section 263(2). He has also placed reliance in support of this proposition on the decisions in the cases of CIT v. City Palayacot Co. [1980] 122 ITR 430 (Mad.), Addl. CIT v. Kantilal Jain [1980] 125 ITR 373 (MP) and IT Appeal Nos. 1592 and 1593 (Bom.) of 1975-76 dated 8-11-1975.

5. We have heard the rival contentions and gone through the record before us. The assessment order shows that the ITO ordered for charging interest under Section 139(8) but, he did not charge it in the computation of the assessment. However, he did not initiate penalty proceedings under Section 271 (1)(a) during the assessment proceedings.

Thus, when the ITO did not compute the interest in the computation of the assessment under Section 139(8) and failed to assign reasons for the same, when he ordered to charge interest under this section, then his order is manifestly erroneous insofar as it is prejudicial to the interests of the revenue. Accordingly, we hold that the Commissioner is within his power to take action under Section 263 regarding it, and as such, we reject the contention of Shri Patil that when charging of interest under Section 139(8) is not part of the assessment order, then the Commissioner has no jurisdiction to take action under Section 263.

However, it is a settled law that charging of interest under Section 139(8) is compensatory and when the ITO has made refund to the assessee, then there is no question of charging the interest under Section 139(8). Consequently, we hold that the Commissioner is not justified in directing the ITO under Section 263 to charge interest under Section 139(8) and being so, we set aside his order to this extent and restore that of the ITO.Now we have to decide whether the Commissioner is within his jurisdiction to direct the ITO to initiate penalty proceedings under Section 271(i)(a) when the ITO did not initiate the said proceedings during the assessment proceedings. This issue was there before their Lordships of the Madhya Pradesh High Court in the case of Addl. CIT v.Indian Pharmaceuticals [1980] 123 ITR 874, where they held as under : Proceedings of assessment include not only computation of income and tax but various other things which fall within the scheme of Chapter XIV of the IT Act, 1961, which talks of procedure of assessment.

When Section 271 of the Act talks of 'proceedings pending' it includes the proceedings for assessment within the scheme of Chapter XIV of the Act, and the proceedings of the assessment under the scheme of the law ultimately culminating in an order of assessment.

The scheme of assessment under the Act is not restricted to the mere computation of income and tax but extends to a number of other things and, therefore, in the proceedings of assessment, if the ITO rails to take notice of the facts attracting the provisions of Section 271(i)(a), it cannot be said that the failure does not amount to an error prejudicial to the interests of the revenue.

Under Section 263 of the Act, jurisdiction is conferred on the Commissioner to call for and examine the record of any proceedings under the Act and on such examination if he finds that the order passed therein by the ITO is erroneous insofar as it is prejudicial to the interests of the revenue, he may revise the order after following the procedure prescribed under the provision. If, therefore, the ITO during the pendency of the proceedings has omitted to take notice of facts attracting penalty under Section 271(i)(a) of the Act which ultimately ended in an order of assessment, the order would be erroneous and the Commissioner would be entitled to exercise the jurisdiction conferred on him under Section 263 of the Act. (p. 874) Similarly, their Lordships of the Madras High Court in the case of City Palayacot Co. (supra) held that if the ITO did not levy interest in the assessment order on the failure to file the estimate, there is no assumption as to waiver of levy of interest, the revision of such assessment by the Commissioner to include interest is justified.

Their Lordships of the Madhya Pradesh High Court in the case of Kantilal Jain (supra) held that if during the pendency of the proceedings, which ultimately ended in the order of assessment, the ITO has omitted to take notice of the facts attracting the provisions of Section 273(6) relating to penalty for failture to file estimate of advance tax under Section 212(3), the order would be erroneous and the Commissioner would be entitled to exercise the revisionary power conferred on him under Section 263.

However, their Lordships of the Karnataka High Court in the case of Executors of the Estate of Late H.H. Rajkuverba Dowager Maharani Saheb of Gondal (supra) took the contrary view holding therein that the power of revision under Section 263 can be exercised by the Commissioner when the following factors co-exist : 3. The Commissioner should consider that the said order is erroneous and prejudicial to the interests of the revenue.

Hence, it concluded that if there is no order under Section 271 in existence in the assessment order, then the Commissioner was not clothed with the jurisdiction to make an order under Section 263, and as such, action taken by the Commissioner was premature.

So, Shri Patil, relying upon the aforesaid decision of the Karnataka High Court, contends that as the ITO has not initiated penalty proceedings under Section 271(1)(a) and as such, it does not form part of the assessment order and, hence, the Commissioner has no jurisdiction to take action under Section 263, while Shri Bhargava relying upon the aforesaid decisions of the Hon'ble Madras and Madhya Pradesh High Courts, has vehemently contended that he has jurisdiction.

Therefore, in this situation of the matter, we have to see that which is the reasonable view that we have to adopt. We are inclined to follow the view of the Madhya Pradesh and Madras High Courts for the reason that the decision of the Karnataka High Court is distinguishable ; so much so that when it is manifest that the delay in filing of the return is not explained, then the assessee has committed default and if the ITO has not taken action regarding it, then impliedly he has applied his mind, and thereby took the view that there is no case for initiating penalty proceedings, and as such he did not do so. When this is the position, then his order is erroneous insofar as it is prejudicial to the interests of the revenue, and as such, the Commissioner has jurisdiction to take action under Section 263 and we are supported by the aforesaid decisions of the Madras and Madhya Pradesh High Courts in our view. Therefore, in view of these reasons, we hold that the Commissioner is justified in directing the ITO to initiate penalty proceedings under Section 271(1)(a). Hence, we confirm his order on this issue.


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