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Ramjee Arjun Vs. Third Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1985)11ITD608(Mad.)
AppellantRamjee Arjun
RespondentThird Income-tax Officer
Excerpt:
.....aside the assessments as made.2. the ito, in making the relevant assessments, did not initiate any penalty proceedings under section 271(l)(a) or under section 273(2)(c) of the act. he also did not levy interest under section 217(1a) of the act. the commissioner was of the view that these were lapses which rendered the relevant assessment orders erroneous and prejudicial to the revenue. he called upon each of the assessees to show cause why action under section 263 should not be taken. the pleas of the assessees were that they had paid the advance taxes as demanded and they had no reason to believe that the income for the year would have been higher and would have necessitated filing of an estimate, showing an upward revision of the tax payable and further extension of time had been.....
Judgment:
1. These are two appeals filed by the two assessees involving similar points for the assessment year 1979-80. The assessees contest the orders passed by the Commissioner under Section 263 of the Income-tax Act, 1961 ('the Act') in their respective cases, setting aside the assessments as made.

2. The ITO, in making the relevant assessments, did not initiate any penalty proceedings under Section 271(l)(a) or under Section 273(2)(c) of the Act. He also did not levy interest under section 217(1A) of the Act. The Commissioner was of the view that these were lapses which rendered the relevant assessment orders erroneous and prejudicial to the revenue. He called upon each of the assessees to show cause why action under Section 263 should not be taken. The pleas of the assessees were that they had paid the advance taxes as demanded and they had no reason to believe that the income for the year would have been higher and would have necessitated filing of an estimate, showing an upward revision of the tax payable and further extension of time had been sought for filing the returns and, hence, the penal provisions of Section 271(l)(a) and Section 273(2)(c) were not attracted, nor were the provisions relating to levy of interest attracted.

3. The Commissioner did not agree. The. conclusion of the Commissioner in this regard, which is in identical terms in each of the cases, was as under: Penal interest under Section 271(1A) is attracted for the failure to file an estimate, as provided by Sub-section (3A) of Section 212.

The said sub-section says that if the current income of the assessee, being likely to be greater than the income on which the advance tax payable by him under Section 210 has been computed, exceeds the amount of advance tax so payable by more than 33 1/3 per cent, he has to file the estimate in the prescribed manner. It cannot be said that the assessee could not anticipate his current income being more than what he has estimated since in the case of Purshotham Ramjee & Co. (Kutch), huge additions for similar reasons had been made even in respect of earlier years. I am, therefore, not convinced about the assessee's explanation. Since the conclusion of the proceedings under Section 143(3) in the course of which the Income-tax Officer failed to initiate proceedings under Section 273(2)(c) and Section 271(l)(a) and the failure on the part of the Income-tax Officer to levy interest under Section 217(1A) are erroneous and prejudicial to the interests of revenue, I set aside the assessment order of the Income-tax Officer in respect of the above assessment year with a direction to re-do the assessment in accordance with law.

4. In appeal before us, the learned counsel placed reliance on the decision of the Delhi High Court in the case of Addl. CIT v. J.K.D'Costa [1982] 133 ITR 7 as also on the latter decision of the same High Court in Addl. CIT v. Achal Kumar Jain [1983] 142 ITR 606. He submitted that the non-initiation of penal proceedings, during the course of assessment proceedings, would not render the assessment made erroneous or prejudicial to the revenue. Since there was no infirmity in the order of assessment, for non-initiation of penalty proceedings, even if they should have been initiated, he submitted, the Commissioner could not exercise his revisionary powers under Section 263. Apart from it, he stated that even on facts, each of the assessees had sought for extension of time till 30-11-1979 for filing the return and the return was filed on 5-12-1979. Another contention was that the full advance tax, as demanded, had been paid. In the case of Shri Ramjee Arjun, the tax demanded was Rs. 26,133 on an estimated income of Rs. 70,650 being that assessed for the assessment year 1977-78 and such tax had been paid. In the case of Shri Ranjit Ramjee, the advance tax paid as demanded was Rs. 26,059 on estimated income of Rs. 69,920 which was that assessed for the assessment year 1975-76. The final return filed in the case of Shri Ramjee Arjun in December 1979 showed total income of Rs. 80,270, which included share income of Rs. 79,792 from the firm of Purshotham Ramjee & Co. The assessment was completed determining the total income at Rs. 1,79,240, which included share income of Rs. 1,80,157 from the aforesaid firm. In the case of Shri Ranjit Ramjee, the return filed showed total income of Rs. 61,330, which included share income of Rs. 51,320 from Purshotham Ramjee & Co., but the assessment was completed in 1982 determining the total income at Rs. 1,28,300, which included share income of Rs. 1,18,230 from the aforesaid firm. It was stated that the additions in the firm's case were being disputed in appeal and the matter was pending. The contention was that the assessees had no reason to believe that such additions would be made. If at all estimate had to be made under Section 212(3A) of the Act, it had to be filed by 15-12-1978. By this time, no assessment had been made in the case of Purshotham Ramjee & Co. for any of the assessment years 1976-77, 1977-78 and 1978-79, such assessments having been completed only on 22-8-1979, 6-9-1980 and 5-9-1981. Therefore, there was no question even of the assessee imagining with reference to the additions made by the department for earlier years in the firm's case that the assessee's income would require upward revision. It was also submitted that though the returns were filed in December 1979, the assessments were made only in March 1982 and the delay was not due to any fault of the assessee and in any view of the matter, interest under Section 217(1 A) should not be charged and it is a fit case for the waiver of interest and it is apparently because of this reason that the ITO did not levy interest and it should be deemed that he had waived the levy of interest. The last contention urged was that if interest was to be levied under Section 217(1A), there ought to be a separate order and the non-levy of interest would not render the assessment order void.

5. The learned departmental representative opposed the plea and he submitted that there was a decision of the Madhya Pradesh High Court in the case of Vineet Talkies v. CIT [1984] 148 ITR 66, which categorically laid down that the levy of interest under Section 217(1 A) was mandatory and there was no scope for waiver thereof. The learned departmental representative also relied on an earlier decision of the Madhya Pradesh High Court in the case of CIT v. Narpat Singh Malkhan Singh [1981] 128 ITR 77, wherein the Court held that action under Section 263 could be taken for non-levy of interest under Section 217(1A), though on facts the Commissioner's action was not upheld because there was an earlier appeal and merger of the order of the ITO with that of the first appellate authority. He also submitted that the view of the Madhya Pradesh High Court in a catena of cases, was that for non-initiation of penalty proceedings under Section 217(1A) also, action could be taken under Section 263.

6. We have carefully considered the rival submissions. The decision of the Delhi High Court in Achal Kumar Jain's case {supra) follows the ratio of the earlier decision in the case of J.K. D'Costa (supra). The latter decision of the Delhi High Court has set out the various pronouncements of the Madhya Pradesh High Court, which took the view that action under Section 263 could be taken by the Commissioner in case the ITO had omitted to initiate penal proceedings. The Court eventually reiterated the view taken in J.K. D'Costa's case (supra).

Dealing with the powers of the Commissioner, the Court finally observed in Achal Kumar Jain's case (supra) as under : The meaning attributed to the expression 'assessment' is different in various contexts of the Act. But in the context of Section 263 it is a particular 'proceeding' that is to be considered. If he is dealing with the assessment proceedings and assessment order, he cannot extend his powers to deal with penalty proceedings when they are not before him. As observed by us in J.K. D'Costa's case [1982] 133 ITR 7, 11 : 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 ITO 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 proceedings are concerned, is that they should be initiated in the course of the proceedings for assessment. It is sufficient if there is some record somewhere, even apart from the assessment order itself; that the ITO 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 ITO 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.

This Court's observation in Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375, that the intention of the Legislature was to entrust the Commissioner, under Section 263, with a larger power than that of the ITO, is to be read in the context of the case. Deshpande, J., speaking for the Court, observed : ... The intention of the Legislature was to give a wide power to the Commissioner. He may consider the order of the Income-tax Officer as erroneous not only because it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereotyped order which simply accepts what the assessee has stated in his return and fails to make inquiries which are called for in the circumstances of the case This cannot be read to mean that the Commissioner is entitled to bring within his scope and deal with penalty proceedings and orders (which are admittedly connected but distinct) while calling for and examining the record of the assessment proceedings and orders.

The learned counsel had submitted that the Supreme Court had declined to grant special leave to appeal against the decision of the Delhi High Court in J.K. D'Costa's case {supra) and the report regarding this appears in CED v. Prakashchand [1984] 147 ITR 1 (MP). In view of the refusal by the Supreme Court to grant special leave to appeal against the judgment of the Delhi High Court in J.K. D'Costa's case (supra), we would follow the view taken by the Delhi High Court, i.e., that non-initiation of penalty proceedings, either under Section 271(l)(a) or under Section 273(2)(c), would not render an assessment order erroneous or prejudicial to the revenue. Therefore, for non-initiation of penalty proceedings, we hold that the Commissioner was not justified in setting aside the present assessments in either of the cases.

7. The reason given by the Commissioner, namely, that the assessee should have filed a higher estimate under Section 212(3A), having regard to the additions made in the past in the case of the firm of Purshotham Ramjee & Co., cannot also stand in view of the factual data which we have set out earlier, which would show that the assessments in the firm's case where certain additions were made for each of the assessment years 1976-77 to 1978-79, were subsequent to the last date by which the assessee could have filed an estimate under Section 212(3A), i.e., 15-12-1978. The Delhi High Court in J.K. D'Cpsta's case (supra) had also held that even if there was a minor lapse in not levying interest, a wholesale cancellation of the' assessment was not warranted and all that the Commissioner can do was to direct the ITO to consider the question on merits and in accordance with law after giving the assessee an opportunity of being heard. Following the ratio of the aforesaid decision, we have to hold that for non-levy of interest under Section 217(1A), even if it was otherwise leviable, the assessment could not be set aside. The plea of the learned counsel was that the levy of interest under Section 217(1A) had to be by an independent order, though customarily it formed part of the assessment order and, hence, non-levy of interest under Section 217(1A) could not vitiate the assessment order. We need not pronounce on this aspect in the present appeals for we have held, following the judgment of the Delhi High Court, that the setting aside of the assessment in each of the cases was not warranted. That being the case, all that subsists is a direction to the ITO that he should examine whether interest is leviable under Section 217(1 A). Even if the Commissioner has not given such direction, it is certainly open to the ITO if interest is leviable under Section 217(1 A), in an independent order, to examine this issue.

Therefore, a specific direction by the Commissioner in this regard would not place the assessee in a worse position because interest is leviable only if it is leviable in accordance with law. In this regard, we may state that the learned counsel for the assessee has placed before us an order in the case of Second ITO v. R. Narayanan [1984] 19 TTJ (Mad.) 591 [IT Appeal No. 1014 (Mad.) of 1983, dated 5-10-1983], where the Tribunal had held that waiver of interest was permissible even in cases where interest was leviable under Section 217(1A), Whether interest is leviable or not, is a matter for the ITO to decide and, hence, we would not offer any comments on this aspect also. The result is, that both the appeals are allowed.


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