REPORTABLE
* IN THE HIGH COURT OF DELHI AT NEW DELHI
{ITA No.418 of 2009}
{ITA 225/2008}
{ITA 233/2008}
Judgment reserved on:23.09.2010
Judgment delivered on:29.11.2010
ITA 418/2009
COMMISSIONER OF INCOME TAX . . . APPELLANT
Through: Mr. N.P. Sahni, Advocate
VERSUS
M/S JOHN TINSON & COM (P) LTD. . . .RESPONDENT
Through: Mr. P.N. Monga, Advocate with
Mr. Manu Monga, Advocate.
ITA 225/2008
COMMISSIONER OF INCOME TAX . . . APPELLANT
Through: Mr. N.P. Sahni, Advocate
VERSUS
M/S JOHN TINSON & COM (P) LTD. . . .RESPONDENT
Through: Mr. P.N. Monga, Advocate with
Mr. Manu Monga, Advocate.
ITA 233/2008
COMMISSIONER OF INCOME TAX . . . APPELLANT
Through: Mr. N.P. Sahni, Advocate
VERSUS
M/S JOHN TINSON & COM (P) LTD. . . .RESPONDENT
Through: Mr. P.N. Monga, Advocate with
Mr. Manu Monga, Advocate.
CORAM:-
THE HON'BLE MR. JUSTICE A.K. SIKRI
THE HON'BLE MS. JUSTICE REVA KHETRAPAL
ITA No.418 of 2009,ITA 225/200, ITA 233/2008 Page 1 of 12
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI, J.
1. This appeal was admitted on the following substantial question
of law:-
“Whether the ITAT was correct in law and on
facts in holding that the order of the AO imposing
penalty is barred in view of the provisions of
Section 275 (1) (a) of the Act?”
By this order, we propose to decide the aforesaid question.
2. The factual matrix that needs to be noticed may first be
narrated keeping in view the commonality of the question, the
parties and the impugned order of the Tribunal. Instead of referring
to the facts of each case, our purpose would be served by taking
note of the facts from ITA 418/2009.
3. This appeal relates to the assessment year 1993-94. For this
year, the respondent-assessee had filed return of income declaring
loss of ` 3352/-. The Assessing Officer, however, did not accept the
aforesaid return as filed by the assessee. Instead, he framed the
assessment under Section 143 (3) of the Act by assessing the income
at ` 12,05,724/- vide orders dated 18th July, 1996. In the process, the
Assessing Officer made additions on three counts which are as
under:-
(i) The depreciation claimed by the assessee on used
gas cylinders was denied by the Assessing Officer
invoking Explanation-3 to Section 43 of the Act.
ITA No.418 of 2009,ITA 225/200, ITA 233/2008 Page 2 of 12
(ii) Certain rents on the property let out by the
assessee to the tenant which were deposited in the court
which the assessee had not accepted and in respect of
which the Assessing Officer was of the opinion that the
rent was released by depositing in the Court and exigible
to tax.
(iii) The claim of ` 368374/- as business expenses was
not allowed holding that the assessee‟s income was not
exigible under the head „income from business‟.
4. While passing this assessment order, the Assessing Officer also
directed initiation of penalty proceedings under Section 271 (1) (c) of
the Act on the ground that the assessee had concealed particulars
of income under the aforesaid heads.
5. The assessee filed appeal against this order of the Assessing
Officer. The CIT (Appeal) decided the said appeal giving substantial
relief to the assessee and reducing the assessed income from `
12,05,724/- to ` 70,932/- . On all the aforesaid three counts, the
appeal of the assessee was allowed.
6. Not satisfied with this order, the Revenue took the matter
before the Income Tax Appellate Tribunal. Since the matter was
pending before the Tribunal, the penalty proceedings were kept in
abeyance. The Tribunal ultimately decided the appeal allowing the
appeal of the department. The order of the CIT (A) was set aside and
that of the Assessing Officer in respect of additions mentioned at Sl.
No.1 and 3 was restored. In respect of additions at Sl.no.2 whereby
the Assessing Officer had taxed the rent which was deposited in the
Court, the order of the CIT (A) was maintained, thus deleting these
additions.
ITA No.418 of 2009,ITA 225/200, ITA 233/2008 Page 3 of 12
7. We may point out here that the Tribunal had passed a common
order in respect of assessment years 1991-92, 1992-93 and 1993-94,
with which we are concerned. In a similar manner, other appeals of
the department were also allowed partly, though these appeals are
taken up separately.
8. The Assessing Officer thereafter issued notice to the assessee
and passed orders dated 28th February, 2005 re-computing the
income in accordance with the direction given by the Tribunal in the
aforesaid order. In this assessment order also, he directed initiation
of penalty proceedings under Section 271 (1) (c) of the Act and
thereafter passed penalty orders dated 26th August, 2005.
9. The Tribunal has set aside this penalty order on the ground that
it was time barred. According to the Tribunal as per Section 275 (1)
(a) of the Act, the order should have been passed within six months
from the date of receipt of the copy of orders passed by the Tribunal
in the quantum appeal. Since that order was passed on 2nd August,
2004, six months expired in April, 2005 and the order passed on 26 th
August, 2005 was thus time barred. The case of the Revenue is that
it is clause (c) of sub Section (1) of Section 275 of the Act which
would be applicable and as per this, six months period is to be
counted from 28th February, 2005 when fresh assessment orders
were passed. If Six months is to be counted from 28th February,
2005, the order passed on 26th August, 2005 is well within limitation.
10. In this backdrop, the appeal was admitted on the question of
law which has been extracted in the beginning.
11. The issue thus is as to whether clause (a) is applicable in the
instant case or it is clause (c) which is applicable i.e. whether six
months period is to be counted from 2nd August, 2004 or 28th
ITA No.418 of 2009,ITA 225/200, ITA 233/2008 Page 4 of 12
February, 2005. We extract herein below Section 275(1) (a) of the
Act:-
“Bar of limitation for imposing penalties.
(1) 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 Commissioner (Appeals) under section 246 or
an appeal to the Appellate Tribunal under Section
253, after the expiry of the financial year in which
the proceedings, in the course of which action for
the imposition of penalty has been initiated, are
completed, or six months from the end of the
month in which the order of the Commissioner
(Appeals), or as the case may be, the Appellate
Tribunal is received by the Chief Commissioner or
Commissioner, whichever period expires later.”
12. In N.A. Malbary and Bros. Vs. Commissioner of Income-
Tax, Bombay North., 51 ITR 295, which was a case under the
Income Tax Act, 1922 the Assessing Officer had passed first penalty
order where under penalty was imposed on the basis of estimated
income. Thereafter, second penalty order was passed imposing
higher penalty after the account books were produced and when the
Assessing Officer could get the correct figure of concealment of
income on the basis of production of those account books. The issue
before the Supreme Court was as to whether second order imposing
penalty was illegal because of the reason that in respect of same
concealment, the Income Tax Officer had already passed first penalty
order and, therefore, she had no jurisdiction to make the second
order while the first stood. The Supreme Court decided this issue in
favour of the Revenue holding that the penalty under Section 28 of
the Act of 1922 had to be correlated to the amount of the tax which
would have been evaded if the assessee had got away with the
concealment and when the Income-tax Officer ascertained the true
ITA No.418 of 2009,ITA 225/200, ITA 233/2008 Page 5 of 12
facts and realised that a much higher penalty should have been
imposed, he had jurisdiction to recall the earlier order imposing
penalty on the basis of the estimated income and pass another order
imposing the higher penalty. He had the jurisdiction to make the
second order and he would not lose that jurisdiction because he had
omitted to recall the earlier order, though it may be that the two
orders could not be enforced simultaneously or stand together. As,
however, the first order had been cancelled there was only one order
and the second order was therefore a legal order under Section 28 of
the old Act (corresponding to Section 271 of the new Act).
13. In Seth Panchhi Ram and Co. Vs. Commissioner of
Income Tax, 192 ITR, 289 decided by the Himachal Pradesh High
Court, it was held that when the original order of assessment was
set aside and matter remanded back to the Assessing Officer on the
basis of which fresh order of assessment was passed, the limitation
would start running from the passing of the fresh assessment order.
The Court explained the provisions of Section 275 of the Act in the
following manner:-
“By looking at the provisions of Section 275, it
would be seen that wherever there has been an
appeal against the assessment order or other
order and if the matter reaches a finality, the
period as fixed by Sub-clause (ii) of Clause (a) is six
months from the end of the month in which the
aforesaid final order is received by the
Commissioner. In cases where the proceedings are
not completed with the order of the Appellate
Assistant Commissioner or the Appellate Tribunal,
Sub-clause (ii) would have no application but when
there is no appeal, penalty can be levied within a
period of two years from the end of the financial
year in which the proceedings are completed. TheITA No.418 of 2009,ITA 225/200, ITA 233/2008 Page 6 of 12
emphasis is on the words “the proceedings . . . are
completed”. When the proceedings imposing
penalty, initiated with the assessment originally
made, were subsequently dropped and set aside
after the proceedings for assessment which were
taken in appeal to the higher authorities and were
set aside with an order of remand with a direction
to make a fresh assessment, it cannot be said that
the proceedings for assessment were completed
on the date when the first order of assessment was
made. As pointed out, the emphasis is on the
words “proceedings . . . are completed”, The effect
of the order of remand is to remove from the file
the order appealed against and when the original
order of assessment is taken away, there is no
assessment. As such, it is the or.der passed
subsequently which is relevant and not the earlier
one, which had been set aside. “The relevant
assessment or other order” occurring in Clause (a)
obviously refers to the subsequent assessment
made by the Income-tax Officer after remand. The
first assessment cannot, by any stretch of
imagination, be considered to be “relevant
assessment proceedings or other order”.
14. This issue came up for consideration before the Bombay High
Court as well in the case of Caltex Oil Refining (India) Ltd. Vs.
Commissioner of Income-Tax, 202 ITR 375. In that case, for the
assessment year 1970-71, by an order dated February, 11, 1972, the
Income-tax Officer assessed the total income of the assessee at `
82,72,020 and allowed interest under section 214 of the Income-tax
Act, 1961, on advance payment of tax in excess of the tax
determined on regular assessment. The matter went in appeal up to
the Tribunal. In consequence of the order of the Tribunal passed on
February 12, 1974, the total income of the assessee was reduced to `
ITA No.418 of 2009,ITA 225/200, ITA 233/2008 Page 7 of 12
80,70,666. The Income -tax Officer gave effect to the order of the
Tribunal on June 15, 1974, and observed that interest payable to the
assessee by the Government under Section 214 will remain
unchanged. Against the order of assessment passed giving effect to
the appellate order, the assessee went in appeal before the appellate
Assistant Commissioner. The question which arose for consideration
was as to whether such an appeal was maintainable against the
orders passed giving effect to the order of the appellate authority.
Normal provision for appeal under Section 246 of the Act provides
appeal against the order of the Assessing Officer. It was in this
context, the provisions of Section 246 of the Act were interpreted.
However, the answer depended on the question as to whether the
second assessment order passed, even though giving effect to the
order of the appellate authority, was a fresh assessment order. The
Court held that such an appeal was maintainable and discussed the
legal position in the following manner:-
“So far as the first submission, which relates to the
nature of an order passed by the Income-tax
Officer in consequence of orders of the appellate
authorities with a view to giving effect to the
directions contained therein, is concerned, it is
difficult to hold that such an order is an
administrative order. The power of the Income-tax
Officer is to make assessment under section 143 or
144 of the Act. It is that assessment which is the
subject-matter of appeal. The appellate authority,
on an appeal against an order of assessment, has
power to confirm, reduce, enhance or annul the
assessment or to set aside the assessment and
refer the case back to the Income-tax Officer for
making a fresh assessment in accordance with the
directions given by such authority (section 251).
Evidently the effect of an appellate order is thatITA No.418 of 2009,ITA 225/200, ITA 233/2008 Page 8 of 12
the order either stands confirmed, reduced or
enhanced or it stands annulled or set aside. In the
case of confirmation, reduction or enhancement,
the original order of assessment stands modified to
the extent of the directions given by the appellate
authority. In the case of annulment the order
becomes non est. In case an order is set aside, the
authority has to start the entire process afresh and
make a fresh order of assessment complying with
the directions given by the appellate authority. It
is thus clear that what remains as a final order
after giving effect to the orders of the appellate
authorities is an order of assessment under Section
143 or 144. It cannot be anything else.”
15. The aforesaid discussion leads to one direction namely the
answer to the question formulated depends on the issue as to
whether the assessment order dated 28th February, 2005 is a fresh
and new assessment order, albeit on the direction of the Tribunal
after the matter was remitted back to the Assessing Officer or is a
mechanical order which in essence was only giving effect to the
orders dated 2nd August, 2004 passed by the Tribunal. If the case
falls in the first category, then limitation is to be counted from 28th
February, 2005 and the penalty order would be within limitation.
Otherwise, the penalty order is time barred. Thus, we revert back to
the orders dated 2nd August, 2004 passed by the Tribunal in the
quantum appeals.
16. As pointed out above, by this order, the Tribunal partly allowed
the appeals of the Revenue. One of the issues related to claim of
depreciation by the assessee on used gas cylinders which arose in all
the three assessment years. After detailed discussion on this issue
and taking note of the nature of transaction, the Tribunal examined
ITA No.418 of 2009,ITA 225/200, ITA 233/2008 Page 9 of 12
the issue as to whether these agreements were in the nature of lease
agreements or it was a financial arrangement. The Tribunal
concluded that the actual transaction was in fact in the nature of
financial arrangement between the assessee and the so-called lessee
and as such, the assessee was not entitled for depreciation over
those equipments. At the same time, the Tribunal also opined that
the Assessing Officer could not have invoked the provisions of
Section 43 (1) Explanation-3 in order to determine the cost of
cylinders. The discussion on this issue was, thus, summed up in the
following manner:-
“It is a case of financial arrangement between the
assessee and the so-called lessee and, as such,
the assessee is not entitled for depreciation over
the impugned equipments. So far as the rental
income is concerned, we are of the view that the
assessing officer has wrongly taxed the rental
income in the hands of the assessee because it
was only a repayment of the loan with interest
advanced by the assessee in order to purchase
the impugned equipments. At the most the
interest earned in the year under account can only
be taxed. So far as invocation of provisions of
Section 43 (1) explanation (3) is concerned, we
are of the view that this provision was wrongly
invoked by the assessing officer. Accordingly we
set aside the order of the Commissioner of Income
-tax (Appeals) and restore the matter to the file of
the assessing officer with the directions to tax
only the interest income earned by the assessee
during the year under account”
17. In respect of issue at Sl. No.2 above, the Tribunal found that the
assessee was not engaged in finance business, as it found that lease
agreement was in fact a financial transaction, and that advancement
ITA No.418 of 2009,ITA 225/200, ITA 233/2008 Page 10 of 12
of loan was not the regular activity of the assessee and, therefore,
income earned there from could not be held as his business income.
Thus the opinion arrived at was that the Assessing Officer was
justified in treating this income as income from other sources. The
Tribunal, thereby set aside the order of the CIT (A) and restored that
of the Assessing Officer. Thus, deciding the issue, the Tribunal gave
following directions:-
“Accordingly we set aside the order of the CIT
(Appeals) on this count and restore that of the
assessing officer for all the assessment years and
direct the assessing officer to compute the interest
earned by the assessee during the year and tax the
same instead of lease rental income”
18. In this backdrop, we have to understand the exercise
undertaken by the Assessing Officer which resulted in the passing of
the assessment orders dated 28th February, 2005. No doubt, while
passing order dated 28th February, 2005, the Assessing Officer has
given effect to the orders of the Tribunal while rejecting the claim of
depreciation and claim of expenses treating the same as not the
business expenditure as the income earned from the financial
transaction was not treated as business income. At the same time,
the Assessing officer was also required to undertake fresh exercise
which was not done at the time of the passing the original
assessment order. This exercise, more particularly, related to
computing the interest earned by the assessee during the year.
19. Seen in that light, we have to hold that in the facts and
circumstances of the case, the assessment order dated 28th
February, 2005 was a fresh and new assessment order. Though, on
the direction of Tribunal, largely giving effect to the orders dated 2nd
August, 2004 passed by the Tribunal. The calculations which were
ITA No.418 of 2009,ITA 225/200, ITA 233/2008 Page 11 of 12
made for the first time in this order by undertaking fresh exercise
could be subject matter of appeal, if the assessee was aggrieved
against the manner in which these calculations were made.
Therefore, we are of the opinion that the orders dated 26th August,
2005 passed by the Assessing Officer were not time barred but within
the period of limitation provided under section 275 of the Act. We
thus answer the question in the negative holding that the Tribunal
was not right in treating the order of the Assessing Officer imposing
penalty as time barred.
20. The order of the Tribunal is accordingly set aside. Since the
appeals before the Tribunal were not decided on merits, those
appeals shall now be heard and decided on merits by the Tribunal.
(A.K. SIKRI)
JUDGE
(REVA KHETRAPAL)
JUDGE
NOVEMBER 29, 2010.
skb
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