2019 (4) TMI 613 - AT - Income Tax

Rectification petitions u/s 254(2) - penalty imposed on the basis of total cash deposit in account - Tribunal considering business of assessee consider 90% deposit as explained and sustain penalty on 10% - Dept. appeal before High Court interpreting that penalty of 100% of tax reduced to 10% which is not permissible - High court suggest for rectification before Tribunal - HELD THAT - The issue on merits on what Their Lordships have held and any further analysis of legal position will inevitably take us there, and we humbly accept our mistake. We may, however, add that the school of thought that It is settled that the findings given in the assessment proceedings would be relevant and admissible materials in penalty proceedings, but those findings cannot operate as res judicata because the considerations that arise in penalty proceedings are different from those in the assessment proceedings has consistently found favour with several non jurisdictional High Courts, including in the case of CIT Vs Ishitiaq Hussain 1997 (11) TMI 78 - ALLAHABAD HIGH COURT . The findings in the assessment proceedings have not thus be treated as final adjudication binding in the penalty proceedings. An approach adopted by the basis of the views expressed by Hon ble High Court, even if non jurisdictional, cannot be said to be a glaring error incapable of two views being taken. Even if the rectification petition was to be treated as a petition filed well within the time limit, the rectification petition was to be dismissed on merits anyway- in the light of the nature of the mistake and the limited scope of powers under section 254(2). There would not have been any difference to the outcome of the exercise. Dismissal of this rectification petition is on account of delay in filing of rectification petition as also on account of inherently limited powers vested in the Tribunal under section 254(2). That does not affect the fact that, in the light of the observations of Hon ble jurisdictional High Court, this Tribunal was in error in granting the relief in the impugned order and we must gracefully acknowledge the same. There are, however, limitation to what we can do in the course of exercise of our powers under section 254(2) and as much as we must acknowledge our mistake, we must also acknowledge our limitations of rectifying the same. Just as Their Lordships, having noticed the mistake in the impugned order, declined to tinker with the same, for the larger causes of justice, and allow it to thus reach finality nevertheless, we must also refrain from revisiting the conclusions arrived at in the impugned order, in the garb of rectifying the mistake apparent on record, as, howsoever desirable be the ultimate objective, ends cannot justify the means; the legal remedies can only be provided within the framework of law.

Issues Involved:
1. Rectification of order dated 22nd September 2017.
2. Assessment of unexplained cash deposits.
3. Imposition of concealment penalty under section 271(1)(c).
4. Appeal and Tribunal’s decision on penalty.
5. Revenue’s writ petition and High Court’s observations.
6. Time-barred rectification petition.
7. Scope of Tribunal's powers under section 254(2).

Issue-wise Detailed Analysis:

1. Rectification of Order Dated 22nd September 2017:
The rectification application sought modification of the Tribunal's order dated 22nd September 2017, which involved the assessment of unexplained cash deposits and the imposition of a concealment penalty. The Tribunal had partially accepted the assessee’s explanation and reduced the penalty accordingly.

2. Assessment of Unexplained Cash Deposits:
During scrutiny assessment proceedings, it was found that the assessee had deposited ?43,72,650 in his savings bank account. The assessee claimed that these deposits were from his small-scale business of used clothes and capital received from his father. However, the Assessing Officer (AO) found the explanation unsubstantiated and treated the entire amount as unexplained investment under section 69, leading to the imposition of tax.

3. Imposition of Concealment Penalty Under Section 271(1)(c):
The AO imposed a concealment penalty of ?13,00,990 under section 271(1)(c), treating the entire amount of ?43,72,650 as concealed income. The AO noted that the assessee had not provided any justification for the cash deposits and had not appealed against the assessment order.

4. Appeal and Tribunal’s Decision on Penalty:
On appeal, the CIT(A) confirmed the penalty, citing the Supreme Court’s judgment in MAK Data Limited Vs CIT. The Tribunal, however, accepted the explanation for ?39,35,385 and restricted the penalty to the unexplained amount of ?4,37,265, reasoning that the deposits could be considered business receipts, but the assessee failed to disclose profits from this business.

5. Revenue’s Writ Petition and High Court’s Observations:
The Principal Commissioner of Income Tax filed a writ petition before the Gujarat High Court, arguing that the Tribunal’s reduction of the penalty to 10% of the tax sought to be evaded was impermissible. The High Court declined to entertain the writ petition, noting that the monetary limits for filing appeals did not apply to writ petitions, but such petitions should only be entertained in rare and exceptional cases. The High Court disapproved of the Tribunal’s approach, stating that the statutory provisions under section 271 envisage a minimum penalty of 100% of the tax sought to be evaded.

6. Time-barred Rectification Petition:
The Tribunal noted that the rectification petition was filed beyond the six-month time limit specified in section 254(2). There was no application for condonation of delay, and the Tribunal lacked the statutory authority to condone such delays. Consequently, the petition was deemed time-barred.

7. Scope of Tribunal's Powers Under Section 254(2):
The Tribunal emphasized that only mistakes apparent on record could be rectified under section 254(2). The Tribunal’s decision to accept part of the assessee’s explanation was based on subjective reasoning and past case history, which could not be considered a mistake apparent on record. The Tribunal acknowledged its error in approach as highlighted by the High Court but maintained that it could not rectify the order under the limited scope of section 254(2).

Conclusion:
The rectification application was dismissed due to being time-barred and beyond the scope of section 254(2). The Tribunal recognized its mistake as per the High Court’s observations but was constrained by legal limitations from amending the order.

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