9911796707
TMI Blog1992 (2) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... on estimate basis was not acceptable to department and the assessments were completed on the basis of a different estimate of cost of construction. The assessee carried the matter in appeals and obtained certain reliefs. The contention of the assessee that the cost of construction should be spread over six years as the construction had commenced from the assessment year 1981-82 was not accepted by the Tribunal since the dispute was confined to the impugned assessment years, Ultimately the income determined in the proceedings of the Income-tax Officer dated 21-5-1992 giving effect to the orders of the Tribunal read with its rectification orders is as follows :--- Assessment year Amount 1983-84 Rs. 4,74,600 1984-85 Rs. 6,17,520 1985-86 Rs. 15,44,270 The reference applications preferred by the appellant against the orders of the Tribunal are pending. In the course of the assessment proceedings, the Income-tax Officer initiated action for levy of penalty as will be evident from the assessment orders for assessment years 1983-84 to 1985-86 as follows : Assessment Date of Assessed Provision of the year assessment income Income-tax Act under order which penalty was proposed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, notice was issued on 17-3-1989 as follows : --- "No. 46-800-Fr 9647 Income-tax Office, -------------------------------- Ayakar Bhawan, Koudiar, TVM (1000) Trivandrum, Dt : 17-3-1989. TO M/s Upasana Hospital Nursing Home. Quilon. Sub : Penalty under sections 271 (1)(a),273(2)(c)in the case of M/s. Upasana Hospital and Nursing Home for assessment years 1983-84, 1984-85 1985-86. The penalty initiated in this case under sections 271(1)(a) and 273(2)(c) is posted for hearing on 23-3-1989, at 10.00 a.m. You are requested to attend my office either in person or through your authorised representative on the date mentioned above, failure of which the proceedings will be completed on merit. Sd/ (P.T. Pavithran) Asst. Particulars Asst. Commissioner of income- year tax, Investigation Circle, Trivandrum-3. 1983-84, 271 (1)(a) 273(2)(c) 1984-85 -do- -do 1985-86 -do- -do-" However, on 28-3-1989 penalty was levied on the assessee under section 273(2)(aa) of the Income-tax Act, 1961. The assessee appealed. The learned CIT (Appeals) upheld the levy of penalty on the ground that there was no substance in the assessee's contention that the income offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(c). Therefore even the change of opinion as regards the sub-clause under which the penalty is leviable was not adhered to in the notice dated 17-3-1989 but the order of penalty was passed for default under section 273(2)(aa). Thus the initiation of penalty was under section 273(2)(c). Long after the assessment it was changed to 273(2)(aa). Subsequent to such a change it was again reverted to section 273(2)(c) but the penalty order had been passed under section 273(2)(aa). Therefore he submitted that absolutely there was no satisfaction for the levy of penalty under section 273(2)(aa) on the part of the assessing authority in the course of the assessment proceedings. Hence the penalty order is void ab initio. In this connection he relied on the decision of the Supreme Court in the case of CITv. S.V. Angidi Chettiar [1962] 44 ITR 739, and also the decision of the Bombay High Court in the case of CIT v. Dajibhai Kanjibhai [1991] 189 ITR 41. 4. Sri C.K. Nair further submitted that the penalty as proposed in the course of assessment proceedings of 273(2)(c) is not leviable at all. As per section 273(2)(c) penalty is leviable only if the assessee failed to furnish an estimate of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed but then he chose to levy penalty under section 273(2)(aa) contrary to the satisfaction reached in the course of the assessment proceedings. Therefore, that part of the penalty referable to the assessment year 1985-86 cannot also be sustained. 5. Sri Nair, the learned counsel for the assessee submitted that the legal stand against the maintainability of the penalty order was unfortunately not taken up before the first appellate authority. As only a question of law is involved which did not require any investigation the same is raised for the first time before the Tribunal by way of an additional ground and he pleaded that in the interests of justice and equity the additional ground may be admitted. 6. This apart Sri Nair submitted that the construction had begun in 1980-81 onwards. Expenditure was incurred on the construction of the hospital buildings which was incomplete in the impugned assessment years. The assessee was under the bona fide belief that it has to properly ascertain the cost of construction and any filing of the returns in the meanwhile might result in incorrect statement of income. Therefore, the appellant did not file the returns of income for these years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Officer must be satisfied in the course of the assessment proceedings as to the nature of the offence before the levy, of penalty. When there is confusion about the nature of the offence itself it cannot be said that there was satisfaction on the part of the Income-tax Officer regarding the commission of a particular offence. In other words, when the nature of the offence itself is changed in the penalty order, it would remain unsupported by the satisfaction so necessary for the levy of penalty. The lapse is a serious one. Levy of penalty also has other consequences, viz., It might lead to prosecutions. When there was no proper application of mind on the part of the Income-tax Officer in the initiation of the penalty proceedings, the Tribunal is bound to cancel the penalty. 9. We have thus heard rival submissions and perused the records. The additional grounds are as follows : 1. The penalty orders are bad In law because the Income-tax Officer had not reached the satisfaction in the course of assessment proceedings. The satisfaction was reached later. 2. Sufficient opportunity had not been given to meet the case for imposition of penalty. 3. The provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... last instalment was due in each of these impugned assessment years, there was also no violation of the provisions of sub-section (4) of section 209A. Therefore, the penalty envisaged in sub-clause (c) of sub-section (2) of section 273 is not attracted in the ease of the assessee for the assessment years 1983-84 and 1984-85. For the assessment year 1985-86, the assessee is one who was previously assessed to income-tax and, therefore, the assessee had to file a statement of advance tax or estimate of its current income in accordance with the provisions of section 209A(1), (3) and (4). In this case, the assessee had filed an estimate of advance tax and further revised it by filing another estimate on or before the date on which the last instalment of advance tax was payable by it. Therefore for the assessment year 1985-86 the provisions of sub-section (4) of section 209 stood complied with. Hence for this year also penalty cannot be levied under section 273(2)(c). Actually penalty has been levied not under section 273(2)(c) but only under section 273(2)(aa). It is in this context that Sri Nair vehemently contended that as the initiation of the penalty proceedings was in relation to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rather an objective one. If the initiation of action for penalty against the assessee is examined on the touch stone of the above legal principles, one is driven to the conclusion that the assessing authority did not have any material before him to reach a prima facie satisfaction objectively regarding the default attracting the provisions of section 273(2)(c) of the Act. The applicability of the provisions of section 273(2)(aa) entered the mind of the Income-tax Officer only long after the completion of the assessment proceedings and, therefore, it cannot be related back to the assessment proceedings or to the point of time in such proceedings at which he could be said to have reasonably applied his mind to the existence of a default attracting the provisions of section 273(2)(aa) and thus reached a satisfaction thereon. Hence we hold that the levy of penalty under section 273(2)(aa) was without jurisdiction. We are reinforced in this conclusion if regard is had to the fact that even after realising that he had initiated action under section 273(2)(c) erroneously instead of under section 273(2)(aa) (vide his letter, dated 24-9-1987) he had proceeded to issue notices in the subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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