Case Law Details

Case Name : CIT Vs Manohar Lal Thakral (Punjab and Haryana High Court)
Appeal Number : ITA No. 812 of 2010
Date of Judgement/Order : 14/01/2011
Related Assessment Year :
Courts : All High Courts (4420) Punjab and Haryana HC (225)

CIT Vs Manohar Lal Thakral (Punjab and Haryana High Court)

The Tribunal while deleting the penalty recorded that the return of the assessee was processed as on 31.12.2003 and the notice u/s 274 read with section 271E of the Act was issued on 12.06.2007. Such notice was issued when there was no proceedings pending before the Assessing Officer. Relying upon Delhi High Court judgment in Commissioner of Income Tax v. Standard Brands Ltd. (2006) 285 ITR 295, the Tribunal further observed that action for penalty may be permissible only after regular assessment has been framed and since no regular assessment order had been passed in this case, the recourse to penalty proceedings under Section 271E were not justified. The findings recorded by the Tribunal read thus:-

“Having heard the parties and having perused the material on record, we find the grievance of the assessee to be correct. In this case, the return of the assessee was processed u/s 143(1)(a) of the Income-tax Act, on 31.12.2003. Notice u/s 274 read with 271E of the Act was issued to the assessee on 12.06.2007. It being a case of processing the return of income, there is no finding in the AO’s order with regard to the applicability or otherwise of section 269T of the IT Act to the assessee’s case. It was within the purview of the AO to bring the assessee’s case to scrutiny and to make regular assessment u/s 143(3) of the Act. It was also within the power of the AO at the appropriate stage to initiate proceedings u/s 147 of the Act against the assessee. No such action was taken. Rather, the penalty was imposed  on the basis of the finding in the case of assessee’s wife.”

No error or perversity could be shown in the aforesaid findings recorded by the Tribunal. Moreover, the assessee had taken a plea  before the Assessing Officer that there was a reasonable cause for the assessee to have made direct payment of Rs.14,02,600/- to M/s Babyloan Builders Private Ltd., Gurgaon. It was pleaded that some of the repayments made by the assessee were inter company transfer for group housing and purchase of flat and at times payments were made after closure of banking hours. It was further submitted that the payments made were genuine and no tax evasion was involved and the default, if any, was of technical nature. The explanation being plausible one, it cannot be said that there was no reasonable cause within the meaning of Section 273B of the Act.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT

1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 2.2.2010 passed by the Income Tax Appellate Tribunal, Delhi Bench “E”, New Delhi (hereinafter referred to as “the Tribunal”) in
ITA No. 3826/Del/2008 for the assessment year 2003-04, claiming the following substantial questions of law:-

“(i) Whether on the facts and in the circumstances of the case and in law, the Ld. ITAT was right in deleting the penalty imposed u/s 271E of the I.T. Act, 1961 on the ground that the deletion of penalty proceedings itself was illegal as no proceedings were pending before the AO, despite the fact that imposition of penalty u/s 271E is not subject to pendency of any type of proceedings?

(ii) Whether on the facts and in the circumstances of the case and in law, the Ld. ITAT was right in accepting the contention of the assessee that the penalty notice was issued when there were no proceedings pending before the AO qua the assessee and the action of penalty may be permissible only after assessment without taking into consideration the decision of Ld. ITAT, Vishakapatnam Bench in the case of Assistant Commissioner of Income-Tax, Circle 4(1) Vs. Vinman Finance and Leasing Limited, reported in 115 ITD 115 (120 TTJ 426) wherein it has been held that penalty proceedings u/s 271E need not be initiated during the course of assessment proceedings?

(iii) Whether on the facts and in the circumstances of the case and in law, the Ld. ITAT was right in accepting the contention of the assessee that since the return filed by the assessee was processed under section 143(1)(a) of the Income Tax Act, 1961 on  31.12.2003 and notice under section 274 read with section 271E was issued on 12.06.2007, without taking into cognizance the decision of the ITAT, Chandigarh Special Bench in the case of Dewan Chand Amrit Lal Vs. DCIT reported in 98 TTJ 947 wherein it has been held that non-prescribing the time limit for initiation of  penalty proceeding is conscious and there is neither
any necessity nor the Tribunal is empowered to prescribe any limitation for initiation of penalty proceedings even assuming that there is an unintended omission by the legislature, casus omissus of the legislature cannot be provided?”

2. The facts necessary for adjudication as narrated in the instant appeal are that the assessee, Manohar Lal Thakral, Karta HUF
was proprietor of the concern M/s Fancy Wool Enterprises and he filed the return for the financial year 2002-03 relevant to the assessment year 2003-04 on 30.11.2003 declaring an income of ` 1,35,010/-. The said return was processed under Section 143(1)(a) vide order dated 31.12.2003. The assessee had old deposit of his wife, brought forward, as on 1.4.2002 amounting to ` 13,31,999/- in her account who further deposited ` 11,66,000/- during the year and interest of ` 34,950/- was credited to her account as on 31.3.2003. The assessee and his wife jointly purchased property against considerations of ` 17,00,000/- and `15,00,000/- from M/s Ansal Housing & Estate Pvt. Ltd. and Babyloan Builders Pvt. Ltd. vide tripartite agreement dated 9.5.2001 to get prepared the building plans of raising of construction of a commercial complex. From the account of the wife of the assessee with M/s Fancy Wool Enterprises, a sum of ` 14,02,600/- was paid to M/s Babyloan Builders Pvt. Ltd., Gurgaon from 21.5.2002 to 29.10.2002 through
cheques/DDs. During the course of assessment proceedings in the case of Smt. Kusum Lata Thakral, wife of the assessee, it was found
that instead of making payments to his wife, the assessee made payments to M/s Babyloan Builders Pvt. Ltd in contravention of the
provisions of Section 269T of the Act. The matter was referred to the Additional Commissioner of Income Tax who vide order dated
18.12.2007 imposed a penalty of ` 11,02,610/- under Section 271E of the Act. The assessee carried the matter in appeal before the
Commissioner of Income Tax (Appeals) [in short “the CIT (A)”] who vide order dated 28.11.2008 upheld the order of penalty. On further appeal  by the assessee, the Tribunal vide its order dated 2.2.2010 allowed the appeal and set aside the order of the CIT (A). This gave rise to the revenue to approach this Court by way of present appeal.

4. We have heard learned counsel for the appellant.

5. The only point for consideration in this appeal is whether the assessee had contravened the provisions of Section 269T of the Act
by making repayment of loan/deposits of Smt. Kusum Lata Thakral, through account payee cheque or account payee drafts to M/s Babyloan Builders Pvt. Ltd., Gurgaon and, therefore, penalty under Section 271E was leviable.

6. The Assessing Officer had levied the penalty amounting to Rs.11,02,610/- which has been deleted by the Tribunal. The Tribunal while deleting the penalty recorded that the return of the assessee was processed as on 31.12.2003 and the notice u/s 274 read with section 271E of the Act was issued on 12.06.2007. Such notice was issued when there was no proceedings pending before the Assessing Officer. Relying upon Delhi High Court judgment in Commissioner of Income Tax v. Standard Brands Ltd. (2006) 285 ITR 295, the Tribunal further observed that action for penalty may be permissible only after regular assessment has been framed and since no regular assessment order had been passed in this case, the recourse to penalty proceedings under Section 271E were not justified. The findings recorded by the Tribunal read thus:-

“Having heard the parties and having perused the material on record, we find the grievance of the assessee to be correct. In this case, the return of the assessee was processed u/s 143(1)(a) of the Income-tax Act, on 31.12.2003. Notice u/s 274 read with 271E of the Act was issued to the assessee on 12.06.2007. It being a case of processing the return of income, there is no finding in the AO’s order with regard to the applicability or otherwise of section 269T of the IT Act to the assessee’s case. It was within the purview of the AO to bring the assessee’s case to scrutiny and to make regular assessment u/s 143(3) of the Act. It was also within the power of the AO at the appropriate stage to initiate proceedings u/s 147 of the Act against the assessee. No such action was taken. Rather, the penalty was imposed  on the basis of the finding in the case of assessee’s wife.”

6. No error or perversity could be shown in the aforesaid findings recorded by the Tribunal. Moreover, the assessee had taken a plea  before the Assessing Officer that there was a reasonable cause for the assessee to have made direct payment of Rs.14,02,600/- to M/s Babyloan Builders Private Ltd., Gurgaon. It was pleaded that some of the repayments made by the assessee were inter company transfer for group housing and purchase of flat and at times payments were made after closure of banking hours. It was further submitted that the payments made were genuine and no tax evasion was involved and the default, if any, was of technical nature. The explanation being plausible one, it cannot be said that there was no reasonable cause within the meaning of Section 273B of the Act. No substantial question of law arises in this appeal.

7. Accordingly, the appeal is dismissed.

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