Scott Edil Advance Research Laboratories and Education Ltd. Vs DCIT/ACIT (ITAT Chandigarh)
Summary: ITAT Chandigarh allowed three appeals of Scott Edil Advance Research Laboratories and Education Ltd. and deleted penalties of Rs. 1 lakh each imposed under Section 271BA for failure to furnish Form No. 3CEB under Section 92E in respect of specified domestic transactions with its holding company. For AY 2014-15, the assessee had made purchases of Rs. 20.47 crore from its holding company, Scott Edil Pharmacia Limited, a related entity under Section 40A(2)(b), which fell within clause (i) of Section 92BA as it then stood.
The Tribunal noted that clause (i) was omitted by the Finance Act, 2017 with effect from 01.04.2017, whereas the penalty show-cause notice was issued only on 08.06.2022 and the penalty order was passed on 20.07.2022. Following Pr. CIT Vs Texport Overseas Pvt. Ltd. and the Supreme Court ruling in General Finance Company Vs ACIT, the Tribunal held that, in the absence of a saving clause, proceedings founded upon the omitted provision could not survive. Since the foundational provision triggering the penalty itself stood omitted when the Assessing Officer passed the penalty order, the penalty could not be sustained. The same adjudication was applied mutatis mutandis to AYs 2015-16 and 2016-17, and all three appeals were allowed.
Cases Discussed
1. Pr. CIT Vs Texport Overseas Pvt. Ltd. (Karnataka High Court) — 114 taxmann.com 568
2. General Finance Company Vs ACIT (Supreme Court) — (2002) 124 Taxman 432 (SC)
3. Kolhapur Cane Sugar Works Limited Vs UOI (Supreme Court) — (2000) 2 SCC 536
4. Rayala Corporation (P) Ltd.
FULL TEXT OF THE ITAT CHANDIGARH ORDER
1. Aforesaid three appeals by assessee have identical facts as well as issues i.e., confirmation of penalty u/s 271BA for Rs.1 Lacs each. First, we take appeal for AY 2014-15 which arises out of an order of learned Commissioner of Income Tax (Appeals)-3, Gurgaon, dated 28.10.2025 confirming impugned penalty levied by Ld. AO vide order dated 20.07.2022. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.
2. The assessee being resident corporate assessee is stated to be engaged in manufacturing of pharmaceuticals formulations. An assessment for this year was framed on assessee u/s 153A r.w.s. 143(3) of the act on 31.12.2019. The Ld. AO noted that out of total purchases of Rs.89.99 Crores, the assessee made purchases of Rs.20.47 Crores from its holding company M/s Scott Edil Pharmacia Limited who happen to be a related entity within the meaning of Sec. 40A(2)(b) of the Act. These transactions would, therefore, be “specified domestic transactions” as then provided in clause (i) of Section 92BA of the Act. The Assessing Officer was of the view that the assessee was consequently required to furnish the prescribed report in Form No. 3CEB u/s 92E of the Act. However, the same was not furnished by the assessee. This led to penalty show-cause notice dated 08.06.2022 wherein the assessee opposed levy of proposed penalty. One of the arguments as taken by the assessee therein was that clause (i) of Sec.92BA stood omitted by the Finance Act, 2017 which would be read as if that clause was never in the statute book and the amendment was to be considered as retrospective in nature. However, rejecting the same, impugned penalty of Rs.1 Lacs was imposed on the assessee. The Ld. CIT(A) sustained the penalty against which the assessee is in further appeal before us.
3. The Ld. AR referred to the decision of Hon’ble High Court of Karnataka in the case of Pr. CIT vs. Texport Overseas Pvt Ltd. (114 Taxmann.com 568) holding that clause (i) of section 92BA having been omitted by Finance Act, 2017 with effect from 01.04.2017 from statute, resultant effect would be that it had never been passed and reference made by Ld. AO to TPO for AYs 2013-14 & 2014-15 would be invalid and bad-in-law. It has been submitted by Ld. AR that that the penalty proceedings have been initiated much after the said provision had ceased to remain on the statute book. According to Ld. AR, in the absence of a saving provision, proceedings founded upon the omitted clause could not be initiated thereafter. Reliance has been placed on the judgment of the Hon’ble Supreme Court in General Finance Co. & Anr. v. ACIT (124 Taxman 432) to support the said argument. The Ld. Sr. DR, on the other hand, stated that the requirement has been abolished subsequently whereas for impugned years, the assessee was obligated to file Form No.3CEB.
4. The short question before us is whether on the facts of the present case, penalty u/s 271BA could validly be imposed in the year 2022 for non-furnishing of Form No. 3CEB in respect of transactions which fell within clause (i) of section 92BA as it then stood. The material facts are not in dispute. In the present case, the assessment order itself was passed on 31.12.2019. More importantly for the controversy before us, the show-cause notice for levy of penalty was issued only on 08.06.2022 and the penalty order under section 271BA was passed on 20.07.2022. Thus, on the dates on which the impugned penalty proceedings were initiated and culminated in the penalty order, clause (i) of section 92BA already stood omitted from the statute. The effect of omission of clause (i) of section 92BA has been considered in Texport Overseas (P.) Ltd. (supra) wherein it was held that in the absence of a saving clause, proceedings founded upon the omitted provision would not survive. It is a settled principle of law that where a provision of statute is omitted, it should be deemed that such provision was never been part of the statute at any point of time. In this regard, we refer to the judgment of Hon’ble Apex Court in the case of General Finance Company Vs. ACIT reported in (2002) 124 Taxman 432 (SC) where the Hon’ble Apex court after referring to the judgment of Hon’ble constitutional bench of the Supreme Court rendered in the case of Kolhapur Cane Sugar Works Limited Vs. UOI (2000) (2) SCC 536 held as under:
“8. Though we find the submissions of the learned counsel to be forceful, we are constrained to follow the two decisions of the Constitution Benches of this Court in Rayala Corpn. (P) Ltd.’s case (supra) and Kolhapur Canesugar Works Ltd.’s case (supra). This view has held that field for over three decades and reiterated even as late as two years ago. Non-compliance with section 269SS attracted prosecution as well as penalty. Omission of the provision regarding prosecution will not affect the levy of penalty. The advantage arising out of application of the ratio of the two decisions resulting in prosecution in cases of non-compliance with section 269SS is only transactional affecting a few cases arising prior to 1.4.1989. Such cases may be few and far between. Hence, we find this is not an appropriate case for reference to the larger Bench.
9. Net result of this discussion is that the view taken by the High Court is not consistent with what has been stated by this Court in the two decisions aforesaid and the principle underlying section was saving the right to initiate proceedings for liabilities incurred during the currency of the Act will not apply to omission of a provision in an Act but only to repeal, omission being different from repeal as held in the aforesaid decisions. In the Act, section 276DD stood omitted from the Act but not repealed and, hence, a prosecution could not have been launched or continued by invoking section 6 after its omission.”
Respectfully following the ratio of above decision, we hold that since the foundational provision triggering impugned penalty itself stood omitted at the time when the order was passed by the AO, the impugned penalty could not be sustained. We order so. The other arguments as urged by Ld. AR has been rendered mere academic in nature.
5. The facts of penalty in AYs 2015-16 & 2016-17 are pari-materia the same. Therefore, our adjudication as above, would mutatis-mutandis apply to both these years also.
6. All the three appeals filed by the assessee are allowed.
Order pronounced on 22nd September, 2026
