If one proceeding is saved, other has to be quashed – interesting judgment of ITAT on reassessment and penalty proceedings.
ABCAUS Case Law Citation
ABCAUS 3649 (2023) (01) ITAT
This interesting judgment of the ITAT deals with one quantum-appeal filed by assessee against the order passed by Commissioner of Income-Tax (Appeals) confirming order passed by the Assessing Officer (AO) u/s 143(3) /147 of Income-tax Act, 1961 (“the act”) and one appeal and one Cross-Objection on penalty-matters u/s 271D filed respectively by the revenue and the assessee
The assessee was a limited company. In the instant case, the original assessment of assessee was completed u/s 143(3) of the Act. Subsequently, a search was conducted at the premises of another company during which an incremating document was seized which contained the details of cash-transactions done between the assessee and other company were found.
On analysis of document, the AO framed a view that the assessee (company 1) had given a loan of large amount to the other company (company 2), which has not been recorded in the books of account. Therefore, treating the same as payment made out of undisclosed income, the AO re-opened assessment u/s 147 of the Act vide notice u/s 148.
Finally, the AO completed re-opened assessment making addition towards the said loan amount on account of unexplained cash credit.
Penalty proceeding u/s 271(1)(c) was initiated separately on this issue. Further, the matter was referred to Addl. CIT for issuing notice and imposing penalty under Section 271D and Section 271E of the Act.
Against the said assessment-order, the assessee filed first-appeal to CIT(A) challenging the legality of re-assessment as well as the addition on merit. While deciding appeal, the CIT(A) upheld the legality of re-assessment. However, he deleted the addition on merit.
The CIT(A) observed that in fact the loan was given by company 2 to company 1 (the assessee) and not vice versa as stated in reasons recorded and also the loan was subsequently repaid along with the interest.
Meanwhile with reference to penalty notices issued u/s 271D and 271E, the assessee raised a legal plea that penalty u/s 271D is applicable for violation of section 269SS i.e. where the loan is taken and penalty u/s 271E is applicable for violation of section 269T i.e. where the loan is repaid. But, however, in the present case the allegation of the department was that the assessee had given the loan. Hence, neither section 271D nor section 271E was applicable qua the assessee.
However, the AO imposed the penalty u/s 271D read with section 269SS of the Act. However, CIT(A) deleted the penalty.
The Tribunal observed that authorities made an “original-conclusion” that it was the assessee who had given the loan, but at a later stage it was observed that company 2 had given loan to the assessee. The Department further agreed that the re-assessment proceedings as well penalty-proceedings u/s 271D / 271E were initiated on the basis of “original conclusion”.
The ITAT opined that the original conclusion could not be said to faulty as per understanding gained by authorities at that time, the result would be such that the order of re-assessment would be valid but the penalty-proceeding would be invalid because penalty u/s 271D / 271E are not attracted in case of “loan given”.
The Tribunal further opined that as against the above, if weightage is to be given to the “reversed-conclusion” i.e. the assessee has received the loan, the consequences would be just opposite i.e. the re-assessment proceeding would be invalid but the penalty-proceeding shall be valid.
Thus, the Tribunal observed that if one proceeding is saved, other has to be quashed.
After a mindful consideration, the Tribunal opined that the “original-conclusion” was not faulty at the time of initiating re-assessment/ passing of order of re-assessment / launching of penalty-proceedings. It was a subsequent matter that the dust was clear about the nature of transaction and “original-conclusion” was reversed.
In view of the above, the ITAT opined that it would be apt to give preference to the “original-conclusion” which has set the proceedings in motion. Since the “original-conclusion” was to the effect that the assessee had given loan, the ITAT decided the appeals/cross objections by holding the order of re-assessment to be valid for the reason that ‘loan given” was believed to be undisclosed income of assessee. The order of penalty u/s 271D and 271E was held to be invalid for the reason that “loan given” neither attracts section 271D nor section 271E.
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The judgment of the Hon’ble ITAT seems to be a diversion from the settled judicial view that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing Officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. Further Both the assessment proceedings and penalty proceedings are separate ones and could have been decided independently.
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