Learning from case of Aryaman Spinners (P.) Ltd - Appeal before CIT(A) is better forum to seek relief than revision petition under section 264 before CIT

[CA DEV KUMAR KOTHARI]

Learning from case of Aryaman Spinners (P.) Ltd. Versus Commissioner of Income tax 2012 (11) TMI 720 - GUJARAT HIGH COURT - Appeal before CIT(A) is better forum to seek relief than revision petition under section 264 before CIT.

Section 246A and 264

Aryaman Spinners (P.) Ltd. Versus Commissioner of Income tax 2012 (11) TMI 720 - GUJARAT HIGH COURT and cases referred to their in.

Ramdev Exports v. CIT [2001 (6) TMI 57 - GUJARAT High Court]

S.R. Koshti v. CIT [2004 (12) TMI 62 - GUJARAT High Court]

Further proceedings against orders of Assessing Officers (AO):

On receipt of an order passed by AO if it is found that the order is not as per law and admissible relief has not been allowed or some burden has been imposed which is not called for or wrong and unjust or for some other reasons the order is not acceptable. Then the assessee need to examine scope of filing an appeal or a revision petition. If both remedies are available, then as per experience, it is felt that an appeal is a better remedy than seeking relief by way of revision petition. However, some times assessee may have delayed in filing of appeal and there appears no reasonable cause for such delay which can be condoned by CIT(A) or in some cases assessee may find that he can be put to enhancement of assessment by the CIT (A), therefore, filing of revision petition may be advisable. However, in such situations also an appeal to CIT(A) can be better option. This can be for the following reasons:

1. The mind set of authority dealing revision petition should be to act in a judicial manner, however, generally, they look after more in administrative manner to guard interest of revenue and not to allow relief. This is because of natural actors of his main duty being to administer and look after the interest of revenue.
2. The general tendency of CIT even while exercising authority during disposal of revision petition of assessee is to dismiss the same in one way or other either on technical grounds or without any valid ground simply stating like I am not convinced with submission of assessee or I do not find reason to interfere with order of AO or it is premature to decide the petition in view of pending proceedings etc.
3. Against order of CIT(A) appeal lies before Tribunal. However, in case relief is not allowed by CIT in an order u/s 264, the assessee has to approach the High Court of jurisdiction.
4. Therefore, in view of author remedy by way of appeal, is better than revision petition.

Learning from recent case before Gujarat High Court:

Observations of the author in preceding paragraph find reality in the case of Aryaman Spinners (P.) Ltd. Versus Commissioner of Income tax 2012 (11) TMI 720 - GUJARAT HIGH COURT and many other judgments on S.264.

In this case the addition made by the AO was deleted by CIT(A) and order of CIT(A) was confirmed by the Tribunal. The appeal of revenue was however, admitted and pending before the High Court.

The AO levied penalty on the basis of addition originally made by him holding that assessee had concealed particulars of income or furnished inaccurate particulars.

In this case as per author assessee should have preferably approached the CIT(A) by way of an appeal u/s 246A (1) (q). If the assessee had approached CIT(A) by way of an appeal against order levying penalty u/s 271(1) (c) the learned CIT(A) would have deleted penalty because the case is clear that the issue is a debatable and contentious one. The CIT(A) had deleted the addition in quantum appeal and Tribunal has confirmed his order clearly means that the issue is debatable and in such circumstances it cannot be said that the assessee has furnished inaccurate particulars of income or has concealed particulars of income.

In such circumstances, suppose even if order of Tribunal about relief in quantum appeal is reversed, then also CIT(A) will have to vacate penalty because there is neither concealment of income nor furnishing of inaccurate particulars of income for the reason that view taken by the assessee for the eligible relief was found allowable by CIT(A) and Tribunal.

However, the assessee preferred a revision petition before CIT u/s 264 which was dismissed and then assessee had to approach High Court. The High Court had again restored the matter to the CIT.

Why CIT rejected petition?

CIT rejected the revision petition on the following grounds or reasons:

(i)   that the question of quantum additions has not achieved finality because against the judgement of the Tribunal confirming deletion of such quantum additions, the Revenue has preferred further appeal before High Court and such appeal is pending.

(ii)  According to him revision proceedings are contemplated only to mitigate the situation faced by the assessee who is unable to approach the appellate authority for relief.

(iii) That the assessee had already exercised his right of appeal before the appellate authorities. He cannot claim relief under section 264 of the Act.

From above reasoning it is clear that learned CIT dismissed appeal just for sake of rejecting. He did not consider the basic aspect as to whether, it can be said that the assessee had concealed particulars of income or furnished inaccurate particulars of income. The third reason given by the CIT is totally extraneous, because assessee had availed remedy by way of appeal against quantum additions and not against penalty. It seems that learned CIT meant that assessee is aware of remedy by way of appeal against penalty order so his mind set was on question – why assessee did not file an appeal before CIT(A) and has approached him u/s 264?.

The learned CIT has very rightly noted as follows:

“At the outset, it would be pertinent to point out that it is trite law that assessment proceedings and penalty proceedings are distinct in nature.”

Having so noted himself, learned CIT should have considered the aspect of reasons or grounds on which penalty was levied, and whether such grounds exist after assessee had been allowed relief by appellate authorities. However, learned CIT he did not do so. This can be only because CIT is generally biased and that’s why he dismissed petition on the ground that judgment of Tribunal has not attained finality.

Penalty is not leviable in such cases:

It is well settled that on issues on which view in favor of assessee had prevailed at any stage of proceedings cannot be a ground of allegation for concealment of income u/s 271(1) (c ) for the reason that assessee has followed a course of action which cannot be faulted as furnishing of inaccurate particulars of income, even if such relief is not ultimately allowed due to subsequent ruling or amendment or clarification of law.

However, on reading of the judgment it appears that this contention was not raised by the counsels before High court. The counsels mainly insisted on technical aspects. If it was forcefully argued that in the given circumstances it cannot be said that the assessee had concealed particulars of income, perhaps the High Court could have so held instead of sending back matter to the CIT.

The restoration to CIT, may again give rise to further appeal because CIT will either keep the matter pending during pendency of appeal before the High Court/ and may be even before the Supreme court, if department file an appeal against judgment of the High Court.

If by chance, the High Court reverses order of Tribunal, the CIT is likely to confirm penalty.

Therefore, on consideration of all relevant facts, it may still be better option for assessee to prefer appeal before CIT(A) with petition for condonation of delay, if the facts and circumstances are such that delay can be condoned by CIT(A) and petition before CIT can be withdrawn.