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Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
Acts
  • rule 34(5) of the Income Tax Appellate ITA No.141/RJT/2018 Anil Abhubhai Odedara vs. ITO Asst.Year 2013-14 Tribunal Rules 1963,
  • section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred as to the Act)
  • Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963. Order
  • rule 34(5) of the Appellate Tribunal Rules, 1963.
  • Management Act, 2005,
  • section 271(1)(c)
  • INCOME TAX ACT
  • rule 34(5)(c),
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Cites
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Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
Acts
  • rule 34(5) of the Income Tax Appellate ITA No.141/RJT/2018 Anil Abhubhai Odedara vs. ITO Asst.Year 2013-14 Tribunal Rules 1963,
  • section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred as to the Act)
  • Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963. Order
  • rule 34(5) of the Appellate Tribunal Rules, 1963.
  • Management Act, 2005,
  • section 271(1)(c)
  • INCOME TAX ACT
  • rule 34(5)(c),
See more information ...
Smart Summary

Structured Summary of the Opinion — ITA No.141/RJT/2018 (Anil Abhubhai Odedara vs. ITO) AY 2013-14

Factual and Procedural Background

This appeal, filed by the assessee Anil Abhubhai Odedara, challenges the order dated 23.03.2018 of the Commissioner of Income Tax (Appeals), Jamnagar, arising from the penalty order dated 26.07.2016 passed by the ITO, Ward 3(1), Jamnagar under section 271(1)(c) of the Income Tax Act, 1961 for Assessment Year 2013-14.

The penalty related to an addition of Rs. 5,15,899/- made by the Assessing Officer (AO) in the assessment order. That addition was made on an estimated/assumption basis — specifically an 8% profit addition applied to total contract receipts of Rs. 64,48,740/-, resulting in the amount added. The assessee contended that penalty under section 271(1)(c) could not be levied where the quantum of income was determined on an estimation/assumption basis.

Legal Issues Presented

  1. Whether penalty under section 271(1)(c) of the Income Tax Act, 1961 can be imposed where the assessing officer's addition to income (quantum) is made on an estimate/assumption basis.
  2. Whether the Tribunal's pronouncement of the order on 29.06.2020 (after hearing concluded on 28.02.2020) complied with Rule 34(5) of the Appellate Tribunal Rules, 1963, given the delay and the contemporaneous Covid-19 lockdown and related judicial orders.

Arguments of the Parties

Appellant's Arguments (Assessee)

  • The penalty under section 271(1)(c) cannot be levied where the order on quantum was passed on an assumption/estimation basis.
  • The addition of Rs. 5,15,899/- was an estimate (8% of contract receipts) and therefore the penalty for concealment or furnishing inaccurate particulars should not apply.

Respondent's Arguments (Revenue)

  • The AO observed that vouchers for expenditure were not properly maintained, and therefore questioned the correctness of the profit declared (Rs. 2,64,700/-) by the assessee.
  • While the AO agreed with adopting an 8% profit for the addition, he initiated penalty proceedings under section 271(1)(c) alleging furnishing of inaccurate particulars of income and/or concealment.
  • The Revenue relied on the fact that an addition was made and that penalty proceedings were therefore justified.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Shivsagar Veg Restaurant vs. ACIT [(2009) 317 ITR 433 (Bom)] Directed the President of the Tribunal to frame guidelines; ancillary direction that revisional and appellate authorities should decide matters heard within three months; influenced insertion of the word "ordinarily" in Rule 34(5) time prescription. The Tribunal relied on the background of this decision to explain why Rule 34(5) uses the term "ordinarily" and how the 90-day norm for pronouncement developed.
Anil Rai (supra) (Apex Court reference invoked in Shivsagar) Referenced as a guiding Apex Court decision that shaped the Tribunal/High Court directions (as cited in Shivsagar). Used by the Tribunal (via Shivsagar) to explain the administrative background for time-limits in pronouncing orders under Rule 34(5).
DCIT vs. JSW Ltd. (ITA Nos. 6264 & 6103/Mum/2018) — Coordinate Bench, pronounced 14.05.2020 Considered the effect of Covid-19 on time-limits and pronouncement under Rule 34(5); discussed pronouncement timing in pandemic context. The Tribunal relied on the observations in this coordinate-bench decision to support that pronouncement on 29.06.2020 was within time permitted under Rule 34(5) given exceptional circumstances.
Otters Club vs. DIT [(2017) 392 ITR 244 (Bom)] Bombay High Court did not approve a Tribunal order being passed beyond a period of 90 days (disapproving delay beyond 90 days in ordinary circumstances). The Tribunal acknowledged Otters Club but distinguished the present case on the ground of extraordinary circumstances (Covid-19 lockdown and ensuing orders by higher courts) and therefore did not treat the delay as impermissible.
Supreme Court orders dated 23.03.2020 and 06.05.2020 (administrative / procedural orders) Extended limitation periods by excluding lockdown period and provided that where limitation expired after 15.03.2020, the period from 15.03.2020 till lifting of lockdown would be excluded and extended by 15 days thereafter. The Tribunal relied on these orders to hold that the lockdown period is to be excluded when computing the 90-day period under Rule 34(5), treating lockdown as extraordinary circumstances.
Bombay High Court order dated 15.04.2020 (order referenced in the opinion) Extended validity of interim orders and directed that while calculating time for disposal of matters made time-bound by the Court, lockdown period be added; extended certain arrangements till specified dates. The Tribunal relied on this High Court order to support the exclusion of the lockdown period in computing pronouncement time-limits under Rule 34(5).

Court's Reasoning and Analysis

The Tribunal's reasoning proceeded in two connected strands: (A) the penalty issue under section 271(1)(c), and (B) the procedural question regarding pronouncement of the order after more than ninety days from conclusion of hearing.

A. Penalty under section 271(1)(c)

  1. The AO made an addition of Rs. 5,15,899/- being 8% of total contract receipts of Rs. 64,48,740/-. This addition was made on an estimated / assumption basis (adopted profit rate of 8%).
  2. The Tribunal observed that the AO, while agreeing to adopt 8% profit, did not record any observation of gross negligence on the part of the assessee in furnishing particulars; the penalty order itself was silent as to how the AO reached satisfaction of concealment or furnishing inaccurate particulars.
  3. The Tribunal referred to settled principles (as reflected in earlier decisions) that when income is determined on an estimation basis, penalty under section 271(1)(c) for concealment or furnishing inaccurate particulars is generally not attracted.
  4. Because the quantification of the alleged concealment/inaccuracy was only an estimate and because the penalty order did not explain the satisfaction required for imposing penalty, the Tribunal found no justification for imposing penalty in the facts of the case.
  5. On that basis the Tribunal quashed the penalty order and allowed the appeal in respect of the penalty issue.

B. Pronouncement of the Order and Computation of Time under Rule 34(5)

  1. The Tribunal acknowledged that Rule 34(5) ordinarily requires pronouncement within 60 days (or ordinarily within 90 days in practice where no date is given), and that prior decisions (e.g., Otters Club) disapproved pronouncements beyond 90 days in ordinary circumstances.
  2. However, the Tribunal analysed the exceptional situation created by the Covid-19 pandemic: the nationwide lockdown declared from 24.03.2020 and extended further, severe restrictions on tribunal functioning, and governmental and judicial recognition of the pandemic as an extraordinary event (including notifications and orders recognizing force majeure and disaster declarations under the Disaster Management Act, 2005).
  3. The Tribunal relied on subsequent orders of the Supreme Court (23.03.2020 and 06.05.2020) and the Bombay High Court (15.04.2020), which extended limitations and directed that the lockdown period be excluded for calculation of time-limits. The Tribunal also relied on observations of a coordinate Bench (DCIT vs JSW Ltd., pronouncement 14.05.2020).
  4. Applying those authorities and the exceptional factual matrix, the Tribunal concluded that the period of lockdown must be excluded while computing the 90-day period under Rule 34(5). Consequently, pronouncement of this order on 29.06.2020 (after hearing concluded in February/March 2020) fell within the permissible time once the lockdown period was excluded.
  5. The Tribunal accordingly pronounced the order in open court on 29.06.2020 and recorded the administrative steps/dates leading to pronouncement.

Holding and Implications

Core Holding: The appeal filed by the assessee is allowed and the penalty under section 271(1)(c) is quashed.

Immediate consequences for the parties:

  • The penalty order dated 26.07.2016 under section 271(1)(c) (as sustained by the Commissioner (Appeals)) is quashed in respect of the addition of Rs. 5,15,899/-. The assessee's appeal is allowed on this ground.
  • The Tribunal pronounced its order in open court on 29.06.2020 and recorded that it excluded the lockdown period for computation of the 90-day limit under Rule 34(5) of the Appellate Tribunal Rules, 1963.

Broader implications identified by the Court (as stated in the opinion):

  • In the context of the Covid-19 pandemic and consequent lockdowns, the Tribunal took the position that the lockdown period is to be excluded when computing pronouncement time-limits under Rule 34(5). The opinion expressly relies on Supreme Court and High Court orders to support that approach.
  • The Tribunal emphasized that Rule 34(5) uses the expression "ordinarily" and that exceptional circumstances (such as the pandemic and lockdown) justify excluding the lockdown period from computation of the 90-day pronouncement requirement.

The summary above is strictly limited to matters expressly stated in the provided opinion. No facts, arguments, or holdings beyond those contained in the opinion have been added.

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    Shri Anil Abhubhai Odedara, Jamnagar v. The ITO , Ward-3(1), Jamnagar

    PER MADHUMITA ROY JUDICIAL MEMBER: The instant appeal filed by the assessee is directed against the order dated 23.03.2018 passed by the Commissioner of Income Tax (Appeals), Jamnagar arising out of the penalty order dated 26.07.2016 passed by the ITO, Ward 3(1), Jamnagar under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred as to the Act) for the Assessment Year (A.Y.) 2013-14.

    2. The issue regarding levy of penalty under section 271(1)(c) of the Act is the addition of Rs. 5,15,899/- as made by the Ld. AO in the assessment order on assumption basis. Hence, the case of the ITA No.141/RJT/2018 Anil Abhubhai Odedara vs. ITO Asst.Year 2013-14 assessee is this penalty cannot be levied when the order of quantum was passed on assumption basis.

    3. On the other hand, the case of the Revenue is this that during the course of assessment proceeding upon perusal of the evidences in respect of profit of Rs. 2,64,700/- as disclosed in the return of income by the appellant it was found by the Ld. AO that the vouchers for expenditure were not kept upto the mark or were not maintained properly. While agreeing with the proposal on the part of the assessee for adopting profit @8% for addition the Ld. AO has never made any observation that there is any gross negligence on the part of the assessee to furnish the full details regarding his claim. On the other hand, vide order sheet entry dated 29.01.2016 an addition of Rs. 5,15,899/- being 8% of the total contract receipt of Rs. 64,48,740/- was made. However, penalty proceeding under section 271(1)(c) of the Act initiated for furnishing inaccurate particular of income. Therefore, admittedly the AO made an addition on estimated basis. It has been decided in a number of judgments that when income of assessee was determined on estimation basis of net profit, then no penalty under section 271(1)(c) could be imposed for concealment and furnishing inaccurate particulars. Furthermore, the penalty order is fully silent on the issue as to how the satisfaction of concealment/furnishing of inaccurate of particulars of income was arrived at. The quantification of the alleged concealment/inaccurate ITA No.141/RJT/2018 Anil Abhubhai Odedara vs. ITO Asst.Year 2013-14 particulars, is admittedly only an estimate. Needless to mention that it is settled principle of law that penalty is not attracted on estimated additions. In that view of the matter we find no justification imposing penalty for concealment of income or furnishing of inaccurate particulars of income by the assessee. Hence, penalty order is quashed.

    4. In the result the appeal filed by the assessee is allowed.

    5. Before parting we would like to make certain observation relating to the issue cropped up under present scenario of Covid-19 pandemic as to whether when the hearing of the matter was concluded on 28.02.2020 the order can be pronounced today i.e. on 29.06.2020. The issue has already been discussed by the Co- ordinate Bench in the case of DCIT vs. JSW Ltd. (ITA Nos. 6264 & 6103/Mum/2018) pronounced on 14.05.2020 in the light of which it is well within the time limit permitted under Rule 34(5) of the Appellate Tribunal Rules, 1963 in view of the following observations made therein:

    7. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 8th January 2020, this order thereon is being pronounced today on the day of 14th May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate ITA No.141/RJT/2018 Anil Abhubhai Odedara vs. ITO Asst.Year 2013-14 Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows: (5) The pronouncement may be in any of the following manners : (a) The Bench may pronounce the order immediately upon the conclusion of the hearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement. (c) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily (emphasis supplied by us now) be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board.

    8. Quite clearly, ordinarily the order on an appeal should be pronounced by the bench within no more than 90 days from the date of concluding the hearing. It is, however, important to note that the expression ordinarily has been used in the said rule itself. This rule was inserted as a result of directions of Honble jurisdictional High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein Their Lordships had, inter alia, directed that We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the Benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of ITA No.141/RJT/2018 Anil Abhubhai Odedara vs. ITO Asst.Year 2013-14 the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile(emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment. In the ruled so framed, as a result of these directions, the expression ordinarily has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any extraordinary circumstances.

    9. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Honble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented ITA No.141/RJT/2018 Anil Abhubhai Odedara vs. ITO Asst.Year 2013-14 situation, causing disruption in the functioning of judicial machinery, that Honble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15days after the lifting of lockdown. Honble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly, and also observed that arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020. It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the corona virus should be considered a case of natural calamity and FMC (i.e. force majeure clause) may be invoked, wherever considered appropriate, following the due procedure. The term force majeure has been defined in Blacks Law ITA No.141/RJT/2018 Anil Abhubhai Odedara vs. ITO Asst.Year 2013-14 Dictionary, as an event or effect that can be neither anticipated nor controlled When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an ordinary period.

    10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR

    244 (Bom)], Honble Bombay High Court did not approve an order ITA No.141/RJT/2018 Anil Abhubhai Odedara vs. ITO Asst.Year 2013-14 being passed by the Tribunal beyond a period of 90 days, but then in the present situation Honble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed while calculating the time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly. The extraordinary steps taken suo motu by Honble jurisdictional High Court and Honble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words ordinarily, in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in Rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to re-fix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case. ITA No.141/RJT/2018 Anil Abhubhai Odedara vs. ITO Asst.Year 2013-14

    6. On the basis of the observation made in the aforesaid judgment we exclude the period of lockdown while computing the limitation provided under Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963. Order is, thus, pronounced in the open court.

    7. In the result the appeal filed by the assessee is allowed. This Order pronounced in Open Court on 29/06/2020 Sd/- Sd/- ( WASEEM AHMED ) ( Ms. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 29/06/2020 TANMAY, Sr. PS    /Copy of the Order forwarded to :

    1.  / The Appellant  / The Respondent.

    3.   / Concerned CIT

    4. () / The CIT(A)

    5.  ,  ,/DR,ITAT, Rajkot

    6. # / Guard file. / BY ORDER,   //True Copy// / (Dy./Asstt.Registrar)  , / ITAT, Rajkot

    1. Date of dictation 28.02.2020

    2. Date on which the typed draft is placed before the Dictating Member 02 .03.2020

    3. Other Member.

    4. Date on which the approved draft comes to the Sr.P.S./P.S 29 .06.2020

    5. Date on which the fair order is placed before the Dictating Member for pronouncement

    6. Date on which the fair order comes back to the Sr.P.S./P.S.

    7. Date on which the file goes to the Bench Clerk 29.06.2020

    8. Date on which the file goes to the Head Clerk...

    9. The date on which the file goes to the Assistant Registrar for signature on the order..

    10. Date of Despatch of the Order

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    Comments

    Shri Anil Abhubhai Odedara, Jamnagar v. The ITO , Ward-3(1), Jamnagar
    (Jun 29, 2020)