Background of the Case

The matter before the ITAT Panaji Bench involved multiple appeals filed by Rajesh Suhas Verenkar and Riya Rajesh Verenkar for Assessment Years 2013–14 to 2019–20. The Appellant was engaged in civil construction activities, labour contracting, and acting as an agent or broker in processing land allotment applications in Goa. A search and seizure operation under Section 132 of the Income Tax Act was conducted on 19 March 2019, during which certain incriminating documents were seized. Based on these materials and statements recorded during the search, the Assessing Officer initiated assessment proceedings under Sections 153A and 153C of the Act.

The Assessing Officer observed that only around 50–55% of the total business receipts were deposited into the appellant’s bank accounts while the remaining portion was allegedly kept outside the books and used for personal expenses or deposited in accounts of family members. Consequently, the Assessing Officer treated 50% of such alleged suppressed receipts as undisclosed income and made additions while completing the assessments.

Arguments by the Appellant (Assessee)

The Appellant challenged the assessment orders before the Commissioner of Income Tax (Appeals). However, during the appellate proceedings, several hearing notices were issued by the CIT(A). According to the Appellant, the appeals were ultimately dismissed ex-parte without granting a fair and adequate opportunity to present their case or submit supporting documents. The appellant contended before the Tribunal that the appellate authority proceeded without properly considering their submissions and without granting reasonable time to respond to the notices issued.

It was argued that the dismissal of the appeals without meaningful opportunity violated the principles of natural justice and resulted in confirmation of additions without proper examination of the facts and evidence.

Respondent’s Response (Revenue)

The Revenue relied upon the orders passed by the lower authorities and submitted that several opportunities were provided by the CIT(A) during the appellate proceedings. The department contended that notices were issued on multiple occasions and the appellant failed to effectively respond or produce the required evidence to support their claims. Therefore, according to the Revenue, the CIT(A) was justified in proceeding ex-parte and confirming the additions made by the Assessing Officer on the basis of the material available on record.

Court Findings and Decision

The ITAT Panaji observed that although the CIT(A) had issued multiple notices, the time provided to the appellant to respond was significantly short and did not constitute a real or reasonable opportunity of being heard. The Tribunal noted that in several instances less than fifteen days were granted for compliance and both appellants were called upon to represent multiple appeals on the same dates. Relying on various judicial precedents, the Tribunal emphasized that the opportunity of being heard must be real, reasonable, and effective rather than a mere formality. The Tribunal also observed that certain submissions and documents had been placed on the e-portal but were not considered by the appellate authority while passing the ex-parte orders.

Considering these circumstances, the Tribunal held that the principles of natural justice had not been adequately followed and therefore set aside the orders of the CIT(A). The matter was remanded back to the CIT(A) with directions to adjudicate the appeals afresh after providing proper opportunity to the appellant and to pass a reasoned order in accordance with law.

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Background of the Case:

The appellant, engaged in retail trade and operating multiple showrooms in Delhi, had filed its return for AY 2020-21 declaring substantial income, which was subsequently taken up for complete scrutiny under CASS. The assessment was completed under section 143(3) read with section 144B, wherein certain additions were made relating to unexplained cash deposits and disallowance of interest expenses. However, while examining the assessment records, the Principal Commissioner of Income Tax noticed that the Tax Audit Report in Form 3CD disclosed repayment of an amount of Rs.11 lakh otherwise than through prescribed banking channels, allegedly in violation of section 269T.

On the premise that such violation attracted penalty under section 271E and that the Assessing Officer had failed to initiate penalty proceedings, the PCIT invoked section 263 and directed initiation of penalty proceedings, holding the assessment order to be erroneous and prejudicial to the interest of revenue.

Arguments by the Appellant (Assessee)

Aggrieved by the revisionary order, the appellant challenged the assumption of jurisdiction under section 263 before the ITAT. It was contended that the amount of Rs.11 lakh was not a loan or deposit repayment but merely an adjustment entry against a security deposit of Rs.1 crore received in an earlier year, which was wrongly reported by the auditor in Form 3CD. The appellant argued that a mere book adjustment without movement of money does not attract the rigour of section 269T and, consequently, penalty under section 271E could not be levied.

More importantly, the appellant asserted that penalty proceedings are independent of assessment proceedings and, in the absence of any satisfaction recorded by the Assessing Officer in the assessment order, the PCIT had no authority under section 263 to direct initiation of penalty proceedings.
Reliance was placed on binding judicial precedents, including the Delhi High Court decision in CIT v. Nihal Chand Rekyan and the Supreme Court ruling in CIT v. Jai Laxmi Rice Mills Ambala City, to emphasize that satisfaction of the Assessing Officer is a sine qua non for initiation of penalty proceedings.

Respondent’s Response (Revenue)

The Revenue, on the other hand, supported the order passed by the PCIT and contended that the Tax Audit Report clearly reflected a violation of section 269T, which could not be ignored lightly. It was argued that the auditor’s reporting in Form 3CD carries statutory significance and, unless corrected through a revised audit report, the same must be relied upon. The PCIT justified the invocation of section 263 on the ground that failure of the Assessing Officer to initiate penalty proceedings resulted in loss of revenue. The Revenue further sought to distinguish the decision of the Delhi High Court in Nihal Chand Rekyan by submitting that the said judgment pertained to section 271(1)(c), whereas penalty under section 271E could be initiated independently.

Reliance was also placed on the decision of the ITAT Chennai Bench to contend that initiation of penalty proceedings for violation of sections 269SS/269T is mandatory during assessment proceedings.

Court Findings and Decision

After considering the rival submissions and examining the record, the ITAT Delhi Bench held that the PCIT had exceeded the jurisdiction conferred under section 263. The Tribunal observed that initiation of penalty proceedings is not a part of assessment proceedings and cannot be directed by the Commissioner in revisionary jurisdiction, particularly in the absence of satisfaction recorded by the Assessing Officer.

The Bench categorically relied on the Supreme Court judgment in Jai Laxmi Rice Mills Ambala City, which held that penalty under section 271E cannot survive unless satisfaction for such penalty is recorded in the assessment order itself. The Tribunal further noted that the PCIT’s attempt to distinguish the Delhi High Court decision in Nihal Chand Rekyan was misplaced and contrary to settled law.

Since no satisfaction for initiation of penalty under section 271E was recorded by the Assessing Officer, the direction issued under section 263 was held to be unsustainable. Accordingly, the revisionary order was quashed and the appeal of the appellant was allowed.

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This new iteration follows the successful implementation of the earlier scheme. Such initiatives are increasingly becoming integral to taxation legislation, as the government prioritizes the resolution of disputes rather than dedicating administrative resources to contesting them, where the likelihood of success is minimal.

Eligible Cases ?

1. Taxpayer’s case is pending in Appeal / Writ / SLP with following as on 22^nd July 2024:
2. Joint Commissioner (Appeals)
3. Commissioner (Appeals)
4. Income Tax Appellate Tribunal
5. High Court
6. Supreme Court

• Taxpayers who have filed objections against the draft assessment order before the Dispute Resolution Panel (“DRP”) under section 144C of the Income-tax Act, 1961 (“IT Act”) and the DRP has not issued any directions to the Assessing Officer (“AO”) on or before July 22, 2024.

• Taxpayers in whose case the DRP has issued directions to the AO under section 144C(5) of the IT Act and the AO has not passed the final assessment order on or before July 22, 2024.

Taxpayers who have filed revision application under section 264 of the IT Act and such application is pending as on July 22, 2024.

Herein after referred to as “pending cases”

What to pay and what to save ?

Note:

In the following scenarios only 50% of the amount payable in the Table above shall be payable for availing the VSV Scheme, 2024:

1. Where the Pending Case has been filed by the Income-tax Authorities.
2. Where an appeal / objection has been filed before the CIT(A) / ITAT / DRP and an order in favour of the taxpayer has been received on any issue pending in the said appeal / objection from the higher Appellate Forums (and such decision has not been reversed).

Cases not covered under the VSV Scheme, 2024

• Where assessment has been made on the basis of the search initiated under section 132 or 132A of the IT Act.
• Where prosecution under the IT Act or any other specified act has been instituted on or before the date of filing declaration by the taxpayer.
• Where there is undisclosed income from a source located outside India or undisclosed  asset outside India.
• Where assessment or reassessment has been made based on the information received under Double Taxation Avoidance Agreement.
• Where an order of detention has been made under the provisions of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 on or before the date of filing of declaration and the same has not been revoked or set aside in specified circumstances.
• Where the taxpayer has been notified under section 3 of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 on or before the date of filing of declaration.

Note

Where the declarant had, before filing the declaration under this scheme, paid any amount under the Income-tax Act in respect of his tax arrears which exceeds the amount payable as depicted in table above, he shall be entitled to a refund of such excess amount, but shall not be entitled to interest on such excess amount under section 244A of the Income-tax Act.

The Direct Tax Vivad se Vishwas Scheme 2024

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