Kusharaj Madhav Bhandary v. ITO

Case snapshot

Sections / provisions: 154; Penalty

Questions before the Court / Tribunal

• Assessment order merged into rectification order; effect on penalty proceedings: The reported High Court ruling states that once the assessment order merged into a section 154 rectification order, penalty or other proceedings could not continue solely on the footing of the original assessment order in the manner attempted.

Material facts and background

under reporting or misreporting as initially being asserted on behalf of the department has certainly proved to be incorrect, in view of the rectification order dated 3 January 2023 and the compliance of the rectification order namely a tax demand of Rs. 303/- being deposited by the petitioner. 15. Ms. Nagaraj, learned counsel for the revenue would also not dispute the factual matrix and would also contend that the rectification order in fact would bring about a quietus insofar as the issue was concerned, and as arising under the Assessment Order dated 30 March 2020 and the demand and penalty proceedings taken solely on the basis of the Assessment Order dated 30 March 2022.

16. In our opinion, the petitioner would be correct in his contention that in view of the subsequent developments and in pursuance of the orders passed by this Court, a rectification order was passed. Also the demand raised under the rectification order, which was for payment of tax of Rs.303/- was

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proceedings are also rendered inconsequential as the very foundation of such penalty proceedings stood extinguished in view of rectification order being passed. Admittedly, the demand and penalty proceedings under the Assessment Order dated 30 March 2022 would lose their sanctity, in view of the rectification order dated 3 January 2023, as necessarily, the assessment order has merged into the rectification order dated 3 January 2023.

17. We may observe that in view of the clear position which was brought about from the compliance of the rectification order 3 January 2023, the application of the petitioner under Section 270AA of the Act although was filed on 7 January 2023, need not be taken forward. This for the reason that in view of the order dated 3 January 2023, passed on the rectification application of the petitioner, the issue in regard to the demands as also the penalty or any other issue which would possibly arise under the Assessment Order dated 30 March 2022, which was apparently held to be not correct, was accordingly interfered in the rectification proceedings.

assessment order as originally passed cannot continue to prejudice the petitioner for any actions to be taken thereunder. In the aforesaid circumstances, we are inclined to allow the petition in terms of following order:

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Appellant / assessee submissions

Learned counsel for the petitioner would submit that the case of any

Revenue / respondent submissions

under reporting or misreporting as initially being asserted on behalf of the department has certainly proved to be incorrect, in view of the rectification order dated 3 January 2023 and the compliance of the rectification order namely a tax demand of Rs. 303/- being deposited by the petitioner. 15. Ms. Nagaraj, learned counsel for the revenue would also not dispute the factual matrix and would also contend that the rectification order in fact would bring about a quietus insofar as the issue was concerned, and as arising under the Assessment Order dated 30 March 2020 and the demand and penalty proceedings taken solely on the basis of the Assessment Order dated 30 March 2022.

Court / Tribunal analysis and reasoning

dated 27 September 2022 came to be passed imposing a penalty of Rs. 52,87,072/-, this was resorted when the rectification application itself was pending. It is in these circumstances, the present petition came to be filed by the petitioner on 3 November 2022. 10. A perusal of the record would indicate that this Court had from time to time passed interim orders, and more significantly of directing respondent No.1 to dispose of petitioner’s rectification application, as also, directing that no further proceeding shall be initiated against the petitioner under the penalty order dated 27 September 2022.

Operative decision and relief

inter alia contending that the Assessment Order had a mistake apparent on the face record as the TDS amount has not been accounted for and further actions which were initiated were in fact totally unwarranted. It appears that on one hand, the rectification application was not being disposed of and on the other hand, respondent No.1 proceeded with the penalty proceedings, inasmuch as on 10 August 2022, a notice was issued to the petitioner so as to proceed with the penalty proceedings. A reply to this notice was filed by the petitioner on 18 August 2022 inter alia pointing out the pendency of the rectification application.

11. In pursuance of the orders passed by this Court on 3 January 2023, respondent No.1 disposed of the rectification application allowing credit of the TDS of Rs. 26,43,323/-. Consequently, a fresh demand for tax of Rs. 303/- was issued to the petitioner on 3 January 2023 which was immediately complied by the petitioner on 5 January 2023, when the petitioner made the tax payment of Rs. 303/-.

ORDER i. The order dated 27 September 2022 passed by respondent No.1 under Section 270A is quashed and set aside. ii. As the entire basis of the Assessment Order dated 30 March 2022 stands extinguished, no proceedings under the said order ought to be taken against the petitioner. iii. The petitioner’s application under Section 270AA also ought not to be taken forward in view of the fact that the order dated 3 January 2023 has rendered the assessment order dated 30 March 2022 inconsequential. 15.

Petition stands disposed of in the aforesaid terms. No costs.

Authorities and precedents appearing in the judgment

• No reliable precedent list was extracted automatically; use the full judgment for the citation chain.

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Ratio and legal principle

The decision turns on Assessment order merged into rectification order; effect on penalty proceedings. The operative result is classified as Quashed Or Set Aside. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Assessment order merged into rectification order; effect on penalty proceedings. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Maintain a date-and-payment matrix for transfer, agreement, possession, investment and construction; capital-gains exemptions commonly turn on this chronology.
• Check the exact penalty charge in the show-cause notice, the assessment finding and the final penalty order; ambiguity or a changed statutory limb can be material.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

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