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Income Tax Appellate Tribunal, MUMBAI ‘G’ BENCH, MUMBAI.
Before: Shri B.R. Baskaran (AM) & Shri Pavan Kumar Gadale (JM)
O R D E R Per B.R.Baskaran (AM) :-
Both appeals filed by the assessee are directed against the orders passed by the learned CIT(A), National Faceless Appeal Centre, Delhi confirming the penalty levied by the AO under section 271(1)(c) of the I.T. Act for A.Y. 2003-04 & 2004-05. Both the appeals were heard together and are being disposed of by this common order, for the sake of convenience.
The assessee is engaged in the business of operating and maintaining power plant owned by M/s. Samalpatti Power Company Pvt. Limited. In the two years under consideration the assessee had recognised revenue on the basis of “billing” made to its customer M/s. Samalpatti Power Company Pvt. Limited. During the course of audit of accounts of year relevant to A.Y. 2005-06, the assessee changed method of recognizing revenue into percentage completion method as per Accounting Standard-9 issued by the ICAI. It was noticed that the assessee has offered excess revenue in the years
2 Shapoorji Pallonji Infrastructure Capital Company Private Limited relevant to A.Y. 2003-04 and 2004-05 under old method of recognizing income. After adoption of new method, the said excess revenue was reversed in the year relevant to A.Y. 2005-06 in the books of account as ‘prior period adjustment’.
With these factual back ground, we shall take up the appeal of AY 2003-04. During the course of assessment proceedings relating to A.Y. 2003-04, the assessee made a claim before the Assessing Officer by way of letter stating that its revenue has been offered in excess and accordingly, it was pleaded that the excess revenue of Rs. 2,93,25,842/- be allowed as deduction. The assessee had declared revenue of Rs.37.58 crores in its return of income. As per the new method, the revenue should have been recognized at Rs.34.95 crores resulting in excess disclosure of revenue by Rs.2.93 crores. The assessee, accordingly, contended before the Assessing Officer that its total income should be reduced by the above said amount. The Assessing Officer did not accept the same and hence the assessee filed the appeal before the learned CIT(A) who confirmed the order of the Assessing Officer. Hence, the assessee preferred an appeal before the Tribunal and the ITAT, vide its order dated 30.7.2012, restored the matter back to the file of the Assessing Officer with the direction to examine the issue afresh. In the set aside proceedings the Assessing Officer rejected the claim for reduction of its income by Rs. 2.93 crores. The assessee again filed an appeal before the learned CIT(A). Subsequently the assessee withdrew the appeal filed before the learned CIT(A) accepting the order of the Assessing Officer. Accordingly, the learned CIT(A) passed an order dated 15.11.2018 dismissing the appeal of the assessee as withdrawn.
On receipt of the said order, the Assessing Officer passed penalty order under section 271(1)(c) of the Act levying the penalty of Rs.1,07,77,247/- on the amount of Rs.2.93 crores (referred supra). The said penalty order was 3 Shapoorji Pallonji Infrastructure Capital Company Private Limited also confirmed by the learned CIT(A) and hence the assessee has filed this appeal.
We have heard both the parties and perused the record. We noticed that the impugned claim has been made by the assessee in the form of additional claim, that too through a letter filed before the Assessing Officer during the course of assessment proceedings. We notice that the above said claim has not been made in the return of income filed by the assessee. When the assessee has not made any claim while computing total income in the return of income, the question of finding the same to be incorrect does not arise, i.e., there is no question of furnishing of inaccurate particulars of income or concealment of income as contemplated in sec. 271(1)(c) of the Act. What has happened in this year is that the additional claim made through a letter during the course of assessment proceeding has been rejected. In that view of the matter, we are of the opinion that levy of penalty under section 271(1)(c) of the Act is not justified.
We also notice that the impugned penalty is liable to be quashed on legal ground also. On the perusal of the assessment order, penalty notice and penalty order issued by the Assessing Officer, we noticed that the Assessing Officer has only stated that the penalty proceedings has been initiated under section 271(1)(c) of the Act i.e. he did not mention limb under which the penalty was levied under section 271(1)(c) of the Act. If the AO has not mentioned the limb under which the penalty was levied, the same is liable to be quashed. In this regard, we may gainfully refer to the decision rendered by Hon’ble Bombay High Court has held in the case of Ganga Iron & Steel Trading Co. v/s Commissioner of Income Tax. [2022] 135 com 244 (Bombay) order dated December 22, 2021 as under:-
“10. We find that the law as laid down by the Full Bench applies on all fours to the facts of the present case as in the show cause notice dated 12-2-2008,
4 Shapoorji Pallonji Infrastructure Capital Company Private Limited the Assistant Commissioner of Income-tax is not clear as to whether there was concealment of particulars of income or that the Assessee had furnished inaccurate particulars of income. We therefore find that issuance of such show cause notice without specifying as to whether the Assessee had concealed particulars of his income or had furnished inaccurate particulars of the same has resulted in vitiating the show cause notice. Heavy reliance was placed by the learned counsel for the Revenue on the decision in Mak Data (P.) Ltd. (supra) to urge that the penalty contemplated by section 271 (1) (c) of the said Act was in the nature of civil liability and mens rea was not essential therein. The decision in Dilip N. Shroff (supra) having been held as not laying down good law in Dharmendra Textile Processors Ltd. (supra), it was submitted that the show cause notice issued in the present proceedings was liable to be upheld. It may be noted that all the decisions relied upon by the learned counsel for the Revenue were considered by the Full Bench while answering the issues referred to it on reference. The Full Bench having considered these decisions and having answered the question as regards defect in the notice under section 271(1)(c) of the said Act resulting in vitiating the penalty proceedings, we find ourselves bound by the answers given by the Full Bench. It would not be permissible for us to disregard this aspect and take a different view of the matter. Accordingly substantial question of law no. III is answered by holding that since the show cause notice dated 12-2-2008 does not indicate whether there was concealment of particulars of income or furnishing of incorrect particulars of such income, the same would vitiate the penalty proceedings.”
Though the above said decision has been rendered in the context of non- striking of inapplicable limb in the penalty notice issued by the AO, yet the ratio of the above said decision shall equally in the facts of the present case, since the assessing officer did not mention any of the limbs in the notice issued u/s 271(1)(c) of the Act and has only stated that the penalty proceedings have been initiated under the above said section. Accordingly, we are of the view that the impugned penalty order is liable to be quashed both on legal reasoning discussed above and also on merits.
We shall now take up the appeal filed by the assessee for AY 2004-05. In this year, the assessee made similar claim for reduction of its revenue by Rs. 5,50,852/- on the very same reasoning that the method of revenue recognition has been changed by it from the year relevant to A.Y. 2005-06 onwards in accordance with AS-9. The only difference is that, in this year, the said claim has been made in the return of income itself. As in preceding
5 Shapoorji Pallonji Infrastructure Capital Company Private Limited year, the AO rejected the above said claim. Thereafter the Assessing Officer levied penalty of Rs. 2,01,570/- under section 271(1)(c) of the Act.
We heard both the parties on this issue and perused the record. We notice that there was a basis for making the claim for reduction of Rs.5,50,852/- from the revenue already offered by it. The basis is that there is a change in the method of recognizing the income in accordance with AS-9. Thus, it was a case of making genuine claim, which was not accepted. Hence, as per the decision rendered by Hon’ble Supreme Court in the case of Reliance Petroproducts P Ltd (322 ITR 158)(SC), wherein it is held as under:- “A glance of provision of section 271 (l) (c) would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The instant case was not the case of concealment of the income. That was not the case of the revenue either. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty of furnishing inaccurate particulars. The revenue argued that submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income. Such cannot be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing of inaccurate particulars….
“Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that, by itself, would not attract the penalty under section 271(1) (c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c)”.
In this year also, the assessment order; penalty notices and the penalty order state the limb under which the impugned penalty has been levied. There is a general observation that the penalty has been initiated/levied u/s 271(1)(c) of the Act. In AY 2003-04, in the preceding paragraphs, we have discussed the legal implications on this deficiency and held that the penalty
6 Shapoorji Pallonji Infrastructure Capital Company Private Limited order is liable to be quashed on the legal ground also. The decision rendered by us on the above said legal ground in AY 2003-04 shall apply to this year also. Accordingly, we are of the view that the impugned penalty order is liable to be quashed both on legal reasoning discussed above and also on merits.
Accordingly, we quash the orders passed by the tax authorities in both the years.
In the result, both the appeals of the assessee are allowed.
Pronounced in the open court on 25.4.2023.