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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRIPRADIP KUMAR KEDIA & SHRI N. K. CHOUDHRY
This appeal has been preferred by the Assessee against the order dated 14.01.2019 impugned herein passed by the ld. Commissioner of Income Tax (Appeals)–28, New Delhi {in short “ld. Commissioner”} u/s 250(6) of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2014-15.
Brief facts, relevant for adjudication of this case are that the Assessee has claimed expenses of Rs. 48,53,671/- under the head “business promotion expenses” which were disallowed by the AO on the ground that the Assessee had organized two events at M/s. ITC Maurya Hotel, New Delhi on dated 23.01.2014 and 28.01.2014 and incurred expenses on lunch/dinner for 100 and 800 guests respectively and therefore the Assessee was required to furnish details by 16.11.2016, however, no reply has been received from it. The Assessee has also failed to prove business expediencyto prove the business promotion expenses.
The AO also initiated the penalty for concealment/furnishing inaccurate particulars of income of Rs. 48,53,671/- and ultimately vide penalty order dated 29.06.2017 imposed a penalty of Rs. 16,49,763/- on the amount of Rs. 48,53,671/-. The said penalty order was confirmed by the Ld. Commissioner against which the Assessee in appeal before us.
3. The Ld. AR while referring the notices issued u/s 274 of the Act submitted that the notices issued by the AO are vague having not specified particular limb of the penalty and therefore levy of penalty on the basis of vague notices is liable to be deleted. The Assessee in support of its contention also relied upon various judgments of the Hon’ble Apex Court and High Courts and Tribunal as well. The Ld. AR further claimed that even on merit also, the penalty cannot be levied just on denial of expenditure claimed by the Assessee.
4. On the contrary, the Ld. DR refuted the claim of the Assessee and supported the orders passed by the authorities below and submitted that impugned order under challenge does not suffer from any perversity, impropriety and/or illegality and hence needs no interference.
5. Having heard the parties at length and perused the material available on record. The Assessee has claimed 48,53,671/- under the head “business promotion expenses” which was disallowed by the AO. The said addition resulted into imposition of penalty by the AO and affirmation by the Ld. Commissioner. The Assessee has challenged the penalty order on various grounds including on the basis of notice issued u/s 274 of the Act as well, which is legal in nature, therefore we deem it appropriate first to decide the legal issue involved in the instant case, before going into merits of the case.
5.1 In this case, the AO initiatedthe penalty and thereafter on dated 13-12-2016,03-04-2017 and 12-06-2017, issued the notices u/s 274 read with 271(1)(c) of the Act for ‘concealment of income/ furnishing of particulars of Income, without specifying the particular limb of the penalty and finally imposed the penalty and therefore the question emerge as to whether ley of penalty can be justified on the basis of such notices referred above.
5.2 Hon'ble Apex Court in case of M/s. SSA's Emerald Meadows, (2016) 73 taxmann.com 248(SC) dismissed the Special Leave Petition filed by the Revenue against the judgment rendered by Hon'ble High Court of Karnataka whereby identical issue was decided in favour of the assessee. Operative part of the judgment in case of M/s. SSA's Emerald Meadows (supra) decided by Hon'ble High Court of Karnataka is reproduced below:- "2. This appeal has been filed raising the following substantial questions of law:
(1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?
(2 Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in. holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and. invalid inspite the amendment of Section 271(1 B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same?
(3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued, under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income?
The Tribunal has allowed the appeal filed by the Assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short 'the Act') to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income .The Tribunal, while allowing the appeal of the Assessee, has relied upon the decision of the Division Bench of this Court rendered In the case of COMMISSIONER or INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565.
In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court, the appeal is accordingly dismissed."
5.3The Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar) observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon'ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon'ble High Court held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clause would lead to an inference of non- application of mind by the Assessing Officer and levy of penalty would suffers from non-application of mind.
5.4 Even the Hon’ble High Court of Delhi in the case of M/s. Sahara India Life Insurance Company Ltd. 432 ITR 84 (Del.) while following the cases referred above, held as under:
“21. The Respondent had challenged the upholding of the penalty imposed under Section 271(1)(c) of the Act, which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar) and observed that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(l)(c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgment in the subsequent order in Commissioner of Income Tax v. SSA’s Emerald Meadows (2016) 73 Taxman.com 241(Kar), the appeal against which was dismissed by the Supreme Court of India in SLP No: 11485 of 2016 by order dated 5th August, 2016.
On this issue again this Court is unable to find any error having been committed by the ITAT. No substantial question of law arises. Thus, notice under Section 271(1)(c) r.w.s. 274 of the Act itself is bad in law. We, therefore, set-aside the order of the CIT(A) and direct the Assessing Officer to cancel the penalty so levied.”
5.5 The penalty provisions of section 271(1)(c) of the Act are attracted, where the Assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it is imperative for the Assessing Officer to specify the relevant limb so as Page | 5 to make the Assessee aware, what is the charge made against him so that he can respond accordingly.
5.6 In the background of the aforesaid legal position and, having regard to the manner in which the Assessing Officer has issued notices dated 13-12-2016, 03-04-2017 and 12-06-2017 under section 274 r.w.s. 271(1)(c) of the Act without specifying the limb under which the penalty proceedings have been initiated and proceeded with, apparently goes to prove that notices in this case have been issued in a stereotyped manner without applying mind which is bad in law, hence can not be considered a valid notices sufficient to impose penalty u/s 271(1)(c) of the Act and therefore we are of the considered view that under these circumstances, the levy of penalty is not justifiable.
5.7 Coming to the merits of this case, the AO did not find the claim of the Assessee as maintainable and made the addition and consequently imposed the penalty which stands affirmed by the ld. Commissioner. It is not the case of the Revenue that the Assessee has acted deliberately in defiance of law, or is guilty of contumacious or dishonest conduct, or acts in conscious disregard of its obligation and therefore mere making of a claim, which is not sustainable in law, would not, ipso facto, amount to furnishing of inaccurate particulars regarding the income of the Assessee and would, therefore, not automatically result in a penalty order against the Assessee’ as held by the Hon’ble Apex Court in the case of Reliance Petro Products Pvt. Ltd 322 ITR 158 while dealing with the penalty imposed for claiming expenditure which was declined to be allowed u/s 14A of the Act, hence on merit as wellthe penalty under challenge is not sustainable .
5.8 On the aforesaid analyzations, we are inclined to delete the penalty under consideration levied by the AO and affirmed by the Ld. Commissioner, hence ordered accordingly.
In the result, appeal filed by the Assessee stands allowed.