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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Chandra Poojari, AM & Shri George George K, JM
Per George George K, JM
These appeals at the instance of the assessee are directed against two orders of the Commissioner of Income-tax, both dated 22.01.2019, passed u/s 263 of the I.T.Act. The relevant assessment years are 2012-2013 and 2013-2014. Since common issue is raised in these appeals, they were heard together and are being disposed off by this consolidated order.
The brief facts of the case are as follows:- The assessee is a partnership firm. It is engaged in the business of wholesale distribution of pharmaceuticals. For the assessment years 2012-2013 and 2013-2014, returns were filed on 29.09.2012 and 28.09.2013, which were processed u/s 143(1) of the I.T.Act. There was a survey u/s 133A of the
ITA No.236 & 237/Coch/2019. 2 M/s.Soorya Drug House. I.T.Act conducted in the business premises of the assessee-firm on 25.02.2015 and notice u/s 148 was issued on 31.03.2015 for assessment years 2012-2013 and 2013-2014. Revised returns were filed in response to notice declaring total income of Rs.21,13,780 and Rs.22,96,260 for the assessment years 2012-2013 and 2013-2014 respectively. The assessments were completed for both the assessment years u/s 143 r.w.s. 147 of the I.T.Act on 28.03.2016 and 30.03.2016 for assessment years 2012-2013 and 2013-2014, respectively. In the assessments completed, total income determined for assessment year 2012-2013 was at Rs.26,28,950 and for assessment year 2013-2014 was at Rs.25,18,390. The additions of Rs.5,15,165 and Rs.2,22,127 for assessment years 2012-2013 and 2013-2014, respectively were computed in the assessment order in the following manner:-
Particulars A.Y. A.Y. 2012-2013 2013-2014 Salary and incentive expenses not 3,78,000 6,60,000 supported by proper vouchers. Sales suppression based on information 19,63,914 14,37,739 received in survey. Disallowance of car running expenses for 73,251 92,135 personal use at 20%. Wrong claim of depreciation on car -- 32,253 Total 24,15,165 22,22,127 Less : Additional income offered in the 19,00,000 20,00,000 returns to cover up the above mistakes. Additions in the assessment 5,15,165 2,22,127
The penalty proceedings u/s 271(1)(c) of the I.T.Act were initiated by issuance of notice u/s 274 of the I.T.Act on 30.03.2016. The assessee in response to the notice issued, requested to drop the penalty proceedings for both the
ITA No.236 & 237/Coch/2019. 3 M/s.Soorya Drug House. assessment years as higher income was declared in the revised returns. Further it was submitted that the additions were only on estimates basis and the assessee has cooperated with the Department at all times and paid the tax due. The Assessing Officer dropped the penalty proceedings by virtue of the order sheet entry dated 30.09.2016.
The Commissioner of Income-tax issued show cause notice on 29.11.2018 by pointing out the dropping of the penalty proceedings on 30.09.2016 was in a routine manner and was not in accordance with the law. The CIT was of the view that there was lack of inquiry by the Assessing Officer before dropping the penalty proceedings. The CIT relying on the judgment of the Hon’ble Apex Court in the case of Malabar Industrial Co. [243 ITR 83] had held that the order passed by the Assessing Officer by which the penalty proceedings were dropped are erroneous and prejudicial to the interests of the revenue. Accordingly the orders passed on 30.09.2016 by which the penalty proceedings were dropped were set aside for de novo examination by the Assessing Officer. The CIT directed the A.O. to pass a speaking order in accordance with law within the time limit specified u/s 153 of the I.T.Act.
Aggrieved by the orders of the CIT passed u/s 263 of the I.T.Act for both the assessment years 2012-2013 and 2013- 2014, the assessee has filed these appeals before the Tribunal. Identical grounds have been raised for both the assessment years. The assessee’s AR has filed a brief written submission
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with regard to each of the grounds raised and the same reads as follows:-
Ground 1. Not a fit case to impose penalty u/s 271(1)(c). The disallowance of salary expenses for both the assessment years were made on an estimate based on the wage register. Similarly the extent of personal use of the motor car fixed at 20% was without any basis. The total amount added on these accounts would come to Rs 4,51,251 and Rs 7,52,135 respectively for A.Y 2012-13 and A.Y 2013-14. In order to cooperate with the Department and to purchase peace, the assessee has not challenged these additions in appeal.
The assessee explained that the difference in sales figure in the computer was due to the non adjustment of sales return in the computer data and the difference in stock was due to the inclusion of free samples in the computer system. No wilful suppression or evasion detected in the survey. Additional income of Rs 19,00,000 and Rs 20,00,000 were voluntarily declared in the returns to make good the defect in accounting the sales and stock. The net amount of income added to the returned total income for A.Y 2012-13 and A.Y 2013-14 come to Rs 5,15,165/- and Rs. 2,22,127/- which comprised of disallowance of salary, estimated personal use of car and the defect in accounting sales. The appellant has neither concealed particulars of such income nor furnished inaccurate particulars of such income in the returns filed. Hence it is not a fit case to impose penalty and the order of dropping the penalty proceedings is not erroneous. Ground - 2 Direction to pass a speaking penalty order within the time limit specified in section 153 of the Act. Section 153 is concerned with time limit for completion of assessment, reassessment and re-computation of income and not conclusion of penalty proceedings. Bar of limitation for imposing penalties is provided in section 275 of the Act. The time limit for imposing penalty in this case is provided in clause (b) of subsection (1) of section 275 of the Act. Hence the Pr.CIT went wrong in directing the assessing officer to pass penalty order within the time limit specified in section 153 of the Act and, therefore it is; requested to delete the said directions in the revision order dated 22/01/2019. Ground-3 Defects in show cause notice u/s 274 r.w.s 271(1)(c).
ITA No.236 & 237/Coch/2019. 5 M/s.Soorya Drug House.
The assessment order of A.Y 2012-13 was passed on 28/03/2016 and for the A.Y 2013-14 on 30/03/2016 in which it was stated as "Proceedings u/s 271(1)(c) is initiated separately." Penalty proceedings were initiated for both the assessment years by issuance of notice u/s 274 of the Act on 30/03/2016. As such the penalty proceedings for the A.Y 2012-13 were not initiated in the course of any proceedings under this Act but initiated after concluding the assessment proceedings on 28/03/2016 which is not permitted in section 271(1) of the Act. Further the assessment orders for both the years do not mention the ground under which the penalty proceedings were initiated viz for concealing the particulars of income or for furnishing inaccurate particulars of income. The relevant portion in the show cause notices issued u/s 274 on 30/03/2016 for both the years were struck of before the issuance.[ Copies accompany] Hence neither the assessment order nor the show cause notice in this case did specify the charges levelled [(i)whether concealed particulars of income or (ii) furnished inaccurate particulars of income for which the assessee had to show cause] which is a prerequisite for imposing penalty u/s 271(1)(c). Omission to mention the specific charges in the show cause notices would make the whole proceeding void. Reliance is placed in this context on the apex court judgment in the case of Dilip N. Shroff (219 ITR 519). In view of the above the dropping of penalty proceedings on 30/09/2016 for both the assessment years cannot be regarded as erroneous against which revisionary proceedings stands. What is erroneous is the penalty proceeding which was not validly initiated. Ground.4 - No revision order can be passed in respect of an order concluding an invalid proceedings.
For the failure to mention the specific charges in the notice u/s 274, the penal proceedings initiated is bad in law. The Pr. CIT is not empowered to exercise his powers of revision to correct any mistake or make good any omission in a proceedings under the Act which is bad in law.”
The learned Departmental Representative strongly supported the revisionary order passed by the CIT u/s 263 of the I.T.Act.
ITA No.236 & 237/Coch/2019. 6 M/s.Soorya Drug House. 7. We have heard the rival submissions and perused the material on record. The assessment orders for both the assessment years do not mention the ground under which the penalty proceedings were initiated, viz., for concealing of particulars of income or furnishing inaccurate particulars of income. The relevant portion in the show cause notices issued u/s 274 on 30.03.2016 for both the assessment years were struck off before issuance. (copies of the notice issued u/s 274 of the I.T.Act is placed on record). Hence neither the assessment order nor the show cause notice in this case did specify the charges leveled, whether it is for concealment of income or for furnishing inaccurate particulars of income for which the assessee has to show cause. The omission to mention the specific charges in the show cause notice would make the whole proceedings void. The above view taken by the Cochin Bench of the Tribunal in the case of M/s.Rajadhani Hotels & Tourist Enterprises Pvt. Ltd. v. ACIT [ITA No.175- 180/Coch/2019 – order dated 01.08.2019] by following the judgment of the Hon’ble Apex Court in the case of CIT & Anr. V. M/s.SSA’s Emerald Meadows reported in (2016) (8) TMI 1145. The relevant finding of the Cochin Bench of the Tribunal in the case of M/s.Rajadhani Hotels & Tourist Enterprises Pvt. Ltd. (supra) reads as follows:-
“6. We have heard the rival submissions and perused the record. We have carefully gone through the notice issued u/s 274 r.w.s. 271 of the Act narrated in para 4 of this order. As seen from the above notice issued u/s 274 of the Act, the Assessing Officer has not struck out the irrelevant portion of the
ITA No.236 & 237/Coch/2019. 7 M/s.Soorya Drug House. notice. In other words he has not specified whether he is levying penalty for concealment of particulars of income or furnishing of inaccurate particulars of income. As held by the Karnataka High Court in the case of CIT & Anr. V. M/s.SSA’s Emerald Meadows (2015) (11) TMI 1620 that the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) is 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. This view was confirmed by the Supreme Court in the same case, i.e., CIT v. M/s.SSA’s Emerald Meadows reported in (2016) (8) TMI 1145.
In view of the above discussion, we are inclined to hold that the penalty proceedings initiated by the A.O. is void ab initio and allow the appeal of the assessee. Since we have quashed the penalty proceedings itself, we refrain from adjudicating the other grounds of appeal raised by the assessee.”
In the light of the above order of the Tribunal, since the penalty proceedings initiated is void, it would not serve any purpose to uphold the order of the CIT passed u/s 263 of the I.T.Act and the same is quashed. It is ordered accordingly.
In the result, the appeals filed by the assessee are allowed.
Order pronounced on this 02nd day of August, 2019.
Sd/- Sd/- (Chandra Poojari) (George George K.) ACCOUNTANT MEMBER JUDICIAL MEMBER
Cochin ; Dated : 02nd August, 2019. Devdas*
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Copy of the Order forwarded to : 1. The Appellants 2. The Respondent. 3. The Pr.CIT-2 Kochi. 4. The CIT Kochi. 5. DR, ITAT, Cochin 6. Guard file.
BY ORDER,
(Asstt. Registrar) ITAT, Cochin