THE RUBY MILLS LIMITED,MUMBAI vs. DCIT, CIRCLE - 8(3)(1), MUMBAI

4. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), erred in confirming levy of penalty disregarding the well settled position in law including by the judgement of Hon'ble Supreme Court of India in the matter of Principal Commissioner of Income-tax v. Unitech Reliable Projects (P.) Ltd. [2024] 166 taxmann.com 135 (SC)[14-08-2024] wherein the Tribunal, having found that notice issued under section 274 did not specify as to limb under which penalty was sought to be imposed, i.e., notice did not indicate as to whether penalty was to be levied on account of concealment of income or for reason that assessee had furnished inaccurate particulars quashed penalty proceedings and High Court, on appeal, concluded that no substantial question of law arose for consideration as it was necessary for the Assessing Officer to indicate broadly as to limb under which penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 against assessee were triggered, Special Leave Petition filed against the said order of High Court was dismissed.

5. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), erred in confirming levy of penalty, without appreciating the fact that the impugned addition made by the Assessing Officer was solely on the basis of the documents filed by the appellant during the course of assessment proceedings and that the appellant has not concealed any material facts to attract penalty u/s 271(1)(c) of the Income Tax Act, 1961 as the factual information was provided during the course of assessment proceedings. This fact is supported by legally settled position including by the Judgement of Hon'ble

Calcutta High Court in the case of CIT v. Smifs Capital Markets Ltd [2023] 149 taxmann.com 376 wherein it was held that since all relevant facts material to computation of total income were duly furnished by assesseeno deficiency in furnishing of facts had been pointed out by Assessing Officer, deeming provision under section 271(1)(c) would not stand attracted and accordingly. penalty was to be deleted.

6. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), erred in confirming levy of penalty, while failing to consider that the mere making of an unsustainable claim, by itself, does not amount to the furnishing of incorrect particulars of income ignoring the settled legal position including by the Judgment of Hon'ble Supreme Court in the case of CIT vs. Reliance PetroproductsPvt. Ltd. 322 ITR 158 (SC) which held that where information given is not found to be incorrect, assessee cannot be held guilty of furnishing inaccurate particulars of income for the purpose of levying penalty u/s 271(1)(c). It further held that mere making a wrong claim does not amount to furnishing inaccurate particulars.

7. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax(Appeals), erred in confirming levy of penalty ignoring the settled legal position included by the judgment of Hon'ble Jurisdictional High Court in the case of Commissioner of Income-tax - I, Mumbai v. SomanyEvergree Knits Ltd [2013] IT Appeal No. 1332 of 2011(Bombay), wherein it was held that the assessee company had wrongly claimed excess depreciation and loss on sale of machine as revenue expenditure in return and during the assessment proceedings, assessee itself pointed out mistake, which was claimed to be bonafide and inadvertent, penalty levied u/s 271(1)(c) was to be deleted.

8. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), erred in confirming levy of penalty, ignoring the fact that there was no mens rea or intention or deliberate attempt on the part of the appellant to furnish any inaccurate particulars or conceal any material fact to evade tax including the judgement of Jurisdictional High Court in case of CIT vs. DalmiaDyechem Industries in wherein it was held that no penalty could be levied unless assessee's conduct is dishonest, malafide and amounts concealment of facts and the AO must render the conclusive finding that there was active concealment or deliberate furnishing of inaccurate particulars and there was no deliberate attempt on part of assessee to conceal income, penalty was not justified.

3. Brief facts of the case are that assessee is a company engaged in business of spinning and weaving of cloth. The assessee filed its original return of income under section 139(1) on 30.09.2012 declaring income of Rs. 64.45 crore. The assessment was completed on 30.04.2014 under section 143(3). The assessing officer while passing the assessment order, besides other additions and disallowances also disallowed Short Term Capital Loss (STCL) on sale machinery of Rs. 1.06 crore. On appeal before ld. CIT(A) in quantum assessment, this disallowance was confirmed. No further appeal was filed by assessee against this disallowance. The assessing officer issued show cause notice under section 271(1)(c) read with section 274 dated 30.03.2014 for levying penalty. In response to such show cause notice, the assessee stated that their appeal is pending before ld. CIT(A). On dismissal of appeal in quantum assessment a fresh show cause notice dated 28.10.2021 was served upon the assessee through e-mail. The assessing officer levied penalty @ 100% of tax sought to be evaded on disallowance of short term capital loss. The assessing officer worked out penalty of Rs. 34,61,587/- in his order dated 20.01.2022.

The submission of assessee are recorded from page no. 4 to 20 of order of ld. CIT(A). The assessee in its submission submitted that in the show cause notice, the assessing officer has not specified / spelt out the grounds on which the penalty is sought to be imposed. In the show cause notice, it is mandatory for assessing officer to specifically specify as to whether penalty is being imposed on concealment of income or furnishing inaccurate particulars of income. The assessing officer has not strike out inappropriate charge in the show cause notice.

Thus, show cause notice itself is not valid. To support their contention, the assessee relied on the decision of Karnataka High Court in CIT vs Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 / 35 taxmann.com 250; Bombay High Court in CIT Vs Samson Perincherry (ITXA-1154-2014); Ganga Iron & Steel Trading Co. vs CIT (2021) 135 taxmann.com 244 (Bombay); Mohd. Farhan A.

Shaikh Vs DCIT (2021) 125 taxmann.com 253 (Bombay) and various other decisions of different bench of Tribunal and High Courts. On merit, the assessee stated that they have made a bona fide claim pertaining to short term capital loss on sale of machinery. The assessee has neither filed inaccurate particulars of income nor has concealed particulars of income. Rather, they furnished all details pertaining to sale of machinery in the return of income. It is on the authorities to accept the claim or to reject. Mere disallowance of such claim does not attract penalty under section 271(1)(c). Disallowance of losses does not per seis furnishing inaccurate particulars of income. Concealment involve penal action.

Concealment has to be proved as conscious act. Inadvertent error on the part of appellant does not mean that the assessee is guilty of either furnishing inaccurate particulars of income or to conceal its income. No penalty is leviable on a debatable issue. The issue relating to disallowance of short-term capital loss is alsodebatable issue. To support such contention, the assessee relied upon the decision of Delhi High Court in CIT Vs Shervani Hospitalities Ltd. (2013) 261 CTR 449 (Del); Punjab & Haryana High Court in CIT Vs Rubber UdvoctVikasPrivate Ltd. 335 ITR 558 (P&H) and Supreme Court in CIT Vs Reliance PetroproductsPrivate Limited. 322 ITR 158 (SC). In other alternative submission, the assessee stated that when assessee furnished all details of expenditure as well as income in its return and merely such expenditure has not been accepted by revenue authority that itself will not attract penalty under section 271(1)(c). To support such view, the assessee also relied on various decisions of High Courts and different Tribunals.

The case was referred for verification unit which served the notice on assessee by speed post. The assessee did not submit any reply. Such fact proves that all facts material to the computation of income were not disclosed by assessee. The explanation offered by the assessee was not convincing and acceptable, moreover, the appellant could not establish the explanation as bona fide. The ld. CIT(A) further, recorded that block of asset of machinery was not exhausted and hence question of claiming of loss does not arise. Thus, the amount of Rs. 1.06 crore was added. The ld. CIT(A) by referring the decision of Delhi High Court in CIT Vs Zoom Communication (P) Ltd. 327 ITR 510, wherein it was held that if assessee made a claim it is not only incorrect in law but without any basis and explanation furnished by him for making claim is not found to be bona fide.

Explanation 1 to section 271(1)(c) would come into play and assessee is liable to penalty. The decision of Delhi High Courtin CIT Vs Zoom Communication (P) Ltd. (supra) is squarely applicable on the present case. The concealment not only mean non-reporting of any item of claim, it also means claiming wrongful deduction and reducing taxable income. The assessee falsely claimed deduction which amounts to concealment of particulars of income or deliberately inaccurate particulars of income. On the basis of aforesaid observation, the ld. CIT(A) upheld the action of assessing officer. Further, aggrieved the assessee has filed present appeal before Tribunal.

274 has not specified the specific charge in the said notice. Copy of show cause notice is filed at page no. 39 & 40 of the paper book. At the time of issuance of such notice, appeal of assessee was pending before ld. CIT(A) so the assessee made request to keep the penalty proceeding in abeyance. The assessing officer levied penalty @ 100% of tax sought to be evaded in his order dated 20.01.2022.

The ld. CIT(A) while deciding appeal has referred certain facts which are not related with the facts of assessee. The ld. CIT(A) while confirming the penalty invoked Explanation 1 to section 271(1)(c). No such explanation was invoked by assessing officer either at the time of passing assessment order or issuing show cause notice. The show cause notice itself is defective, therefore, entire proceeding initiated on such show cause notice is void ab initio. The ld. AR of the assessee submits that in a series of decision, various High Courts including jurisdictional High Court in its full bench decision has held that wherein the assessing officer while issuing show cause notice without non-application of mind in not strike out inappropriate limb of charge whether it is for concealment of income or furnishing inaccurate particulars, penalty order is liable to set aside.

The Mumbai Bench in a recent decision in Ramji Harakchand Shah Vs ACIT in dated 28.02.2025 also held that without specifying charge neither penalty can be levied nor can it be sustained.

9. On the other hand, learned Senior Departmental Representative (ld. Sr. DR) for the revenue supported the order of lower authorities. The ld. Sr. DR for the revenue submits that assessee made an incorrect claim which was disallowed by assessing officer and on appeal it was upheld, thus, a good case for levying penalty. The ld. CIT(A) while confirming the action of assessing officer relied on the decision of Zoom Communication (P) Ltd. (supra) which is directly applicable on the facts of this case.

However, before ld. CIT(A), the assessee has filed a very detailed written submission as recorded at page no. 3 to 20 of impugned order. None of the submission is dealt with by ld. CIT(A). The ld. CIT(A) proceeded on different footing of deemed concealment by invoking Explanation 1 of section 271(1)(c).

The background of the present case clearly suggest that it is not a case of deemed concealment rather disallowance of a claim which may be at the worst considered as incorrect claim on which the assessee has paid due tax if any. We find that Hon’ble Jurisdictional High Court in CIT Vs DalmiaDyechem Industries Ltd. (supra) also held that when assessee claimed deduction in respect of borrowed funds which were diverted to sister concern and not for business and the assessee bona fide and claimed that its deduction was covered by a particular provision of law, penalty could not be levied. Thus, in view of the aforesaid factual and legal discussion, we are of the considered view that mere disallowance of long-term capital loss will not attract the penalty under section 271(1)(c).