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Income Tax Appellate Tribunal, DELHI BENCH ‘C’ : NEW DELHI
Before: SHRI ANIL CHATURVEDI & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Appellant, DCIT, Circle 12 (1), New Delhi (hereinafter referred to as ‘the Revenue’) by filing the present appeal sought to set aside the impugned order dated 28.02.2018 passed by the Commissioner of Income-tax (Appeals)-22, New Delhi qua the assessment year 2010-11 on the grounds inter alia that :-
“1. Whether on the facts and circumstances of the case, the Ld. CIT (A) has erred in deleting the penalty levied on derivative loss though it is a speculative loss, holding that the genuineness of this loss is not in dispute. 2. The CIT (A) has erred in deleting the penalty ignoring the fact that the speculative loss was due to ‘trading in derivatives’ and wrong claim of it as ‘business loss’ cannot be bonafide because its main business is sugar export & the claim cannot be because of oversight but is an act of commission.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : On the basis of assessment framed under section 143 (3) of the Income-tax Act, 1961 (for short ‘the Act’), business income was assessed at Rs.6,77,68,473/- as against loss of Rs.2,17,28,499/- shown in the return of income and after making brought forward business loss, total income was assessed at Rs.5,25,522/- by making additions viz. depreciation on building, foreign travelling expenditure, provident fund payment, disallowance u/s 14A, interest on late payment of TDS, derivative loss & prior period expenses to the tune of Rs.19,32,804/-, Rs.4,85,583/-, Rs.28,87,804/-, Rs.245,34,198/-, Rs.2,554/-, Rs.1,60,99031/- & Rs.35,03,000/- respectively. AO initiated the penalty proceedings for furnishing inaccurate particulars of income to the tune of additions made as above. Declining the contentions raised by the assessee, AO levied the penalty to the tune of Rs.60,24,994/- u/s 271(1)(c) of the Act.
Assessee carried the matter before the ld. CIT (A) by way of filing the appeal who has partly allowed the appeal. Feeling aggrieved by the order passed by the ld. CIT (A), the Revenue has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Ld. DR for the Revenue challenging the impugned order passed by the ld. CIT(A) relied upon the order passed by the AO.
First of all, ld. AR for the assessee contended that in order to initiate the penalty proceedings, the AO has failed to specify in the show-cause notice issued u/s 271(1)(c)/274 of the Act if the assessee has concealed the particulars of income or has furnished inaccurate particulars of income and relied upon the decisions of Hon’ble Karnataka High Court in CIT vs. SSA’s Emerald Meadows -73 taxmann.com 241 (Kar.) (Revenue’s SLP dismissed in 242 taxman 180) and Hon’ble High Court of Delhi in Pr. CIT vs. Sahara India Life Insurance Company Ltd. in ITA 475/2019 order dated 02.08.2019. Ld. AR for the assessee further contended that when there is returned income/assessed income under MAT then no penalty is leviable for additions/disallowances made under the normal provisions and relied upon the decision rendered by Hon’ble Delhi High Court in case of CIT vs. Nalwa Sons Investments Ltd. (2010) 327 ITR 543.
In the backdrop of the aforesaid facts and circumstances of the case, order passed by the lower authorities and arguments addressed by the authorized representatives of both the parties to the appeal, the sole question arises for determination in this case is:-
“as to whether the assessee has concealed particulars of income or has furnished inaccurate particulars of income during assessment proceedings?”
Undisputedly, as per appeal effect order dated 30.05.2017 passed u/s 254/143(3) of the Act that the returned income as well as assessed income of the assessee is assessed under MAT as per order passed by the Tribunal and thereby made certain additions under normal provisions. It is also not in dispute that penalty has been initiated on the basis of disallowances/additions made by the AO on account of assessee’s claim of depreciation on building, foreign travel expenses, etc.
In order to proceed further, we would like to peruse the notice dated 04.02.2013 issued by AO u/s 274 read with section 271(1)(c) of the Act to initiate the penalty proceedings which is extracted as under for ready perusal:-
“NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE INCOME TAX ACT, 1961. Income Tax Office, New Delhi. Dated: 04.02.2013 To M/s. Indian Sugar Exim Corporation Ltd. C-Block, 2nd Floor, Ansal Plaza, August Kranti Marg, New Delhi – 49. Whereas in the course of proceedings before me for the assessment year 2010-11 it appears to me that you:- • Have without reasonable cause failed to comply with a notice under section 142(1)/143(2) of the Income Tax Act, 1961 dated……… • Have concealed the particulars of your income or furnished inaccurate particulars of such income in terms of explanation 1, 2,3,4 and 5. You are hereby requested to appear before me at 11.30 AM/PM on 23.02.2013 and show cause why an order imposing a penalty on you should not be made under section 271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representatives you may show cause in writing on or before the said date which will be considers before any such order is made under section 271. Sd/- Assessing Officer, Income tax Officer, Ward 11 (4), New Delhi”
Bare perusal of the notice issued u/s 274 read with section 271(1)(c) of the Act, extracted above, in order to initiate the penalty proceedings against the assessee goes to prove that the AO himself was not aware / sure as to whether he is issuing notice to initiate the penalty proceedings either for “concealment of particulars of income” or “furnishing of inaccurate particulars of such income” by the assessee rather issued vague and ambiguous notice by incorporating both the limbs of section 271(1)(c). When the charge is to be framed against any person so as to move the penal provisions against him/her, he/she is required to be specifically made aware of the charges to be leveled against him/her.
Hon’ble Apex Court in case of CIT vs. SSA’s Emerald Meadows - (2016) 73 taxmann.com 248 (SC) while dismissing the SLP filed by the Revenue quashing the penalty by the Tribunal as well as Hon’ble High Court on ground of unspecified notice has held as under:-
“Section 274, read with section 271(1)(c), of the Income-tax Act, 1961 - Penalty - Procedure for imposition of (Conditions precedent) - Assessment year 2009-10 - Tribunal, relying on decision of Division Bench of Karnataka High Court rendered in case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 1TR 565/218 Taxman 423/35 taxmann.com 250, allowed appeal of assessee holding that notice issued by Assessing Officer under section 274 read with section 271 (1 )(c) was bad in law, as it did not specify under which limb of section 271 (1 )(c) penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income - High Court held that matter was covered by aforesaid decision of Division Bench and, therefore, there was no substantial question of law arising for determination - Whether since there was no merit in SLP filed by revenue, same was liable to be dismissed - Held, yes [Para 2] [In favour of assessee]”
Hon’ble Delhi High Court in case of Pr. CIT vs. Sahara 12.
India Life Insurance Company Ltd. (supra) while deciding the identical issue 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(1) (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 of2016 by order dated 5th August, 2016.”
Following the decisions rendered in the cases of CIT vs. Manjunatha Cotton and Ginning Factory, CIT vs. SSA’s Emerald Meadows and Pr. CIT vs. Sahara India Life Insurance Company Ltd. (supra), we are of the considered view that when the notice issued by the AO is bad in law being vague and ambiguous having not specified under which limb of section 271(1)(c) of the Act the same has been issued, the penalty proceedings initiated u/s 271(1)(c) are not sustainable.
Even otherwise, when returned income/assessed income is made under MAT provisions and thereby made certain additions under normal provisions of the Act, penalty cannot be imposed on the basis of disallowances or additions as has been held by Hon’ble Delhi High Court in case of CIT vs. Nalwa Sons Investments Ltd. (supra) by returning following findings :-
“Under the scheme of the Income-tax Act, 1961, the total income of the assessee is first computed under the normal provisions of the Act and tax payable on such total income is compared with the prescribed percentage of the book profits computed under section 115JB of the Act. The higher of the two amounts is regarded as total income and tax is payable with reference to such total income. If the tax payable under the normal provisions is higher, such amount is the total income of the assessee, otherwise, the book profits are deemed as the total income of the assessee in terms of Section 115JB of the Act. Where the income computed in accordance with the normal procedure is less than the income determined by legal fiction, namely, the book profits under section 115JB of the Act and the income of the assessee is assessed under section 115JB and not under the normal provisions, the tax is paid on the income assessed under section1 15JB of the Act. Concealment of income would have no role to play and would not lead to tax evasion. Therefore, penalty cannot be imposed on the basis of disallowances or additions made under the regular provisions.
In view of what has been discussed in the preceding paras, the question framed is answered in the negative and the findings returned by ld. CIT (A) suffered from no infirmity or illegality.
Consequently, the appeal filed by the Revenue is hereby dismissed. Order pronounced in open court on this 27th day of August, 2021.