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Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC-1’ NEW DELHI
Before: SHRI R. K. PANDA & MS SUCHITRA KAMBLE
Appellant by Sh. R. K. Kapoor, CA Respondent by Sh. Ashok Gautam, Sr. DR Date of Hearing 10.03.2021 Date of Pronouncement 23.03.2021 ORDER
PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against order dated 07/08/2014 passed by CIT (A)-IV for assessment year 2010-11.
The grounds of appeal
are as under:-
1. That the Ld.CIT(A)-IV, New Delhi was not justified in upholding the penalty levied u/s 271(1)(c) of the Income Tax Act amounting to Rs. 4,00,000/- disregarding the contentions of the appellant that the assessee has claimed the amount of deduction of Rs. 10 lacs fully disclosing the facts in the Profits & Loss Account under the bonafide belief that it is allowable.”
3. The assessee company is engaged in the manufacture and export of meat. It filed return of income declaring income of Rs. 4,93,01,240/-. The assessment was made at Rs. 5,04,92,200/-. The assessee in its Profit & Loss Account has claimed loss of Rs. 10,00,000/- on account of forfeiture of advance for land. The Assessing Officer disallowed the said claim on the ground that the loss was in the nature of capital loss and not an item of revenue expenditure. The assessee has also claimed wealth-tax liability of Rs. 1,44,418/-. The Assessing Officer disallowed the same and added to the total income of the assessee. No appeal was filed against the said addition. Therefore, the addition has attained finality and assessed income of Rs. 5,04,92,200/- has become the finally assessed income as against returned income of Rs. 4,93,01,240/-. The Assessing Officer issued penalty notice u/s 271(1)(c) of the Act and after giving opportunity of being heard to the assessee came to the conclusion that the assessee has made wrong claim of expenses to the tune of Rs. 10,00,000/- and therefore concealed/furnished wrong particulars of income to the extent of Rs. 11,44,418/-. The Assessing Officer levied penalty of Rs. 4,00,000/- which is a little more than minimum penalty of Rs.3,88,987/- leviable under the Act.
4. Being aggrieved by the penalty order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
5. The Ld. AR submitted that in response to the penalty notice issued by the Assessing Officer, the assessee submitted that the main addition of Rs. 10,00,000/- towards forfeited advance by Shri S. Puranjit Singh was taken as a bonafide business decision and purchase of the said land from the said person was cancelled in the best interest of the business of the company because a cheaper land was available and purchased from another person. All the supporting documents to substantiate this claim of the assessee were filed with the Assessing Officer. Amongst other, it was submitted that merely that the assessee has not filed an appeal against the Assessment Order, does not lead to an inference that the assessee has furnished inaccurate particulars of income in respect of the additions made, Amongst other, the judgement of Hon’ble Supreme Court in the case of CIT Vs, Reliance Petro Products Ltd. 322 ITR 158 was also referred to and relied upon by the assessee. These principles were reiterated by Hon'ble Supreme Court in 1TO v. Rama Natba Gadhavi 2G17-TIOL-98- SC-IT. Similar submissions were made with respect to the other additions. The Ld. AR further submitted that the Assessing Officer levied the penalty by holding that the assessee has furnished inaccurate particulars of income in respect of claims made pertaining to all the items of additions and imposed a penalty of Rs.4,00,000/- which works out to be slightly more than 100% of tax sought to be evaded on all the additions made as per the calculations available in the penalty order. The Ld. AR further submitted that the Assessing Officer while levying the penalty, relied upon the judgment of Hon’ble Supreme Court in the case of CIT Vs. AtuI Mohan Bindal 317 ITR 1, the judgment of Dharmendra Textile 306 ITR 277 as also the judgment of Hon’ble High Court in the case of CIT Vs. Zoom Communication Pvt. Ltd., of 2010 dated 17.05.2010. All such judgments are distinguishable on facts and are not relevant. The Ld. AR submitted that the main item of disallowance i.e. loss on account of forfeiture of advance for purchase of land could have been claimed as allowable as revenue expenditure, yet merely because the assessee has accepted this addition should not lead to an inference that the assessee has furnished inaccurate particulars of income. The Ld. AR also submitted that the deductions which have been claimed in the taxable income on the basis of bonafide belief that the same are allowable or deductions which are inadvertently claimed as deductions although not allowable, does not ipso-facto lead to an inference that the assessee has intentionally claimed these expenses. However, the CIT(A) by referring to Explanation 1 to'section 271(l)(c) upheld the levy of penalty and was of the view that as per Explanation 1, the assessee is deemed to have concealed the particulars of its income and furnished inaccurate particulars in respect of additions made if the explanation given by the assessee remains unsubstantiated. The Ld. AR submitted that the Assessing Officer has mechanically initiated the penalty proceedings without specifying the exact charge upon which the proceedings were initiated by him by not striking of the inappropriate portion in the statutory notice issued u/s 2.74 r.w.s. 271 of the Income Tax Act. A copy of this notice issued by the Assessing Officer on completion of assessments dated 28.06.2012 was produced by the Ld. AR at the time of hearing. The Ld. AR further submitted that the Hon’ble Supreme Court in the case of Veerbhadrappa Sangappa & Co. TS-38 l-SC-2016 has categorically held that if proper charge is not levied on the assessee and from the statutory notice issued it is not clear as to what is the exact charge against the assessee, then initiation of penalty proceedings and consequentially its levy' is bad in law and levy of penalty in these circumstances cannot be sustained. Penalty levied based on pre-printed statutory notice issued u/s 274 r.w.s. 21(1 )(c) of the Income Tax Act without specifying the exact charge is held to be bad in law and penalty levied is not sustainable. The Ld. AR submits that the aforesaid judgment of Hon’ble Supreme Court is the law of land and is being followed by various Courts across the country and some of the judgments on this proposition are as under. – 1. CIT v. Manjunatha Cotton & Ginning Factory; 359 ITR 565 (Karnataka) SLP against this judgment has been dismissed by Hon’ble Supreme Court in VeerbhadrappaSangappa (Supra). DCIT v. Nepa Ltd. ITA No. 683/Indore/2013. 2.
Hafees Contractor v. ACIT; (Mumbai).
Suvaprasanna B. V. ACIT; ITA No. 1303/Kol/2010.
The ACIT v. HPCL Mittal Pipeline Ltd. 2018-TIOL-1196-ITAT-Amritsar (Third Member) 6. ITO v. RajanKalinuthu - 2019-TIOL-1128-ITAT-Madras.
7. GautamThadani v. ITO - 202O-TIOL-647-ITAT-Delhi 8. CHEGG India (P) Ltd. v. ACIT. 2020-TII-412-ITAT-Delhi-TP.
Suresh Dutt Malhotra v. ACIT 2019-TIOL-486-ITAT-Delhi.
The Ld. AR also referred some of the relevant judgments that are: (i) DC IT v, Roger Enterprises Ltd. 2012-TIOL-515 ITAT-Delhi (ii) DCIT v. Saraya Industries 104 TTJ 213 (Delhi). The Ld. AR submitted that no faults have been found in the explanation offered by the assessee. Therefore, Explanation 1 to section 271(1 )(c) has no application on the facts of the assessee’s ease and the learned CIT(A)' s reference on Explanation 1 to section 271(l)(c) is totally misplaced and legally not maintainable. As regards the claim of Wealth Tax liability, the Ld. AR submitted that this claim was due to an inadvertent and bonafide error on the part of the assessee, Hon’ble Supreme Court in the case of Price Waterhouse Coopers 211 Taxman 40 (SC) has categorically held that genuine and bonafide but silly mistakes can be committed even by the well educated and highly expert persons. Hon’ble Delhi High Court in the case of CIT v. Soceitex (2012- TIOL-540-HC-DeIhi-HC) deleted the penalty u/s 271(l)(c) of the Income Tax Act for an addition made towards provision for Income Tax. Hon’ble High Court noted that although inaccurate particulars were furnished but it was an inadvertent bonafide mistake and it was not a repetitive claim made by the assessee and solitary claim was made only in this year. Therefore, the addition on account of Wealth Tax was at best a bonafide error. Moreover, against the declared income of about Rs. 4.93 Crores, the assessee cannot be expected to have made a wrong claim for a mere Rs. 1,44 lakhs. As regards the 3rd item, the Ld. AR submitted that the Assessing Officer did not even initiate penalty and this claim was held legally maintainable and additions made were against the various decisions of jurisdictional High Court on this issue.
The Ld. DR relied upon the assessment order, penalty order and the order of the CIT(A). The Ld. DR relied upon the following case laws:- (1) Union of India Vs. Dharmendra Textile Processors [2008] 166 Taxmann.com 448(SC) (2) Mak Data (P) Ltd. Vs. Commissioner of Income-tax [2013] 38 Taxmann.com 448(SC)
3) Trimurti Engineering Works Vs. Income Tax Officer, [2012] 25 Taxmann.com 363(Delhi) ITAT
We have heard both the parties and perused the material available on record. It is pertinent to note that the notice dated 28/06/2012 has not given the specific limb under which penalty has been imposed. Thus, the decision of the Hon'ble Supreme Court in case of SSA’s Emerald (Supra) is applicable in assessee’s case. Further, on merit also the contention of the assessee that the claims of the assessee were genuine and there are two opinions about the allowability of those claims found some force. The decision of the Hon'ble Supreme Court in Price Waterhouse Coopers Pvt. Ltd.(Supra) is as the bonafide mistake is always allowable mistake and the absence of due care, in a case such as the present, does not mean that the assessee is guilty of either furnishing inaccurate particulars or attempting to conceal its income. Thus, invoking penalty u/s 271(1)(c) of the Act is not just and proper. Therefore, the assessee succeeds in his legal plea as well as on merit and penalty does not sustain. The case laws relied by the Ld. DR do not apply in the present scenario as the principle laid down by the Hon'ble Supreme Court in Dharmendra Textile is related to mens rea and in this particular case the bonafide mistake cannot be held as mens rea . Thus, appeal of the assessee is allowed.