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Income Tax Appellate Tribunal, Hyderabad ‘ B ‘ Bench, Hyderabad
Before: Smt. P. Madhavi Devi & Shri S.Rifaur Rahman
Per Smt. P. Madhavi Devi, J.M.
This is assessee’s appeal for the A.Y 2003-04 against the order of the CIT (A)-11, Hyderabad, dated 16.08.2016 confirming the penalty levied by the AO u/s 271(1)(c) of the Act. The assessee has raised the following grounds of appeal: “1. The order of the learned Commissioner of Income Tax (Appeals) I, Hyd. dt.16-8-2016 is contrary to law and facts. 2. The appellant contends that the learned Commissioner of Income tax erred in upholding the penalty of Rs.6,23,643 levied u/ s 271(1)(c) of the LT Act. 3. The appellant contends that notional interest assessed to the extent of Rs.17,13,312 cannot be construed as income concealed or amounting to furnishing of inaccurate particulars.
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It is contended that the said sum of Rs.17,13,312 represents interest on non-performing assets (NPAs.) calculated in line with the guide lines issued by the Reserve Bank of India. Hence the said notional interest of Rs.17,13,312 is not income and not liable to tax. Even otherwise the appellant contends that the said assessment of interest cannot be considered as concealment or furnishing of inaccurate particulars entailing the levy of penalty of Rs.6,23,643 u/s 271(1)(c) of the LT Act. 5. The appellant contends that the notice u/s 271(1)(c) has not been issued properly and is bad in law. The very levy of penalty on the basis of the said notice is erroneous”.
Further, vide letter dated 20.02.2018 has raised the following additional grounds of appeal along with prayer for admission of the same: “1. The appellant contends that the notice dt. 28.12.2005 issued u/s 271(1)(c) of the I.T. Act along with the assessment order dt. 28.12.2005 is bad in law as it does not specify the charge in unequivocal and unambiguous terms as to whether the show notice cause is for concealment of income or for furnishing inaccurate particulars of income. 2. It is therefore contended that apart from merits, the notice issued u/s 271(1)(c) of the I.T. Act is hit by ambiguity and therefore, the consequent penalty order levying penalty of Rs.6,23,643 u/s 271(1)(c) is bad in law and deserves to be quashed”
Brief facts of the case are that the assessee company engaged in the business of hire purchase and equipment leasing financial services, filed its return of income for the A.Y 2003-04 on 28.11.2003 declaring an income of Rs.29,80,457. The return was processed u/s 143(1) initially and, thereafter, was picked up for scrutiny u/s 143(3) of the Act. During the assessment proceedings u/s 143(3), the AO noticed from the enclosures to the return of income that the assessee has received an amount of Rs.81,93,927 towards interest, other than interest on securities,
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in the previous year relevant to the A.Y 2003-04 and corresponding TDS of Rs.17,19,145 on this amount was also returned to the assessee, whereas only an amount of Rs.68,22,531 was offered to tax as interest on loans and advances. The assessee was therefore, requested to furnish the reasons for not offering the balance receipts to tax. The assessee vide reply dated 7.12.2005 stated that an amount of Rs.5,01,510 was offered to tax in the immediate three earlier A.Ys on accrued basis and as there was delay in issuance of TDS certificates by the deductor, the same is being claimed in A.Y 2003-04. In support of this contention, the assessee filed the reconciliation statement also. However, the AO noticed that the assessee has received an amount of Rs.15,54,453 as interest from Prathima Estates Ltd, but the same was not offered to tax , treating it as an NPA. When the assessee was asked to explain as to why the same has not offered to tax, it was stated that as per the RBI norms, the loans given to Prathima Estates Ltd, which is a sister concern of the assessee had become NPAs and thus interest was not offered to tax and a part of the interest to be received from Prathima Estates Ltd is reversed for the purpose of income recognition. The AO however, did not accept the assessee’s contention and observed that M/s. Prathima Estates Ltd is a sister concern of the assessee and that in the books of account, it was seen that Rs.12,50,000 is paid on 2.7.2002 towards loan repayment and another amount of Rs.5,72,291 has shown as payment received from Prathima Estates Ltd as on 31.03.2003 and therefore, the loan amount cannot be treated as NPA and interests ought to have been offered to tax. Similarly, he observed that some other loans also have not become NPA’s and the interest thereon ought to have been offered
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to tax. Thus, he made an addition of Rs.21,34,073 under this head. Aggrieved, the assessee preferred an appeal before the CIT (A) and thereafter to ITAT which confirmed the additions made by the AO. Meanwhile, the AO initiated penalty proceedings u/s 271(1)(c) of the Act by coming to the conclusion that the assessee has furnished inaccurate particulars of income, the AO levied the penalty u/s 271(1)(c) of the Act. Aggrieved, the assessee preferred its appeal before the CIT (A), who confirmed the penalty and the assessee is in second appeal before by raising the grounds of appeal as well as the additional grounds of appeal which are already reproduced in Paras 1 & 2 above.
In support of the additional grounds of appeal, the assessee has also filed copy of the notice u/s 271(1)(c) and it is seen there from that the AO has not struck off irrelevant portion of the notice and therefore, the reason for the initiation of the penalty proceedings is not known, i.e. whether it is for concealment of income or for furnishing of inaccurate particulars of income. This issue had come up before the Hon'ble jurisdictional High Court in the case of Pr. CIT vs. Smt. Baisetty Revathi reported in 398 ITR 88 (T & A.P) wherein the Hon'ble High Court has held that if irrelevant portion of the notice is not struck off, such notice is not valid and the consequent penalty order is not sustainable. Therefore, considering the legal question involved, we admit the additional grounds and adjudicate the same as under:-
While the learned Counsel for the assessee relied upon the submissions made above, the learned DR supported the
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orders of the authorities below and relied upon the following decisions which are referred to in her written submissions: a) Dr. Syamal Baran Mondal vs. CIT (2011) 244 CTR 631 b) Trishul Enterprises vs. DCIT (ITA Nos.384 & 385/Mum/2014 for A.Ys 2006-07 & 2007-08 dated 10.02.2017 c) M/s. Maharaj Garage & Co. vs. CIT dated 22.8.2017 d) Earthmoving Equipment Service Corpn. Vs. DCIT 22(2) Mumbai (2017) 84 Taxmann.com 51 e) Mahesh M Gandhi vs. ACIT (TS-5465-ITAT-2017 (Mumbai)-O) f) Dhanraj Mills (P) Ltd vs. ACIT (OSD) Central Range-r, Mumbai on 21st March, 2017 . g) ITA No.1519/Hyd/2016 dated 28.11.2017
Having regard to the rival contentions and the material on record, we find that the decisions relied upon by the learned DR of the Tribunal at Mumbai and therefore is only of persuasive value, while the decision of the jurisdictional High Court is binding on us. The facts in the case of Jyothirmay Yamasami are distinguishable from the facts of the case before us because in the case of Jyothirmay, the AO had recorded in the assessment order itself, the reason for initiating penalty proceedings, whereas, in the case before us, there is no such indication, either in the assessment order or in the notice u/s 271(1)(c) of the Act. Therefore, we hold that the notice u/s 271(1)(c) is not valid.
Even otherwise on merits also, we find that the assessee has been following consistent system of accounting the interest on receipt basis and as per the RBI norms, once a loan has been treated as an NPA, subsequent repayment of the loan
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also will not change the character of the NPA. Subsequent repayment may have justified the addition to the returned income, but that will not amount to furnishing of inaccurate particulars of income or concealment of income attracting the penalty u/s 271(1)(c) of the Act. Further, additions confirmed by the CIT (A) or the higher forum will not automatically attract penalty u/s 271(1)(c) of the Act. Unless it is proved that the assessee has committed the default of furnishing of inaccurate particulars or concealment of income. As both ingredients are absent in the case before us, we are of the opinion that the penalty is not sustainable even on merits.
In the results, the assessee’s appeal is allowed. Order pronounced in the Open Court on 18th July, 2018.
(S.Rifaur Rahman) (P. Madhavi Devi) Accountant Member Judicial Member
Hyderabad, dated 18th July 2018. Vinodan/sps Copy to: 1 PACT Securities & Financial Services Ltd, Plot No.213, Prathima, Road No.1, Film Nagar, Hyderabad 2 Dy.CIT Circle 16(3) Hyderabad 3 CIT (A)-11, Hyderabad 4 Pr. CIT – Central, Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File
By Order
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