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Income Tax Appellate Tribunal, MUMBAI BENCH “C”, MUMBAI
ORDER PER LALIET KUMAR, J.M: This appeal has been filed by assessee challenging the order passed by the Commissioner of Income Tax (Appeals)-17, Mumbai [hereinafter referred to as ‘the CIT(A)’] vide order dated 17.05.2019 on the ground mentioned in the present appeal.
2 Mum 2019-M/s Pal Synthetics Ltd. Grounds of appeal Tax effect relating to each Ground of appeal. 1. The ld. A.O. erred in leving Rs. 7,49,717/- Penalty under section 271(1)(c).
2. Your petitioner craves leave to add, alter, amend and/or withdraw any/or all the above grounds of appeal. Total tax effect Rs. 7,49,717/-
The ld. Authorized Representative (AR) for the assessee had filed the additional ground to the following effect: 3. Whether on the facts and circumstances, the show cause notice issued for levy of penalty u/s 271(1)(c) is vague and thus vitiates the penalty proceedings.
The ld. AR for the assessee had submitted that the additional ground raised
by the assessee is required to be allowed , being legal in nature.
4. Per contra, the ld. Departmental Representative (DR) has no objection for admitting the ground.
5. We have heard the rival contentions of the parties and perused the material available on record and the reasons given in the application for admitting the additional ground. Admittedly, the additional ground raised by the assessee is a legal ground and no fresh document/ record is required to be referred or placed on record.
6. Considering the totality of facts, we admit the additional ground. The additional ground raised by the assessee is hereby admitted.
At the outset, the ld. AR for the assessee has submitted that the additional ground raised
by the assessee goes to the root of the matter and 3 Mum 2019-M/s Pal Synthetics Ltd. the same is required to be adjudicated by the Bench. Our attention was drawn at page no.1 of the Paper Book (PB) where the notice dated 15.12.2017 is placed. It was contentions of the ld. AR that the notice dated 15.12.2017 is non-speaking, cryptic and has not ticked the relevant clause for which the notice was issued.
8. It was submitted that in the absence of non-ticking of the relevant clause i.e. whether the notice was issued for incorrect particulars of income or for both, the proceeding cannot be initiated. He relied upon the decision of the Hon’ble jurisdictional High Court in the matter of Mohd. Farhan A. Shaikh Vs. DCIT (125 taxmann.com 253 (page 61 of PB) to buttress his argument. Further, the ld. AR had submitted there was no mens rea on the part of the assessee to declare the incorrect facts at the time of filing the return of income. Our attention was drawn to the balance-sheet for the previous and subsequent years and on the basis of the B/s , it was submitted that the assessee is a loss making company and merely because the assessee has wrongly shown the loss on the sale of asset as revenue loss instead of capital loss, would not give right to any tangible benefit to the assessee as the assessee would continuous to be loss making company. It was submitted that the assessee has brought the above said fact to the notice of the CIT(A), however, the CIT(A) has not agreed to the contention of the assessee.
9. Per contra, the ld. DR, relied upon the para-4.1 of the CIT(A) to the following effect: “4.1 During penalty proceeding, the AO has discussed each and every argument of the appellant company in detail. As loss on sale of assets is a capital loss, in no way, the same can be claimed as a Revenue loss in the books of account. The act of claiming a Capital expense as a Revenue expense is nothing but furnishing of inaccurate particulars by the appellant company. In the light of landmark judgment discussed in above para, particularly, Reliance 4 Mum 2019-M/s Pal Synthetics Ltd. Petro Products Pvt. Ltd.(Supra), it has to be examined whether the Claim is a bonafide claim or not. The assets, which has been sold is a part of block of assets and it does not have any independent existence as long as it is included in the block of assets. Wherever, the block of assets is reduced, the corresponding WDV is reduced. Profit or loss can be computed only when the block of assets, ceases to exist. Thus, there is no ambiguity that claim of loss on account of an individual asset out of a block of assets is not a bonafide claim. There cannot be two opinion of this issue. If so, then Explanation 1 to section 271(1)(c) is clearly attracted and out of a claim which is not bonafide, the appellant company is liable for penalty u/s.271(1)(c) of the Act.” and had further submitted that the requirement of mens rea is not essential for the purpose of imposing the penalty, once the assessee was found by the AO that the assessee has filed inaccurate particulars of income then levy of penalty is automatic.
We have heard the rival contention of the parties and perused the material available on record.
Firstly, we will deal with the additional ground raised by ld. AR for the assessee. Admittedly, the notice dated 15.12.2017 provides as under:
If we look into the notice, either there was no ticking of either of the clause or there was ticking of one of the clause. If we assume that the AO while issuing the notice for penalty has imposed the penalty on account of furnishing inaccurate particulars of income and not concealing the particulars of income. In that case if we look into para 6 of Penalty order, it is abundantly clear that the AO had imposed the penalty for concealing the 6 Mum 2019-M/s Pal Synthetics Ltd. income and furnishing the inaccurate particulars of income. Further, if we look into the order passed by CIT(A), the CIT(A) in paragraph-4.1 reproduced herein above , it clearly shows that the penalty was imposed on the assessee for inaccurate particulars of income.
In our considered opinion, it is mandatory as per the law laid down by the Hon’ble jurisdictional High Court in the case of Mohd. Farhan A. Shaikh (supra) to specifically mention the charge for which the penalty was imposed. In the present case, the AO has imposed the penalty for both i.e. concealment of income and furnishing of inaccurate particulars of income, whereas the notice, was issued only for the incorrect particulars of income. 14. In our considered opinion, the same is not sustainable in terms of the law laid down by the jurisdictional High Court in the matter of Mohd. Farhan A. Shaikh (supra). 15. In view of the above, we are of the facts that the notice imposing the penalty was vague, imprecise and incapable of clear understanding, therefore, the proceeding initiated on such notice is liable to be quashed. In view of the above, we are of the considered opinion that the penalty initiated against the assessee are also liable to be quashed. 15.1 We may further mention that the assessee being loss making company, is not going to gain anything by wrongly declaring the loss on sale of asset as revenue loss instead of capital loss ,as in our view it is tax neutral. Therefore, no malafide intention to conceal the income or particulars of income can be attributed to the assessee. For the above said purpose, we may further relied upon the decision of the Hon’ble Supreme Court in the matter of Price Water Cooper Pvt. Ltd. Vs. CIT (348 ITR 306) for the said purposes.