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Income Tax Appellate Tribunal, DELHI BENCH ‘C’: NEW DELHI
Appellant By Sh. Gautam Jain, Adv. Respondent by Sh. Jagdish Singh, Sr. DR Date of Hearing 10.06.2020 Date of Pronouncement 30.06.2020 ORDER
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER:
This appeal is preferred by the assessee against order dated 27.02.2019 passed by the Ld. Commissioner of Income Tax (Appeals)-22, New Delhi {CIT(A)} for Assessment Year 2000-01 wherein the Ld. First Appellate Authority has upheld the imposition of penalty of Rs.18,79,644/-imposed u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter called as ‘the Act’).
Global Emerging Markets (P) Ltd. vs. ITO 2.0 The brief facts of the case are that the assessment of this case was completed u/s 143(3) of the Act at an income of Rs.69,27,614/- after adjusting brought forward losses. At the time of completing the assessment, the following additions were made:-
(i) Rs.1,80,000/- on account of donations. (ii) Rs.6,96,000/- being alleged difference in investment. (iii) Rs.47,36,485/- being alleged difference in financial transactions. (iv) Rs.48,82,192/- on account of disallowance of interest. (v) Rs.25,80,748/- being disallowance u/s 43(5) of the Income Tax Act.
2.1 On appeal by the assessee, the Ld. CIT (A) deleted all the additions except that of Rs.48,82,192/- on account of interest disallowance. The reason for addition of this amount was that the assessee company had shown interest income of Rs.1,54,16,856/- on ICD amount of Rs. 22,25,00,000/- given to M/s Merlin Resources Pvt. Ltd. It was seen that the assessee had charged 7%
Global Emerging Markets (P) Ltd. vs. ITO interest on the opening balance and 6% on the amount given during the year. However, the assessee had taken advances from M/s Silver Line Technologies Ltd. @ 15% per annum. The Assessing Officer required the assessee to explain why the advance taken @ 15% was given to another company @ 6%. The Assessing officer proceeded to restrict the interest expenditure claimed to 5% from 15% as claimed by the assessee. The assessee’s quantum appeal before the ITAT was also dismissed vide order dated 06.12.2016 in ITA No.2746/Del/2014.
2.2 Subsequently penalty of Rs.18,79,644/- was imposed u/s 271(1)(c) on this interest disallowance. The assessee’s appeal against the imposition of penalty before the Ld. CIT (A) was also dismissed. Now the assessee is before this Tribunal challenging the confirmation of penalty by raising the grounds of appeal: “1. That the learned Commissioner of Income Tax (Appeals)-22, New Delhi has erred both in law and on facts in upholding penalty of Rs. 18,79,644/- in an order dated 27.2.2019 under section 271(l)(c) of the Act.
2. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that in absence of any Global Emerging Markets (P) Ltd. vs. ITO
specific show cause notice having been issued, the levy of penalty is otherwise wholly misconceived.
That furthermore that since no satisfaction was recorded in the order of assessment, penalty levied is otherwise was without jurisdiction.
That the learned Commissioner of Income Tax (Appeals) has sustained the penalty by failing to appreciate that assessment proceedings are not conclusive and an alleged incorrect claim does not tantamount to furnishing of inaccurate particulars, when the details supplied by the assessee in return are not found to be incorrect or erroneous or false.
That various adverse findings recorded by the learned Commissioner of Income Tax (Appeals) overlook the written submissions and judicial pronouncements relied upon by the appellant.
That the learned Commissioner of Income Tax (Appeals ) has erred both in law and on facts in penalty imposed and sustained is illegal and invalid as the same has been levied and upheld by recording vague and, inconclusive finding that assessee has concealed/furnished inaccurate particulars of its income to the tune of Rs. 48,83,192/-.
That the learned Commissioner of Income Tax (Appeals) has failed to appreciate the factual matrix of the case of the appellant and evidence on record and conclusions thus drawn mechanically are wholly unjustified.
It is therefore prayed that the penalty levied of Rs.18,79,640/- u/s 271(1)(c) of the Act and sustained by Global Emerging Markets (P) Ltd. vs. ITO
the Learned Commissioner of Income Tax (Appeals) may kindly be deleted.”
3.0 At the outset, the Ld. Authorized Representative (AR) drew our attention to the notice issued u/s 274 r.w.s 271(1)(c) of the Act and submitted that the notices placed at pages 85-86 of the Paper Book were highly vague in as much as they did not state to whether the assesee had concealed the particulars of income or had furnished inaccurate particulars of income. It was also submitted that the penalty order was vague and non specific as there was no specific charge in the penalty order specifying that the assessee had concealed its income and/or had furnished inaccurate particulars of income. The Ld. AR submitted that now it is settled law that if the notice initiating the penalty proceedings does not specify as to under what limb is the penalty being proposed to be imposed, the penalty imposed will not be sustainable in eyes of law as the assessee would not have been made aware of the charge for which the penalty had been initiated. The Ld. AR placed reliance on number of judicial precedent in this regard and submitted that in Global Emerging Markets (P) Ltd. vs. ITO view of this inherent defect in the notice issued u/s 274, the impugned penalty was liable to be deleted.
4.0 In response, the Ld. SR. DR vehemently argued that the quantum addition had been upheld by the ITAT also and, therefore, it was a fit case for levy of penalty. It was further submitted that a mere technicality like the alleged defect in notice should not be a ground for deletion of penalty when it was obvious from the conduct of the assessee that he had made a incorrect claim of interest in as much as 10% of interest was confirmed to be have been claimed in excess.
5.0 We have heard the rival submissions and have given thoughtful consideration to the orders of the authorities below. The Ld. AR for the assessee has challenged the impugned order contending that show-cause notice issued by the AO is not a valid notice to initiate the penalty proceedings as the assessee has not been made aware if he has concealed the particulars of income or has furnished inaccurate particulars of such income. It is settled principle of law that penalty cannot be imposed merely on the Global Emerging Markets (P) Ltd. vs. ITO ground that additions made in the income of the assessee have been confirmed. Rather to proceed with the imposition of penalty u/s 271(1)(c), the AO has to prove that there was concealment of particulars of income or that the assessee has furnished inaccurate particulars of such income.
5.1 A bare perusal of the notices issued to the assessee u/s 274 read with section 271(1)(c) of the Act goes to prove that assessee has not been called upon to explain if it has concealed the particulars of income or furnished inaccurate particulars of such income. The Hon’ble Karnataka High Court in case of CIT vs. Manjunatha Cotton and Ginning Factory & Ors dealt with the identical issue threadbare and came to the following conclusion :-
“63. In the light of what is stated above, what emerges is as under: a) Penalty under Section 271(1)(c) is a civil liability. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability.
Global Emerging Markets (P) Ltd. vs. ITO d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. f) Ever if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such Global Emerging Markets (P) Ltd. vs. ITO tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order. l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority. p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no Global Emerging Markets (P) Ltd. vs. ITO penalty could be imposed to the assessee. s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. u) The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.”
5.2 Therefore, following the law laid down by the Hon’ble High Court of Karnataka, as stated above, we are of the considered view that when the assessee has not been specifically made aware of the charges leveled against it as to whether there is a concealment of income or furnishing of inaccurate particulars of income on his part, the penalty u/s 271(1)(c) of the Act is not sustainable. We also note that recently, the Hon’ble Delhi High Court has approved the order of the Hon’ble Karnataka High Court in the case of Sahara India Life Insurance. Accordingly, respectfully
Global Emerging Markets (P) Ltd. vs. ITO following the judicial precedents as aforementioned, we set aside the order of the Ld. First Appellate Authority and direct the AO to delete the penalty.
6.0 In the final result, the appeal of the assessee stands allowed.
Order pronounced on 30/06/2020.