M/S. C.S. DATAMATION RESEARCH SERVICES PVT. LTD.,NEW DELHI vs. ITO, NEW DELHI

This appeal filed by the assessee is directed against the order dated 9th March, 2016 of the CIT(A)-2, New Delhi, relating to assessment years 2011-12.

Levy of penalty of Rs.48,36,979/- by the AO u/s 271(1)(c) of the IT Act which has been upheld by the CIT(A) is the only issue raised by the assessee in the grounds of appeal.

Facts of the case, in brief, are that the assessee is a company engaged in the business of manpower supply and operational support. It filed its return of income on 24th March, 2012 declaring an income of Rs.33,89,810/-. The AO, on examination of the balance sheet, noted that the assessee has claimed other liabilities at Rs.4,61,10,276/- under the head ‘Current liabilities.’ On being asked by the AO to furnish the complete details of such ‘other liabilities’ the assessee subsequently filed a revised computation of income wherein it included an amount of Rs.1,45,61,540/- being amount disallowable u/s 43B of the IT Act due to non- payment of service tax. The AO noted from the tax audit report that there is clear mention of this amount as having not been paid within the stipulated time period and disallowable u/s 43B of the Act. Since the tax audit report was not furnished along with the return of income, the AO held that it was a deliberate attempt on the part of the assessee to suppress the amount. The AO, thereafter, completed the assessment at a total income of Rs.1,79,51,350/- wherein he made an addition of Rs.1,45,61,540/- being the service tax disallowable u/s 43B of the IT Act.

The assessee did not prefer any appeal against the order of the AO. Subsequently, the AO initiated penalty proceedings u/s 271(1)(c) of the IT Act. Rejecting the various explanations given by the assessee and observing that the assessee has concealed its particulars of income and furnished inaccurate particulars, levied penalty of Rs.48,36,979/- being 100% of the tax sought to be evaded u/s 271(1)(c) of the IT Act, 1961. In appeal, the ld.CIT(A) upheld the penalty so levied by the AO.

Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.

The ld. Counsel for the assessee, at the outset, referred to a copy of notice issued u/s 274 r.w. section 271 of the IT Act dated 24th March, 2014, which is placed at page 6 of the paper book. Referring to the said notice, he submitted that the inappropriate words in the said notice have not been struck off by the AO. Therefore, it is not understood as to under which limb of the provisions of section 271(1)(c) of the IT Act the AO has levied the penalty. Since the said show cause notice issued u/s 274 of the Act did not specify the charge against the assessee as to whether it is for concealing the particulars of income or for furnishing inaccurate particulars of income, therefore, the penalty order passed u/s 271(1)(c) of the IT Act in pursuance of the said notice deserves to be set aside. For the above proposition, the ld. Counsel referred to the following decisions:- i) CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565; ii) CIT v. SSA’S Emerald Meadows [2016] 73 taxmann.com 241 (Kar); iii) CIT v. Samson Perinchery 392 ITR 4 (Bombay); iv) PCIT v. Sahara India Life Insurance Co. Ltd. [ITA No. 475 of 2019]; v) Manu Bali v. ACIT [ITA/790/DEL/2016; decision dated 05.10.2017];

So far as the merit of the case is concerned, the ld. Counsel for the assessee submitted that the Hon’ble Delhi High Court in the case of CIT vs. Noble & Hewitt (I) (P) Ltd. reported in 305 ITR 324, has held that when the assessee did not deposit part of service tax collections with concerned authorities and has neither claimed any deduction in this regard nor did it debit the said amount as an expenditure in the Profit & Loss Account, no disallowance u/s 43B can be made. He also relied on the decision of Chennai Bench of the Tribunal in the case of ACIT vs. Real Image Media Technologies (P) Ltd. reported in 116 TTJ 964 and the decision of the Delhi Bench of the Tribunal in the case Tristar Intech (P) Ltd. vs. ACIT, order dated 7th September, 2015 wherein similar view has been taken by the Tribunal. Referring to the audited financials of the assessee for the impugned assessment year, he submitted that the assessee has not claimed such service tax as a deduction in the Profit & Loss Account. He accordingly submitted that in view of the decisions cited (supra), penalty is not leviable u/s 271(1)(c) of the IT Act when the disallowance u/s 43B should not have been made.

He submitted that the ld.CIT(A) in assessee’s own case for subsequent assessment year, i.e., A.Y. 2012-13, has deleted the addition made u/s 43B on account of non-payment of service tax liability, even though the assessee itself had added it back to its income while filing the revised computation of income. The ld.CIT(A) in the said order has deleted the addition on unpaid service tax amounting to Rs.94,68,278/- and allowed the ground raised by the assessee. He submitted that the Revenue has not filed any appeal against the order of the Tribunal.

Referring to the copy of the assessment order, the ld. Counsel further submitted that there is no satisfaction recorded in the assessment order, therefore, the penalty could not have been levied by the AO u/s 271(1)(c) of the IT Act. Referring to the decision of the Delhi Bench of the Tribunal in the case of Tristar Intech (P) Ltd. vs. ACIT, order dated 7th September, 2015 he submitted that the Tribunal in the said decision has held that Explanation-1 cannot be applied in a case where the assessee furnishes inaccurate particulars of income. Since the AO, in the instant case has invoked clause (a) and (b) of Explanation-1 to section 271(1)(c) of the IT Act while levying the penalty u/s 271(1)(c) of the IT Act, therefore, the same is also not sustainable. He accordingly submitted that on all counts penalty levied by the AO and sustained by the CIT(A) is not in accordance with the law and, hence, should be deleted.

The ld. DR, on the other hand, heavily relied on the order of the CIT(A). He submitted that the assessee is a habitual defaulter in submitting its e-returns since the returns were always filed beyond the due date. The assessee never bothered even to respond to the show cause notices/questionnaires issued by the AO. The tax audit report was never filed along with the return of income and were never furnished before the AO. during the course of assessment proceedings, deliberately and intentionally, fully knowing that the assessment proceedings are going to be barred by limitation. Since the assessee company is not a small company and doing business with private parties and Government departments, therefore, it also cannot be said that it was not properly advised. So far as the argument of the ld. Counsel for the assessee that the inappropriate words are not struck off from the notice, he submitted that the Hon’ble Madras High Court in the case of Sundaram Finance Ltd. vs. CIT (2018) 403 ITR 407 (Mad) has held that where notice did not show nature of default, it was a question of fact. The assessee had understood the purport and import of notice, and hence, no prejudice was caused to the assessee. While doing so, the Hon’ble High Court has considered the decision of the Hon’ble Karnataka High Court in the case CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 (Kar.). Referring to the decision of the Hon’ble Bombay High Court in the case of CIT vs. Smt. Kaushalya (1994) 216 ITR 660 (Bom), he submitted that the Hon’ble High Court in the said decision has held that mere mistake in language used or mere non-striking off of inaccurate portion cannot by itself invalidate the notice under section 274. Accordingly penalty orders passed by the AO for different assessment years were held to be perfectly valid and there was no justification for quashing the same on the ground of absence of jurisdiction. He also relied on the following decisions:- i) Trimurti Engineering Works vs. ITO (2012) 150 TTJ 195 (Del); ii) Union of India vs. Dharmendra Textile Processors, 306 ITR 277 (SC); iii) Chairman SEBI vs. Shri Ram Mutual Fund (2006) 68 SCL 216 (SC); & iv) CIT vs. Zoom Communications P. Ltd. (2010) 327 ITR 510 (Del).

The ld. Counsel for the assessee in his rejoinder submitted that the Hon’ble Delhi High Court in the case of PCIT vs. Sahara India Life Insurance Company Ltd. has approved and followed the decision of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra). So far as the decision of the Hon’ble Bombay High Court in the case of Smt. Kaushalya (supra) is concerned, he submitted that the Hon’ble High Court subsequently in the decision in the case CIT vs. Samson Perinchery (supra) has followed the decision of the Hon’ble Karnataka High Court and, therefore, the decisions relied on by the ld. DR cannot be accepted. Referring to the decision of the Delhi Bench of the Tribunal in the case of Sanjay Mittra vs. DCIT, he submitted that the Tribunal has considered all the decisions relied on by the ld. DR in that case and held that all those decisions are of non-jurisdictional High Courts whereas the Delhi Bench of the Tribunal is bound by the decision of the Hon’ble Delhi High Court. Distinguishing the various decisions relied on by the ld. DR, he submitted that none of the decisions are applicable to the present case and are distinguishable and, therefore, the penalty levied by the AO and sustained by the CIT(A) should be cancelled.

We have considered the rival arguments made by both the sides and perused the material available on record. We have also considered the various decisions cited before us. We find, the AO, on the basis of the details furnished by the assessee during the course of assessment proceedings, made an addition of Rs.1,45,61,540/- u/s 43B of the IT Act being the unpaid liability towards service tax. The above liability was shown under the head ‘Current liabilities’ in the balance sheet. The assessee did not prefer any appeal and thereafter penalty was levied u/s 271(1)(c) of the IT Act which has been upheld by the CIT(A). A perusal of the copy of the notice issued u/s 274 of the IT Act shows that the inappropriate words in the said notice has not been struck off. Even the last line of the said notice only speaks of section 271 and does not even mention section 271(1)(c) of the IT Act. We find, the Delhi Bench of the Tribunal in the case of Sanjay Mittra (supra) had considered an identical issue and following the decision of the Tribunal in the case of Sahiwal Investment & Trading Co. vs. ITO, vide for A.Y. 2006-07, order dated 18.07.2018, has cancelled the penalty levied by the AO and sustained by the CIT(A) by observing as under:-

The Hon’ble Delhi High Court in the case of Sahara India Life Insurance Company Ltd. (supra), while deciding the issue of non-striking off of inappropriate words, has held as under:-