SMT. SUMAN LAKHANI,NEW DELHI vs. ACIT, FARIDABAD

Per Anadee Nath Misshra, AM

(A) This appeal by Assessee is filed against the order of Learned Commissioner of Income Tax (Appeals), Faridabad, [“Ld. CIT(A)”, for short], dated 02.12.2015 for Assessment Year 2008-09. The grounds of appeal are as under:

“1. That the order dtd. 02.12.2015 passed by Ld. CIT(A) receivd on 30/12/2015 is bad in law and on facts. 2. That the Ld. CIT(A) has erred in confirming the penalty of Rs. 6,16,688/- 3. That the Appellant craves leave to alter, amend, vary or add any other grounds of Appeal.”

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ITA-857/Del/2016. Smt. Suman Lakhani. (B) Assessment Order dated 20.12.2010 was passed by the Assessing Officer (“AO”,

for short) U/s 143(3) of Income Tax Act, 1961 (“I.T. Act”, for short) wherein an amount

of Rs. 18,15,188/- was disallowed out of assessee’s claim for deduction on account of

interest expenses. The AO also levied penalty U/s 271(1)(c) of I.T. Act vide order

dated 24.03.2014, amounting to Rs. 6,16,688/- in respect of aforesaid disallowance

amounting to Rs. 18,15,188/-. The assessee’s appeal against the aforesaid order dated

24.03.2014 imposing penalty U/s 271(1)(c) of I.T. Act was dismissed by Ld. CIT(A)-

Faridabad, vide appellate order dated 02.12.2015 of Ld. CIT(A). Aggrieved, the

Assessee has filed this appeal in Income Tax Appellate Tribunal (“ITAT”, for short)

against the aforesaid impugned appellate order dated 02.12.2015 of Ld. CIT(A). In the

course of appellate proceedings in ITAT, two separate written submissions, dated

10.12.2018 and 04.09.2019 were filed from the Assessee’s side which are reproduced

below for ease of reference:

“Assessee’s Submissions dated 10/12/2018: In continuation of grounds of appeals, most respectfully it is submitted that the Ld. CIT (A) has wrongly confirmed a penalty without considering the fact that the issue of disallowance of interest u/s 36(l)(iii), is highly debatable issue. Thus, there is difference of opinion as the matter/ issue is highly debatable issue. Most respectfully it is submitted that the Ld. Commissioner of Income Tax (Appeals) reversed his own penalty order in subsequent A.Ys.2010-11 and 2012-13 on same issue in case of appellant.

Copies of CIT (A) orders are enclosed for your reference. The Ld. CIT (A) has deleted the penalties in both assessment years on same ground and in case of same assessee by considering the Hon’ble Supreme Court Judgement and various judicial decisions of ITAT; the relevant extracts of the CIT (A) order is as under: “9. It is observed that there has been no concealment or furnishing of inaccurate

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ITA-857/Del/2016. Smt. Suman Lakhani. particulars by the assessee in this case. The disallowance has been made by computing the sums which were duly disclosed in the return and accounts of the assessee. I find that sec 271(l)(c) postulates imposition ofpenalty for furnishing of inaccurate particulars and concealment of income. Hence, in my considered opinion on the facts and circumstances of this case the assessee’s conduct cannot be said to be contumacious so as to warrant levy of penalty. Hence I hold that no penalty is leviable on this ground.

‘An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute. ’

a) ITAT, Delhi -Asst. Commissioner of Income Tax us. Mr. Manish Jain Prop. BPB Publications - IT A no.5999/Del/2012. b) ITAT, Mumbai - Deputy Commissioner of Income Tax vs. M/s Parle Pet Pvt

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ITA-857/Del/2016. Smt. Suman Lakhani. Ltd - ITA no.391/Mum/2010 dtd.20/07/2011. c) 2013 (12) TMI 922 - ITAT, Amritsar - Deputy Commissioner of Income Tax vs. M/s Max India Ltd. 13. It is also pertinent to reproduce the judgement of the Hon’ble ITAT Bench Chandigarh on absolutely similar facts in the case of A.B. Sugars Ltd, Chandigarh vs. Department of Income Tax in ITA no.ll07/CHD/2014 dtd.16/02/2016for the A. Y.2007-08. ”

Assessee’s Submissions in Context of Section 36(l)(iii): In a recent judgement in case of Hero Cycles (P) Ltd vs. Commissioner of Income-tax (Central) Ludhiana [(2015) 63 taxmann.com 308 (SC)], the Hon’ble Supreme Court has again authoritatively upheld the primary right of any businessman/ organization to plan and conduct his/ its business, thereby effectively negating any attempts on the part of revenue to step into the shoes of an businessman and sit in judgement on business decisions, particularly with regard to judging the reasonableness of any expenditure and the commercial prudence or correctness of any decision. More specifically rendered in the context of allowability of interest u/s 36(l)(iii) of the Income-tax Act, 1961 (the “Act”), the observations, interpretation of law and the conclusions drawn therein, if applied objectively, will have wide reaching ramifications. In recent times the judgement of the Punjab and Haryana High Court in the case of CIT vs. Abhishek Industries Ltd [(2006) 286 ITR 1] had become the benchmark/ basis for the revenue to disallow claims for interest u/s 36(l)(iii) of the Act. Without in any manner disputing the correctness of the said judgement, the Department had resorted to rather liberally, unilaterally and unjustifiedly apply it as a basis for disallowing claims of interest which otherwise seemed tenable. The blanket application of the said judgement to myriad assessees across the spectrum without due regard to specific facts and circumstances of any case had led to unnecessary litigation apart from unmitigated hardships to assessees. Although, subsequently the Hon’ble Supreme Court itself in the case of S.A Builders vs. CIT [(2007) 288 ITR 1 (SC)] had amplified the scope of “commercial expediency” specifically in the context of sec 36(l)(iii) of the Act, there was no let-up in the litigation on this count. With the latest judgement in the case of Hero Cycles (P) Ltd, the Hon’ble Supreme Court has again upheld in no uncertain terms that “Once it is established that there is nexus between expenditure and purpose of business revenue cannot justifiably claim to put itself in arm-chair of businessman or in position of Board of Directors and assume role to decide how much is reasonable expenditure having regard to circumstances of case”. Rendered in the context of allowability of interest u/s 36(l)(iii) of the Act and the fact of interest free loans having been granted to subsidiary companies and Directors, this judgement should act as a touchstone for interpreting

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ITA-857/Del/2016. Smt. Suman Lakhani. sec 36(l)(iii) and by again establishing the primacy of a businessman to plan, organize and conduct his/ its affairs perhaps lead to a more reasonable interpretation and adoption of sagacious course of action by the Revenue authorities.

Assessee’s Submissions on Penalty Order: 1. Most respectfully it is submitted that the Ld. AO has levied and CIT (A) confirmed the penalty of Rs.6,16,688/- on the basis that Tax sought to be evaded on income of Rs. 18,15,188/- representing disallowance of interest and bank charges u/s 36(l)(iii). It is submitted that “penalty” and “assessment” are two independent proceedings. It may be noted that there could be genuine difference of opinion between tax gatherer and tax payer but penalty proceedings require “furnishing of inaccurate particulars of income/ concealment of income. Reliance is placed upon the following Judgments: a) CIT vs. Reliance Petro Products Pvt Ltd (322 ITR 158) SC: Copy of order is enclosed. The Hon’ble Supreme Court in the case of Reliance Petroproducts Pvt Ltd (322 ITR 158) in the order dtd. 17/03/2010 has held that, “a mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. If this contention is accepted then in case of every return where the claim made is not accepted by the AO for any reason, the assessee will invite penalty u/s 271(l)(c). That is clearly not the intendment of Legislature. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars of income. ” b) Hindustan Steel vs. State of Orissa in 83 ITR 26: The Apex Court decision rendered by a larger Bench comprising of three of their Lordships in case of Hindustan Steel vs. State of Orissa in 83 ITR 26 wherein it was held that, “An order imposing penalty for failure to carry out a statutory obligation is the result of a quasicriminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when

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ITA-857/Del/2016. Smt. Suman Lakhani. there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute. ”

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ITA-857/Del/2016. Smt. Suman Lakhani. interest expenditure on interest bearing funds. In the above said facts and circumstances the Assessing Officer has failed to establish that assessee had furnished inaccurate particulars of income in connection with the said disallowance. The assessee had furnished complete particulars of its income and expenditure and had also furnished the details of interest bearing funds and also interest free advances made by it. The case of the Revenue was that in view of the mixed funds available with the assessee, proportionate disallowance is to be made out of interest expenditure relatable to the interest free advances made by the assessee. We are in agreement with the order that the assessee having furnished complete particulars of income and mere disallowance of interest in the hands of the assessee u/s 36(1)(Hi) of the Act does not warrant levy of penalty u/s 271(l)(c) of the Act. The ground of appeal raised by the Revenue is dismissed. 7. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open Court on 28th day of February, 2013. ”

b) ITAT, Mumbai - Ami Builders Pvt Ltd vs. ACIT - 5(1) Mumbai, ITA no.803/Mum/2014 for A.Y.2009-10, date of pronouncement 02/03/2016. Copy of order is enclosed.

“16. In the present case the AO in the course of assessment proceedings had not recorded any satisfaction while initiating penalty the penalty proceedings, therefore, the penalty u/s 271(1)(c) of the Act was not leviable. In the present case, this contention of the Id. counsel for the assessee that in the subsequent year similar claim was although disallowed but penalty proceedings were dropped was not rebutted. Therefore, on the identical facts in the year under consideration vis-a- vis the subsequent year penalty u/s 271(l)(c) of the Act was not leviable, particularly when the department itself dropped the penalty in the subsequent year in similar facts. In the instant case the assessee claimed the deduction on account of interest u/s 24 of the Act because it was claimed and allowed in the preceding year therefore, the claim of the assessee was a bonafide claim based on a similar claim of the earlier year, the assessee disclosed all the facts relating to the payment of interest and claim of deduction before the AO. Therefore, only on the basis that the claim in full was not accepted by the AO, it cannot be said that the assessee concealed the particulars of his income or furnished inaccurate particulars of his income. As such penalty u/s 271(l)(c) of the Act was not leviable. We, therefore, by considering the peculiar facts of this case as discussed hereinabove delete the penalty sustained by the Ld. CIT (A). As a result, appeal filed by the assessee is allowed. Order pronounced in the open court on this 2nd March, 2016. ”

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ITA-857/Del/2016. Smt. Suman Lakhani. c) Deputy Commissioner of Income Tax vs. Eagle Iron and Metal Industries Ltd - ITAT, Mumbai ‘J’ Bench (2011) 11 ITR 384. Briefly stated the facts of the case are that the AO in the assessment for the relevant year had made additions to the total income on account of following disallowances: (i) Disallowance of Rs.9,76,256/- u/s 43B and 36(1 )(va) of the Act in relation to delay in depositing employees and employer’s contribution to the provident fund and the ESIC with concerned authorities, (ii) Disallowance of Rs.48,99,360/- on account of repair and maintenance expenses, (iii) Disallowance of Rs.26,45,967/- out of petty cash expenses by considering the same to be non genuine, (iv) Disallowance of Rs.23,37,548/- out of interest paid on the ground that the assessee was not charging interest on deposits and loans given, (v) Disallowance of Rs. 15,000/- out of miscellaneous income, (vi) Addition of Rs.4,681/- on account of interest income from bank not disclosed.

“The additions made by the AO were confirmed by CIT (A) and no further dispute had been raised by the assessee. The AO had also initiated penalty proceedings for concealment of income. In response to show-cause notice, the assessee submitted that no penalty could be imposed as the AO had not recorded satisfaction of concealment in the penalty proceedings. It was also submitted that disallowances had been made by the AO purely based on difference of opinion and on estimate and there was no case made out for concealment of income or furnishing of inaccurate particulars of income. In such cases it was pointed out no penalty for concealment could be imposed. The assessee placed reliance on several decisions of Courts. The AO was however not satisfied.

The assessee disputed the matter in appeal and reiterated the submissions made before the AO that mere disallowance/ additions to income would not automatically lead to penalty. Reliance was placed on the judgment of the Supreme Court in the case of S. A. Builders Ltd vs. CIT (A) (2006) 206 CTR (SC) 631 : (2007) 288 ITR 1 (SC). It was pointed out that during the assessment proceedings the assessee had given the details of various purposes for which advances had been given. The CIT (A) was satisfied by the explanation given by the assessee. It was observed by him that there was no material to show that there was deliberate act on the part of the assessee to conceal any income. The CIT (A) further agreed that mere disallowance of certain expenses would not automatically lead to penalty. Reliance was placed on the judgment of the Hon 'ble High Court of Punjab & Haryana in case of CIT vs. Ajaib Singh and Co (2001) 170 CTR (P&H) 489: (2002) 253 ITR 630 (P&H) and several other judgments. The CIT (A) accordingly accepted the explanation of the assessee in relation to various disallowance as bona fide and deleted the penalty imposed by the AO. Aggrieved by the said decision the Revenue is in appeal.

We have perused the records and considered the rival contentions carefully. The

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ITA-857/Del/2016. Smt. Suman Lakhani. dispute raised is regarding levy of penalty for concealment of income on account of various additions made in the assessment as mentioned in para 2 earlier. Penalty u/s 271(1)(c) is a civil liability and the Revenue is not required to prove wilful concealment as held by the Hon’ble Supreme Court in the case of Union of India vs. Dharamendra Textile and Processors (supra). However each and every addition made in the assessment cannot automatically lead to levy of penalty for concealment of income. A case for imposition of penalty has to be examined in terms of the provisions of Expln. 1 to sec 271(l)(c). Secondly it is a settled legal decision that penalty proceedings are different from assessment proceedings. The finding given in the assessment though is a good evidence but the same is not conclusive in penalty proceedings as held by the Hon’ble Supreme Court in the case of Anantharam Veerasinghaiah & Co vs. CIT (1980) 16 CTR (SC) 189: (1980) 123 ITR 457 (SC). Therefore merely because the additions made in the assessment have been confirmed in appeal or the assessee did not file any appeal against the addition cannot be the sole ground for imposing penalty. In case the assessee for want of proper legal advice or for any other reasons did not appeal against the assessment order the addition made in the assessment cannot automatically lead to levy of penalty if on the basis of material available on record no definite inference can be drawn that the assessee had tried to conceal any income from taxation.

The other major addition is on account of disallowance of interest of Rs.23,37,548/-. The disallowance has been made by the AO in relation to interest-free advances. The assessee had explained before the AO that interest-free advances had been given for the purpose of business details of which had also been given which has been reproduced in para 2.1 of this order earlier. There is no finding by the AO that advances were not for the purposes mentioned by the assessee. Obviously therefore the advances were for commercial expediency. In such cases, disallowance of interest cannot be upheld as held by the Hon’ble Supreme Court in case of S. A. Builders Ltd. (supra). Therefore even if the addition is confirmed or no appeal is filed by the assessee for want of proper advice or any other reasons, the addition made cannot be basis for imposing penalty when the claim is allowable. Thus, in our view there is no case for concealment of penalty in respect of any of the additions made by the AO.

In view of the foregoing discussion and for the reasons given earlier we see no infirmity in the order of the CIT (A) deleting the penalty and the same is therefore upheld. In the result the appeal of the Revenue is dismissed. ”

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ITA-857/Del/2016. Smt. Suman Lakhani. d) Shervani Hospitalities Ltd vs. Commissioner of Income Tax - Delhi High Court, ITA no.804 of 2011, date of decision 28/05/2013. This appeal by the assessee which relates to the assessment year 2001 - 02, in effect impugns order dtd.26/03/2010, passed by the Income Tax Appellate Tribunal confirming imposition of penalty u/s 271(1 )(c) of the Income Tax Act, 1961.

Penalty u/s 271(l)(c) - the additions including addition in respect of capital expenditure for interior designing amounting to Rs. 1,32,000/- were upheld by the Tribunal. Penalty u/s 271(1 )(c) of the Act was imposed amounting to Rs. 16,44,330/- . The real question pertains to the first two claims i.e. loss on closure of south extension unit of Rs.25,37,521/- and capital expenditure for interior designing of Rs. 1,32,000/-. The assessee is in appeal before us. Held that - “25. In view of the aforesaid discussion, the question of law is answered in negative and in favour of the appellant assessee and it is held that penalty u/s 271(l)(c) of the Act is not justified in respect of Rs.25,37,521/- and Rs. 1,32,000/-. Penalty for concealment on the said amounts is directed to be deleted. The appeal is disposed of. No costs. ”

e) IT AT, Delhi - Asst. Commissioner of Income Tax vs. Mr. Manish Jain Prop. BPB Publications - ITA no.5999/Del/2012. f) ITAT, Mumbai - Deputy Commissioner of Income Tax vs. M/s Parle Pet Pvt Ltd - ITA no.391/Mum/2010 dtd.20/07/2011. g) 2013 2013 (12) TMI 922 - ITAT, Amritsar - Deputy Commissioner of Income Tax vs. M/s Max India Ltd. h) 2013 - ITAT Mumbai - Vinati Organics Ltd, Mumbai vs. Department of Income Tax. i) 2012 (7) TMI 12 - ITAT Delhi - DCIT, Circle 9(1) vs. Specialty Food (India) Pvt Ltd- ITA no.3270(Del)/2011 order dtd.31/05/2012. j) ITAT Mumbai - ACIT, Circle- 4(2) Mumbai vs. Sovereign Securities Pvt Ltd - ITA no.l624(Mum)/2012 order dtd.05/04/2013. 3. Further, it is submitted that the provisions of section 271(l)(c) reads as under: “271(1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person - (c) has concealed the particulars of his income or furnished inaccurate particulars of such income.” In order to be covered under these provisions, there has to be either concealment of the particulars of income or furnishing of inaccurate particulars. As per Law Lexicon,

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ITA-857/Del/2016. Smt. Suman Lakhani. the meaning of the word ‘particular’ is detail or details, the details of a claim, or the separate items of an account.

Therefore, the word ‘particulars’ used in the section 271(1 )(c) would embrace the meaning of the details of the claim made. The words ‘inaccurate particulars’ mean that the details supplied in the return are not accurate, not exact or correct, not according to truth or erroneous. However, in this case the assessee might not have proved to the satisfaction for the claim of expenses but assessee nowhere has filed any inaccurate particulars or concealed the income. In the absence of a finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false, there would be no question of inviting penalty u/s 271(l)(c). It is to be satisfied that the assessee has concealed income or that the assessee has furnished inaccurate particulars of income or that the case of the assessee is covered by the deeming fiction of one of the explanations appended to section 271(l)(c). Therefore, it is obvious that it must be shown that the conditions u/s 271(l)(c) must exist before the penalty is imposed. There can be no dispute that everything would depend upon the return filed because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. A claim made by the assessee under bonafide belief and impression but rejected by the AO cannot be subjected to penalty in case the assessee has been able to prove and establish that the claim was made bona fide and all particulars relating thereto were furnished before the AO before penalty is imposed. It has been held by the Hon’ble Supreme Court in the case of Amit Mohan Bindal (317 ITR 1) that the penalty u/s 271(1 )(c) is a civil liability albeit a strict liability.

It has been further judicially held that the civil liability of penalty u/s 271(l)(c) cannot be construed to mean that the penalty is an automatic consequence of an addition made to the income. The only impact of liability being civil liability is that the mensrea or the intentions of the assessee need not be proved. There has to be contravention of a statutory obligation first - willful or not. There is no cause and effect relationship between penalty and addition. A finding in the assessment order may constitute good evidence in the penalty proceedings but such finding cannot be regarded as conclusive for the purpose of penalty proceedings. Raising a legal claim, even if it is ultimately found to be legally unacceptable cannot amount to furnishing of inaccurate particulars of income. The deeming fiction in explanation 1 is also not attracted as it relates only to factual aspects. Different views taken on the same set of facts, at the most, be termed as difference of opinion but nothing to do with the concealment of income or furnishing of inaccurate particulars of income. These legal aspects are required to be seen in the facts and circumstances of each case.

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ITA-857/Del/2016. Smt. Suman Lakhani. Considering the above factual & Legal matrix it is prayed that penalty imposed may kindly be quashed as the assessee has neither furnished any inaccurate particulars nor has concealed any income.”

Assessee’s submission dated 04/09/2019:

“Sub: Re: Appeal No.857/ Del-2016 for A.Y.2008-09

Respected Sir,

The above-mentioned appeal is fixed before your Honour for 04/09/2019. In this connection and in continuation of paper book already submitted on 19/12/2018. Most respectfully it is submitted that the Ld. Commissioner of Income Tax (Appeals) reversed his own penalty order in subsequent A.Ys.2010-11 and 2012-13 on same issue in case of appellant.

Copies of CIT (A) orders have already submitted. The Td. CIT (A) has deleted the penalties in both assessment years on same ground and in case of same assessee by considering the Hon'ble Supreme Court Judgement and various judicial decisions of lTAT.

It is submitted that “penalty’" and “assessment" are two independent proceedings. It may be noted that there could be genuine difference of opinion between tax gatherer and tax payer but penalty proceedings require "furnishing of inaccurate particulars of income/ concealment of income.

Further, it is submitted that while passing the assessment order dtd.2.0/12/2010 passed u/s 143(3) of the Act, the Ld. AO has stated that "... Assessee has furnished inaccurate particulars and hence penalty proceedings u/s 271(1 )(c) are initiated separately.”, which is not sufficient and therefore, the penalty proceedings cannot be said to be validly initiated under such circumstances. The assessee has not furnished any inaccurate particulars as Bank Interest of Rs. 18,15,188/- has been clearly disclosed in Profit & loss account. However, nowhere in the assessment order states the specific charge of alleged concealment and / or furnishing of inaccurate particulars of income. Therefore, the entire penalty proceedings stand vitiated, because it is not in accordance with law. in view/ of the law settled in the various case laws of ITAT. We are also pleased to submit the latest pronouncements:

a) The Honorable Delhi High Court in Pr. CIT vs. Samtel India Ltd (Order pronounced on 09/07/2018) has held that.

“13. The intention of the Parliament cannot be taken to have been to penalize everyone who makes a wrong claim of deduction. The legislature does not intend to penalize every person whose claim is disallowed. This is not the aim of the legislature. The Tribunal in the facts of this case, therefore, correctly reached this conclusion. The question of law is

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ITA-857/Del/2016. Smt. Suman Lakhani. answered in favour of the assessee and against the Revenue; therefore, the appeal has No merit and is dismissed. ” Copy of order is enclosed. (Please refer para 10 to 13 of the order)

b) ITAT New Delhi - M/s ABR Auto Pvt Ltd vs. ACIT, Circle 1(1) New Delhi in ITA no.6236/DEL/2015 for A.Y.2009-10, date of pronouncement of order is 04/12/2017. Copy of order is enclosed. The relevant extract of the Judgement is as under: (Please refer para 6-7 of the order)

“6. We have carefully considered the rival submissions and perused the relevant records. We find that assessee had appealed before the Ld. C1T(A) against the quantum additions i.e. disallowance u/s 14A amounting to Rs. 4,07,158/- and disallowance on account of long term capital loss treated as business income amounting to Rs. 91,39,000/-. However, the assessee did not press for other disallowances made on account of Bad Debts of Rs. 1,32,000/- and Disallowance of Expenses on account of return of investment of Rs.10,84,005/-. We further find that in his appellate order dated 01.2.2013 the Ld. C1T(A) did not allow the appeal of the assessee and aggrieved with the action of the Ld. C1T(A), the assessee appealed before the Tribunal against disallowance u/s 14A of Rs. 4,07,158/- and against Long Term Capital Loss treated as Business income of Rs.91,39,000/- and the ITAT vide its order dated 5.8.2016 in ITA No.2375/Del/2013 had set aside the finding of the Ld. CIT(A) on the issue u/s 14A and restore the matter to the file of the AO for fresh adjudication after due verification of the claim of the assessee regarding no expenditure having been incurred and allowed the issue relating to Long Term Capital Loss treated as Business income of Rs.91,39,000/- by deleted this addition. We further note that during the penalty proceedings, the AO vide his order dated 31.3.2014 imposed penalty of Rs. 36,58,000/- u/s 271(l)(c) of the Act, in respect of all the four additions of Rs.1,07,62,163/- mentioned in the grounds of appeal, as aforesaid, on the alleged ground that the assessee had furnished inaccurate particulars of income.

6.1 After perusing the assessment order, we find that AO also did not record his satisfaction for initiation of penalty proceedings, because while passing the assessment order dated 30.12.2011 passed u/s 143(3)(ii) of the Act, the AO has stated that “ Penaltyproceedingsu/s 271(l)(c) is being initiated separately for furnishing inaccurate particulars of income / concealment income ”, which is not sufficient and therefore, the penalty proceedings cannot be said to be validly initiated under such circumstances. However, nowhere in the assessment order states the specific charge of alleged concealment and / or furnishing of inaccurate particulars of income. Therefore, the entire penalty proceedings stand vitiated, because it is not in accordance with law, in view of the law settled in the following case laws. i) “CIT & Anr. Vs. M/s SSA's Emerald Meadows - 2015 (11) TM1 1620 Karnataka High Court has held that Tribunal has correctly allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under section 274 read with Section 27l(l)(c) to be bad in law as it did not specify which limb of Section 271(1) (c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of

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ITA-857/Del/2016. Smt. Suman Lakhani. income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of Commissioner of Income Tax vs. Manjunatha Cotton and Ginning Factory (2013) (7) TMI 620- Karanataka High Court. Thus since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion no substantial question of law arises - decided in favour of assessee. ” ii) CIT & Anr. Vs. M/s SSA’s Emerald Meadows - Hon ’ble Supreme Court of India - reported in 2016 (8) TMI 1145 - Supreme Court. The Apex Court held that High Court order confirmed (2015) (11) TMI 1620 (Supra) - Karnataka High Court. Notice issued by AO under section 274 read with section 271(l)(c) to be bad in law as it did not specify which limb of Section 27 l(l)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income - Decided in favour of assessee. ”

6.2 In the background of the aforesaid discussions and respectfully following the precedents, we delete the penalty in dispute and decide the issue in favor of the assessee and against the Revenue. Since we have deleted the penalty’ and did not discuss the penalty issue on merit, hence, the case laws cited by the Ld. DR are not useful at this juncture, because these case laws are on the merits of the case, which we have not discussed.

Order pronounced in the Open Court on 04/12/2017.

C) 2019 - IT AT New Delhi - M/s Padmini Infrastructure Developers (India) Ltd vs. DCIT, Circle 14(1) New Delhi in IT A no.l002/DEL/2014 for A.Y.2006-07, date of pronouncement of order is 07/02/2019. Relevant pages of order are enclosed. The relevant extract of the Judgement is as under:

“(4.2) In view of the foregoing discussions, we cancel the penalty levied U/s 271(l)(c) of I.T. Act by the AO and we set aside the impugned order of Ld. CIT(A), wherein the Ld. CIT(A) had confirmed the penalty.

(5) As regards the contention of the Ld. Counsel for Assessee, that the AO did not make specific charge against the assessee - whether the penalty proceedings were for 'concealment of the particulars of income' or for furnishing of inaccurate particulars of income'; we find from perusal of order dated 28.03.2012 of the AO, passed U/s 27 l(l)(c) of I. T. Act, that the assessee was issued four notices U/s 271(l)(c) of I.T. Act, dated 26.09.2008, 18.01.2012, 06.02.2012 and 14.02.2012. Although copy of notice dated 26.09.2008 has been filed from assessee's side during the appellate proceedings in IT AT, the copies of the other three notices are not on our records. We also find that this contention, that the AO did not make the specific charge against the assessee - whether the penalty proceedings were for 'concealment of the particulars of income' or for furnishing of inaccurate particulars of income', has been raised for the first time before the ITAT and this ground was not taken by the assessee before lower authorities, namely

Page 14 of 25

ITA-857/Del/2016. Smt. Suman Lakhani. AO and CIT(A). Therefore, information regarding whether the specific charge against the assessee - whether the penalty proceedings were for 'concealment of the particulars of income' or for furnishing of inaccurate particulars of income' was made by the AO in one or more of the other three notices is not available from either the records of the Tribunal or from perusal of the orders of the lower authorities as this contention was not raised by the assessee before the lower authorities. Moreover, we also find that in the present appeal in ITA T, no specific ground has been taken by the assessee in respect of this contention which was advances at the time of hearing before us. Be that as it may, since we have already deleted the penalty U/s 271(1 )(c) of I. T. Act, in the forgoing part of this order, this contention of the Ld. Counsel for assessee is merely academic presently and need not be adjudicated. When it is already found that the disputable claim made by the assessee neither amounts to 'concealment of particulars of income’ nor to furnishing of inaccurate particulars of income'; it is immaterial whether the Assessing Officer made specific charge against the assessee whether the penalty' proceedings were for ’concealment of the particulars of income' or for furnishing of inaccurate particulars of income'. Therefore, presently we decline to express an opinion on this contention of the Ld. Counsel for assessee; because this is merely any academic issue at present. (5) In the result, appeal of the Assessee is allowed for statistical purposes.” Order Pronounced in the open court on 07 day of February, 2019 Sd/- Sd/- (K.N. CHARY) (ANADEE NATH MISSHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER

d) Mumbai in ITA no.3195/Mum/2018 for A.Y.2014-15. date of pronouncement of order is 23/08/2018. Copy of order is enclosed. The relevant extract of the Judgement is as under: (Please refer para 15-19 of the order)

“19. Upon careful consideration, we note that it will be apposite to refer to the merits of the penalty in this case. To recapitulate as mentioned in earlier part of this order, the addition was made by the A.O by disallowing interest expenditure of an amount of Rs.12,26,80,137/- u/s 36(l)(iii) of the Act.This was done on the ground that no income has been earned by the assessee. so the expenditure cannot be held to be incurred exclusively for the purpose of business of the assessee. The A.O then contradicted himself that the assessee was not doing any business by holding that the assessee has made huge investments. That in this view of the matter, the assessee has diverted interest bearing funds to earn exempt income. Hence, this amount was also disallowed u/s 14A of the Act. In this regard, we note that the penalty has been levied only with respect to that limb of the disallowance in which the A.O has held that amount was disallowed u/s 36(1) (Hi) of the Act.

Page 15 of 25

ITA-857/Del/2016. Smt. Suman Lakhani. considered opinion, the explanation by the assessee is a plausible one. The assessee's admission that it was not carrying on business was admittedly with respect to the transport business in as much as A.O had himself admitted that the assessee was making huge investment by diverting interest bearing funds. In this view of the matter, the very premise that the assessee was not carrying on 'any' business fails. By no stretch of imagination, that assessee's explanation can be said to be spurious, vexatious, mere bluster or frivolous. In similar situation, the Hon'ble Apex Court in the case of Reliance Petroproducts (P) Ltd. (supra) has held that disallowance of a claim made by the assessee or a wrong claim by the assessee cannot by itself lead to levy ofpenalty u/s 27 l(l)(c) of the Act.

Page 16 of 25

ITA-857/Del/2016. Smt. Suman Lakhani. Order pronounced in the open court on 23.08.2018

e) 2018 - ITAT New Delhi - DC1T vs. M/s National Textiles, New Delhi in ITA no. 5757/Del/2015 for A.Y.2009-10, date of pronouncement of order is 22/02/2018. Copy of order is enclosed. The relevant extract of the Judgement is as under: (Please refer para 16-18 of the order)

“16. We have carefully gone through the orders of the authorities below and the material placed before us. We have also deliberated on the judicial pronouncements referred to by the lower authorities in their respective orders as w>ell as cited by the learned DR and AR during the course of hearing. The learned CIT(A) while deleting the penalty has passed a well reasoned order which does not require any interference. The findings of the learned CIT(A) are as under:

" Ground No. 1, 3 &5 related to imposition of penalty u/s 271(1 )(c) which are dealt with as under On the factual front, there is loss in foreign exchange fluctuation. Whether it is capital in nature or revenue in nature is the issue of contention. During the year under consideration the assessee suffered loss due to foreign exchange rate fluctuations. This was in relation to import of machinery from other countries. As per section 43A, when the assessee was supposed to add this amount to the cost of plant and machinery and claim depreciation against it, instead it claimed it wrongly as revenue expenditure. It is a fact that the assessee accepted the addition at CIT(A)'s level and did not further carry the matter to higher appellate forum. Once on the factual front the issue is decided, now comes the issue of penalty’. Mens rea After the amendment to Sec.27l(l)(c) w.e.f 1.4.1964, mens rea need not be established. Hence on this ground assessee's contention fails. Support for this rational is taken from the following judgments . Hon'ble Apex Court in Union of India vs. Dharmendra Textile processors (SC) 306 ITR 277, Gidjag Industries Ltd. vs. CTO (SC) 293 ITR 584 and CIT vs. Atul Mohan Bindal (SC) 317 ITR 1 have held that 'mens rea' not essential for civil liability’ of penalty - Penalties under fiscal statutes are for breach of civil liabilities - Willful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution u/s 276C.

Assessment and penalty proceedings are two separate and distinct proceedings.

Every’ addition in assessment order does not automatically qualify for levy of penalty.

It is settled position that assessment proceedings and penalty proceedings are separate, and distinct and as held by Hon'ble Supreme Court in the case of Anantharaman Veerasinghaiah & Co. v. CIT {1980] 123 ITR 457, the findings in the assessment proceedings cannot be regarded as conclusive for the penalty proceedings. It is also well settled that the criterion and yardsticks for the purpose of imposing penalty u/s 271 (l)(c) of the act are different than those applied for making or confirming the additions. It has been held by Hon'ble Courts, including Hon'ble Mumbai Tribunal in the case of Yogesh R.Desai Vs. ACIT (8DTR101), each and every addition made during assessment

Page 17 of 25

ITA-857/Del/2016. Smt. Suman Lakhani. proceedings does not automatically lead to levy of penalty for concealment of income. If the revenue is not able to establish either concealment of income or furnishing of inaccurate particulars of income, penalty u/s 271(1 )(c) is not leviable. In such circumstances, Hon'ble Delhi High Court in the case of CIT v. Bacardi Martini India Ltd. [2007] 288 ITR 585/158 TAXMAN 348 held that no penalty is imposable.

In the present case, in the penalty proceedings no concealment of income or inaccurate particulars of its income has been established by the department. They simply relied on the findings in the assessment order, which will not suffice for levy of penalty.

Making a wrong claim of deduction-will it qualify for levy of penalty u/s 271 (I)(c) ?

The Hon'ble Apex Court in its judgment in the case of Reliance Petro Products Ltd. 189 Taxman 322/SC) said no to this proposition. "Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(l)(c).

If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 27l(l)(c). That is clearly not the intendment of the Legislature". …………………… ………………….

Order pronounced in the Open Court on ...22nd. February, 2018.

f) 2018 - ITAT New Delhi - Vipul Goel vs. ACIT, Central Circle Meerut in ITA no. 10 & 11/Del/2015 for A.Y. 2005-06 and 2006-07, date of pronouncement of order is 22/05/2018. Copy of relevant pages of order is enclosed. The relevant extract of the Judgement is as under:

Page 18 of 25

ITA-857/Del/2016. Smt. Suman Lakhani. “ITA No. 10 & 170/Del/2015 [Assessment Year : 2005-06]

“(c) Have concealed the particulars of your income or ......................................................................................................................... furnish ed inaccurate particulars of such income. ” Ld. Counsel for the assessee, therefore, submitted notice is bad in law and that penalty is not leviable in the matter.

Page 19 of 25

ITA-857/Del/2016. Smt. Suman Lakhani. ITA No. 11/Del/2015 [Assessment Year: 2006-07]

Order pronounced in the open court. Considering the above factual & Legal matrix it is prayed that penalty imposed may kindly be quashed as the assessee has neither furnished any inaccurate particulars nor has concealed any income.”

(B.1) The copies of the following orders / precedents were also filed from assessee’s

side:

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ITA-857/Del/2016. Smt. Suman Lakhani. 9. Hon’ble ITAT, New Delhi in case of M/s ABR Auto Pvt Ltd. vs. ACIT, Circle-1(1) New Delhi in ITA no. 6236/DEL/2015 10. Hon’ble ITA, New Delhi in case of M/s Padmini Infrastructure Developers (India) Ltd vs. DCIT, Circle-14(1), New Delhi in ITA no. 1002/Del/2014 11. Hon’ble ITAT, Mumbai in case of Robust Transportation Pvt Ltd vs. DCIT-3(3)(1) Mumbai in ITA no. 3195/Mum/2018 12. Hon’ble ITAT, New Delhi in case of DCIT, Circle-17(2) New Delhi in case of DCIT, Circle-17(2) New Delhi vs. M/s National Textile Corporation Ltd. in ITA no. 5757/Del/2015 13. Hon’ble ITAT, New Delhi in case of Vipul Goel vs. ACIT, Central Circle Meerut in different ITA nos. 10 & 11/Del/2015 and Cross Objections.

(C) When the appeal came up for hearing before us, the Ld. Authorized

Representative (“Ld. AR”, for short) of the Assessee vehemently contended that the

disallowance made by the AO amounting to Rs. 18,15,188/- out of assessee’s claim for

interest expenses was highly disputable in nature having regard to specific facts and

circumstances in the case of the assessee, and no penalty U/s 271(1)(c) of I.T. Act can

be levied in respect of issues of such highly disputable nature. The Ld. AR for the

assessee placed strong reliance on the order of the Hon’ble Supreme Court in the case

of CIT vs. Reliance Petro Product Pvt. Ltd. (322 ITR 158) SC, for the proposition that

penalty cannot be imposed merely on the basis of disallowance of a claim of deduction.

The Ld. AR drew our further attention to the ratio laid down by the Hon’ble Supreme

Court in the case of CIT vs. Reliance Petro Product Pvt. Ltd. (Supra), that the

expression “inaccurate particulars of income” means that details filed in the assessment

proceedings must be found to be wrong or inaccurate; and further, that mere making of

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ITA-857/Del/2016. Smt. Suman Lakhani. a claim which is not sustainable in law, will not amount to inaccurate particulars of

income. The Ld. AR further drew our attention to the separate appellate orders, each

dated 23.08.2018 in assessee’s own case, wherein the Ld. CIT(A) [the same incumbent,

namely Shri Manu Malik Commission of Income Tax (Appeals), Faridabad] on identical

facts and circumstances, deleted penalty levied by the AO for Assessment Years 2010-

11 and 2012-13 respectively. The Ld. AR assailed the aforesaid impugned appellate

order dated 02.12.2015 of Ld. CIT(A) strongly on the further ground that the Ld. CIT(A)

has, by necessary implication, himself admitted that view taken against the assessee in

Assessment Year 2008-09 was erroneous when, for subsequent years; the view taken

by the same incumbent CIT(A) in assessee’s own case for Assessment Years 2010-11

and 2012-13 was in favour of the assessee in identical facts and circumstances. The

Ld. AR placed further reliance on the aforesaid two written submissions dated

10.12.2018 and 04.09.2019, and on the orders / precedents already mentioned in

foregoing paragraph No. (B). The Ld. Departmental Representative (“Ld. DR”, for

short) did not dispute any facts claimed in the aforesaid written submissions filed from

the assessee’s side or the facts contended before us at the time of hearing. He also

failed to bring out any distinguishing facts and circumstances for this year as compared

with Assessment Year 2010-11 and 2012-13. However, he relied on the orders of the

Ld. CIT(A) and the Assessing Officer.

(D) We have heard both sides. We have perused the materials available on records

carefully. We have also considered the judicial precedents brought to our attention, at

the time of hearing or referred to in the records. We find that in assessee’s own case

Page 22 of 25

ITA-857/Del/2016. Smt. Suman Lakhani. for Assessment Years 2010-11 and 2012-13, the same incumbent in the Office of Ld.

CIT(A) deleted the penalty levied by the Assessing Officer U/s 271(1)(c) of I.T. Act, on

the identical issue in identical facts and circumstances. However, for the year under

consideration, in appeal before us, the same incumbent in the Office of Ld.CIT(A) has

confirmed the penalty levied by the Assessing Officer U/s 271(1)(c) of I.T. Act, on

identical issue in identical facts and circumstances. The reason for this inconsistency in

the order of the Ld. CIT(A) in Assessment Year 2008-09 as compared with the decision

of the Ld. CIT(A) in Assessment Years 2010-11 and 2012-13 is not far to seek. When

we perused the orders of the Ld. CIT(A) for Assessment Years 2010-11 and 2012-13, it

was found that Assessment Years 2010-11 and 2012-13, the Ld. CIT(A) based his

decision on the binding precedents of the Hon’ble Supreme Court in the cases of CIT vs.

Reliance Petro Product Ltd. (supra) and Hindustan Steel vs. State of Orissa 83 ITR 26

(SC). However, these binding precedents were not considered by the Ld. CIT(A) in his

aforesaid impugned appellate order dated 02.12.2015 for Assessment Year 2008-09.

Thus, we find that the aforesaid impugned appellate order dated 02.12.2015 for

Assessment Year 2008-09 was passed by the Ld. CIT(A) in ignorance of the aforesaid

binding precedents. An order passed in ignorance of binding precedents is

erroneous. Now, it is left to us in the present appeal before us for Assessment Year

2008-09 to redress the error of the Ld. CIT(A) in passing the aforesaid impugned

appellate order dated 02.12.2015, without the Ld. CIT(A) considering CIT vs. Reliance

Petro Product Ltd. (Supra). Respectfully following the aforesaid binding precedent in

the case of CIT vs. Reliance Petro Product Ltd. (supra); which was also followed by the

Page 23 of 25

ITA-857/Del/2016. Smt. Suman Lakhani. Ld. CIT(A) in his orders for Assessment Years 2010-11 and 2012-13; penalty levied U/s

271(1)(c) of I.T. Act for this year is hereby cancelled, having regard to the specific facts

and circumstances of the case before us.

(E) In the result, the penalty amounting to Rs. 6,16,688/- U/s 271(1)(c) levied by

the AO vide aforesaid order dated 20.12.2010 and confirmed by the Ld. CIT(A) vide his

aforesaid impugned appellate order dated 02.12.2015 is hereby cancelled and the

appeal of the assessee is allowed.

Order pronounced in the Open Court on 13/9/2019

Sd/- Sd/- (AMIT SHUKLA) (ANADEE NATH MISSHRA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 13/9/2019 (Pooja)