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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI C. N. PRASAD, JM & SHRIS. RIFAUR RAHMAN, AM
M/s Sumangala ITO Ward 1(4), Machineries, 1ST floor, Mohan Plaza, Gala No. C-3, Shree Near Mohan Pride Wayle बिधम/ Compound Plot No. 1280 Nagar, Khadkpada Vs. Chotani Compound Kalyan(w), Thane-421301 Narpoli Bhiwandi, Thane- 421302 स्थायीलेखासं./जीआइआरसं./PAN No. AARFS9163K (अपीलाथी/Appellant) (प्रत्यथी / Respondent) : अपीलाथीकीओरसे/ Appellant : Shri Bhera Ram, DR by प्रत्यथीकीओरसे/Respondentby : None सुनवाईकीतारीख/ : 04.03.2020 Date of Hearing घोषणाकीतारीख / : 27.07.2020 Date of Pronouncement आदेश / O R D E R Per S. Rifaur Rahman, Accountant Member: These Appeals have been filed by the revenue against the order of Ld. Commissioner of Income Tax (Appeals) - 2 in short
At the outset, it is noticed that none appeared on behalf of assessee in spite of calls and even no application for adjournment was moved. On the other hand, Ld. DR is present in the court and is ready with arguments. Therefore, we have decided to proceed with the hearing of the case ex-parte with the assistance of the Ld. DR and the material placed on record.
It is noticed that the tax effect of the relief granted by the Ld. Commissioner of Income Tax (Appeals) is below Rs. 50 lacs and as per Circular No.17 of 2019 dated 08.08.2019 issued by the Central Board of Direct Taxes (CBDT), Department of Revenue, Ministry of Finance, Government of India, the CBDT has revised the monetary limit for filing appeals before the ITAT from the existing limit of Rs. 20 lacs to Rs. 50 lacs.
Further, we notice from the record that the department has filed the present appeal challenging the order of Ld. CIT(A) in deleting the penalty levied u/s 271(1)(c) of the Act.
3 & 1301/Mum/2019 M/s Sumangala Machineries, 5. The brief facts of the case are that AO levied penalty u/s 271(1)(c) of the Act on account of bogus purchases made by the assessee. On appeal before Ld. CIT(A), Ld. CIT(A) has deleted the penalty by considering that the levy of penalties is merely on disallowances of purchases and not finding of concealment of any particular to reduce taxable income and also by relying on various judgments, Ld. CIT(A) has deleted the penalty and allowed the appeal filed by the assessee.
Aggrieved with the above order, revenue is in appeal before us.
7. Considered the rival submission and material placed on record, we notice from the record that the present appeal filed by the revenue is below the monetary limit for filing the appeals before the ITAT to Rs. 50 lacs vide Circular No.17 of 2019 dated 08.08.2019 issued by CBDT.
8. Further on merit, we notice that AO levied penalty u/s 271(1)(c) of the Act on estimation basis without any concrete evidence of actual concealment. As per the law, the provisions of section271 (1) (c) of the Act would be applicable only where the 4 & 1301/Mum/2019 M/s Sumangala Machineries, assessee has concealed the particulars of his income or furnished inaccurate particulars of such income. However, the estimation of disallowance on bogus purchases by the AO cannot be termed as either concealment or furnishing of inaccurate particulars of income.
9. We find support from the series of decisions by different High Court as well Coordinate Benches of ITAT, i.e. in the case of Commissioner of Income-tax v. Norton Electronics Systems (P) Ltd. (2014) 41 Taxmann.com 280 (Allahabad HC). It was held that when addition is made on estimate basis, no penalty is sustainable.
We also rely upon the decision in the case of Asst. Commissioner of Income-tax v. Vision Research Management ('P) Ltd. ITAT Lucknow (2015) 63 Taxmann.com 8 (Lucknow Trib), wherein it was held that Imposition of Penalty upon assessee u/s. 271(1)(c) on basis of ad hoc & estimated disallowance/addition, without bringing any clinching material suggesting concealment of income or furnishing of inaccurate particulars of income, was not justified.
5 & 1301/Mum/2019 M/s Sumangala Machineries, 11. In the case of Prem Chand vs. Asst. Commissioner of Income-tax (2014) 52 Taxmann.com 95 (Chandigarh Trib), it was held that when addition in hands of assessee was made by estimating value of rice husk without any concrete evidence, levy of penalty on such addition was not sustainable. In Commissioner of Income-tax v. Brahmaputra Consortium Ltd. (Del):Penalty—concealment of income—disallowance of claim for deduction of expenditure and depreciation—finding that claims were erroneous and there was no concealment of income or furnishing of inaccurate particulars-- penalty could not be levied—income-tax act, 1961, s. 271(1)(c). In Commissioner of Income-tax v. P. Roles (Mad), it was held that the levy of penalty was based on the estimation of income. There cannot be any imposition of penalty based on estimation of income. In Naresh Chand Agarwal v. Commissioner of Income-tax (All):Penalty under section 271(1)(c) could not be imposed on the basis of estimating sales and making addition by applying net profit rate-Same was rightly sustained by Tribunal and no substantial question of law arises. In Commissioner of Income-tax v. P. H. I. Seeds India Ltd., 120081 301 ITR
6 & 1301/Mum/2019 M/s Sumangala Machineries, 0013—(DeI):It was held that Section 271 (1) (C) of the Income- tax Act, 1961, is attracted only in those instances where the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income with an intent to 'mislead the Revenue. The Income-tax Act does not envisage or explicitly provide that in every case where the return is not accepted as correct and the assessment is framed at an income higher than that presented and offered for taxation by an assessee in the form of its return, penalty proceedings must be initiated. This proposition must logically 'follow from the use of the word "may" in section 271 in contradistinction to "shall" in section 234.Where two options were possible, adopting one of them could scarcely be viewed as mala fide, with an intent to evade payment of income-tax. Recompense had been provided for in section 234 of the Act by way of levy of interest, which, in the present case, had been paid without demur. In Dilip N. Shroff v. Joint Commissioner of Income-tax, (2007) 291 ITR 519 (SC):It was held that Clause (c) of section 271(1) of the Income- fax Apt, 1961, categorically states that penalty would be leviable if the assessee conceals particulars of his income or furnishes
7 & 1301/Mum/2019 M/s Sumangala Machineries, inaccurate particulars thereof. But by reason of such concealment or furnishing of inaccurate particulars alone, the assessee does not ipso facto become liable for penalty. Imposition of penalty is not automatic. Penalty proceedings are not to be initiated merely to harass the assessee. The approach of the Assessing Officer in this behalf must be fair and objective."Concealment of income" and "furnishing inaccurate particulars" are different. Both concealment and furnishing of inaccurate particulars refer to del/berate acts on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppression or suggestiofalsi.8. Furnishing of accurate particulars:
After considering the totality of the facts and circumstances and while considering the series of judgments as mentioned above, we are of the view that there is no active concealment of income on the part of the assessee and additions made on estimation by the AO do not called for initiation of penalty. Thus, in our view, the penalty levied by AO has rightly been deleted by Ld. CIT(A). Accordingly, the grounds raised by the revenue stands dismissed.
8 & 1301/Mum/2019 M/s Sumangala Machineries, 13. In the net result, the both the appeals filed by the revenue stands dismissed.
It is pertinent to mention here that this order is pronounced after a period of 90 days from the date of conclusion of the hearing. In this regard, we place reliance on the decision of co- ordinate bench of this Tribunal in the case of JSW Ltd in ITA Nos. 6264 & 6103/Mum/2018 dated 14.5.2020, wherein this issue has been addressed in detail allowing time to pronounce the order beyond 90 days from the date of conclusion of hearing by excluding the days for which the lockdown announced by the Government was in force. The relevant observations of this tribunal in the said binding precedent are as under:-
However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 7th January 2020, this order thereon is being pronounced today on 14th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows: (5) The pronouncement may be in any of the following manners:— (a) The Bench may pronounce the order immediately upon the conclusion of thehearing.
(c ) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall notordinarily(emphasis supplied by us now) be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the noticeboard.
Quite clearly, “ordinarily” the order on an appeal should be pronounced by the bench within no more than 90 days from the date of concluding the hearing. It is, however, important to note that the expression “ordinarily” has been used in the said rule itself. This rule was inserted as a result of directions of Hon’ble jurisdictional High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein Their Lordships had, inter alia, directed that “We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile (emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment”. In the ruled so framed, as a result of these directions, the expression “ordinarily” has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any “extraordinary” circumstances.
Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon’ble Prime Minister of India
10 & 1301/Mum/2019 M/s Sumangala Machineries, took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon’ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that “In case the limitationhasexpired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown”. Hon’ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, “It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”, and also observed that “arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020”. It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the coronavirus “should be considered a case of natural calamity and FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure…”. The term ‘force majeure’ has been defined in Black’s Law Dictionary, as ‘an event or effect that can be neither anticipated nor controlled’ When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an “ordinary”period.
10.In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon’ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon’ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed “while calculating the time for disposal of matters made time- bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suomotu by Hon’ble jurisdictional High Court and Hon’ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”,inthelightoftheaboveanalysisofthelegalposition, theperiodduringwhich lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case.
To sum up, the appeal of the assessee is allowed, and appeal of the Assessing Officer is dismissed. Order pronounced under rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the noticeboard.