FRONTLINE ASSOCIATES,NEW DELHI vs. ACIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘B’, NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA No.919/Del/2017 Assessment Year: 2008-09 M/s. Frontline Associates, Vs. ACIT, 34/35, ARD Complex, Circle-53(1), New Delhi Second Floor, R.K. Puram, Sector-13, New Delhi PAN :AAAFF6558J (Appellant) (Respondent) Appellant by Shri Arun Kishore, CA Respondent by Shri G. Johnson, Sr.DR

Date of hearing 01.08.2019 Date of pronouncement 03.09.2019 ORDER PER O.P. KANT, A.M.:

This appeal by the assessee is directed against order dated 02/11/2016 passed by the Ld. Commissioner of Income-tax (Appeals)-18, New Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2008-09 in relation to penalty levied under section 271(1)(c) of Income-tax Act, 1961 (in short ‘the Act’). The grounds of appeal raised by the assessee are reproduced as under: 1. That the Order of Ld. CIT Appeals-18 in Appeal No.60/15-16/AY 2008-09 Dt. 02.11.2016 confirming the penalty levied by AO Circle 53(1), is illegal, unjust and opposed to facts. (i) That the Ld. CIT Appeal has relied upon the findings of the AO and has not made an effort to appreciate the facts of the case.

2 ITA No.919/Del/2017 (ii) That since the vehicles were put to use before 30th Sep, 2007 and freight income paid by Tata Steel on the said trucks, has already been included as income, depreciation has been rightly claimed, as such no penalty is attracted u/s 271(l)(c). 3. That since no tax is saught to be evaded in a loss case, it cannot be treated as deliberate filing of inaccurate particulars, since there was no financial gain, no penalty is attracted. 4. That the claim for depreciation is compensatory in nature, disallowance now made out of depreciation, is allowable as deduction in the subsequent year, as such there is no concealment, but it is a case of postponement of claim for depreciation for which no penalty is attracted. 5. That as per the facts on record although the appellant provided part of the steel on a later date for 10 vehicles, but for 5 vehicles urgently needed, the fabricator had used his own steel, which could not be disbelieved without any evidence to the contrary on record. 6. That the registration certificates for the 5 vehicles on which full year deprecation is claimed was issued under the motor vehicle act before 30th Sep, 2007 and full depreciation was allowable. Non-filing of appeal should not be treated as weakness of the case. No penalty is attracted, since there is no concealment but the statement of the appellant supported with evidence like registration certification and freight receipts is being disbelieved. 7. That the appellant depended upon the advice of a consultant/ chartered accountant who has audited his accounts and had recommended allowability of full depreciation. By depending upon a consultant for technical advice provided after verification, there is no element of concealment on the part of the appellant nor any inaccurate particulars have been filed, since the appellant had been depend upon a technical expert, the penalty levied be deleted. 8. That since the facts and complete details were before the Assessing officer, no facts were hidden, no penalty is attracted in view of the decision of Reliance Petro Products Ltd.

3 ITA No.919/Del/2017 amounting to Rs.1 lakh and addition on account of highly inflated expenses amounting to Rs.93,500/- were made by the Assessing Officer. The Assessing Officer also initiated penalty proceedings under section 271(1)(c) of the Act alongwith assessment order. On further appeal by the assessee against the assessment order, the Ld. CIT(A) deleted addition of Rs.1 lakh made on account of personal/non-business use of expenses, however, retained the remaining two additions of Rs.13,63,248/- and Rs.93,500/- on account of excess claim of depreciation on trailers and on account of highly inflated expenses respectively. Subsequent to the order of the Ld. CIT(A), the Assessing Officer issued show cause to the assessee as why the penalty under section 271(1)(c) of that may not be levied in respect of the addition sustained by the Ld. CIT(A). According to the Assessing Officer no reply was furnished by the Assessing Officer and thus, considering the facts and circumstances of the case, he levied penalty vide his order dated 20/03/2015 at the rate of hundred percent of the tax sought to be evaded, which was computed at Rs.4,50,135/-. On further appeal, the Ld. CIT(A) deleted the penalty in respect of the addition of Rs.93,500/-, however, sustained the penalty of Rs.4,16,920/- in respect of the addition of excess claim of depreciation on trailers. Aggrieved, the assessee is before the Tribunal raising the grounds as reproduced above. 3. The Ld. counsel of the assessee referred to additional ground raised by the assessee as under: 1. That the Ld. AO and CIT (A) 18 have both erred in levying and confirming the penalty of Rs. 4,21,284/-, in pursuance of a vague notice without specifying the limb of section 271(1)(c), within the which the default falls

4 ITA No.919/Del/2017 (ii) That in the Assessment Order penalty is initiated for furnishing of inaccurate particulars of income and concealment of income. (iii) Notice u/s 274 r.w.s. 271 dated 23.12.2010, issued states that the appellant have concealed the particulars of its income or furnished inaccurate particulars of such income in terms of explanation 1, 2, 3, 4 & 5. (iv) That penalty is levied on 20.03.2015 for concealment / furnishing of inaccurate particulars of income as per para 2 and para 5, but under para 6(b) and 9, it is said to be for concealment of income. 2. That the penalty levied on the basis of vague initiation during the course of assessment and by issue of vague notice u/s 274 r.w.s. 271 is not maintainable, since there is no application of mind, no satisfaction recorded and no opportunity accorded to the appellant to defend against specific limb of default u/s 271(l)(c) of The Act. 3. That this is a legal issue arising out of the facts of the case and the penalty illegally levied be deleted.

3.1 It was submitted by the Ld. counsel that the additional ground being legal in nature and no investigation of fresh facts is required, same may be admitted in view of the settled position of the law in the case of NTPC Vs. CIT, 229 ITR 383, whereas the Ld. DR objected to the admission of the additional ground. 3.2 We have heard the parties on the issue of admission of the additional ground. In view of the decision of the Hon’ble Supreme Court in the case of NTPC Vs. CIT (supra), the grounds raised being legal in nature and no investigation of the fresh facts required, the additional ground raised by the assessee was admitted and the Ld. counsel was directed to argue the issue raised in the additional ground. 4. Before us, the Ld. counsel of the assessee referred to the copy of notice under section 274 of the Act read along with section 271 of the Act dated 23/12/2010; 02/12/2014 and 30.01.2015 and submitted that in these notices the charges on which penalty was levied, were not specified particularly as to

5 ITA No.919/Del/2017 whether the penalty was levied for concealment of particulars of income or furnishing of inaccurate particulars of income. He submitted that the Assessing Officer has not applied mind while levying the penalty under section 271(1)(c) of the Act and, therefore, penalty levied is bad in law and void-ab-initio and thus need to be deleted. 4.1 In support of his contention, he relied on the order of the Hon’ble Karnataka High Court in the case of SSA Emarld Meadows in ITA No. 380 of 2015 and also on the decision of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Kar). The Ld. counsel also referred to the order of the Tribunal in the case of BSM Developers Private Limited in ITA No. 6720/Del/2018 for assessment year 2010-11, wherein following the above decisions of the Karnataka High Court, the coordinate bench of the Tribunal has deleted the penalty. 4.2 The Ld. DR, on the other hand, relied on the order of the lower authorities. 4.3 We have heard the rival submission and perused the relevant material on record. The fact that in the notice under section 274 of the Act read with section 271(1)(c) Act dated 23/12/2010; 02/12/2014 and 30/01/2015, the Assessing Officer has not specified the limb under which penalty was to be levied. We find that in the case of BSM Developers Private Limited (supra), the Tribunal has followed the findings of the Hon’ble Karnataka High Court in the case of SSA Emerald Meadow (supra) and Manjunatha Cotton and Gaining Factory (supra) and deleted the penalty observing as under: “10. Bare perusal of the notice issued u/s 271(1 )(c) apparently goes to prove that the Assessing Officer initiated the penalty proceedings

6 ITA No.919/Del/2017 by issuing the notice u/s 274/27l(l)(e) of the Act without specifying whether the assessee has concealed "particulars of income" or assessee has furnished "inaccurate particulars of income", so as to provide adequate opportunity to the assessee to explain the show cause notice. Rather notice in this case has been issued in a stereotyped manner without applying any mind which is bad in law, hence is not a valid notice sufficient to impose penalty u/s 271(l)(c) of the Act. 11. The penalty provisions of section 271(1 )(c) of the Act are attracted where the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it was imperative for the Assessing Officer to strike- off the irrelevant, limb so as to make the assessee aware as to what is the charge made against him so that he can respond accordingly. The Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, 359 1TR 565 (Kar) observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon'ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Iion'ble High Court held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clauses would lead to an inference of non-application of mind by the Assessing Officer. The Hon'ble Supreme Court in the case of Dilip N. Shroff vs. JCIT, 291 ITR 519(SC) has also noticed that where the Assessing Officer issues notice under section 274 of the Act in the standard proforma and the inappropriate words are not deleted, the same would postulate that the Assessing Officer was not sure as to whether he was to proceed on the basis that the assessee had concealed the particulars of his income or furnished inaccurate particulars of income. According to the Hon'ble Supreme Court, in such a situation, levy of penalty suffers from non-application of mind. In the background of the aforesaid legal position and, having regard to the manner in which the Assessing Officer has issued notice under section 274 r.w.s. 271(l)(c) of the Act dated 19.03.2013 without striking off the irrelevant words, the penalty proceedings show anon-application of mind by the Assessing Officer and is, thus, unsustainable. 12. The facts of the present appeal are identical to the facts of the case before the Hon'ble Karnataka High Court in the case of SSA's. Emarld Meadows (supra). In the instant case the AO in the notice issued u/s 274 read with section 271 (l)(c) of the Act has not specified as to whether the assessee has furnished inaccurate particulars of his income or concealed his income. Hence,respectfully following the quoted decision of Hon'ble Karnataka High Court, we cancel the order of the Assessing Officer dated 30.03.2017 levying

7 ITA No.919/Del/2017 penalty of Rs.3,97,576/- and allow the ground of appeal of the assessee.”

4.4 The facts and circumstances of the instant case being identical, respectfully following the finding of the coordinate bench of Tribunal (supra), the penalty levied by the Assessing Officer and sustained by Ld. CIT(A) of Rs.4,16,920/- is cancelled. The additional grounds of the appeal of the assessee are accordingly allowed. As we have already allowed additional ground, we are not adjudicating the grounds raised by the assessee and are dismisses as infructuous. 5. In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 3rd September, 2019.

Sd/- Sd/- [SUDHANSHU SRIVASTAVA] [O.P. KANT] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 3rd September, 2019. RK/-[d.t.d.s] Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi