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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ : NEW DELHI
Before: SHRI R.K. PANDA & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
The Appellant, M/s. Moving Picture Company India Ltd.
(hereinafter referred to as the ‘assessee’) by filing the present appeal sought to set aside the impugned order dated 20.03.2015 passed by the Commissioner of Income-tax (Appeals)-6, Delhi affirming the penalty order dated 25.03.2013 passed u/s 271(1)(c) of the Income-tax Act, 1961 (for short ‘the Act’), qua the assessment year 2008-09 on the grounds inter alia that :-
“1. That the order passed by the learned Commission of Income Tax (Appeals)-6 is bad at law wrong in facts and against the principles of natural justice.
That under the facts and circumstances the Commissioner of Income Tax (Appeals), has erred in confirming the penalty of Rs.12,22,662/- out of the penalty of Rs.12,71,285/- imposed by the Assessing Officer being 100% of tax on the income sought to be evaded by the assessee company.”
2. Briefly stated the facts necessary for adjudication of the controversy at hand are : assessee company is into the business of providing services in the line of production of films, documentary films, rendering services in media and entertainment industry. On the basis of assessment passed under section 143 (3) of the Act at the loss of Rs.1,07,51,103/- as against the returned loss of Rs.1,48,65,293/- by making addition of Rs.41,14,190/- (Rs.38,56,852/-, Rs.1,57,354/- & Rs.99,984/- on account of interest received from shareholders on delayed payment towards part of share capital, on account of disallowance u/s 14A and on account of disallowance on account of amount written off respectively), AO initiated the penalty proceedings u/s 271(1)(c) of the Act by way of issuance of notices u/s 274 read with section 271(1)(c) of the Act. Declining the contentions raised by the assessee, AO proceeded to levy the penalty of Rs.12,71,285/- on the ground that the assessee has furnished inaccurate particulars within the meaning of Explanation 1 to sub-section (1) of section 271(1)(c) of the Act.
Assessee carried the matter by way of an appeal before the ld. CIT (A) who has directed the AO to recompute the penalty on under section 271(1)(c) on account of addition of Rs.38,56,852/- and Rs.99,984/- on account of interest received from shareholders and disallowance of amount written off respectively by partly allowing the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
By moving a separate application, assessee sought to raise additional ground on the ground that the same goes to the root of the case which are as under :-
“That under the facts and circumstances the Assessing Officer has while issuing show cause notice for penalty, erred in, not specially pointing out that whether the penalty was proposed on concealment of particulars of income, or for furnishing particulars of income, initiation of penalty levied under section 271(1)(c) was thus vitiated and penalty u/s 271(1)(c) imposed needs to be deleted.” 6. Keeping in view the fact that the additional ground sought to be raised by the assessee, which is a legal ground and can be raised at any stage of the proceedings, is otherwise necessary for complete adjudication of the controversy at hand, the application for additional ground is hereby allowed.
Undisputedly, addition made by the AO on the basis of which penalty has been levied accepted by the assessee. It is also not in dispute that assessee company is a loss making company.
In the backdrop of the aforesaid undisputed facts & circumstances of the case, order passed by the lower revenue authorities and arguments addressed by the Ld. Authorized Representatives of the parties to the appeal, the sole question arises for determination in this case is:-
“As to whether the assessee has concealed particulars of income or has furnished inaccurate particulars of such income during assessment proceedings?”
Ld. AR for the assessee challenging the impugned order contended inter alia that AO in order to initiate the penalty proceedings has prima facie failed to satisfy himself that as to whether the assessee has concealed the particulars of income or have furnished inaccurate particulars of income in the assessment order as well as in the show cause notice issued under section 271(1)(c) / 274 of the Act and relied upon the decision of Hon’ble Karnataka High Court in case of CIT vs. Manjunatha Cotton and Ginning Factory-359ITR 565 and CIT vs. SSA’s Emerala Meadows -73 taxmann.com 241 (kar.) (Revenue’s SLP dismissed in 242 taxman 180).
In order to proceed further, we would like to peruse the notice dated 22.12.2010 issued by AO u/s 274 read with section 271(1)(c) of the Act to initiate the penalty proceedings which is extracted as under for ready perusal:-
“NOTICE UNDER SECTION 274 READ WITH SECTION 271(1)(c) OF THE INCOME TAX ACT, 1961. Income tax Office New Delhi. Dated: 22.12.2010 To, M/s Moving Picture Company India Ltd., C/o Oberoi Sood & Kapoor, 606, Vishal Bhawan 95, Nehru Place, New Delhi-110 019. Whereas in the course of proceedings before me for the assessment year 2008-09 it appears to me that you:- • X Have without reasonable cause failed to comply with a notice under section 142(1)/143(2) of the Income Tax Act, 1961 dated……… • Have concealed the particulars of your income or furnished inaccurate particulars of such income in terms of explanation 1, 2,3,4 and 5. You are hereby requested to appear before me at 11.00 AM/PM on 07.02.2011 and show cause why an order imposing a penalty on you should not be made under section 271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representatives you may show cause in writing on or before the said date which will be considered before any such order is made under section 271(1)(c). Sd/- Assessing Officer (A.S. NEHRA) Assistant Commissioner of Income Tax Circle 5 (1), New Delhi. Delete inappropriate words and paragraphs.”
Bare perusal of para 3 of the assessment order, available at pages 52 to 54 of the paper book, goes to show that at time of framing assessment itself, AO has not satisfied himself if the assessee has furnished inaccurate particulars of income or has concealed the particulars of income. For ready perusal, operative part of the assessment order is extracted as under :-
“I am fully satisfied that the additions as above amount to filing of inaccurate particulars and concealment of income by the assessee and deserve penalty u/s 271(1)(c). Penalty proceedings are initiated separately by issue of penalty show cause notice.”
Further more, perusal of the notice issued u/s 274 read with section 271(1)(c) in order to initiate the penalty proceedings against the assessee goes to prove that even at the stage of issuing the notice, AO was not aware as to whether he is issuing notice to initiate the penalty proceedings either for “concealment of particulars of income” or “furnishing of inaccurate particulars of such income” by the assessee rather issued vague and ambiguous notice by incorporating both the limbs of section 271(1)(c). When the charge is to be framed against any person so as to move the penal provisions into motion against him, he/she should be specifically made aware of the charges to be leveled against him/her.
Hon’ble High Court of Karnataka in case of CIT vs. 13.
Manjunatha Cotton and Ginning Factory (supra) while deciding the identical issue held that when the AO has failed to issue a specific show-cause notice to the assessee as required u/s 274 read with section 271(l)(c), penalty levied is not sustainable. The operative part of the judgment is reproduced as under:-
“59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation 1 or in Explanation 1 (B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271 (1)( c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.
The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of T Ashok Poi v. CIT [2007] 292 ITR 11 /161 Taxman 340 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of CIT v. Manu Engg. [1980] 122 ITR 306 and the Delhi High Court in the case of CIT v. Virgo Marketing (P) Ltd. [2008] 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind. ”
Hon’ble Apex Court in case of CIT vs. SSA’s Emerala Meadows - (2016) 73 taxmann.com 248 (SC) while dismissing the SLP filed by the Revenue quashing the penalty by the Tribunal as well as Hon’ble High Court on ground of unspecified notice has held as under:-
“Section 274, read with section 271(1)(c), of the Income-tax Act, 1961 - Penalty - Procedure for imposition of (Conditions precedent) - Assessment year 2009-10 - Tribunal, relying on decision of Division Bench of Karnataka High Court rendered in case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 1TR 565/218 Taxman 423/35 taxmann.com 250, allowed appeal of assessee holding that notice issued by Assessing Officer under section 274 read with section 271 (1 )(c) was bad in law, as it did not specify under which limb of section 271 (1 )(c) penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income - High Court held that matter was covered by aforesaid decision of Division Bench and, therefore, there was no substantial question of law arising for determination - Whether since there was no merit in SLP filed by revenue, same was liable to be dismissed - Held, yes [Para 2] [In favour of assessee]”
However, on the other hand, ld. DR for the Revenue to repel the arguments addressed by the ld. AR for the assessee contended that assessee has never raised any such question of invalid notice during penalty proceedings nor before the ld. CIT (A) which has caused no prejudice to the assessee as the assessee has understood the purport and import of the notice under section 274 read with section 271 of the Act and relied upon the decision rendered by the Hon’ble Madras High Court in Sundaram Finance Ltd. vs. CIT (2018) 403 ITR 407 (Madras), in which SLP has also been dismissed by Hon’ble Supreme Court in the case cited as Sundaram Finance Ltd. vs. CIT (2018) 99 taxmann.com 152 (SC) and also relied upon the judgment of CIT vs. Smt. Kaushalya – 216 ITR 660 (Bombay) & Trimurti Engineering Works vs. ITO – (2012) 138 ITD 189 (Del.).
Hon’ble Madras High Court in Sundaram Finance Ltd. (supra) upheld the order passed by the Tribunal confirming the penalty levied on the basis of notice issued under section 274 read with section 271(1)(c) of the Act in which specific charge was not pointed out by returning the following findings :-
“16. We have perused the notices and we find that the relevant columns have been marked, more particularly, when the case against the assessee is that they have concealed particulars of income and furnished inaccurate particulars of income. Therefore, the contention raised by the assessee is liable to be rejected on facts. That apart, this issue can never be a question of law in the assessee s case, as it is purely a question of fact. � Apart from that, the assessee had at no earlier point of time raised the plea that on account of a defect in the notice, they were put to prejudice. All violations will not result in nullifying the orders passed by statutory authorities. If the case of the assessee is that they have been put to prejudice and principles of natural justice were violated on account of not being able to submit an effective reply, it would be a different matter. This was never the plea of the assessee either before the Assessing Officer or before the first Appellate Authority or before the Tribunal or before this Court when the Tax Case Appeals were filed and it was only after 10 years, when the appeals were listed for final hearing, this issue is sought to be raised. Thus on facts, we could safely conclude that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice issued under Section 274 r/w.Section 271 of the Act. Therefore, principles of natural justice cannot be read in abstract and the assessee, being a limited company, having wide network in various financial services, should definitely be precluded from raising such a plea at this belated stage.
Thus, for the above reasons, Substantial Questions of law Nos.1 and 2 are answered against the assessee and in favour of the revenue. The additional substantial question of law, which was framed is rejected on the ground that on facts the said question does not arise for consideration as well as for the reasons set out by us in the preceding paragraphs.”
17. However, we are of the considered view that in the instant case, not only the notice issued to the assessee under section 274 read with section 271(1)(c) is defective but AO has not even made himself satisfied at the time of making disallowance / addition in assessment order if the assessee has furnished inaccurate particulars of income or has concealed particulars of his income rather to be on the safer side he has invoked both the limbs of section 271(1) of the Act. So, we are of the considered view that this is not merely a case of serving a defective notice under section 274 read with section 271(1) on the assessee rather it is a case of non-application of mind on the part of the AO to make himself satisfied as to under which limb of section 271(1)(c) of the Act, he is going to initiate/levy the penalty on the assessee. Penalty under section 271(1)(c) cannot be levied merely on the basis of fact that in the penalty order, the AO has rightly levied the penalty for furnishing inaccurate particulars of income because when very initiation of the penalty proceedings are vitiated, as discussed in the preceding paras, the penalty order is not sustainable.
So, in these circumstances, when AO himself is not satisfied since the time of framing assessment as to under which limb of section 271(1)(c) of the Act, penalty is to be levied, he cannot be permitted under law to wash of his hands by taking recourse to Explanation 1 to section 271(1)(c) of the Act by placing the entire onus on the assessee to prove that there is no concealment of income/furnishing of inaccurate particulars of income.
Para 3 of the assessment order further makes it clear that at no point of time right from passing of the assessment order and even at the time of issuance of the notice u/s 274 read with section 271(1)(c), AO has not made himself satisfied or clear enough if the assessee has furnished inaccurate particulars of income or has concealed the particulars of income. So, the arguments raised by ld. DR for the Revenue and the decision relied upon are not applicable to the facts and circumstances of the case.
In view of what has been discussed above, the case of Sundaram Finance Ltd. (supra), as relied upon by ld. DR for the Revenue is not applicable to the facts and circumstances of the case. However, decision rendered by Hon’ble Apex Court in CIT vs. SSA’s Emerala Meadows (supra) and Hon’ble Karnataka High Court in CIT vs. Manjunatha Cotton and Ginning Factory (supra) are squarely applicable to the facts and circumstances of the case as the AO has miserably failed to specify in the notice issued under section 274 read with 271(l)(c) of the Act, "as to whether the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income”, so in these circumstances, penalty levied by the AO and confirmed by Ld. CIT (A) is not sustainable in the eyes of law. Consequently, the appeal filed by the assessee is allowed. Order pronounced in open court on this 29th day of March, 2019.