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Income Tax Appellate Tribunal, “C”, BENCH MUMBAI
Before: SHRI C.N.PRASAD & SHRI G. MANJUNATHA
Date of Hearing 21/11/2019 Date of Pronouncement 28/11/2019 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):
This appeal filed by the assessee is directed against, the order of the Ld. Commissioner of Income Tax (Appeals) –34, Mumbai, dated 22/12/2017 and it pertains to Assessment Year 2011-12.
The assessee has raised the following grounds of appeal.
1. On the facts and in law, learned AO erred in not recording any satisfaction whatsoever much less as contemplated in Section 271(1B) before initiating and imposing penalty under Section 271(1)(c).
2. On the facts and in law, learned AO erred in levying penalty relying on both limbs of Section 27l(1)(c) without specifically invoking same in the notice u/s 274 dated 07/03/2014.
3. While levying the penalty also, the Assessing Officer simply relied on the Explanation 1 to Section 271(l)(c) even though he levied the penalty for furnishing the inaccurate particulars of income. Therefore the levy of penalty is bad in law.
4. The non-disclosure of income was due to bonafide mistake, imposition of penalty under section 271(l)(c) is improper.
The lessee craves leave to amend, alter or modify of the above grounds of appeal
. PRAYER The present appeal may he allowed and penalty levied by AO may he treated as wrong, unjust & illegal and the penalty may be deleted.
3. The brief facts of the case are that the assessee is a builder and developer, has filed its return of income for AY 2011-12 on 27/03/2012, declaring total income of Rs. 12,41,64,923/-. In this case, the assessment has been completed u/s 143(3) of the I.T.Act, 1961 on 27/03/2014,determining the total income at Rs. 12,61,70,062/- by making additions towards difference in closing working progress amounting to Rs. 20,05,769/-. Thereafter, the Ld. AO initiated penalty proceedings u/s 271(1)( c) of the I.T.Act, 1961 and called upon the assesse to explain, as to why penalty shall not be levied for furnishing inaccurate particulars of income. In response, the assessee vide its letter dated 02/05/2014 and 11/09/2014 submitted that it has neither furnished inaccurate particulars of income, nor made a deliberate attempt to conceal particulars of income and whatever, additions made by the Ld.AO is on account of difference in closing working progress due to change in method of accounting followed to give treatment for indirect income. The assessee, further explained that for the earlier period, it has reduced indirect incomes from the value of closing working progress whereas, for the year under consideration, it has changed method of accounting, as per which the indirect income has been recognized separately without being reduced from closing working progress. This resulted in enhancement of closing stock to the extent of Rs. 20,05,769/-. The said difference is on account of different opinion expressed by the assessee and the Ld. AO, otherwise all material facts necessary for computation of income has been disclosed by the assesee in the return of income and hence, the same cannot be considered as furnishing of inaccurate particulars of income. The Ld. AO, after considering relevant submissions of the assessee and also, by taking note of observations in assessment order, came to the conclusion that the assessee has furnished inaccurate particulars of income by taking indirect income and indirect expenses into consideration for computing working progress. The profit offered on working progress so by furnishing inaccurate particulars of WIP, the assessee try to suppress net taxable income. Therefore, he opined that it is a fit case for levy of penalty u/s 271(1)(c) of the I.T.Act, 1961 for furnishing inaccurate particulars of income and accordingly, levied penalty of Rs. 6,19,782/-, which amount to 100% of tax sought to be evaded.
4. Aggrieved by the penalty order, the assesee preferred appeal before the Ld.CIT(A). Before the Ld.CIT(A), the assesee has reiterated its submissions made before the Ld. AO and also, filed a detailed written submissions, which has been reproduced at Para 3 on pages 3 to 6 of Ld.CIT(A) order. The Ld.CIT(A) after considering relevant submission of the assessee and also by relied upon various judicial precedents, held that it is not correct to claim that all the relevant facts were available in record to compute income. Had the scrutiny not taken place, the bifurcation of working progress and interest income included in work in progress would not have been explicitly evident from the entries/documents filed along with return of income. Therefore, he opined that claim of the assessee is not a bonafide claim and facts of the instant case satisfy the requirements Explanation (1) to section 271(1)(c) of the Act,1961 for imposition of penalty and accordingly, confirmed penalty levied by the Ld. AO u/s 271(1)(c) and dismissed filed by the assessee. Aggrieved by the Ld.CIT(A) order, the assessee is in appeal before us.
5. The Ld. AR for the assesee submitted that the penalty order passed by the Ld. AO u/s 271(1)(c) of the I.T.Act, 1961 is bad in law and liable to be quashed, because the Ld. AO has issued vague notice without striking of inapplicable clauses in said notices, which clearly shows non application of mind by the Ld. AO before initiation of penalty proceedings, whether penalty proceedings has been initiated for furnishing inaccurate particulars of income or for concealment of particulars of income. In this regard, he had relied upon the decision of Hon’ble Karnataka High Court, in the case of CIT vs Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565(Kar). Further, on merits, the Ld. AR for the assessee submitted that the assesee has furnished necessary particulars in order to compute total income for the year under consideration, but, the Ld. AO has made additions towards difference in working progress by excluding indirect income from the closing working progress, which resulted in addition to the return of income. The fact that there is a change in method of accounting, during the year under consideration has not been disputed by the Ld. AO. But, he had levied penalty only on the grounds that the assesee has furnished inaccurate particulars of income, in respect of closing working progress without appreciating the fact that the difference in closing working progress is mainly due to change in method of accounting, but not for furnishing inaccurate particulars of income.
The Ld. DR, on the other hand, strongly supporting order of the Ld.CIT(A) submitted that it is a clear case of furnishing inaccurate particulars of income, which is evident from the fact that had the case was not selected for scrutiny, bifurcation of working progress and interest income included in the same would not have been explicitly evident from the entries/documents filed along with the return of income. The Ld. AO, as well as the Ld.CIT(A) has brought out clear facts before arriving at the conclusion that it is a fit case for levy for penalty for furnishing inaccurate particulars of income and hence, there is no reason to interfere with the findings of the Ld.CIT(A).
We have heard both the parties, perused the material available on record and gone through orders of the authorities below. It is a settled position of law that any penalty proceedings, consequent to invalid/vague notice is void ab-initio and liable to be quashed because, when the penalty proceedings has been initiated consequent to vague notice, it is a clear case of non application of mind by the Ld. AO before initiation of penalty proceedings, i.e. whether penalty proceedings is initiated for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon’ble Karnataka High court in the case of CIT vs Manjunatha Cotton and Ginning Factory (supra) had examined the issue, in light of provision of section 271(1)© of the I.T.Act, 1961 and held that concealment of particulars of income and furnishing inaccurate particulars of income are two different conntations and accordingly, while initiating penalty proceedings, the ld. AO should arrive at a clear satisfaction to the effect that whether, said penalty proceedings is initiated for concealment of particulars of income or for furnishing inaccurate particulars of income. Further, the said satisfaction has to be clearly mentioned in the notice issued for initiation of penalty proceedings u/s 271(1)© of the I.T.Act, 1961. In this case, on perusal of show cause notice by the Ld. AO u/s 274 r.w.s. 271 of the I.T.Act, 1961, dated 27/03/2014, it is very clear that the Ld. AO has issued a vague notice without striking of inappropriate words and paragraphs, which clearly shows non application of mind by the Ld. AO before initiation of penalty proceedings. Therefore, we are of the considered view that the penalty proceedings initiated by the Ld. AO, consequent to invalid/vague notice is bad in law liable to be quashed. Hence, we quashed the penalty order passed by the Ld. AO u/s 271(1)(c) and direct him to delete penalty levied u/s 271(1)(c) of the I.T.Act, 1961.
In the result, appeal filed by the assesee is allowed. Order pronounced in the open court on this 28 /11/2019