ACIT, NEW DELHI vs. M/S DEEPALI DESIGN & EXHIBITS, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘ B ’, NEW DELHI

BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA No. 6203/Del/2016 Assessment Year: 2011-12 ACIT, CENTRAL CIRCLE-17 VS. M/S DEEPALI DESIGNS & EXHIBITS 9, 1ST FLOOR, BEHIND PUNJAB ROOM NO. 103, FIRST FLOOR, HALL NO. 1, KESRI, WAZIRPUR INDUSTRIAL ARA CENTRE, AREA, NEW DELHI – 110 035 E-2, JHANDEWALAN, (PAN: AAFFD1639M) NEW DELHI – 110 057 (APPELLANT) (RESPONDENT) Department by : Sh. B.S. Rajpurohit, Sr. DR. Assessee by : Sh. Ridhi Karan Agarwal, CA

ORDER PER H.S. SIDHU, JM The Department has filed this Appeal against the Order dated 08.9.2016 of Ld. CIT(A)-27, New Delhi pertaining to assessment year 2011-12. The grounds raised in the revenue’s appeal read as under:- 1. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the penalty of Rs. 25,58,220/- imposed by the AO without appreciating the facts of the case. 2. The CIT(A) has erred in law in holding that where the assessee surrenders the income during assessment proceeding, there is no question of concealment.

opportunity of being heard was given to the assessee vide AO letter dated 2.2.2016 and in response to the same assessee filed the reply.

After considering the reply of the assessee, AO imposed the penalty of Rs. 25,58,220/- u/s. 271(1)(c) of the Act vide order dated 18.3.2016. Aggrieved with the order of the penalty order, assessee

appealed before the Ld. CIT(A) on the legal ground relating to recording of satisfaction as well as on merit, who vide order dated 8.9.2016 has partly allowed the appeal of the assessee and deleted

the penalty in dispute and dismissed the said legal ground. Against

the order of the Ld. CIT(A), Revenue is in appeal before the Tribunal.

Application under Rule 27 of the ITAT Rules, 1963 stating therein that the assessee has challenged the initiation / validity of penalty

proceedings under section 271(1)© of the I.T. Act, 1961 before the

CIT(A)-27 for want of proper satisfaction / conditions for initiating proceedings. However, the Ld. CIT(A)-27 has rejected the above

grounds of appeal vide order dated 8.9.2016 (para 7 of the order).

Aggrieved by the order of Ld. CIT(A) and in support of its stand

regarding the non-applicability of section 271(1)(c) of the Act, he raised the following ground:

“That the Ld. CIT(A) has erred in upholding the orders of the

AO regarding the validity of proceedings under section

271(1)(c) whereas it was not stated that whether penalty was being levied for concealment of particulars of invoke or

whether any inaccurate particulars of income had been furnished by the assessee.” 2.1 On merit of the case, he relied upon the order of the Ld.

CIT(A) and stated that he has passed a well reasoned order and rightly deleted the penalty in dispute which does not need any interference on our part.

has tried to justify the action of the Assessing Officer in imposing the penalty in dispute and also opposed the request to admit the

Application filed u/r 27 of the ITAT Rules, 1963.

furnishing of inaccurate particulars has been levied by the AO in the

notice dated 21.03.2013 issued by him u/s. 274 red with section 271(1)© of the Act placed on file which clearly shows that the same

is the standard format of the notice and AO has just ticked on the

option of concealment of income or furnishing inaccurate particulars

of such income. He further stated that the penalty imposed is liable to be quashed on legal grounds as the issue is squarely covered by

the following decisions including the Coordinate ‘B’ Bench, ITAT

decision in the case Sh. Sumeet Chopra vs. ACIT passed in ITA No. 1493/Del/2016 (AY 2008-09) dated 13.4.2018:-

- ITAT, Delhi decision in the case of ABR Auto Pvt. Ltd. vs. ACIT in ITA No. 6236/Del/2015 dated 4.12.2017.

- ITAT, ‘A’ Bench, New Delhi decision dated 05.12.2017 in the case of Ashok Kumar Chordia vs. DCIT passed in ITA No. 5788 to 5790/Del/2014. - Hon’ble Karnataka High Court decision in the case of CIT & Ors. Vs. M/s Manjunatha Cotton and Ginnig Factory & Ors. (2013) 359 ITR 565 - Apex Court decision in the case of CIT & Anr. Vs. M/s SSA’s Emerald Meadows in CC No. 11485/2016 dated 05.8.2016. 5. On the contrary, Ld. DR relied upon the orders of the AO. 6. We have heard both the parties and perused the records

available with us especially the Rule 27 of the ITAT Rules, 1963

and the impugned order. For the sake of clarity, we can gainfully refer here the provisions of Rule 27 of the ITAT Rules, 1963 which

reads as under:- “The respondent, though he may not have appealed, may support the order appealed

against on any of the grounds decided against him.”

6.1 A bare reading of the Rule 27 manifests that the assessee,

without having filed any cross appeal or cross objection can support the impugned order on any of the grounds decided against him. Two

essential elements of the Rule 27 come to the fore on its bare

reading. First is the condition precedent for invoking this Rule and

the second is scope of interference. Insofar as the first element is concerned, we find that this Rule has been enshrined with a view to dispense justice to a assessee who is otherwise entitled to assail the

correctness of the impugned order by filing appeal or cross objection, whether or not actually filed. This is borne out from the expression `though he may not have appealed’ used in the context of

a assessee. This amply indicates the existence of a pre-right of the respondent to appeal, which may have remained un-availed. This Rule cannot help the respondent in a situation where he is otherwise

debarred from filing cross appeal or cross objection. If no right to file a cross appeal or cross objection statutorily vests in the respondent, then it cannot be inferred indirectly by taking recourse to

Rule 27. We have found out supra that, in the given facts, the Assessee has a right to file cross appeal or cross objection against the adverse direction given by the Ld. CIT(A) as contained in his

appellate order. Thus, the first element, namely, the condition precedent for invoking rule 27, stands satisfied.

6.2 The next element is the scope of interference by the

respondent. This is contained in the later part of the rule, which provides that the respondent `may support the order appealed against on any of the grounds decided against him’. A cursory reading of this part divulges that the respondent can support the impugned

order on any of the grounds which were decided against him. This is a situation in which the assessee is supporting the impugned order (that are, the deletion of additions made by AO) under rule 27 on the

ground decided against it (that is, upholding of the initiation of reassessment). Crux of the matter is that the order appealed against can be challenged by the Assessee only qua the aspects of the issue

decided against him in deciding such overall issue against the appellant, which has been assailed in the appeal. It means that there is an inherent limitation on the power of the Assessee in not

challenging the order appealed against under rule 27 de hors the ground decided against the appellant. This shows that if a particular independent issue has been decided against the assessee in the order

appealed by the appellant on another independent issue decided against him, then the assessee under rule 27 has no power to challenge the correctness of such independent issue decided against

him before the tribunal, while arguing for upholding the order on the issue decided against the appellant. Coming to the facts of the instant

case, we find that the ld. Counsel for the assessee has invoked rule 27 by challenging the decision of the Ld. CIT(A) on the legal issue, as aforesaid.

6.3 In view of the above, we are of the considered opinion that the Assessee can invoke Rule 27 of the ITAT Rules which permits the

respondent to support the order appealed against on the ground

decided against it. We have noticed above that both the essential elements of rule 27, namely, the condition precedent for invoking this rule and the scope of interference stand fulfilled in the facts and

circumstances of the instant case. Therefore, now we are deciding the legal issue raised by the Assessee as aforesaid.

6.4 We have heard both the parties and perused the relevant records,

especially the orders of the revenue authorities alongwith the provisions of law as well as the case law cited by the Ld. Counsel of

the Assessee. We have also perused the Notice dated 21.3.2013

issued by the AO for initiation of penalty and directing the assessee to appear before him. For the sake of convenience, some of the

contents of the penalty Notice dated 21.3.2013 are reproduced as

under:-

“…..it appears to me that you:-

* 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”……… ………. You are hereby required to appear before me at Room No. 356, 3rd floor, ARA Centre, Jhandewalan Extension, new Delhi at 11.00 AM/PM on 22.4.2013 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 to being heard in person or through authorized representative 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.” 6.5 After perusing the aforesaid contents of the Notice dated 21.3.2013, we are of the view that the AO has initiated the penalty for concealment of particulars of income or furnishing of inaccurate particulars, which is contrary to the provisions of law. We are of the view that notice issued by the AO u/s. 271(1)© read with Section 274 of the Act is bad in law as it does not specify which limb of section 271(1)© of the Act, the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars. Therefore, the penalty in dispute is not sustainable in the eyes of law. Our aforesaid view for

deleting the penalty in dispute are fortified by the following decisions:-

i) “CIT & Anr. Vs. M/s SSA’s Emerald Meadows – 2015 (11) TMI 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 271(1)(c) to be bad in law as it did not specify which limb of Section 271(1)© 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. 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(1)(c) to be bad in law as it did not specify which limb of Section 271(1)© 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.” iii) ITAT, ‘A’ Bench, New Delhi decision dated 05.12.2017 in the case of Ashok Kumar Chordia vs. DCIT passed in ITA No. 5788 to 5790/Del/2014 wherein the Tribunal has observed as under:- “7. We have heard both the parties and perused the orders passed by the Revenue Authorities alongwith the relevant records available with us. Firstly, we have perused the Notice dated 26.3.2013 issued by the AO for initiating the penalty and directing the assessee to appear before him at 11.30 AM on 26/04/2013 and issued a Show Cause to the assessee stating therein that “…..you have concealed the particulars of your income or furnished inaccurate particulars of

such income…”. After perusing the notice dated 26.3.2013 issued by the AO to the assessee, we are of the view that the AO has initiated the penalty for furnishing inaccurate particulars of income or concealment of income as well as in the penalty order dated 30.9.2013 AO has stated that he is satisfied that the assessee has concealed particulars of his income, which is contrary to law. In view of above, the penalty is not sustainable in the eyes of law. Our aforesaid view is fortified by the following decisions:- i) “CIT & Anr. Vs. M/s SSA’s Emerald Meadows – 2015 (11) TMI 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 271(1)(c) to be bad in law as it did not specify which limb of Section 271(1)© 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. 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(1)(c) to be bad in law as it did not specify which limb of Section 271(1)© 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.” 8. 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.” iv) ITAT, ‘D’ Bench, New Delhi decision dated 26.5.2017 in the case of Rajender Jain vs. ACIT passed in ITA No. 6804/Del/2013 wherein the Tribunal has observed as under:-

“7. We have heard both the parties and perused the orders passed by the Revenue Authorities alongwith the relevant records available with us. Firstly, we have perused the assessment order

wherein the AO has recorded his satisfaction on the page 2, 2nd para viz. “I am satisfied that it is a fit case for initiation of penalty proceedings u/s. 271(1)(c) of the Act for furnishing inaccurate particulars of income/concealment of income.” We have also perused the notice dated 31.12.2007 issued by the AO for initiating the penalty and directing the assessee to appear before him at ---------AM/PM on ---- ----200------ and issued a Show Cause to the assessee stating therein that why an order imposing the penalty of amount should not be made u/s. 271(1)(c) of the I.T. Act, 1961. After perusing the notice dated 31.12.2007 issued by the AO to the assessee, we are of the view that the AO has initiated the penalty for furnishing inaccurate particulars of income/concealment of income, but in the penalty order dated 06.11.2009 he has stated that he is satisfied that the assessee has furnished the inaccurate particulars of income. 7.1 However, the Ld. CIT(A) has given clear finding regarding the

furnishing of inaccurate particulars. For the sake of convenience, the relevant para no. 5.3.1 of the impugned order passed by the Ld. CIT(A) is reproduced as under:- “5.3.1 The above findings of the Ld. CIT(A) clearly establishes that the appellant has concealed the income of Rs. 26,50,500/- and did not declare in the return of income inspite of admitting a disclosure of Rs. 40,00,000/- during survey. Thus, the appellant has furnished inaccurate particulars of his income. The facts of the case clearly reveal that the appellant tried to evade payment of taxes by furnishing inaccurate particulars of income. Therefore, I hold that the AO was fully justified in levying the penalty u/s.

271(1)(c) of the Act. The penalty levied by the AO is upheld. This ground of appeal is rejected.” 8. Keeping in view of the aforesaid finding of the Ld. CIT(A), we are of the considered view that the AO has passed the assessment order wherein the AO has recorded his satisfaction on the page 2, 2nd para viz. “I am satisfied that it is a fit case for initiation of penalty proceedings u/s. 271(1)(c) of the Act for furnishing inaccurate particulars of income/concealment of income.” Further the AO vide his Notice dated 31.12.2007 for initiating the penalty and directed the assessee to appear before him at ---------AM/PM on ---- ----200------ and issued a Show Cause to the assessee stating therein that why an order imposing the penalty of amount should not be made u/s. 271(1)(c) of the I.T. Act, 1961. After perusing the notice dated 31.12.2007 issued by the AO to the assessee, we are of the view that the AO has initiated the penalty for furnishing inaccurate particulars

of income/concealment of income, but in the penalty order dated 06.11.2009 he has stated that he is satisfied that the assessee has furnished the inaccurate particulars of income. In our view the penalty in dispute is not sustainable in the eyes of law, because the AO has not recorded any clear finding whether the assessee was guilty of concealment of income or furnishing of inaccurate particulars of income. Secondly, the notice u/s. 271(1)(c) has been issued to the assessee levying the penalty for furnishing of inaccurate particulars of income/concealment of income, whereas the penalty in dispute has been levied by the AO on account of furnishing of inaccurate particulars. In our view the penalty is not sustainable in the eyes of law. Our aforesaid view is fortified by the following decisions:- i) “CIT & Anr. Vs. M/s SSA’s Emerald Meadows – 2015 (11) TMI 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 271(1)(c) to be bad in law as it did not specify which limb of Section 271(1)© 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. 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(1)(c) to be bad in law as it did not specify which limb of Section 271(1)© 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.” 8.1 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.” v) ITAT ‘B’ Bench decision dated 13.4.2018 in the case of Sh. Sumeet Chopra vs. ACIT in ITA No. 1493/Del/2016 (AY 2008-09) in which on similar facts and circumstances of the case, by respectfully following the aforesaid cases mentioned at serial no. (i) to (iv) allowed the additional ground and penalty in dispute has been cancelled. 7. Keeping in view of the aforesaid discussions and respectfully

following the aforesaid precedents, we cancel the penalty in dispute and allow the legal ground raised by the assessee in the Application

filed under Rule 27 of the ITAT Rules, 1963 which was also raised

before the Ld. CIT(A).

in dispute elaborately at page no. 12 to 14 vide para no. 6 to 9. For the sake of convenience, we are reproducing herewith the relevant findings of the Ld. CIT(A) as under:-

“6. As regards ground nos. 1 & 3 where the appellant has challenged the levy of penalty u/s. 271(1)© and has made submissions regarding non-applicability of the said provisions of the case. After considering the submissions and case laws cited from jurisdictional high court and Tribunal, there is no denying to the fact that the addition sustained by the CIT (A) during quantum appeal proceedings upholding the addition made on account of amount surrendered by the appellant both during investigation proceedings and during assessment proceedings. At the same time it is established position of law that penalty proceedings are separate and independent of quantum proceedings. Imposition of penalty is not automatic and the assessing officer has to appreciate and establish that the addition upheld in the quantum proceedings are falling within the four corners of provisions of section 271 (l)(c) and hence there is act of concealment. In

the impugned case, the assessee has surrendered his full income, both during the investigation and assessment proceedings and the same was being accepted by the assessing officer without disturbing the income offered for taxation. Accordingly, there is no question of any concealment on the part of the assessee and consequently no penalty under Section 271(1)(c) is leviable. 7. It is also manifested from the various judicial precedents mentioned above that any income offered for taxation during the assessment proceedings u/s 153A which is accepted by the AO as it is, there will be no case of concealment of income and consequently penalty u/s 271(1)(C) cannot be imposed. Hence based on the above the penalty u/s 271(1)(C) imposed by the assessing officer is deleted. 8. As regards ground no. 4 where the appellant has challenged the levy of penalty

u/s 271(1)(C) and has made submissions

regarding non applicability of the said

provisions on the addition made on account of unrecorded interest. After considering

the submissions and case laws cited from

jurisdictional authorities and the facts of

the matter, the AO has not been able to establish any act of concealment or

inaccurate particulars. Consequently no penalty under Section 271(l)(c) is leviable. Hence penalty is deleted.

penalty under Section 271(l)(c) is leviable. Hence, the penalty is deleted.”

Sd/- Sd/- (O.P. KANT) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 07th December, 2018. “SRBHATNAGAR”