M/S. RAJESH MALLEABLES LTD.,,AHMEDABAD vs. ITO, WARD-3(1)(3), AHMEDABAD

This appeal is filed by an assessee and is arising out of the order of the Commissioner of Income tax, Appeals-9, Ahmedabad, [ here-in after “the Ld. CIT(A)] passed on 17-01-2019 in appeal No. CIT(A)-9/11118/ITO Wd-3(1)(3)/16- 17 where in the levy of penalty of Rs. 28,41,863/- levied by the assessing officer confirmed by “the Ld. CIT(A)” for Assessment Year 2012-13.

The assessee is in appeal before us where in the assessee has taken following grounds:

All the grounds are in relation to the levy of penalty u/s. 271(1)(c) of the Act for an amount of Rs. 28,41,863/- ordered to be levied by the assessing officer and confirmed by the “ Ld. CIT(A)”.

The appellant is a domestic public limited company incorporated on 03.09.1981 and is engaged in the business of manufacturing of GI Pipe fittings and assessed to tax bearing PAN:AABCR0270K, since decades. However, the company having suffered heavy loss, it got itself registered as Sick Industrial Company with BIFR with effect from 02.02.2011.

For the A. Y. 2012-13, the appellant furnished its e-return of income on 28.09.2012, declaring therein loss of Rs. 10,73,25,012/- only. The AO made an assessment u/s 143(3) of the Act assessing loss at Rs. 2,56,09,614/- while making the assessment, the A. O. had made additions/disallowance on account of excess of bad debts for Rs. 7,25,19,032/- and Rs. 91,96,966/- on account of excess provision for bad debts. “The Ld. CIT(A)” has given the relief to the extent of Rs. 7,25,19,032/- and sustained the addition of Rs. 91,96,966/- in quantum appeal filed by the assessee.

This penalty amount is levied only on addition to the extent of Rs. 91,96,966/- sustained in appellate order. Therefore, it is important to extract the nature of addition/disallowance from the original assessment. The discussion made is extracted here in below in respect of the addition on which the questioned penalty was levied: “4. During the course of assessment proceedings, it was gathered that the assessee had made provision of bad and doubtful debts of Rs.2,59,83,195/- on 31.3.2006 which was brought forward till 01.04.2011. On verification of the final account, it is gathered that the provision for bad and doubtful debt carried forwarded to 01.04.2012 is trade receivable of Rs. 82,16,506 and deposit of Rs. 5,000/-, totalling to Rs. 82,21,506/-. Further the amount of Rs. 90,54,581/- is settled during the year under consideration. Thus, the excess provision of Rs.87,72,108/- [ 2,59,83,195 –(82,21,506+90,54,581) ] is to be offered to tax. The assessee had not offered. The discrepancy was brought to the knowledge of the assessee. The assessee vide letter dated 18/2/ 15 had submitted its revised calculation in which the amount of Rs. 91,96,966 is added to the income of the assessee as excess provision of bad debt is written back. Penalty proceedings u/s.271(1)(c) of the I.T.Act are initiated for furnishing inaccurate particulars of income.”

In the order of penalty passed on 15-03-2017, the assessing officer has considered the arguments of the assessee which was on technical ground as well as on merits. All the submission of the assessee are incorporated in the penalty order. The assessee mainly argued before the assessing officer that the notice is invalid and is not having the ground on which the penalty is proposed. The second ground of argument that it is mere disallowance of claim to some extent on account of error in computation and therefore, the penalty is not required to be levied. The assessing officer has incorporated the submission of the assessee, he has also given his own finding. The final conclusion of the penalty order is recorded is at para 6 & 7 of the order which is reproduced as under; “6. In view of the decisions discussed above, it is clearly emerges that in case any where any particular filed in the return of income by the assessee is found be inaccurate, erroneous or false and which has an impact on total income returned by the assessee, it would attract liability for penalty u/s. 271(1)(c) for furnishing inaccurate particulars of income. Moreover, after the decision of Hon’ble Supreme Court in the case of Dharmendra Textiles Proceessors(discussed above), penalty u/s. 271(1)(c) is a `civil liability’ and `mean era’ need not be proved for the levy of penalty. Mere, establishing of inaccuracy in particulars of income would be adequate for attracting the `civil liability’ of penalty u/s. 271(1)(c) of the I. T. Act.

Considering all these facts as brought out and more particularly, the fact that the assessee deliberately furnished inaccurate particulars in respect of provision for bad debts which was found to be wrong and discussed at length in the assessment order, I am fully satisfied that the assessee has conceled the particulars of income as well as furnished inaccurate particulars of income during the whole assessment proceding and as such I proceed further to levy minimum penalty of Rs. 28,41,863/- u/s. 271(1)(c) of the act as worked out in the below table;”

In an appeal filed by the assessee against the penalty order before “the Ld CIT(A)”, the technical ground as well as ground on merits were raised. In the technical ground, the assessee stated that since there is no specific charge while issuing notice under section 274 of the Act dated 03.03.2015 and thus, the levy of penalty is not correct. The assessee has also contended before “the Ld. CIT(A) that the addition in question is mere addition on account of error in computation of provision of bad debts to the extent of Rs. 91,96,966/-. Thus, there is not concealment of income or providing of any inaccurate particulars of income.

While disposing the penalty appeal of the assessee “the Ld. CIT(A) has given a detailed finding on the technical grounds raised by the assessee and the same is reproduced here in below as point (a) and observation on arguments on merits in (b) for the sake of brevity of the facts of the case.

The AR of the of the assessee argued that there is no jurisdiction and as well as clear finding of the assessing officer to impose penalty u/s 271(1)(c) of the Act. He stated before us that the penalty notice issued u/s. 274 r.w.s. 271(1)(c) of the Act dated 03.03.2015, a copy of which has been placed on page 37 of paper book no. Part-I filed by the assessee, there is non-application of mind while issue of notice and it is in standard format and the irrelevant portion of notice has not been struck off.

The AR of the assessee in his paper book extracted the relevant portion from the, assessment order, original notice dated 03.03.2015 and finding of the assessing officer while levying the penalty. He has thus, stated that at the time of initiating penalty proceeding, there was no clear finding by the A.O. whether the assessee is guilty of concealing the income and/or furnishing inaccurate particulars of income. The AR of the assessee further contended that the AO has issued notice without recording his proper finding in the notice dated 03.03.2015 and thus, the requirement for imposing penalty order u/s 271(1)(c) of the Act has not been complied with i.e. two condition are required to be satisfied i.e. either (i) the appellant has concealed the particulars of income or (ii) the appellant has furnished inaccurate particulars of such income. The A.O. has failed give clear finding while initiating / levying penalty u/s. 271(1)(c) of the Act. The AR of the assessee stated that thus, there is, infirmity/irregularity in initiating penalty proceeding, which renders the proceeding ab-initio void and he has relied upon various judicial decisions.

The AR of the assessee also argued before us that even on merits the AO in para No. 4 of quantum order noted that the assessee vide its letter dated 18.02.2015 has submitted its revised statement of total income, in which, the above amount of Rs. 91,96,966/- is added to the income of the assessee. He further submitted that it is mere mistake in deriving the claim which was detected by the assessee during the course of assessment proceeding. The assessee submitted a revised computation of income, whereby the error was rectified and the assessee surrendered the amount for the purpose of computation of income suo-motto. He further argued before us that in the quantum appeal, the ld. CIT(A) in para 5.2 of the appellate order, has clearly stated that the appellant realized the mistake and filed revised statement of income. The CIT(A) has given this finding after considering finding of the A.O. The said finding of facts has not been challenged by the department further and has attained finality. Therefore, the A.O. is not permitted to take a contrary stand to justify the levy of penalty order. The AR of the assessee also relied upon the decision of Hon’ble Supreme Court of India in the case of CIT V/s Reliance Petroproducts Limited 332 ITR 168 (SC) where in it is held that merely because the appellant had made claim which was not accepted or was not acceptable fully would not attract penalty u/s. 271(1)(c) of the Act.

On the other side the learned DR pointed out that the intention of the assessing officer to levy penalty was already communicated through the discussion in the assessment order where in the penalty has been initiated for furnishing inaccurate particulars of income. The DR has also relied upon the discussion made by the assessing officer on the decision cited in the penalty order as well as also on the decision cited by the CIT(A). He has also relied upon the finding of the CIT(A) on the alleged defect in issue of notice pointed out by the AR of the assessee.

Thus the learned DR submitted that the assessing officer pointed out his intention to levy penalty has already been communicated in the assessment order para 4. Therefore, non-striking off the irrelevant portion in the notice u/s. 274 r.w.s. 271(1)(c) of the Act dated 03.03.2015 does not create any ambiguity as the assessee was well aware that the proceedings have been initiated for furnishing inaccurate particulars of income. It was also contended that section 292 BB of the Act saves the error if any in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act and, therefore, the plea of the assessee is not justified and thus he has stated that mentioning of an incorrect charge in the notice of penalty would not render the penalty proceedings void-ab-initio.

In reply, the learned representative for the assessee pointed out that non- striking off of irrelevant portion of the standard form of notice u/s 274 r.w.s. 271(1)(c) of the Act is a legal infirmity, which is fatal to the imposition of penalty because in the absence of specifying the ground on which penalty is initiated, there is a violation of principles of natural justice. In this context, the learned representative has specifically pointed out the judgments of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory & Ors., 359 ITR 565 (Karn.) and M/s. SSA’s Emerald Meadows (supra) wherein even the SLP filed before the Hon'ble Supreme Court has also been dismissed.

We have considered the rival contentions, and facts along with the judicial decision placed on record. It is not disputed that the assessee is eligible for the claim of the expenses but it was disallowed to the extent of Rs. 91,96,966/- out of the total claim of the assessee. We have also considered that the Ld. CIT(A) has observed that the assessee realized the mistake and filed revised statement of income at para 5.2 in quantum appeal. Therefore, the claim made by the assessee was not wrongfully but was on account of bona fide error to the extent for which the amount is added in the total income. This error in making the claim of expenses cannot be equated with the furnishing of inaccurate particular of income. Considering, the above finding and observations made by the lower authorities and following the decision of Hon’ble Supreme Court in the case of CIT Vs. Reliance Petro Products Ltd. Reported in 322 ITR 158 we hold that there cannot be a penalty where there was bond fide error in the claim. The relevant finding in the judgment of Hon’ble Supreme Court (supra) reads as under:

In the result, the appeal filed by the assessee is allowed.