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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI JASON P. BOAZ & SHRI PAVAN KUMAR GADALE
IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI JASON P. BOAZ, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER
ITA No.1604/Bang/2018 Assessment year : 2012-13 M/s. Stumpp Schuele and Vs. The Deputy Commissioner of Somappa Springs Pvt. Ltd., Income Tax, LTU, No.139/2, Hosur Road, Circle - 1, Koramangala, Bengaluru. Bengaluru-560 095. PAN : AALCS 7347 E APPELLANT RESPONDENT Assessee by : Smt. Sowmya, Advocate Revenue by : Shri. M. Rajasekhar, Addl. CIT Date of hearing : 14.03.2019 Date of Pronouncement : 15.03.2019 O R D E R Per Jason P. Boaz, Accountant Member This appeal by the assessee is directed against the order of CIT(A)-10, Bangalore, dated 01.02.2018 for Assessment Year 2012-13, upholding the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 (in short ‘the Act’) for Assessment Year 2012-13.
Briefly stated, the facts relevant for disposal of this appeal are as under:
ITA No.1604/Bang/2018 Page 2 of 9 2.1 The assessee, a company engaged in the manufacture and supply of stabilizer bars and all varieties of springs, automobile components, spare parts, accessories, etc., filed its return of income for Assessment Year 2012-13 on 30.09.2012 declaring loss of (-) Rs.5,34,42,031/- under normal provisions and ‘book profits’ of Rs.2,88,52,729/- under section 115JB of the Act. The case was taken up for assessment for this Assessment Year and the assessment was concluded under section 143(3) of the Act vide order dated 13.03.2015, wherein the assessee’s loss was determined at Rs.4,55,68,066/- in view of the following additions / deductions:- (i) Disallowance of deduction under section 35(2AB) – Rs.14,34,982/- (ii) Disallowance of Leave Encashment – Rs.64,38,983/-.
2.2 Penalty proceedings under section 271(1)(c) of the Act was initiated simultaneously vide notice under section 274 r.w.s. 271(1)(c) of the Act of even date in respect of the aforesaid additions / disallowances. After considering the assessee’s replies in the matter, the AO proceeded to levy penalty of Rs.26,50,376/- under section 271(1)(c) of the Act vide order dated 22.09.2015. On appeal, the CIT(A)-10, vide the impugned order dated 01.02.2018, upheld the levy of penalty under section 271(1)(c) of the Act by the Assessing Officer (AO).
Aggrieved by the order of the CIT(A)-10, Bengaluru dated 01.02.2018 upholding the levy of penalty under section 271(1)(c) of the Act for Assessment Year 2012-13 in the case on hand, the assessee has
ITA No.1604/Bang/2018 Page 3 of 9 preferred this appeal before the Tribunal, wherein it has raised the following grounds:-
On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (A) erred in upholding the levy of penalty under Section 271(1)(c) of the Act for the relevant assessment year is opposed to law and to the principles of natural justice and accordingly the impugned order of penalty is liable to be cancelled. 2. The learned Commissioner (A) ought to have appreciated that there being no concealment or furnishing of inaccurate particulars of income, the levy of penalty under Section 271(1)(c) was unwarranted. 3. The learned Commissioner (A), without prejudice ought to have appreciated that the appellant did not suppress any information and had also furnished explanation to prove its bona fides while making the claim of deduction u/ s.35(2AB) of the Act and the quantum of deduction claimed was under bona fide circumstances and thus there was no concealment to justify the levy of penalty u/s.271(1)( c) of the Act and accordingly he ought to have refrained from upholding the penalty. 4. The learned Commissioner (A) again ought to have refrained from upholding the penalty with regard to the impugned addition on leave encashment. 5. The learned Commissioner (A) ought to have appreciated the appellant did not make any claim of deduction and consequently there was no addition was called for much less the levy of penalty u/s.271(1)( c) of the Act. 6. The learned Commissioner (A) ought to have appreciated the decision of the jurisdictional High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Karn)
ITA No.1604/Bang/2018 Page 4 of 9 which is squarely applicable to the case of the appellant and therefore the upholding of the levy of penalty is opposed to law and liable to be cancelled. 7. On the facts the learned Commissioner (A) ought to have accepted the explanation offered and also considered the case law cited which fully supported the claim of the appellant and refrained from upholding the levy of penalty. 8. Without prejudice, levy of penalty is excessive, arbitrary and unreasonable and liable to be deleted in full. 9. For these and other grounds that may be urged at the time of hearing of the appeal the appellant prays that the appeal may be allowed.
Ground No.6
4.1 At the outset , the learned Counsel for the assessee urged ground No.6 contending that the CIT(A) ought to have deleted the penalty levied u/s 271(1)(c) of the Act for Assessment Years 2012-13 following the binding decision of Hon’ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton and Ginning Factory (2013) 259 ITR 565 (Kar); since the notice u/s 274 r.w.s. 271 of the Act for initiation of penalty u/s 271(1)(c) of the Act dated 13.03.2015 was defective and issued without any application of mind by the AO, the conditions precedent for a passing of valid penalty orders u/s 271(1)(c) of the Act were absent. In this regard, the learned AR drew the attention of the Bench to the copy of the impugned notice, issued u/s 274 r.w.s. 271(1)(c) of the Act dated 13.03.2015 for Assessment Year 2012-13 filed by the assessee, to demonstrate that the said notice was defective, in as much as it did not indicate whether it was issued to the assessee for concealment of income
ITA No.1604/Bang/2018 Page 5 of 9 or for furnishing of inaccurate particulars of income. In support of the proposition that notice issued u/s 274 r.w.s. 271 of the Act, without specifying the default; i.e., whether the notice is issued for concealment of income or furnishing of inaccurate particulars of income; is invalid and consequential penalty proceedings / orders are also not valid; the learned AR placed reliance on the decision of the Hon’ble Karnataka High Court in the case of M/s. Manjunatha Cotton & Ginning Factory in 359 ITR 565 (Kar). It was prayed that in the light of the above judicial pronouncements of the Hon’ble Karnataka High Court (supra), the orders levying penalty u/s 271(1)(c) of the Act for Assessment Year 2012-13 in the case on hand is liable to be quashed / cancelled.
4.2 Per contra, the learned DR for Revenue placed reliance on the orders of the AO as being in order.
4.3.1 We have heard and carefully considered the rival contentions and submissions on record and the decision of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (Supra). The notice issued by the AO u/s 274 r.ws 271 of the Act for initiation of penalty proceedings u/s 271(1)(c) of the Act for Assessment Year 2012-13 in the case on hand (copy filed by the learned AR), has been carefully perused and we find that the AO has not deleted the inappropriate words and portions in the relevant paragraph of the notice; whereby it is not clear as to which default is committed by the assessee, i.e., whether it is for furnishing of inaccurate particulars of income OR concealing particulars of income that the penalty u/s 271(1)(c) of the Act is sought to be levied.
ITA No.1604/Bang/2018 Page 6 of 9 4.3.2 The Hon'ble Karnataka High Court in the case of M/s Manjunatha Cotton & Ginning Factory in (359 1TR 565) (Kar) has held that a notice issued u/s 274 r.ws 271 of the Act without specifying the nature of default; i.e. whether the notice is issued for concealment of particulars of income or furnishing of inaccurate particulars of income; is invalid and the consequential penalty proceedings/orders are also not valid. The relevant portion of the aforesaid judgment of the Hon'ble Karnataka High Court (Supra) at paras 59 to 61 are extracted hereunder:-
"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 rase of relying on deeming provision contained in Explanation-I 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 oil 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 (I)(c) c/a not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm 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 tax liability. As the said provisions have to be held to be standby 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. 60. 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
ITA No.1604/Bang/2018 Page 7 of 9 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. 61. 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 Ashok Pal reported in 292 ITR 11 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 M4NU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO IvL4RKETING reported in 171 Taxman 156, has held that penalty has to be clear as to the limb for which it is levied and the action 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."
ITA No.1604/Bang/2018 Page 8 of 9 4.3.3 The aforesaid view taken by the Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (Supra) was followed by the Hon'ble Karnataka High Court in the case of SSAS Emerald Meadows in ITA No.380 of 2015 dated 23/11/2015; wherein the Hon'ble Court upheld the order of co-ordinate bench of this Tribunal, cancelling the penalty levied on the basis of the defective notice issued by the AO. Revenue's SLP filed against the said judgment of the Hon'ble High Court in the case of SSAS Emerald Meadows (Supra) has also been dismissed by the Hon'ble Apex Court in CC/I485/2016 dated 5/8/2016.
4.3.4 Respectfully following the judgments of the Hon'ble Karnataka High Court in the cases of M/s. Manjunatha Cotton & Ginning Factory (359 ITR 565) (Kar) and SSAS Emerald Meadows in ITA No.380 of 2015 dated 23/11/2015, we hold that the notice issued by the AO u/s 274 r.w.s 271 of the Act dated 13.03.2015 for initiating penalty proceedings for Assessment Year 2012-13 is invalid and consequently, the penalty proceedings conducted in pursuance thereof, are also invalid. We therefore cancel the penalty levied u/s. 271(1)(c) of the Act for Assessment Year 2012-13. Consequently, ground No.6 raised by the assessee is allowed.
In view of our finding rendered in respect of ground No.6, the other grounds of appeal raised by the assessee on merits of the levy of penalty become academic in nature and do not require adjudication.
ITA No.1604/Bang/2018 Page 9 of 9 6. In the result, the assessee’s appeal for Assessment Year 2012-13 is allowed as indicated above.
Pronounced in the open court on 15th March, 2019.
Sd/- Sd/- (PAVAN KUMAR GADALE) (JASON P. BOAZ) Judicial Member Accountant Member Bangalore. Dated: 15th March, 2019. /NS/*
Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order
Assistant Registrar, ITAT, Bangalore.