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Income Tax Appellate Tribunal, DELHI BENCH “E”, NEW DELHI
Before: SHRI G.D. AGRAWAL, HON’BLE & SHRI K. NARASIMHA CHARY
Date of Hearing : 25.09.2018 Date of Order : 27.09.2018
ORDER PER K. NARASIMHA CHARY, J.M.
This is an appeal by the Assessee challenging the Order dated 09.10.2015 passed by the Ld. Commissioner of Income Tax (Appeals)-2, New Delhi (in Short “Ld. CIT(A)”) wherein the Ld. CIT(A) has upheld the penalty of Rs. 5,81,021/- made by the AO u/s. 271(1)(c) of the Income Tax Act, 1961 (In Short “the Act”).
Brief facts of the case are that the assessee filed return of income on 29.9.2009 declaring income of Rs. 33,12,300/-. The assessment in this case was completed on 15.10.2010 at an income of Rs. 81,20,252/- as against the returned income of Rs. 3312330/- by making various additions i.e. (i) Rs. 7,28,066/- on account of additions under Rule 8D; (ii) Rs. 20,56,607/- on account of additions u/s. 41(1)(a); (iii) Rs. 18,47,138/- on account of additions on account of expenditure incurred on gift items and Rs. 1,76,112/- on account of additions on account of vehicle running / maintenance charges.
AO simultaneously initiated penalty proceedings u/s. 271(1)(c) of the Act and levied the penalty vide his order dated 31.3.2014 on the ground of concealment of income and for furnishing of inaccurate particulars. Against the penalty order, Assessee preferred appeal before the Ld. CIT(A), who vide his impugned order dated 09.10.2015 has dismissed the appeal of the Assessee. Hence, the assessee is in appeal before us.
At the outset, it is the argument of the Ld. AR that mere disallowance u/s. 14A or the disallowance of expenditure on account of gift does not ipso facto amount to concealment of income or furnishing of inaccurate particulars of income, but it is only a matter of application of law and a debatable issue. He further submitted that even the notice u/s. 274 of the Act does not specify that under which limb of section 271(1)(c) of the Act the penalty was proposed and levied. In support of his contention, he placed the reliance on the decision of the Hon’ble Supreme Court of India in the case of CIT vs. Veerbhadrappa Sangappa & Co. (TS-381-SC-2016); ii) CIT & Anr. Vs. M/s SSA’s Emerald Meadows – Hon’ble Supreme Court of India – reported in 2016 (8) TMI 1145 and the decision of the Hon’ble Karnataka High Court in the case of CIT & Anr. Vs. M/s SSA’s Emerald Meadows – 2015 (11) TMI 1620.
Ld. DR heavily relied upon the order of the authorities below.
After hearing both the parties and after perusing the records, we find that the notice dated 15.10.2010 issued by the AO u/s. 274 read with Section 271 of the Act does not specify which limb of section 271 of the Act, the penalty proceedings had been proposed and levied i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars, and the decisions of Karnataka High Court in CIT vs Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar) and CIT & Anr. Vs. M/s SSA’s Emerald Meadows – 2015 (11) TMI 1620 are applicable.
In the case of CIT vs Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar). Vide paragraph 60, the Hon’ble Karnataka High Court has held as follows:-
“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 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.”
In CIT & Anr. Vs. M/s SSA’s Emerald Meadows – 2015 (11) TMI 1620 the Hon’ble Karnataka High Court Considered the question of law as to,-
“Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?” and the Hon’be High Court ruled answered the same in favour of the assessee observing that:
“The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’) to be bad in law as it did not specify which limb of Section 271(1)(c) 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) 359 ITR 565. In our view, 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 in this appeal for determination by this Court. The appeal is accordingly dismissed.”
The Special Leave Petition filed by the Revenue challenging the aforesaid judgement of the High Court was dismissed by the Hon’ble Supreme Court in CIT & Anr. Vs. M/s SSA’s Emerald Meadows 2016 (8) TMI 1145 with the observation that, -
“We do not find any merit in this petition. The special leave petition is, accordingly, dismissed.”
Further, in CIT vs. Veerbhadrappa Sangappa & Co. (TS-381-SC-2016) Hon’ble Supreme Court of India has dismissed the Revenue’s SLP against Karnataka High Court judgment laying down law on ‘penalty levy’ for AY 2003-04. Hon’ble Karnataka High Court had held that notice u/s. 274 must specifically state ground for initiation of proceedings (whether concealment or filing inaccurate particulars); that “mere sending of printed form with al grounds mentioned not sufficient compliance of law”. Dismissing SLP, Hon’ble Apex Court held that “we do not find any merit in these petitions”.
Keeping in view of the aforesaid discussions and respectfully following the aforesaid precedents, we find it difficult to sustain the penalty levied and sustained by the authorities below. Therefore, the penalty in dispute is not sustainable in the eyes of law. We accordingly quash the penalty proceedings. Since the penalty has been quashed on the legal ground, there is no need to adjudicate the merits of the case.
In the result, the appeal filed by the Assessee stands allowed.
Order pronounced in the Open Court on 27/09/2018.