MODI RUBBER LTD.,NEW DELHI vs. DCIT, CIRCLE- 17(1), NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘E’ : NEW DELHI) BEFORE HON’BLE PRESIDENT, SHRI G.D. AGRAWAL and SHRI KULDIP SINGH, JUDICIAL MEMBER ITA No.2559/Del./2018 (ASSESSMENT YEAR : 2003-04)

AND Stay No.353/Del/2018 (in ITA No.2559/Del./2018) (ASSESSMENT YEAR : 2003-04) M/s. Modi Rubber Ltd., vs. DCIT, Circle 17 (1), 4 – 7C, DDA Shopping Centre, New Delhi. New Friends Colony, New Delhi – 110 025.

(PAN : AAACM2062R) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Rohit Jain, Advocate Ms. Tejasvi Jain, CA REVENUE BY : Shri B.R. Mishra, Senior DR

Date of Hearing : 23.05.2018 Date of Order : 14.06.2018

O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : The appellant, M/s. Modi Rubber Limited (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 15.12.2017 passed by Ld. CIT

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(Appeals)-38, New Delhi qua the assessment year 2003-04 on the

grounds inter alia that :-

“1. That the Commissioner of Income Tax Appeals ['CIT(A)'] erred on facts and in law in not holding that the impugned penalty order dated 30.01.2015 passed under section 271 (1 )( c) of the Income-tax Act, 1961 ("the Act"), is without jurisdiction, illegal and bad in law. 1.1 That the CIT(A) erred in not appreciating that the impugned penalty order was barred by limitation prescribed under section 275 of the Act and consequently, bad in law. 1.2 That the CIT(A) erred on facts and in law in not appreciating that satisfaction qua items in respect of which penalty has been levied, is not discernable from the assessment order, which is sine qua non for assumption of jurisdiction for levying penalty under section 271 (1)( c) of the Act. 1.3 That the CIT (Appeals) erred in not appreciating that the penalty imposed without issuance and/ or service of a valid notice to the appellant, is illegal and bad in law. 1.4 That the CIT(A) erred in not appreciating that the assessing officer proceeded to pass the impugned penalty order in undue haste, without affording adequate opportunity of being heard to the appellant, in gross violation of principles of natural justice. Without prejudice: 3. That the CIT(A) erred on facts and in law in not deleting penalty of Rs.12,90,00,000 levied under section 271(1)(c) of the Act vide impugned penalty order dated 30.01.2015, which was levied simply on the basis of findings in the quantum proceedings. 3. That the CIT(A) erred in confirming penalty levied under section 271 (1)(c) of the Act in respect of denial of claim regarding exclusion of AED credit amounting to Rs.25.47 crores while computing taxable income of the appellant. 3.1 That the CIT(A) erred on facts and in law in not appreciating that no penalty was leviable in respect of the aforesaid issue of AED credit since the said claim was not made in the return of income and was considered in the set aside proceedings pursuant to admission of additional ground taken and admitted by the Tribunal.

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3.2 That the CIT(A) erred on facts and in law in not appreciating that penalty under section 271(1)(c) of the Act was not leviable, since the appellant had neither concealed nor furnished inaccurate particulars of income, which is sine qua non for imposing penalty. 4. That the CIT(A) erred on facts and in law in not admitting the additional evidences filed by the appellant, by cryptically relying upon the remand report of the assessing officer. 5. That the CIT(A) erred in confirming penalty in respect of disallowance of long-term capital loss of Rs.9,53,97,219/- on account of extinguishment in the value of shares of Spice Net Ltd. 5.1 That the CIT(A) erred on facts and in law in not appreciating that no penalty was leviable in respect of the said issue since the appellant: (a) did not claim the aforesaid loss in the revised computation of income; and / or (b) had neither concealed nor furnished inaccurate particulars of income, which is sine qua non for imposing penalty under that section. 5.2 Without prejudice, the CIT(A) erred on facts and in law in not appreciating that penalty qua aforesaid issue was, in any case, barred by limitation inasmuch as the same could have, if at all, been levied pursuant to the order of the CIT(A) dated 26.10.2012, since said issue is not arising from order of the Tribunal dated 21.05.2014.”

controversy at hand are : On the basis of completed assessment

under section 143 (3) of the Income-tax Act, 1961 (for short ‘the

Act’) at the total income nil after allowing set off of brought

forward loss of Rs.27,89,93,000/- as against the returned loss of

Rs.73,01,03,000, AO made addition of Rs.20,41,64,000/-,

Rs.9,53,97,219/- & RS.25,47,00,000/- on account of disallowance

of business expense, disallowance of long term capital loss &

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disallowance of deduction of AED credit respectively. AO

initiated penalty proceedings u/s 271(1)(c) of the Act on account of

failure of the assessee to disclose the true particulars of income qua

all the additions vide notice dated 13.12.2010 issued u/s 274 read

with section 271(1)(c) and during the appeal before the ld. CIT (A),

addition of Rs.20,41,64,000/- on account of disallowance of

business expenses has been deleted whereas the remaining

additions have been confirmed. AO issued notice dated

16.01.2015 calling upon the assessee as to why penalty under

section 271(1)(c) be not imposed on the addition made by the AO.

Assessee opposed the penalty proceedings on ground of limitation

in terms of proviso to clause (a) of section 275(1) of the Act.

However, declining the contentions raised by the assessee, AO

proceeded to levy the penalty of Rs.12,90,00,000/- under section

271(1)(c) of the Act on account of deliberately furnishing

inaccurate particulars of income.

CIT (A) who has confirmed the penalty. Feeling aggrieved, the

assessee has come up before the Tribunal by way of filing the

present appeal.

parties to the appeal, gone through the documents relied upon and

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orders passed by the revenue authorities below in the light of the

facts and circumstances of the case.

assessment order dated 15.12.2010 was passed by the AO under

section 254 / 143 (3) of the Act in accordance with the directions

issued by the Tribunal. It is also not in dispute that in appeal, ld.

CIT (A) deleted the addition of Rs.20,41,64,000/- on account of

disallowance of business expenses who has confirmed the

remaining additions vide order dated 26.10.2012. It is also not in

dispute that the assessee challenged before the Tribunal only claim

of exclusion of AED credit of Rs.2547 lakhs but the appeal filed by

the assessee was dismissed and the further appeal filed by the

assessee challenging the order of the Tribunal is pending before

Hon’ble Delhi High Court. Primarily, assessee has challenged the

penalty order on legal grounds inter alia that AO had no

jurisdiction to levy the penalty; that no proper notice has been

issued to the assessee u/s 274 of the Act and no specific

satisfaction has been recorded by the AO to initiate the penalty

proceedings.

the assessee in the light of the provisions contained u/s 275 of the

Act.

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(1) of the Act are reproduced as under :-

“275. (1) No order imposing a penalty under this Chapter shall be passed— (a) in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, whichever period expires later : Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after the 1st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, whichever is later.”

case on 26.10.2012. It is also not in dispute that the penalty order

was passed on 30.01.2015. It is also not in dispute that the

limitation issue was also raised by the assessee before the ld. CIT

(A) who has decided the same with one line order, “penalty order

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was passed within time prescribed in the proviso to section 275

(1)(a) of the Act without going into the provisions.”

Act goes to prove that the AO was obligated to levy the penalty

within one year from the end of the financial year in which order

dated 26.10.2012 passed by ld. CIT (A) was received. More so, in

case of penalty on account of disallowance of long term capital

loss, no appeal was filed by the assessee before the Tribunal and in

that case, limitation expired on March 31, 2014. In these

circumstances, penalty order passed by the AO on 30.01.2015 is

passed beyond the prescribed period of limitation.

further contended that AO in order to initiate the penalty

proceedings failed to prima facie satisfy himself that either the

assessee has, “concealed income or furnished inaccurate

particulars of income”, in order to issue show-cause notice under

section 271(1)(c) / 274 of the Act and relied upon the decision of

Hon’ble Karnataka High Court in case of CIT vs. Manjunath

Cotton and Ginning Factory – 359 ITR 565 and CIT vs. SSA’s

Emerala Meadows – 73 tamann.com 241 (Kar.) (Revenue’s SLP dismissed in 242 taxman 180).

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addressed by the ld. AR for the assessee company contended inter

alia that the notice issued by the AO u/s 274 of the Act is not

standalone document which is based on assessment order; that the

notice has been issued in respect of furnishing inaccurate

particulars of income and relied upon the case of Trimurti

Engineering Works – 25 taxmann.com 363.

notice issued by AO u/s 274 read with section 271(1)(c) of the Act

to initiate the penalty proceedings which is extracted as under for

ready perusal :-

“NOTICE UNDER SECTION 274 READ WITH SECTION 271(1)(c) OF THE INCOME TAX ACT, 1961 Income Tax Office New Delhi Dated : 13.12.2010 To M/s. Modi Rubber Limited., 4 – 7C, DDA Shopping Centre, New Friends Colony, N.D.-110065. Whereas in the course of proceedings before me for the assessment year 2003-04 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 in terms of explanation 1,2,3,4 and 5

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You are hereby requested to appear before me at 11.00 AM/PM on 28.01.2011 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 of 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(1)(c). Sd/- Assessing Officer A.S.MEHRA Assistant Commissioner of Income Tax, Circle 5 (1), New Delhi. Delete inappropriate words and paragraphs”

271(1)(c) of the Act in order to initiate penalty proceedings against

the assessee goes to prove that the AO himself was not aware as to

whether he is issuing notice to initiate the penalty proceedings

either for “concealment of particulars of income” or “furnishing of

inaccurate particulars of such income” by the assessee rather

issued vague and ambiguous notice by incorporating both the

limbs of section 271(1)(c). When the charge is to be framed

against any person so as to move the penal provisions against him,

he/she should be specifically made aware of the charges to be

leveled against him/her.

Manjunath Cotton and Ginning Factory (supra) while deciding

the identical issue held that when the AO has failed to issue a

specific show-cause notice to the assessee as required u/s 274 read

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with section 271(1)(c), penalty levied is not sustainable. The

operative part of the judgment is reproduced as under :-

“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 case of relying on deeming provision contained in Explanation 1 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 on him 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 (1)( c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form 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 the tax liability. As the said provisions have to be held to be strictly 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 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

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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 T Ashok Poi v. CIT [2007] 292 ITR 11 / 161 Taxman 340 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 CIT v. Manu Engg. [1980] 122 ITR 306 and the Delhi High Court in the case of CIT v. Virgo Marketing (P) Ltd. [2008] 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position 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.”

Hon’ble Apex Court in case of CIT vs. SSA’s Emerala 15.

Meadows – (2016) 73 taxmann.com 248 (SC) while dismissing the

SLP filed by the Revenue quashing the penalty by the Tribunal as

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well as Hon’ble High Court on ground of unspecified notice has

held as under :-

“Section 274, read with section 271 (1)(!;), of the Income-tax Act, 1961 - Penalty - Procedure for imposition of (Conditions precedent) - Assessment year 2009-10 - Tribunal, relying on decision of Division Bench of Karnataka High Court rendered in case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565/218 Taxman 423/35 taxmann.com 250, allowed appeal of assessee holding that notice issued by Assessing Officer under section 274 read with section 271 (1 )(c) was bad in law, as it did not specify under which limb of section 271 (1 )(c) penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income - High Court held that matter was covered by aforesaid decision of Division Bench and, therefore, there was no substantial question of law arising for determination - Whether since there was no merit in SLP filed by revenue, same was liable to be dismissed - Held, yes [Para 2] [In favour of assessee]”

vs. SSA’s Emerala Meadows (supra) and Hon’ble Karnataka High

Court in CIT vs. Manjunath Cotton and Ginning Factory (supra)

are squarely applicable to the facts and circumstances of the case as

the AO has miserably failed to specify in the notice issued under

section 274 read with 271(1)(c) of the Act, “as to whether the

assessee has concealed the particulars of his income or has

furnished inaccurate particulars of such income”, so in these

circumstances, penalty levied by the AO and confirmed by ld. CIT

(A) is not sustainable in the eyes of law.

applied his mind in order to record his satisfaction in order to

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initiate the penalty proceedings. Perusal of the assessment order,

available at pages 115 to 123 of the paper book, shows that the AO

has made written observations without applying his mind to initiate

penalty proceedings under section 271(1)(c) by recording

following findings :-

“I am satisfied that this is a fit case for imposition of penalty u/s 271(1)(c) for failure on the part of the assessee to disclose true particulars of its income on all these issues on which additions/disallowances have been made as discussed in the order. Thus penalty proceedings u/s 271(1)(c) are initiated by issuing penalty show cause notice.”

the assessment order it is prima facie not discernible to make AO

prima facie satisfy if the assessee has concealed the particulars of

income or furnished inaccurate particulars of such income. AO has

merely recorded findings at the fag end of his order in mechanical

manner that it is a fit case for imposition of penalty under section

271(1)(c) on all the issue on which addition/disallowances have

been made, as discussed in the order. The factum of non-

application of mind on the part of the AO get further corroborated

from the vague and ambiguous notice issued u/s 274 read with

section 271(1)(c) discussed in the preceding paras.

AO has wrongly levied the penalty on account of disallowance of

AED credit as the same was not claimed by the assessee in its

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original return. Undisputedly, claim of AED credit has not been

made by the assessee in its original return but was considered by

the AO during remand proceedings pursuant to the directions

issued by the Tribunal. It is also not in dispute that when the

assessment was completed vide order dated 31.01.2006 under

section 143 (3) of the Act, AO treated the revised computation

filed on 22.12.2005 as non-est and has not considered the AED

claim set out by the assessee, the penalty on this score cannot be

levied. This fact goes to prove that AED claim has not been made

by the assessee in its original return but was entertained by the

Tribunal by way of additional ground vide order dated 20.03.2009

and on the basis of which AO considered the same and imposed the

penalty thereon.

in case of Devsons (P.) Ltd. vs. CIT – (2010) 329 ITR 483 (Delhi)

held that “in case the assessee has disclosed each and every fact to

the departmental authorities or to Court concerned, then merely

because departmental authorities concerned or High Court

concerned does not concur with legal stand adopted by assessee, it

will not be enough reason to hold that assessee is guilty of

concealment of income or of furnishing inaccurate details – Held,

yes”

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Hon’ble Apex Court in CIT vs. Onkar Saran & Sons – 21.

(1992) 195 ITR 1 (SC) also decided identical issue in favour of the

assessee as under :-

“Penalty – For concealment of income – Assessment years 1961- 62 and 1962-63 – Whether even in a case where a return filed under section 148 involved an element of concealment, law applicable for imposition of penalty would be law as in force at time of original return filed for the assessment year in question and not law as it stood on dates on which returns in response to the notice under section 148 were filed – Held, yes.”

case of CIT vs. Onkar Saran & Sons (supra) and Hon’ble Delhi

High Court in case of Devsons (P.) Ltd. vs. CIT (supra), we are of

the considered view that when the assessee had not made claim for

AED credit in the original return but raised the claim by moving

additional evidence before the Tribunal and has disclosed each and

every fact to the Revenue authorities, the penalty levied is not

sustainable on the ground that the claim of the assessee has not

been accepted by the authorities.

when the assessee has made a bonafide claim no penalty can be

levied. When it is not the case of the Revenue that the assessee has

concealed particulars of income or has furnished in accurate

particulars of income rather declined the bonafide claim set out by

the assessee, penalty cannot be levied. Reliance in this regard may

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be placed on judgment cited as CIT Vs Reliance Petro products

Pvt. Ltd. 322 ITR 158 (S.C.). Operative part of which is

reproduced for ready reference as under :-

“A glance at the provisions of section 271(1)(c) of the I.T. Act, 1961 suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word “particulars” used in section 271(1)(c) would embrace the detail of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars.”

considered view that the penalty levied by the AO and confirmed

by the ld. CIT (A) is not sustainable in the eyes of law, hence

ordered to be quashed. Consequently, the appeal filed by the

assessee is allowed.

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has since been disposed off vide this composite order, the present stay application is hereby dismissed having been become infructuous. Order pronounced in open court on this 14th day of June, 2018.

Sd/- sd/- (G.D. AGRAWAL) (KULDIP SINGH) PRESIDENT JUDICIAL MEMBER Dated the 14th day of June, 2018 TS