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Income Tax Appellate Tribunal, DELHI BENCH “G”, NEW DELHI
Before: SHRI H.S. SIDHU & SHRI L.P. SAHU
Assessee has filed the appeal against the Order dated 04.9.2015 passed by the Ld. Commissioner of Income Tax (Appeals-I), New Delhi pertaining to assessment year 2009-10. The solitary issue raised in the appeal is relating to upholding the penalty of Rs.36,58,000/- u/s. 271(1)(c) of the I.T. Act, 1961.
2. The facts in brief are that assessee is an investment company and has made investment in the shares of closely held unquoted companies. The total amount of investment as on 31.3.2008 was Rs. 8,04,71,569/-. The Assessment in this case was made making the following additions:- a) Disallowance u/s. 14A Rs. 4,07,158/-
b) Disallowance of Bad Debts Rs. 1,32,000/- c) Disallowance of return on Rs. 10,84,005/- Investments d) Disallowance on account of sale Rs. 91,39,000/- Of rights claimed as capital loss
The disallowances made by the AO were confirmed by the Ld. CIT(A). Thereafter, the AO issued notice u/s. 274 read with Section 271(1)(c) of the I.T. Act, 1971 for levy of penalty. The penalty u/s. 271(1)(c) was levied on 31.3.2014 of Rs. 36,58,000/-. 3. Aggrieved with the said penalty order, the assessee filed the appeal before the Ld. CIT(A), who vide his impugned order dated 04.09.2015 has upheld the penalty in dispute and accordingly, dismissed the appeal of the assessee.
At the time of hearing, Ld. Authorised Representative of the Assessee has stated that assessee had appealed before the Ld. CIT(A) against the above said additions. However, the assessee did not press for the disallowance made on account of Bad Debts of Rs. 1,32,000/- and Disallowance of Expenses on account of return of investment of Rs. 10,84,005/-. In his appellate order dated 01.2.2013 the Ld. CIT(A) did not allow the appeal of the assessee. The assessee had further filed appeal to ITAT, New Delhi against disallowance u/s. 14A of Rs. 4,07,158/- and against Long Term Capital Loss treated as Business income of Rs. 91,39,000/- and the ITAT vide its order dated 5.8.2016 in the quantum additions of Rs. 4,07,158/- and Rs. 91,39,000/-. However, during the penalty proceedings, the AO vide his order dated 31.3.2014 imposed penalty of Rs. 36,58,000/- u/s. 271(1)(c) of the Act, in respect of total additions of Rs. 1,07,62,163/- on the alleged ground that the assessee had furnished inaccurate particulars of income. In view of the above, ld. Counsel of the assessee stated that out of four quantum addition on which the penalty has been imposed, two quantum addition has already been deleted by the ITAT, ‘A’ Bench, New Delhi in (AY 2009-10) vide Order dated 05.08.2016. In this behalf he filed the copy of the Tribunal’s Order dated 05.08.2016 in assessee’s own case and requested that penalty in dispute may be deleted, because the assessee has not furnished any inaccurate particulars of income. It was further submitted that AO did not record his satisfaction for initiation of penalty proceedings and further that quantum and penalty proceedings are independent of each other and penalty cannot be imposed simply on the basis of finding recorded in the assessment order. Ld. Counsel of the Assessee has draw our attention towards the assessment order dated 30.12.2011 passed u/s. 143(3)(ii) of the Act and stated that while completing the assessment the AO has observed “….. Penalty proceedings u/s. 271(1)© is being initiated separately for furnishing inaccurate particulars of income / concealment income……………….” and attaching a printed notice with such order requiring the assessee to show cause why penalty under section 271(1)© of the Act be not levied for concealment / filing of inaccurate particulars of income, is not sufficient and the penalty proceedings cannot be said to be validly initiated under such circumstances. He further stated that neither the assessment order nor the printed show cause notice nowhere states the specific charge of alleged concealment and / or furnishing of inaccurate particulars of income vis-à-vis addition made. In view of the above, he stated that entire penalty proceedings stand vitiated, because it is not in accordance with law and in order to support his contention, he placed the reliance on the following decisions:-
- 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.
In view of above, he requested that the penalty in dispute may be cancelled and appeal of the assessee may be allowed.
5. On the contrary, Ld. DR relied upon the orders of the authorities below and also filed the written submissions, which are reproduced hereunder:-
“Sub: Written Submission in the above case- reg.
In the above case, it is humbly submitted that the following decisions may kindly be considered:
Union of India v. pharamendra Textile Processors
[(2007) 295 ITR 244] (Copy Enclosed) where Hon'ble
Supreme Court held that Penalty under section 271
(1)(c) is a civil liability for which willful concealment is not an essential ingredient for attracting the civil liability as is the case in the matter of proceedings under section 276C
CIT Vs Zoom Communication (P.) Ltd. [191
Taxman 179 (Delhi)/[2010] 327 ITR 510 (Delhi)/[2010]
233 CTR 465] where Hon'ble Delhi High Court held that If assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and explanation furnished by him for making such- a claim is. not found to be bona fide, Explanation 1 to section 271 (1 )(c) would come into play and assessee will be liable to penalty
MAK Data P. Ltd. vs. CIT 38 taxmann.com 448
(SC). Where Hon’ble Supreme Court held that under Explanation 1 to S. 271(1)©, voluntary disclosure of concealed income does not absolve assessee of section 271(1)© penalty if the assessee fails to offer an explanation which is bonafide and proves that all the material facts have been disclosed.
CIT vs. Gates Foam & Rubber Co [91 ITR 467] CIT
vs India Seafood [105 ITR 708] where Hon'ble Kerala
High Court held that Claiming excessive deduction also amounts to concealment of income
Steel Ingots Ltd vs. CIT [296 ITR 228] where
Hon'ble Madhya Pradesh High Court held that in case of concealment of true income chargeable. to tax by making bogus claim, levy of penalty u/s 271 (1 )(c) read with Explanation 1 is justified
7. CIT Vs Escorts Finance Ltd [183 Taxman 453
(Delhi)/[2010] 328 ITR 44 (Delhi)/[2009] 226 CTR 105] where Hon'ble Delhi High Court held that if claim made in return of income appears to be ex facie bogus, it would be treated as a case of concealment or furnishing of inaccurate particulars and penalty proceeding would be justified.”
6. We have carefully considered the rival submissions and perused the relevant records. We find that assessee had appealed before the Ld. CIT(A) against the quantum additions i.e. disallowance u/s. 14A amounting to Rs. 4,07,158/- and disallowance on account of long term capital loss treated as business income amounting to Rs. 91,39,000/-.
However, the assessee did not press for other disallowances made on account of Bad Debts of Rs. 1,32,000/- and Disallowance of Expenses on account of return of investment of Rs. 10,84,005/-. We further find that in his appellate order dated 01.2.2013 the Ld. CIT(A) did not allow the appeal of the assessee and aggrieved with the action of the Ld. CIT(A), te assessee appealed before the Tribunal against disallowance u/s. 14A of Rs. 4,07,158/- and against Long Term Capital Loss treated as Business income of Rs. 91,39,000/- and the ITAT vide its order dated 5.8.2016 in had set aside the finding of the Ld. CIT(A) on the issue u/s. 14A and restore the matter to the file of the AO for fresh adjudication after due verification of the claim of the assessee regarding no expenditure having been incurred and allowed the issue relating to Long Term Capital Loss treated as Business income of Rs. 91,39,000/- by deleted this addition. We further note that during the penalty proceedings, the AO vide his order dated 31.3.2014 imposed penalty of Rs. 36,58,000/- u/s. 271(1)(c) of the Act, in respect of all the four additions of Rs. 1,07,62,163/- mentioned in the grounds of appeal, as aforesaid, on the alleged ground that the assessee had furnished inaccurate particulars of income.
6.1 After perusing the assessment order, we find that AO also did not record his satisfaction for initiation of penalty proceedings, because while passing the assessment order dated 30.12.2011 passed u/s. 143(3)(ii) of the Act, the AO has stated that “….. Penalty proceedings u/s. 271(1)© is being initiated separately for furnishing inaccurate particulars of income / concealment income……………….”, which is not sufficient and therefore, the penalty proceedings cannot be said to be validly initiated under such circumstances. However, nowhere in the assessment order states the specific charge of alleged concealment and / or furnishing of inaccurate 7 particulars of income. Therefore, the entire penalty proceedings stand vitiated, because it is not in accordance with law, in view of the law settled in the following case laws. 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.”
6.2 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. Since we have deleted the penalty and did not discuss the penalty issue on merit, hence, the case laws cited by the Ld. DR are not useful at this juncture, because these case laws are on the merits of the case, which we have not discussed.
In the result, the appeal filed by the Assessee stands allowed.
Order pronounced in the Open Court on 04/12/2017.