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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI G. S. PANNU, AM & SHRI AMARJIT SINGH, JM
order
) Vs. Compound, Lower Parel, Dy. CIT (C.C.5(3) Mumbai-400013. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACD4132B (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) Assessee by: Shri Sumit Lalchandani & Salil Kapoor Revenue by: Shri Ram Tiwari (AR) सुनवाई की तारीख / Date of Hearing: 07.05.2018 घोषणा की तारीख /Date of Pronouncement: 03.08.2018 आदेश / O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 28.09.2015 passed by the Commissioner of Income Tax (Appeals)-53, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y. 2011-12 wherein the penalty levied by the AO has been upheld.
The assessee has raised the following grounds: - “
1 The Learned Commissioner of Income Tax (Appeals)-53, Mumbai CIT(A)"], on the facts of the case and in law, erred in upholding the order of the Deputy Commissioner, Central Circle-33 (Assessing Officer) TAG") dated 11.02.2013, confirming levy of penalty of Rs.20,88,028/- under section 271 A.Y. 2011-12 (c) Income Tax Act, 1961, an alleged concealment of long term capital gain of Rs,1,01,36,060/-. C1T(A) ought to have considered that omission to offer income from capital gain inadvertent and the receipts were fully accounted for and disclosed in the audited balance sheet and sale deed was duly registered and was in public domain.
2. The Appellant craves leave to add to/or amend and/or modify and/or alter and/or delete the aforesaid grounds of appeal.” Additional Grounds Ground 3: "That the notice issued under section 271(l)(c)/274-ofthe Act, and the order passed under section 271(1) (c) of the Act are illegal, bad in without jurisdiction." Ground 4: "That satisfaction has been recorded white completing the assessment proceedings, hence the notice issued under section 274 of the Act, and the order passed under section 27l(l)(c) of the Act are illegal, bad in taw and without jurisdiction." Ground 5: "That the penalty has been initiated vide notice under section 271(l)(c)/274 of the Aft without any specific charge, hence, the said notice and the order passed under section 27l(l)(c) of the Act are illegal, bad in law and without jurisdiction." The brief facts of the case are that the assessee filed its return of 3. income for the A.Y. 2011-12 on 27.09.2011 declaring total income to the tune of Rs.Nil. The case was selected for scrutiny under CASS. Thereafter the order was passed u/s 143(3) of the I.T. Act, 1961 on 28.03.2014. The addition to the tune of Rs.1,01,36,060/- on account of long term capital gain was made in the above assessment order. The gist of the order is hereby mentioned below: - “As per AIR information received in the case of the assessee, it is seen that the assessee has sold the immovable property located at Raghuvanshi Mills Compound, Lower R=Parel Mumbai-400013. During the course of scrutiny proceedings, the assessee was asked to reconcile the AIR information s no capital gain was offered by the assessee in the return of the income. In response to the same, assessee has submitted details of property and copy of the agreement of purchase & sales. It is seen from agreement that the assessee had purchased the property on 16th October 1997 for ITA. No.165/M/2016 A.Y. 2011-12 consideration of Rs,7,50,000/- of total 21000sq.ft. for total consideration of Rs.7,50,00,000/-. And sold the same for consideration of Rs.3,20,00,000/- Hence Rs.1,01,36,060/- on account of long term capital gain is added back to the income”
4. Thereafter, the penalty notice u/s 271(1)(c) of the Act for the concealment of income was issued on 20.08.2014 to the assessee. The penalty to the tune of Rs.20,88,028/- u/s 271(1)(c) r.w. s. 274(2)(b) of the Act was imposed. The assessee preferred the appeal before the CIT(A) who upheld the order passed by the AO, therefore, the assessee has filed the present appeal before us. ISSUES NO 3 TO 5:- 5. Under these issues the assessee has challenged the deletion of penalty on account of defective notice u/s 271(1)(c) of the Act/274 of the Act. It is argued that the Assessing Officer nowhere tick off any limb to levy the penalty in the notice. However, the penalty was levied on account of concealment of income which is wrong against law and facts, therefore, on account of defective notice no penalty is leviable in view of the law settled in CIT Vs. SSA’S Emerald Meadows Meadows (2016) 73 taxmann.com, CIT Vs. Shri Samson Perinchery (2017) 392 ITR 4 (Bombay), Samson Perinchery Vs. ACIT ITA. 4624-4630/M/2013 & Maherjee Cassinath Holdings Pvt. Ltd. Vs. ACIT ITA. No. 1596/M/2014. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. On appraisal of the order passed by the authority below, A.Y. 2011-12 we noticed that the assessee alienated its immovable property located át Mumbai on 31.08.2010 and the assessee failed to disclose the long term capital gain to the tune of Rs.1,01,36,060/-, therefore, the Assessing Officer the penalty was levied in pursuance of the order dated 29.10.2014. The assessee took the legal ground on account of defective notice u/s 271(1)(c) of the Act which was without tick off any limb to levy the penalty. The penalty order dated 28.03.2014 is on the file in which the AO nowhere tick off any limb to levy the penalty. It is not in dispute that the penalty u/s 271(c) of the Act is leviable on account of the concealment of particular of income and on account of furnishing the inaccurate particulars of income. Both have different connotations. In this regard, the Hon’ble Supreme Court has appreciated the distinction between both the limb in the case Dilip N. Shroff 161 taxman 218 (SC). As per the record the assessment order speaks about levying the penalty on account of furnishing the inaccurate particulars of income and concealment of particulars income but the notice nowhere specify any limb to levy the penalty. The notice is not justifiable in view of the law settled by the Bombay High Court in the case of CIT-11 Vs. Samson Perinchery. At the time of argument, the Ld. Representative of the assessee has also placed reliance upon the finding of the Hon’ble ITAT in titled as Meherjee Cassinath Holdings P. Ltd. Vs. ACIT, Circle-4(2). The relevant para is hereby reproduced below: - ITA. No.165/M/2016 A.Y. 2011-12 “8. We have carefully considered the rival submissions. Sec. 271(1)(c) of the Act empowers the Assessing Officer to impose penalty to the extent specified if, in the course of any proceedings under the Act, he is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In other words, what Sec. 271(1)(c) of the Act postulates is that the penalty can be levied on the existence of any of the two situations, namely, for concealing the particulars of income or for furnishing inaccurate particulars of income. Therefore, it is obvious from the phraseology of Sec. 271(1)(c) of the Act that the imposition of penalty is invited only when the conditions prescribed u/s 271(1)(c) of the Act exist. It is also a well accepted proposition that ‘concealment of the particulars of income’ and ‘furnishing of inaccurate particulars of income’ referred to in Sec. 271(1)(c) of the Act denote different connotations. In fact, this distinction has been appreciated even at the level of Hon'ble Supreme Court not only in the case of Dilip N. Shroff (supra) but also in the case of T.Ashok Pai, 292 ITR 11 (SC). Therefore, if the two expressions, namely ‘concealment of the particulars of income’ and ‘furnishing of inaccurate particulars of income’ have different connotations, it is imperative for the assessee to be made aware as to which of the two is being put against him for the purpose of levy of penalty u/s 271(1)(c) of the Act, so that the assessee can defend accordingly. It is in this background that one has to appreciate the preliminary plea of assessee, which is based on the manner in which the notice u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 has been issued to the assessee-company. A copy of the said notice has been placed on record and the learned representative canvassed that the same has been issued by the Assessing Officer in a standard proforma, without striking out the irrelevant clause. In other words, the notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealment of the particulars of income as well as furnishing of inaccurate particulars of income. Quite clearly, non-striking-off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges it has to respond. The aforesaid infirmity in the notice has been sought to be demonstrated as a reflection of non-application of mind by the Assessing Officer, and in support, reference has been made to the following specific discussion in the order of Hon'ble Supreme Court in the case of Dilip N. Shroff (supra):- A.Y. 2011-12 “83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations.
The impugned order, therefore, suffers from non- application of mind. It was also bound to comply with the principles of natural justice. (See Malabar Industrial Co. Ltd. v. CIT [2000] 2 SCC 718]”
Factually speaking, the aforesaid plea of assessee is borne out of record and having regard to the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the notice in the instant case does suffer from the vice of non-application of mind by the Assessing Officer. In fact, a similar proposition was also enunciated by the Hon'ble Karnataka High Court in the case of M/s. SSA’s Emerald Meadows (supra) and against such a judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Hon'ble Supreme Court vide order dated 5.8.2016, a copy of which is also placed on record.
In fact, at the time of hearing, the ld. CIT-DR has not disputed the factual matrix, but sought to point out that there is due application of mind by the Assessing Officer which can be demonstrated from the discussion in the assessment order, wherein after discussing the reasons for the disallowance, he has recorded a satisfaction that penalty proceedings are initiated u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income. In our considered opinion, the attempt of the ld. CIT-DR to demonstrate application of mind by the Assessing Officer is no defence inasmuch as the Hon'ble Supreme Court has approved the factum of non-striking off of the irrelevant clause in the notice as reflective of non-application of mind by the Assessing Officer.
ITA. No.165/M/2016 A.Y. 2011-12 Since the factual matrix in the present case conforms to the proposition laid down by the Hon'ble Supreme Court, we proceed to reject the arguments advanced by the ld. CIT-DR based on the observations of the Assessing Officer in the assessment order. Further, it is also noticeable that such proposition has been considered by the Hon'ble Bombay High Court also in the case of Shri Samson Perinchery, 953, 1097 & 1126 of 2014 dated 5.1.2017 (supra) and the decision of the Tribunal holding levy of penalty in such circumstances being bad, has been approved.
Apart from the aforesaid, the ld. CIT-DR made an argument based on the decision of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Others, 216 ITR 660 (Bom.) to canvass support for his plea that non-striking off of the irrelevant portion of notice would not invalidate the imposition of penalty u/s 271(1)(c) of the Act. We have carefully considered the said argument set-up by the ld. CIT-DR and find that a similar issue had come up before our coordinate Bench in the case of Dr. Sarita Milind Davare (supra). Our coordinate Bench, after considering the judgment of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Ors., (supra) as also the judgments of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) and Dharmendra Textile Processors, 306 ITR 277 (SC) deduced as under :- “12. A combined reading of the decision rendered by Hon’ble Bombay High Court in the case of Smt. B Kaushalya and Others (supra) and the decision rendered by Hon’ble Supreme Court in the case of Dilip N Shroff (supra) would make it clear that there should be application of mind on the part of the AO at the time of issuing notice. In the case of Lakhdir Lalji (supra), the AO issued notice u/s 274 for concealment of particulars of income but levied penalty for furnishing inaccurate particulars of income. The Hon’ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon’ble Kerala High Court has struck down the penalty imposed in the case of N.N.Subramania Iyer Vs. Union of India (supra), when there is no indication in the notice for what contravention the petitioner was called upon to show cause why a penalty should not be imposed. In ITA. No.165/M/2016 A.Y. 2011-12 the instant case, the AO did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. The Hon’ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya (supra) and observed as under:- “....The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified.” In the instant case also, we are of the view that the AO has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the AO has failed to apply his mind at the time of issuing penalty notice to the assessee.”
The aforesaid discussion clearly brings out as to the reasons why the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) is to prevail. Following the decision of our coordinate Bench in the case of Dr. Sarita Milind Davare (supra), we hereby reject the aforesaid argument of the ld. CIT-DR.
Apart from the aforesaid discussion, we may also refer to the one more seminal feature of this case which would demonstrate the importance of non-striking off of irrelevant clause in the notice by the Assessing Officer. As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are to be initiated for furnishing of inaccurate particulars of income. However, in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act of even date, both A.Y. 2011-12 the limbs of Sec. 271(1)(c) of the Act are reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of Assessing Officer and there is no clear and crystallised charge being conveyed to the assessee u/s 271(1)(c), which has to be met by him. As noted by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non- compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond.
Therefore, in view of the aforesaid discussion, in our view, the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 is untenable as it suffers from the vice of non-application of mind having regard to the ratio of the judgment of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) as well as the judgment of the Hon'ble Bombay High Court in the case of Shri Samson Perinchery (supra). Thus, on this count itself the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted. We hold so. Since the penalty has been deleted on the preliminary point, the other arguments raised by the appellant are not being dealt with.”
In view of the above said circumstances, no doubt the penalty is not leviable in accordance with law. On merit, it also came into noticed that the assessee has declared the long term capital gain on account of sale of his immovable property dated 31.08.2010 in the next year even before the issuance of notice u/s 142 (1) of the Act in A.Y. 2011-12 the present assessment order, therefore, in the said circumstances, the assessee did not conceal any income accrued on account of long term capital gain. In the said circumstances, the penalty is not leviable in accordance with law. In support of his contention, the Ld. Representative of the assessee has placed reliance upon the law settled in Price Water House Coopers Pvt. Ltd. Vs. CIT 348 ITR 306 (SC). The copy of order for the A.Y. 2012-13 of the assessee dated 29.07.2016 is on the file in which the matter of controversy has been discussed in para no. 6 which is hereby reproduced below.: - “6.1 During the course of assessment proceedings, it was noticed from perusal of AIR information that the appellant had sold the immovable property located at Industrial Estate, V,S, Marg, Mumbai. The appellant was asked to reconcile the .MR information with the return tiled. In response, the appellant submitted that it had not included the capital gam on sale of said immovable property in its return of income and by mistake, the capital gam corresponding to sale of another property had been declared in the return. The appellant submitted details of property and copies of agreement of purchase and sales of said property. On scrutiny of the said agreements, the A.O, worked out LTCG of Rs.59.52,742/- on sale of aforesaid property which was added to the total income of the appellant •p 6.2 In the course of appellate proceedings, it is submitted that the A.O, had not considered the revised computation of total income filed by the appellant. IT is submitted that there was a clerical error due to which. LTCG amounting to Rs.2.35,44,673/- arising on sale of property for Rs.3.20 crores pertaining to A.Y.2011-12 has been included m the accounts of A.Y.20IM3. It is pointed out that there was sale of another property during the period for a consideration of Rs.2.25 crores on which the A.O. has calculated aforesaid 1.TCG of Rs,59r52,742/-. It is argued that having already brought to ta\ A.Y. 2011-12 the LTCG on sale of property in A.Y.2G11-12, the A.O. ought to have worked out only differential amount of LTCG in the A.V. under consideration. 63.1 T have considered the submissions of the appellant and perused the materials available on record. The issue for adjudication Is whether the A.O. was justified in making addition of LTCG of Rs.59,52,742/- on sale of immovable property. It Is noticed from the record that the appellant had purchased immovable property located at Raghuvanshi Mills Compound, Lower Parel Mumbai admeasuring 21000 sq.ft. on 16.10.1997 for a consideration of Rs.7.50 crorcs. It is observed that the appellant had sold 2350 sq.ft area out of the same for a consideration of Rs,3,20 crores vide Sale Deed dated 31.0S.2010 and further 1300 sq.ft. of area for a consideration of Rs.2.2S crores vide separate Sale Deed dated 11.11.2011 it is seen that in its return of income for A.Y.201 M2 filed on 27.09.2011, the appellant had not declared any income on account of LTCG on sale of aforesaid property. During the course of assessment proceedings for A.Y.2011-12, when the appellant was asked to reconcile the AIK information in regard to sale of property, it came forward with The details of the property and submitted copies of purchase and sale agreements of the said property. The appellant admitted the mistake and agreed ro pay ta\ on the LTCG earned on sale of the aforesaid property. Accordingly, the A.O. computed the amount of undisclosed LTCG at Rs.l,01,36,060/- on salt of property in A.Y.2Q1J-12 which was added 10 the total income of the appellant. It is seen from ihe record that The appellant has accepted the addition on account of LTCG middle in aforesaid assessment order foe A.Y,2Q11-12 ant! not filed any appeal in the matter. 6.3.2 Further, it is found that though the appellant had sold 1800 sq.ft. area of aforesaid property vide Sale Deed dated 11.11.2011 for a consideration of Rs,2.25 crores, it had nor disclosed the LTCG on sale of the said property m (he return of income for the A.Y. under consideration. At the time of assessment, the appellant was asked to reconcile the AIR information in regard to sale of the aforesaid property with the return of income. It was only then that the appellant admitted that it had not included the capital gam of Rs.l,71,429/- (Rs.2,25,00,000 -Rs.84.28,57l) on sale aforesaid A.Y. 2011-12 property in its P & L Account/return of income filed on 29.09.20L3, In these circumstances, no fault can be found with the action of the A.O. in computing the LTCG on sate Of aforesaid property at R5.59,52,42/-and adding the same to the total income of the appellant. The action of the A,0. in making addition of Rs.59,52,742/- on account of undisclosed LTCG on sale of property is, therefore, upheld. From perusal of the computation of total income as per the assessment order, it is noticed that the A.O. had taken total income as per computation filed by the appellant at a loss of Rs.24.569/- which represented profit before tax as per the P & L Account of the appellant for the year ended 31.03.2012. It Is observed that the appellant had credited short term capital gain of Rs.2,35,44,673/- (sale consideration of Rs.3,20,00.000- cost Of acquisition of Rs.64.55,327) on sale of 2S5G sq.ft of arya in Raghuvanshi Mills Compound, Lower Parel, Mumbai to its P & L Account which has to be excluded because it pertains to the preceding A Y 2011-12, At the same time it is also observed that the appellant had earned LTCG of Rs, 1,60,71.4297- (sale consideration of Rs,2,25,00,000- cost of acquisition of Rs.64,26,571) on sale of 1300 sq.ft. area in the said building vide Sale Deed dated 11.11.2011 pertaining to the A.Y. under consideration which ought to have been credited to the P & L Account but was not so included. Therefore, the A.O, is directed to re-compute the total income of the appellant after considering the net result of these two items while giving effect to this order. This will have the effect of increasing the loss as per P & L Account by Rs,74,73,2447- (Rs.2,35,44,673- Rs.1,60,71,429) with this direction, ground no. 3 of the present appeal is treated as allowed to the extent indicated above.”
On appraisal of the above mentioned order, we are of the view that the assessee showed the long term capital gain in the next year whereas the sale has been completed on 31.08.2010. The assessee voluntarily furnished the detail in his return of income for the A.Y. 2012-13 in which the mater of controversy has been adjudicated above. All the facts show that the assessee was not having any intention to conceal the said income to avoid the tax, therefore, in A.Y. 2011-12 view of the law settled in Price Waterhouse Coopers Pvt. Ltd. Vs. CIT, we are of the view that the penalty is not liable to be sustainable in the eyes of law. Accordingly, we set aside the finding of the CIT(A) on this issue and delete the penalty. Accordingly, these issues are being decided in favour of the assessee against the revenue.