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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: Shri Mahavir Singh & Shri G Manjunatha
Date of hearing 08 -08-2018 Date of pronouncement 21-08-2018 O R D E R Per G Manjunatha, AM : These appeals filed by the assessee are directed against the orders of the CIT(A)-1 & CIT(A)-2, Thane dated 1-06-2014 & 01-05-2017 respectively and they pertain to AYs 1997-98 & 1996-97 respectively.
Since facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed of by 2 Saroj Anil Steel (P) Ltd this common order.
The assessee has raised more or less common grounds of appeal for both the assessment years. By these grounds of appeal, assessee has challenged levy of penalty u/s 271(1)(c) of the Income-tax Act, 1961.
The assessee also filed an application for filing additional grounds of appeal on 30-07-2018 and taken a legal ground challenging validity of penalty order passed by the AO u/s 271(1)(c) in pursuance to notice issued u/s 274 r.w.s. 271(1)(c) of the Income-tax Act, 1961.
The brief facts of the case extracted from for AY 1996-97 are that the assessee company is engaged in the business of trading in iron & steel. A survey action u/s 133(6) of the I.T.
Act, 1961 was conducted in the group companies of Anil Exim (Pvt) Ltd and assessee being part of the group was also covered under survey action. During the course of survey, it was noticed that the assessee was involved in hawala transactions, i.e. providing accommodation entries without actual delivery of goods. Therefore the assessment was reopened u/s 147 and accordingly assessment has been completed u/s 143(3) r.w.s. 147 of the I.T. Act, 1961 wherein the income of the assessee was assessed at Rs.15,40,950 by estimating 1% profit on gross turnover. Aggrieved by the assessment order, assessee carried the matter in appeal before the CIT(A). The Ld.CIT(A) has directed the AO to estimate profit @0.4% of gross turnover. On further appeal, the 3 Saroj Anil Steel (P) Ltd ITAT has set aside the matter to the AO with a direction to estimate income at 1% of total turnover and allow certain administrative expenses. The AO, while completing the assessment u/s 143(3) r.w.s.
254 of the I.T. Act, 1961, after allowing certain expenses determined the total income at Rs.13,73,980 as against the income of Rs.15,40,954 assessed earlier. Against the order of AO assessee preferred appeal before the CIT(A) which was dismissed by the Ld.CIT(A). On further appeal, the ITAT, E-Bench, Mumbai vide order dated 11-09-2008 restored the matter back to the file of the AO with a direction to recompute the income of the assessee after verification of genuineness of expenditure claimed. Consequent to order of ITAT, the AO passed order u/s 143(3) r.w.s. 254 on 22-02-2009 and determined total income at Rs.12,28,020.
Thereafter, the AO initiated penalty proceedings u/s 271(1)(c) by issuing notice u/s 274 r.w.s. 271(1)(c) for concealment of particulars of income and furnishing of inaccurate particulars of income. In response to show cause notice, the assessee vide its letter dated 15-02-2011 filed an elaborate written submissions on the issue of levy of penalty which has been reproduced by the AO in his assessment order at para 4 on pages 3 to 12. The AO, after considering relevant submissions of the assessee held that the assessee company could not furnish any evidence, whatsoever to show that there was no concealment of income.
4 Saroj Anil Steel (P) Ltd Therefore, he opined that it is a fit case for levy of penalty u/s 271(1)(c) for concealment of particulars of income and for furnishing inaccurate particulars of income. The relevant para of the AO’s penalty order is extracted below:_
5. Considering the facts of the case, the explanation of the assessee was not found to be acceptable on the following grounds:- • Rather than furnishing the explanation on merits, the assessee just once again narrated the 'hawala' business of the company. • The assessee- once again tried to explain the merits and constraints of 'hawala' transactions which has already been considered in three assessment orders and three appellate order of the CIT(A). Even the ITAT after considering all the facts', constraints and circumstances decided the case twice and issued directions to the Assessing Officer to compute the income of the assessee. Based on which the income of the assessee company was assessed by passing assessment order U/s 143(3) r.w.s. 254 of the I.T.Act,1961 on 22/12/2009. • In the explanation submitted, the assessee has claimed deduction in turnover in respect of sister concerns which can not 3 be considered in the penalty proceedings. In is pertinent to mention here that trie assessee has never claimed the deduction on account of turnover of sister concerns. The same was first time claimed before the CIT(A) while filing appeal against the assessment order passed U/s 143(3) r.w.s. 254 of the I.T.Act,1961 on 22/12/2009. The Hon'ble CIT(A) duly discussed/considered the claim of the assessee and dismissed the same. • The assessee company could not furnish any evidences of whatsoever to show that there was no concealment of income, sake of argument, even if the claim of assessee regarding ction on account of turnover of the sister concerns is relied upon or considered, it come to conclude that the assessee has concealed the income. The only difference would be amount of concealed income. This clearly shows that the assessee has concealed the income by furnishing inaccurate particulars of income. Without going into the quantum, the assessee company had itself admitted to have earned income in 'hawala' transactions over and above the declared income in the return of income which has also been detected by Assessing Officer, CIT(A) as well as the ITAT on all the earlier occasions. Therefore, in view of the High Court of Rajasthan (Jaipur Bench), in CIT vs R.C.Gupta & Co. (1980) 122 ITR 0567 :(1980) 015 CTR 0023 :(1980) 003 TAXMAN 0501 wherein it was heid that where the assessee himself had admitted that a certain amount represented his income, no further evidence would be necessary to show that it, was the amount which represented his income and/or that it represented his concealed income. In the 5 Saroj Anil Steel (P) Ltd present case, the decision is squarely applicable and thus penalty under section 271(l)(c) of the Act,1961 is attracted in this case. It is not the case where the AO has taken a different view (other than the quantum) from the assessee in treating certain income as concealed income. This situation clearly doubt the intention of the assessee and therefore action on part of the assessee can be clearly termed as deliberate 'concealment'.
6. In view of the above the explanation of the assessee is hereby rejected. Thus, I am satisfied that the assessee has concealed the particulars of income by furnishing inaccurate particulars of such income under the provisions of section 271(l)(c) of the I.T.Act,1961. Therefore, a penalty of Rs.4,80,482/- is levied U/s 271(l)(c) of the I.T.Act,1961 against the maximum penalty leviable at the three times of the above penalty levied. The working of penalty is as under:- Rs.12,28,020/- (i) Income assessed u/s. 143(3) r.w.s. 254 [After giving effect to the order of CIT(A)'s order dtd. 15/09/2010] • " " " -
Tax on it (A) Rs.5,28,049/- Rs.1,10,620/- (ii) Returned income Tax on it (B) Rs.47,567/-
Rs.4,80,482/- (iii) Tax sought to. evaded (A-B)
Penalty leviable:- Rs.4,80,482A Rs. 14,41,4467- Minimum @ 100% of ^4,80,482/-Maximum @ 300% of ?4,80,482/- Rs.4,80,482/- (iv) Penalty levied
5. Aggrieved by the order of the penalty, assessee preferred appeal before the CIT(A). Before the CIT(A) assessee has filed elaborate written submissions which have been reproduced by the Ld.CIT(A) in his order at para 8 on pages 5 to 7 of his order. The Ld.CIT(A), after considering relevant submissions of the assessee held that the assessee
6 Saroj Anil Steel (P) Ltd had concealed the particulars of its income within the meaning of section 271(1)(c) of the Act and accordingly, the AO was right in imposing penalty u/s 271(1)(c) of the Act. The relevant portion of the order of the Ld.CIT(A) is extracted below:-
I have carefully considered (he facts of the case, findings of the AO in the assessment orders as well as penalty order, submissions of the Ld, AR and material placed on record. From the facts of the case it is noticed that the historical facts of the case have been discussed in detail in the foregoing paras of the appeal order, hence not reproduced to avoid repetition. The appellant is engaged in the business of hawala transactions from a flat no. 204, Quay Street, first floor, Darukhana, Ray Road, Mumbai. In this case a survey action u/s 133A of the Act was carried out. The survey party noticed that the appellant and other associate concerns, operating from the above flat, were providing accommodation entries to various clients, as per their requirement, after charging a nominal commission and accordingly earned the taxable income. In-spitc of having taxable income, the appellant had not declared/offered correctly the same for tax. The Hon'ble ITAT, keeping in mind the facts of the case, submission of the appellant, finding of the AO in the assessment order and that of CIT(A) in the appellate orders, had directed the AO to determine the commission income @ 1% of the total turnover and further directed to allow expenses, actually incurred by the appellant against the said commission income. The AO has accordingly determined the taxable income at Rs 12,28,0207- and the same was also upheld by the then C1T(A), Thane. .After considering the submission of the appellant and keeping in view the finding of the CIT(A) in the quantum appeal, had imposed the minimum penalty of Rs 4,80,482/-, by giving the detailed finding in the penalty order. In A Yr 1997-98, on account of similar set of circumstances, the penalty imposed by the AO was upheld by the CIT (A) 1, Thane, in dated 11.06.2014, by observing .;-. inter-alia, as under:- “I have carefully considered the appellant's submissions, the observations of the AO in the order and penalty order and the fuels of the case. As far as the factual submissions of the appellant are concerned, it is seen that the Hon'ble ITAT, 'E' Bench, Mumbai, vide their order dated 04. 04.2014 have dismissed the appellant 's appeal. With regard to the appellant 's contention that sales with sister concerns /group concerns were required to be reduced from the total turnover of the appellant, it has been held by the Hon 'ble ITAT, Mumbai that the issue of commission and total turnover had obtained finality. It was further observed that the appellant had not raised any such issue before the Tribunal in the second found and therefore the ITAT, Mumbai, rejected the appellant's contention in this regard. Therefore, the submission of the appellant regarding determination of income have been finally decided by the ITAT, Mumbai, by dismissing the appellant's appeal. 11. As far as legal submissions of the appellant are concerned, it is seen that the various judgments relied upon by the appellant are primarily relating to two issues i.e. first, the assessment proceedings and penalty proceedings are separate proceedings and penalty cannot be imposed 7 Saroj Anil Steel (P) Ltd automatically or in a mechanical manner on the basis of the assessment order. Secondly, in the case of estimation of profit, penalty u/s. 271(l)(c) of the IT, Act cannot be imposed.
During the course of survey at the appellant's premises, it was found that the appellant was indulging in providing accommodation entries to parties and income from the same had not been declared by the appellant in its return of income for the year under consideration. !i is an admitted fact that the appellant was issuing accommodation bills. Therefore, it cannot be said that the penalty u/s. 27l(l)(c) of the I. T. Act has been imposed in the appellant’s case mechanically or only on the basis of addition made in the assessment order. The fad of appellant 's issuing accommodation bills, was found out during the course of survey at the appellant 's premises.
As far as the issue of estimation of appellant's income is concerned, it is seen that the same has been done on the basis of the directions of the Hon'ble ITAT, Mumbai, which has been upheld by the Hon’ble ITAT in three rounds of appeals on the same issue. Therefore, in the appellant's case it cannot be said that some wild guess has been made or the income of the appellant has been estimated on some assumption etc. Therefore, the judgments relied upon by the appellant are not applicable in its case as the appellant had not disclosed income from the business of issuing accommodation bills in its return of income for the year under consideration filed on 30. 1 1 .1997 and it is only on the basis of survey carried out in its case, it was found that the appellant had not declared income' from business of issuing accommodation bills. There/ore, it is held that the appellant had concealed the particulars of its income and the AO has rightly imposed penalty u/s. 27l(l)(c) of the l.T. Act on the concealed income. Therefore, penalty imposed by the AO u/s. 271(I)(c) of the I. T. Act amounting to Rs. 11.Q0.562/- is confirmed" 5.1 From the above facts it is crystal clear that it was only after survey action, carried out by the department, it has come to the notice of the AO that in-spite of earning the taxable commission income from entry providing business, the appellant had not filed the return/declared the income, for the reason well known to it. The Hon'ble ITAT, while the issue under dispute in the quantum appeal, had duly considered the all aspects as well as the contention of the appellant and accordingly given the clear cut direction for estimating its commission income @1% of the total turnover. The Hon'ble ITAT also directed to determine the net, income, after allowing the actual expenses, incurred for providing entries to the various parties. In view of these facts this is not a case of purely estimation of income, as has been contended, therefore, not tenable and accordingly rejected. Considering the fact that the issues under appeal had already been decided by the CIT(A) 1, Thane, after considering the submissions as well as case laws relied upon, in appellant's own case, in A Yr 1997-98 as above, wherein the facts and circumstances were similar to that of present year, therefore, respectfully following the same parity of reasoning, the penalty of Rs 4,80,482/-, levied u/s 271(l)(c) of the I.T. Act, by the AO is upheld and all the grounds of appeal, raised as above, are dismissed.”
8 Saroj Anil Steel (P) Ltd
The Ld.AR for the assessee, at the time of hearing submitted that the Ld.CIT(A) was erred in confirming penalty levied by the AO u/s 271(1)(c) without appreciating the fact that the notice issued u/s 274 r.w.s. 271(1)(c) of the Act is vague in nature and the AO failed to apply his mind before initiation of penalty proceedings to frame a specific charge on the assessee, whether penalty proceedings have been initiated for concealment of particulars of income or furnishing of inaccurate particulars of income. The Ld.AR for the assessee, referring to notice issued u/s 274 r.w.s. 271(1)(c) dated 22-12-2009 submitted that the AO has issued printed form of notice without striking off irrelevant portion in the notice. Therefore, it is a clear case of non application of mind by the AO before initiation of penalty proceedings, therefore, penalty order passed u/s 271(1)(c) in pursuance of a vague notice is bad in law and liable to be quashed. In support of his argument, he relied upon the decision of Hon’ble Supreme Court in the case of SSA Emerald Meadows (2010) 386 ITR 1 (SC). The assessee also relied upon the decision of Hon’ble Bombay High Court in the case of CIT vs Samson Perincherry (2017) 98 CCH 39 and the decision of Hon’ble Karnataka High Court in the case of Manjunatha Cottona & Ginning Factory (2013) 369 ITR 565 (Kar).
On the other hand, the Ld.DR strongly supported order of the 9 Saroj Anil Steel (P) Ltd Ld.CIT(A) and submitted that the assessee has concealed particulars of its income which is evident from the fact that the AO has gathered information about concealment of income in pursuance of survey action conducted u/s 133A where it was noticed that the assessee was involved in providing accommodation entries without actual delivery of goods for which the AO has assessed income by estimating the profit from total turnover for which the assessee has not offered any explanation. Therefore, the AO was right in levying penalty u/s 271(1)(c) and his order should be upheld.
We have heard both the parties, perused the materials available on record and gone through the orders of lower authorities. The issue of notice issued u/s 274 r.w.s. 271(1)(c) without striking off irrelevant portion in the notice is no longer res integra. The Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra) has considered the issue in the light of notice issued u/s 274 r.w.s.
271(1)(c) and held that if the AO issued a vague notice, then it is a case of non application of mind by the AO before initiation of penalty proceedings and hence, pursuant to such vague notice, penalty imposed u/s 271(1)(c) cannot be sustained under law. The Hon’ble Supreme Court in the case of CIT vs SSA Emerald Meadows (supra) has considered similar issue and after considering relevant facts, by following the decision of Hon’ble Karnataka High Court in the case of 10 Saroj Anil Steel (P) Ltd Manjunatha Cotton & Ginning Factory (supra) held that notice issued u/s 274 r.w.s. 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. The Hon’ble Bombay High Court in the case of CIT vs Samson Perincherry (supra) has considered similar issue and by following the decision of Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra) has taken similar view and held that if the AO issued a vague notice without specifying the charge under which penalty proceedings have been initiated, then the whole penalty proceedings is vitiated and consequent penalty order is bad in law. In this case, on perusal of facts available on record, we find that the AO has initiated penalty proceedings by issuing notice dated 22-12-2009 wherein the AO has put a right mark on the printed portion of notice which states “for concealing the particulars of your income and / or furnishing inaccurate particulars of such income”. We further notice that even in the assessment order, the AO has initiated penalty proceedings for concealment of income and for furnishing of inaccurate particulars of income. This lapse is continued even in penalty order where the AO has levied penalty under both the limbs, i.e. concealment of particulars of income and furnishing of inaccurate particulars of income. Therefore, we are of the considered view that notice issued by the AO u/s 274 r.w.s. 271(1)(c) is vague and which was issued without application of 11 Saroj Anil Steel (P) Ltd mind and hence, whole penalty proceedings is vitiated. Consequently, the penalty levied by the AO u/s 271(1)(c) cannot be sustained. Accordingly we direct the AO to delete the penalty levied u/s 271(1)(c) of the I.T. Act, 1961. 9. The facts and issue in AY 1997-98 are identical to the facts and issue considered in the preceding paragraphs in ITA No.5106/Mum/2017. The reasons given by us in preceding paragraphs shall mutatis mutandis apply to this appeal also. Therefore, for similar reasons, we direct the AO to delete penalty levied u/s 271(1)(c) of the Income-tax Act, 1961.
In the result, both the appeals filed by the assessee are allowed. Order pronounced in the open court on 21st August, 2018.