THE BOMBAY DYEING AND MANUFACTURING CO. LTD,MUMBAI vs. ASST CIT CIR 2(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL “G”, BENCH MUMBAI BEFORE SHRI C. N. PRASAD, JM &DR. A.L.SAINI, AM आयकरअपीऱसं./ITA No.3673/Mumbai/2016 (निर्धारणवषा / Assessment Year: 1994-95) M/s. The Bombay Dyeing Vs. ACIT, Circle-2(1), Mumbai and Manufacturing Co. Ltd., Mumbai Neville House, J.N. Heredia Marg, Ballard Estate, Mumbai – 400 001. स्थायीऱेखासं./ जीआइआरसं./ PAN/GIR No. : AAACT 2328 K (Appellant) .. (Respondent) Appellant by :ShriYogesh A. Thar & Shri Chaitanya Joshi Respondent by :Shri Abhijeet Patankar, DR सुनवाईकीतारीख/ Date of Hearing : 19/02/2018 घोषणाकीतारीख/Date of Pronouncement : 21/02/2018 आदेश / O R D E R Per Dr. Arjun Lal Saini, AM:

The captioned appeal filed by the Assessee pertaining to Assessment Year 1994-95, is directed against an order passed by the Commissioner of Income Tax- (Appeals)-4, Mumbai, in Appeal No.CIT(A)-4/IT-5/ACIT- 2(1)/2014-15, dated 16.02.2016, which in turn arises out of a penalty order passed by the Assessing Officer u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the „Act‟), dated 31.10.2014.

3. Ground No. 2 raised by the assessee relates to the issue where the assessing officer does not mention specific charge in the notice of penalty whether penalty is for “concealment of income or furnishing inaccurate particulars of income”. That is, AO has not specified in the penalty notice, the basis of charge. Non-striking off of the irrelevant clause in the penalty notice renders the penalty order bad in law. 4.The brief facts apropos this issue are that during the scrutiny proceedings u/s 143(3) of the Income Tax Act, 1961, the assessing officer made following additions and disallowances: S.No. Issue Amount 1 Boiler Lease Rent 8,10,212 2. Entertainment Expenses 88,213 3 Technical Know-how Fee 64,12,875 4 Deduction U/s 80HH, 80I and 80IA 5. Disallowance of interest 5,548 6 Disallowance on Depreciation on Range Rover Car 2,66,832 7 Treating gain on cancellation of Foreign Exchange Contract as 21,00,000 revenue receipt 8 Taxability of exchange profit on repatriation of GDR funds 29,13,000 9 Disallowance U/s 80HHC 72,45,517 10 Disallowance of expenditure on issue of GDR 7,27,84,000 11 Disallowance of expenditure incurred with issue of SPN/NCD 56,80,081 M/s. The Bombay Dyeing and Manufacturing Co. Ltd., Mumbai Assessment Year: 1994-95 Based on the additions/disallowances made in scrutiny assessment U/s 143(3), the assessing officer held that „penalty proceedings u/s 274 r.w.s 271(1)(c) are initiated‟. (vide para 118 of AO order). Subsequently, the assessing officer issued penalty notice under section 274 r.w.s.271(1) (c ) of the Act, stating the following charge: “have concealed the particulars of your income or furnished inaccurate particular of such income”. Having discussed the various case laws in the penalty order, the Assessing officer imposed the penalty U/s 271(1) (c) at Rs. 4,80,00,000/-, holding that „assessee has filed inaccurate particulars of income within the meaning of section 271(1)(c) of the Income Tax Act, 1961 read with Explanation 1 thereto.

5. On appeal, the ld. CIT(A) confirmed the penalty order passed by the AO holding that assessee deliberately included some income for claiming enhanced deduction u//s 80I & 80IA, etc. and has claimed wrong expenditure u/s 37 of the I.T. Act, 1961. Therefore, assessee‟s bona fide was not visible and it was very apparent that attempt had been to reduce the taxable income or enhance the loss.

6. Not being satisfied with the order of the ld. CIT(A), the assessee is in appeal before us. At the outset itself, the ld. Counsel for the assessee drew our attention to the notices u/s 274 of the Act r.w.s 271(1)(c) dated 31.03.97 and served on the assessee, wherein the AO has not strike off the irrelevant limb of charge/default. That is, the assessing officer ticked only the first limb, that is,“have concealed the particulars of your income” and other limb was not strike off. Whereas in the penalty order passed by the AO u/s 271(1)(c), the AO stated vide Para 18 of Penalty Order that: “assessee has filed inaccurate particulars of income within the meaning of section 271(1)(c) of the Income Tax Act, 1961 read with Explanation 1 thereto”. Page | 3 M/s. The Bombay Dyeing and Manufacturing Co. Ltd., Mumbai Assessment Year: 1994-95 Therefore, the Counsel stated that there is no consistency between the penalty notice and the penalty order so far `charge of penalty, is concerned. The ld. Counsel for the assessee stated before us that in the absence of notice issued u/s 274 r.w.s 271(1)(c) of the Income Tax, 1961, being specific initiation of the penalty is itself bad in law and for that he relied on the following judgments: i) CIT v. Manjunatha Cotton & Gining Factory (359 ITR 565)(KAR.) ii) CIT v. SSA's Emerald Meadows (73 taxmann.com 241)(Kar)(HC) iii) CIT v. SSA's Emerald Meadows (73 taxmann.com 248)(SC) iv) CIT v. Samson Perinchery (ITA 1154, 953, 1097, 1226/2014 v) Global Proserv Ltd vs ACI0054 (ITA No. 7332-7335/M/2014) vi) H. Lakshminarayana vs. ITO (2015) (61 taxmann.com 373) vii) Tulip Mines Pvt. Ltd. v. DCIT (ITA 2407/K0L/2013) viii) A. R. Chadha v. ACIT (80 ITD 56)(Del)(TM)

7. On the other hand, Ld. DR for the revenue has primarily reiterated the stand taken by the AO which we have already noted in our earlier para and is not repeated for the sake of brevity. In addition to this, the ld. DR for the revenue has placed reliance on the judgment of Hon‟ble Supreme Court in the case of K.P. Madhusudhanan Vs. CIT[2001] 251 ITR 99(SC).

8. We have given a careful consideration to the rival submissions and perused the material available on record, we find that the notice has been issued for „having concealed the particulars of income or furnished inaccurate particulars of such income‟, and irrelevant portion has not been strike off. We note that there is no specific charge on the assessee whether assessee has concealed the particulars of income or furnished inaccurate particulars of income. That is, irrelevant limb of the notice u/s 274 of the Act r.w.s 271(1)(c) has not been struck off by the AO. In the assessment order passed by the AO u/s 143(3), there is no mention of charge whereas Page | 4 M/s. The Bombay Dyeing and Manufacturing Co. Ltd., Mumbai Assessment Year: 1994-95 penalty notice made by the AO u/s 271(1)(c) speaks about the inaccurate particulars of income. We note that in a similar case of Hon‟ble High court of Karnataka in the case of CIT vs Manjunatha Cotton and Ginning Factory reported in (2013) 359 ITR 565 (Kar) has cancelled the penalty taking note of the fact that the penalty notice did not spell out clearly as to whether the assessee has concealed the particulars of income or has furnished inaccurate particulars of Income. We also find that Hon‟ble Karnataka High Court in the case of CIT Vs. SSA‟s Emerald Meadows, reported in (2016) 73 taxmann.com 241 (Kar) endorsed the same view in Manjunatha Cotton and Ginning Factory(supra) and held as under: “3. 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 CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565/218 Taxman 423/35 taxmann.com 250(Kar). 4. 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.”

We also find that the aforesaid order of the Hon‟ble High Court was challenged by the department before the Hon‟ble Supreme Court by preferring an SLP which has been dismissed which fact has been reported in CIT Vs. SSA‟s Emerald Meadows (2016) 73 taxmann.com 248 (SC). We note that since the penalty notice issued to the assessee dated 31.03.1997 did not spell out as to which default, the assessee has committed, for which penalty u/s. 271(1)(c) of the Act has been initiated, therefore, respectfully following the Hon‟ble Karnataka High Court‟s order in Manjunatha Cotton & Ginning Factory (supra) and SSA‟s Emerald Meadows (supra), penalty should not be imposed. Similar view has been Page | 5 M/s. The Bombay Dyeing and Manufacturing Co. Ltd., Mumbai Assessment Year: 1994-95 upheld by the Hon‟ble jurisdictional High Court, Mumbai in the case of Samson Perinchery (2017) 392 ITR 4 (Bom). Considering all these decisions, the Co-ordinate Bench of Mumbai Tribunal in the case of Orbit Enterprises vs. ITO [60 ITR(Trib.) 251] held that AO to make assessee aware in notice as to which of two limbs invoked against him for purposes of levy of penalty and striking off of irrelevant clause in notice is material. Therefore, following the above decisions, we cancel the penalty imposed by the AO which has been erroneously confirmed by the ld. CIT(A). Therefore, the appeal of the assessee is allowed.

Order is pronounced in the open court on 21/02/2018.

Sd/- Sd/- (C. N. PRASAD) (DR. A.L.SAINI) न्यधनयक सदस्य / JUDICIAL MEMBER ऱेखध सदस्य / ACCOUNTANT MEMBER Place: Mumbai Dated 21/02/2018 (RS, SPS) आदेशकीप्रनिलऱपपअग्रेपषि/Copy of the Order forwarded to : अपीऱाथी/ The Appellant –M/s. The Bombay Dyeing and 1. Manufacturing Co. Ltd., Mumbai प्रत्यथी/ The Respondent-ACIT, Circle-2(1), Mumbai 2. 3. आयकरआयुक्त(अपीऱ) / The CIT(A), आयकरआयुक्त/ CIT 4. 5. DR, ITAT, गार्डफाईऱ / Guard file. 6.