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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM AND SRI MANOJ KUMAR AGGARWAL, AM
ITA No. 2825/Mum/2016 (A.Y:2009-10)
Bermaco Industries Limited The Asst. Commissioner D-73/1, TTC Industries Area, of Income Tax MIDC, Turbhe Central Circle-8(4), Vs. Navi Mumbai-400 705 Mumbai
Appellant .. Respondent PAN No.AAACB4325J Assessee by .. Ms. Shraddha Gor, AR Revenue by .. Kumar Sanjay, Ld. CIT DR Date of hearing .. 05-10-2017 Date of pronouncement .. 10-11-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-47 Mumbai [in short CIT(A)] in appeal No. CIT(A)-36/AP.342/14-15 dated 23-02-2016. The Assessment for impugned AY was framed by Ld. Deputy Commissioner of Income Tax, Centre Circle-47, Mumbai (in short DCIT or AO) for the Assessment Year 2009-10 (in short AY) vide order dated 30-12-2011 under section 153A read with section 143(3) of the Income Tax Act, 1961(hereinafter “the Act”). The penalty was levied by Ld. AO under section 271(1)(c) of the Act vide order dated 29.03.2014.
The first issue in this appeal of assessee assails the order of CIT(A) qua confirmation of penalty under section 271(1)(c) of the Act. The assessee has contested the same on jurisdictional issue as well as on merits. Since, the legal issue questions the very levy of penalty, we take up the same first. The assessee has raised following legal grounds: -
2 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) “I) The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact that the order passed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 is bad in law as the notice under section 274 read with section 271(1)(c) of the Income Tax Act, 1961 was issued without clarifying whether the penalty was initiated for concealment of particulars of income or for furnishing inaccurate particulars thereof.
II) Without prejudice to the above ground of appeal the learned commissioner of income tax (appeals) further erred in not appreciating the fact that though the assessing officer initiated penalty proceedings for furnishing inaccurate particulars of income however he levied the penalty for concealment of income by invoking deeming provision contained in Explanation 1 to section 271(1) of the Income Tax Act, 1961”
The brief facts of the case are that a search and seizure action was carried out on the business and residential premises of the assessee and its directors on 31.10.2009. During the course of search proceedings, Shri Viren Ahuja, Director of the assessee company offered undisclosed income of Rs.38.90 crores in the statement recorded u/s 132(4) to account for various discrepancies noticed in the books of accounts namely bogus purchases, unaccounted cash found etc. The amount of bogus purchases relevant to the assessee company was initially taken as Rs.21.20 crores which after verification has been determined to be Rs.27.50 crores. Subsequently, the statement given u/s 132(4) was retracted by Shri Ahuja through an affidavit dated 24.11.2009. In response to the notice u/s 153A, the assessee filed a return on 17.09.2012 declaring total income at Rs.16,94,866/-. The return was
3 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) selected for scrutiny, during which, the AO after considering the facts of the case, rejected the retraction of the statement. Assessment was completed u/s 143(3) read with Section 153A vide order dated 30.12.2011 determining total income at Rs.27,98,24,090/- after addition of Rs.27,80,33,410/- towards bogus purchases and disallowance of depreciation of Rs. 95,807/-. Penalty u/s 271(1)(c) was initiated in the quantum assessment order for furnishing of inaccurate particulars of income. The addition of bogus purchases was subsequently confirmed by the First appellate authority. Consequently, Ld. AO took up penalty proceedings, issued show cause notice and after considering the reply of the assessee, proceeded to levy penalty amounting to Rs.9,45,03,556/- u/s 271(1)(c). Aggrieved, the assessee preferred appeal before CIT(A) on legal grounds as well as on merits, who confirmed the action of the AO on jurisdictional issue by observing in Para 5.15 as under: -
“5.15 Thus after giving due consideration to the facts of the instant case as also to the judicial pronouncements cited above, the levy of penalty under section 271(1)(c) is upheld and the ground raised by the appellant are dismissed.”
Aggrieved, the assessee is in further appeal before us.
We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, the learned Counsel for the assessee argued that the AO in his quantum assessment order framed under section 153 A read with Section 143(3) of the Act at Para 7.14 initiated penalty by stating that “The assessee has furnished inaccurate particulars of its income, therefore penalty is separately initiated under section 271(1)(c)”. The learned Counsel for the assessee drew attention to Para 7 to Para 12 of the penalty order passed by Ld. AO under section 271(1)(c) to contend that the Ld. AO was not clear as to the limb for
4 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) which penalty was being levied on the assessee since both the limbs have been mixed up which vitiates the penalty order. The Ld. AR further contended that Ld. AO was not sure about the charge against the assessee and the assessee was not aware as to which of the two limbs of section 271(1)(c) of the Act has been invoked by the Assessing Officer. For this, the learned Counsel relied on the decision of Hon’ble Bombay High Court in the case of CIT vs. Samson Perinchery [2017] 392 ITR 004 (Bom.) who further relied on the ratio laid down by Hon’ble Karnataka High Court in the case of CIT vs. Manjunath Cotton & Ginning Factory [2013] 359 ITR 565 (Karnataka). The Ld. AR further submitted that legal issue was raised before Ld. CIT(A) also. However, Ld. CIT(A) in his order vide para 5.13 rejected the same by observing that initiation of penalty on one limb and levy on another was justified and lead to same effect even though concealment and furnishing of inaccurate particulars of income, as per settled judicial pronouncements are two different limbs. Therefore, the CIT(A) erred in holding that there was no dichotomy as far as initiation and levy of penalty was concerned and he rejected the contention of the assessee.
Finally, the learned Counsel for the assessee argued that the AO was not sure about the charge under which penalty under section 271(1)(c) of the Act was being levied on the assessee. The learned Counsel for the assessee stated that this issue stood squarely covered in assessee’s favor by the decision of Hon’ble Bombay High Court in the case of Samson Perinchery (Supra), wherein it is held as under: -
“3 The impugned order of the Tribunal deleted the penalty imposed upon the Respondent Assessee. This by holding that the initiation of penalty under Section 271 (1)(c) of the Act by Assessing Officer was for furnishing inaccurate particulars of income while the order imposing penalty is for concealment
5 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) of income. The impugned order holds that the concealment of income and furnishing inaccurate particulars of income carry different connotations. Therefore, the Assessing Officer should be clear as to which of the two limbs under which penalty is imposable, has been contravened or indicate that both have been contravened while initiating penalty proceedings. It cannot be that the initiation would be only on one limb i.e. for furnishing inaccurate particulars of income while imposition of penalty on the other limb i.e. concealment of income. Further, the Tribunal also noted that notice issued under Section 274 of the Act is in a standard proforma, without having striked out irrelevant clauses therein. This indicates non-application of mind on the part of the Assessing Officer while issuing the penalty notice.
4 The impugned order relied upon the following extract of Karnataka High Court's decision in CIT v/s. Manjunath Cotton and Ginning Factory 359 ITR 565 to delete the penalty:
“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 as
6 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) case of furnishing of inaccurate particulars. The apex court in the case of Ashok Pai reported in [2007] 292 ITR 11 (SC) 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 Manu Engineering reported in 122 ITR 306 and the Delhi High Court in the case of Virgo Marketing P. Ltd., reported in 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.”
The grievance of the Revenue before us is that there is no difference between furnishing of inaccurate particulars of income and concealment of income. Thus, distinction drawn by the impugned order is between Tweedledum and Tweedledee. In the above view, the deletion of the penalty, is unjustified.
The above submission on the part of the Revenue is in the face of the decision of the Supreme Court in Ashok Pai v/s. CIT 292 ITR 11 [relied upon in Manjunath Cotton & Ginning Factory (supra)] –
7 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) wherein it is observed that concealment of income and furnishing of inaccurate particulars of income in Section 271(1)(c) of the Act, carry different meanings/ connotations. Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under Section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/ permit penalty being imposed for the other breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated/notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground of which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the Assessee has no notice.
7 Therefore, the issue herein stands concluded in favour of the Respondent Assessee by the decision of the Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra). Nothing has been shown to us in the present facts which would warrant our taking a view different from the Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra).
She also stated that Hon’ble Bombay High court has followed the decision of Hon’ble Karnataka High Court rendered in Manjunath Cotton & Ginning Factory (Supra), wherein similar view is taken.
On the other hand, the learned CIT Departmental Representative (DR) filed written submissions, which reads as under: -
In addition to the above Case Laws, my arguments in brief are as follows.
8 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) a) The assessee's contention that, in the assessment order passed under section u/s 153A r.w.s. 143(3) of the Act, the Ld AO at end of para 7.14 has merely stated that 'the assessee has furnished inaccurate particulars of its income therefore penalty is separately initiated u/s 271(1)(c)' While in the order passed u/s 271(1 )(c) the Ld. AO has in para 9 to para 11 discussed the limb' concealing particulars of such income by invoking Explanation 1 and thereafter in para 12 held that the assessee has deliberately filed inaccurate particulars of income within the meaning of section 271(1)(c) of the Act, 1961 read with Explanation I thereto."
In the penalty order the A.O. has also stated that though concealment and furnishing of inaccurate particulars are two different limbs, they lead to the same effect in as much as they result in the keeping off a portion of Income Tax. Thus after reading the two versions written one in the assessment order and other in the penalty order, there is no dichotomy so far as the initiation and levy of penalty is concerned as inaccurate particulars of income furnished appears on both the orders. Hence the contention of the assessee that he is not aware that for which charge he is penalized is not maintainable considering the entire gamut of facts is very clear to him right from the beginning. The bogus billing amounting to Rs.
9 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) 27,80,33,410/- claimed in the books is the inaccurate particulars of income furnished which also tantamount to concealment of income. In this light, the penalty has been levied by the A.O. in a fair manner after giving opportunities.
b) The second ground which the assessee is taking that in the notice issued under section 271(1)(c) of the Act which is in a printed form, the AO has not struck out the irrelevant part in the standard proforma of show cause notice. It therefore does not spell out as to whether the penalty proceedings are sought to be levied for "furnishing inaccurate particulars of income "or "concealing particulars of such income".
On this aspect, I would like to rely on the Hon'ble Bombay High Court Case of Kaushalya & Others (216 ITR 660 Bombay) wherein it has been held that: -
The assessment orders were already made and the reasons for issuing the notice under section 274 read with section 271(1)(c) were recorded by the Income-tax Officer. The assessee fully knew in detail the exact charge of the Department against him. In this background, it could not be said that either there was non- application of mind by the Income-tax Officer or the so-called ambiguous wording in the notice impaired or prejudiced the right of the assessee to reasonable opportunity of being heard. After
10 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) all, section 274 or any other provision in the Act or the Rules, does not either mandate the giving of notice or its issuance in a particular form. Penalty proceedings are quasi-criminal in nature. Section 274 contains the principle of natural justice of the assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining a complaint of failure of the Principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice is caused to the concerned person by the procedure followed. The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The entire factual background would fall for consideration in the matter and no one aspect would be decisive. In this context, useful reference may be made to the following observation in the case of CIT v. Mithila Motor's (P.) Ltd. [1984] 149 ITR 751 (Patna) (headnote):
"Under section 274 of the Income-tax Act, 1961, all that is required is that the assessee should be given an opportunity to show cause. No statutory notice has been prescribed in this behalf. Hence, it is sufficient if the assessee was
11 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) aware of the charges he had to meet and was given an opportunity of being heard. A mistake in the notice would not invalidate penalty proceedings."
In nutshell, the arguments are as follows: -
I) Rules of natural justice cannot be imprisoned in any straight-jacket formula.
ii) The Act or the Rules, does not either mandate the giving of notice or its issuance in a particular form.
iii) The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice.
iv) Under section 274 of the Income-tax Act, 1961, all that is required is that the assessee should be given an opportunity to show cause. No statutory notice has been prescribed in this behalf. Hence, it is sufficient if the assessee was aware of the charges he had to meet and was given an opportunity of being heard. A mistake in the notice would not invalidate penalty proceedings.
The assessee has relied on the Case of another jurisdictional Bombay High Court Case of Shri
12 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) Samson Perinchery (392 ITR [Bombay]4) dated 5.01.2017 which has entirely relied on the Karnataka High Court decision in case of CIT vs. Manjunatha Cotton and Ginning Factory (359 ITR 565).
It has also been held by Supreme Court that the judgment which is more speaking is binding then the decision where it has been clothed by another decision or has been dismissed without passing a speaking order In the above mentioned two orders it is easier to understand that Kaushalya & Others is a speaking order with a lot of discussion of other cases and facts whereas in the case of Samson Perincherry it has been followed the principles of Manjunath Cotton as held by Karnataka High Court. In that light my humble prayer will be to follow Kaushalya and others in the instant case.
v) I will also rely on the Hon’ble Supreme Court case of K P Madhusudhan vs. CIT (118 Taxman 324 ), wherein it has been held that the scheme of the provision does not provide for such a requirement either directly or inferentially that the A.O. is obliged to intimate the assessee that the Explanation 1 to Section 271(1)(c) is proposed to be applied By virtue of the notice u/s 271 put to notice that if he does not prove, in the circumstances stated in the explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to
13 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently be liable to the penalty provided by that section. No express invocation of the explanation to Section 271 in the notice u/s 271 is, in our view, necessary before the provisions of the explanation therein are applied. This case has nowhere been argued in the case of Samson Perincherry or Manjunatha Cotton which has a strong relevance for the application of the said section.
vi) I am also relying on the two judgments of Hon’ble ITAT Mumbai in the case of Mahesh M Gandhi v/s ACIT(Mumbai) order dated 27.02.2017 and in the case of Earth Moving Equipment Service Corporation v/s. DCIT (ITAT E Bench Mumbai order dated 2.05.2017 where favourable orders have been passed in the favour of the department.
My prayer will be that either the judgment of Kaushalya and others (2016 ITR 660 Bombay should be followed as it is a more speaking order of a jurisdictional High Court or alternatively this should be referred to the Hon’ble President, ITAT for constitution of a Special Bench on this issue.
14 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) 7. In the given facts and circumstance and discussion carried out above, we are of the view that the AO has initiated penalty proceedings for furnishing of inaccurate particulars of income, whereas, the penalty was levied for both the charges is as evident from the penalty order vide Para 7 to 12 which read as under: -
“7. Coming to the merit of imposition of the penalty, it is to be said that section 271(1)(c) of the IT. Act, 1961, is attracted when the AO is satisfied that any person has concealed the particulars of his income, or has furnished inaccurate particulars of such income. The expressions 'has concealed and has furnished inaccurate particulars" have not been defined in the section or anywhere in the Act. However, notwithstanding the difference in the two circumstances, they lead to the same effect viz., keeping off a portion of the income.
Whenever there is a difference between return income and assessed income, A.O. has to decide during the penalty proceedings that, is it due to change of opinion or failure from the assessee's side to furnish accurate particulars of income or disclose all particulars of income? But in this regards AO is not to decide the intention of the assessee for such furnished inaccurate particular of income or concealment of income.
The facts and circumstances of the following case are relevant.
15 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) 9. The Explanation 1 to section 271(1)(c) automatically comes into operation in respect of any facts material to the computation of the total income of any person, when there is failure to offer any explanation, or an explanation offered is found to be false, or not substantiated, at held in the case of CIT Vs. A Sreenivasa Pai 242 ITR 29 (Kerala). The Hon'ble Kerala High Court further held that the amount added or disallowed in computing the total income is deemed to represent the income in respect of which the particulars have been concealed. As per the provisions of the Explanation 1, the onus to establish that the explanation offered was bona fide and all facts relating to the same, and material to the computation of his income, have been disclosed by him, will be on the person charged with concealment. In this connection, further reliance is placed on the case of Western Automobiles (India) Vs CIT (112 ITR 1048) wherein the Bombay High Court has held that where the assessee agree to inclusion of amount, onus shifts on assessee in penalty proceedings to show that the amount was not the concealed income.
In a recent decision of the larger bench of the Hon’ble Supreme Court in the case of CIT Vs M/s. Dharmendra Processors (306 ITR 277) it was held that levy of penalty is a civil liability and willful concealment is not essential
16 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) ingredient for attracting a civil liability as in the matter of prosecution uls.276C of the Act. It was held by the Hon'ble Supreme Court after considering the provisions of section 271(1)(c) and the explanation appended thereto that “The explanations appended to section 271(1)(c) of the Income- tax Act entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return”. The object behind the enactment of section 271(1)(c) read with the explanation indicates that the said section has been enacted to provide for a remedy for loss of revenue.
Further, the Reliance is placed in the case of CIT Vs. Zoom Communication Pvt. Ltd. reported in 191 Taxman 179 (Delhi), where it was held that whether if assessee makes a claim which is not only incorrect in law, but also wholly without any basis and explanation furnished by him for making such a claim is not found to be bona fide, explanation I to Sec. 271(1)(c) would come into play and assessee will be liable to penalty. It further stated that
“The court cannot overlook the fact that only a small percentage of the Income-tax Returns are picked up for scrutiny. If the assessee makes a claim which is not only incorrect in low but is also wholly without any basis and the explanation furnished by him for making such a claim is not
17 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271(1) (c) of the Act. If we take the view that a claim which is wholly untenable in law and has absolutely no foundation on which it could be made, the assessee would not be liable to imposition of penalty, even if he was not acting bonafide while making a claim of this nature, that would give a license to unscrupulous assessees’ to make wholly untenable and unsustainable claim without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self-assessment tinder section 143(l) of the Act and oven if their case is selected for scrutiny, they can get away merely by paying the tax, which in any case, was payable by them. The consequences would be that the persons who make claims of this nature, actuate by mala fide intention to evade tax otherwise payable by them would get away without paying the tax legally payable by them, if their case are not picked up for scrutiny. This would take away the deterrent effect, which these provisions in the Act have.”
18 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) 12. In view of the above, and in the facts and circumstances of the case and in law, I am of the opinion that the assessee has deliberately filed inaccurate particulars of income within the meaning of sec. 271(1)(c) of the I.T. Act, 1961 read with explanation 1 thereto.”
Upon perusal of the same, we find that Ld. AO has mixed up both the limbs whereas as per settled legal pronouncements of superior court, the two limbs of Section 271(1)(c) viz. furnishing of inaccurate particulars of income and concealment of income carry different meaning / connotations. Therefore, Ld. AO himself was not sure about the charge for which penalty was initiated and finally levied on the assessee. Hence, the issue, as rightly pointed out by Ld. AR, stood covered in assessee’s favor by Hon’ble Jurisdictional High Court in the case of Samson Perincherry (supra). Respectfully following the Hon’ble High Court decision, we delete the penalty and reverse the order of the lower authorities. The appeal of the assessee on jurisdictional issue stands allowed and hence, to delve into the same on merits becomes academic in nature.
In the result, the appeal of assessee stands allowed in terms of our above order.
Order pronounced in the open court on 10-11-2017. Sd/- Sd/- (MANOJ KUMAR AGGARWAL) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 10-11-2017 Sudip Sarkar /Sr.PS
19 ITA No.2825/Mum/2016 Bermaco Industries Limi ted (AY 09-10) Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT (A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai //True Copy// 6. Guard file. BY ORDER, Assistant Registrar ITAT, MUMBAI