M/S MINDMILL SOFTWARE LTD.,,NEW DELHI vs. ITO, NEW DELHI

PER KULDIP SINGH, JUDICIAL MEMBER :

“1. That on the facts and circumstances of the case, the CIT (Appeals) erred on facts and in law in not quashing the penalty order dated 30.03.2014, passed by the assessing officer under section 271 (1) (c) of the Income-tax Act, 1961, being beyond jurisdiction, bad in law and void ab-initio.

2. That on the facts and circumstances of the case, the CIT(Appeals) erred on facts and in law in not quashing the penalty order dated 30.03.2014, passed by the assessing officer under section 271 (1) (c) of the Income-tax Act, 1961 for concealment of income whereas the appellant has not concealed the particulars of income and has not furnished any inaccurate particulars of such Income and hence the appellant is not liable to any penalty u/s 271 (1) (c) of the Income Tax Act;

4. That on the facts and circumstances of the case, the CIT(Appeals) erred on facts and in law in not appreciating that whereas the Assessing Officer initiated penalty proceedings on grounds of filing inaccurate particulars of income, penalty was finally imposed for concealment of income.

5. That on the facts and circumstances of the case, the CIT(Appeals) erred on facts and in law in not appreciating that Show Cause Notice issued u/s 274 of Income Tax Act did not specifically state the grounds mentioned in Section 271 (1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income;

6. That the CIT (Appeals) erred on facts and in law in upholding the action of the assessing officer in sustaining penalty on addition made on account of interest disallowed by treating the building as being under construction even though the building was complete and ready for being let out.

7. That the CIT (Appeals) erred on facts and in law in upholding the action of the assessing officer in sustaining penalty on account of interest disallowed by completely ignoring observation of Learned Commissioner (Appeals) in Quantum proceedings that both possibilities appeared plausible that either building could be complete or could be considered under construction, hence when both views were plausible, penalty was clearly not exigible

8. That the CIT(Appeals) erred on facts and in law in not appreciating that there was no loss to revenue on account of claim of interest as claim per se had not been assessed as bogus but it was matter time when the expense could be claimed. That whereas assessee claimed expense during the year and the Assessing officer wanted to grant claim of expense during next year. That hence in view of settled legal position in such matters of difference of opinion, penalty was clearly not exigible.

9. That the CIT (Appeals) erred on facts and in law in upholding the action of the assessing officer in sustaining penalty on addition made on account of ROC Fee paid for increase of authorized share capital even though entire information regarding the same was available before the Assessing Officer in the form of audited accounts.

10. That the CIT (Appeals) erred on facts and in law in upholding the action of the assessing officer in sustaining penalty on addition made on account of Electricity Expenses by stating that corresponding revenue had not been booked and by disregarding the fact that right to revenue could not be recognized unless bill for same was raised which was only done during next year, hence could never be recognized as income during the year under appeal.

11. That the CIT(Appeals) erred on facts and in law in not appreciating that there was no loss to revenue on account of claim of electricity expenses as claim per se had not been assessed as bogus but it was matter time when the expense could be claimed. That whereas assessee claimed expense during the year and the Assessing officer wanted to grant claim of expense during next year. That hence in view of settled legal position in such matters of difference of opinion, penalty was clearly not exigible.

12. That the CIT (Appeals) erred on facts and in law in not appreciating that despite certain expenses being disallowed, since appellant has not concealed particulars of income and has not furnished any inaccurate particulars of such .income, absolutely no penalty is imposable;

13. That the CIT (Appeals) erred on facts and in law in not adjudicating on grounds raised before him stating that without prejudice to the other grounds raised, calculation of amount of alleged concealed income of Rs.4895315/- is incorrect.

Finding the submissions made by the assessee not acceptable, the AO came to the conclusion that the assessee has deliberately claimed deduction of Rs.1,35,584/- at 30% of the rent of Rs.4,42,248/- on account of rent of furniture / interior by rental showing it as income from house property and this disallowance has been confirmed by the ld. CIT (A) and that the assessee has not shown the income on account of electricity charges recovered from the tenant and an amount of Rs.59,136/- was added to the income of the assessee which has also been confirmed by the ld. CIT (A); and similarly, deduction of Rs.22,000/ was rental claimed out of fee paid to ROC for an increase in authorized capital in violation of the Act and the same has also been upheld by the ld. CIT (A) and thereby imposed the penalty to the tune of Rs.20,08,652/- u/s 271(1)(c) of the Act.

3. Assessee challenged the penalty order before the ld. CIT (A) by way of appeal who has partly allowed the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.

“as to whether the show cause notice has been drawn against the assessee by leveling specific charges as required u/s 274 of the Act stating the grounds mentioned u/s 271(1)(c) of the Act?”

“NOTICE UNDER SECTION 274 READ WITH SECTION 271 F THE INCOME TAX ACT, 1961 Income Tax Office, New Delhi To Mindmill Software Ltd J – 1/29, 1st Floor, Kirki Extn. Malviya Nagar, N. Delhi

Whereas in the course of proceedings before me for the assessment year 2008-09 it appears to me that you:-

*have without reasonable cause failed to comply with a notice under section 142(1)/143(2) of the Income Tax Act, 1961 dated ………….. *have concealed the particulars of your income or furnished inaccurate particulars of such income in terms of explanation 1,2,3,4 and 5.

You are hereby requested to appear before me at 4.00 A.M./P.M. on 07.02.2011 and show cause why an order imposing a penalty on you should not be made under section 271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative you may show cause in writing on or before the said date which will be considered before any such order is made under section 271.

Sd/- Assessing Officer, Income-tax Officer, Ward 6(4), Room No.418, C.R. Building, New Delhi-2 *Delete inappropriate words and paragraphs.”

“63. In the light of what is stated above, what emerges is as under: a) Penalty under Section 271(1)(c) is a civil liability. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. f) Ever if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A)

& (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order. l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority. p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. u) The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.”

“as to whether the assessee has concealed particulars of income or assessee has furnished inaccurate particulars of such income?”

…..Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars.

14. To our mind, when the assessee has claimed any deduction by not concealing anything and in case the deduction has been disallowed by the AO and assessment order has been confirmed by the CIT (A) it does not amount to concealment of income or furnishing of inaccurate particulars.