SEA LINK (INDIA) LTD,RAJKOT vs. DCIT CIR 3(3), MUMBAI

Sea Link (India) Limited Assessment Year-2006-07 आदेश / O R D E R Per Manoj Kumar Aggarwal (Accountant Member)

which assails the imposition of penalty on legal grounds. The revenue has not raised any serious objections against the same and since the grounds are purely legal in nature and do not require appreciation of new facts, the same is admitted. With this background, we proceed with the assessee’s appeal.

2. Facts leading to the dispute are that the assessee, being resident corporate assessee, was assessed u/s 143(3) wherein the assessee suffered certain depreciation & interest disallowances u/s 32 & 43B vide Assessing Officer [AO] order dated 12/12/2008 which led to initiation of penalty for furnishing of inaccurate particulars of income by issuance of notice u/s 274 read with Section 271(1)(c). Finally, the assessee was saddled with a penalty of Rs.12,50,056/- against wrong claim of Rs.37,88,046/- vide penalty order dated 29/06/2009 which was contested without any success before Ld. CIT(A) vide order dated 24/03/2014. Aggrieved, the assessee is in appeal before us.

3. The Ld. Counsel for assessee [AR], while drawing our attention to the documents placed in the paper book, assailed the penalty proceedings on legal ground by contending that the notice issued u/s 274 was defective as only a tick-mark was placed against the clause ‘have concealed the particulars of your income or furnished inaccurate particulars of such income’ without deleting the appropriate words which vitiates the penalty proceedings. Reliance was placed on the judgments of Apex Court in the case of CIT Vs. Sea Link (India) Limited Assessment Year-2006-07 SSA’S Emerald Meadows [73 taxmann.com 248] & Hon’ble Karnataka High Court in CIT Vs. Manjunatha Cotton & Ginning Factory [359 ITR 565].

4. Per contra, the Ld. Departmental representative DR placed reliance on Section 292B to contend that mere defect in the notice do not vitiates the penalty proceedings and no prejudice was caused to the assessee by non- deletion of few words. The assessee very well knew the grounds for which he was being penalized and the Ld. AO with due application of mind initiated penalty proceedings in quantum assessment for furnishing of inaccurate particulars of income and finally levied the penalty on the same ground. Moreover, the assessee actively contested the penalty proceedings before AO and therefore, the legal grounds, being only hyper-technical in nature, do not carry much weight.

5. We have heard the rival contentions and perused the relevant material on record including cited case laws. So far as the legal grounds are concerned, a perusal of quantum order reveals that the penalty was initiated for furnishing of inaccurate particulars and finally the same was levied on the same ground. Undoubtedly, notice u/s 274 was duly served on the assessee and the relevant clause of the standard printed form was duly ticked by the Ld. AO which shows due application of mind qua penalty proceedings. Mere non-deletion of few words, in our opinion, on the facts of the case, has not caused any prejudiced to the assessee particularly when the penalty proceedings were actively contested by him before the Ld. AO. The assessee, at all times, was aware of the grounds for which he was being penalized. Our conclusion draw support from the provisions of Section 292B also which cures minor defect in the notice provided such notice in substance and effect was in conformity with the intent and purpose of the act. On overall facts and circumstances, we find that such condition was fulfilled in the instant case. We Sea Link (India) Limited Assessment Year-2006-07 find that the revenue’s Special Leave Petition [SLP] dismissed by the Apex court in the cited case law confirmed the decision of Hon’ble High court, which in turn, relied upon the judgment rendered in CIT Vs. Manjunatha Cotton & Ginning Factory [359 ITR 565]. After perusing the ratio of the judgment rendered in CIT Vs. Manjunatha Cotton & Ginning Factory [supra], we find that the assessee’s appeal was allowed by Hon’ble High court after considering the multiple factors and not solely on the basis of defect in notice u/s 274. Therefore, we are of the opinion that the penalty could not be deleted merely on the basis of defect pointed by the Ld. AR in the notice and therefore, the legal grounds raised are rejected.

6. On merits, Ld. AR has contended that the assessee was engaged in the business of shipment and export of agriculture produce through barges and tugs and due to adverse business conditions at the port, the business of the assessee was adversely affected and therefore, no significant business operations could be carried out during the impugned AY. Nevertheless, the suspension of business was only temporary in nature as noted by the Board of Directors of the company. Further, the assessee has been imposed penalty against disallowance of deprecation u/s 32 on the premises that no business operations were carried on by the assessee during the year, nevertheless, the block of assets did not cease in the books of accounts and as the suspension in business was temporary, depreciation thereof was allowable to the assessee as per various judicial pronouncements. Further, the assessee suffered another disallowance u/s 43B only due to non-payment thereof within the stipulated time period. However, the nature or quantum of the same was never in dispute and the assessee, following mercantile system of accounting, was quite eligible to debit the same in the Profit & Loss Account and therefore, no penalty against such disallowance could be imposed as per the ITA No.3454/M/2014 Sea Link (India) Limited Assessment Year-2006-07 decision of Hon’ble Madras High Court in CIT Vs. MSK Constructions (P) Ltd. [296 ITR 18]. Our attention was further drawn to the fact that the assessee incurred huge losses during the impugned AY but the same could not be carried forward by him in the next AY in view of the fact that the return of income was filed belatedly which made assessee ineligible to carry forward the said business losses and therefore, the assessee stood to gain nothing by making inaccurate claim.

7. Per contra, Ld. DR supported the levy of penalty by contending that the assessee did not carry on any business during the year but still claimed the said expenditure fully knowing that the same were not admissible. Upon being caught by the department in scrutiny proceedings, the assessee accepted the quantum additions and did not contested the same any further which, in itself, cast a doubt upon the conduct of the assesse and therefore the penalty was rightly imposed.

Order pronounced in the open court on 02nd May, 2017.