DCIT, CIRCLE-4, KOLKATA, KOLKATA vs. M/S TANTIA CONSTRUCTION LTD., KOLKATA

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IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA ‘A’ BENCH, KOLKATA

Before Shri P.M. Jagtap, Accountant Member and Shri S.S. Viswanethra Ravi, Judicial Member I.T.A. Nos. 1753, 1754, 1755, 1756 & 1757/KOL/ 2014 Assessment Years: 2004-2005, 05-06, 06-07, 07-08 & 2008-2009 Deputy Commissioner of Income Tax,......................................Appellant Circle-4, Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700 069 -Vs.- M/s. Tantia Construction Limited,..........................................Respondent 25-27, N.S. Road, Kolkata-700 001 [PAN: AABCT 0811 E]

Appearances by: Shri Sallong Yaden, Addl. CIT, Sr. D.R., for the Department Shri Manish Tiwari, A.R., for the assessee Date of concluding the hearing : May 04, 2017 Date of pronouncing the order : May 12, 2017

O R D E R Per Bench :- These five appeals are preferred by the Revenue against five separate orders of the ld. Commissioner of Income Tax(Appeals), Central- II, Kolkata, dated 22/23.05.2014, whereby he cancelled the penalties imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 for all the five years under consideration.

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duly filed by the assessee. In the said returns, a new claim was made by the assessee for deduction on account of unrealized retention money for all the five years under consideration as under:- Assessment Year Amount 2004-2005 Rs.1,35,96,919/- 2005-2006 Rs. 46,90,919/- 2006-2007 Rs.1,52,69,653/- 2007-2008 Rs.3,42,11,947/- 2008-2009 Rs.7,01,40,322/-

In the assessments completed under section 153A/143(3) vide orders dated 16.08.2011 for all the five years under consideration, the claim of the assessee for deduction on account of unrealized retention money was disallowed by the Assessing Officer. On appeal, the ld. CIT(Appeals) vide his appellate orders dated 08.10.2012 confirmed the said disallowance made by the Assessing Officer for all the five years under consideration on the technical ground that the proceedings under section 153A being for the benefit of the Revenue, the assessee was not entitled to claim any new deduction, which had not been claimed in the original returns filed under section 139(1) of the Act.

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2005-2006 Rs.16,82,868/- 2006-2007 Rs.51,37,766/- 2007-2008 Rs.1,15,15,741/- 2008-2009 Rs.2,38,40,695/-

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assessee company in its original return filed u/s 139(1) of the Act and the appellant was not entitled to make a fresh claim in the return filed u/s 153A of the Act because the proceedings initiated u/s 153A of the Act are for the benefit of the revenue and for the benefit of the assessee. However, it is observed that on these facts, the Aa has held that the appellant company has filed inaccurate particulars of its income and, therefore, is liable for penal action u/s 271(1)(c) of the Act. On careful consideration of the facts and in law, I am of the opinion that the view taken by the AO to impose the penalty is not correct and justifiable. In the given facts of the case it cannot be said that the appellant company had filed inaccurate particulars of its income in the return filed u/s 153A of the Act. The appellant company had made the claim of deduction of retention money on the basis of accounting Standard and its claim was supported by the judicial decisions. All the facts were before the AO. Merely for the reason that the AO disallowed the claim of the appellant which was upheld by the CIT(A) and that too on the technical ground; it cannot be said that the appellant company has filed inaccurate particulars of income and under the circumstances, I am of the opinion that the penalty u/s 271(1)(c) cannot be levied. This view is supported by the decision in the case of Reliance Petroproducts (P) Ltd., Kanbay Software India (P) Ltd. and Mimosa Investment Co. (P) Ltd. (supra). In view of above, it is held that the Aa was not justified in imposing the penalty u/s 271(1)(c) of the Act and he is directed to delete the same. The ground no. 1 to 3 are allowed”.

Aggrieved by the orders of the ld. CIT(Appeals) cancelling the penalties imposed by the Assessing Officer under section 271(1)(c) for all the five years under consideration, the Revenue has preferred these appeals before the Tribunal.

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alleged nor admitted nor proved and which the other side was never called upon to meet in the lower court. But, if all the facts necessary to sustain a fresh ground which he wants to urge are undisputed facts which are already on record and the contention which he wants to raise is a pure question of law, there is no reason why there should be any difficulty in this way in raising the same, or any difficulty in the way of the appellate court to allow him to do so.

Since the decision of the Appellate Assistant Commissioner in instant case was wholly in assessee's favour, the assessee could not appeal, and had no occasion also to file any cross-objections. If the view was taken that a respondent, who could not have appealed or filed cross objections because the decree was wholly in his favour, cannot be permitted to raise a new ground available to him in support of the decree, although the same ground would have been available to him if he was in the position of an appellant, It would amount to putting him in a worse position as a respondent than as an appellant. Therefore, the Tribunal had jurisdiction to allow the assessee-respondent to urge a fresh ground which it sought to raise in the instant appeal before it”.

Since the claim of the assessee of the new legal issue raised for the first time before the Tribunal as the respondent is duly supported by the decision of the Hon’ble Bombay High Court in the case of CIT –vs.- Hazarimall Nagji & Co. (supra) and the ld. D.R. has not raised any objection in this regard, we entertain the said claim and now proceed to adjudicate upon the same on merit.

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Counsel for the assessee had an occasion to consider a similar issue in the identical fact situation and the order passed by the Assessing Officer imposing penalty under section 271(1)(c) was held to be invalid by the Tribunal relying on the decision of the Hon’ble Karnataka High Court in the case of CIT & Another –vs.- Manjunatha Cotton & Ginning Factory reported in 359 ITR 565 after discussing the proposition laid down therein in great detail in paragraph no. 8 to 8.2 of its order dated 06.11.2015, which read as under:- “8. The next argument that the show cause notice u/s.274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the for “furnishing inaccurate particulars of income” or “concealing particulars of such income”. On this aspect we find that in the show cause notice u/s.274 of the Act the AO has not struck out the irrelevant part. It is therefore not spelt out as to whether the penalty proceedings are sought to be levied for “furnishing inaccurate particulars of income” or “concealing particulars of such income”. 8.1 The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon’ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed. 8.2 The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down the following principles to be followed in the matter of imposing penalty u/s.271(1)(c) of the Act. “NOTICE UNDER SECTION 274 59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm where all the ground

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mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. 60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. 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 a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 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 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 pro forma without striking of the relevant clauses will lead to an inference as to non-application of mind.” The final conclusion of the Hon’ble Court was as follows:-

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“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) Even 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 bona fide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide 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

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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.” (emphasis supplied) It is clear from the aforesaid decision that on the facts of the present case that the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision of the Hon’ble Karnataka High Court, we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled. For the reasons given above, we hold that levy of penalty in the present case cannot be sustained. We therefore cancel the orders imposing penalty on the Assessee and allow the appeal by the Assessee”.

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271(1)(c) for the years under consideration and dismiss these appeals of the Revenue.

Sd/- Sd/- (S.S. Viswanethra Ravi) (P.M. Jagtap) Judicial Member Accountant Member Kolkata, the 12th day of May, 2017

Copies to : (1)Deputy Commissioner of Income Tax, Circle-4, Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700 069

(2) M/s. Tantia Construction Limited, 25-27, N.S. Road, Kolkata-700 001

(3) CIT(Appeals), Central-II, Kolkata (4) CIT, Kolkata- , Kolkata

(5) The Departmental Representative (6) Guard File By order

Senior Private Secretary, Head of Office/DDO Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.