M/S KHANDELWAL CHEMICALS,KOLKATA vs. THE ITO, WD-35(3), KOLKATA, KOLKATA

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ITA 1494/KOL/2014Status: DisposedITAT Kolkata05 April 2017AY 2007-20085 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the penalty notice issued under Section 274 read with Section 271(1)(c) was defective because it did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. Following the precedent set by the Karnataka High Court and upheld by the Supreme Court, the levy of penalty was cancelled.

What were the facts?

The Assessing Officer made an addition to the closing stock for unincluded customs duty. The assessee accepted the addition as revenue neutral, but the AO levied penalty under Section 271(1)(c). The assessee argued that the penalty notice was defective as it did not specify the charge.

What were the issues?

Whether a penalty under Section 271(1)(c) can be levied based on a defective penalty notice that does not specify the nature of the offence.

Which sections of the Income-tax Act were involved?

Section 271(1)(c),Section 274

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(1)Show list

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Income Tax Appellate Tribunal, Kolkata Bench, KOLKATA

Before: SHRI N. V. VASUDEVAN & SHRI M. BALAGANESH,

Hearing: 29.03.2017Pronounced: 05.04.2017

ORDER Per M. BALAGANESH, AM This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-XX, Kolkata, (hereinafter referred to as the “ld. CIT(A)”) dt. 11.04.2014, against the levy of penalty u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) relating to Assessment Year 2007-08.

2.

The only issue to be decided in this appeal is as to whether the ld CIT(A) was justified in upholding the levy of penalty u/s 271(1)( c) of the Act in the facts and circumstances of the case.

2 I.T.A.No. 1494/Kol/2014 Assessment Year: 2007-08 M/s. Khandelwal Chemicals 3. The brief facts of this issue is that the ld AO observed that the assessee had debited a sum of Rs 55,99,030/- on account of customs duty and closing stock of Rs 37,58,071/- in the profit and loss account. It was observed that the closing stock was without including the proportionate amount of customs duty. The ld AO invoked the provisions of section 145A of the Act and made an addition of Rs 3,01,885/- to the value of closing stock by including the proportionate value of customs duty thereon. The quantum addition was agitated by the assessee before the ld CIT(A) who sustained the addition by observing that any way this addition would become revenue neutral as the closing stock of this year would become opening stock of next year. This was accepted by the assessee in the quantum proceedings. The ld AO levied penalty u/s 271(1)(c ) of the Act on sustenance of the said addition. It was pleaded before the ld AO that the Tax Auditor had reported the deviation, if any, on the value of closing stock as NIL due to the applicability of provisions of section 145A of the Act and hence this being the first year, the assessee was also unaware of the said provisions, was under the bonafide belief that the proportionate value of customs duty need not be included in the value of closing stock. The assessee further stated that the assessee had duly disclosed the value of customs duty in the profit and loss account filed along with the return and there was no intention of deliberately concealing the income or furnishing of inaccurate particulars of income. Moreover, the assessee had accepted to the addition in quantum proceedings only on the ground that it is revenue neutral and not on the fact of accepting the concealment. It was stated that the assessee firm had been consistently following First in First Out (FIFO) method for valuation of closing stock at cost over the years and the proportionate element of customs duty never formed part of closing stock in the past. Hence the assessee was under the bonafide belief that the same need not be included. The ld AO levied penalty u/s 271(1)(c ) of the Act amounting to Rs. 1,52,420/- on the 3 I.T.A.No. 1494/Kol/2014 Assessment Year: 2007-08 M/s. Khandelwal Chemicals said addition of Rs 3,01,885/- which was upheld by the ld CIT(A). Aggrieved, the assessee is in appeal before us on the following grounds:- “

1. For that on the facts and circumstances of the case the Ld. Commissioner of Income-tax (Appeals) erred in confirming the penalty of Rs.1,52,420/- imposed u/s 271(1)(c) of the I.T. Act, 1961 by the Ld. Assessing Officer.

2. For that your appellant craves leave to adduce further or other ground/grounds, if any on or before the hearing of appeal.

4. The ld AR apart from reiterating the facts also brought to the notice of the bench that the penalty notice issued u/s 274 read with section 271(1)(c ) of the Act had not struck off the relevant portion by specifically mentioning the charge of offence committed by the assessee viz., whether it had concealed the particulars of income or it had furnished inaccurate particulars of income. Accordingly he stated the show cause notice for penalty proceedings was defective and in support of this, he placed reliance on the decision of the Hon’ble Karnataka High Court in the case of CIT vs SSA’S Emerald Meadows in of 2015 dated 23.11.2015 which was later approved by the Hon’ble Supreme Court by dismissal of Special Leave Petition (SLP) by the revenue in CC No. 11485/2016 dated 5.8.2016. In response to this, the ld DR vehemently relied on the order of the ld AO.

5.

We have heard the rival submissions. We find that the penalty notice u/s 274 r.w.s 271(1)(c ) of the Act does not specify the charge of offence committed by the assessee viz whether it had concealed the particulars of income or it had furnished inaccurate particulars of income. Hence the said notice is to be held as defective. Now the short question that arises for consideration is as to whether the penalty could be validly levied based on the defective show cause notice. This issue has been addressed by the Hon’ble Karnataka High Court in the case of CIT vs SSA’S

4 I.T.A.No. 1494/Kol/2014 Assessment Year: 2007-08 M/s. Khandelwal Chemicals Emerald Meadows in of 2015 dated 23.11.2015 which in turn placed reliance on another judgement of the same court in the case of CIT vs Manjunatha Cotton and Ginning Factory reported in 359 ITR 565 (Kar). In the said decision, their Lordships of Hon’ble Karnataka High Court held that :-

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 Commissioner od Income Tax vs Manjunatha Cotton and Ginning Factory reported in (2013) 359 ITR 565.

4.

In our view, since the matter is covered by judgement 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.

5.1. We find that the Revenue had preferred a SLP before the Hon’ble Supreme Court against this judgement which was dismissed in CC No. 11485/2016 dated 5.8.2016 by observing as under:-

UPON hearing the counsel, the Court made the following ORDER Delay condoned. We do not find any merit in this petition. The special leave petition is, accordingly dismissed. Pending application, if any, stands disposed of.

5 I.T.A.No. 1494/Kol/2014 Assessment Year: 2007-08 M/s. Khandelwal Chemicals 5.2. Respectfully following the aforesaid judicial precedents, we cancel the levy of penalty in the facts and circumstances of the case. Accordingly the grounds raised by the assessee are allowed.

6. In the result, the appeal of the assessee is allowed.

Order pronounced in the Court on 05.04.2017.

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