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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO & SHRI AMARJIT SINGH
सुनवाई की तायीख / Date of Hearing : 25.10.2016 घोषणा की तायीख /Date of Pronouncement : 25.10.2016 आदेश / O R D E R PER D. KARUNAKARA RAO, AM:
This appeal filed by the Revenue on 2.1.2014 is against the order of the CIT (A)-18, Mumbai dated 18.10.2013 for the assessment year 2004-2005. In this appeal, Revenue raised the following grounds which read as under:- “(i) Whether on the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in deleting the penalty of Rs. 6,31,92,616/- levied u/s 271(1)(c) of the Act by the AO vide order dated 19.3.2013 on the amount of Rs. 17,61,46,664/- surrendered by the assessee during appellate proceedings on account of claim made on consumption of containers / bottles? (ii) Whether on the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in holding that the levy of penalty u/s 271(1)(c) of the Act by the AO was without jurisdiction ignoring that in the original assessment order penalty u/s 271(1)(c) was duly initiated on various issues including towards suppressed sales shown by the assessee company relating to the consumption of containers / bottles. (iii) Whether on the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in not appreciating that the excess income offered by assessee was on account of an incorrect claim of consumption of containers / bottles which tantamount to furnishing of inaccurate particulars leading to concealment.
(iv) Whether on the facts and in the circumstances of the case and in law, the Ld CIT (A) erred in not appreciating that the acceptance of additional income surrendered by the assessee does not lend any credence to the assessee‟s submissions that it had not filed inaccurate particulars since the income offered by assessee before the CIT (A) on the issue of consumption of containers / bottles can be proved and substantiated with reference to its original incorrect claim and is not merely an estimated income without any basis which cannot be proved.”
Briefly stated relevant facts of the case are that the assessee filed the return of income declaring the total loss of Rs. 28.69 Crs. Assessee is engaged in the business of manufacturing and sale of beer. Assessment was completed u/s 143(3) of the Act and the total loss is reduced to 1.43 Crs. In the assessment, AO made various additions and the said additions were subsequently deleted by the CIT (A) vide his order dated 17.2.2012. However, CIT (A) enhanced the assessment to the extent of Rs. 17.61 Crs. In fact, CIT (A) mentioned about the voluntary surrender of the above income of Rs. 17.16 Crs and the same is evident from sub-para „m‟ of para 2 on page 16 of the CIT (A)‟s order. However, CIT (A) admittedly never initiated the penalty proceedings u/s 271(1)(c) read with section 274 of the Act. The Assessing Officer issued a letter on 29.12.2006 (5.12.2006) proposing to levy of penalty u/s 271(1)(c) of the Act for „furnishing of inaccurate particulars of income‟. Though the said amount of Rs. 17.61 Crs has involved many assessment years including the AY 2004-05, AO did not levy penalty for other AYs and proceeded to levy the penalty for the AY 2004-05 amounting to Rs.6,31,92,616/- being 100% of the tax sought to be evaded. Matter travelled to the first appellate authority.
During the proceedings before the first appellate authority, assessee raised various legal issues of which being the failure of the CIT (A) in initiating the penalty proceedings. As per the assessee, the CIT (A) being the one who enhanced the assessment should have initiated the penalty proceedings and levied the same as per the provisions of section 271(1)(c) of the Act. The assessee relied heavily on various decisions for the above proposition viz., (i) the decision of the ITAT, Jodhpur Bench in the case of M/s. Marudhar Hotels (P) Ltd vs. ACIT in (AY 2005-06), dated 9.12.2011; (ii) the judgment of the Hon‟ble Allahabad High Court in the case of CIT vs. Shadiram Balmukund (84 ITR 183) and (iii) another judgment of the Allahabad High Court in the case of CIT vs. Dwarka Prasad Subhash Chandra (94 ITR 154) (All.) and many others. After considering the above submissions of the assessee and on perusal of the cited precedents, Ld CIT (A) deleted the penalty so levied as per the discussion given in last portion of para 2.5 on page 13 / 14 of his order. Aggrieved with the said decision of the CIT (A), Revenue is in appeal before the Tribunal.
During the proceedings before us, Ld DR for the Revenue mentioned that the letter issued by the AO during the time of the proceedings relating to giving effect to the order of the CIT (A) is a valid initiation. The very fact that the AO has issued the notice although linked to the notice originally issued u/s 274 of the Act dated 29.12.2006 constitutes a „valid initiation‟. However, he is fair in submitting that there is no dispute on the fact that the initiation is not done by the CIT (A), the authority who enhanced the assessment and who is the discoverer of the said concealed income, if any, of Rs. 17.61 Crs. He also submitted that when the concealment is obvious, which is accepted by the assessee, which is evident from the fact that the said amount was voluntarily surrendered, this procedural irregularities should not come on the way of levying penalty u/s 271(1)(c) of the Act.
On the other hand, ld Counsel for the assessee brought our attention to the facts and submitted that it is a case where the additions originally made by the AO in the regular assessment were deleted by the CIT (A). Therefore, the penalty initiated for such unsustainable additions has become irrelevant for the newly enhanced assessment of Rs. 17.61 Crs. He also submitted that the CIT (A) never initiated the penalty proceedings, which is evident on the fact of the order of the CIT (A). Bringing our attention to the provisions of section 271(1)(c) of the Act, Ld Counsel for the assessee submitted that the AO / CIT (A) / Principal CIT are empowered to initiate the penalty proceedings after being satisfied about the „concealment of particulars‟ of income or „furnishing of inaccurate particulars of income‟, such authority shall direct the assessee to pay by way of penalty which is prescribed in the Statute. In this case, there is no satisfaction given by the CIT (A), the author of enhancement of the assessment. On this ground alone, the penalty levied becomes unsustainable. Further, referring to the page 38 of the paper book, a letter addressed by the AO to the assessee on 26.4.2012, Ld Counsel for the assessee demonstrated that the letter is not issued by the CIT (A), who actually has jurisdiction. Notwithstanding the above, Ld Counsel for the assessee was critical of the fact that no notice u/s 274 of the Act was issued. In fact, AO made a reference to the notice dated 17.12.2006 issued u/s 274 of the Act in connection with the penalty proceedings initiated during the regular assessment proceedings, which is no longer relevant for the penalty proceedings under consideration. Further, relying on the various decisions, Ld Counsel for the assessee submitted that the order of the CIT (A) is fair and reasonable and it does not call for any interference. Further, referring to the similar additions filed for the other AYs, Ld Counsel for the assessee filed evidences to suggest that the proceedings initiated under similar facts for the AYs 2005-06 and 2006-07 were dropped on 8.2.2013. Copies of such orders evidencing the dropping of the penalties are placed in the paper book. He also brought our attention to the discussion of the CIT (A) in the last portion of the para 2.5 and mentioned that the CIT (A) considered the same before deleting the penalty for this AY.
We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. The legal issue raised by the assessee relates to whether the CIT (A), who is the author of the enhancement of the assessment, should have initiated the penalty proceedings and levied the penalty as per the provisions of section 271(1)(c) of the Act or otherwise? This question is already answered by the above referred judgments in favour of the assessee. The decision of the Tribunal in the case of M/s. Marudhar Hotels (P) Ltd (supra) is relevant in this regard. Further, we find this is the case where the AO has issued a letter dated 26.4.2012 making a reference to earlier notice issued u/s 274 of the Act, which was meant for other unsustained additions made in the regular assessment. The same were deleted by the CIT (A). In our view, the failure to issue a valid notice u/s 274 of the Act without any ambiguity with reference to the satisfaction either on the „concealment of income‟ or „furnishing of inaccurate particulars of income‟ is fatal to the impugned penalty proceedings. The said notice is significant for various reasons and including the satisfaction of the AO / CIT (A) / Principal CIT ie „the concealment of income‟ or „furnishing of inaccurate particulars of income‟ for which the penalty is being initiated and levied becomes obvious. We have also perused the provisions of section 271(1)(c) of the Act and the relevant lines read as under:-
Failure to furnish returns, comply with notices, concealment of income, etc, 271(1) If the Assessing Officer or the Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person- (a)..... (b).... (c).... he may direct that such person shall pay by way of penalty-“ 7. From the above, it is obvious and unambiguous that the CIT (A), who is a relevant authority here, in the course of the appeal proceedings before him, when he satisfied, he may direct the persons that such person shall make payment by way of penalty. By no means these above provisions do imply that the CIT (A) shall make enhancement of the assessment and the AO will initiate and levy the penalty. Further, it is also obvious that „any proceedings‟ referred above refers to the proceedings pending before the above authorities under the fact which gave rise to the satisfaction relating to the concealment of income. In the present case, the source of the satisfaction is the first appellate proceedings, the satisfaction should have been recorded by the CIT (A) and he should have initiated the penalty proceedings as per the provisions. We have gone through the contention of the said last portion of the para 2.5 of the CIT (A)‟s order on the penalty proceedings and the same reads as under:- “2.5....... ............ ........... In view of the facts and circumstances of the present case and the decision of Hon‟ble Courts on this issue it is held that the CIT (A) has enhanced the income of Rs. 17,61,46,664/- on account of voluntary surrender made by the appellant before him on account of consumption of containers and no penalty proceedings were initiated nor directed to the Assessing Officer to initiate penalty proceedings u/s 271(1)(c) and levy penalty accordingly. As per the decision of Hon‟ble Jodhpur Tribunal in the case of Marudhar Hotels (P) Ltd (supra) it is clearly held that the AO has no jurisdiction to impose penalty in relation to item of enhancement made by the first appellate authority. The facts of the present case are squarely covered by the decision. Secondly, the competent authority for levying penalty was only the CIT (A) in this case, but he has neither initiated penalty proceedings nor levied penalty u/s 271(1)(c). Thus, the levy of penalty by the AO is without jurisdiction. Even on merits of the case, the surrender was voluntarily made by the appellant before the CIT (A) which was not detected by the AO in the assessment proceedings not by the CIT (A) in the appellate proceedings. Thus, there was no question of concealment of income and submission of inaccurate particulars of income. Moreover, the appellant has made this voluntary surrender on account of consumption of containers for AYs 2005- 06, 2006-07, 2007-08 and 2008-09. In all the years, the AO accepted the voluntary surrender of the appellant and no penalty proceedings were initiated nor levied any penalty. In totality of facts and circumstances it is held that it is not a case of escapement of income or submission of inaccurate particulars of income. Therefore, the penalty levied by the AO of Rs. 6,31,92,616/- is not sustainable, hence deleted. The ground of appeal is allowed.
From the above, it is clear that the CIT (A) discussed the issue at length and rightly adjudicated the matter before granting relief to the assessee. Further, CIT