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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI D.KARUNAKARA RAO & SHRI SANDEEP GOSAIN
O R D E R
PER SANDEEP GOSAIN, JM:
The present appeal has been filed by the assessee against the order dated 01.01.2014 passed by CIT(A)-25, Mumbai thereby confirming the order of penalty dated 25.03.2011 passed by Assessing Officer (AO) u/s 271(1)(c) of the Income-tax Act (for short the “Act”) 1961. Grounds of appeal are extracted as under:
1. The penalty order passed/upheld by the learned lower authorities are bad in law and bad in facts. 02. The penalty order passed u/s 271(1)(c) of the I. T. Act, 1961 , levying penalty at Rs. 1,88,712/- is ab-initio void, inasmuch as, the explanation of the appellant was not found false by the learned lower authorities which is condition precedent for levy of penalty.
3. The learned lower authorities have grossly erred in levying/ confirming the penalty u/s 271 (1)(c) of the I.T.Act,1961 at Rs. 1,88,712/- merely on the basis of certain disallowances made consequent to change of heads of income, which were of a highly debatable nature and on which assessee's appeal is pending before the Hon'ble Jurisdictional High Court.
4. The learned CIT (A) has grossly erred in placing reliance on the decision of Hon'ble Supreme Court in the case of Dharmendra Textile Processors 306 ITR 277, even though the said decision has been overruled in the subsequent decisions.
Having regard to the facts of the case, provisions of law and judicial prepositions, the penalty order in question is wholly untenable. 06 The appellant may please be permitted to raise any additional or alternative ground on or before the hearing of appeal.
The brief facts of the case are that assessee-firm filed return of income on 29.08.2005 declaring total income of Rs. 2,62,088/-.Thereafter, revised return was filed on 18.10.2006, declaring total income of Rs. 5,40,281/-. The order u/s 143(3) was passed on 20.12.2007 determining total income of Rs. 18,18,240/-. This income has been reduced to Rs.14,57,880/- in consequence to the relief of Rs.3,61,394/- allowed by the learned CIT(Appeals) in respect of sundry creditors.
The assessee firm has claimed interest and rental income as business income. Assessee earns rental income out of subletting. However, the AO, while passing order u/s.143(3) held that the interest income as well as rent income is chargeable to tax under the head “income from other sources”. This view has also been upheld by the learned CIT(Appeals) vide order dated 17/2/2010.
The assessee's claim of expenses under various heads which are not covered by provisions of section 57 of the I.T. Act. Therefore, they are not allowed by the Revenue Authorities. The penalty proceedings u/s. 271 (1)(c) of the Act were initiated. Accordingly, statutory notice u/s. 274 read with section 271(1)(c) was issued on 21.12.2007 and served upon the assessee on 24/12/2007.
The assessee submitted its explanation which is as under:
The assessee firm filed its return of income on the same basis and in the same manner as in the past, when no fault was found. The basis of assessment has been altered only for the year under consideration hence it cannot be said that the assessee firm, in any manner, has concealed the particulars of income or furnished inaccurate particulars of such income. Thus invocation of penal provisions for the year under consideration is wholly unwarranted. The assessee firm, in the return of income & accompanying financial statements has very clearly disclosed the basis of computation of income, which has been altered and the basis whereof is highly debatable and subject matter of appeal. There is no finding in the assessment order for the year under consideration, that any expenditure claimed or incurred was not a genuine expenditure. In the situation, where genuineness of the expenditure has not been doubted, the disallowance thereof in view of alternation in the method of arriving at total income does not attract penal provisions. In this context, your kind attention is drawn to the decision of Hon'ble Supreme Court in the case of CII vs. Reliance Petroproducts (P) Ltd, 322ITR 158, wherein it was held that:
Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(1)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount of furnishing inaccurate particulars". The case of the assessee under consideration is squarely covered by the above judgment of the Apex Court. The assessee demonstrated that their claim was bonafide claim. In the light of above discussion, the case under consideration is not a fit case for levy of penalty under section 271 (1)(c)."
After considering the explanation of the assessee, the AO found the same to be not acceptable and passed order of penalty u/s 271(1)(c) of the Act vide order dated 25.03.2011.
5. Aggrieved by the order of AO, the assessee filed an appeal before the CIT(A). However, the CIT(A) dismissed the appeal filed by the assessee and upheld the order of penalty levied by the AO.
Aggrieved by the order of CIT(A), the assessee filed the present appeal on the grounds reproduced here in above.
Before us, the ld. Authorised Representative (AR) representing the assessee has relied upon the detailed written submissions made before the CIT(A).
Further, Ld. AR filed a copy of the judgment dated 12.03.13 of Hon’ble jurisdictional High Court in the assessee’s own case in of 2011 and evidenced fact of admission of the assessee’s appeal by the Hon’ble HC on the said additions. The issues admitted are detailed in para 2 of the judgment. The same reads as under:
“2 Admit-on the following substantial questions of law:- (i) Whether en the facts and in the circumstances of case and in law, the Tribunal was right in holding that the period of limitation for issue of notice under Section 143(2) of the Act read with Proviso would commence from the date of filing of the revised return of income and not from the date of filing of the original return of income? (ii) Whether on the facts and circumstances of the case and in law, the income of Rs.11,85,504 received as rent from sub- lease of the factory premises is assessable as income under the head "Business"? (iii) Whether on the facts and circumstances of the case and in law the interest income of Rs.8,73,493/- has been correctly assessed as income under the head "Other sources"? (iv) Whether on the facts and Ll1 the circumstances and in law various expenses claimed by the Appellant is allowable as deduction? (v) Whether on the facts and in the circumstances of the case and in law the depreciation amounting to Rs.1,86,484/- has been rightly disallowed? (vi) Whether on the facts and in the circumstances of the case and in law the interest of Rs.2,72,651/- paid to partners is allowable?' Thus, Ld. AR for assessee argued that since the appeal of the assessee has already been admitted on the substantial question of law before the Hon’ble High Court, therefore, the additions are not free from debate. Therefore, penalty proceedings may be dropped/dismissed. For this preposition, the Ld. AR for assessee relied upon the case of CIT vs. M/s.
Nayan Builders & Developers Private Limited. (ITA No. 415/Del/12 and 2379/Mum/2014) Bombay High Court (2014) 89 CCH 0187, Mumbai High Court.
On the other hand, DR representing the revenue relied upon the orders passed by the lower authority and prayed for dismissal of appeal.
We have heard both the parities and perused the material available on record. We are of the considered opinion that since the appeal of assessee has already been admitted on the substantial question of law by the Hon’ble Bombay High Court which makes it clear that the additions made by AO and confirmed by CIT(A) constitutes debatable issues. On the similar facts, the Hon’ble Bombay High Court In the case of Nayan Builders & Developers Private(Supra) held that the penalty u/s 271(1)(c) of the Act is leviable. Relevant para from the said judgment is extracted as follows:
Penalty u/s 271(l)(c)-Concealment of income-Admission of appeal by High Court against quantum addition-AO made addition in hands of assessee on account of income from Spectrum Corporate Services Ltd., disallowance of brokerage and disallowance of legal fees- Tribunal upheld additions in quantum proceedings-Assessee had filed appeal against quantum addition in High Court and same has been admitted-AO levied penalty u/s 271(1)(c)-CIT(A) upheld penalty imposed by AO-Tribunal deleted penalty imposed by AO on ground that appeal against quantum addition has been admitted by High Court-Held when High Court admits substantial question of law on an addition, it become apparent that the addition is certainly debatable-In such circumstances penalty cannot be levied u/s 271 (1)(c)-Admission of substantial question of law by High Court lends credence to bona fides of the assessee in claiming deduction- Once it was held that claim of assessee could have been considered for deduction as per a person. properly instructed in law and is not completely debarred at all, mere fact of confirmation of disallowance would not per se lead to the imposition of penalty-Since additions, in respect of which penalty has been upheld, have been held by High Court to be involving a substantial question of law, penalty is not exigible under section 271(1)(c) and thus deleted-Revenues' appeal dismissed.
Apart from the above submissions, we have also analyzed the orders passed by CIT(A) and our findings on grounds of appeal as are as under:
Ground Nos. 1 & 2
After hearing the arguments of both the parties on the aforementioned grounds, we have also noticed that on completion of assessment proceedings a notice u/s 274 r.w.s. 271 of I.T.Act, 1961 dated 20.12.2007 was issued. On perusal of the said notice we have observed that the said notice did not contain any specific charge as to whether the penalty proceeding was initiated for concealment of particulars of income or for furnishing of such income and even in the body of the assessment order, what has been stated is, “penalty proceedings u/s 271(1)(c) r.w. Explanation thereto are initiated separately”. In these situation it is clear that by not specifying the specific charge in the show cause notice, the assessee has infact been denied is reasonable and sufficient opportunity of being heard as the assessee was not even knowing what was the fault for which it was to explain innocence. It is settled law that when a particular penal provision like clause-C of sub-section1 of section 271 of I.T. Act, 1961, deals with more than one situation for attracting penalty provisions, the AO is duty bound to communicate the charge “Specifically” so that assessee can explain his reasons and superior authority can test the application of mind. In this regard we found support from the judgment rendered by Hon’ble Bombay High Court in case of CIT vs. Kaushalaya 216 ITR 660. Considering the aforementioned facts and circumstances, we accept/allowed both the grounds as mentioned above.
Ground Nos. 3 & 4
After hearing the arguments of both the parties on the aforementioned grounds, we have also noticed that while passing of the penalty order there is no recording of the fact that the Explanation offered by assessee was found false and unless falsity of the Explanation is established, no penalty can be imposed. We are of the considered view that the penalty under the aforementioned grounds has been levied merely on the basis of additions by disallowing certain claim/expenses and there is no material or evidence has been brought on record to show constructive concealment on the part of assessee. We found our support from the decision rendered by Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts Ltd. wherein it has been categorically mentioned that in order to expose the assessee to the penalty, the case should be strictly covered by the provisions and the penalty provisions cannot be invoked in the routine manner. A mere making of a claim which is not sustainable in law by itself will not amount to furnish inaccurate particulars regarding the income of the assessee and as such claim made in the return cannot amount to the inaccurate particulars, therefore, considering the entire case as well as factual position, we allow the abovesiad grounds.
Therefore, while summoning up the entire discussion above and respectfully following the judgment of CIT vs. Nayan Builders & Developers Private Limited, we hold that since the appeal of the assessee has already been admitted by the Hon’ble Bombay High Court and it is apparent that the additions made by AO and confirmed by CIT(A) are not free from debate. Therefore, in such circumstances, the imposition of penalty is unwarranted. Therefore, we allowed the appeal filed by the assessee and set-aside the penalty levied by the AO and confirmed by CIT(A) against the assessee.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on this 3rd day of February, 2016.