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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI VIJAY PAL RAO & SHRIB.M. BIYANI
आदेश/O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by appeal-order dated 10.08.2022passed by learned Commissioner of Income-Tax (Appeals), National Faceless Appeals Centre, Delhi [“Ld. CIT(A)”], which in turn arises out of penalty-order dated 18.10.2018 passed by learned ACIT-4(1), Bhopal [“Ld. AO”] u/s 271(1)(c) of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2013-14, the assessee has filed this appeal.
Heard the learned Representatives of both sides at length and case- records perused.
R.M. Chemicals Pvt. Ltd., Bhopal vs. ACIT , 4(1), Bhopal A.Y. 2013-14 3. Briefly stated the facts are such that the assessee-company is engaged in the business of manufacture of detergent bar and power, having 3 manufacturing units situated at (i) Dhule, (ii) Baddi Unit-I, and (iii) Baddi Unit-II. For the relevant AY 2013-14, the assessee filed original return of income on 31.10.2013 declaring a total income of Rs. 10,09,23,510/- which was subjected to scrutiny-assessment. While filing return of income, the assessee claimed deduction u/s 80-IC in respect of profit derived from its 2 units, namely Baddi Unit-I and Baddi Unit-II. Baddi Unit-I was running in 8th year of operation, hence the assessee claimed 30% deduction amounting to Rs. 90,82,426/- and Baddi Unit-II was running in 4th year of operation, hence the assessee claimed 100% deduction amounting to Rs. 1,98,79,823/-; total deduction aggregating to Rs. 2,89,62,249/-. Ld. AO observed that in claiming and computing the quantum of deduction, the assessee has not taken into account adjustment of brought forward lossesas required by section 80-IC(7) read with section 80-IA(5). Therefore, the AO re- computed deduction after giving effect to brought forward losses and reduced the sameto Rs. 46,88,290/-. Accordingly, the AO disallowed excess deduction of Rs. 2,42,73,959/- [Rs. 2,89,62,249/- claimed by assessee (-) Rs. 46,88,290/- computed by AO]; thereby computed total income at Rs. 12,51,97,469/-.
Simultaneously, the AO initiated penalty proceeding u/s 271(1)(c)qua the said addition vide show-cause notice dated 04.03.2016.During hearings of penalty-proceedings, the assessee filed replies which are re-produced by AO in penalty-order. Finally, the AO imposed penalty of Rs. 78,75,690/- equivalent to 100% of tax sought to be evaded.
Aggrieved by penalty-order, the assessee filed first-appeal to CIT(A) and made submission which are re-produced by CIT(A) in Para No. 5 of his order. However, Ld. CIT(A) was not convinced with submission of assessee and did not grant any relief. Now, the assessee has come in next appeal before us contesting the orders of lower-authorities.
R.M. Chemicals Pvt. Ltd., Bhopal vs. ACIT , 4(1), Bhopal A.Y. 2013-14 6. Ld. AR for the assessee made vehement contentions before us which can be summed up in two categories as under:
(i) Firstly, Ld. AR raised a legal objection. He carried us to the assessment-order dated 04.03.2016 passed by AO wherein the impugned addition was made. Referring to Para No. 5.9 and 6 of same, Ld. AR demonstrated that the AO has, at two places, simply mentioned “Penalty u/s 271(1)(c) of the Income Tax Act is being initiated separately”but no charge either of "concealment of income" or "furnishing of inaccurate particulars" was made in assessment- order.Then, the Ld. AR carried us to the show-cause notice dated 04.03.2016 (copy placed at Page No. 1 of Paper-Book) issued by AOin accordance with section 274 of the actwherein also the AO has not specified any charge of default committed by assessee, more so as to which limb of Section 271(1)(c) of the Income-tax Act, 1961 the penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars.The said notice is scanned below for a quick reference:
R.M. Chemicals Pvt. Ltd., Bhopal vs. ACIT , 4(1), Bhopal A.Y. 2013-14
R.M. Chemicals Pvt. Ltd., Bhopal vs. ACIT , 4(1), Bhopal A.Y. 2013-14
Having shown this, Ld. AR strongly contended that the case of assessee is directly and exactly covered by decision of Hon’ble Jurisdictional High Court of M.P. in Pr.CIT-I, vs. Kulwant Singh Bhatia, to 14 of 208, order dated 9th May 2018, wherein it was observed and held thus:
“7. It is submitted that the show-cause notice under Section 274 is not mere empty formality but it has a definite purpose to make the assessee aware of the exact charges against him and the case, which is required to meet out. A clear notice not only a statutory requirement but even for the purpose of principle of 'audi alteram partem' which requires that no one should be condemned unheard, a notice in clear term specifying the clear charges against an assessee is required to be given by an Assessing Officer before imposing a penalty. It was submitted that by not striking off the inapplicable clause, the learned Assessing Officer has left the matter open for a complete guess work on the part of the appellant for presuming charges levelled against him and in such situation, it cannot be said that an effective opportunity of being heard was given to the appellant as contemplated under Section 274 of the Act of 1961. Thus, the penalty proceedings were initiated without specifying any particulars or specific charge against the assessee in either the assessment order or even the penalty notice.It is important to point out that no charge either of "concealment of income" or "furnishing of inaccurate particulars" was made in the assessment orders in all these cases. The perusal of the assessment order would show that it was stated that penalty proceedings are initiated under Section 271(1)(c) and under Section 271(AAA).
8. In the case of CIT V/s. Manjunatha Cotton Ginning Factory (supra), it was observed by the Karnataka High Court in para 59 that the practice of the Department sending a printed form where all the ground mentioned in Section 271 are mentioned would not satisfy the requirement of law when the consequences of the assessee not rebutting the initiated presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the provisions have to be held to be strictly construed, notices issued under Section 274 should satisfy the grounds, which he has to meet specifically. Otherwise, principle of natural justice is offended if the show cause notice is vague. Even in the matter of search case where penalty is levied under Explanation 5A to Section 271(1)(c), it was held by the Karnataka High Court that the show-cause notice under Section 274 was defective as it does not spell out the ground on which the penalty is sought to be imposed and consequently penalty imposed was cancelled. The decision of R.M. Chemicals Pvt. Ltd., Bhopal vs. ACIT , 4(1), Bhopal A.Y. 2013-14 CIT V/s. Manjunatha Cotton Ginning Factory (supra) was further followed by the Karnataka High Court in the case of CIT V/s. SSA'S Emerald Meadows, (2016) 73 taxman.com 248 (SC) / dated 23.11.2015 (ITA 380/2015), the High Court has dismissed the appeal of the revenue by observing that the Tribunal has allowed the appeal of the assessee holding that the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Act of 1961 was bad-in-law as it did not specify which limb of Section 271(1)(c) of the Act of 1961, the penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars. The Tribunal while allowing the appeal of the assessee, had relied on the decision of the Division Bench of Karnataka High Court decision in the case of CIT V/s. Manjunatha Cotton Ginning Factory (supra). It is further pointed out that the SLP filed by the Deptt. before the Apex Court on 5.8.2016 in the matter of CIT V/s. SSA'S Emerald Meadows (supra) was dismissed. In the case of CIT V/s. Suresh Chandra Mittal, (2000) 251 ITR 9 (SC), the Apex Court has upheld the decision of M.P. High Court wherein, in similar circumstances, it was held that the initial burden lies on the revenue to establish that the assessee had concealed the income or had furnished inaccurate particulars of such income. In the present case, in show-cause notice the Assessing Officer has not specified specifically charges, there was no such mention.
9. Considering the aforesaid, the Tribunal has held that the penalty levied under Section 271(1)(c) of the Act of 1961 is not sustainable in law, as no specific charge was levied in penalty show-cause notices and allowed the appeal No.ITA (Appeal) 414/Ind/2012 and other five appeals.
On due consideration of the arguments of the learned counsel for the appellant, so also considering the fact that the ground mentioned in show- cause notice would not satisfy the requirement of law, as notice was not specific, we are of the view that the learned Tribunal has rightly relying on the decision of CIT V/s. Manjunatha Cotton Ginning Factory (supra) and CIT V/s. SSA'S Emerald Meadows (supra) rightly allowed the appeal of the assessee and set aside the order of penalty imposed by the authorities. No substantial question of law is arising in these appeals. ITA.No(s). 9/2018, 10/2018, 11/2018, 12/2018, 13/2018 and 14/2018, filed by the appellant have no merit and are hereby dismissed.”
Ld. AR submitted that in view of the decision of Hon’ble Jurisdictional High Court, the penalty order in present case cannot be sustained and must be set aside.
(ii) Then Ld. AR, though contended that no submissions on merit are required in present case as the penalty-order itself is not sustainable, yet went on submitting for the sake of completeness that when the assessment was going on, the assesseesuo moto and voluntarily filed a R.M. Chemicals Pvt. Ltd., Bhopal vs. ACIT , 4(1), Bhopal A.Y. 2013-14 revised return on 04.04.2015 vide acknowledgement number 562948141040415 (copy at Page No. 5 of Paper-Book) by reducing the quantum of deduction after giving effect to brought forward losses. Thereafter, vide letter dated 22.04.2015, the assessee also filed a note titled “Explanation for filing two returns” to AO (copy at Page No. 8 of the Paper-Book). In Point (c) thereof, the assessee clearly submitted that it had omitted to consider the earlier years’ losses inadvertently; therefore a re-working of deduction was submitted. In Point (d), it was submitted that the assessee had paid additional tax of Rs. 85,00,000/- on 28.02.2015, a copy of challan is placed at Page No. 9 of Paper-Book. Further, in Point (e) thereof, it was submitted that the assessee made several attempts to upload return on 31.03.2015 but failed and ultimately succeeded on 04.04.2015 to upload the return. Ld. AR submitted that the assessee could not upload return on 31.03.2015 despite several attempts, therefore ultimately filed the return through “original mode” by selecting option of “section 148” on 04.04.2015. Then, drawing our attention to Para No. 1 of assessment- order, Ld. AR demonstrated that the AO issued first query letter u/s 142(1) on 05.08.2015 but much prior to that, the assesseehad already paid additional tax on 28.02.2015 and alsofiled rectified return on 04.04.2015. This shows that the assessee has voluntarily rectified the mistake in computing quantum of deduction prior to detection by AO. That apart, Ld. AR argued, the assessee has neither concealed the particulars of income nor furnished inaccurate particulars of income. The only mistake which had occurred on the part of assessee was such that the assessee did not consider brought forward losses in calculating the quantum of deduction, which was just abonafideinadvertent mistake. Ld. AR submitted that all facts and figures of current year income as well as of brought forward losses were very much available in the original return of income filed by assesseeand also on the departmental record. There is no concealment of any particulars or furnishing inaccurate particulars by R.M. Chemicals Pvt. Ltd., Bhopal vs. ACIT , 4(1), Bhopal A.Y. 2013-14 assessee. Relying upon Price Water House Coopers (P) Ltd. Vs. CIT (2012) 25 taxmann.com 400 (SC) and Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158,Ld. AR submitted that the assessee should not be saddled with penalty in this case of bonafide and inadvertent error.
Per contra, Ld. DRdefended the orders of lower-authorities and opposed the contentions raised by Ld. AR on following premises:
(i) Firstly on legal objection, Ld. DR relied upon Sundaram Finance Ltd. Vs. ACIT (2018) 93 taxmann.com 250 (Madras HC). He submitted that in the said decision, the Hon’ble Madras High Court has accepted that the notice issued u/s 274 read with section 271(1)(c) is not vitiated for the reason that it does not specifically state the ground mentioned in section 271(1)(c) of the act, when the assessee clearly understood the purport and import of the notice issued u/s 271(1)(c). Ld. DR submitted that the SLP filed by assessee against the said decision of Hon’ble Madras High Court has also been dismissed by Hon’ble Supreme Court.
(ii) Secondly on merit, Ld. DR submitted that the AO issued notice of scrutiny u/s 143(2) on 04.09.2014 but the assessee paid tax on 28.02.2015 and submitted rectified return on 04.04.2015. Thus, the assessee has made correct working of deduction and paid tax to Govt. after issuance of scrutiny notice u/s 143(2). Therefore, the action of assessee cannot be said to be suo moto and voluntary. To support his contention, Ld. DR relied upon decision in Gangotri Textiles Ltd. Vs. DCIT- (2020) 121 taxmann.com 171 (Madras HC) where it was categorically held that disclosure after issuance of notice u/s 143(2) is not voluntary. Ld. DR submitted that the SLP filed by assessee against the said decision is already dismissed by Hon’ble Supreme Court. Ld. DR emphasized Para No. 7.12 and 7.13 of the order of first-appeal wherein the CIT(A) has also observed that when the return was selected for scrutiny, realizing that the return shall be thoroughly
R.M. Chemicals Pvt. Ltd., Bhopal vs. ACIT , 4(1), Bhopal A.Y. 2013-14 scrutinized, the assessee disclosed wrong deduction to AO and paid tax to claim bonafide intention. On this very reasoning, Ld. CIT(A) has rightly dismissed assessee’s first appeal and did not grant any relief.
In rejoinder, Ld. AR submitted that the case of assessee is well covered by the decision of Hon’ble jurisdictional High Court in Kulwant Singh Bhatia (supra), hence the decision of Sundaram Finance Ltd. Vs. ACIT (2018) 93 taxmann.com 250 (Madras HC)relied upon by Ld. DR is not applicable. On merits, Ld. AR re-iterated that the conduct of assessee is very fair and voluntary. He submitted that it is the assessee who himself made disclosure of wrong working of deduction to AO. He submitted that the issuance of notice u/s 143(2) is mere acquisition of jurisdiction for carrying out scrutiny but the actual scrutiny/examination is done by issuance of notice u/s 142(1). He submitted that in the present case, it is very clear that the assessee had voluntary disclosed correct amount of deduction before issuance of notice u/s 142(1), though after issuance of notice u/s 143(2).
Ld. AR further submitted that mere issuance of scrutiny notice u/s 143(2) does not mean that the AO would have discovered each and every aspect.
Had the assessee not come forward to AO, there is a strong possibility that the mistake would have escaped the attention of AO. Therefore, in the present case, the conduct of assessee should be considered holistically and judiciously and considered so, there is no concealment of particulars of income or furnishing of inaccurate particulars of income.
We have considered rival submissions of both sides and perused the material held on record. On a mindful consideration, we first take note of R.M. Chemicals Pvt. Ltd., Bhopal vs. ACIT , 4(1), Bhopal A.Y. 2013-14 the decision of Hon’ble Jurisdictional High Court in Kulwant Singh Bhatia (supra). After reading the same carefully, we find that the said decision is directly applicable to assessee’s case. As noted earlier, in the present case of assessee, while passing assessment-order the AO has simply mentioned that penalty proceeding u/s 271(1)(c) is being initiated separatelybut nowhere the AO has mentioned any charge of concealment of particulars or furnishing of inaccurate particulars. Then came the next stage of issuing show-cause notice in terms of section 274. On perusal of the show-cause notice, a copy of which is already scanned above, we nowhere find that the AO has specified the kind of default committed by assessee, whether it is concealment of income or furnishing of inaccurate particulars. Taking into account these serious fallacies on the part of AO, the Hon’ble jurisdictional has categorically held that penalty proceedings are not sustainable. The decision in Sundaram Finance Ltd. Vs. ACIT (2018) 93 taxmann.com 250 (Madras HC)is firstly rendered by non-jurisdictional High Court of Madras and secondly it was rendered on a different set of facts wherein the assesses had concealed the particulars of income and furnished inaccurate particulars of income and both aspects were attracted (Para 8 and 16 of order). However, in the present case before us, the position is such that in assessment-order or even in the show-cause notice, the AO has nowhere mentioned any default having been committed by assessee. Therefore, in absence of any charge against assessee, the decision of Hon’ble jurisdictional High Court in Kulwant Singh Bhatia (supra) holds good.
Respectfully, applying the view taken therein, we are of the considered view
R.M. Chemicals Pvt. Ltd., Bhopal vs. ACIT , 4(1), Bhopal A.Y. 2013-14 that the penalty proceeding conducted in present case are not sustainable. Being so, we set aside the penalty order passed by AO as being non- maintainable.
Since we have set aside the penalty-order itself, other pleadings made by both sides on merits of the case are rendered infructuous at this stage, The same are left open without any adjudication by us.
11. Resultantly, this appeal is allowed.
Order pronounced in the open court on 03/07/2023.