No Penalty U/s. 271(1)(c) if Not specifically mentioned in assessment order as to which limb penalty was imposed

ABR Auto (P) Ltd. Vs. ACIT (ITAT Delhi)

After perusing the assessment order, we find that assessing officer also did not record his satisfaction for initiation of penalty proceedings, because while passing the assessment order dated 30-12-2011 passed under section 143(3)(ii) of the Act, the assessing officer has stated that “….. Penalty proceedings under section 271(1)(c) is being initiated separately for furnishing inaccurate particulars of income/concealment income……………….”, which is not sufficient and therefore, the penalty proceedings cannot be said to be validly initiated under such circumstances. However, nowhere in the assessment order states the specific charge of alleged concealment and/or furnishing of inaccurate particulars of income. Therefore, the entire penalty proceedings stand vitiated, because it is not in accordance with law.

The dis allowances made by the assessing officer were confirmed by the learned Commissioner (Appeals). Thereafter, the assessing officer issued notice under section 274 read with section 271(1)(c) of the Income Tax Act, 1971 for levy of penalty. The penalty under section 271(1)(c) was levied on 31-3-2014 of Rs. 36,58,000.

3. Aggrieved with the said penalty order, the assessee filed the appeal before the learned Commissioner (Appeals), who vide his impugned order dated 04-9-2015 has upheld the penalty in dispute and accordingly, dismissed the appeal of the assessee.

4. At the time of hearing, learned Authorized Representative of the assessee has stated that assessee had appealed before the learned Commissioner (Appeals) against the above said additions. However, the assessee did not press for the dis allowance made on account of Bad Debts of Rs. 1,32,000 and Dis allowance of Expenses on account of return of investment of Rs. 10,84,005. In his appellate order dated 1-2-2013 the learned Commissioner (Appeals) did not allow the appeal of the assessee. The assessee had further filed appeal to ITAT, New Delhi against dis allowance under section 14A of Rs. 4,07,158 and against Long Term Capital Loss treated as Business income of Rs. 91,39,000 and the ITAT vide its order dated 5-8-2016 in ITA No. 2375/Del/2013 had allowed the appeal of the assesse and deleted the quantum additions of Rs. 4,07,158 and Rs. 91,39,000. However, during the penalty proceedings, the assessing officer vide his order dated 31-3-2014 imposed penalty of Rs. 36,58,000 under section 271(1)(c) of the Act, in respect of total additions of Rs. 1,07,62,163 on the alleged ground that the assessee had furnished inaccurate particulars of income. In view of the above, learned Counsel of the assessee stated that out of four quantum addition on which the penalty has been imposed, two quantum addition has already been deleted by the ITAT, ‘A’ Bench, New Delhi in ITA No. 2375/Del/2013 (assessment year 2009-10) vide Order dated 5-8-2016. In this behalf he filed the copy of the Tribunal’s Order dated 5-8-2016 in assessee’s own case and requested that penalty in dispute may be deleted, because the assessee has not furnished any inaccurate particulars of income. It was further submitted that assessing officer did not record his satisfaction for initiation of penalty proceedings and further that quantum and penalty proceedings are independent of each other and penalty cannot be imposed simply on the basis of finding recorded in the assessment order. Learned Counsel of the assessee has draw our attention towards the assessment order dated 30-12-2011 passed under section 143(3)(ii) of the Act and stated that while completing the assessment the assessing officer has observed “….. Penalty proceedings under section 271(1)(c) is being initiated separately for furnishing inaccurate particulars of income/concealment income……………….” and attaching a printed notice with such order requiring the assessee to show cause why penalty under section 271(1)(c) of the Act be not levied for concealment/filing of inaccurate particulars of income, is not sufficient and the penalty proceedings cannot be said to be validly initiated under such circumstances. He further stated that neither the assessment order nor the printed show cause notice nowhere states the specific charge of alleged concealment and/or furnishing of inaccurate particulars of income vis-à-vis addition made. In view of the above, he stated that entire penalty proceedings stand vitiated, because it is not in accordance with law and in order to support his contention, he placed the reliance on the following decisions :–

–Hon’ble Karnataka High Court decision in the case of Commissioner & Ors. v. M/s. Manjunatha Cotton and Ginnig Factory & Ors. (2013) 359 ITR 565

–Apex Court decision in the case of Commissioner & Anr. v. M/s. SSA’s Emerald Meadows in CC No. 11485/2016 dated 5-8-2016.

In view of above, he requested that the penalty in dispute may be cancelled and appeal of the assessee may be allowed.

5. On the contrary, learned Departmental Representative relied upon the orders of the authorities below and also filed the written submissions, which are reproduced here under :–

“Sub: Written Submission in the above case- reg. In the above case, it is humbly submitted that the following decisions may kindly be considered :–

1. Union of India v. Pharamendra Textile Processors ((2007) 295 ITR 244) (Copy Enclosed) where Hon’ble Supreme Court held that Penalty under section 271 (1)(c) is a civil liability for which willful concealment is not an essential ingredient for attracting the civil liability as is the case in the matter of proceedings under section 276C

2. CIT v. Zoom Communication (P) Ltd. (191 Taxman 179 (Delhi)/(2010) 327 ITR 510 (Delhi)/(2010) 233 CTR 465) where Hon’ble Delhi High Court held that If assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and explanation furnished by him for making such- a claim is. not found to be bona fide, Explanation 1 to section 271 (1)(c) would come into play and assessee will be liable to penalty

3. MAK Data (P) Ltd. v. CIT (2013) 358 ITR 593 (SC). Where Hon’ble Supreme Court held that under Explanation 1 to section 271(1)(c), voluntary disclosure of concealed income does not absolve assessee of section 271(1)(c) penalty if the assessee fails to offer an explanation which is bonafide and proves that all the material facts have been disclosed.

5. CIT v. Gates Foam & Rubber Co (91 ITR 467) CIT v. India Seafood (105 ITR 708) where Hon’ble Kerala High Court held that Claiming excessive deduction also amounts to concealment of income

6. Steel Ingots Ltd. v. CIT (296 ITR 228) where Hon’ble Madhya Pradesh High Court held that in case of concealment of true income chargeable to tax by making bogus claim, levy of penalty under section 271 (1)(c) read with Explanation 1 is justified

7. CIT v. Escorts Finance Ltd. (183 Taxman 453 (Delhi)/(2010) 328 ITR 44 (Delhi)/(2009) 226 CTR 105) where Hon’ble Delhi High Court held that if claim made in return of income appears to be ex facie bogus, it would be treated as a case of concealment or furnishing of inaccurate particulars and penalty proceeding would be justified.”

6. We have carefully considered the rival submissions and perused the relevant records. We find that assessee had appealed before the learned Commissioner (Appeals) against the quantum additions i.e., dis allowance under section 14A amounting to Rs. 4,07,158 and dis allowance on account of long term capital loss treated as business income amounting to Rs. 91,39,000. However, the assessee did not press for other dis allowances made on account of Bad Debts of Rs. 1,32,000 and Dis allowance of Expenses on account of return of investment of Rs. 10,84,005. We further find that in his appellate order dated 1-2-2013 the learned Commissioner (Appeals) did not allow the appeal of the assessee and aggrieved with the action of the learned Commissioner (Appeals), te assessee appealed before the Tribunal against dis allowance under section 14A of Rs. 4,07,158 and against Long Term Capital Loss treated as Business income of Rs. 91,39,000 and the ITAT vide its order dated 5-8-2016 in ITA No. 2375/Del/2013 had set aside the finding of the learned Commissioner (Appeals) on the issue under section 14A and restore the matter to the file of the assessing officer for fresh adjudication after due verification of the claim of the assessee regarding no expenditure having been incurred and allowed the issue relating to Long Term Capital Loss treated as Business income of Rs. 91,39,000 by deleted this addition. We further note that during the penalty proceedings, the assessing officer vide his order dated 31-3-2014 imposed penalty of Rs. 36,58,000 under section 271(1)(c) of the Act, in respect of all the four additions of Rs. 1,07,62,163 mentioned in the grounds of appeal, as aforesaid, on the alleged ground that the assessee had furnished inaccurate particulars of income.

6.1 After perusing the assessment order, we find that assessing officer also did not record his satisfaction for initiation of penalty proceedings, because while passing the assessment order dated 30-12-2011 passed under section 143(3)(ii) of the Act, the assessing officer has stated that “….. Penalty proceedings under section 271(1)(c) is being initiated separately for furnishing inaccurate particulars of income/concealment income……………….”, which is not sufficient and therefore, the penalty proceedings cannot be said to be validly initiated under such circumstances. However, nowhere in the assessment order states the specific charge of alleged concealment and/or furnishing of inaccurate particulars of income. Therefore, the entire penalty proceedings stand vitiated, because it is not in accordance with law, in view of the law settled in the following case laws.–

(i) “Commissioner & Anr. v. M/s. SSA’s Emerald Meadows in (I.T.A. N O . 380 OF 2015, date 23-11-2015) has held that Tribunal has correctly allowed the appeal filed by the assessee holding the notice issued by the assessing officer under section 274 read with section 271(1)(c) 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 CIT v. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565- Karanataka High Court. Thus since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion no substantial question of law arises-decided in favor of assessee.”

(ii) Commissioner & Anr. v. M/s. SSA’s Emerald Meadows- Hon’ble Supreme Court of India in (Special Leave to Appeal (C)……/2016 (CC No. 11485/2016), date 5-8-2016). The Apex Court held that High Court order confirmed in (ITA No. 380 of 2015, date 23-11-2015). Notice issued by assessing officer under section 274 read with section 271(1)(c) 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-Decided in favor of assessee.”

6.2 In the background of the aforesaid discussions and respectfully following the precedents, we delete the penalty in dispute and decide the issue in favor of the assessee and against the Revenue. Since we have deleted the penalty and did not discuss the penalty issue on merit, hence, the case laws cited by the learned Departmental Representative are not useful at this juncture, because these case laws are on the merits of the case, which we have not discussed.

7. In the result, the appeal filed by the assessee stands allowed.