Case Law Details
Thane District Central Co.-Op. Bank Ltd. Vs ACIT (ITAT Mumbai)
Mere making of claim, which was not sustainable in law, by itself, did not amount to furnishing of inaccurate particulars, unless mens rea was established, therefore, levy of penalty under section 271(1)(c) was not justified.
FULL TEXT OF THE ITAT JUDGMENT
The assessee has filed the present appeal against the order of the Commissioner (Appeals)-2, Mumbai, dated 30-7-2015, pertaining to assessment year 2009-10, confirming the penalty levied by the assessing officer under section 271(1)(c) of the Income Tax Act.
2. The assessee has raised the following grounds of appeal:
“1. On the facts and in circumstances of the case the learned Commissioner (Appeals)-2 Thane erred in confirming the Penalty order under section 271(1)(c) of Income Tax Act, 1961 of Rs. 7,92,59,259 passed by the learned ACIT circle 3 Thane though there was no mens rea” or guilty mind” which is a vital point in the expression “concealment” as envisaged in section 271(1)(c) and if there is no guilty mind, no penalty can be levied. Further mere because the claim raised by appellant in return of income for bad and doubtful debt under section 36(1)(viia) is found to be excess/not acceptable and restricted to the extent of provision for bad and doubtful debt debited to Profit and Loss account by any stretch of imagination does not tantamount to concealment of income or furnishing incorrect particulars of income.
When the claim for bad and doubtful debt is restricted under section 36(1)(vii) to the extent of provision made in the books of account as per the Income Tax Act,19M, intspective of the same only on the fractional ground that for few n4ral branches advances not found to be eligible for claim under section 36(l)(viia), is brought to the notice of learned A.D. by appellant himself during the course of assessment and the said claim was made, on the basis of data, information then available to bank from the branches is not amounts to concealment of income or furnishing incorrect particulars. Learned Commissioner (Appeals)-2 failed to appreciate the same. Learned Commissioner (Appeals)-2 Thane confirming the penalty order under section 271(1)(c) and levy of penalty is for away from real facts baseless ignoring law, against weight of evidence, against principle and natural justice and bad in law therefore, penalty order deserved to be quashed in tom.
2. Learned Commissioner (Appeals)-2 failed to appreciate that Rejection of claim raised in return of income ipso-facto not attract levy of penalty under section 271(1)(c) of Income Tax Act, 1961, as held in the case of Principle Commissioner of Income Tax-11 v. G.K. Properties Private Limited Andhra Pradesh High Court, 1TT.A. No42 of 2015, Date of Decision 17-6-2015.
Further failed to appreciate that more making of the claim, which was not sustainable in law, by itself, will not amount to furnishing inaccurate particulars as held in CIT v. Reliance Petro Products by the Supreme Court.
3. The learned Commissioner (Appeals)-2 Thane failed to appreciate that the bank has claimed deduction under section 36(1) (vital in good faith and on the basis of then available data from the branches with the bank which is not amounts to concealment of income or furnishing inaccurate particulars of income as envisaged under section 271(1)(c) of Income Tax Act, 1961. Further failed to appreciate that irrespective the deduction claimed under section 36(l)(viia) is restricted to the bad & doubtful debt provision made in the profit & loss account Rs. 6,00,00,000 In place of claim of Rs. 31,49,58717 which is considerably less than the claimed in the return of income.
4. The learned Commissioner (Appeals)-2 Thane completely failed to appreciate that the “Explanation-I laid under section 271(1)(c) in confirming penalty order under this section notwithstanding the act that there is no any failure on part of appellant to offer an explanation to AC).
5. The learned Commissioner (Appeals)-2 Thane failed to appreciate and understand that penalty is liable only on account of conscious concealment of income or for providing conscious inaccurate particulars and deliberate concealment is still necessary ingredient for imposing penalty under section 271(1)(c) for concealment of income which is not at all in your appellant case
6. Hence the penalty order confirmed by the Commissioner (Appeals) 2-mane is completely overlooking the material facts, baseless, ignoring law, against principles and natural justice, bad in law since by no stretch of imagination making of an incorrect/excess claim in law and finding of claim is excess according to judicial pronouncement/judgments not tantamount to furnishing inaccurate particulars or concealment of income. The Appellant, therefore, prays that the impugned penalty order of ACIT circle-3 Thane and confirmed by Commissioner (Appeals)-2 mane deserved to be quashed in tore.
7. Your appellant craves the right to add, alter, delete and very any or all grounds of appeal as and when the occasion arises.”
3. The brief facts of the case are that the assessment of the assessee completed on 29-12-2011 assessing total income to the tune of Rs. 46,56,16,220 under section 143(3) of the Act. During the assessment proceeding it was observed that the assessee claimed deduction of Rs. 3,77,18,617 on account of (seven and one-half percent of the total income) first limb of the provision under section 36(1)(viia) of the Act and an amount of Rs. 27,72,40,100 on account of secondly (10% of the aggregate advances) was made by rural bank to the tune of Rs. 27,72,40,100. On examination it was found that the assessee was claiming excess deduction of Rs. 25,49,58,717 therefore, the claim was restricted to the extent of Rs. 6,00,00,000. Thereafter, the penalty to the tune of Rs. 7,92,59,259 was levied the Commissioner (Appeals) has confirmed the order therefore, the assessee has filed the present appeal before us.
4. We have heard the arguments advanced by the learned Representative of the parties and perused the record. The learned Representative of the assessee has argued that in the similar circumstances for the assessment year 2008-09 the Hon’ble ITAT has deleted the penalty in the assessee’s own case in ITA No. 3043/Mum/2015, therefore in the said circumstances the penalty is liable to be deleted. It is also argued that the assessment order speaks about initiation of penalty but nowhere disclose about the particular limb to levy the penalty, therefore the penalty is not liable to be sustainable in view of the law settled in CIT v. Manjunath Cotton and Ginning Factory (2013) 359 ITR 565 (Karn). It is also argued that the penalty notice nowhere depicted about the particular limb, therefore, no penalty is leviable in view of the law settled in CIT v. Manjunath Cotton and Ginning Factory (2013) 359 ITR 565 (Karn) and CIT v. Samsung Perinchary 392 ITR page 4. It is also argued that declining of the claim of the assessee nowhere attract the penalty in view of the law settle in CIT v. Reliance Petro Product (2010) 322 ITR 158 (SC). However, on the other hand, the learned Representative of the department has refuted the said contentions. In view f the argument advanced by the learned representative of the parties and perusing the record we noticed that the claim of the assessee for the assessment year 2008-09 in view of the provision under section 36(1)(viia) of the Act has been declined by the assessing officer and accordingly, the penalty was levied. The assessee filed an appeal before the ITAT in ITA No. 3043/Mum/2015 in which the penalty has been deleted vide order dated 17-6-2017. The relevant para of the decision of the above said ITA No. 3043/Mum/2015 is hereby reproduced as under :–
6. We have considered the rival submission of the parties and have gone through the order of authorities below. We have perused the copy of show-cause notice under section 274 read with section 271(1)(c) of the Act dated 19-1-2011. The said notice does not contain the reference about the specific charge if it was issued for concealment of particulars of income or for furnishing inaccurate particulars. The learned AR of the assessee, as we have referred earlier argued that notice was issued without specifying the charge. We find force in the submissions of learned AR for the assessee, that the notice does not contain any reference about the specific charge, if the same was issued for concealment of income or furnishing inaccurate particulars. The learned AR of the assessee besides the other relied upon the decision of Hon’ble jurisdictional High Court in CIT v. Samson Perinchary (supra) and the decision of Meherjee Cassinath Holdings P. Ltd. (supra), (in which one of us is coauthored) In the said decision, the Co-ordinate Bench of this Tribunal made the following observations:
“8. We have carefully considered the rival submissions. Section 271(1)(c) of the Act empowers the assessing officer to impose penalty to the extent specified if, in the course of any proceedings under the Act, he is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In other words, what section 271(1)(c) of the Act postulates is that the penalty can be levied on the existence of any of the two situations, namely, for concealing the particulars of income or for furnishing inaccurate particulars of income. Therefore, it is obvious from the phraseology of section 271(1)(c) of the Act that the imposition of penalty is invited only when the conditions prescribed under section 271(1)(c) of the Act exist. It is also a well accepted proposition that ‘concealment of the particulars of income’ and ‘furnishing of inaccurate particulars of income’ referred to in section 271(1)(c) of the Act denote different connotations. In fact, this distinction has been appreciated even at the level of Hon’ble Supreme Court not only in the case of Dilip N. Shroff (supra) but also in the case of T. Ashok Pai, 292 ITR 11 (SC). Therefore, if the two expressions, namely ‘concealment of the particulars of income’ and ‘furnishing of inaccurate particulars of income’ have different connotations, it is imperative for the assessee to be made aware as to which of the two is being put against him for the purpose of levy of penalty under section 271(1)(c) of the Act, so that the assessee can defend accordingly. It is in this background that one has to appreciate the preliminary plea of assessee, which is based on the manner in which the notice under section 274 read with section 271(1)(c) of the Act dated 10-12-2010 has been issued to the assessee- company. A copy of the said notice has been placed on record and the learned representative canvassed that the same has been issued by the assessing officer in a standard proforma, without striking out the irrelevant clause. In other words, the notice refers to both the limbs of section 271(1)(c) of the Act, namely concealment of the particulars of income as well as furnishing of inaccurate particulars of income. Quite clearly, non-striking-off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges it has to respond. The aforesaid infirmity in the notice has been sought to be demonstrated as a reflection of non-application of mind by the assessing officer, and in support, reference has been made to the following specific discussion in the order of Hon’ble Supreme Court in the case of Dilip N. Shroff (supra):–
“83. It is of some significance that in the standard proforma used by the assessing officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the assessing officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations.
84. The impugned order, therefore, suffers from non-application of mind. It was also bound to comply with the principles of natural justice. [See Malabar Industrial Co. Ltd. v. CIT (2000) 2 SCC 718]”
9. Factually speaking, the aforesaid plea of assessee is borne out of record and having regard to the parity of reasoning laid down by the Hon’ble Supreme Court in the case of Dilip N. Shroff (supra), the notice in the instant case does suffer from the vice of non-application of mind by the assessing officer. In fact, a similar proposition was also enunciated by the Hon’ble Karnataka High Court in the case of M/s. SSA’s Emerald Meadows (supra) and against such a judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Hon’ble Supreme Court vide order dated 5-8-2016, a copy of which is also placed on record.
10. In fact, at the time of hearing, the learned CIT-DR has not disputed the factual matrix, but sought to point out that there is due application of mind by the assessing officer which can be demonstrated from the discussion in the assessment order, wherein after discussing the reasons for the disallowance, he has recorded a satisfaction that penalty proceedings are initiated under section 271(1)(c) of the Act for furnishing of inaccurate particulars of income. In our considered opinion, the attempt of the learned CIT-DR to demonstrate application of mind by the assessing officer is no defence inasmuch as the Hon’ble Supreme Court has approved the factum of non-striking off of the irrelevant clause in the notice as reflective of non-application of mind by the assessing officer. Since the factual matrix in the present case conforms to the proposition laid down by the Hon’ble Supreme Court, we proceed to reject the arguments advanced by the learned CIT-DR based on the observations of the assessing officer in the assessment order. Further, it is also noticeable that such proposition has been considered by (supra) and the decision of the Tribunal holding levy of penalty in such circumstances being bad, has been approved.
11. Apart from the aforesaid, the learned CIT-DR made an argument based on the decision of the Hon’ble Bombay High Court in the case of Smt. Kaushalya & Ors. (1995) 216 ITR 660 (Bom.) to canvass support for his plea that non-striking off of the irrelevant portion of notice would not invalidate the imposition of penalty under section 271(1)(c) of the Act. We have carefully considered the said argument set-up by the learned CIT-DR and find that a similar issue had come up before our coordinate Bench in the case of Dr. Sarita Milind Davare (supra). Our coordinate Bench, after considering the judgment of the Hon’ble Bombay High Court in the case of Smt. Kaushalya & Ors., (supra) as also the judgments of the Hon’ble Supreme Court in the case of Dilip N. Shroff (supra) and Dharmendra Textile Processors (2008) 306 ITR 277 (SC) deduced as under :–
“12. A combined reading of the decision rendered by Hon’ble Bombay High Court in the case of Smt. B. Kaushalya & Ors. (supra) and the decision rendered by Hon’ble Supreme Court in the case of Dilip N. Shroff (supra) would make it clear that there should be application of mind on the part of the assessing officer at the time of issuing notice. In the case of Lakhdir Lalji (supra), the assessing officer issued notice under section 274 for concealment of particulars of income but levied penalty for furnishing inaccurate particulars of income. The Hon’ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon’ble Kerala High Court has struck down the penalty imposed in the case of N.N. Subramania Iyer v. Union of India (supra), when there is no indication in the notice for what contravention the petitioner was called upon to show cause why a penalty should not be imposed. In the instant case, the assessing officer did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the assessing officer, in our view, clearly show that the assessing officer did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. The Hon’ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya (supra) and observed as under :–
“……. The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified.”
In the instant case also, we are of the view that the assessing officer has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the assessing officer has failed to apply his mind at the time of issuing penalty notice to the assessee.”
12. The aforesaid discussion clearly brings out as to the reasons why the parity of reasoning laid down by the Hon’ble Supreme Court in the case of Dilip N. Shroff (supra) is to prevail. Following the decision of our coordinate Bench in the case of Dr. Sarita Milind Davare(supra), we hereby reject the aforesaid argument of the learned CIT-DR.
13. Apart from the aforesaid discussion, we may also refer to the one more seminal feature of this case which would demonstrate the importance of non-striking off of irrelevant clause in the notice by the assessing officer. As noted earlier, in the assessment order dated 10-12-2010 the assessing officer records that the penalty proceedings under section 271(1)(c) of the Act are to be initiated for furnishing of inaccurate particulars of income. However, in the notice issued under section 274 read with section 271(1)(c) of the Act of even date, both the limbs of section 271(1)(c) of the Act are reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the assessing officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of assessing officer and there is no clear and crystallised charge being conveyed to the assessee under section 271(1)(c), which has to be met by him. As noted by the Hon’ble Supreme Court in the case of Dilip N. Shroff (supra), the quasi-criminal proceedings under section 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the assessing officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua section 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non-compliance with principles of natural justice inasmuch as the assessing officer is himself unsure and assessee is not made aware as to which of the two limbs of section 271(1)(c) of the Act he has to respond.
14. Therefore, in view of the aforesaid discussion, in our view, the notice issued by the assessing officer under section 274 read with section 271(1)(c) of the Act dated 10-12-2010 is untenable as it suffers from the vice of non- application of mind having regard to the ratio of the judgment of the Hon’ble Supreme Court in the case of Dilip N. Shroff (supra) as well as the judgment of the Hon’ble Bombay High Court in the case of Shri Samson Perinchery (supra). Thus, on this count itself the penalty imposed under section 271(1)(c) of the Act is liable to be deleted.”
7. The learned DR for the Revenue relied upon the decision of Co-ordinate Bench in Dhaval K. Jain (supra) and the decision of jurisdictional High Court in CIT v. Smt. Kaushalya & Ors. (supra) may refer that the Hon’ble jurisdictional High Court in a recent decision of similar ground as raised by assessee in the present appeal in case of CIT v. Samson Perinchary (supra) held that the failure on the part of assessing officer to specify in the notice under section 274 whether the penalty is being initiated for furnishing of inaccurate particulars of income or for concealment of income (is fatal). The Hon’ble Court further held that none-mentioning of charge reflects non-application of mind and renders the levy of penalty invalid. The Hon’ble jurisdictional High Court followed the decision of Karnataka High Court in CIT v. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 0565. The Hon’ble Court delivered the said decision on 5-1-2017. The learned DR for the Revenue further relied upon the decision of Co-ordinate Bench in case of Dhaval K. Jain (supra) (authored by one of us). We may refer that the said decision was passed on 30-9-2016 i.e. much prior to the decision of Hon’ble jurisdictional High Court in case of CIT v. Samson Perinchery (supra). We may further observe that the decision of jurisdictional High Court is a binding precedent on us. Thus, considering the decision of Samson Perinchery (supra) and the latest decision of Co-ordinate Bench in Meherjee Cassinath Holdings P. Ltd. (supra), we find that assessing officer failed to specify the specific charge in the notice under section 274 read with section 271(1)(c) of the Act.
8. Thus, respectfully following the latest decision of Hon’ble jurisdictional High Court in Samson Perinchery (supra), we allowed the additional ground of appeal raised by assessee. Since we have allowed the additional ground of appeal, thus, the discussion on other ground became academic.”
5. In view of the order passed by the ITAT in the assessee’s own case in ITA No. 3043/Mum/2015, we are of the view that the penalty is not leviable. Moreover, it is not a case of furnishing the inaccurate particulars of income and concealment of particulars of income because we also noticed that the case of the assessee is in connection with the raising of the claim in view of the provision under section 36(1)(viia) of the Act which has been declined therefore, no penalty is leviable in view of the law settled in CIT v. Reliance Petro Product (2010) 322 ITR 158 (SC) in view of the above discussion it is quite clear that the no penalty is liable therefore, we set aside the finding of the Commissioner (Appeals) on this issue and delete the penalty.
6. In the result, the appeal of the assessee is hereby ordered to be allowed.
