Mere making of a claim which had not been accepted, would not per se tantamount to furnishing of inaccurate particulars to attract penalty proceedings under section 271(1)(c) of Income Tax Act, 1961. Bare perusal of explanation furnished by the assessee went to prove that it had come up with bona fide claim with no actual or conscious furnishing of inaccurate particulars, therefore, levy of penalty under section 271(1)(c) of Income Tax Act, 1961 was not justified.
FULL TEXT OF THE ITAT JUDGMENT
The appellant, M/s. Jain Studios Ltd. (hereinafter referred to as ‘the assessee company’) by filing the present appeal, sought to set aside the impugned order dated 09.03.2016 passed by Ld. CIT (Appeals)-5, Delhi qua the assessment year 2011-12 on the grounds inter alia that :-
“1. That on the facts and in the circumstances of case and in law, the Ld CIT-A erred in not deleting the penalty amounting to Rs 52,83,477/- u/s 271 (l)(c) where notice u/s 274 dated 28.01.2014 is mechanical and vague and Ld CIT-A has incorrectly decided the said aspect in para 5.3.4 of impugned order. No where in the notice specific charge is pinpointed.
2. That on the facts and in the circumstances of case and in law, the Ld CIT-A erred in not deleting the penalty amounting to Rs.52,83,477/- u/s 271(1)(c) where Ld AO has failed to mention the specific limb in which penalty is initiated and Ld CIT-A has incorrectly decided the said issue in para 5.3.5, 220.127.116.11, without considering the cited precedents in this regard.
3. That on the facts and in the circumstances of case and in law, the Ld CIT-A erred in not deleting the penalty amounting to Rs.52,83,477/- u/s 271(1)(c) where assessee made complete factual disclosure in accounts and returns etc and same is sufficient to knock off the extant penalty and Ld CIT-A has incorrectly decided the said issue in para 18.104.22.168 on basis of extraneous reasoning.
Other Grounds on Merits
4. That on the facts and in the circumstances of case and in law, the Ld CIT-A erred in not deleting the penalty amounting to Rs.52,83,477/- u/s 271 (1) (c) by proceeding on totally incorrect hypothesis that u/s 271 (1) (c) there are three limbs of penalty as opined by her in para 5.3 of impugned order which vitiates the entire That is, Ld CIT-A incorrectly treated explanation 10 sec. 271(l)(c) as extended definition of penalty which nullifies the entire penalty.
5. That on the facts and in the circumstances of case and in law. the Ld CIT-A erred in not deleting the penalty amounting to Rs.52,83,477/- u/s 271(1)((c) where Ld AO has applied explanation 1 to furnishing inaccurate particulars of income which explanation only applies to concealment of particulars of income.
6. That on the facts and in the circumstances of case and in law, the Ld CIT-A erred in not deleting the penalty amounting to Rs.52,83,477/- u/s 271(1)(c)
where assessee successfully discharged its onus of probable explanation by proving bonafide conduct.
1. To quash the penalty order u/s 271 (1)(c) ;
2. To delete the penalty u/s 271 (1)(c) wrongly upheld by CIT(A);
3. Any other relief as deemed fit in circumstances of the case.”
2. Briefly stated the facts necessary for adjudication of the controversy at hand are : On the basis of competed assessment under section 143 (3) of the Income-tax Act, 1961 (for short ‘the Act’) at nil income as against returned loss of Rs.1,01,71,919/- after making disallowance of Rs. 1,53,85,320/- on account of expenditure on impairment of expenses being treated as capital loss and disallowance of amount being short fall of bank guarantee of 1,58,891/-. Assessing Officer initiated the penalty proceedings by way of issuance of the notice u/s 271(1)(c) of the Act read with section 274. Disagreeing with the contentions raised by the assessee, AO reached at the conclusion that the assessee has furnished inaccurate particulars of income in order to decrease its tax liability and thereby levied a penalty of Rs.52,83,477/- @ 100% u/s 271(1)(c) of the Act.
3. Assessee company carried the matter by way of an appeal before the ld. CIT (A) who has confirmed the penalty after dismissing the appeal. Feeling aggrieved, the assessee company has come up before the Tribunal by way of filing the present appeal.
4. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
5. Undisputedly, penalty of Rs.52,83,477/- has been imposed u/s 271(1)(c) of the Act primarily on account of addition/disallowance of Rs. 1,53,85,320/- debited by the assessee company under the head ‘Impairment of assets’ and addition/disallowance of Rs. 1,58,891/- on account of short fall of the bank guarantee. It is also not in dispute that the quantum has been accepted by the assessee company.
6. In the backdrop of the aforesaid facts and circumstances of the case, order passed by the lower Revenue authorities and arguments addressed by the ld. AR to the parties, the sole question arises for determination in this case is:-
“as to whether the assessee has concealed particulars of income or has furnished inaccurate particulars of income during assessment proceedings while interpreting the provisions contained u/s 271(1)(c) of the Act?”
7. The ld. AR for the assessee company challenging the impugned order contended that show-cause notice issued by the AO u/s 274, available at page 4 of the paper book is not a valid notice to initiate the penalty proceedings as the assessee company has not been made aware if it has concealed the particulars of income or has furnished inaccurate particulars of such income and relied upon the decision rendered by the Hon’ble Karnataka High Court in case of CIT vs. Manjunatha Cotton and Ginning Factory & Ors. 359 ITR 565 (Karn.).
8. However, ld. DR for the Revenue to repel the arguments addressed by the ld. AR for the assessee company contended inter alia that the notice issued by the AO u/s 274 of the Act is not standalone document which is based on assessment order; that the notice has been issued in respect of furnishing inaccurate particulars of income and relied upon the case of Trimurti Engineering Works – 25 com363.
9. To proceed further, we would like to reproduce notice issued u/s 271(1)(c) of the Act for ready perusal :-
“NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE INCOME TAX ACT, 1961
Dated : 28.1.2014
M/s. Jain Studios Ltd.,
Jain Studios Campus,
Scindia Villa, Sarojini Nagar, Ring Road, New Delhi.
Whereas in the course of proceedings before me for the assessment year 2011-12 it appears to me that you:-
Have without reasonable cause failed to comply with a notice under section 142 (1)/143(2) of the Income Tax Act, 1961 dated .
Have concealed the particulars of your income or furnished inaccurate particulars of such income in terms of explanation 1,2,3,4 and 5
You are hereby requested to appear before me at 11.30 AM/PM on 27.1.2014 and show cause why an order imposing a penalty on you should not be made under section 271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative you may show cause in writing on or before the said date which will be considered before any such order is made under section 271(1)(c).
Deputy Commissioner of Income Tax,
Circle 4 (1), Room No.318-A,
C.R. Building, New Delhi.”
10. Undisputedly, additions made against the assessee during quantum proceedings have already been confirmed. It is settled principle of law that the penalty cannot be imposed merely on the ground that additions made in the income of the assessee has been confirmed rather to proceed with imposition of penalty u/s 271(1)(c), the AO has to prove that there was concealment of particulars of income or assessee has furnished inaccurate particulars of such income.
11. Bare perusal of the notice issued to the asses see u/s 271(1)(c) of the Act reproduced above goes to prove that assessee has not been called upon to explain if he has concealed the particulars of income or furnished inaccurate particulars of such income rather a tick has been marked against both the charges mentioned in the printed proforma. Hon’ble Karnataka High Court in case of CIT vs. Manjunatha Cotton and Ginning Factory & Ors. (supra) dealt with the identical issue threadbare and came to the following conclusion :-
“63. In the light of what is stated above, what emerges is as under:
a) Penalty under Section 271(1)(c) is a civil liability.
b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities.
c) Willful concealment is not an essential ingredient for attracting civil liability.
d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271.
e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority.
f) Ever if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision.
g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271 (l) (c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B).
h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner.
i) The imposition of penalty is not automatic.
j) Imposition of penalty even if the tax liability is admitted is not automatic.
k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order.
l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be
m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed.
n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any
o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority.
p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income
q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law.
r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee.
s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in
t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings.
u) The findings recorded in the assessment proceedings in so far as “concealment of income” and “furnishing of incorrect particulars” would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.”
12. So, following the law laid down by Hon’ble High Court, we are of the considered view that when the assessee has not been specifically made aware of the charges leveled against him as to whether there is a concealment of income or furnishing of inaccurate particulars of income on his part, the penalty u/s 271(1)(c) of the Act is not sustainable. The case law relied upon by the ld. DR are not applicable to the facts and circumstances of this case in the face of the decisions rendered by the Hon’ble High Court in Manjunatha Cotton and Ginning Factory & Ors. (supra).
13. On merit, the next contention raised by the ld. AR for the assessee company that the assessee company has bonafidely debited an amount of Rs. 1,53,85,320/- under the head ‘Impairment of assets’ and debited an amount of Rs. 1,58,891/- against the short fall in bank guarantee and has furnished detailed explanation before the AO reproduced in para 3 of the assessment order. Explanation furnished by the assessee company before AO regarding debiting of amount of Rs. 1,53,85,320/- under the head impairment of assets is reproduced as under :-
” During the year 1999-2000 and 2000-2001 the assessee company had started a new venture to provide the internet services and had imported full length of equipments. However, due to certain Government policies and technical bottlenecks the company decided to finally shut down the operation in internet segment. Hence, the company had impaired 82% of the assets pertaining to the internet business during the financial year 2003-04. The balance 18% which amounted to Rs.1,53,85,320/- were kept as Assets held for disposal with the believe that the company may be able to fetch some value in the future. Since the assets were earlier used in the business purposes and the Accounting Standard 28 as applicable in India also provides that any assets which has higher carrying value than the book value should be impaired to the extent of difference in value which is an allowable expenditure. On analysis of market value of the goods held for disposal, the management of the company had decided to write off the balance 18% value of the earlier impaired goods, there being no realizable value since the goods had become obsolete and was neither saleable in the market nor were carrying any market value. In view of the above the impairment of assets is allowable as business expenditure.”
14. Bare perusal of the aforesaid explanation furnished by the assessee company goes to prove that the assessee company has come up with bonafide claim with no actual or conscious concealment on its part.
15. Hon’ble Delhi High Court in case cited as CIT vs. IFCI Limited – (2010) 328 ITR 611 (Delhi) held that in case, any claim made by the assessee has not been accepted it would not per se tantamount to furnishing any account of inaccurate particulars to attract the penalty proceedings u/s 271(1)(c). Operative part of the aforesaid judgment is extracted as under :-
“Held; dismissing the appeal, that the assessee had filed the return and furnished all particulars. The assessee had explained during the penalty proceedings that the investments were written off in the books of account and were claimed as deduction on account of loss which occurred to the assessee in the computation of total income. The Tribunal analysing the facts had expressed the view that there had been no furnishing of inaccurate particulars of such income and the assessee had declared the entire material. It was a case where a claim put forth by the assessee as regards the loss was not accepted but that would not per se tantamount to furnishing any kind of inaccurate particulars. Thus, there had been no concealment of income or furnishing of inaccurate particulars. Hence, the cancellation of penalty was valid.”
16. Similarly, Hon’ble High Court of Delhi in case cited as CIT vs. DCM Limited – 359 ITR 102 held as under :-
“Law does not bar or prohibit an assessee for making a claim, which he believes may be accepted or is plausible. When such a claim is made during the course of regular or scrutiny assessment, liberal view is required to be taken as necessarily the claim is bound to be carefully scrutinized both on facts and in law. Full probe and appraisal is natural and normal. Threat of penalty cannot become a gag and/ or haunt an assessee for making a claim which may be erroneous or wrong, when it is made during the course of the assessment proceedings. Normally, penalty proceedings in such cases should not be initiated unless there are valid or good grounds to show that factual were provided in the computation. Law does not bar or prohibit a person from making a claim, when he knows the matter is going to be examined by the Assessing Officer.”
17. Hon’ble Supreme Court in a case cited as Reliance Petro Products Pvt. Ltd. (supra) decided the identical issue in favour of the assessee. Operative part of which is reproduced for ready reference as under :-
“A glance at the provisions of section 271(1)(c) of the I. T. Act, 1961 suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word “particulars” used in section 271(1)(c) would embrace the detail of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous.
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 to furnishing inaccurate particulars.”
18. In view of what has been discussed above, we are of the considered view that AO/CIT (A) have erred in levying/confirming the penalty of Rs.52,83,477/- which is not sustainable in the eyes of law, hence ordered to be deleted. Consequently, the appeal filed by the assessee is hereby allowed.
Order pronounced in open court on this 27th day of April, 2018.