INCOME
TAX APPELLATE TRIBUNAL - DELHI - M/S. VASHULINGA FINANCE PVT. ... VS ITO, NEW
DELHI ON 13 SEPTEMBER, 2019
Summarised Judgement
Grounds of Appeal - The ld. CIT(A) has erred on facts and in law
in confirming the penalty imposed by ld. AO u/s 271(1)(c) for a sum
Rs.7,36,512/-
On the basis of assessment order framed under
section 143 (3) of the Income-tax Act, 1961 (for short 'the Act') at an income of
Rs.20,17,610/- by way of making disallowance of Rs.19,70,000/- on account of
claiming excessive bad debts written off, the penalty proceedings were
initiated under section 271(1)(c) of the Act. Assessing Officer (AO) levied the
penalty to the tune of Rs.7,36,512/- @ 100% of the tax sought to be evaded.
Feeling aggrieved, the assessee has come up
before the Tribunal by way of filing the present appeal.
Decision - We are of the considered view that
when the notice issued by the AO is bad in law being vague and ambiguous having
not specified under which limb of section 271(1)(c) of the Act, the penalty
proceedings initiated u/s 271(1)(c) are not sustainable. Even the AO has failed
to apply his mind at the time of recording satisfaction at the time of framing
assessment to initiate the penalty proceedings u/s 271(1)(c) of the Act as to
under which limb of section 271(1)(c) i.e. for concealing particulars of income
or furnishing inaccurate particulars of such income, penalty proceedings have
been initiated rather written vague and ambiguous satisfaction recorded that,
"penalty proceedings u/s 271(1)(c) are initiated". So, initiating
penalty proceedings on the basis of vague and ambiguous satisfaction rather
"no satisfaction" are bad in law and as such not sustainable.
Apart from the discussion made in the preceding
paras, we have noticed that no addition whatsoever has been made in the
assessment order rather while initiating the penalty proceedings, AO assumed
the addition and has levied the penalty which is otherwise not sustainable in
the eyes of law.
Consequently, penalty levied by the AO and
confirmed by the ld. CIT (A) is deleted and the appeal filed by the assessee is
hereby allowed.
======================================
Complete Judgement
INCOME
TAX APPELLATE TRIBUNAL – DELHI
M/S.
VASHULINGA FINANCE PVT. ... VS ITO, NEW DELHI ON
13
SEPTEMBER, 2019
BEFORE SHRI KULDIP
SINGH, JUDICIAL MEMBER
and
SHRI PRASHANT MAHARISHI,
ACCOUNTANT MEMBER
ITA No.2550/Del./2016
(ASSESSMENT YEAR : 2011-12)
M/s. Vashulinga Finance
Pvt. Ltd., vs. ITO, Ward 17 (2),
1004, Chiranjiv Towers, New Delhi.
43, Nehru Place,
New Delhi - 110 019.
(PAN : AABCV4461G)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri K.P.
Garg, CA
REVENUE BY : Ms. Naina
Soin Kapil, Senior DR
Date of Hearing : 27.08.2019
Date of Order : 13.09.2019
ORDER
PER KULDIP SINGH,
JUDICIAL MEMBER :
Appellant, M/s. Vashulinga Finance Pvt. Ltd. (hereinafter
referred to as the 'assessee') by filing the present appeal sought to set aside
the impugned order dated 08.02.2016 passed by the Commissioner of Income - tax
(Appeals)-9, New Delhi qua the assessment year 2011-12 on the grounds inter
alia that :-
"1. The ld. CIT(A) has erred on facts and
in law in confirming the penalty imposed by ld. AO u/s 271(1)(c) for a sum
Rs.7,36,512/-.
2. The ld. CIT(A) has erred on facts and in law
in dismissing the legal grounds that no valid and proper notice had been issued
u/s 274 initiating the penalty proceedings u/s 271(1)(c).
3. The ld. CIT(A) has erred on facts and in law
in dismissing in sub-silentio the legal grounds of the assessee that the
penalty proceedings in the absence of recording proper satisfaction is contrary
to law and void ab-initio.
4. The ld. CIT(A) has erred on facts and in law
in holding that the ITO is not required to record any satisfaction which is
discernible.
5. The ld. CIT(A) has erred on facts and in law
in holding that proper opportunity was granted by AO as is clear from the
penalty order.
6. The Id. CIT(A) has erred on facts and in law
in stating that the assessee had deliberately claimed excess bad debts and
furnished inaccurate particulars and as such holding that penalty is exigible on
the facts and circumstances of the case."
2. Briefly stated the facts necessary for
adjudication of the issue at hand are : On the basis of assessment order framed
under section 143 (3) of the Income-tax Act, 1961 (for short 'the Act') at an
income of Rs.20,17,610/- by way of making disallowance of Rs.19,70,000/- on
account of claiming excessive bad debts written off, the penalty proceedings
were initiated under section 271(1)(c) of the Act. Declining the contentions
raised by the assessee, Assessing Officer (AO) levied the penalty to the tune
of Rs.7,36,512/- @ 100% of the tax sought to be evaded.
3. Assessee carried the matter by way of an
appeal before the ld. CIT (A) who has confirmed the penalty by dismissing the
appeal. Feeling aggrieved, the assessee 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, the assessee has debited an
amount of Rs.78,80,000/- to profit & loss account against the bad debts
written off, however while computing the total income the assessee has added
this income to total income and deducted an amount of Rs.19,70,000/- as bad
debts. It is also not in dispute that the penalty has been levied by the AO u/s
271(1)(c) of the Act on the ground that while computing taxable income,
assessee had made excessive claim of Rs.19,70,000/- in order to reduce tax
liability, thus willfully claimed excessive bad debts written off.
6. In the backdrop of the aforesaid facts and
circumstances of the case, order passed by the lower authorities and arguments
addressed by the authorized representatives of both 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?"
7. Ld. AR for the assessee contended that in
order to initiate the penalty proceedings, the AO has failed to specify in the
show-cause notice issued u/s 271(1)(c)/274 of the Act if the assessee has
concealed the particulars of income or has furnished inaccurate particulars of
income and relied upon the decisions of Hon'ble Karnataka High Court in case of
CIT vs. Manjunatha Cotton and Ginning Factory-359ITR 565, CIT vs. SSA's Emerala
Meadows -73 taxmann.com 241 (Kar.) (Revenue's SLP dismissed in 242 taxman 180)
and Hon'ble High Court of Delhi in Pr. CIT vs. Sahara India Life Insurance
Company Ltd. in ITA 475/2019 order dated 02.08.2019.
8. In order to proceed further, we would like to
peruse the notice issued by AO u/s 274 read with section 271(1)(c) of the Act
to initiate the penalty proceedings which is extracted as under for ready
perusal:-
"NOTICE UNDER SECTION 274 READ WITH SECTION
271 OF THE INCOME TAX ACT, 1961.
Income Tax Office, New Delhi.
Dated: 21.03.2014 To M/s Vashulinga Finance P.
Ltd.
1004, Chiranjiv Tower, 43, Nehru Place, 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 9.4.2014 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 representatives you may show cause in writing on or before the said date
which will be considers before any such order is made under section
271. Sd/-
Assessing Officer, Income-tax Officer, Ward 17
(2), New Delhi."
9. Bare perusal of the notice issued u/s 274
read with section 271(1)(c) of the Act, extracted above, in order to initiate
the penalty proceedings against the assessee goes to prove that the AO himself
was not aware / sure as to whether he is issuing notice to initiate the penalty
proceedings either for "concealment of particulars of income" or
"furnishing of inaccurate particulars of such income" by the assessee
rather issued vague and ambiguous notice by incorporating both the limbs of
section 271(1)(c). When the charge is to be framed against any person so as to
move the penal provisions against him/her, he/she is required to be
specifically made aware of the charges to be leveled against him/her.
10. Hon'ble High Court of Karnataka in case of
CIT vs. Manjunatha Cotton and Ginning Factory (supra) while deciding the
identical issue held that when the AO has failed to issue a specific show-cause
notice to the assessee as required u/s 274 read with section 271(l)(c), penalty
levied is not sustainable. The operative part of the judgment is reproduced as
under:-
"59. As the provision stands, the penalty
proceedings can be initiated on various ground set out therein. If the order
passed by the Authority categorically records a finding regarding the existence
of any said grounds mentioned therein and then penalty proceedings is
initiated, in the notice to be issued under Section 274, they could
conveniently refer to the said order which contains the satisfaction of the
authority which has passed the order. However, if the existence of the
conditions could not be discerned from the said order and if it is a case of
relying on deeming provision contained in Explanation 1 or in Explanation 1
(B), then though penalty proceedings are in the nature of civil liability, in
fact, it is penal in nature. In either event, the person who is accused of the
conditions mentioned in Section 271 should be made known about the grounds on
which they intend imposing penalty on him as the Section 274 makes it clear
that assessee has a right to contest such proceedings and should have full
opportunity to meet the case of the Department and show that the conditions
stipulated in Section 271 (1)( c) do not exist as such he is not liable to pay
penalty. The practice of the Department sending a printed form where all the
ground mentioned in Section 271 are mentioned would not satisfy requirement of
law when the consequences of the assessee not rebutting the initial presumption
is serious in nature and he had to pay penalty from 100% to 300% of the tax
liability. As said provisions have to be held to be strictly construed, notice
issued under Section 274 should satisfy the grounds which he has to meet
specifically. Otherwise, principles of natural justice is offended if the show
cause notice is vague. On the basis of such proceedings, no penalty could be
imposed on the assessee.
60. Clause (c) deals with two specific offences,
that is to say, concealing particulars of income or furnishing inaccurate
particulars of income. No doubt, the facts of some cases may attract both the
offences and in some cases there may be overlapping of the two offences but in
such cases the initiation of the penalty proceedings also must be for both the
offences. But drawing up penalty proceedings for one offence and finding the
assessee guilty of another offence or finding him guilty for either the one or
the other cannot be sustained in law. It is needless to point out satisfaction
of the existence of the grounds mentioned in Section 271(1)(c) when it is a
sine qua non for initiation or proceedings, the penalty proceedings should be
confined only to those grounds and the said grounds have to be specifically
stated so that the assessee would have the opportunity to meet those grounds.
After, he places his version and tries to substantiate his claim, if at all,
penalty is to be imposed, it should be imposed only on the grounds on which he
is called upon to answer. It is not open to the authority, at the time of
imposing penalty to impose penalty on the grounds other than what assessee was
called upon to meet. Otherwise though the initiation of penalty proceedings may
be valid and legal, the final order imposing penalty would offend principles of
natural justice and cannot be sustained. Thus once the proceedings are
initiated on one ground, the penalty should also be imposed on the same ground.
Where the basis of the initiation of penalty proceedings is not identical with
the ground on which the penalty was imposed, the imposition of penalty is not
valid. The validity of the order of penalty must be determined with reference
to the information, facts and materials in the hands of the authority imposing
the penalty at the time the order was passed and further discovery of facts
subsequent to the imposition of penalty cannot validate the order of penalty
which, when passed, was not sustainable.
61. The Assessing Officer is empowered under the
Act to initiate penalty proceedings once he is satisfied in the course of any
proceedings that there is concealment of income or furnishing of inaccurate
particulars of total income under clause
(c). Concealment, furnishing inaccurate
particulars of income are different. Thus the Assessing Officer while issuing
notice has to come to the conclusion that whether is it a case of concealment
of income or is it a case of furnishing of inaccurate particulars. The Apex
Court in the case of T Ashok Poi v. CIT [2007] 292 ITR 11 /161 Taxman 340 at
page 19 has held that concealment of income and furnishing inaccurate
particulars of income carry different connotations. The Gujarat High Court in
the case of CIT v. Manu Engg. [1980] 122 ITR 306 and the Delhi High Court in
the case of CIT v. Virgo Marketing (P) Ltd. [2008] 171 Taxman 156, has held
that levy of penalty has to be clear as to the limb for which it is levied and
the position being unclear penalty is not sustainable. Therefore, when the
Assessing Officer proposes to invoke the first limb being concealment, then the
notice has to be appropriately marked. Similar is the case for furnishing
inaccurate particulars of income. The standard proforma without striking of the
relevant clauses will lead to an inference as to non-application of mind.
"
11. Hon'ble Apex Court in case of CIT vs. SSA's
Emerala Meadows - (2016) 73 taxmann.com 248 (SC) while dismissing the SLP filed
by the Revenue quashing the penalty by the Tribunal as well as Hon'ble High
Court on ground of unspecified notice has held as under:-
"Section 274, read with section 271(1)(c),
of the Income-tax Act, 1961 - Penalty - Procedure for imposition of (Conditions
precedent) - Assessment year 2009-10 - Tribunal, relying on decision of
Division Bench of Karnataka High Court rendered in case of CIT v. Manjunatha
Cotton & Ginning Factory [2013] 359 1TR 565/218 Taxman 423/35 taxmann.com
250, allowed appeal of assessee holding that notice issued by Assessing Officer
under section 274 read with section 271 (1 )(c) was bad in law, as it did not
specify under which limb of section 271 (1 )(c) penalty proceedings had been
initiated, i.e., whether for concealment of particulars of income or furnishing
of inaccurate particulars of income - High Court held that matter was covered
by aforesaid decision of Division Bench and, therefore, there was no
substantial question of law arising for determination - Whether since there was
no merit in SLP filed by revenue, same was liable to be dismissed - Held, yes
[Para 2] [In favour of assessee]"
12. Hon'ble Delhi High Court in case of Pr. CIT
vs. Sahara India Life Insurance Company Ltd. (supra) while deciding the
identical issue held as under :-
"21. The Respondent had challenged the
upholding of the penalty imposed under Section 271 (1) (c) of the Act, which
was accepted by the ITAT. It followed the decision of the Karnataka High Court
in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar) and
observed that the notice issued by the AO would be bad in law if it did not
specify which limb of Section 271(1) (c) the penalty proceedings had been
initiated under i.e. whether for concealment of particulars of income or for
furnishing of inaccurate particulars of income. The Karnataka High Court had
followed the above judgment in the subsequent order in Commissioner of Income
Tax v. SSA's Emerald Meadows (2016) 73 Taxman.com 241 (Kar) , the appeal
against which was dismissed by the Supreme Court of India in SLP No. 11485
of2016 by order dated 5th August, 2016."
13. Following the decisions rendered in the
cases of CIT vs. Manjunatha Cotton and Ginning Factory, CIT vs. SSA's Emerala
Meadows and Pr. CIT vs. Sahara India Life Insurance Company Ltd. (supra), we
are of the considered view that when the notice issued by the AO is bad in law
being vague and ambiguous having not specified under which limb of section
271(1)(c) of the Act, the penalty proceedings initiated u/s 271(1)(c) are not
sustainable. Even the AO has failed to apply his mind at the time of recording
satisfaction at the time of framing assessment to initiate the penalty
proceedings u/s 271(1)(c) of the Act as to under which limb of section
271(1)(c) i.e. for concealing particulars of income or furnishing inaccurate
particulars of such income, penalty proceedings have been initiated rather
written vague and ambiguous satisfaction recorded that, "penalty
proceedings u/s 271(1)(c) are initiated". So, initiating penalty
proceedings on the basis of vague and ambiguous satisfaction rather "no
satisfaction" are bad in law and as such not sustainable.
14. Apart from the discussion made in the
preceding paras, we have noticed that no addition whatsoever has been made in
the assessment order rather while initiating the penalty proceedings, AO
assumed the addition and has levied the penalty which is otherwise not
sustainable in the eyes of law. Consequently, penalty levied by the AO and
confirmed by the ld. CIT (A) is deleted and the appeal filed by the assessee is
hereby allowed.
Order pronounced in open court on this 13th day
of September, 2019.
Order pronounced in open court on this 13th day
of September, 2019.
No comments:
Post a Comment