IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : "B" NEW DELHI
BEFORE SHRI J.SUDHAKAR REDDY, AM
AND SHRI GEORGE GEORGE K, JM
ITA No. 1036/Del/2013
AY :- 1997-98
M/s. Fortune Ploymers Industries Pvt.Ltd. vs. DCIT, Circle 11(1)
C Block, G 4, Community Centre New Delhi
Naraina Vihar
New Delhi
PAN: AAACF 0355 Q
(Appellant) (Respondent)
Assessee by : Shri Raj Kumar Gupta,
Sh. Satish Aggarwal, CAs
Department by: Smt.Parwinder Kaur, Sr. D.R.
ORDER
PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER
This is an appeal filed by the Assessee and is directed against the
order dated 15.01.2013 of Ld.CIT(A)-XIII, New Delhi pertaining to the AY
1997-98.
2. Facts in brief:- The assessee is a company incorporated in July, 1988. It
was engaged in the business of manufacturing of PVC Water Storage Tanks.
The manufacturing facility was constituted at Plot no.6B, Site B, Surajpur,
Greater Noida, U.P. The company was financed by U.P. Financial
Corporation (hereinafter called UPFC) and Pradeshiya Industrial and
Investment Corporation of U.P. (hereinafter called PICUP).
2.1. On 28.7.1995, the assessee was taken over by UPFC for failure to
clear dues. On 13.12.1996, reference was filed u/s 15(1) of the Sick
Industrial Companies Act, for declaring the assessee as a sick company. On
18.3.1997 BIFR declared the assessee as a sick company. Thereafter on
30.11.1997 the assessee filed a return for losses. On 23rd Feb.2000 the
ITA No. 1036/Del/2013
AY 1997-98
Fortune Polymers Industries Pvt.Ltd.
Board of Industrial and Financial Reconstruction (BIFR) ordered for winding
up. Just before passing the order of winding up the AO passed order u/s
143(3) on 10th Feb.2000 determining the assessed income at `nil'.
Thereafter penalty was levied u/s 271(1)© on deemed income of Rs.
3,90,43,136/- being loss claimed and disallowed.
2.2. On 14th Feb.,2001 the Hon'ble Delhi High Court appointed an official
liquidator. On 31.10.2002, the Ld.CIT(A) dismissed the appeal of the
assessee filed against the order of the AO passed u/s 143(3), ex parte. On
25.3.2003 the official liquidator vide letter dt. 25.3.2003 informed the AO
that the Hon'ble Delhi High Court vide order dt. 16.4.2001, directed the
official liquidator not to take any further steps, pursuant to the Court Order
dt. 14.2.2001 and hence no reply is filed by the official liquidator before the
AO. The Advocate of the assessee company had also informed the AO that
the company is in liquidation.
2.3. The AO passed an ex parte penalty order on 27.5.2003 u/s 271(1)©
and instead of serving the same on official liquidator, the AO served the
same on the assessee. The assessee on 5.6.2003 passed on the penalty
order to the official liquidator with the request to take necessary action, as
he was the competent authority. The official liquidator did not take any
action.
2.4. On 15.12.2004, the final winding up order was passed and regular
official liquidator appointed. On 1.1.2005 the main director of the assessee
company who looked after all the affairs, Shri RK Srivastav, passed away,
after prolonged illness from 1999 to 2004 due to transplantation of kidney.
2.5. On 18.11.2009 the assessee received a demand notice from the
department dt. 4.5.2006 through the official liquidator, vide letter dt.
18.9.2009. Thereafter the assessee filed an appeal before the First Appellate
Authority against the order of penalty passed by the AO u/s 271(1)© of the
Act with a delay of 2565 days.
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3. The Ld.CIT(A) dismissed the appeal of the assessee both on the
ground that the delay and on merits. He held that the assessee has not
shown any reasonable cause and hence he refused to condone the delay.
The Ld.CIT(A) also considered the arguments of the assessee on merits and
came to a conclusion that the loss claimed by the assessee was not genuine
and was claimed to defraud the interest of the Revenue.
3.1. Aggrieved the assessee is before us.
4. The Ld.Counsel for the assessee Mr.Raj Kumar Gupta submitted that
the Ld.CIT(A) was wrong in not condoning the delay in filing of the appeal.
He submitted that the delay in this case can be broken up into two parts
the first part is the delay of 2367 days which is attributable to the action of
the official liquidator. He pleaded that the assessee was under a bonafide
impression that the appeal must have been filed by the official liquidator.
He vehemently contended that the official liquidator is the competent
authority and the latches on his part cannot be fastened on the assessee.
On the second part he submitted that the assessee got the information that
the penalty has been demanded, when the official liquidator forwarded a
demand notice, to the assessee on 18.11.2009 and after 198 days the
assessee filed the appeal. He submits that after excluding 30 days allowed
for filing the appeal, the balance period of delay would be 180 days which
has to be explained.
4.1. He further submitted that, the only working and active Director of the
company was Shri RK Srivastav who died on 1.1.2005 after prolonged
illness from 1999 to 2004, and has left behind, his wife Smt.Rekha
Srivastava, who was a house wife and who is a stranger to income tax. He
submitted that Smt.Rekha Srivastav took time to understand the issue that
led to demand notice and thereafter she had to collect all the relevant
papers, as the books of accounts etc. were impounded by the AO during the
assessment proceedings on 27.1.2000 and as the balance of records/books
were taken by the official liquidator of the High Court vide order dt.
14.1.2001. He submitted that the assessee company closed its operations
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AY 1997-98
Fortune Polymers Industries Pvt.Ltd.
in 1997-98 and it had no staff, no office or activity or liquidity, which state
of affairs continues till date. He pleaded that the widow of the Director, after
taking huge efforts, could file this appeal before the First Appellate Authority
and under those circumstances there was a reasonable cause for delay and
the first appellate authority should have condoned the delay. He relied on a
number of case laws in support of his proposition. We would be dealing
with them during the course of our finding.
4.2. On merits Mr.Rajkumar Gupta submitted that the assessee's
turnover/total revenue receipts, during the year was only Rs.4,79,391/- and
against this a huge penalty of Rs.1.66 crores has been levied. He submitted
that a perusal of the assessment order demonstrates that the AO has not
dealt with the objections of the assessee, nor did he give any reasons for
determining the income at `nil'. He submitted that the assessment order
was passed in a summary manner, on the ground that there are certain
mismatch in figures, as per balance sheet, profit and loss a/c vis-à-vis
books of accounts and made a deemed addition of Rs.3,90,43,136/-. He
submitted that as the assessee company was in liquidation, the return of
income was filed based on a provisional balance sheet and there after the
auditors of the assessee company opined that certain expenditure is not
allowable and under those circumstances variation in claim had occurred.
He submitted that the assessee had given detailed explanation before the AO
on these variations and the AO has not looked into the item wise
explanations provided. He submitted that the assessment order was made
on pure guess work, not specifying any undisclosed income or concealed
income.
4.3. His submissions are mainly three fold (i) penalty cannot be levied on
additions made on estimate basis; (ii) no penalty can be levied if the AO has
not considered the explanation offered at the stage of assessment
proceedings, inspite of the fact that it was available with him before the
imposition of penalty; (iii) penalty cannot be levied on deemed income; (iv)
the AO should be clear as to whether the penalty in question is levied for
concealment of income or on the charge that the assessee has furnished
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Fortune Polymers Industries Pvt.Ltd.
inaccurate particulars of income; (v) without prejudice, if it is to be
considered, that the penalty is to be levied on the charge of concealing of
particulars of income, based on the notings in the assessment order. Then,
there is no undisclosed income that has been a subject matter of addition.
It was submitted that the difference between the returned income and the
assessed income is not on account of finding of assessee having any
concealed income. Reliance was placed on a number of case laws which are
as under :-
i) Sangrur Vansspati Mills Ltd. 171 Taxmann 320 (P & H)
ii) CIT vs. Krishi Tyre Retreading & Rubber Industries 263 CTR
(Raj.) 484
iii) Ajaib Singh & Co. 253 ITR 630 (P&H)
iv) CIT vs. P. Govindasmay 263 ITR 509 (Mad.)
v) CIT vs. G.R. Rajendran 259 ITR 109 (Mad.)
vi) CIT vs. Pushpendra Suran 264 CTR (Raj) 204
vii) CIT vs. Baroda Tin Works 221 ITR 661 (Guj.)
viii) New Sorathia Engg. Co. vs. CIT 282 ITR 642 (Guj.)
5. Ld. D.R. Smt.Parminder Kaur, on the other hand opposed the
contentions of the assessee. She submitted that perusal of the assessment
order demonstrates that, the assessee admitted and filed a revised return of
income, recomptuing the loss at Rs.34,72,540/-. She argued that the
variation between the loss declared in the original return of income at
Rs.3,90,43,136/- and the revised return of income is huge and points out to
the fact that the assessee had concealed its income. She submitted that the
assessee had not heeded to the advice of its auditors and has claimed
certain expenses which were rightly disallowed by the AO though the
assesssee had filed the revised return of income. She specifically took this
Bench through para 6 of the Ld.CIT(A)'s order at page 11.
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5.1. On the issue of condonation of delay she relied on the order of the
First Appellate Authority and submitted that the second limb of the delay of
198 days was beyond reasonable cause. She argued that Courts have laid
down that every day delay has to be explained. She argued that the Director
of the appellant company was alive during passing of the penalty order and
even after his death the appeal has been filed after a long gap.
6. In reply the Ld.Counsel for the assessee submitted that the suggestion
of an auditor is only an opinion and the assessee is not bound by the same.
He further submitted that the AO rejected the revised return on the ground
that it is non-est in law. He reiterated that the company was sick and the
return of income was filed based on provisional balance sheet and accounts
and thereafter, when the auditors said that certain expenses claimed
cannot be allowed on technical grounds, due cognizance was taken of these
observations and a revised return of income was filed in a fair manner.
7. Rival contentions heard. On a careful consideration of the facts and
circumstances of the case, on perusal of orders of authorities below,
material placed on record and case laws cited, we hold as follows.
8. The Ld.CIT(A) at para 2 page 3 has rejected the plea of the assessee
for condonation of delay in filing of the appeal before him on the following
grounds.
a. The assessee was aware of the penalty proceedings as the order was
served on him;
b. The main Director of the assessee company Shri RK Srivastav was
alive during the passing of penalty order. He died on 1.1.2005.
c. Even after the death of the main Director the appeal has been filed
after a gap of 5 yrs-6 months, for which no explanation is given by the
assessee;
d. The assessee has not shown any cogent reason for filing the appeal
with delay, except the sickness of Shri RK Srivastav.
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8.1. In our view these findings of the First Appellate Authority are not
factually correct for the following reasons.
8.2. The assessee company was declared a sick company on 23.2.2000,
where the BIFR ordered its winding up. On 14th Feb.2001 the Hon'ble Delhi
High Court appointed an official liquidator. This fact was informed to the
AO. The AO passed an ex parte penalty order on 27.5.2003. He has not
served this penalty order on the official liquidator, who is the competent
authority. Instead he served the penalty order on the assessee company,
which in turn informed the official liquidator and requested the official
liquidator to take necessary action. This act of the company shows its
bonafide. Under the circumstances, the fact that Shri RK Srivastav was
alive during the passing of the penalty order, is not a relevant circumstance
as he could not have filed an appeal against the penalty order. The
company had in our view acted in a diligent and bonafide manner and
communicated the fact of passing of a penalty order to the official liquidator
with the request for further action. When the official liquidator, who is the
competent authority in this case, does not take any action the asseseee
cannot be blamed.
The undisputed fact is that the main Director of the company Shri RK
Srivastav fell sick in 1998 and developed severe diabetes and heart
problems and ultimately passed away on 1.1.2005. He was survived by his
wife, who is a housewife and who was not knowing the affairs of the
company.
8.3. The Ld.CIT(A) further observes that after the death of Mr. Srivastava
5y-6m has elapsed, before filing of the appeal and the assessee has not
given any cogent reasons to explain the delay. This conclusion of the
Ld.CIT(A) is also wrong for the reason that a regular official liquidator was
appointed by the Hon'ble Delhi High Court on 15.12.2004 and it was the
official liquidator who was competent to file an appeal. Thus, this ground
taken by the First Appellate Authority to refuse the condonation of delay is
untenable.
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8.4. In our view, when the company is under liquidation, and when any
official liquidator was appointed and was in charge of the affairs of the
company, he should have filed the appeal and perused the matter. We are
of the view that the contention of the assessee that it was under a bonafide
belief, that the appeal would have been filed by the official liquidator, is
correct.
8.5. The official liquidator passed on the letter of demand sent by the AO
to the assessee vide letter dt. 18.11.2009. At that point of time the
Company's affairs were being taken care of by Smt.Rekha Srivastav, the wife
of Late Shri RK Srivastav. Admittedly she is a house wife and unaware of
the complexities of the Income Tax law. She had to collect information and
papers. The books of accounts of the assessee were impounded by the AO
and were still lying with him. The balance records/books were with the
official liquidator. There is no active Directors in the company. The
company was sick and has no business from the AY 1997-98. Under these
circumstances we are of the considered opinion that the assessee was
prevented from sufficient cause in filing the appeal in time before the First
Appellate Authority and under those circumstances, the delay in question is
to be condoned.
8.6. The ITAT "C" Bench of Ahmedabad in ITA no.954/Ahmd./2009 for the
AY 2003-04 vide order dt. 14.10.2011 had considered in a similar case, at
para 6 page 8 held as follows.:
"6. We have considered the rival submissions and material on record.
It is not a disputed fact that the assessee went in liquidation at the
initial stage because of the order passed by the Hon'ble Gujarat High
Court and the Official Liquidator was appointed in the matter. The AO
framed the assessment in the name of the Official Liquidator attached
to the assessee company and ultimately after various rounds of
litigations and taking steps in the matter winding up was set aside by
the Hon'ble Gujarat High Court in January, 2008. These facts were
sufficient to hold that the assessee was prevented from sufficient cause
from preferring the appeal in time before the Tribunal. Since the
existence of the assessee was in liquidation before the Hon'ble Gujarat
High Court, therefore, the assessee could not have moved the appeal for
the purpose of filing appeal before the Tribunal. Considering the facts
and circumstances and the documents placed on record, we have to
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take pragmatic and liberal approach while condoning the delay in the
matter."
8.7. In view of the above discussion, we are of the view that the Ld.CIT(A)
should have condoned the delay in filing of the appeal before him. In the
result we allow ground nos. 2 and 3 of the assessee and condone the said
delay in filing of the appeal before the Ld. CIT(A).
8.8. Ground nos.4 and 5 are on merits.
8.9. A perusal of the assessment order demonstrates that it has been
passed in a cursory and summary manner, de hors of any detail, except for
mentioning that certain figures had not tallied, no analysis whatsoever or
reasons leading to the disallowance, are given by the AO. AO simply says
that the assessee has filed reply explaining the discrepancies but does not
give any reason as to why the explanation cannot be accepted. Nowhere in
the penalty order the charge on which penalty is being levied has been
specified. Such an assessment, in our view cannot be a basis for levy of
penalty u/s 271(1)(C).
8.10. The Hon'ble Jurisdictional High Court in New Holland Tractors India
(P) Ltd. Vs. CIT in ITA 182/2002 judgement dt. 25th September,2014 at para
26 observed as follows.
"26. The word `conceal' inherently and per se refers to an element of
mens rea, albeit the expression furnishing of inaccurate particulars is
much wider in scope. The word `conceal' implies intention to hide an
item of income or a portion thereof. It amounts to suppression of truth
or a factum so as to cause injury to the other. (See CIT vs.
A.Subramania Pillai (1997) 226 ITR 403 (Mad). The word `conceal'
means to hide or to keep secret. As held in Law Lexicon, the said word
is derived from the latin word `concelare' which implies `con' and
`celare' to hide. It means to hide or withdraw from observation, to cover
or keep from sight, to prevent discovery of, to withhold knowledge of.
The word `inaccurate' in Webster's Dictionary has been defined as `not
accurate, not exact or correct, not according to truth, erroneous, as
inaccurate statement, copy or transcript.' The word `particular' means
detail or details of a claim or separate items of an account (See CIT vs.
Reliance Petroproducts Pvt.Ltd. (2010) 322 ITR 158 (SC). Thus the
words furnished inaccurate particulars is broader and would refer to
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inaccuracy which would cause under declaration or escapement of
income. It may refer to particulars which should have been furnished or
were required to be furnished or recorded in the books of accounts etc.
(see CIT vs. Raj Trading Co. (1996) 217 ITR 208 (Raj.) Inaccuracy or
wrong furnishing of income would be covered by the said expression,
though there are decisions that adhoc addition per se without other or
corroborating circumstances may not reflect furnished inaccurate
particulars. Lastly, at times and it is fairly common, the charge of
concealment and furnishing of inaccurate particulars may overlap."
8.11 The Hon'ble Karnatak High Court in the case of CIT vs. Manjunatha
Cotton and Gining Factory , Manjunatha Ginning and Pressing,
Veerabhadrappa Sangappa and Co., V.S. Lad and Sons, G.M. Exports (2013)
359 ITR 565 (Karn) in ITA Nos. 2564 of 2005, 2565 of 2005, 5020 of 2009,
5022 and 5023 of 2009, 5025 and 5026 of 2010 judgment dated 13th
December, 2012 concluded 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) Wilful 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) Even 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 l1(A)
and (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(1)(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.
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(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 passed.
(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 ambiguity.
(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 law.
(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 insofar 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
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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 aS7essmen or reassessment
cannot be declared as invalid in the penalty proceedings."
8.12. As stated the AO has passed the order in a summary manner, without
specifying the grounds of disallowance, item wise. The AO has also not
specified the charge on which penalty is being levied. The explanation given
by the assessee, during the course of assessment proceedings, explaining
the variation between the provisional books and the audited records, were
not considered by the AO. Under these facts and circumstances, applying
the proposition laid down in the case law referred above, we hold that the
penalty levied cannot be sustained. Hence we quash the order levying
penalty u/s 271(1)(c) and allow the appeal of the assess.
9. In the result the appeal by the assessee is allowed.
Order pronounced in the Open Court on 16th January, 2015.
Sd/- Sd/-
(GEORGE GEORGE K) (J.SUDHAKAR REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: the 16th January, 2015
*manga
Copy of the Order forwarded to:
1.Appellant;
2.Respondent;
3.CIT;
4.CIT(A);
5.DR;
6.Guard File
By Order
Asst. Registrar
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