Referred Sections:
Section 94(7) of the I.T. Act.
Section 271(1) of the Act,
Section 274
Sections 2710 and 271E of the Act.
Section 275 of the Act.
Section 133A
Referred Cases / Judgments:
CIT Vs SSA's Emerald Meadows [2016] 73 Taxmann.Com 248 (SC)/[2016] 242 Taxman 180 (SC)
Sundaram Finance Ltd. Vs CIT [2018] 93 taxmann.com 250 (Madras)/[2018] 403 ITR 407 (Madras)
CIT Vs Smt. Kaushalya [1994] 75 Taxman 549 (Bombay)/[1995] 216 ITR 660
Trimurti Engineering Works Vs ITO [2012] 25 taxmann.com 363 (Delhi)/[2012] 138
Hybrid Rice International Pvt.Ltd. Vs elT (ITA no. 285/De1/2007)
CIT vs. Manjunatha Cotton and Ginning Factory and others (2013) 359 ITR 565
Earthmoving Equipment Service Corporation Vs DCIT
DCIT Vs Shah Rukh Khan [2018] 93 taxmann.com 320 (Mumbai - Trib.)
Dhanraj Mills Pvt. ltd. Vs ACIT ITA NOs.3830 & 3833/Mum/2009
CIT vs Gates Foam & Rubber Co [91 ITR 467]
CIT vs India Seafood [105 ITR 708]
Steel Ingots Ltd vs. CIT [296 ITR 228]
Trimurti Engineering Works vs. ITO 138 ITD189 (Delhi),
IN THE INCOME TAX APPELATE TRIBUNAL
DELHI BENCH "C": NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
AND
DR. B.R.R. KUMAR, ACCOUNTANT MEMBER
ITA No. 1469/Del/2019
A.Y. : 2015-16
HARISH KUMAR, (HUF), Vs. DCIT, CIRCLE 34(1),
5/21, SHANTI NIKETAN, NEW DELHI
NEW DELHI 110 021 ROOM NO. 804, 8TH FLOOR,
(PAN: AAAHH9496M) E-2 BLOCK, PRATYAKASH KAR
BHAWAN, CIVIC CENTRE,
NEW DELHI 110 002
(Appellant) (Respondent)
Assessee by : Sh. Naveen ND Gupta, CA & Sh. Ashu
Goel, CA
Department by : Sh. Amit Katoch, Sr. DR.
ORDER
PER H.S. SIDHU, JM
This appeal by the Assessee is directed against the Order dated
26.11.2018 of the Ld. Commissioner of Income Tax (Appeals)-12, New Delhi
pertaining to assessment year 2015-16.
2. The grounds of appeal raised in the assessee's appeal read as under:-
i) That the Hon'ble CIT(A) has erred on facts and in law in
confirming the penalty of Rs. 45,52,613/- u/s. 271(1)(c) of
the Income Tax Act, 1961 imposed by the AO without
appreciating the bonafide claim of inadvertent error of the
appellant.
ii) That the Ld. CIT(A) has erred on facts and in law in
confirming the finding of the AO that appellant had furnished
inaccurate particulars of income in respect of its inadvertent
omission of excluding the short term loss of Rs. 1,98,51,474/-
u/s. 94(7) of the I.T. Act though the computation of income
has promptly been revised during assessment proceedings
before any detection of the same by the AO.
iii) That the appellant craves the right to add or amend or
withdraw any ground of appeal at or before the time of
hearing of appeal.
3. Assessee has also filed the additional ground of appeal under Rule 11 of
the Income Tax (Appellate Tribunal) Rules, 1963 in the present appeal and
raised the ground no. 4 as additional ground of appeal and stated that the issue
raised by the assessee in the said additional ground of appeal involved the
question of law and hence, the same may be admitted in view of the judgment
of the Hon'ble Supreme Court of India in the case of NTPC Ltd. 229 ITR 383
(SC). For the sake of convenience, the legal ground raised by the assessee as
ground no. 4 is reproduced as under:-
"Ground No. 4
That the Ld. CIT(A) ought to have held that the Notice, Proceedings
and Order imposing penalty u/s. 271(1)(c) are bad in law being
contrary to facts, principles of natural justice, provisions of law and
judgments of courts in India."
4. The brief facts relating to the issue in dispute are that the assessee filed
its return of income declaring net taxable income at Rs. 35,29,470/- on
17.9.2015 for the assessment year 2015-16 which was processed on 29.7.2016
u/s. 143(1) of the Income Tax Act, 1961 (in short "Act"). The case of the
assessee was selected for limited scrutiny through CASS with identified issues
of `Long Term Capital Gains', `Business Loss', `Derivative (futures) transaction',
`Refund Claim' and `Securities Transaction' for examination. AO issued
statutory notice u/s. 143(2) of the Act on 19.9.2016/27.9.2016 which was
duly served upon the assessee. Subsequently, notice u/s. 142(1) of the Act
alongwith questionnaire was issued. In response to the same, the AR of the
assessee appeared and filed details as called for which have been examined
and placed on record.
4.1 The assessee is engaged in the business of trading in shares and
derivatives. During the year, the assessee has incurred a loss of Rs.
1,11,92,533/- from the business of trading in derivatives. Apart from that, the
2
assessee has adjusted Short Term Capital Loss of Rs. 31,15,27,183/- with
Long Term Capital Gain of Rs. 32,58,81,104/- from the sale of equities and
declared income of Rs. 1,45,53,921/- under the head `Income from Capital
Gains'. The assessee has also derived income of Rs. 3,68,077/- on account of
Interest from Savings Bank account and FDR. The assessee had also claimed
exemption of Rs. 19,24,70,893/- u/s. 10 of the Act. Accordingly, the total
income was declared at Rs. 35,29,470/- (rounded off u/s. 288A) in the return
of income.
4.2 On perusal of the ITS details, it was observed that the assessee was
having a large value of share transactions and incurring high loss. Therefore,
the assessee was asked to provide the complete details of all the unique
equities (ISIN) traded alongwith details of all unique sales. The assessee was
also asked to furnish the complete details of Short Term Capital Gain and Loss.
In response to the same, the AR of the assessee furnished the requisite details
in parts on different hearings. Further, on examination of the details of
exempt income. The AO also observed that the assessee had received dividend
from share of Rs. 19,24,70,893/- during the year. Therefore, in order to test
the affairs of the assessee on the fulfillment of criteria as laid down in /
touchstone of the provisions of section 94(7) of the Act, the assesee was issued
notice u/s. 142(1) of the Act on 7.12.2017 to furnish the details of all dividend/
bonus earned by the assessee in a specified format which the AO has
reproduced in the assessment order at page no. 2.
4.3 In response to the notice dated 7.12.2017 the AR of the assessee
appeared and furnished all the details as filed in the original return of income
and claimed Long Term Capital Gain. Again the AO asked to furnish the detail of
dividend /bonus in the requisite format and in response to the same the AR of
the assessee attended the hearing on 15.12.2017 and furnished the details vide
letter dated 15.12.2017 which the AO has reproduced in para no. 4.2 at page
no. 2 & 3 of the assessment order. On examination of the details filed by the
assessee in the prescribed format given by the AO with the notice u/s. 142(1)
3
of the Act dated 7.12.2017, the AO was of the view that the share were accrued
within the period of three months prior to record date and sold the securities
within 3 months of the record date. Thus the loss of Rs. 1,98,51,874/- is liable
to be ignored according to the provisions of section 94(7) of the I.T. Act.
However, the AR of the assessee in his reply vide letter dated 15.12.2015 has
himself acknowledged the mistake and offered for taxation duly filing the
revised computation of income. Keeping in view of the admission by the
assessee and filing the revised computation of income, the AO made the
disallowance of Rs. 1,98,51,874/- as per the provisions of section 94(7) of the
Act on account of dividend striping and completed the assessment u/s. 143(3)
of the Act and also imposed the penalty of Rs. 45,52,613/- for furnishing of
inaccurate particulars of income vide order dated 23.2.2018 passed u/s.
271(1)© of the Act. Against the penalty order dated 23.2.2018, assessee
appealed before the Ld. CIT(A), who vide his impugned order dated 26.11.2018
has dismissed the appeal of the assessee. Aggrieved with the impugned order
dated 26.11.2018, assessee is in appeal before the Tribunal.
5. During the hearing, Ld. Counsel for the assessee stated that the legal
issue raised, as reproduced above, by the assessee is purely question of law on
facts and all facts are on record and no new facts are to be brought on record.
He further submitted that this legal issue will go to the root of matter and is
crucial for determining the penalty liability of the assessee. Hence, he
requested that this additional legal ground may be admitted and may be
decided first. On the legal ground raised by the assessee i.e. ground no. 4,
Ld. Counsel for the assessee stated that the penalty in dispute has been
imposed u/s. 271(1)© of the Act at page 8 para 6 of penalty order concluding
that "the the assessee case is squarely covered by Explanation 1(B) to section
271(1) of the Act, since the assessee has failed to substantiate his explanation
& has also failed to prove that its explanation as noted above is banafide and
that all the facts relating to the same and material to the computation of its
total income have been disclosed by it. Hence, the AO was satisfied that the
4
assessee has filed inaccurate particulars of income. He further stated where
explanation 1(B) to section 271 (1) provides deeming provisions that where
assessee failed to substantiate its explanation & has also failed to prove its
explanation as noted above is bonafide and that all facts relating to same and
material to computation of total income have been disclosed by it, then it
would be deemed to represent income in respect of which particulars have been
"concealed". He draw our attention towards Circular No. 204 dated 24.07.1976
para 61.8 which provides that "New Explanation 1 which provides that where in
respect of any facts material the computation of his total income, an assessee
fails to offer an explanation or is unable to substantiate an explanation offered
by him or offers an explanation which is found to be false, the amount added
or disallowed in computing the total income of such person as a result thereof
will be treated as his concealed income". He further stated that Circular No.
204 dated 24.6.1976 is legally binding on the revenue and this legal binding
character attaches to the circular even if they are found not accordance with
the correct interpretation of the section. In support of this contention he cited
the decision in the case of UCO Bank 104 Taxmann 547 (SC). He further stated
that in view of the judgment of the Hon'ble Supreme Court of India in the case
of T Ashok Pai 292 ITR 11 (SC) it has been observed that "concealment of
income and furnishing inaccurate particulars of income carry different
connotation". He further stated that as per the ratio of Nepa Limited 58
Taxmann.com 137 (Indore) it has been observed that in case of furnishing of
inaccurate particulars of income, the onus is on the revenue to prove that
assessee has furnished inaccurate particular. Ld. Counsel for the assessee
finally argued that while levying penalty, AO relied upon Explanation 1 to
section 271(1)© even though he levied penalty for furnishing inaccurate
particulars of income. Therefore, the mandatory binding of Circular No. 204
dated 24.7.1976 specifying that explanation 1 to section 271(1)© is for
"concealment of income". Since the AO had issued notice for furnishing of
inaccurate particulars of income, it was AO who has to prove the onus that
5
assessee furnished inaccurate particulars whereas while invoking and relying
upon Explanation 1 to section 271(1)©, the AO has wrongly shifted the onus on
the assessee. Therefore, the AO is totally silent on the basis of the details as
to what particulars of income are found inaccurate, since the AO moved on
premises that since Explanation 1 is wrongly invoked therefore, it was
assessee's onus to prove all particulars are accurate. In the end he stated that
it is apparent from the provisions of section 271 (1)© that Explanation 1 is not
applicable in the case of furnishing of inaccurate particulars of income.
Therefore, the basis of penalty itself is not correct, in view of the decision in the
case of NEPA Ltd. 58 taxmann.com 137 (Indore). He requested that the legal
ground raised by the assessee may be allowed and the penalty in dispute may
be cancelled.
5.1 On the merits of the case, Ld. Counsel for the assessee stated that
assessee filed its return Income of Rs. 35,29,470/- with income from
investments i.e. dividends, capital gains and interest. He stated that AO taken
the return of for scrutiny u/s. 143(2) of the Act under CASS and not income
escaping based on the information on section 94(7) of the Act disallowance on
information based on AIR. He further stated as per page no. 9-11 of the paper
book, the AO has issued various notices u/s 143(2)/142(1) of the Act at pages
9 to 11 & order sheet at pages 12 to 16 of the Paper Book, the AO has not
made any enquiry for the disallowance in the case of the assessee u/s. 94(7) of
the Act. It was further submitted that AO on the basis of the query for dividend
income on 07.12.2017 issued a notice u/s. 142(1) and asked the assessee to
file the detail of all dividend / bonus income earned by the assessee in a
specified format. In compliance of the same on 13.12.2017 Ld. Counsel for
the assessee appeared and took adjournment for 15.12.2017 and examined all
details of dividend / bonus income and found that there is an inadvertent
clerical error committed by the Chartered Accountant and on the advice of
Senior Chartered Accountant, the assessee filed voluntary revised computation
of income wherein a Long Term Capital Gain (LTCG) of Rs. 14353921 has been
6
increased to Rs. 34205795 due to the disallowance of Rs. 19851974 u/s. 94(7)
of the Act at the first opportunity as soon as it came to the notice of the
assesee. Assessee has committed this mistake of furnishing of inaccurate
particulars in the return due to the inadvertent bonafide offer cited in the claim
due to the one entry by the accounts staff posted at wrong date due to huge
voluminous transactions and dividend coupons for dividend from same security
punched at one voucher i.e. entry of two dividend received on same security
(Rs. 1,98,51,874/- received on 28.1.2015 and Rs. 3,38,62,717/- received on
25.3.2015 made cumulatively on 26.3.2015 i.e. date of sale of investments
(26.3.2015) and receipt date of second dividend. AO has completed the
assessment on the basis of details furnished by the assessee. He further stated
that under the circumstances assessee has not concealed or has not filed any
inaccurate particulars of income. Assessee has paid voluntary paid taxes on
disallowance u/s. 94(7) and not filed the appeal against the assessment order
passed by the Assessing Officer. He further stated that assessee has not filed
any false claim and has not concealed any particulars of income or furnished
inaccurate particulars of income u/.s 271(1)© of the Act. He further stated
that the term "Particulars" means `Details'. Further it is held Terms "inaccurate
particulars" and "inaccurate claim" are not same, as such it is not a case of
furnishing inaccurate particulars since assessment finalized based on details
furnished by assessee and no finding in penalty order by the AO or CIT(A) that
any particulars furnished by assessee were wrong or particulars not furnished
rather it is a case of inaccurate claim due to inadvertent human error.
Therefore, he requested that penalty in dispute may be deleted in view of the
judgment of the Hon'ble Supreme Court of India in the case of Reliance Petro
Chemicals Ltd. 189 Taxman 322 (SC). In support of this contention assessee
has filed two paper books and written synopsis and various case laws.
6. On the contrary, Ld. DR relied upon the orders of the authorities below
and in support of his contention, he filed the 03 paper books containing
7
written submissions and gist of various case laws. For the sake of convenience
the Written Submissions filed by the Ld. DR are reproduced as 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 with regard to levy of
penalty u/s 271 (1 )(c) in light of decision of Karnataka High
Court in CIT V. Manjunatha Cotton & Ginning Factory [2013]
359 ITR 565 (Para 4) and Hon'ble Supreme Court in case of
CIT Vs SSA's Emerald Meadows [2016] 73 Taxmann.Com
248 (SC)/[2016] 242 Taxman 180 (SC):
1. Sundaram Finance Ltd. Vs CIT [2018] 99 taxmann.com 152
(SC)
SLP dismissed against High Court ruling that where
assessee claimed depreciation on non-existent assets,
penalty under section 271 (1 )(c) was to be levied for filing
inaccurate particulars of income
2. Sundaram Finance Ltd. Vs CIT [2018] 93 taxmann.com 250
(Madras)/[2018] 403 ITR 407 (Madras)
Where Hon'ble Madras High Court held that where notice did
not show nature of default, it was a question of fact. The
assessee had understood purport and import of notice, and
hence, no prejudice was caused to the assessee. It considered
decision of Karnataka High Court in CIT v. Manjunatha Cotton
& Ginning Factory [2013] 359 ITR 565/218 Taxman 423/35
taxmann.com 250 (Kar.).
Relevant part of the order is reproduced below:
"15. Before us, the assessee seeks to contend that the notices
issued under Section 274 r/w. Section 271 of the Act are
vitiated since it did not specifically state the grounds
mentioned in Section 271(l)(c) of the Act.
16. We have perused the notices and we find that the
relevant columns have been marked, more particularly, when
the case against the assessee is that they have concealed
8
particulars of income and furnished inaccurate particulars of
income. Therefore, the contention raised by the assessee is
liable to be rejected on facts. That apart, this issue can never
be a question of law in the assessee's case, as it is purely a
question of fact. Apart from that, the assessee had at no
earlier point of time raised the plea that on account of a
defect in the notice, they were put to prejudice. All violations
will not result in nullifying the orders passed by statutory
authorities. If the case of the assessee is that they have been
put to prejudice and principles of natural justice were violated
on account of not being able to submit an effective reply, it
would be a different matter. This was never the plea of the
assessee either before the Assessing Officer or before the first
Appellate Authority or before the Tribunal or before this Court
when the Tax Case Appeals were filed and it was only after
10 years, when the appeals were listed for final hearing, this
issue is sought to be raised. Thus on facts, we could safely
conclude that even assuming that there was defect in the
notice, it had caused no prejudice to the assessee and the
assessee clearly understood what was the purport and import
of notice issued under Section 274 r/w, Section 271 of the
Act. Therefore, principles of natural justice cannot be read in
abstract and the assessee, being a limited company, having
wide network in various financial services, should definitely be
precluded from raising such a plea at this belated stage.
17. Thus, for the above reasons, Substantial Questions of law
Nos. 1 and 2 are answered against the assessee and in avour
of the revenue. The additional substantial question of law,
which was framed is rejected on the ground that on facts the
said question does not arise for consideration as well as for
the reasons set out by us in the preceding paragraphs.
In the result, Tax Case Appeals are dismissed. No costs.
3. CIT Vs Smt. Kaushalya [1994] 75 Taxman 549
(Bombay)/[1995] 216 ITR 660
(Bombay)
In the above case, lAC had issued show-cause notice dated
28-3-1972 under section 274(2). Assessee had no knowledge
9
of exact Charge against him. Not only word 'or' had been
used between two groups of charges but there was use of
word 'deliberately' also. lAC imposed penalty of Rs. 13,000 for
assessment year 1967-68 and ITO imposed penalty of Rs.
22,000 and Rs. 10,000 for assessment years 1968-69 and
1969-70, respectively. Tribunal quashed penalties and held
that there was absence of reasonable opportunity of hearing
because three show-cause notices were ambiguous and
defeated very purpose of giving reasonable opportunity of
hearing as contemplated under section 274 and two orders of
ITO were without jurisdiction. It was held that mere mistake
in language used or mere non-striking off of inaccurate
portion cannot by itself invalidate notice under section 274.
Penalty orders passed by ITO for assessment years 1968-69
to 1969-70 were perfectly valid and there was no justification
for quashing same on ground of absence of jurisdiction.
4. Trimurti Engineering Works Vs ITO [2012] 25
taxmann.com 363 (Delhi)/[2012] 138
ITD 189 (Delhi)/[2012] 150 TTJ 195 (Delhi)
where Hon'ble IT AT Delhi held that it was apparent from
combined reading of notice and assessment order that
impugned notice had been issued in respect of concealment of
particulars of income.
Relevant part of the order is reproduced below:
"5.2 It is also submitted that the notice is vague. We have
already seen that in the notice one of the alternatives, i.e.,
concealment of particulars of income or furnishing of
inaccurate particulars of income has not struck off. In the
case af Gujarat Credit Corpn. Ltd. v. Asstt. CIT [2008J 113
ITO 133 (Ahd.) (58), relied upon by the Id. Counsel, the AD
had initiated penalty proceedings for disallowance of loss as
capital loss. This ground was not accepted by the ClT
10
(Appeals) as correct. It was held that in view of the finding of
the ClT (Appeals), the foundation an which penalty was
initiated has fallen down. Therefore, the penalty on that
ground cannot fructify. The ClT (Appeals), however, upheld
the disallowance on a totally different ground. In such a
situation, the penalty could have been initiated by the ClT
(Appeals) but that will not give jurisdiction to the AD to levy
the penalty. We have given serious consideration that this
issue also. This decision may have some implication on the
levy of penalty in respect of first addition regarding the cash
shortage. At the same time, it is also true that the assessee
must be appraised of the charge in the notice for which he is
sought to be penalized. The whole issue has to be decided on
the basis of the facts of each case. When we go through the
assessment order, it is seen that the AD has examined the
cash book in a great detail and various entries therein
between 01.07.2004 to 31.3.2005 have been reproduced on
page nos. 14 to 27. Similarly, the receipts by way of
advances from Trimurti Engineering Works, having implication
on the second addition, have been reproduced in the
assessment order on page nos. 27 to 29. The finding of the
AD in respect of the first addition is that cash flow statement
filed by the assessee is nothing but an afterthought and a
colourable devise to avoid tax. This cash flow statement was
sought to be supported by cash flow statement in respect of
two partners, Shri N.S. Pan war and Shri Y.S. Panwar. These
statements were also examined and various defects were
noticed. Coming to advances for job work, it is inter-alia
mentioned that most of the entries are above Rs. 20,000/-,
but in the reconciliation statement the entries have been
bifurcated so that each one of them is less than Rs. 20,000/-,
which seems to have been done to avoid penalties under
sections 2710 and 271E of the Act. The assessee has not
done any job work and no income has been shown although
an amount of Rs. 16.25 lakh is stated to have been taken
from a single party on a number of occasions. Finally, it has
been recorded in respect of both the additions that the
amount is treated as income from undisclosed sources. All
these observations made by the AO show that it was his case
that particulars of income have been concealed. It is not a
case · where any disallowance has been made but a case
11
where the assessee was found in possession of certain
unaccounted money which was utilized in the course of
business without paying tax thereon. Therefore, when we see
the notice and the contents of assessment order, it is clear
that the notice was issued for concealing particulars of
income. The notice is not a stand alone document. It is based
on the assessment order. Without finding regarding one or
the other charge, the notice cannot be issued. However, if
two are read together, it is clear that the notice has been
issued in respect of concealment of particulars of income. In
view of these observations, it is held that the notice is not
vague."
5. Hybrid Rice International Pvt.Ltd. Vs elT (ITA no.
285/De1/2007)
where Hon'ble ITAT Delhi held that it was apparent from
combined reading of notice and assessment order that
impugned notice had been issued in respect of concealment
of particulars of income.
Relevant part of the order is reproduced below:
6.7. We now deal with the case laws cited by the Ld. Counsel
for the Assessee.
(i) CIT vs. Manjunatha Cotton and Ginning Factory
and others (2013) 359 ITR 565 (Kar.): The Hon'ble
Karnataka High Court was considering the case where there
was no proof of concealment of income. It was a case where
the Hon'ble High Court held that the Explanation given by the
assessee was bonafide and merely because the assessee
agreed· to the addition and the assessment order was passed
on the basis of this admission, in the absence of any material
on record to show concealment of income, no penalty can be
levied. The facts of the case on hand are entirely different.
Our finding of fact is that the assessee has not voluntarily
offered the income to tax. In fact the explanation given is in
our opinion not bonafide ...
(ii) The Hon'ble Delhi High Court in the case of
Ms.Madhushree Gupta vs. UOI and another (2009) reported
in 317 ITR 107 has laid down that prima facie satisfaction of
the AO that the case may be served imposition of penalty
should be discernible from the order passed during the
course of the proceedings. In the case on hand the prima
12
facie satisfaction of the AO is discernible from the
assessment order. At para 36, page 128 of this order the
Hon'ble Court has observed as follows.
"A bare reading of section 271(l)(c) would show that to
initiate penalty proceedings following pre- requisites should
obtain.
(i) The Assessing Officer should be satisfied that:-
a)The assessee has either concealed particulars of his income;
or
b)furnished inaccurate particulars of his income; or
c)infracted both (a) and (b) above
(ii) This satisfaction should be arrived at during the course
of any proceedings. These could be
assessment, reassessment or rectification proceedings,
but not penalty proceedings.
(iii) If ingredients contained in (i) and (ii) ore present a notice to
show cause under Section 274 of the Act shall issue setting
out therein the infraction the assessee is said to have
committed. The notice under Section 274 of the Act can be
issued both during or after the completion of assessment
proceedings, however, the satisfaction of the Assessing
Officer that there has been an infraction of clause (c) of sub-
section (1) of Section 271 should precede conclusion of the
proceedings pending before the Assessing Officer.
(iv) The order imposing penalty can be passed only after
assessment proceedings are completed. The time frame for
passing the order is contained in Section 275 of the Act. To
summarize: the Supreme Court held that the satisfaction
which the Assessing Officer was required to arrive at during
the course of assessment proceedings for initiation of penalty
proceedings was prima facie in nature as against a final
conclusion that the assessee had committed an act of
omission or commission which would bring him within the
ambit of the provisions of clause (c) of subsection (1) of
Section 271. The notice under Section 274 was to follow.
What was important was that satisfaction had to be arrived at
during the course of assessment proceedings and not
issuance of notice under Section 274 of the Act. (See D.M.
Manasvi (1972) 86 ITR 557 and and S. V. AngidiChettiar
(1962) 44 ITR 739.
A bare reading of the aforesaid extract from Rampur
Engineering (supra) would show that the Full Bench:
(i) applied the law, as it ought to, as declared in D.M. Manasvi
(supra) and S. V. AngidiChettiar (supra)WP(C) No. 5059-2008
Page 49 of 64
(ii) a fortiori the principle for initiation of penalty proceedings
13
being the prima facie satisfaction of the Assessing Officer
during the course of assessment proceedings being
discernible from the record, was reiterated.
(iii) the irrelevance of - the Assessing Officer having to say so
in so many words that I am satisfied' was highlighted.
(iv) the judgment of the Division Bench in Ram Commercial
was affirmed which enunciated that: Firstly satisfaction should
be that of Assessing Officer.
Secondly, the assessment order should reflect such
satisfaction.
In our opinion the impugned provision only provides that an
order initiating penalty cannot be declared bad in law only
because it states that penalty proceedings are initiated, if
otherwise it is discernible from the record, that the Assessing
Officer has arrived at prima facie satisfaction for initiation
penalty proceedings. The issue is of discernibility of the
satisfaction arrived at by the Assessing Officer during the
course of proceeding before him. In the result our conclusion
are as follows:
(i) Section 271(lB) of the Act is not violative of Article 14 of
the Constitution.
(ii) The position of law both pre and post amendment is
similar, in as much, the Assessing Officer will have to arrive
at a prima facie satisfaction during the course of proceedings
with regard to the assessee having concealed particulars of
income or furnished inaccurate particulars, before he initiates
penalty proceedings.
(iii)Prima facie' satisfaction of the Assessing Officer that the
case may deserve the imposition of penalty should be
discernible from the order passed during the course of the
proceedings. Obviously, the Assessing Officer would arrive at
a decision, i.e.. a final conclusion only after hearing the
assessee.
(iv) At the stage of initiation of penalty proceeding the order
passed by the Assessing Officer need not reflect satisfaction
vis-a-vis each and every item of addition or disallowance if
overall sense gathered from the order is that a further
prognosis is called for.
(v) However, this would not debar an assessee from furnishing
evidence to rebut the prima facie satisfaction of the Assessing
Officer,' since penalty proceeding are not a continuation of
assessment proceedings. [See Jain Brothers v. Union of India
(1970) 77 ITR 107(SC)]
(vi) Due compliance would be required to be made in respect of the
provisions of Section 274 and 275 of the Act.
14
(vii) the proceedings for initiation of penalty proceeding cannot be
set aside only on the ground that the assessment order states
penalty proceedings are initiated separately' if otherwise, it
conforms to the parameters set out hereinabove are met."
6.8. Applying the propositions laid down to the facts of the
case, we are of the considered opinion that the penalty
proceedings were rightly initiated in this case and that the
penalty was rightly confirmed by the Ld.ClT(A).
6. Earthmoving Equipment Service Corporation Vs DCIT
[2017] 84 taxmann.com 51 (Mumbai- Trib.)/[2017]
166 ITD 113 (Mumbai - Trib.)/[2017] 187 TT J 233
(Mumbai - Trib.) where Hon'ble ITAT Mumbai held as
follows:
"6. We have heard the rival contentions and perused the
relevant material on record including cited case laws. So far
as the legal grounds are concerned, a perusal of quantum
order reveals that the penalty was initiated for furnishing of
inaccurate particulars and finally the same was levied on the
same ground. We find that the assessee was issued two show
cause notices- one in the standard printed form u/s 274 dated
04/03/2013 as placed on Page No.-86 of the paper book and
another dated 27/08/2013 by way of letter as placed in Page
No.92 of the paper book. We find that in the first notice, the
relevant clause has not been ticked off and the second notice
is simply a show cause notice. However, in the quantum order
Ld. AO, after due deliberations, clearly initiated the penalty
proceedings for furnishing of inaccurate particulars which shows
due application of mind qua penalty proceedings. The penalty
was finally levied on the same ground as well. Therefore,
mere marking of relevant clause, in our opinion, on the facts
of the case, has not caused any prejudice to the assessee
particularly when the assessee voluntarily offered certain
additions in the quantum proceedings with a specific request
to AO for not initiating the penalty against the same. The
assessee very well knew the charges / grounds for which he
was being penalized and he actively contested the penalty
before the Ld. AO. At this juncture, we find that the
provisions of Section 292B comes to the rescue of the
revenue which cures minor defect in the various notices
issued provided such notice in substance and effect was in
conformity with the intent and purpose of the act. On overall
facts and circumstances, we find that such condition was
fulfilled in the instant case. We find that the revenue's Special
Leave Petition [SLP] dismissed by the Apex court in SSA'S
15
Emerald Meadows (supra) confirmed the decision of Hon'ble
High court, which in turn, relied upon the judgment rendered
in Manjunatha Cotton & Ginning Factory (supra). The decision
rendered by Hon'ble Bombay High court in Samson Perinchery
(supra) also placed the reliance on this judgment. After
perusing the ratio of the judgment rendered in Manjunatha
Cotton & Ginning Factory (supra), we find that the assessee's
appeal was allowed by Hon'ble High court after considering
the multiple factors and not solely on the basis of defect in
notice u/s 274. Therefore, we are of the opinion that the
penalty could not be deleted merely on the basis of defect
pointed by the Ld. AR in the notice and therefore, the legal
grounds raised are rejected."
7. DCIT Vs Shah Rukh Khan [2018] 93 taxmann.com 320
(Mumbai - Trib.) where Hon'ble ITAT Mumbai held as
follows:
13. The Id. A.R further to support his contention that
because of the failure on the part of the A.O to strike off the
irrelevant default in the body of the 'SCN', the assessee had
remained divested of any opportunity of putting forth its case
before the A.O that no penalty under the aforesaid statutory
provision was liable to be imposed in his hands, relied upon
the following judicial pronouncements:-
(I) CIT v. Manjunatha Cotton & Ginning Factory
(2013) 359 ITR 565 (Kar.)
(ii) Dilip N. Shroffv. JCIT (2007) 291 ITR 519
(SC)
(iil) Commissioner of Income-tax v. Samson Pernchery
(2017) 98 CCH 0039 (Bom.).
(iv) CIT v. SSA's Emerald Meadows 73
Taxman.com 241 (Kar.)
(v) SSA's Emerald Meadows v. CIT 242 Taxman
180 (SC)
Per contra, the Id. D.R submitted that the contentions
advanced by the Id. A.R as regards the validity of the
penalty proceedings not being maintainable, thus may
not be admitted. The Id. D.R submitted that though the
assessee was at a liberty to raise an objection, but
however, the same had to be strictly confined as per
Rule 27 of the Appellate Tribunal Rules, 1963. It was
submitted by the Id. D.R that raising of an objection for
the very first time by the Id. A.R during the course of
the hearing of the appeal, and that too orally, without
16
putting the revenue to notice in advance, could not be
admitted. The Id. D.R to support his aforesaid
contentions relied on the following judicial
pronouncements:
(I) CIT, Central-II v. Divine Infracon Pvt. Ltd. (ITA No.
771/Mum/20 13.08.2018, (High Court of Delhi)
(ii) CIT-4 v. JamunadasVirji Shares and Stock Brokers Pvt.
Ltd. (2013) 458 (Bom.)
(iii) DCIT v. Sandip M. Patel (2012) 137 ITD 104
(Ahmedabad)
(iv) CIT v. Jindal Ployster Ltd. (2017) 397 ITR 282
(All.)
(v) Add/. CIT v. Gurjargravures (P.) Ltd. (1978) 111 ITR
1 (SC)
(VI) CIT v. EdwertKeventer (Successors) P. Ltd. (1980)
123 ITR 200 (Delhi)
(vii) Ultra tech Cement Ltd. v. Addl. CIT, Range-2(2) (2017)
298 CTR 437 (Bom.)
(viii) Self Knitting Works v. CIT (2014) 227 taxman
253 (P & H)
The Id. D.R relying on the aforesaid judicial
pronouncements, submitted that as per the settled position
of law, the objection raised by the Id. A.R during the
course of hearing of the appeal as regards the validity of
the jurisdiction assumed by the AO for imposingg penalty
271(1)(c) was not admissible and thus no cognizance of
the same may be drawn. Alternatively, and without
prejudice to the objection raised to the admission of the
challenge thrown by the Id. A.R to the validity of the
assumption of jurisdiction by the A.a for imposing penalty
under See. 271(1)(c), it was averred by the Id. D.R that
even otherwise the failure on the part of the AO to strike
off the irrelevant default did not in any way affected the
validity of the penalty imposed by the A.a under See.
271(1)(c). The Ld. D.R. in support of his said
contention relied on the following judicial
pronouncements:-
(I) M/s. Maharaj Garage & Company v. The Commissioner
of Inc Nagpur (Income tax reference No. 21 of 2008,
dated 22.08.2017.
(il) Commissioner of Income tax v. Smt. Kaushalya&
17
Others (1995) 211 (Bom.).
(iil) Earthmoving Equipment Service Corporation v. DCIT
22(2), Mur No.6617/Mum/2014, dated 02.05.2017).
(iv) Dhevel K. Jain v. ITa. Ward 16(3)(1), Mumbai (ITA No.
996/N dated 30.09.2016).
19 ... We are of the considered view that in the
backdrop of the aforesaid judgment of the Hon'ble
High Court of Jurisdiction, allowing the assessee
respondent to proceed with his objection which was
for the very first time orally raised during the course
of hearing of the appeal before us, undoubtedly would
be nothing short of proceeding with the hearing of the
appeal, without affording an opportunity of being
heard to the appellant revenue in context of the issue
under consideration.
8. Dhanraj Mills Pvt. ltd. Vs ACIT ITA NOs.3830 &
3833/Mum/2009
Where Hon'ble ITAT held as follows:
"2.16. We have considered the rival contention and gone through
the various decisions relied by them. We have also gone through
the order of penalty passed by Assessing Officer and the order
passed by Ld. Commissioner of Income Tax (Appeal). We are
conscious that any of the party may raise legal issue at this stage, if
the same can be emanated from the record of the case. The Hon'ble
jurisdictional High Court in ClT Vs Smt. Kaushalya (supra) while
dealing with the similar ground about the limb of charge, whether
mere mistake in language used or mere not striking off of
inaccurate portion cannot by itself invalidate notice issued under
section 274 of the Act. The language of the section does not speak
about the issuance of notice. All that is required is that the assessee
be given an opportunity of show cause. The issuance of notice is an
administrative device for informing the assessee about the proposal
of levy of penalty in order to enable him to explain why it should
not be levied against him. If it is taken for the sake of argument
that mere mistake in the language in the notice for non-striking off
18
of 'inaccurate particular' or marking on 'concealment of income'
portion cannot by itself invalidate the notice. Entire facts and
backgrounds thereof are to be kept in mind. Every concealment of
fact may ultimately result in filing of or furnishing inaccurate
particular. It was further argued that no statutory notice has been
prescribed in this behalf in the Income tax Act. 2.17. The Hon'ble
Karnataka High Court in ClT Versus Manjunatha Cotton & Ginning
Factory (supra) held that notice under section 274 of the act should
specifically state the grounds mentioned in section 271 (l)(c) that
is, whether it is for concealment of income or for furnishing of
inaccurate particular of income, sending printed form where all the
grounds mentioned in the section 271 are mentioned would not
specify the requirement of law, the assessee should know the
grounds which he has to meet specifically. Otherwise, the Principles
of Natural Justice are offended. On the basis of such proceedings,
no penalty could be imposed on the assessee. Taking up the penalty
proceeding on one limb and finding the assessee guilty on another
limp is also bad in law. Though the penalty proceeding emanate
from proceeding of assessment, they are independent and separate
aspect of proceeding. All the other decisions relied by the Ld
counsel for the assessee is based on the decision of ClT Vs
Manjunatha Cotton & Ginning Factory (supra), wherein the decision
of ClT Vs Kaushlya (supra) was not brought in the notice of
coordinate bench of Mumbai Tribunal.
2.18. The Hon'ble Karnataka High Court in CIT Versus SSA'S
Emerald Meadows in ITA No. 380 of 2015 order dated
23/11/2015, while dismissing the appeal of Revenuefollowed
the decision of ClT Versus Manjunatha Cotton & Ginning
Factory (supra). Against the judgment of Karnataka High
Court the Revenue filed Special Leave Petition before the
Hon'ble Apex Court and the same was dismissed vide SLP (CC
No. 11485/2016) on 05/08/2016. There is no dispute to the
settled proposition of law that dismissal of the Special Leave
Petition in limineby Hon'ble Apex Court does not mean that
the reasoning of the judgment of the High Court against
which the Special Leave Petition has been filed before this
Court stands affirmed or the judgment and order impugned
merges with such order of this Court on dismissal of the
petition. It simply means that Apex Court did not consider the
19
case for worth examining for the reason, which may be other
than merit of the case. Nor such an order of Apex Court
operates as res-judicata. An order rejecting the Special Leave
Petition at the threshold without detailed reasons therefore
does not constitute any declaration of law or a binding
precedent. And the similar view was expressed in various
judgments, viz,
A. The Workmen of Cochin Port Trust Vs The Board of
Trustees of the Cochiti Port Trust &Anr AIR 1978 SC 1283;
B. Ahmedabad Manufacturing & Calico Printing Co Ltd Vs The
Workmen &Anr AIR 1981 SC 960;
C. Indian Oil Corporation Ltd. Vs. State of Bihar &Ors. AIR 1986
SC 1780;
D.Supreme Court Employees' Welfare Association Vs. Union of
India &Ors. AIR 1990 SC 334;
E. Yogendra Narayan Chowdhury &Ors Vs. Union of India &Ors
AIR 1996 SC 751;
F. Union of India &Anr. Vs Sher Singh &Ors, AIR 1997 SC 1796;
G.V.M. Salgaocar& Bros. {P} Ltd. Vs. Commissioner of Income
Tax AIR 2000 SC 1623;
H.Saurashtra Oil Mills Association Gujrat Vs. State of Gujrat
&Anr. AIR 2002 SC 1130;
I. Union of India &Ors Vs. Jaipal Singh {2004} 1 SCC 121; and
J. Y. Satyanarayan Reddy Vs Mandai Revenue Officer, Andhra
Pradesh {2009} 9 SCC 447.
2.19. The Hon'ble Apex Court in Kunhayammed&Ors Vs State of
Kerala &Anr. AIR 2000 SC 2587, considered the similar issue
and some of the earlier judgments and came to the
conclusion that dismissal of special leave petition in limineby
a non-speaking order may not be a bar for further
reconsideration of the case for the reason that the Court
might not have been inclined to exercise its discretion under:
Article 136 of the Constitution of India. The declaration of law
will be governed by Article 141 where the matter has been
decided on merit by a speaking judgment as in that case
doctrine of merger would come into play. This Court laid down
the following principles:
"i} Where an appeal or revision is provided against an order
passed by a court, tribunal or any other authority before
superior forum and such superior forum modifies, reverses or
20
affirms the decision put in issue before it, the decision by the
subordinate forum merges in the decision by the superior
forum and it is the latter which subsists, remains operative
and is capable of enforcement in the eye of law.
(ii) The jurisdiction conferred by Article 136 of the
Constitution is divisible into two stages. The first stage is up
to the disposal of prayer for special leave to file an appeal.
The second stage commences if and when the leave to appeal
is granted and the special leave petition is converted into an
appeal.
(iii) Doctrine of merger is not a doctrine of universal or
unlimited application. It will depend on the nature of
jurisdiction exercised by the superior forum and the content
or subject-matter of challenge laid or capable of being laid
shall be determinative of the applicability of merger. The
superior jurisdiction should be capable of reversing, modifying
or affirming the order put in issue before it. Under Article 136
of the Constitution the Supreme Court may reverse, modify or
affirm the judgment-decree or order appealed against while
exercising its appellate jurisdiction and not while exercising
the discretionary jurisdiction disposing of petition for special
leave to appeal. The doctrine of merger can therefore be
applied to the former and not to the latter.
(iv) An order refusing special leave to appeal may be a
nonspeaking order or a speaking one. In either case it does
not attract the doctrine of merger. An order refusing special
leave to appeal does not stand substituted in place of the
order under challenge. All that it means is that the Court was
not inclined to exercise its discretion so as to allow the appeal
being filed.
(v) If the order refusing leave to appeal is a speaking order,
i.e., gives reasons for refusing the grant of leave, then the
order has two implications. Firstly, the statement of law
contained in the order is a declaration of law by the Supreme
Court within the meaning of Article 141 of the Constitution.
Secondly, other than the declaration of law, whatever is
stated in the order are the findings recorded by the Supreme
Court which would bind the parties thereto and also the court,
tribunal or authority in any proceedings subsequent thereto
by way of judicial discipline, the Supreme Court being the
Apex Court of the country. But, this does not amount to
21
saying that the order of the court, tribunal or authority below
has stood merged in the order of the Supreme Court rejecting
the special leave petition or that the order of the Supreme
Court is the only order binding as res-judicata in subsequent
proceedings between the parties. /I
2.20. As there is no declaration of law which may be
governed by Article 141 of the Constitution of India in the
case of ClT Versus SSA'S Emerald Meadows dismissed by
Hon'ble Apex Court, vide SLP (CC No. 11485/2016) on
05/08/2016. The judgment of Hon'ble Jurisdictional High
Court in ClT Vs Kaushalya (supra) is still having a binding
force on us. Thus, with utmost regards to the judgment of
Karnataka High Court in ClT Vs Manjunatha Cotton & Ginning
Factory (supra) we are bound to follow the judgment of
jurisdictional High Court in ClT Vs Kaushalya (supra). Our
view also find support from a decision of the Mumbai Bench of
the Tribunal in the case of Dhawal K. Jain vs Income Tax
Officer (ITA No.996/Mum/2014) order dated 30/09/2016.
With these observations, the argument of Id. counsel of the
assessee on the legal/technical ground is rejected. Thus, all
these four appeals are, therefore, dismissed and the stand of
the Ld. Commissioner of Income Tax (Appeal) is affirmed."
9. ITO Internatinal Taxation 2(1) Chennai. Vs
RajanKalimuthu ITA No.2900/CHNY /2018
(copy enclosed)
Wherein the Hon'ble ITAT held that the Ld.ClT(A) ought not
have deleted the penalty based on e decision of Manjunatha
Cotton and Ginning Factory, and hence, remanded the matter
back to the CIT(A) for fresh adjudication on merits."
"Sub: Written Submission in the above case- reg.
In the above case, it is humbly submitted that the
following decisions may kindly be considered with regard to
levy of penalty u/s 271 (1 )(c) of I.T.Act:
1. Union of India v. Dharamendra Textile Processors
22
[(2007) 295 ITR 244] (CopyEnclosed)
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 Vs 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 vs. cn [38 taxmann.com 448
(SC)/[2013] 358 ITR 593 (SC)/[2013] 263 CTR 1]
Where Hon'ble Supreme Court held that Under Explanation 1
to s. 271 (1 )(c), voluntary disclosure of concealed income
does not absolve assessee of s. 271 (1 )(c) penalty if the
assessee fails to offer an explanation which is bona fide and
proves that all the material facts have been disclosed
"9. We are of the view that the surrender of income in this
case is not voluntary in the sense that the offer of surrender
was made in view of detection made by the AD in the search
conducted in the sister concern of the assessee. In that
situation, it cannot be said that thesurrender of income was
voluntary. AO during the course of assessment proceedings
has noticed that certain documents comprising of share
application forms, bank statements, memorandum of
association of companies, affidavits, copies of Income Tax
Returns and assessment orders and blank share transfer
deeds duly signed, have been impounded in the course of
survey proceedings under Section 133A conducted on
16.12.2003, in the case of a sister concern of the assessee.
The survey was conducted more than 10 months before the
23
assessee filed its return of income. Had it been the intention
of the assessee to make full and true disclosure of its income,
it would have filed the return declaring an income inclusive of
the amount which was surrendered later during the course of
the assessment proceedings. Consequently, it is clear that the
assessee had no intention to declare its true income. It is the
statutory duty of the assessee to record all its transactions in
the books of account, to explain the source of payments
made by it and to declare its true income in the return of
income filed by it from year to year. The AO, in our view, has
recorded a categorical finding that he was satisfied that the
assessee had concealed true particulars of income and is
liable for penalty proceedings under Section 271 read with
Section 274 of the Income Tax Act, 1961."
4. Khandelwal Steel And Tube Traders Vs ITO[2018]
95 taxmann.com 15 (Madras) where Hon'ble Madras
High Court held that explanation as to why there was an
omission or wrong statement in original return must be due
to bona fide inadvertence or bona fide mistake on part of
assessee and even if assessee agreed to addition with a
condition that penalty could not be imposed, department is
not precluded from initiating penalty proceedings.
5. B.A. Balasubramaniam& Bros. Co Vs CIT[116
Taxman 842, 236 ITR 977, 157 CTR 556]
where Hon'ble Supreme Court held that difference between
income assessed and income returned being more than 20
per cent, Explanation to section 271 (1 )(c) became
applicable and assessee having failed to discharge onus being
cast on assessee by virtue of said Explanation, Assessing
Officer was justified in imposing penalty.
6. CIT vs Gates Foam & Rubber Co [91 ITR 467]
CIT vs India Seafood [105 ITR 708]
where Hon'ble Kerala High Court held that Claiming excessive
deduction also amounts to concealment of income.
24
7. Steel Ingots Ltd vs. 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 u/s 271 (1)(c) read with
Explanation 1 is justified.
8. CIT Vs 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.
9. CIT Vs R.M.P. Plasto (P.) Ltd [184 Taxman 372
(SC)/[2009] 313 ITR 397 (SC)/[2009] 227 CTR 635]
where Hon'ble Supreme Court held that Confirmed penalty
upon assessee for concealment of income under section 271
(1 )(c) because positive income of assessee was reduced to
nil after allowing set-off of carried forward losses of earlier
years.
10. K.P. Madhusudhanan VsCIT [[2001] 118 Taxman 324
(SC)/[2001] 251 ITR 99 (SC)/[2001] 169 CTR 489
(SC)]
where Hon'ble Supreme Court held that where assessee was
unable to furnish evidence for loans and it offered amount of
transaction as additional income, Assessing Officer was
justified in imposing penalty u/s271 (1 )(c) after finding the
explanation to be unacceptable and applying Explanation 1
(B) of the section."
"The brief facts of the case for your kind consideration are as
follows:-
f the case for your kind consideration are as follows:
· The case of the assessee was selected for limited scrutiny through
CASS with identified issues of 'Long term capital gain', 'business
25
loss', 'derivative (futures) transaction', 'refund claim' and 'STT' for
examination.
· The assessee submitted details in parts on different hearings.
· On examination of the details of exempt income, it was also
observed that the assessee had received dividend from shares of
Rs. 19,24,70,893/- during the year.
· Therefore, in order to test the affairs of the assessee on the
fulfillment of criteria as laid down in/touchstone of the provisions of
section 94(7) of the IT Act, the assessee was issued notice u/s
142(1) on 7.12.2017 to furnish the details of all dividend/bonus
income earned by the assessee in a specified format as provided
by the Assessing Officer.
· In response to the same, the AR of the assessee appeared on
13.12.2017 and furnished all the details except the details of
dividend/bonus as had been asked in notice u/s 142(1 ).
· Vide order sheet dated 13.12.2017, the AR was again asked to
furnish the details of dividend/bonus in the required format.
· Thereafter, the AR, on 15.12.2017, furnished a reply stating that
while filing return, the assessee had not considered dividend
income for the purposes of section 94(7) of the Act, and
accordingly had decided to revise the return of income by
increasing the LTCG disallowance.
· The reasoning for furnishing the inaccurate particulars by the
assessee was attributed to the claim that the assessee had himself
filed the IT Return and he had committed the bonafide mistake
inadvertently.
· The AO, in para 4.7 of his assessment has made the following
remarks:
"It is clear that the assessee acknowledged his mistake
only when specifically asked 10 furnish the details of
dividend/bonus in the required format. Had the case not been
selected for scrutiny, the assessee would have gotten away
with this wrongful claim and tax would have been evaded.
Therefore, having regard to the nature of disallowance as
discussed above, I am satisfied that the assessee has
furnished inaccurate particulars of such income, and
hence, rendering itself liable for initiation of penal
proceedings under section 271(1)(c), read with section
274 o[the IT Act, 1961.The same is being initiated
separately. " (Emphasis supplied)
26
The penalty has been imposed subsequently by
the AO also "(or furnishing of inaccurate
particulars ofincome within the meaning o[the
provisions of clause (c) of sub-section (1) of
section 271 of the Act." (emphasis supplied)
The assessee has now taken an additional
ground of appeal before the Hori'ble ITAT which
had not been taken by it at any time either
before the AO during the penalty proceedings,
nor before the Ld. CIT(A) during the first
appellate proceedings and was also not part of
the grounds of appeal before the Hon'ble ITAT.
The said ground reads as follows:
'That the Ld CIT(A) ought to have held that the notice,
proceedings and order imposing penalty u/s 271 (l)(c) are
bad in law being contrary tofacts, principles of natural justice,
provisions of law and judgments of courts in India. '
This is based on the claim by the appellant that penalty
show cause notice dated 26.12.2018 read as follows:
"It is, however, considered necessary to state that in
the assessment order passed on 26.12.2017 for A Y 2015-16
uls 143(3) of the IT Act, 1961, the satisfaction recorded
by the undersigned within the meaning of section
271(1) (c) read with section 271(1B) o[the IT Act was
unambiguously for furnishing inaccurate particulars of
income. However, in the show cause notice u/s 274( I) read
with section 271(1)(c) of the IT Act, 1961 dated 26.12.2017,
the portion "concealed the particulars of your income" was
not struck off inadvertently. Hence, in order to bring in
sync the above referred show cause notice with the
satisfaction recorded in this regard in the assessment
order as discussed above, the undersigned gives fresh
opportunity to the assessee to show cause as to why
penalty uls 271(1)(c) of the IT Act, 1961 may not be
imposed upon the assessee for furnishing inaccurate
particulars of income."
Subsequently the penalty was imposed vide order dated
23.02.2018 for furnishing of inaccurate particulars of
income within the meaning of provisions of clause (c) of sub-
27
section (I) of section 271 of the Act.
With regard to this additional ground, the following
submissions are made for the kind consideration of the
Hon'ble Bench:
The ground raised by the appellant itself deserves not
to be admitted for the following reasons: I) The said ground
has not been raised by the appellant either at the stage of penalty
proceedings or subsequently at any time during the appellate
proceedings before the Ld. CIT(A).
2.) The ground impugns the order of the Id. CIT(A) claiming that
"the Ld CIT(A) ought to have held
that the notice, proceedings and order imposing penalty u/s
271 (J)(c) are bad in law being contrary to facts, principles of
natural justice, provisions of law and judgments of courts in
India. ".
This ground invites the question as to how can the order of
the Ld. CIT be impugned when the mentioned relief was never
asked from him at any stage of the appellate proceedings. The said
issue did not even remotely emanate from the assessment
proceedings or the penalty proceedings as there was not a single
mention by the assessee of the said issue or any facet of it before
the Assessing Officer. Under these circumstances, the ground itself
does not deserve to be admitted and adjudicated upon by the
Hon'ble Bench.
3.) Even otherwise, this is a general ground and does not in any
terms whatsoever specify the particular relief that the assessee is
asking for. It would only be presumptious to assume that anyone
reading the said ground could reasonable infer with any degree of
certainty as to what is being asked of the Hon 'ble Bench.
Coming to the merits of the matter, the following submissions may
kindly be considered by the Hon'ble Bench:
In the relevant case law submission being made alongside to the
Hon'ble Bench. A perusal of these case laws and several others on
the issue of correct limb, etc, there is one fundamental issue that
determines the validity of the penalty proceedings - the
fundamental issue is that whether the assessee has understood the
charge against it so as to properly defend itself from levy of
penalty. If the charges communicated to it that it could not have
28
found itself in a position to effectively defend itself, such penalty
charge and consequent order cannot survive. However, if the
assessment order and the penalty notice is clear enough for the
assessee to appreciate the charges against it without ambiguity,
the charge shall survive and will have to be met on merits.
In Sundaram Finance Ltd., 403 ITR 407, it was held by the
Hon'ble High Court that where notice did not show the nature of
default, it was a question of fact. The assessee had understood the
purport and import of notice, and hence, no prejudice was caused
to the assessee.
In Trimurti Engineering Works vs. ITO 138 ITD
189 (Delhi), the Hon'ble Delhi ITAT has held that it was
apparent from a combined reading of the notice and assessment
order that impugned notice had been issued in respect of
concealment of income.
Similar view has been taken by the Hon'ble Delhi ITAT in
Hybrid Rice International Pvt Ltd vs. CIT (ITA No.
285/Del/2007).
The Mumbai Bench of ITA T has very deftly dealt with
the issue in Earthmoving Equipment Service Corporation vs.
DCIT 166 ITD 113 (Mumbai) holding that 'so far as the legal
grounds are concerned a perusal of the quantum order
reveals that the penalty was initiated for furnishing of
inaccurate particulars and finally the same was levied on the
same ground .... However, in the quantum order Ld AO, after
due deliberations, clearly initiated the penalty proceedings for
furnishing of inaccurate particulars which shows due
application of mind qua penalty proceedings ... "
Even the decisions of Manjunatha Cotton and others are
based on one fundamental determination that whether the
assessee has been prevented from clearly understanding the
charge against it and thereby prejudiced against availing
adequate defence for the charge.
Hence, any decision of an quasi judicial or judicial
authority has to be seen in light of this basis premise.
Needless to say, the same principle ought to apply also to the
present case.
As stated above, the AO in his assessment order,
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unambiguously recorded that the penalty was being initiated
for furnishing inaccurate particulars of income. The penalty
show cause notice dated 26.12.2018, even while mentioning
section 271 (I )(c), also mentioned (I)(B) of the section,
which if the entire notice is perused in its totality, does not at
all take away from the fact that the penalty was being sought
to be imposed for furnishing inaccurate particulars of income.
This is clear from the contents of the notice wherein the AO
says" ...the undersigned gives fresh opportunity to the
assessee to show cause as to why penalty uls 271(1)(c) of
the IT Act, 1961 may not be imposed upon the assessee for
furnishing inaccurate particulars of income."
A bare perusal of the above shows that it is not possible
at all that any assessee could have been left in any doubt as
regards the nature of the charge upon a reading of the
assessment order and the penalty notice together, both of
have been available with the assessee at all stages of the
proceedings before the AO as well as the CIT(A).
How unwarranted and baseless is the claim of the
assessee as regards this additional ground is proven beyond
doubt on a bare perusal of the reply dated 31.01.2018 of the
assessee itself [Page 38 of PB filed by the assessee]which
was filed in response to the penalty notice in which the
assessee is attempting to create holes in. A simple reading of
the first para of the reply itself shows that the assessee has
completely, unambiguously and with absolute clarity
understood the nature, scope and basis of the charge against
it.
The para reads - "This has reference to your letter
dated 24.01.2018 asking the assessee to show cause
why penalty u1s271(1)(c) should not be levied for
furnishing inaccurate particulars of income with
respect to disallowance of Rs. 1,98,51,874/- u/s 94(7)
.... "
All the above facts together go on to show that no
prejudice whatsoever was caused to the assessee at any
stage of the proceedings. The assessee had clearly
understood that the charge was for furnishing inaccurate
particulars of income, and had replied to the charge on
merits. It is only when the assessee lost the case even at the
30
stage of CIT(A), and having already filed the appeal before
the Hon 'ble ITA T on merits, that it came up with a belated
plea of the charge not being clear on account of discrepancy
in the notices. Any discrepancy has been set right by the AO
within reasonable time before the assessee filed its reply, the
assessment order is unambiguously clear regarding nature of
charge, the reply of the assessee before the AO also clearly
shows that the assessee has understood the charge against it
and replied only regarding that particular charge- which is
furnishing of inaccurate particulars of income.
It may also be mentioned that section 292B also provides
clarity in this regard. A detailed
discussion on its applicability in such situations has been dealt
with by the Chennai Bench of the Hon'ble ITAT in the recent
decision of ITO International Taxation 2(1) Chennai. Vs
RajanKalimuthu ITA No.2900/CHNY /2018 (copy
enclosed)
In this judgment, the Hon'ble Bench has, inter alia, given a
finding on the following aspects:
i) How section 292B is applicable to situations where assessee
claims lack of clarity in notice even though it has vehemently
represented on merits during proceedings which clearly show
that it has understood the charges against it no prejudice has
been caused to it.
ii) Why Manjunatha Cotton case cannot be a refuge to
such assessee in light of the subsequent decision of Hon'ble
Karnataka High Court in CIT vs. Sri Durga Enterprises
(2014) 44 taxmann.com 442 (Kar). [copy enclosed]
iii) That the Bangalore Bench ofITAT in the case of P.M.
Abdulla vs ITO (in ITA Nos. 1223 & 1224/Bangalore/2012
dated 17.10.2016) had held that this cannot be a valid reason
for deleting the penalty u/s271 (I )(c).
The above submissions, along with submission of
applicable case laws on both validity of notice as well as
merits of the case may kindly be considered and made part of
the order so that the facts and law points find complete
expression in the matter."
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7. We have heard both the counsel and perused the relevant records
especially the orders passed by the Revenue authorities as well as the Paper
Books filed by both the parties and the case laws relied by them therein. On
the merits of the case, we find that assessee filed its return Income of
Rs. 35,29,470/- with income from investments i.e. dividends, capital gains
and interest and AO taken the return for scrutiny u/s. 143(2) of the Act under
CASS and no income escaping based on the information on section 94(7) of the
Act disallowance on information based on AIR. We further note that AO has
issued various notices u/s 143(2)/142(1) of the Act, but has not made any
enquiry for the disallowance in the case of the assessee u/s. 94(7) of the Act.
AO on the basis of the query for dividend income on 07.12.2017 issued a notice
u/s. 142(1) and asked the assessee to file the detail of all dividend / bonus
income earned by the assessee in a specified format and filed all the details in
the original return of income. In compliance of the same on 13.12.2017 Ld.
Counsel for the assessee appeared and took adjournment for 15.12.2017 and
examined all details of dividend / bonus income and found that there is an
inadvertent clerical error committed by the Chartered Accountant and on the
advice of Senior Chartered Accountant, the assessee filed voluntary revised
computation of income wherein a Long Term Capital Gain (LTCG) of Rs.
1,43,53,921/- has been increased to Rs. 3,42,05,795/- due to the disallowance
of Rs. 1,98,51,874/- u/s. 94(7) of the Act at the first opportunity as soon as it
came to the notice of the assesee. We note that Assessee has committed this
mistake for furnishing of inaccurate particulars in the return due to the
inadvertent bonafide error in the claim due to one entry by the accounts staff
posted at wrong date due to huge voluminous transactions and dividend
coupons for dividend from same security punched at one voucher i.e. entry of
two dividend received on same security (Rs. 1,98,51,874/- received on
28.1.2015 and Rs. 3,38,62,717/- received on 25.3.2015 made cumulatively on
26.3.2015 i.e. date of sale of investments (26.3.2015) and receipt date of
second dividend. We further note that AO has completed the assessment on
32
the basis of details furnished by the assessee, hence, under the circumstances
assessee has not furnished inaccurate particulars of income. It is noted that
Assessee has paid voluntary taxes on disallowance u/s. 94(7) of the Act and
not filed the appeal against the assessment order passed by the Assessing
Officer. It is an admitted fact that assessee has not filed any false claim. We
further note that the assessee fully disclosed all the information asked for and
has nowhere furnished any inaccurate particulars. We find that there is no
conclusive proof that the assessee has furnished inaccurate particulars of
income. The AO has not brought enough incriminating material for furnishing of
inaccurate particulars and there is no material for establishing the same and
therefore in the given facts and circumstances of the penalty is not leviable,
because all the documents submitted by the assessee were neither rejected by
the AO as false or incorrect facts nor AO had clinched any further evidence for
furnishing of inaccurate particulars of income. We also find that section
271(1)(c) postulates imposition of penalty for furnishing of inaccurate
particulars and concealment of income. On the facts and circumstances of this
case the assessee's conduct cannot be said to be contumacious so as to warrant
levy of penalty.
7.2 In this regard, we find that assessee's counsel reliance from the Hon'ble
Apex Court decision in the case of CIT vs. Reliance Petro Products Ltd. in
Civil Appeal No. 2463 of 2010 is squarely applicable in the present case of
the assessee. In this case vide order dated 17.3.2010 it has been held that
the law laid down in the Dilip Sheroff case 291 ITR 519 (SC) as to the meaning
of word `concealment' and `inaccurate' continues to be a good law because
what was overruled in the Dharmender Textile case was only that part in Dilip
Sheroff case where it was held that mensrea was a essential requirement of
penalty u/s 271(1)(c). The Hon'ble Apex Court also observed that if the
contention of the revenue is accepted then in case of every return where the
claim is not accepted by the Assessing Officer for any reason, the assessee will
33
invite the penalty u/s 271(1)(c). This is clearly not the intendment of
legislature.
7.3 We further place reliance from the Apex Court decision rendered by a
larger Bench comprising of three of their Lordships in the case of Hindustan
Steel vs. State of Orissa in 83 ITR 26 wherein it was held that "An order
imposing penalty for failure to carry out a statutory obligation is the result of a
quasi-criminal proceedings, and penalty will not ordinarily be imposed unless
the party obliged either acted deliberately in defiance of law or was guilty of
conduct contumacious or dishonest, or acted in conscious disregard of its
obligation. Penalty will not also be imposed merely because it is lawful to do
so. Whether penalty should be imposed for failure to perform a statutory
obligation is a matter of discretion of the authority to be exercised judicially and
on a consideration of all the relevant circumstances. Even if a minimum
penalty is prescribed, the authority competent to impose the penalty will be
justified in refusing to impose penalty, when there is a technical or venial
breach of the provisions of the Act, or where the breach flows from a bonafide
belief that the offender is not liable to act in the manner prescribed by the
statute."
7.4 We further note that the case laws cited by the Ld. DR are on
distinguished facts, hence, does not support the case of the Revenue.
8. In the background of the aforesaid discussions and respectfully following
the precedents, as aforesaid, we find that the levy of penalty in this case is not
34
justified. Accordingly, we set aside the orders of the authorities below and
delete the levy of penalty in dispute. Since we have deleted the penalty in
dispute on the merits of the case, there is no need to adjudicate the legal
ground raised by the Assessee, hence, the same is dismissed as such.
9. In the result, the appeal filed by the Assessee stands partly allowed.
Order pronounced on 19/08/2019.
Sd/- Sd/-
[DR. B.R.R. KUMAR] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date: 19/08/2019
"SRB"
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4.CIT (A) 5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar, ITAT, Delhi Benches
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