TMI Blog2018 (12) TMI 1319X X X X Extracts X X X X X X X X Extracts X X X X ..... ract penalty under Section 271(1)(c) if there is absence of concealment and / or furnishing of inaccurate particulars of income. Thus the penalty imposed under section 271(1)(c) of the Act is directed to be deleted. - Decided in favour of assessee. - ITA No.3443/Mum/2017 - - - Dated:- 9-10-2018 - Shri Joginder Singh, Judicial Member, And Shri G. Manjunatha, Accountant Member For the Assessee : Shri Govind Jhaveri For the Revenue : Shri Satishchandra Rajore-DR ORDER PER JOGINDER SINGH (JUDICIAL MEMBER) The assessee is aggrieved by the impugned order dated 08/02/2017 of the First Appellate Authority, Mumbai, confirming the penalty of ₹ 4,30,000/-, imposed under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter the Act) and further holding that the assessee while claiming deduction of administrative expenses to the extent of ₹ 13,99,521/- did not furnish any evidence. 2. During hearing, the Ld. counsel for the assessee, Shri Govind Jhaveri, explained that the Tribunal partly allowed the quantum addition (ITA No.1405/Mum/2017), order dated 14/09/2017. It was also pleaded that in the notice issued under section 274 r.w.s 271(1)(c), t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tus of the assessee, it may require to spend some expenditure. We, therefore, find merit in the submission of Ld Counsel for the assessee that the matter may be set aside to the file of the A.O with a direction to allow reasonable expenditure which may be allowed as revenue expenditure. Accordingly, we restore this issue to the file of the A.O with a direction to determine such reasonable expenditure and allow the same as revenue in nature. The ground raised by the Revenue is accordingly partly allowed for statistical purposes. Thus, the assessing officer was directed to determine reasonable expenditure that is required to be incurred for maintaining corporate structure of the assessee and allow the same as revenue expenditure. 3. In the set aside proceedings, the assessee submitted before the AO that it was formed by Ex-president of BSE, who was a Chartered Accountant. It was submitted that salary was paid to the Managing director and a very senior Government officers. It was further submitted that expenses were incurred on Electricity, Telephone, office and depreciation. Accordingly it was submitted that all these expenses should be allowed as business expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was not commenced during the year under consideration. Since the present assessee is a company, which is required to incur certain expenses to maintain its corporate status, the Tribunal held that such type of expenses should be treated as revenue expenditure and should be allowed. 7. The Ld A.R argued that the expenses have been incurred by the assessee on account of commercial expediency and also to maintain corporate structure of the assessee. I notice that the Tribunal has directed the AO to determine the expenses relating to maintaining corporate structure and hence, I am of the view, the question of commercial expediency cannot be examined at this stage. 8. The salary expenses of ₹ 13.37 lakhs consists of salary paid to directors amounting to ₹ 7.32 lakhs and salary paid to staff ₹ 6.04 lakhs. I notice that the assessee has carried on mainly investment activities during the year under consideration. In the submissions made before the AO, the assessee has submitted that its Managing Director is a Chartered Accountant and further it has employed retired Government officers. Though the Ld A.R furnished breakup details of salary expenditure, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. 15. In the result, the appeal of the assessee is partly allowed. 2.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, so far as facts are concerned, has been deliberated by the Tribunal and part relied was granted to the assessee. The addition was made towards various expenses on the basis of which penalty were imposed. The Tribunal while deliberating upon the quantum addition, found that the assessee generated only capital gains on sale of shares and also acquired Stock Exchange Card. The assessee was also found to incur certain expenses to maintain its corporate status and due to commercial expediency maintained the corporate structure and thus the Tribunal directed the Assessing Officer to determine the expenses relating to maintain to corporate structure. The assessee also incurred salary expenses paid to directors and staffs. In para-8 of the quantum order, there is a finding that the assessee furnished break up/details of salary expenditure along with the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant, which is in violation of the principles of natural justice. 2. upholding the penalty order on the premise that no appeal was filed against the addition made by the learned AO in the assessment order, thereby ignoring the fact that the issue of subjecting the same income to tax twice, was a fit case for rectification under section 154 of the Act and proceeding to uphold the levy of penalty even without waiting for the disposal of the rectification application filed by the Appellant. 3. upholding the penalty order passed by the learned AO levying penalty of ₹ 22,62,959/- u/s 271(1)(c) on the premise that the Appellant had furnished inaccurate particulars and concealed the income. 4. confirming the penalty levied under Section 271(1)(c) of the Act, without appreciating the fact that the additions made by the learned AO of ₹ 66,57,721/- on the basis of which penalty is imposed were already made by the Appellant to the extent of ₹ 62,95,961/- in its return of income and the differential value being caused due to different method adopted for allocation / absorption of fixed overheads in case of a sales order executed by its Domestic Tariff Unit. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 277 levied penalty of ₹ 22,62,959/- under section 271(1)(c) of the Act. 4. Aggrieved by the penalty order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has filed an elaborate written submissions. The assessee further contended that the AO was erred in levying penalty for disallowance of corporate revenue for computation of deduction claimed under section 10A/10AA on the ground that the assessee has furnished inaccurate particulars of income which attracts penalty under section 271(1)(c) of the Act, without appreciating the fact that though the assessee has filed revised computation working out correct disallowance of corporate revenue for computing deduction under section 10A/10AA this cannot be considered as furnishing of inaccurate particulars of income. The assessee has taken up a legal plea in as much as the notice issued by the AO under section 274 r.w.s. 271(1)(c) is invalid as the AO has not strike off inappropriate portion which is not applicable to the facts of the assessee's case, therefore, it is a case of non application of mind by the AO and hence, penalty proceedings are bad in law and liable to be quashed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culars of income. The Ld. A.R. further referred to the penalty order passed by the AO and submitted that though the AO has stated that penalty proceedings are initiated for furnishing of inaccurate particulars of income, in his order at paragraph No.1 in the concluding paragraphs he has not specifically mentioned whether penalty has been levied for concealment of particulars of income or furnishing of inaccurate particulars of income. Therefore, the penalty order passed by the AO consequent to invalid or vague notice cannot survive and hence the order passed by the AO should be quashed. 6. The Ld. D.R., on the other hand, strongly supported the order of the Ld. CIT(A). The Ld. D.R. further referring to the decision of Hon'ble Bombay High Court, Nagpur Bench in the case of MIs. Maharaj Garage Company vs. CIT in Income Tax Reference No.2 1 of 2008 dated 22.08.17 submitted that the requirement of section 274 of the Income Tax Act for granting reasonable opportunity of being heard in the matter cannot be stretched to the extent of framing a specific charge or asking the assessee an explanation in respect of the quantum of penalty proposed to be imposed, as has been urged. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of irrelevant portion which were not applicable to the facts of assessee's case. The AO has issued notice which states that penalty has been initiated for concealment of particulars of income or furnishing of inaccurate particulars of income. In the assessment order, the AO has initiated penalty proceedings on both charges, i.e. for concealing the particulars of income and furnishing inaccurate particulars of income. The AO levied the penalty on both the charges, i.e. for concealing the particulars of income and furnishing inaccurate particulars of income. Right from the assessment stages to levy of penalty, the AO has initiated penalty on both charges which is not the case as per the provisions of section 271(1)(c) as the two charges, i.e. concealment of particulars of income or furnishing of inaccurate particulars of income are two different connotations. The issue of notice u/s 274 r.w.s. 271(1)(c) goes to the root of the matter of assuming jurisdiction to levy penalty u/s 271(1)(c), therefore, before issuance of notice, the AO has to arrive at a satisfaction as to whether penalty proceedings are initiated for concealment of particulars of income or furnishing of inaccurate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment order on both the grounds, i.e. concealment of particulars of income and also furnishing of inaccurate particulars of income. The AO also levied penalty on both the grounds of concealment of particulars of income and also furnishing of inaccurate particulars of income which is quite contrary to the provisions of section 271(1)(c) where it was categorically stated that both the charges are standing in a different footing and the AO has to initiate penalty proceedings for concealment of particulars of income or furnishing of inaccurate particulars of income. Initiation of penalty by injecting and in place of or would definitely go against the basic provisions of the Act. In this case, the AO has initiated penalty on both the grounds, which cannot be the case for initiation of penalty u/s 271(1)(c) of the Act. We further observe that it is not open to the authority, at the time of imposing penalty to impose penalty on the ground other than what assessee was called upon to meet otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would violate principles of natural justice and cannot be sustained. The validity of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f total income are different. Thus, the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it as case of furnishing of inaccurate particulars. The apex court in the case of Ashok Pai reported (2007) 292 ITR 11 (SC) at page 19 has held that concealnment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of Manu Engineering reported in 122 ITR 306 and the Delhi High Court in the case of Virgo Marketing P.Ltd., reported in 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The stand and proforma without striking of the relevant clauses will lead to an inference as to non-application of mind. 14. The assessee has relied upon decision of Honble Bombay High Court in the case of CIT vs Samson Perinchery in Income Tax Appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of CIT vs Smt.Kaushalya (supra). We have gone through the case law relied upon by the Ld. DR in the light of the facts of the present case and find that the ITAT, Mumbai in the case of DCIT vs Dr. Santa Milind Davare in ITA No.1789/Mum/2014 dated 21-12-2016 has considered the decision rendered by Hon'ble Bombay High Court in the light of Supreme Court judgement in the case of Dilip N Shroff 291 ITR 519 (SC) and observed that there should be application of mind on the part of the AO at the time of issuing notice. Since the co-ordinate bench has already considered the judgement of Honble Bombay High Court, we are of the view that case law relied upon by the Ld.DR is not applicable to the facts of the present case. 8. In so far as the judgment of the Hon'ble Judicial Bombay High Court in the case of M/s. Maharaj Garage Company vs. CIT (supra) relied upon by the Ld. D.R., the co-ordinate bench of ITAT in the case of Indrani Sunil Pillai vs. ACIT in ITA No.1339/M/2016 dated 19.01.18 has considered the ratio of the Hon'ble Jurisdictional High Court in the case of M/s. Maharaj Garage Company vs. CIT (supra) and held that the basic issue arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following identical re-framed question of law in all three appeals for our consideration :- (i) Whether in the facts and circumstances of the case and in law, the Tribunal was justified in deleting the penalty levied under Section 271(1)(c) of the Act? 3. The respondent assessee had claimed depreciation in respect of the assets acquired / purchased from the lessee and given back on lease basis popularly called sale and lease back . In quantum proceedings, the Tribunal by order dated 30th April, 2014 has held the respondent assessee entitled to claim depreciation on the assets used on sale and lease back basis. This by following the decision of the Supreme Court in ICDS Ltd. Vs. Commissioner of Income Tax, 350 ITR 527. 4. Being aggrieved by the order dated 30thApril, 2014 of the Tribunal in quantum proceedings, the Revenue had filed three appeals being Income Tax Appeal Nos.1625 of 2014, 1670 of 2014 and 1694 of 2014 in this Court. On 8th March, 2017 all the three appeals were admitted on identical substantial question of law, which reads as under :- 1. Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in allowing de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumar, learned Counsel appearing for the Revenue to show us a finding by the Authorities under the Act that there has been concealment of particulars of income or furnishing inaccurate particulars of income on the part of the respondent assessee. In fact, we perused the orders of the Assessing Officer imposing penalty as well as the order of the Commissioner of Income Tax (Appeals) [CIT(A)] upholding the penalty and also the impugned order of the Tribunal. In none of these orders there is any whisper of the alleged particulars of income which has been concealed or what particulars of income which have been filed is inaccurate. Mere using the words that there has concealment of income and / or furnishing inaccurate particulars of income would not in the absence of same being particularized, lead to imposition of penalty. It is only when the specified officer of the Revenue is satisfied that there has been concealment of particulars of income or furnishing inaccurate particulars of income that the occasion to explain the conduct in terms of Explanation-I to Section 271(1)(c) of the Act would arise. 8. In the facts of the present case, we are dealing with the assessments relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the face of a statutory provision or any binding decision. In fact, the issue raised herein stands covered in favour of the respondent assessee by the decision of the Apex Court in Reliance Petroproducts Pvt. Ltd. (supra) where it has been observed that making of incorrect claim in law would not by itself amount to concealment of income or giving inaccurate particulars of income. The words concealment or giving inaccurate particulars of income have to be read strictly before the penalty provisions under Section 271(1)(c) of the Act can be invoked. In the present facts, the Revenue has not been able to show even remotely that there is any concealment of income or filing of inaccurate particulars of income. 11. In the aforesaid circumstances, the question as proposed stands concluded against the appellant revenue by the decision of the Apex Court in Reliance Petroproducts Pvt. Ltd. (supra). In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained. 12. Accordingly, all the three appeals are dismissed. No order as to costs 2.5. Considering the aforementioned judicial pronouncements, facts of the case and as held ..... X X X X Extracts X X X X X X X X Extracts X X X X
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