2018 (3) TMI 2040 - AT - Income Tax

Penalty u/s 271(1)(c) - allegation of defective notice - non striking off the irrelevant charge in the notice - assessee in compliance to the notice issued u/s 148, voluntarily disallowed expenditure in the Profit loss account and the returned loss was revised - HELD THAT - The issue involved in the present case is squarely covered by the case of Meherjee Cassinath Holdings Private Limited 2017 (5) TMI 904 - ITAT MUMBAI wherein the Tribunal after deliberating at length on the issue under consideration in the backdrop of various judicial pronouncements had concluded that the non striking off the irrelevant charge in the notice clearly reflects the non application of mind by the A.O and would resultantly render the order passed u/s 271(1)(c) in the backdrop of the said serious infirmity as invalid and void ab initio. We thus in the backdrop of illegal assumption of jurisdiction on the part of the A.O as regards penalty imposed on the assessee u/s 271(1)(c), without putting it to notice as regards the default for which it was called upon to explain as to why no such penalty was liable to be imposed in its hands, therefore, on the said count itself quash the penalty imposed in the hands of the assessee. Disallowance of expenses voluntarily - We may herein observe that as the genuineness and veracity of the expenses claimed by the assessee in respect of the payments made to Tuticorin Trexim Pvt. Ltd. had not been disproved by the revenue, therefore, simply on the basis of the unsubstantiated statement of Mr. Praveen Agarwal, which as observed by us hereinabove had not seen the light of the day and fructified into a concrete evidence on the basis of which the claim of the assessee as regards the veracity of the aforesaid expenses could safely be dislodged, no penalty under Sec. 271(1)(c) could have been validly imposed in the hands of the assessee As the contention of the assessee that its claim of expense was in respect of genuine transactions with M/s Tuticorin Trexim Pvt. Ltd and had been disallowed only with the intent to avoid protracted litigation on the said issue, had not been disproved by the revenue on the basis of any concrete material made available on record, therefore, no penalty under Sec. 271(1)(c) on the said count also could not have been imposed in the hands of the assessee. As persuaded with the view taken by the CIT (A) that as the assessee had already disallowed the expenses in the return of income filed in compliance to notice issued under Sec. 148 of the Act, which was accepted by the A.O, as such, therefore, in the absence of any addition or disallowance made in respect of the same by the A.O while framing the reassessment, no penalty under Sec. 271(1)(c) could have validly been made in the hands of the assessee. A.O had erred both in law and facts of the case in imposing penalty under Sec. 271(1)(c) in the hands of the assessee. Decided against revenue.

Issues Involved:
1. Validity of the penalty proceedings under Sec. 271(1)(c) of the Income Tax Act, 1961.
2. Whether the assessee had concealed particulars of income or furnished inaccurate particulars of income.
3. The impact of the assessee's voluntary disallowance of expenses in response to the notice under Sec. 148.
4. The relevance and evidentiary value of the statement made by Mr. Praveen Agarwal during the search and seizure proceedings.
5. The applicability of judicial precedents and legal principles to the facts of the case.

Issue-wise Detailed Analysis:

1. Validity of the Penalty Proceedings under Sec. 271(1)(c):
The Tribunal observed that the Assessing Officer (A.O.) failed to strike off the irrelevant default in the "Show Cause" notice issued under Sec. 274 r.w.s. 271(1)(c), thereby not specifying whether the penalty was for "concealment of income" or "furnishing inaccurate particulars of income." This non-application of mind by the A.O. and lack of clarity in the notice deprived the assessee of a reasonable opportunity to defend itself, rendering the penalty proceedings invalid. The Tribunal relied on the judgments of the Hon’ble Supreme Court in the cases of Dilip N. Shroff and T. Ashok Pai, and the Hon’ble High Court of Karnataka in CIT Vs. SSA’s Emerald Meadows, which were affirmed by the Hon’ble Supreme Court.

2. Concealment of Income or Furnishing Inaccurate Particulars:
The Tribunal noted that both "concealment of income" and "furnishing inaccurate particulars of income" are distinct defaults. The A.O. must clearly specify the charge for which the penalty is being levied. The Tribunal found that the A.O. did not provide a clear and crystallized charge, leading to a violation of the principles of natural justice. The Tribunal held that the penalty could not be sustained as the A.O. was not sure whether the penalty was for concealment or furnishing inaccurate particulars.

3. Voluntary Disallowance of Expenses:
The Tribunal observed that the assessee had voluntarily disallowed the expenses in its return of income filed in response to the notice under Sec. 148. The Tribunal held that the voluntary disallowance by the assessee to avoid protracted litigation, especially in light of continuous losses, indicated no intention of tax evasion. The Tribunal relied on the judicial pronouncements in the cases of Vipul Life Sciences Ltd. and Kiran Shah, which held that no penalty could be imposed if the additional income or reduced loss was declared in response to a notice under Sec. 148.

4. Relevance and Evidentiary Value of Mr. Praveen Agarwal’s Statement:
The Tribunal found that the revenue heavily relied on the unverified statement of Mr. Praveen Agarwal, who was not a director of Tuticorin Trexim Pvt. Ltd. The Tribunal observed that the statement alone, without any corroborative evidence, could not be taken as conclusive proof against the assessee. The Tribunal noted that the revenue failed to provide any concrete material evidence to substantiate the claim that the transactions were bogus.

5. Applicability of Judicial Precedents:
The Tribunal extensively referred to various judicial precedents, including the judgments in the cases of CIT Vs. Suresh Chandra Mittal, CIT Vs. Upendra V. Mithani, and CIT Vs. SSA’s Emerald Meadows. The Tribunal held that unless the revenue could conclusively prove that the assessee had concealed its income or furnished inaccurate particulars, no penalty under Sec. 271(1)(c) could be imposed. The Tribunal also distinguished the case of MAK Data P. Ltd. Vs. CIT, noting that the facts of the present case were different as the assessee had voluntarily disallowed the expenses without any concrete evidence against it.

Conclusion:
The Tribunal upheld the deletion of the penalty imposed by the A.O. under Sec. 271(1)(c) for all the assessment years involved. The Tribunal found that the penalty proceedings were invalid due to the A.O.'s failure to specify the charge and the lack of concrete evidence to prove the assessee's concealment of income or furnishing inaccurate particulars. The Tribunal dismissed the appeals filed by the revenue for the assessment years 2007-08 to 2011-12.

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