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TMI Blog2017 (5) TMI 904X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in the case of Dilip N. Shroff (2007 (5) TMI 198 - SUPREME Court ) as well as the judgment of the Hon'ble Bombay High Court in the case of Shri Samson Perinchery (2013 (11) TMI 369 - ITAT MUMBAI ). Thus, on this count itself the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted. - Decided in favour of assessee. - ITA No. 2555/MUM/2012 - - - Dated:- 28-4-2017 - Shri G.S. Pannu, Accountant Member And Shri Pawan Singh, Judicial Member Appellant by : Shri Farrokh V. Irani Respondent by : Shri N.P. Singh (CIT-DR) ORDER Per G. S. Pannu, AM The captioned appeal by the assessee is directed against the order of the CIT(A)-8, Mumbai dated 24.1.2012, pertaining to the Assessment Year 2008-09, which in turn has arisen from the order passed by the Assessing Officer dated 29.6.2011 under section 271(1)(c) of the Income Tax Act, 1961 (in short the Act ). 2. In this appeal, the solitary grievance of the assessee is with regard to imposition of penalty u/s 271(1)(c) of the Act. 3. In brief, the relevant facts are that the appellant is a company incorporated under the provisions of Companies Act, 1956 and for the assessment year under considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss (181,934,011) 4. On being asked to justify, assessee submitted that in the past financial years of 1997-98 and 1998-99, assessee had invested ₹ 23,50,00,000/- towards Preference shares issued by Shri Santram Finance Ltd. and such investment was redeemed by the investee company during the year under consideration at a reduced redemption price. It was explained by the assessee-company that the loss in absolute terms was only ₹ 4,32,88,277/- and that due to the indexation, the Long Term Capital Loss was determined at ₹ 18,19,34,011/- as per the provisions of the Act. The relevant discussion in the assessment order reveals that assessee was also asked to produce the basis of valuation of shares and in response assessee furnished a copy of the financial statements of Shri Santram Finance Ltd. for the financial year ending 31.3.2008. From the discussion in the assessment order it is revealed that assessee explained that the redemption value was agreed upon mutually between the parties and the investee company had incurred losses on its investments. The written submission dated 6.12.2010 of the appellant, which has been repro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de before the Assessing Officer, the learned representative has sought to demonstrate that not only assessee had furnished the complete details, but also explained the basis on which the redemption price was mutually agreed, and also justification for the same. In particular, the learned representative has emphasised that before the Assessing Officer, assessee has all along contended that in all probability, the impugned Capital Loss would not be utilized by the assessee and that the same would lapse. A reference has been made to the written submissions dated 25.11.2010 addressed to the Assessing Officer, wherein it was asserted that there is no financial benefit of carry forward of loss to the assessee-company since assessee had no business plans for earning Capital Gains in future to enable it to set-off the impugned loss against the future income and that assessee has been investing its funds in fixed deposits with bank. At the time of hearing, the learned representative for the assessee made a statement at Bar that upto Assessment Year 2016-17 assessee has not taken advantage whatsoever from the impugned Capital Loss inasmuch as assessee had not earned any positive income on ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee and, therefore, the genuineness of the transaction was rejected by the income-tax authorities. It was, therefore, contended that under these circumstances the levy of penalty u/s 271(1)(c) of the Act is quite justified. With regard to the plea of assessee that notice issued u/s 274 r.w.s 271(1)(c) of the Act was legally untenable, the ld. CIT-DR pointed out that in the assessment order itself the Assessing Officer in para 4 has recorded that the penalty u/s 271(1)(c) of the Act was initiated for furnishing of inaccurate particulars of income. It was, therefore, contended that the assessment order itself shows due application of mind by the Assessing Officer for initiation of proceedings u/s 271(1)(c) of the Act and that the notice issued u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 cannot be solely examined to see whether the Assessing Officer has duly applied his mind to the initiation of proceedings u/s 271(1)(c) of the Act. The ld. CIT-DR has also referred to the observations of the CIT(A) in para 2.12 of his order wherein the tenability and the bona fide of the explanation rendered by the assessee have been rejected. It was, therefore, contended that the pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spond. The aforesaid infirmity in the notice has been sought to be demonstrated as a reflection of non-application of mind by the Assessing Officer, and in support, reference has been made to the following specific discussion in the order of Hon'ble Supreme Court in the case of Dilip N. Shroff (supra):- 83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations. 84. The impugned order, therefore, suffers from non-application of mind. It was also bound to comply with the principles of natural justice. (See Malabar Industrial Co. Ltd. v. CIT [2000] 2 SCC 718] 9. Factually speaking, the aforesaid plea of assessee is borne out of record and having regard to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te Bench in the case of Dr. Sarita Milind Davare (supra). Our coordinate Bench, after considering the judgment of the Hon'ble Bombay High Court in the case of Smt. Kaushalya Ors., (supra) as also the judgments of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) and Dharmendra Textile Processors, 306 ITR 277 (SC) deduced as under :- 12. A combined reading of the decision rendered by Hon ble Bombay High Court in the case of Smt. B Kaushalya and Others (supra) and the decision rendered by Hon ble Supreme Court in the case of Dilip N Shroff (supra) would make it clear that there should be application of mind on the part of the AO at the time of issuing notice. In the case of Lakhdir Lalji (supra), the AO issued notice u/s 274 for concealment of particulars of income but levied penalty for furnishing inaccurate particulars of income. The Hon ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon ble Kerala High Court has struck down the penalty imposed in the case of N.N.Subramania Iyer Vs. Union of India (supra), when there is no indication in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the limbs of Sec. 271(1)(c) of the Act are reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of Assessing Officer and there is no clear and crystallised charge being conveyed to the assessee u/s 271(1)(c), which has to be met by him. As noted by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non-compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond. 14. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X
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