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TMI Blog2017 (8) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... Act on 24/05/2011 for the year under consideration.It was observed by AO that bogus bills were debited in the books of the assessee,that material whatsoever was received by it against accommodation bills, that it had inflated cost of construction of the project by debiting bogus bills in its accounts, that the cost of construction was carried forward as work-in-progress(WIP) since the project was under development .As the books of account of the assessee for the year were closed at the time of search so it could not give effect to such bogus purchases in the relevant year in its books. To give effect to the admitted bogus purchases the assessee reduced opening WIP in the AY. 2011-12 by the admitted amount of bogus purchases.The contention raised by the assessee was accepted during the assessment proceedings. The AO initiated penalty proceedings u/s. 271(1)(c).After considering the submissions of the assessee,dated 28/03/2013,the AO held that the assessee had debited bogus bills in its regular books of account, that it was following percentage method of accounting, that during the year under consideration the project of the assessee was not complete, that the assessee had passed bog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es related to the assessee company,that out of the said amount a sum of Rs. 85.49 lakhs related to the year under appeal, that no purchases had taken place, that the assessee had obtained accommodation entries with a view to jack up expenses to reduce taxable profits and the closing WIP, that the purchases were debited to books of account i.e. P&L account, that subsequent to the search the assessee had reduced the same from the closing WIP,that it was a clear case of falsification of books of account and jacking of expenditure.The FAA referred to Explanation 5A to Section 271(1) (c) and observed that no addition was made by the AO while computing assessment, that the returned income and assessed income remained same,that the assessee was found to be debiting bogus expenditure in his books of account,that closing WIP was akin to the loss incurred by assessee during the year as envisaged under Explanation 4 to section 271(1)(c), that the AO had rightly levied penalty u/s.271(1)(c) of the Act. With regard to levy of penalty in respect of claim of set off of brought forward losses,he observed that the AO had found that there was substantial change in the share holding pattern of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Departmental Representative (DR)contended that the penalty was levied in the year when expenses were claimed, that the assessee had booked bogus purchases,that it was following percentage completion method, that by booking bogus purchases the assessee had impliedly evaded the tax,that it had committed an offence u/s.271(1)(c)of the Act.He referred to the case of K.P. Madhusudan,delivered by the Hon'ble Apex Court.In his rejoinder, the AR referred to the case of K.C. Builder (265 ITR562) and stated that as there was no income in the year under consideration,so no penalty was leviable u/s.271(1)(c)of the Act. 5.We have heard the rival submissions and perused the material available on record.We find that the MD of the group,during the search and seizure proceedings,admitted undisclosed income on account of bogus purchase bills taken by various entities of the group,that that the cost of construction was carried forward as WIP,that the AO levied penalty on two counts namely bogus purchases and carry forward of losses,that the FAA had confirmed the order of the AO. Before proceeding further,we would like to refer to the order of Meharjee Cassinath Holdings Private Ltd.(supra)wherei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tailed as under :- XXXX 5. At the time of hearing, the learned representative for the assessee pointed out that the quantum assessment proceedings have become final inasmuch as assessee has not gone in appeal against the action of the Assessing Officer. ......... Another pertinent point raised by the assessee was that the penalty notice issued u/s 274 r.w.s. 271 of the Act dated 10.12.2010, a copy of which has been placed on record, reveals nonapplication of mind by the Assessing Officer inasmuch as the irrelevant portion of the notice has not been struck off. It was, therefore, contended that the levy of penalty is illegal and deserves to be setaside. In support of the aforesaid proposition, reliance has been placed on the following decisions :- i) M/s. SSA's Emerald Meadows, ITA No. 380/2015 dated 23.11.2015 (Hon'ble Karnataka High Court); ii) Manjunatha Cotton and Ginning Factory & Ors., 359 ITR 565 (Kar.); iii) Dilip N. Shroff, 161 Taxman 218 (SC); iv) Dr. Sarita Milind Davare, ITA No. 2187 & 1789/Mum/2014 dated 21.12.2016; v) Shri Samson Perinchery, ITA No. 4625 to 4630/Mum/2013 dated 11.10.2013 XXXX 7......... With regard to the plea of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(c) of the Act dated 10.12.2010 has been issued to the assessee company. A copy of the said notice has been placed on record and the learned representative canvassed that the same has been issued by the Assessing Officer in a standard proforma,without striking out the irrelevant clause. In other words, the notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealment of the particulars of income as well as furnishing of inaccurate particulars of income. Quite clearly, non-striking-off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges it has to respond. The aforesaid infirmity in the notice has been sought to be demonstrated as a reflection of nonapplication 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 Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2014 dated 5.1.2017 (supra) and the decision of the Tribunal holding levy of penalty in such circumstances being bad, has been approved. 11. Apart from the aforesaid, the ld. CIT-DR made an argument based on the decision of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Others, 216 ITR 660 (Bom.) to canvass support for his plea that non-striking off of the irrelevant portion of notice would not invalidate the imposition of penalty u/s 271(1)(c) of the Act. We have carefully considered the said argument set-up by the ld. CIT-DR and find that a similar issue had come up before our coordinate 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arita Milind Davare (supra), we hereby reject the aforesaid argument of the ld. CIT-DR. 13. Apart from the aforesaid discussion, we may also refer to the one more seminal feature of this case which would demonstrate the importance of non-striking off of irrelevant clause in the notice by the Assessing Officer. As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are to be initiated for furnishing of inaccurate particulars of income. However, in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act of even date, 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 nonstriking 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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