9911796707
TMI Blog2018 (12) TMI 1319X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Satishchandra Rajore, Ld. DR, defended the imposition of penalty. 2.1. We have considered the rival submissions and perused the material available on record. Before adverting further, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 14/09/2017. "The appeal filed by the assessee is directed against the order dated 16- 12-2016 passed by Ld CIT(A)-3, Mumbai and it relates to the assessment year 2006-07. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the disallowance of expenses of Rs. 13.87 lakhs as expenses not relating to long term capital gain earned by the assessee. The assessee also seeks direction to assess the Long term capital gains at concessional rate of tax. 2. The assessee is a share trading and investment company. It filed its return of income declaring a total income of Rs. 10,25,000/-. The assessing officer determined the total income at Rs. 1,03,53,890/- by treating capital gains as business income; disallowing administrative expenses; adding deemed dividend and adding transactions not disclosed in the books. It appears that the assessee had claimed all administrative expenses as deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s:- Salary and allowances Rs. 13,37,196/- Stock exchange expenses Rs. 22,190/- Demat charges Rs. 804/- Legal expenses Rs. 4,556/- Security transaction tax Rs. 6,221/- Office expenses Rs. 3,121/- Interest paid Rs. 13,758/- Rs. 13,87,846/- The Ld CIT(A) confirmed the order of the AO by observing that the assessee has failed to furnish the details of expenses. Aggrieved, the assessee has filed this appeal. 4. The Ld A.R submitted that the assessing officer has failed to implement the directions of ITAT. He submitted that the salary was paid to directors and other staffs. He submitted that the Companies Act mandates that a company shall have minimum two directors and accordingly contended that the salary paid to directors amounting to Rs. 7,32,505/- should be considered as expenditure incurred in maintaining corporate status. He submitted that the assessee has acquired stock exchange membership card during the year under consideration, which shows that it was in the process of fulfilling its objects by starting share trading activities. Hence the assessee was required to employ other staffs and hence the salary paid to them should also be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... way of capital gains out of its investment activities. In that case, the natural corollary is that the services of the directors and employees have been mainly used in connection with the investment activities only. At the same, it is also true that the directors and employees would have contributed in connection with the corporate activities related to maintaining corporate structure. In this view of the matter, I am of the view that 25% of salary expenses incurred on directors as well as other staffs can be considered as having been incurred in connection with maintaining corporate structure. Accordingly I modify the order passed by Ld CIT(A) on this issue and direct the AO to treat 25% of the salary expenses as revenue expenses incurred in maintaining corporate structure. 10. The assessee has not given details of office expenses of Rs. 3,121/-. Hence, in my view, 50% thereof may be considered as incurred in maintaining corporate structure and allowed. I order accordingly. 11. Interest expenditure, demat charges and security transaction charges cannot be considered as expenses relating to maintaining corporate structure. Accordingly I confirm the disallowance of the same. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the matter, I am of the view that 25% of salary expenses incurred on directors as well as other staffs can be considered as having been incurred in connection with maintaining corporate structure. Accordingly I modify the order passed by Ld CIT(A) on this issue and direct the AO to treat 25% of the salary expenses as revenue expenses incurred in maintaining corporate structure." 2.3. So far as, claim is concerned, the decision from Hon'ble Apex Court in Reliance Petro Products, comes to the rescue of the assessee, wherein, it was held that even if a wrong claim is made then no penalty will be leviable under section 271(1)(c) of the Act because the assessee furnished the particulars for such claim. The decision of the Tribunal in the case of M/s Tata Communication Transformation Services Ltd. vs DCIT (ITA No.3108/Mum/2016), order dated 21/02/2018 clearly comes to the rescue of the assessee. The relevant portion of the same is reproduced hereunder:- "This appeal filed by the assessee is directed against order of the Commissioner of Income Tax (Appeals)-14, Mumbai dated 23.02.2016 and it pertains to assessment year 2010-11. The assessee has raised the following grounds of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er u/s. 271(I)(c) of the Income-tax Act, 1961 on the Appellant. 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject it has neither concealed any income nor furnished inaccurate particulars of income and hence no penalty whatsoever can be levied on it u/s.271(1)(c) of the Income-tax Act, 1961 and the Commissioner of Income-tax (Appeals) ought to have held as such. 1 : 3 The Appellant submits that the impugned Order levying penalty u/s.271(1)(c) of the Income-tax Act, 1961 be struck down. 2: 0 Re : General: 2 : 1 The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal." 3. The brief facts of the case are that in this case return of income was filed declaring total income of Rs. 7,55,19,904/-. The assessment was completed under section 143(3) on 04.03.14 determining the total income at Rs. 8,21,77,620/- inter-cilia making additions towards disallowance of corporate revenue on which exemption under section 10A/10AA was claimed amounting to Rs. 66,57,7211-. Subsequently, penalty proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order that the AO has initiated penalty proceedings for furnishing of inaccurate particulars of income and concealment of income under section 271(1)(c) of the Act. Therefore, the argument of the assessee regarding the notice not specifying the details is not acceptable. With these observations the Ld. CIT(A) confirmed the penalty levied by the AO. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. 5. The Ld. A.R. for the assessee, at the outset, submitted that the issue is squarely covered in favour of the assessee by the decision of Hon'ble Bombay High Court in the case of Shri Samson Perinchery vs. ACIT, (2017) ACIT 392 ITR 4 and also the decision of Mumbai ITAT in the case of M/s. Cenzar Industries Ltd. vs. ITO in ITA No.1970/M/2015 dated 29.12.17 wherein the issue of vague notice has been discussed in the light of various case laws including the decision of Hon'ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Karn.) wherein it was categorically held that satisfaction of the existence of the grounds mentioned in section 271(1)(c) when it is a sine qua non initiation of proceedings, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vague notice without striking off inappropriate portion in the notice whether the penalty has been levied for concealment of particulars of income or furnishing of inaccurate particulars of income, therefore, the penalty levied on such vague notice cannot survive. We find that the issue of notice under section 274 r.w.s 271(1)(c) has been dealt by this Tribunal in various cases including in the case of M/s. Cenzar Industries Ltd. vs. ITO in ITA No. 1970/M/2015 dated 29.12.17 wherein after considering the relevant facts and also relied upon various judicial precedents including the decision of Hon'ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory (supra) and also the decision of Hon'ble Bombay High Court in the case of Shri Samson Perinchery vs. ACIT (supra), has held that penalty proceedings initiated under section 271(1)(c) is void ab initio and liable to be quashed, if the AO issued vague notice under section 274 r.w.s 271(1)(c) without striking off irrelevant portion of notice and also if the AO has not made a specific charge whether penalty proceeding is initiated for concealment of particulars of income or furnishing of inaccurate par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the initiation of the penalty proceedings also must be for both the offences. But initiating penalty proceedings for one offence and finding the assessee guilty of another offence or holding him guilty for either one or the other cannot be sustained in law. This legal proposition is clearly reiterated by the Honble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory Ltd (supra) wherein it was categorically held that satisfaction of the existence of the grounds mentioned in section 271(1)(c) when it is a sine qua non initiation of proceedings, the penalty proceedings should be confined only to those grounds and the said ground should be specifically stated so that the assessee would have the opportunity to meet those grounds. Initiation of penalty on one ground and levying penalty on another ground would cause injustice to the assessee as the assessee was kept in blank to justify his case whether the AO sought to initiated penalty for concealment of particulars of income or furnishing of inaccurate particulars of income. If the proceedings are initiated on a specific charge, then, the assessee can justify its case by advancing arguments on the charge framed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of particulars of income and another may relate to furnishing of inaccurate particulars of income, but single addition made cannot lead to an inference of concealment of particulars of income and furnishing of inaccurate particulars. Therefore, we are of the considered view that before initiation of penalty proceedings, the AO has to arrive at a correct satisfaction as to whether penalty is initiated for concealment of particulars of income or furnishing of inaccurate particulars of income. If the AO fails to initiate penalty proceedings by issuance of proper notice, then the whole penalty proceedings becomes vitiated and void ab initio. 13. Coming to the case laws relied upon by the assessee. The assessee has relied upon the decision of Honble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory vs CIT (supra), wherein the Honble High Court has categorically observed that sending printed form of notice where all the grounds mentioned in section 271(1)(c) are mentioned would not satisfy requirement of law. Notice issued u/s 274 of the Act should specifically state the ground mentioned in section 271(1)(c), i.e. whether it is for concealment of income or for fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground on which the penalty proceedings has been initiated and it cannot be on a fresh ground of which assessee has no notice. The relevant portion of the order is extracted below:- "The above submission on the part of the Revenue is in the the decision of the Supreme Court in Ashok Pal v/s. CIT 292 ITR [relied upon in Manjunath Cotton & Ginning Factory (supra)] - wherein it is observed that concealment of income and furnishing of inaccurate particulars of income in Section 271(1)(c) of the Act, carry different meanings/ connotations. Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under Section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/ permit penalty being imposed for the other breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated / notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground on which the penalty proceedings has been initiated and it cannot be on a fresh ground of which assessee has no notice." 15. The assessee has also relied upon the decision of Hon'ble Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um of penalty proposed to be imposed and not with reference to the doing away with the issue of show cause notice as contemplated under section 274 of the Act. 9. In the view of the matter and consistent with the view taken by the coordinate bench in the case of MIs. Cenzar Industries Ltd. vs. ITO (supra), we are of the considered view that the penalty proceedings initiated by the AO by issue of notice under section 274 r.w.s 271(1)(c) without striking off the irrelevant portion of notice is a clear case of non application of mind by the AO, whether penalty has been initiated for concealment of particulars of income or furnishing of inaccurate particulars of income. We further noticed that the AO has issued printed form of notice without striking off irrelevant portion and also in the penalty order he does not specify under which charge penalty has been initiated. Therefore, we are of the considered view that the penalty proceeding initiated by the AO is bad in law and liable to be quashed. Hence, we quash the penalty proceedings and delete penalty levied by the AO under section 271(1)(c) of the Act. 10. In the result, appeal filed by the assessee is allowed." 2.4. Identical r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by holding that on merits it had by its order dated 30th April, 2014 in quantum proceedings for all the three years, held that the respondent assessee is entitled to the claim of depreciation on its assets as claimed. Thus, deleted the penalty. 6. The Revenue seeks admission of these appeals from the impugned order dated 19th March, 2015 deleting penalty under Section 271(1)(c) of the Act on the ground that the appeals in the quantum proceedings have been admitted by this Court. It is a settled position in law that mere rejection of a claim made by the assessee would not ipso facto result in penalty under Section 271(1)(c) of the Act. In fact, in Commissioner of Income Tax Vs. Reliance Petroproducts Pvt. Ltd. 2010 (11) SCC 762, the Apex Court observed that "Merely because the assessee's had claimed the expenditure, which claim was not accepted or not acceptable to the Revenue, that by itself would not in our opinion attract penalty under Section 271(1)(c)". Before penalty can be imposed under Section 271(1)(c) of the Act, the Revenue in terms thereof must be satisfied that the assessee had concealed particulars of income or furnished inaccurate particulars of his income. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n shown to us. It is pertinent to note that in the order dated 30th April, 2014 in quantum proceedings, the Tribunal has read the decision in case of ICDS Ltd. (supra) of the Apex Court covering the issue in favour of the assessee even in case of finance lease. Thus, the issue in respect of claim made is clearly debatable. It is further to be noted that it is not the case of the revenue in the absence of particularization that the basis of the claim was by suppression /concealment of income or filing of inaccurate particulars of income. Once suppression or filing of inaccurate particulars is absent, no penalty is imposable only for making a claim not acceptable to the Revenue. 9. Further, reliance by the impugned order dated 19th March, 2015 upon the decision of the Delhi High Court in Zoom Communication Pvt. Ltd. (supra) is based on the fact that the claim made by the assessee therein was without any foundation. Further, in the above case, it was pointed that it was apparent that the respondent therein was not acting bona fide while making claim for deduction. Moreover, the same had not been added back in the computation of income due to oversight. Thus, prima facie there was ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
