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TMI Blog2018 (9) TMI 1829X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions in the computation of income filed by it for the earlier Assessment Year. On the one hand wrong computations of income were filed for the earlier A.Y. The claim that on a belief that the assessee had suo moto disallowed provisions for the earlier year, deductions of the writebacks were claimed as not taxable in this year is not believable on the facts of this case. The order of assessment in this case has been framed with reference to revised return filed by the assesee and hence, in our view, the concealment of income or furnishing of inaccurate particulars of income have to be viewed with reference to this revised return of income and not to the original return of income as the revised return of income is a valid return of income. We are of the considered view that on the facts of this case the Explanation given by the assessee is not bonafide and the claims made are not inadvertent mistakes. The assessee in our view has furnished inaccurate particulars of income and hence penalty u/s 271(1)(c ) has been rightly levied by the Ld.AO and it has rightly been confirmed by the Ld.CIT(A). Coming to the initiation of penalty proceedings, the AO had initiated penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was reduced on assessment, is baseless and untenable. 5. That the Ld.CIT(A) has erred both on facts and in law in not appreciating that penalty proceedings u/s 271(1)(c) of the Act in respect of disallowances mentioned in ground nos. 1,2 and 3 were initiated without recording adequate satisfaction which is a sine qua non for initiating penalty proceedings. 2.1. The grounds of appeal in the Revenue s appeal are as follows. 1. On the facts and in the circumstances of the case and in law, the CIT(A) erred in cancelling the penalty levied u/s 271(1)(c) of the Act, upon the assessee company in respect of disallowance of depreciation of ₹ 1,74,02,789/- observing that the AO did not record his satisfaction in the assessment order did not record his satisfaction in the assessment order as to the concealment of income by the assessee company on this account which means that the CIT(A) ignored the ratio of the decision of the Hon ble Allahabad High Court in 259 ITR 625 wherein it has been held as under: It may be noted that whenever the AO has to record his satisfaction under the Income Tax Act, it is specifically mentioned e.g. in sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debatable views then there can be no penalty for concealment of income. 1.7. That the appellant filed a loss return which was reduced on assessment and therefore no penalty is leviable. The above grounds are without prejudice to each other. The appellant craves leave to add, amend, alter or vary from the above grounds at or before the time of hearing. 3. Facts of the Case: The assessee is a company and is engaged in the business of producing and manufacturing of hybrid seeds. It originally filed its return of income on 31.10.2002 declaring income of ₹ 1,33,03,902/-. The return was processed u/s 143(1) and the case was selected for scrutiny and notice was issued u/s 143(2) on 14.10.2003. The assessee filed a revised return of income on 14.10.2003 declaring a loss of ₹ 96,29,070/-. 3.1. The assessee was initially claiming the activity of production and distribution of hybrid seeds as agricultural activity and income there from was claimed as exempt. Subsequent to the decision of the ITAT in the case of the Holding company of the assessee M/s Pro Agro Seeds Ltd., the assessee started treating its activity as business activity and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal held that the AO has not recorded his satisfaction before initiating proceedings u/s 271(1)(c) and hence the judgment of the Jurisdictional High Court in the case of CIT vs. Jai Bharathi, 165 Taxman 243 (Delhi) is applicable to the facts of the case. It granted relief. The Revenue carried the matter in appeal. The Hon ble High Court in ITA No.1060/2008 vide Judgment dt. 17.9.2008 referred to the decision of the Hon ble Supreme Court in the case of CIT vs. Gold Coil Health Foods Pvt.Ltd. 304 ITR 308, as well as the introduction of Sub-section 1B of Section 271 of the Act by the Finance Act,2008 with retrospective effect from 1.4.1989 and set aside the matter to the file of the Tribunal for a decision on merits. Thus the issue is before us. 5.1. We first take up the assessee s appeal. 5.2. Mr.C.S.Aggarwal, the Ld.Counsel for the assessee submitted that due to an error in description internally, a mistake occurred while preparation of the return and a sum of ₹ 56,92,249/- representing provision made for slow moving inventory and ₹ 19,96,181/- representing provision for doubtful debts were inadvertently claimed. He pointed out that the claims in qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment order and that it was a silly mistake done by the clerks and hence penalty should not be levied. 5.4. Mr.Sameer Sharma, the Ld.D.R. on the other hand opposed the contentions and submitted that the deduction in question were deliberately claimed. He disputed the contentions of the assessee that these are silly mistakes by pointing out that the assessee is well advised by reputed C.A. firm M/s S.R.Batliboi Co. and it does not appear that the claims in question were inadvertent mistakes. He wondered as to how the assessee could imagine that the provisions for the earlier year were added back to the last year s income and that on this belief it claimed deductions of write back of provisions this year. He argued that the earlier years computation of income and assessment record were before the assessee and it is clear from those documents that the assessee had not disallowed in its computation the provisions created in that year, hence its claim to believe otherwise is wrong. He relied on the decision of the Jurisdictional High Court in the case of CIT vs. Zoom Communications Pvt.Ltd. (2010) 327 ITR 510 (Del) and submitted that, had the return not been take up for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision for doubtful debts ₹ 4,795,485/- which pertains to provision created during the subject year, has been added back in computing the taxable income of HRI for the subject year and ₹ 1,763,688 being provisions written back, has been subtracted in computing the taxable income of HRI for the subject year. The sum of ₹ 1,763,688 as regards provision written back as per financials and return of income, pertains to excess provisions written back and is included in the figure of Provision no longer required and written back reflected in Schedule 11 of the balance sheet-other income. Provision for doubtful advances In respect of provision for doubtful advances no provision has been created during the year and accordingly nothing has been added back in this regard in computing the taxable income of the subject year. The provision which is outstanding on March 31,2002 i.e. the closing balance is the same as the opening balance and no adjustments have been made in this regard. Accordingly, there is no corresponding adjustment in the return of the subject year. Provision for slow moving inventory The provision in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e asssesee has admitted that it had wrongly claimed deductions on account of provision for slow moving inventory and on account of doubtful debts written off. In fact in this assessement order the AO has recorded that vide order sheet entry dated 25.02.2005 the Authorized Representative was asked to explain as to why provision for inventory written off should be allowed and also that vide order sheet entry dated 14.03.2005 the Authorized Representative was asked to furnish details of doubt full debts written-off, which demonstrates that it is only after enquiry and issue of a show cause notice by way of order sheet entry, the assessee admitted to its making double claims. The contention of the assesee that it was under a belief that these provisions in question were disallowed in the earlier AY is not believable for the reason that, it is a matter of record that that assesee has not suo moto disallowed these provisions in the computation of income filed by it for the earlier Assessment Year. On the one hand wrong computations of income were filed for the earlier A.Y. The claim that on a belief that the assessee had suo moto disallowed provisions for the earlier year, deductions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is as under : (a) Penalty under section 271 (1) (c) is a civil liability. (b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. (c) Willful concealment is not an essential ingredient for attracting civil liability. (d) Existence of conditions stipulated in section 271 (1) (c) is a sine qua non for initiation of penalty proceedings under section 271. (e) The existence of such conditions should be discernible from the assessment order or the order of the appellate authority or the revisional authority. (f) Even if there is no specific finding regarding the existence of the conditions mentioned in section 271(1) (c), at least the facts set out in Explanation 1(A) and 1(B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. (g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under section 271(1)(c) is a sine qua non for the Assessing Officer to' initiate the proceedings because of the deeming provision contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (s) Taking up of penalty, proceedings on one limb and finding the assessee guilty of another limb bad is bad in law. . (t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. (u) The findings recorded in the assessment proceedings in so far as concealment of income and furnishing of incorrect particulars would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on the merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings. In our view, on application of all these propositions to the facts of this case, we have to uphold the levy of penalty. (ii) The Hon ble Delhi High Court in the case of Ms.Madhushree Gupta vs. UOI and another (2009) reported in 317 ITR 107 has laid down that prima facie satisfaction of the AO that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngineering (supra) would show that the Full Bench: (i) applied the law, as it ought to, as declared in D.M. Manasvi (supra) and S.V. Angidi Chettiar (supra)WP(C) No. 5059-2008 Page 49 of 64 (ii) a fortiori the principle for initiation of penalty proceedings being the prima facie satisfaction of the Assessing Officer during the course of assessment proceedings being discernible from the record, was reiterated. (iii) the irrelevance of - the Assessing Officer having to say so in so many words that I am satisfied was highlighted. (iv) the judgment of the Division Bench in Ram Commercial was affirmed which enunciated that: Firstly satisfaction should be that of Assessing Officer. Secondly, the assessment order should reflect such satisfaction. In our opinion the impugned provision only provides that an order initiating penalty cannot be declared bad in law only because it states that penalty proceedings are initiated, if otherwise it is discernible from the record, that the Assessing Officer has arrived at prima facie satisfaction for initiation penalty proceedings. The issue is of discernibility of the satisfaction arrived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue had not disputed the claim of the assessee that this is a bonafide mistake. In the case on hand the Ld.D.R. disputed the claim of the assessee that this is a bonafide mistake. (ii) CIT vs. Oscar Udyog Ltd. (2014) 42 Taxmann.com 258 (Karnataka) the Hon ble High Court was considering a case where the assessee was eligible to make a particular claim for deduction and it was only on a demand by the department that it withdrew the eligible deduction and in those circumstances it was held that the assessee had no malafide intention. Hence the facts are entirely different from the case on hand. (iii) Price Waterhouse Coopers P.Ltd. vs. CIT and another (2012) 348 ITR 306 (S.C.), the conclusion drawn was that the mistake was bonafide and it was an inadvertent error. This is not a conclusion drawn by us on the facts of this case. We are of the opinion that the mistake cannot be called as a bonafide mistake or inadvertent error on the facts of this case. Hence the propositions laid down in this case law is not applicable. (iii) We have considered all the other decisions cited by the Ld.Counsel for the assessee and are of the opinion that they are not applic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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