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TMI Blog2020 (3) TMI 590X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the penalty proceedings; * Issue of show-cause notice in standard formal does not absolve the AO from the mandatory requirement of a reasoned notice to be issued prior to initiating the penalty proceedings; * In view of various judicial pronouncements, issue of such a plain show cause notice u/s. 274 is invalid and ab-initio void. 1.3 The Appellant therefore, prays that the show-cause notice issued u/s 274 r.w.s. penalty order by the Ld. AO be held as null and void in the absence of principle of natural justice and on account of passing of a non-speaking order. 2.1 On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the action of the AO in levying penalty of Rs. 1,58,30,000/- under section 271(1)(c) of the Act on the alleged ground that the Appellant has furnished inaccurate particulars and has concealed its income. 2.2 The Ld. CIT(A) failed to appreciate and ought to have held that: a. the Appellant had suo-motu filed a revised return withdrawing deduction claimed u/s. 10B of the Act; b. for the purpose of penalty proceedings, the relevant return is revised return, if the Appellant has satisfied all the condition as la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 16,15,484/- after claiming deduction of Rs. 46,54,118/- u/s 10B of the Act. Thereafter, the assessee filed revised return on 05.12.2012 withdrawing its claim of deduction u/s 10B and declaring total income of Rs. 4,92,69,602/-. The difference between the returned income and assessed income was on account of disallowance of deduction of Rs. 4,76,54,118/- u/s 10B of the Act. Subsequent to assessment, the AO initiated penalty proceedings u/s 271(1)(c) of the Act. In response to the show cause notice dated 02.07.2014 issued by the AO the assessee filed a written submission dated 10.07.2014. The AO noted that in the original return of income, the assessee had claimed deduction of Rs. 4,76,54,118/- u/s 10B. The AO issued the notice u/s 143(2) on 31.07.2012. Subsequently, during the course of assessment proceedings, the assessee filed revised return of income withdrawing its claim of deduction u/s 10B of Rs. 4,76,54,118/-, on the reason that the requisite period of 10 years for allowance of deduction u/s 10B had already expired. As per the assessee, it relied on the Auditor's report in Form 56G, while claiming deduction. The AO observed that (i) the assessments for AYs 2006-07, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admittedly there is no concealment or inaccurate furnishing of income in such revised return. On merits, it is explained by him that penalty cannot be levied based on following propositions. (a) If claim of deduction was based on an expert opinion/legal advice/CA advice/audit report and then such claim is disallowed, no penalty can be levied. It is stated (i) that in the case of the appellant, its claim in original return was based on Form 56G and hence no penalty can be levied, since it was based on expert certification, (ii) in assessment for the past years from AY 2006-07 to AY 2010-11 (except AY 2009-10) u/s 143(3), similar Form 56G and claim u/s 10B were accepted, (iii) the inadvertent mistake which crept in the column "number of consecutive assessment year in which deduction is claimed" thus continued, ultimately, since revised return has been accepted effectively appellant has claimed deduction only for 9 years i.e. upto AY 2010-11. (b.) If deduction is claimed based on bona fide belief, penalty u/s 271(1)(c) cannot be levied. The Ld. counsel submits that in the present case deduction u/s 10B in original return was based on Form 56G and hence appellant had a bona fide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard, reliance is placed by him on the decision by the Hon'ble Supreme Court in Dilip Shroff (161 Taxman 218). Thus it is stated that in the present case observations in assessment proceedings cannot be said to have "initiated the penalty" proceedings and accordingly, in absence of striking off any one limb in show cause notice, the entire penalty proceedings are bad in law. Reliance is placed on the order of the ITAT, Mumbai in Jehangir Hc Jehingir, wherein the Tribunal has deleted penalty where AO had levied penalty on both limbs. Reliance is also placed by him on the decision in Reliance Petroproducts 322 ITR 158 (SC). 5.1 The Ld. counsel submits that in absence of indication of specific charge/reasons for levy of penalty u/s 271(1)(c) and where the inappropriate portion in the notice is not struck off, notice dated 15.01.2014 issued u/s 274 r.w.s 271 of the Act is defective. In this regard reliance is made by him on the decision in CIT v. Manjunatha Cotton & Ginning Factory (359 ITR 565) (Kar.); CIT v. SSA's Emerald Meadows (73 taxmann.com 241) (Kar)(HC); CIT v. SSA's Emerald Meadows (73 taxmann.com 248) (HC); CIT v. Samson Perinchery (ITA No. 1154, 953, 1097, 1226/2014, orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c detection to that effect. In this regard, the Ld. counsel relies on the decision in CIT v. Shri Rajram Cloth Stores (214 ITR 262) (Mad (HC), Prema Gopal Rao v. DCIT (ITA No. 8653/M/2011, order dated January 1, 2015) (Trib-Mum), ACIT v. Ashok Raj Nath (ITA No. 2970/Del/2012, order dated August 31, 2012 (Trib- Del.), ACIT v. Prem Chand Garg (31 SOT 9/2009) (Trib- Del), Shri Manhar Lal Modi v. ITO (ITA No. 2063, 6064, 2065, 2066/Ahd/2009, order dated August 27, 2009) (Trib-Ahd). Further, it is stated by him the return validly revised u/s 139(5) for correcting a bona fide mistake in the original return for withdrawing claim of deduction etc. the same cannot attract penalty u/s 271(1)(c). In this context, the Ld. counsel refers to the decision in Cheap Cycle Stores v. CIT (154 Taxman 284) (All.), CIT v. Backbone Enterprises (195 Taxman 200) (Guj), CIT v. Shankerlal Nebhumal Uttamchandani (311 ITR 327). Finally, relying on the decision in Sesa Resources Ltd. v. ACIT (38 taxmann.com 224); ITO v. Sanjeev Mishra (41 SOT 17), the Ld. counsel submits that mere denial of claim would not per se result in levy of penalty u/s 271(1)(c). 5.2 The Ld. counsel submits that in the case of the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied. Elaborating further, it is explained by him that the appellant had commenced manufacture/production on December 1, 2000; however, it was registered as a 100% EOU only on 25.08.2001 and these facts have never been disputed and thus there is no furnishing of inaccurate particulars of income. Further, it is stated by him that the appellant was in the bona fide belief that since it was registered as an EOU only on 25.08.2001, it was entitled to the deduction u/s 10B for 10 consecutive assessment years beginning with the AY 2002-03 relevant to the Previous Year 2001-02 (in which it obtained registration of EOU); on the past precedents and possible interpretation of language u/s 10B as well as the report of the Auditor in Form 56G, the appellant was under a bona fide belief that deduction u/s 10B for AY 2011-12, being the 10th consecutive year was claimable. Elaborating further, the Ld. counsel states that when the scrutiny assessment was going on in respect of the captioned year, the appellant was contemplating to start another undertaking for its software business and in fact a new LLP name, Rheal Software Technology Solution was incorporated in March 2011 and was registered as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection made by the AO much prior to voluntary surrender of income and confirmed penalty ignoring plea of assessee like "voluntary disclosure", "buy peace", "avoid litigation", "amicable settlement", etc. to explain away its conduct. It is thus submitted by the Ld. counsel that in the present case, as demonstrated from notices issued u/s 142(1), it is clear that the notices are quite general in nature ; number of details called for in such notices were not applicable at all to facts of the present case ; though notice u/s 143(2) was issued on 31.07.2012 and notice u/s 142(1) was issued on 24.11.2012, there was no 'detection' of any wrong claim u/s 10B; further there was no material or search or investigation wing data etc. in the present case. Thus it is stated by him that clearly on facts itself, decision of MAK Data (supra) does not apply to the present case. 5.4 Also the decision in Sunderam Finance Ltd. v. ACIT 403 ITR 407 by the Hon'ble Madras High Court and the decision in SLP against it, were brought to the notice of both sides during the course of clarification. In response to it, the Ld. counsel files a written reply stating that the facts in that case are on different foo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of CIT v. Smt. Kaushalya & Ors (1995) 216 ITR 660 (Bom) and Mak Data P. Ltd. v. CIT (CA No. 9772 of 2013) by the Supreme Court of India. Referring to the decision in Smt. Kaushalya & Ors (supra), it is explained by him that "the issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere nonstriking of the inaccurate portion cannot by itself invalidate the notice." Further referring to the observations in the case of CIT v. Mithila Motors (P.) Ltd. [1984] 149 ITR 751 (Patna), the Ld. DR submits that "U/s 274 of the Income Tax Act, 1961, all that is required is that the assessee should be given an opportunity to show cause. No statutory notice has been prescribed in this behalf. Hence, it is sufficient if the assessee was aware of the charges he had to meet and was given an opportunity of being heard. A mistake in the notice would not invalidate penalty proceedings." Further referring to the decision of the Hon'ble Supreme Court in Mak Data P. Ltd. (supra), the Ld. DR submits that "the AO has to satisfy whether the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 097, 1154 & 1226 of 2014), the Hon'ble Bombay High Court held: "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 of which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the assessee has no notice." As mentioned earlier, in Mak Data P. Ltd. (supra), the Hon'ble Supreme Court has that "the AO has to satisfy whether the penalty proceedings be initiated or not during the course of assessment proceedings and the AO is not required to record his satisfaction in a particular manner or reduce it into writing." It is relevant to mention here that in the instant case, the AO had issued a show-cause notice u/s 274 r.w.s 271 dated 28.01.2014 and served it on the assessee. There was no response by the assessee to that show-cause notice. Thereafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued u/s 142(1) dated 24.11.2012, the appellant had revised return of income on 05.12.2012 by withdrawing claim of section 10B which was claimed inadvertently. We find merit in the contention of the Ld. counsel that in assessments for the past years from AY 2006-07 to AY 2010-11 (except AY 2009-10) u/s 143(3), similar Form 56G and claim u/s 10B were accepted and therefore, the inadvertent mistake which crept in the column "Number of consecutive assessment year in which deduction is claimed", thus continued. In the case of Bombay Cloth Syndicate v. CIT (1995) 79 TAXMAN 352 (Bom), for the AY 1970-71, the assessee, a partnership firm, had filed its original return showing an income of Rs. 1,10,339/-. On 05.01.1971, CBDT published in a National Daily, a public notice stating that if the original return filed by the assessee was false, he may file a revised return to avoid consequences of discovery. During the course of scrutiny of accounts, the AO suspected that the figures of sales and purchases were not entered properly in the books of accounts and had impounded the books u/s 131(3) by an order dated 23.03.1971. On 24.05.1971, the assessee-firm filed a revised return showing an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, there was no question of making inadmissible claim of deduction u/s 10B in such revised return. In fact, there is no concealment or inaccurate furnishing of income in such revised return. In the case of CIT v. Backbone Enterprises (2010) 195 TAXMAN 200 (Guj), assessee filed its return of income claiming deduction u/s 80-IA. The AO noticed that it was a firm and that under the provision of the Act, only companies registered in India were entitled to deduction u/s 80-IA. The AO therefore, issued notice u/s 154 calling upon the assessee to show cause as to why deduction claimed u/s 80-IA should not be disallowed. Prior to the issue of said notice, the assessee had already filed a revised return of income u/s 139(5), wherein no claim u/s 80-IA was made. The AO, however, did not consider revised return and took a view that assessee had made a wrong claim u/s 80IA. Accordingly, the AO imposed penalty on assessee u/s 271(1)(c) of the Act. On appeal, the CIT(A) as well as Tribunal set aside the penalty order. On appeal by the Revenue, the Hon'ble Gujarat High Court held that "since the assessee had made a bona fide claim for deduction u/s 80-IA, which came to be rectified by filing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty on the assessee under section 271(1)(c).The Hon'ble Gujarat High Court held that- "The Tribunal had in terms found that though certain queries were raised and put to the assessee there was no specific pinpointing of particular items of income which had been concealed by the assessee. The Tribunal had found, as a matter of fact, that till 31-3-1989, the process of detection of allegedly concealed income was not complete, being the date of filing of the revised returns. The Tribunal had also noted as a matter of fact that the very same amounts standing to the credit of the bank accounts of various family members had already been assessed by the Departmental authorities along with interest in the hands of the family members and it was also an admitted position that those family members had nowhere admitted that the family members were benamidars of the assessee. In the circumstances, the Tribunal rightly came to the conclusion that no penalty was exigible under the provisions of section 271(1)(c) of the Act." 7.2 In view of the factual scenario and position of law mentioned at para 7.1 hereinabove, we delete the penalty of Rs. 1,58,30,000/- levied by the AO 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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