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TMI Blog2021 (10) TMI 824X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner of Income Tax (Appeals)(CIT(A)) 56, Mumbai passed u/s 271(1)(c) and 250 of the Income Tax Act, 1961. 2. The assessee has filed the Cross Objection on the legal issue of challenging the validity of Penalty notice. We shall take up Cross Objection (C.O) no.222/Mum/2019 and the facts narrated. The assessee has raised the sole ground of cross objection. On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the AO s penalty order. Without appreciating that the A.O had not specified the limb of Sec. 271(1)(c) under which penalty proceedings were initiated i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income, either in the penalty initiation notice or in the assessment order dated 29.01.2016. Therefore, the penalty proceedings were void-abinitio. 3. The Brief facts of the case are that, the assessee company is incorporated in Hong Kong and is a part of CLSA Group a leading independent brokerage house in Asia. The Group provides equity broking, capital markets, merger and acquisition, and asset management services to global corporate and institutional clients, having su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determining a total income of ₹ 1,13,04,43,211/-. 5. Subsequently, the A.O. has initiated the penalty proceedings u/s 271(1)(c) of the Act as the assessee has concealed the particulars of income and furnished the inaccurate particulars of income. The A.O. considered the findings of the assessment proceedings, submissions of the assessee on bifurcation of the receipts for fees for technical services and reimbursement of expenses from CLSA India and whereas only technical fees of ₹ 71,58,54,271/- was disclosed in total income as income from fees for technical services. However, an amount of ₹ 41,45,88,932/- was shown as the reimbursement of expenses and no income has been offered. Therefore, the A.O. is of the opinion that the assessee has furnished the inaccurate particulars of income by disclosing fees for technical services as reimbursement of expenses. Whereas the said amount was part of the service receipts as per the service level agreement and TDS has been deducted on the total remittances. Finally the A.O. was not satisfied with the explanations and levied the penalty u/s 271(1)(c) of the Act of ₹ 4,37,70,230/- and passed the order on 29-07-2016. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnishing of inaccurate particulars of income is not established. As long as it is not established that the sum received as reimbursement had a profit element, question of imposition of penalty under section 271(1)(c) for furnishing of inaccurate particulars of income does not arise. There was dispute on character of income, which went for decision by DRP and held to be taxable. That by itself is not sufficient to impose penalty under section 271(1)(c). Hence the penalty fails to survive and is cancelled. All grounds of appeal stands disposed of accordingly. 14. The Additional ground of appeal reads as under : Additional Ground 6. On facts and circumstances of the case and in law, the AO erred by not specifying either in the penalty initiation notice or in the assessment order dated January 29, 2016 the limb of section 271(1)(c) of the Act under which penalty proceedings have been initiated ie whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. Therefore, the penalty proceedings are void-ab initio. The above was duly forwarded to Assessing Officer. Being a legal matter the ground is admitted and adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing substantial questions of law: (1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and invalid despite the amendment of Section 27.41 13) with retrospective effect and bra virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same? (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income? 3. The Tribunal has allowed the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in the case of CIT VS M/s. SSA s Emerald Meadows (supra), Hon ble High Court of Karnataka in the case CIT Vs. Manjunatha Cotton Ginning Factory (supra), and Hon ble jurisdictional High Court decision ITA No 1154/Mum/2014 in CIT Vs Samson Perinchary observe that the action of the AO in passing the penalty order u/s 271(1)(c) shows that there is non-application of mind thereby the penalty order is not sustainable. We also rely on ratio of the recent decision of the Hon ble Jurisdictional High Court in Tax Appeal No. 51 57 of 2012 of Mohd. Farhan A. Shaikh v. DCIT dated 11.03.2021 has dealt on this disputed issue of validity of notice in question No. 1 Para 180,181 182 and the observations are read as under: 180. One course of action before us is curing a defect in the notice by referring to the assessment order, which may or may not contain reasons for the penalty proceedings. The other course of action is the prevention of defect in the notice-and that prevention takes just a tick mark. Prudence demands prevention is better than cure. Answers: Question No.1: If the assessment order clearly records satisfaction for imposing penalty on one or the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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