JAHANGIR HC JAHANGIR, MUMBAI V. ADDL CIT RG 12(3), MUMBAI

ITA 1261/MUM/2011

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0686 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 09-12-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 10-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C S NAIK LD
• Assessee Lawyers: FARROKH IRANI LD
• Keywords: Business income; Principle of natural justice; Wrong claim
• Section: 143(3)

Judgement Text

ITA NO.1261/M/2011 JEHANGIR HC JEHANGIR ASSESSMENT YEAR-2006-07 IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.1261/MUM/2011 ( / ASSESSMENT YEAR: 2006-07) JEHANGIR HC JEHANGIR READYMONEY MANSION 43 VEER NARIMAN ROAD MUMBAI 400 001 / VS. ASSISTANT COMMISSIONER OF INCOME TAX-12(3) AAYKAR BHAWAN MUMBAI 400 020 !' ./ ./PAN/GIR NO. AEOPJ-6023-P ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) A SSESSEE BY : FARROKH IRANI. LD. AR RE VENUE BY : BCS NAIK, LD. CIT DR / DATE OF HEARING : 21/04/2017 / DATE OF PRONOUNCEMENT : 17/05/2017 ITA NO.1261/M/2011 JEHANGIR HC JEHANGIR ASSESSMENT YEAR-2006-07 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. BY WAY OF INSTANT APPEAL, THE ASSESSEE HAS CONTE STED CONFIRMATION OF LEVY OF PENALTY U/S 271(1)(C) FOR RS.3,11,37,351 /- BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-23 [CIT(A)], M UMBAI DATED 15/12/2010. THE ASSESSEE HAS FILED REVISED GROUNDS OF APPEAL AND ALSO RAISED AN ADDITIONAL GROUND OF APPEALS AND ASSAILS PENALTY ORDER ON LEGAL GROUNDS AS WELL AS ON MERITS. SINCE, THE LEGAL GROU NDS GOES TO THE ROOT OF THE MATTER, WE TAKE UP THE SAME FIRST. 2. BRIEFLY STATED THE ASSESSEE, BEING RESIDENT INDI VIDUAL ENGAGED IN DEVELOPMENT OF LAND BY CONSTRUCTION OF RESIDENTIAL/ COMMERCIAL PREMISES , WAS ASSESSED FOR IMPUGNED AY U/S 143(3) AT RS. 28,2 0,17,740/- AFTER CERTAIN ADJUSTMENTS / DISALLOWANCES AS AGAINST RETU RNED INCOME OF RS.18,95,66,240/-. ONE OF THE DISALLOWANCES PERTAI NED TO DISALLOWANCES U/S. 40(A)(IA) AMOUNTING TO RS.1,81,29,209 FOR NON- DEDUCTION OF TAX AT SOURCE ON CERTAIN CONTRACTUAL PAYMENTS. ANOTHER ADJ USTMENT WAS RELATED WITH ASSESSEES CLAIM TOWARDS SET-OFF OF UNABSORBED BROUGHT FORWARD BUSINESS LOSSES FOR AY 2001-02 AND 2003-04 AMOUNTIN G TO RS.5,35,96,798/- AND RS.2,07,79,491/- RESPECTIVELY FROM BUSINESS INCOME WHICH, DURING ASSESSMENT PROCEEDINGS, WAS FO UND UNAVAILABLE TO THE ASSESSEE. SUBSEQUENTLY, DISALLOWANCE U/S 40(A)( IA) WAS DELETED BY MUMBAI TRIBUNAL IN ITA NO. 1643/MUM/2011 ORDER DAT ED 06/02/2015. THE ASSESSEE WITHDREW ITS CLAIM WITH RESPECT TO BRO UGHT FORWARD ITA NO.1261/M/2011 JEHANGIR HC JEHANGIR ASSESSMENT YEAR-2006-07 3 BUSINESS LOSSES FOR AY 2001-02 & 2003-04 ON THE GRO UND THAT IT WAS INADVERTENTLY CLAIMED AND DUE TO MISTAKE ON THE PAR T OF THE ASSESSEE. 3. IN THE MEANWHILE, PENALTY PROCEEDINGS WERE INITI ATED FOR BOTH THESE ADJUSTMENT / DISALLOWANCE IN QUANTUM ORDER AND CONS EQUENTLY, THE ASSESSEE WAS ISSUED NOTICE U/S 274 READ WITH SECTION 271(1)(C) DATED 30/12/2008. FINALLY, THE ASSESSEE WAS SADDLED WITH IMPUGNED PENALTY ON BOTH ACCOUNTS BY AO VIDE ITS ORDER DATED 30/06/2 009 BY PLACING RELIANCE ON APEX COURT JUDGMENT IN CIT VS. DHARMENDRA TEXTILE PROCESSOR ( 306 ITR 277) WHEREIN IT WAS HELD THAT LEVY OF PENALTY IS A CIVIL LIABILITY AND WILLFUL CONCEALMENT IS NOT AN E SSENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY. RELIANCE WAS ALSO PLACE D ON APEX COURT DECISION IN THE CASE OF DILIP N.SHROFF VS. JCIT (291 ITR 519). 4. AGGRIEVED, THE ASSESSEE CONTESTED THE PENALTY WI THOUT ANY SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 15/12/2010 WHEREIN LD. CIT(A) CONFIRMED THE PENALTY BY NOTING THAT THE ASSESSEE MADE A FALSE CLAIM AND THE ASSESSEE FAILED TO ESTAB LISH THAT THE MISTAKE IN THE RETURN WAS INADVERTENT AND BY MAKING THE WRO NG CLAIM, THE ASSESSEE HAS TRIED TO REDUCE THE TAX LIABILITY. AGG RIEVED, THE ASSESSEE IS IN APPEAL BEFORE US AND ASSAILED THE PENALTY ON LEG AL GROUNDS AS WELL ON MERITS OF THE CASE. 5. THE LD. COUNSEL FOR ASSESSEE [AR], WHILE DRAWING OUR ATTENTION TO DOCUMENTS PLACED IN THE PAPER BOOK, FIRST OF ALL CO NTENDED THAT SINCE THE ASSESSEES QUANTUM APPEAL QUA DISALLOWANCE U/S 40(A)(IA) HAS BEEN ALLOWED BY THE TRIBUNAL, PENALTY TO THAT EXTENT DO NOT SURVIVE. UPON PERUSAL OF THE DOCUMENTS, WE CONCUR WITH THE SAME A ND AT THE OUTSET ITA NO.1261/M/2011 JEHANGIR HC JEHANGIR ASSESSMENT YEAR-2006-07 4 HOLD THAT SINCE QUANTUM DISALLOWANCE HAS BEEN DELET ED BY THE TRIBUNAL, PENALTY IN RESPECT THEREOF DO NOT SURVIVE. 6. PROCEEDING FURTHER, THE LD. AR STATED THAT INITI ALLY THE BUSINESS LOSSES FOR AY 2001-01 STOOD AT RS.535.36 LACS, HOWE VER, THE SAME GOT REDUCED TO RS.64.50 LACS AFTER GIVING EFFECT TO APP ELLATE ORDERS. HOWEVER, THE SET-OFF OF BUSINESS LOSSES FOR AY 2001 -02 & 2003-04 WAS CLAIMED AT WRONG FIGURES DUE TO INADVERTENT ERROR A ND THE ASSESSEE, UPON BEING POINTED OUT, ACCEPTED THE SAME AND PAID NECESSARY TAXES THEREUPON WITHOUT FILING ANY FURTHER APPEAL. SINCE, THE CLAIM WAS DUE TO INADVERTENT OVERSIGHT /ERROR, THE PENALTY AGAINST T HE SAME WAS NOT JUSTIFIED PARTICULARLY KEEPING IN VIEW THE CONDUCT OF THE ASSESSEE. IN SUPPORT, THE DOCUMENTS PERTAINING TO AY 2001-02 AND APPELLATE ORDERS HAVE BEEN PLACED IN THE PAPER BOOK. RELIANCE HAS BE EN PLACED ON THE JUDGMENT OF APEX COURT IN PRICE WATERHOUSE COOPERS PVT. LTD. VS. CIT [CA NO. 6924 OF 2012 25/09/2012] TO CONTEND THAT INADVERTENT ERROR DO NOT ENTAIL LEVY OF PENALTY. 7. PROCEEDING FURTHER, THE LD. AR CONTENDED THAT TH ERE WAS CLEAR DISCLOSURE OF ALL MATERIAL FACTS IN THE COMPUTATION AND RETURN OF INCOME AND HENCE, MERE MAKING OF CLAIM WHICH IS NOT FOUND ACCEPTABLE BY THE REVENUE, DO NOT ENTAIL PENALTY AS PER THE DECISION OF APEX COURT IN CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. [322 ITR 158] . 8. OUR ATTENTION IS FURTHER DRAWN TO A CRITICAL FAC T THAT THE LD. AO DID NOT FULFILL THE JURISDICTIONAL REQUIREMENT OF ARRIV ING AT A CLEAR FINDING AND SATISFACTION FOR THE LEVY OF PENALTY IN THE QUANTUM ORDER AS THE AO, IN THE BODY OF ASSESSMENT ORDER, STATED THAT SINCE IT APPEARS THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF IN COME WITHIN THE ITA NO.1261/M/2011 JEHANGIR HC JEHANGIR ASSESSMENT YEAR-2006-07 5 MEANING OF SECTION 271(1)(C) AND HAS ALSO CONCEALED THE PARTICULARS OF INCOME WITHIN THE MEANING OF EXPLANATION 1 TO THE S AID SECTION. WHEREAS IN CONTRAST, SHOW CAUSE NOTICE U/S 274 READ WITH SECTION 271(1)(C) MENTIONS THE CHARGES AS HAVE CONCEALED THE PARTICULARS OF YOUR INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. FINALLY, THE PENALTY HAS BEEN IMPOSED BY LD. AO IN THE PENAL TY ORDER BY STATING THAT IN VIEW OF THE ABOVE FACTS, I AM SATISFIED THAT TH E ASSESSEE HAS FILED INACCURATE PARTICULARS OF INCOME AND HENCE CONCEALE D THE INCOME. THEREFORE, THE SAME REFLECTS NON-APPLICATION OF MIN D ON THE PART OF AO AND THE AO HIMSELF WAS NOT SURE ABOUT THE LIMB / EX ACT CHARGE FOR WHICH THE ASSESSEE WAS BEING PENALIZED. THEREFORE, THE PE NALTY ORDER STANDS VITIATED FOR WANT OF PRINCIPLES OF NATURAL JUSTICE AND HENCE, NEED TO BE QUASHED. RELIANCE HAS BEEN PLACED ON THE JUDGMENT O F APEX COURT IN DILIP N.SHROFF VS. JCIT (291 ITR 519) WHEREIN THE SUPREME COURT OBSERVED THAT THE CONCEALMENT OF INCOME AND FURNISH ING OF INACCURATE PARTICULARS OF INCOME ARE DIFFERENT. THE HONBLE CO URT FURTHER HELD THAT NON-STRIKING OFF OF THE RELEVANT PORTIONS OF STANDA RD SHOW-CAUSE NOTICE REFLECTS NON-APPLICATION OF MIND BY AO AND HENCE VI TIATES THE PENALTY. OUR ATTENTION IS FURTHER DRAWN TO THE FACT THAT THE RATIO OF THIS CASE WAS VERY MUCH RELEVANT AND VALID DESPITE THE JUDGMENT O F APEX COURT IN THE CASE OF CIT VS. DHARMENDRA TEXTILE PROCESSOR ( 306 ITR 277) IN VIEW OF ANOTHER JUDGMENT OF SUPREME COURT IN CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. [322 ITR 158] WHEREIN IT WAS OBSERVED THAT REASONING GIVEN IN THE CASE OF DILIP N.SHROFF COULD NOT BE FAULTED EXCEPT TO THE EXTENT OF OBSERVATIONS REGARDING NECESSITY OF MENS-REA FOR THE PURPOSE OF SECTION 271(1)(C). RELIANCE IS ALSO PLACED ON THE JUDGMENT OF HONBLE KARNATAKA ITA NO.1261/M/2011 JEHANGIR HC JEHANGIR ASSESSMENT YEAR-2006-07 6 HIGH COURT IN CIT VS. MANJUNATHA COTTON & GINNING FACTORY [2013 3 59 ITR 565] WHICH WAS LATER FOLLOWED BY THE SAME COURT IN CIT VS. SSAS EMERALD MEADOWS [ITA NO. 380 OF 2015 23/11/2015] AGAINST WHICH SPECIAL LEAVE PETITION [SLP] FILED BY THE REVENUE B EFORE APEX COURT IN CC NO.11485/2016 ORDER DATED 05/08/2016 WAS DISMISSED BY THE HONBLE COURT, FINDING NO MERITS IN THE CASE. FURTH ER, HONBLE BOMBAY HIGH COURT HAS FOLLOWED THE RATIO OF SAME JUDGMENT IN CIT VS. SHRI SAMSON PERINCHERY [ITA NO. 1154 OF 2014 ORDER DATED 05/01/2017] AND FURTHER TRIBUNAL, IN CATENA OF JUDGMENT AND MORE PA RTICULARLY IN WADHWA ESTATE & DEVELOPERS VS. ACIT [ITA N0. 2158/MUM/2016 DATED 24/02/2017] HAS TAKEN THE SAME VIEW FOLLOWING THE AFORESAID JUD GMENTS. THEREFORE, THE PENALTY, BEING DEVOID OF JURISDICTIO N, WAS LIABLE TO BE QUASHED. 9. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE ON SECTION 292B TO CONTEND THAT MERE DEFECT IN THE NOTICE DO NOT VITIATES THE PENALTY PROCEEDINGS AND NO PREJUDICE WAS CAUSED TO THE ASSESSEE BY NON-STRIKING OFF OF RELEVANT WORDS. THE ASSESSEE VERY WELL KNEW THE GROUNDS FOR WHICH HE WAS BEING PENALIZED AND THE LD . AO WITH DUE APPLICATION OF MIND INITIATED PENALTY PROCEEDINGS I N QUANTUM ASSESSMENT AND LEVIED THE SAME AFTER PROVIDING AMPLE OPPORTUNI TY TO THE ASSESSEE TO CONTEST THE SAME. MOREOVER, THE ASSESSEE ACTIVELY C ONTESTED THE PENALTY PROCEEDINGS BEFORE AO AND THEREFORE, THE LEGAL GROU NDS, BEING ONLY HYPER-TECHNICAL IN NATURE, DO NOT CARRY MUCH WEIGHT. THE ASSESSEE, DESPITE BEING FULLY AWARE OF HIS CLAIMS, MADE A WRO NG CLAIM AND THEREFORE, RIGHTLY SADDLED WITH THE IMPUGNED PENALT IES. RELIANCE HAS ITA NO.1261/M/2011 JEHANGIR HC JEHANGIR ASSESSMENT YEAR-2006-07 7 BEEN PLACED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN CIT VS. SMT. KAUSHALYA [216 ITR 660 14/01/1992] . 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING CITED CASE LAWS. SINCE LEGAL GROUNDS GOES TO THE ROOTS OF THE MATTER, WE TAKE UP THE SAME FIRST. A PERUSAL OF THE QUANTUM ASSESSMENT ORDER REVEALS THAT THE PENALTY H AS BEEN INITIATED FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME AND CONCEALMENT OF PARTICULARS OF INCOME WHICH, AS PER SETTLED LEGAL P ROPOSITIONS, ARE DIFFERENT CONNOTATIONS AND CARRY DIFFERENT MEANING AND TWO SEPARATE LIMBS. THE SAME ALSO BECOMES CLEAR FROM THE LANGUAG E OF SHOW-CAUSE NOTICE WHICH STATES THAT THE ASSESSEE HAVE CONCEALE D THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOM E. FINALLY, THE PENALTY HAS BEEN LEVIED FOR FILING OF INACCURATE PARTICULAR S OF INCOME AND HENCE CONCEALED PARTICULARS OF INCOME WHICH SHOWS INCONSI STENT THINKING ON THE PART OF AO. UNDISPUTEDLY, THE AO WAS REQUIRED T O SPECIFY THE EXACT CHARGE FOR WHICH THE ASSESSEE WAS BEING PENALIZED W HICH HE HAS FAILED TO DO SO AND THE SAME HAS RESULTED INTO TAKING AWAY ASSESSEES VALUABLE RIGHT OF CONTESTING THE SAME AND THEREBY VIOLATES T HE PRINCIPLES OF NATURAL JUSTICE. OUR VIEW IS FORTIFIED BY THE CITED JUDICIA L PRONOUNCEMENTS OF SUPERIOR COURT AND EVEN THE SLP FILED BY THE REVENU E IN CIT VS. SSAS EMERALD MEADOWS [SUPRA] HAS BEEN DISMISSED BY THE APEX COURT, BEING DEVOID OF ANY MERITS. EVEN IN THE CASE OF CIT VS. SMT. KAUSHALYA [SUPRA], THE HONBLE JURISDICTIONAL HIGH COURT OBSERVED THAT THE NOTICE ISSUED UNDER SECTION 274 MUST REVEAL APPLICATION OF MIND BY THE ASSESSING OFFICER AND THE ASSESSEE MUST BE AWARE OF THE EXACT CHARGE ON WHICH HE HAD TO FILE HIS EXPLANATION. IT WAS FUR THER OBSERVED THAT ITA NO.1261/M/2011 JEHANGIR HC JEHANGIR ASSESSMENT YEAR-2006-07 8 VAGUENESS AND AMBIGUITY IN THE NOTICE DEPRIVES THE ASSESSEE OF REASONABLE OPPORTUNITY TO CONTEST THE SAME. THEREFO RE, VIEWED IN THE LIGHT OF PRINCIPLES LAID DOWN IN THE JUDICIAL PRECE DENTS DISCUSSED HEREINABOVE, WE ARE INCLINED TO CONCLUDE THAT THE P ENALTY PROCEEDINGS STOOD VITIATED FOR WANT OF PRINCIPLES OF NATURAL JU STICE AND HENCE LIABLE TO BE QUASHED. ACCORDINGLY, WE DELETE THE SAME. 11. SINCE, WE HAVE QUASHED THE PENALTY PROCEEDINGS ON LEGAL GROUND, WE SEE NO NECESSITY TO DELVE UPON THE MATTER ON MER ITS ANY FURTHER. 12. RESULTANTLY, THE ASSESSEES APPEAL STANDS ALLOW ED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH MAY, 2017. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 17.05.2017 SR.PS:- THIRUMALESH / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. %- , - , / DR, ITAT, MUMBAI 6. ./ / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI