M/S.PRARTHANA ENTERPRISES, MUMBAI V. ASSISTANT COMMISSIONER OF INCOME TAX-19(1), Mumbai

ITA 1834/MUM/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 2216 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 20-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KUMAR PADMAPANI BORA
• Assessee Lawyers: VARUN BRAMHECHA
• Keywords: Initiation of penalty proceedings
• Section: 271(1)(c); 143(3); 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENCH MUM BAI BEFORE SHRI C.N.PRASAD, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO.1834/MUM/2018 ( ASSESSMENT YEAR: 2011-12 ) M/S. PRARTHANA ENTERPRISES 1 ST FLOOR, 345, GOMANTAK MARATHA SAMAJ, V.P.ROAD, NEAR IMPERIAL CINEMA MUMBAI-400 004 VS. ACIT-19(1) ROOM NO.322, 3 RD FLOOR PIRAMAL CHAMBERS, LALBAUGH, PAREL, MUMBAI-400 012 PAN/GIR NO.AADFP8025H ( APPELLANT ) .. ( RESPONDENT ) REVENUE BY SHRI. KUMAR PADMAPANI BORA, DR. ASSESSEE BY SHRI. VARUN BRAMHECHA, AR DATE OF HEARING 21 /11 /2019 DATE OF PRONOUNCEME NT 28 /1 1 /2019 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST, THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 34 , MUMBAI, DATED 22/12/2017 AND IT PERTAINS TO ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. ON THE FACTS AND IN LAW, LEARNED AO ERRED IN N OT RECORDING ANY SATISFACTION WHATSOEVER MUCH LESS AS CONTEMPLATED I N SECTION 271(1B) BEFORE INITIATING AND IMPOSING PENALTY UNDER SECTIO N 271(1)(C). 2. ON THE FACTS AND IN LAW, LEARNED AO ERRED IN L EVYING PENALTY RELYING ON BOTH LIMBS OF SECTION 27L(1)(C) WITHOUT SPECIFIC ALLY INVOKING SAME IN THE NOTICE U/S 274 DATED 07/03/2014. 3. WHILE LEVYING THE PENALTY ALSO, THE ASSESSING OFFICER SIMPLY RELIED ON THE EXPLANATION 1 TO SECTION 271(L)(C) EVEN THOUGH HE LEVIED THE PENALTY FOR FURNISHING THE INACCURATE PARTICULARS OF INCOME . THEREFORE THE LEVY OF PENALTY IS BAD IN LAW. ITA NO.1834/MUM/2018 PRARTHANA ENTERPRISES 2 4. THE NON-DISCLOSURE OF INCOME WAS DUE TO BONAFID E MISTAKE, IMPOSITION OF PENALTY UNDER SECTION 271(L)(C) IS IMPROPER. 5. THE LESSEE CRAVES LEAVE TO AMEND, ALTER OR MOD IFY OF THE ABOVE GROUNDS OF APPEAL. PRAYER THE PRESENT APPEAL MAY HE ALLOWED AND PENALTY LEVIE D BY AO MAY HE TREATED AS WRONG, UNJUST & ILLEGAL AND THE PENALTY MAY BE DELETED. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A BUILDER AND DEVELOPER, HAS FILED ITS RETURN OF INCOME FOR A Y 2011-12 ON 27/03/2012, DECLARING TOTAL INCOME OF RS. 12,41,64, 923/-. IN THIS CASE, THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) OF THE I.T.ACT, 1961 ON 27/03/2014,DETERMINING THE TOTAL INCOME AT RS. 12,61,70,062/- BY MAKING ADDITIONS TOWARDS DIFFEREN CE IN CLOSING WORKING PROGRESS AMOUNTING TO RS. 20,05,769/-. THER EAFTER, THE LD. AO INITIATED PENALTY PROCEEDINGS U/S 271(1)( C) OF THE I.T.ACT, 1961 AND CALLED UPON THE ASSESSE TO EXPLAIN, AS TO WHY P ENALTY SHALL NOT BE LEVIED FOR FURNISHING INACCURATE PARTICULARS OF INCOME. IN RESPONSE, THE ASSESSEE VIDE ITS LETTER DATED 02/05/ 2014 AND 11/09/2014 SUBMITTED THAT IT HAS NEITHER FURNISHED INACCURATE PARTICULARS OF INCOME, NOR MADE A DELIBERATE ATTEMP T TO CONCEAL PARTICULARS OF INCOME AND WHATEVER, ADDITIONS MADE BY THE LD.AO IS ON ACCOUNT OF DIFFERENCE IN CLOSING WORKING PROGRES S DUE TO CHANGE IN METHOD OF ACCOUNTING FOLLOWED TO GIVE TREATMENT FOR INDIRECT INCOME. THE ASSESSEE, FURTHER EXPLAINED THAT FOR TH E EARLIER PERIOD, IT HAS REDUCED INDIRECT INCOMES FROM THE VALUE OF CLOS ING WORKING PROGRESS WHEREAS, FOR THE YEAR UNDER CONSIDERATION, IT HAS CHANGED METHOD OF ACCOUNTING, AS PER WHICH THE INDIRECT INC OME HAS BEEN RECOGNIZED SEPARATELY WITHOUT BEING REDUCED FROM CL OSING WORKING PROGRESS. THIS RESULTED IN ENHANCEMENT OF CLOSING S TOCK TO THE EXTENT OF RS. 20,05,769/-. THE SAID DIFFERENCE IS ON ACCOU NT OF DIFFERENT OPINION EXPRESSED BY THE ASSESSEE AND THE LD. AO, O THERWISE ALL ITA NO.1834/MUM/2018 PRARTHANA ENTERPRISES 3 MATERIAL FACTS NECESSARY FOR COMPUTATION OF INCOME HAS BEEN DISCLOSED BY THE ASSESEE IN THE RETURN OF INCOME AN D HENCE, THE SAME CANNOT BE CONSIDERED AS FURNISHING OF INACCURA TE PARTICULARS OF INCOME. THE LD. AO, AFTER CONSIDERING RELEVANT SUBM ISSIONS OF THE ASSESSEE AND ALSO, BY TAKING NOTE OF OBSERVATIONS I N ASSESSMENT ORDER, CAME TO THE CONCLUSION THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME BY TAKING INDIRECT INCOME AND INDIRECT EXPENSES INTO CONSIDERATION FOR COMPUTING WORKING PROGRESS. THE PROFIT OFFERED ON WORKING PROGRESS SO BY FURNIS HING INACCURATE PARTICULARS OF WIP, THE ASSESSEE TRY TO SUPPRESS NE T TAXABLE INCOME. THEREFORE, HE OPINED THAT IT IS A FIT CASE FOR LEVY OF PENALTY U/S 271(1)(C) OF THE I.T.ACT, 1961 FOR FURNISHING INACC URATE PARTICULARS OF INCOME AND ACCORDINGLY, LEVIED PENALTY OF RS. 6,19, 782/-, WHICH AMOUNT TO 100% OF TAX SOUGHT TO BE EVADED. 4. AGGRIEVED BY THE PENALTY ORDER, THE ASSESEE PREF ERRED APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASS ESEE HAS REITERATED ITS SUBMISSIONS MADE BEFORE THE LD. AO A ND ALSO, FILED A DETAILED WRITTEN SUBMISSIONS, WHICH HAS BEEN REPROD UCED AT PARA 3 ON PAGES 3 TO 6 OF LD.CIT(A) ORDER. THE LD.CIT(A) A FTER CONSIDERING RELEVANT SUBMISSION OF THE ASSESSEE AND ALSO BY RE LIED UPON VARIOUS JUDICIAL PRECEDENTS, HELD THAT IT IS NOT CO RRECT TO CLAIM THAT ALL THE RELEVANT FACTS WERE AVAILABLE IN RECORD TO COMP UTE INCOME. HAD THE SCRUTINY NOT TAKEN PLACE, THE BIFURCATION OF WO RKING PROGRESS AND INTEREST INCOME INCLUDED IN WORK IN PROGRESS WOULD NOT HAVE BEEN EXPLICITLY EVIDENT FROM THE ENTRIES/DOCUMENTS FILED ALONG WITH RETURN OF INCOME. THEREFORE, HE OPINED THAT CLAIM OF THE A SSESSEE IS NOT A BONAFIDE CLAIM AND FACTS OF THE INSTANT CASE SATIS FY THE REQUIREMENTS EXPLANATION (1) TO SECTION 271(1)(C) OF THE ACT,196 1 FOR IMPOSITION OF ITA NO.1834/MUM/2018 PRARTHANA ENTERPRISES 4 PENALTY AND ACCORDINGLY, CONFIRMED PENALTY LEVIED B Y THE LD. AO U/S 271(1)(C) AND DISMISSED FILED BY THE ASSESSEE. AGGR IEVED BY THE LD.CIT(A) ORDER, THE ASSESSEE IS IN APPEAL BEFORE U S. 5. THE LD. AR FOR THE ASSESEE SUBMITTED THAT THE PE NALTY ORDER PASSED BY THE LD. AO U/S 271(1)(C) OF THE I.T.ACT, 1961 IS BAD IN LAW AND LIABLE TO BE QUASHED, BECAUSE THE LD. AO HAS IS SUED VAGUE NOTICE WITHOUT STRIKING OF INAPPLICABLE CLAUSES IN SAID NOTICES, WHICH CLEARLY SHOWS NON APPLICATION OF MIND BY THE LD. A O BEFORE INITIATION OF PENALTY PROCEEDINGS, WHETHER PENALTY PROCEEDINGS HAS BEEN INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME OR FOR CONCEALMENT OF PARTICULARS OF INCOME. IN THIS REGAR D, HE HAD RELIED UPON THE DECISION OF HONBLE KARNATAKA HIGH COURT, IN THE CASE OF CIT VS MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565(KAR). FURTHER, ON MERITS, THE LD. AR FOR THE A SSESSEE SUBMITTED THAT THE ASSESEE HAS FURNISHED NECESSARY PARTICULAR S IN ORDER TO COMPUTE TOTAL INCOME FOR THE YEAR UNDER CONSIDERATI ON, BUT, THE LD. AO HAS MADE ADDITIONS TOWARDS DIFFERENCE IN WORKING PROGRESS BY EXCLUDING INDIRECT INCOME FROM THE CLOSING WORKING PROGRESS, WHICH RESULTED IN ADDITION TO THE RETURN OF INCOME. THE F ACT THAT THERE IS A CHANGE IN METHOD OF ACCOUNTING, DURING THE YEAR UND ER CONSIDERATION HAS NOT BEEN DISPUTED BY THE LD. AO. BUT, HE HAD LE VIED PENALTY ONLY ON THE GROUNDS THAT THE ASSESEE HAS FURNISHED INACC URATE PARTICULARS OF INCOME, IN RESPECT OF CLOSING WORKING PROGRESS W ITHOUT APPRECIATING THE FACT THAT THE DIFFERENCE IN CLOSIN G WORKING PROGRESS IS MAINLY DUE TO CHANGE IN METHOD OF ACCOUNTING, BU T NOT FOR FURNISHING INACCURATE PARTICULARS OF INCOME. ITA NO.1834/MUM/2018 PRARTHANA ENTERPRISES 5 6. THE LD. DR, ON THE OTHER HAND, STRONGLY SUPPORTI NG ORDER OF THE LD.CIT(A) SUBMITTED THAT IT IS A CLEAR CASE OF FUR NISHING INACCURATE PARTICULARS OF INCOME, WHICH IS EVIDENT FROM THE FA CT THAT HAD THE CASE WAS NOT SELECTED FOR SCRUTINY, BIFURCATION OF WORKING PROGRESS AND INTEREST INCOME INCLUDED IN THE SAME WOULD NOT HAVE BEEN EXPLICITLY EVIDENT FROM THE ENTRIES/DOCUMENTS FILED ALONG WITH THE RETURN OF INCOME. THE LD. AO, AS WELL AS THE LD.CIT (A) HAS BROUGHT OUT CLEAR FACTS BEFORE ARRIVING AT THE CONCLUSION T HAT IT IS A FIT CASE FOR LEVY FOR PENALTY FOR FURNISHING INACCURATE PARTICUL ARS OF INCOME AND HENCE, THERE IS NO REASON TO INTERFERE WITH THE FIN DINGS OF THE LD.CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. IT IS A SETTLED POSITION OF LAW THAT ANY PENALTY PROCEEDING S, CONSEQUENT TO INVALID/VAGUE NOTICE IS VOID AB-INITIO AND LIABLE TO BE QUASHED BECAUSE, WHEN THE PENALTY PROCEEDINGS HAS BEEN INIT IATED CONSEQUENT TO VAGUE NOTICE, IT IS A CLEAR CASE OF N ON APPLICATION OF MIND BY THE LD. AO BEFORE INITIATION OF PENALTY PRO CEEDINGS, I.E. WHETHER PENALTY PROCEEDINGS IS INITIATED FOR CONCEA LMENT OF PARTICULARS OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THE HONBLE KARNATAKA HIGH COURT IN THE CAS E OF CIT VS MANJUNATHA COTTON AND GINNING FACTORY (SUPRA) HAD E XAMINED THE ISSUE, IN LIGHT OF PROVISION OF SECTION 271(1) OF THE I.T.ACT, 1961 AND HELD THAT CONCEALMENT OF PARTICULARS OF INCOME AND FURNISHING INACCURATE PARTICULARS OF INCOME ARE TWO DIFFERENT CONNTATIONS AND ACCORDINGLY, WHILE INITIATING PENALTY PROCEEDINGS, THE LD. AO SHOULD ARRIVE AT A CLEAR SATISFACTION TO THE EFFECT THAT W HETHER, SAID PENALTY PROCEEDINGS IS INITIATED FOR CONCEALMENT OF PARTICU LARS OF INCOME OR ITA NO.1834/MUM/2018 PRARTHANA ENTERPRISES 6 FOR FURNISHING INACCURATE PARTICULARS OF INCOME. FU RTHER, THE SAID SATISFACTION HAS TO BE CLEARLY MENTIONED IN THE NOT ICE ISSUED FOR INITIATION OF PENALTY PROCEEDINGS U/S 271(1) OF TH E I.T.ACT, 1961. IN THIS CASE, ON PERUSAL OF SHOW CAUSE NOTICE BY THE L D. AO U/S 274 R.W.S. 271 OF THE I.T.ACT, 1961, DATED 27/03/2014, IT IS VERY CLEAR THAT THE LD. AO HAS ISSUED A VAGUE NOTICE WITHOUT STRIKI NG OF INAPPROPRIATE WORDS AND PARAGRAPHS, WHICH CLEARLY S HOWS NON APPLICATION OF MIND BY THE LD. AO BEFORE INITIATION OF PENALTY PROCEEDINGS. THEREFORE, WE ARE OF THE CONSIDERED VI EW THAT THE PENALTY PROCEEDINGS INITIATED BY THE LD. AO, CONSEQ UENT TO INVALID/VAGUE NOTICE IS BAD IN LAW LIABLE TO BE QUA SHED. HENCE, WE QUASHED THE PENALTY ORDER PASSED BY THE LD. AO U/S 271(1)(C) AND DIRECT HIM TO DELETE PENALTY LEVIED U/S 271(1)(C) OF THE I.T.ACT, 1961. 8. IN THE RESULT, APPEAL FILED BY THE ASSESEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 /11/ 2019 SD/- ( C.N.PRASAD) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 28 /11/2019 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//