PSB Industries (India) Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 2003/DEL/2011

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3675 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 18-05-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 21-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S D RAY
• Keywords: Business income; Principle of natural justice; Fair market value; Valuation report; Notional interest; Revised return
• Section: 14A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 ASSESSMENT YEAR: 2002-03, 2003-04, 2004-05 & 2005-06 PSB INDUSTRIAL (INDIA) PVT. LTD. 207, 2 ND FLOOR, 87, ZAMRUDPUR GREATER KAILASH PART I NEW DELHI V. ACIT CIRCLE 14(1) NEW DELHI TAN/PAN:AAACP0009M (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI S.D. RAY, ADVOCATE RESPONDENT BY: SHRI ATIQ AHMAD, D.R. DATE OF HEARING: 02 11 2017 DATE OF PRONOUNCEMENT: 09 11 2017 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEALS HAVE BEEN FILED BY THE ASSESS EE AGAINST SEPARATE IMPUGNED ORDERS OF EVEN DATE, 17/2/ 2011, PASSED BY THE LD. CIT(APPEALS)-XVII, NEW DELHI, IN R ELATION TO THE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE I NCOME TAX ACT, 1961 FOR THE ASSESSMENT YEARS 2002-03, 2003-04, 2004-05 & 2005-06. 2. THE ASSESSEE IS AGGRIEVED BY THE LEVY OF PENALTY UND ER SECTION 271(1)(C) ON THE ADDITIONS MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF ALV OF THE PROPERTY AND OTHER DISALLOWA NCES RELATING TO SET OFF OF LOSSES. THE QUANTUM OF PENALTY LEVIED IN VARIOUS YEARS ARE AS UNDER:- I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 2 SL. NO. ASSESSMENT YEAR PENALTY (RS.) 1. 2002-03 21,90,063/- 2. 2003-04 22,98,063/- 3. 2004-05 19,09,251/- 4. 2005-06 19,46,825/- 3. SINCE THE ISSUES INVOLVED IN ALL THE APPEALS ARE COM MON ARISING OUT OF IDENTICAL SET OF FACTS, THEREFORE, SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONS OLIDATED ORDER. AS A LEAD CASE, WE ARE TAKING UP THE APPEAL FO R THE ASSESSMENT YEAR 2002-03, WHEREIN OUR FINDING BY AND LARGE WOULD BE APPLICABLE MUTATIS-MUTANDIS FOR ALL THE YEARS IMPUGNED BEFORE US. 4. THE MAIN ISSUE PERMEATING THROUGH IN ALL THE APPEALS I S THAT, THE ASSESSEE HAS LEASED OUT ITS PROPERTY SITUATED A T KHANDSA ROAD, GURGAON TO PUNJAB NATIONAL BANK AT A LEA SE RENT OF RS.1 LAKH, VIDE LEASE AGREEMENT DATED 6/8/2001. B ASED ON THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2006-07, T HE ASSESSING OFFICER ISSUED NOTICE UNDER SECTION 148 FOR IMPUGNED ASSESSMENT YEARS ON THE GROUND THAT ASSESSEE HAS NOT SH OWN CORRECT RENTAL INCOME IN ACCORDANCE WITH THE LAW. IN RESPONSE TO NOTICE UNDER SECTION 148, ASSESSEE IN ITS RETURN OF I NCOME SHOWED ALV OF THE PROPERTY AT RS.65,76,835/-. THE ASS ESSEE WAS LATER ON ASKED TO FURNISH THE VALUATION REPORT IN RESPE CT OF ALV OF THE PROPERTY, IN RESPONSE TO WHICH ASSESSEE FILED VAL UATION REPORT I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 3 OF THE GOVERNMENT APPROVED VALUER, DATED 29/9/2009, AS PER WHICH ALV OF THE PROPERTY WAS WORKED OUT AT RS.76,04,8 53/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE AGREED TO OFFER ALV OF THE PROPERTY AT RS.76,04,853/- AS ITS I NCOME FROM HOUSE PROPERTY WHICH WAS ACCEPTED BY THE ASSESSING O FFICER IN THE ORDER PASSED U/S 148/143(3). APART FROM THIS ADDITI ON, CLAIM OF BROUGHT FORWARD LOSSES OF RS.46,03,784/- UNDER TH E HEAD INCOME FROM HOUSE PROPERTY WAS DISALLOWED ON THE G ROUND THAT ASSESSEE COULD NOT FURNISH ANY EVIDENCE IN THIS REGAR D AND IN EARLIER YEAR THERE WAS NO LOSS UNDER THE HEAD INCOM E FROM HOUSE PROPERTY. HE FURTHER NOTED THAT ASSESSEE IN HIS REVISE D COMPUTATION FILED ON 29/9/2009 HAS NOT CLAIMED ANY SUC H SET OFF AND ACCORDINGLY, THE SAME HAS BEEN DISALLOWED. THE ASSESSING OFFICER FURTHER NOTED THAT ASSESSEE HAD CLAIMED SET OFF OF BUSINESS LOSS ALSO OF RS.5,39,651/- FROM ITS INCOME FROM BUSINESS AND PROFESSION, WHEREAS IN THE EARLIER ASSE SSMENT YEAR ASSESSEE WAS HAVING POSITIVE BUSINESS INCOME, THEREF ORE, HE HELD THAT THERE IS NO QUESTION OF ALLOWING ANY LOSS TO BE C ARRIED FORWARD. THE ADDITION/ASSESSMENT MADE WAS ACCEPTED BY THE ASSESSEE. 5. BASED ON SUCH FINDING IN THE ASSESSMENT PROCEEDINGS, PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) WERE INI TIATED BY THE ASSESSING OFFICER UNDER BOTH THE LIMBS OF CHARGES, THA T IS, FOR CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE P ARTICULARS OF INCOME. IN RESPONSE TO THE SHOW CAUSE NOTICE, ASSES SEE HAD SUBMITTED AS UNDER:- BASED ON THE ASSESSMENT PROCEEDINGS FOR THE ASSESS MENT YEAR 2006-07, WHEREBY RENTAL INCOME WAS ASSESSED ON THE I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 4 BASIS OF FAIR MARKET RENTAL AS PER VALUATION REPORT OF REGISTERED VALUER, THE ASSESSING OFFICER ISSUED NOT ICE U/S 147/148, AND THE ASSESSEE COMPLYING THESES NOTICES FILED REVISED RETURN OF INCOME WHEREBY THE RENTAL INCOME WAS OFFERED AT RS.65,76,835 AS AGAINST RENTAL INCOME OF RS.1,00,000 PER MONTH RECEIVED IN RESPECT OF ITS PR OPERTY LEASED OUT OF BANK OF PUNJAB LTD. ('THE LESSEE'). T HE ASSESSEE IN THE ASSESSMENT PROCEEDINGS ALSO PRODUCED COPY OF THE RENT AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AN D BANK OF PUNJAB LTD. IN THE REVISED RETURN, THE FAIR RENT AL OF RS.65,76,835/- WAS WORKED OUT ON THE PRESUMPTION TH AT IF THE FAIR MARKET RENT ON 1.4.2005 WAS RS. 75,63,360/ - THAN THE RENTAL FOR THE PRECEDING THREE YEARS WOULD BE 1 5% LESS THAT THE VALUE DETERMINED BY REGISTERED VALUER ON 1 .4.2005 I.E. 7563360/115*100. THE ASSESSEE ACCORDINGLY RELY ING ON THE VALUATION ACCEPTED BY THE ASSESSING OFFICER WOR KED OUT THE INCOME FOR THE PRECEDING ASSESSMENTS YEARS ACCO RDINGLY. DURING THE ASSESSMENT PROCEEDINGS, FOR THE ASSESSME NT YEAR 2002-03, THE ASSESSING OFFICER ASKED FOR FURNISHING THE VALUATION REPORT AS ON 1.4.2001 AND ACCORDINGLY VAL UATION REPORT FROM REGISTERED VALUER WAS OBTAINED ON 29.09 .2009, WHEREBY THE ALV WAS WORKED OUT AT 76,04,853. IT IS RESPECTFULLY SUBMITTED THAT THE ASSESSEE HAS DULY OFFERED RENTAL INCOME ACTUALLY RECEIVED FROM LETTIN G OUT OF THE PROPERTY TO M/S BANK OF PUNJAB LTD. IN THE RETURN O F INCOME AND OFFERED THE RENTAL INCOME OF RS.65,76,835/- AS ALV WORKED OUT BACKWARDS ON THE BASIS OF VALUATION REPO RT. ON THE ABOVE FACTS THERE WAS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY MATERIAL FACTS RELATING TO THE ASSESSMENT OF THE SAID RENTAL INCOME. IT IS A S ETTLED LAW THAT THE ASSESSMENT COMPLETED ON THE BASIS OF THE V ALUATION REPORT BY THE VALUER IS NOT AMENABLE TO LEVY OF PEN ALTY UNDER SECTION 271(L)(C) OF THE ACT. I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 5 IT IS FURTHER RESPECTFULLY SUBMITTED THAT IT IS NOT A CASE WHERE ANY INFORMATION/DOCUMENT HAS COME TO THE ASSESSING OFFICER'S KNOWLEDGE OR POSSESSION, FROM SOME THIRD PARTY, WHICH WOULD SHOW THAT THE ASSESSEE HAS CONCEALED AN Y PARTICULARS OF INCOME. ON THE CONTRARY, APART FROM DISCLOSING SUCH RENTAL INCOME IN ITS COMPUTATION OF INCOME THE ASSESSEE, THE ASSESSEE HAD ALSO PRODUCED COPY OF RE NT AGREEMENT DURING THE ASSESSMENT PROCEEDINGS, WHICH FURTHER SUBSTANTIATES THE ASSESSEE'S CONTENTION THAT THERE WAS NO INTENTION OF THE ASSESSEE TO CONCEAL ANY PARTICULAR OF INCOME. FURTHER, THE SAID RENT AGREEMENT WAS DULY SIGNED BY BOTH THE PARTIES AND WAS DULY REGISTERED. FURTHERMORE, O N THE INSTANCE OF ASSESSING OFFICER, THE ASSESSEE HAD DUL Y GET THE VALUATION DONE OF ITS PROPERTY BY THE REGISTERED VA LUER AND HAS SUBMITTED THAT REPORT DURING THE ASSESSING PROC EEDINGS. THE ASSESSEE HAD ALSO ADMITTED SUCH VALUE AS ITS AN NUAL RENTAL VALUE, AS SOON AS IT BEHALF. IF WOULD BE NOT ED THAT THE MATTER OF VALUATION HAS NOT BEEN REFERRED TO DEPART MENTAL VALUATION OFFICER FOR VALUING THE PROPERTY AND WAS ACCEPTED AT THE VALUATION DONE BY REGISTERED VALUER. THUS, I T WOULD KINDLY BE APPRECIATED THAT NEITHER AT THE TIME OF F ILLING OF RETURN OF INCOME NOR DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, THE CONDUCT OF THE ASSESSEE WAS NOT TO CONCEAL ANY PARTICULARS OF INCOME WHICH WOULD WARRANT PENAL TY UNDER SECTION 271 (L)(C) OF THE ACT. 6. HOWEVER, THE ASSESSING OFFICER HELD THAT ASSESSEE HAS BEEN SHOWING YEARLY RENT OF RS.1 LAKH ONLY WHEN ALV OF THE PROPERTY WAS RS.76.04 LAKHS AS PER THE VALUATION REPO RT OF THE GOVT. APPROVED VALUER. HE ALSO TOOK NOTE OF THE FACT THAT LESSEE HAS GIVEN TO THE ASSESSEE A SUM OF RS.67 CRORES AS IN TEREST FREE DEPOSIT AND, THEREFORE, THIS WAS A DEVICE TO SUPPRESS T HE ACTUAL RENTAL INCOME TOWARDS INCIDENCE OF TAX. THUS, HE HELD THAT ALV I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 6 HAS BEEN SUPPRESSED BY THE ASSESSEE AND ALSO THE CLAI M OF SET OFF OF LOSSES WAS AN ACTION TO EVADE TAX BY MAKING FALSE C LAIM. SIMILAR CLAIM FOR SET OFF OF BUSINESS LOSS WAS ALSO NOT FOUND TO BE CORRECT AND ACCORDINGLY, HE LEVIED PENALTY OF RS.21, 90,063/- BEING 100% OF THE TAX SOUGHT TO BE EVADED. 7. SO FAR AS CONCEALMENT OF ALV IS CONCERNED, IT SEEMS TH AT AO HAS CALCULATED THE TAX BETWEEN THE DIFFERENCE OF AL V SHOWN IN THE RETURN OF INCOME IN RESPONSE TO NOTICE UNDER SECTION 148 OF RS.65,26,835/- AND ALV DETERMINED BY THE REGISTERED V ALUER AT RS.76,04,853/-. 8. THE LD. CIT(A) TOO HAS CONFIRMED THE SAID PENALTY AS PER DETAILED DISCUSSION APPEARING FROM PARAS 2 TO 3 OF THE APPELLATE ORDER. HIS ENTIRE FINDING FOR CONFIRMING THE PENALTY IS ON THE DIFFERENCE OF ALV, WHICH HAS BEEN ADDED BY THE ASSES SING OFFICER. THERE IS NO FINDING ON SO FAR AS PENALTY LEVIED BY THE ASSESSING OFFICER ON THE CLAIM OF SET OFF OF CARRIED FORWARD L OSSES UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND SET OFF OF BUS INESS LOSS. 9. WE HAVE HEARD BOTH THE PARTIES AND ALSO PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER. FIRST OF ALL, IT APPEARS TO US THAT THE ADDITION/ DISALLOWANCE, ON WHICH ASSESSING OFFICER HAS LEVIED THE PENALTY, ARE AS UND ER:- (I) DIFFERENCE BETWEEN ALV SHOWN BY THE ASSESSEE IN THE RETURN OF INCOME FILED IN COMPLIANCE TO NOTICE UNDER SECTION 148 SHOWN AT RS.65,76,835/- AND THE ALV DETERMINED BY THE APPROVED VALUER AT RS.76,04,853/- WHICH COMES TO RS.10,28,018/-. I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 7 (II) DISALLOWANCE OF SET OFF OF BROUGHT FORWARD LOSSES OF RS.46,03,784/- FROM INCOME FROM HOUSE PROPERTY; AND (III) SET OFF OF BUSINESS LOSS OF RS.5,39,651/-; AGGREGATING TO RS.61,71,453/-. 10. THE ASSESSING OFFICER, HOWEVER, WHILE DETERMINING T HE AMOUNT OF INCOME CONCEALED FOR THE PURPOSE OF LEVYIN G THE PENALTY, HAS TAKEN THE AMOUNT AT RS.61,34,634/-. ON THI S AMOUNT, HE HAS CALCULATED PENALTY @ 100% OF THE TAX, W HICH COMES OUT TO RS.21,90,063/-. 11. SO FAR AS THE DIFFERENCE BETWEEN THE ALV IS CONCERNED , THE SAME IS ON ACCOUNT OF DIFFERENCE IN THE ALV SHOWN BY THE ASSESSEE IN THE RETURN OF INCOME IN RESPONSE TO NOTICE U/S 148 AND AS DETERMINED BY THE APPROVED VALUER. IT IS NOT C LEAR FROM THE ASSESSMENT ORDER THAT THE ACTUAL RENT RECEIVED BY THE ASSESSEE FROM PUNJAB NATIONAL BANK IS NOT IN ACCORDAN CE WITH SECTION 23. WHAT IS TO BE SEEN WHILE DETERMINING THE AL V IS THE SUMS FOR WHICH PROPERTY MIGHT REASONABLY BE EXPECTED TO LET OUT FROM YEAR-TO-YEAR FOR WHICH ASSESSING OFFICER CAN MA KE ENQUIRY AS TO WHAT WOULD BE THE POSSIBLE RENT THAT PROPERTY MIGH T FETCH. ONLY WHEN AO FINDS THAT ACTUAL RENT RECEIVED IS LESS TH AN THE FAIR RENT, HE CAN WORK OUT THE FAIR MARKET VALUE OF THE RENT. IT IS NOT THE CASE OF THE ASSESSING OFFICER HERE THAT THE NOTIONAL INTEREST ON INTEREST FREE SECURITY DEPOSIT CAN BE TAKEN AS DETE RMINATIVE FACTOR TO ARRIVE AT THE FAIR RENT THOUGH THERE IS SLIGHT W HISPER IN THE PENALTY ORDER, WHICH HAS NOT BEEN TAKEN INTO A LOG ICAL CONCLUSION, BECAUSE ULTIMATELY THE ASSESSING OFFICER H AS TAKEN I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 8 THE FIGURE OF ALV AS DETERMINED BY THE APPROVED VALUE R, WHICH HAS BEEN ACCEPTED BY THE ASSESSEE IN ITS REVISED COMP UTATION FILED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS. SUCH AN ESTIMATE MADE BY THE REGISTERED VALUER CANNOT BE HELD TO BE CORRECT FAIR RENTAL VALUE IN ACCO RDANCE TO THE PROVISIONS OF SECTION 23, BECAUSE THE ASSESSING OFFIC ER HAS SIMPLY ACCEPTED THE VALUATION GIVEN BY THE ASSESSEE IN THE REVISED COMPUTATION. THIS DOES NOT ENTAIL THAT THE ASSES SEE HAS EITHER FURNISHED INACCURATE PARTICULARS OF INCOME OR HAS CONCEALED ANY INCOME, BECAUSE NO ENQUIRY HAS BEEN D ONE BY THE AO TO ASCERTAIN THAT ACTUAL RENT RECEIVED IS LESS THAN THE FAIR MARKET VALUE. HOW THE ALV DISCLOSED IN RETURN OF INCOM E FILED IN RESPONSE TO NOTICE TO NOTICE U/S 148 IS NOT CORRECT. TH US, ON THIS ADDITION, NO PENALTY CAN BE LEVIED; ESPECIALLY ON TH E DIFFERENCE BETWEEN THE ALV SHOWN BY THE ASSESSEE IN THE RETURN OF INCOME AS WELL AS THE VALUE ADOPTED BY THE REGISTERED VALUER , WHICH AGAIN IS PURELY BASED ON ESTIMATE. 12. SO FAR AS LEVY OF PENALTY ON DISALLOWANCE OF CLAIM OF SET OFF OF LOSS BOTH UNDER THE HEAD INCOME FROM HOUSE P ROPERTY AND BUSINESS INCOME, AS OBSERVED BY US, THERE IS NO FI NDING BY THE LD. CIT(A) ON THIS POINT. HOWEVER, IN THE ASSESSMENT O RDER, ASSESSING OFFICER HAS NOTED THAT ASSESSEE ITSELF HAS FI LED A REVISED COMPUTATION OF ITS INCOME ON 29/9/2009 WHEREIN SUCH A CLAIM WAS WITHDRAWN OR WAS NOT CLAIMED WHICH HAS BEEN ACCEP TED BY THE ASSESSING OFFICER ALSO. AFTER ACCEPTING ASSESSEES CLAIM, THE ASSESSING OFFICER HAS NOWHERE RECORDED HIS SATISFACTI ON OR HAS STATED, AS TO WHETHER THE ASSESSEE HAS FURNISHED ANY IN ACCURATE PARTICULARS OF INCOME, ALBEIT AT THE END OF THE ASSESSMENT ORDER, HE FRAMES A CHARGE BOTH UNDER CONCEALMENT OF INCOME A S WELL AS I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 9 FURNISHING OF INACCURATE PARTICULARS OF INCOME WHICH, IN OUR OPINION IS NOT CORRECT, BECAUSE THE ASSESSING OFFICER HAS TO SPECIFY THE CHARGE WHILE INITIATING PENALTY PROCEEDIN GS UNDER SECTION 271(1)(C) QUA EACH ADDITION AS TO ON WHICH LIM B OF SECTION 271(1)(C) HE IS INITIATING PENALTY PROCEEDINGS. WE FI ND THAT WHILE LEVYING PENALTY, HE HAS AGAIN HELD THAT PENALTY IS TO BE IMPOSED UNDER BOTH THE CHARGES WHICH IS EVIDENT FROM PARA 12 OF THE IMPUGNED PENALTY ORDER. 13. SECTION 271(1) (C) ENVISAGES THE LEVY OF PENALTY ON T WO DISTINCT LIMBS, THAT IS, WHEN THE ASSESSING OFFICER IN THE COURSE OF ANY PROCEEDINGS IS SATISFIED THAT ANY PERSON HAS CONC EALED THE PARTICULARS OF INCOME OR HAS FURNISHED INACCURATE P ARTICULARS OF SUCH INCOME. THE CHARGES UNDER BOTH THE LIMBS ARE D ISTINCT FROM EACH OTHER AND OPERATE IN TWO DIFFERENT SITUATION S; FOR EXAMPLE, CONCEALMENT OF PARTICULARS OF INCOME INCLUDE CASES LIKE, FALSE DEDUCTION OR EXEMPTION CLAIMED BY THE ASSESSEE I N THE RETURN OF INCOME OR ANY INCOME NOT DISCLOSED IN THE R ETURN OF INCOME. THE CONCEALMENT INVOLVES KNOWLEDGE ON PART OF THE ASSESSEE OF THE REAL INCOME WHILE GIVING OR DISCLOSI NG THE PARTICULARS OF INCOME. THE FURNISHING OF INACCURATE P ARTICULARS OF INCOME ON THE OTHER HAND INCLUDES CASES WHERE AN ITE M WHICH HAS BEEN THOUGH SHOWN IN THE RETURN OF INCOME BUT IS NO T CORRECT OR HAS BEEN WRONGLY SHOWN IN DIFFERENT HEAD OR THE CL AIM MADE IS NOT FOUND TO BE CORRECT. THE ASSESSING OFFICER WHEN ISSUES THE NOTICE TO THE ASSESSEE FOR INITIATION OF PENALTY UNDER THIS SECTION, THEN HE MUST DISCLOSE TO THE ASSESSEE ABOUT THE CHARGE ON WHICH HE PROPOSES TO INITIATE OR LEVY THE PENALTY, BECAUSE THI S CHARGE FLOWS FROM HIS SATISFACTION ARRIVED BY HIM DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS. THEREFORE, THE SHOW CAUSE NOTICE I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 10 ISSUED SHOULD BE WITHOUT ANY AMBIGUITY AND THE CHARGE HAS TO BE VERY SPECIFIC SO THAT ASSESSEE CAN ADDUCE EVIDENCE O R GIVE EXPLANATION THAT HE IS NOT GUILTY OF ANY OF THE CHARGE FRAMED. CONSEQUENCE OF NOT REBUTTING THE CHARGE CAN ENTAIL HEAVY PENALTY TO THE ASSESSEE UPTO 300% OF THE TAX, THEREFORE, AO HAS T O BE VERY SPECIFIC ABOUT THE CHARGE IN HIS NOTICE. SECTION 271(1 ) READ WITH SECTION 274 ENVISAGES THAT, FIRSTLY, THE PERSON WHO IS A CCUSED BY THE AO ON THE CHARGES MENTIONED IN CLAUSE (C), MUST BE MADE KNOWN BY THE AO UNDER WHICH LIMB OF THE CLAUSE (C) HE IS BEEN CHARGED; AND SECONDLY, ASSESSEE HAS THE RIGHT TO REBU T THE CHARGES BY GIVING HIS EXPLANATION OR BY ADDUCING EVI DENCE IN SUPPORT OF HIS CLAIM OR EXPLANATION AND HAS RIGHT TO CO NTEST THE PROCEEDINGS FOR WHICH OPPORTUNITY HAS TO BE GIVEN B Y THE AO. PENALTY UNDER THIS SECTION CAN BE IMPOSED ONLY ON THE GROUND OR CHARGE UPON WHICH ASSESSEE HAS BEEN CALLED UPON TO A NSWER OR HAS BEEN CONFRONTED AND NOT ON VAGUE AND UNSPECIFIED GROUND IN THE NOTICE. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MANJUNATH COTTON GINNING FACTORY REPORTED I N (2013) 359 ITR 565 (KAR) HAVE DISCUSSED THE ENTIRE LAW ON THIS POINT IN DETAIL. THE RELEVANT OBSERVATION OF THE HON'BLE TRIBUN AL IN THIS REGARD READS AS UNDER:- 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDIN GS CAN BE INITIATED ON VARIOUS GROUND SET OUT THEREIN. IF TH E ORDER PASSED BY THE AUTHORITY CATEGORICALLY RECORDS A FIN DING REGARDING THE EXISTENCE OF ANY SAID GROUNDS MENTION ED THEREIN AND PENALTY PROCEEDINGS IS INITIATED, IN TH E NOTICE TO BE ISSUED UNDER SECTION 274, THEY COULD CONVENIENTL Y REFER TO THE SAID ORDER WHICH CONTAINS THE SATISFACTION OF T HE AUTHORITY WHICH HAS PASSED THE ORDER. HOWEVER, IF T HE EXISTENCE OF THE CONDITIONS COULD NOT BE DISCERNED FROM THE SAID ORDER AND IF IT IS A CASE OF RELYING ON DEEMIN G PROVISION I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 11 CONTAINED EXPLANATION-1 OR IN EXPLANATION-1(B), THE N THOUGH PENALTY PROCEEDINGS ARE IN THE NATURE OF CIVIL LIAB ILITY, IN FACT, IT IS PENAL IN NATURE. IN EITHER EVENT, THE CONDITIONS MENTIONED IN SECTION 271 SHOULD BE MADE KNOWN ABOUT THE GROUNDS ON WHICH PENALTY ON HIM AS THE SECTION 274 MAKES IT CLEAR THAT ASSESSEE HAS A RIGHT TO CONTEST SUCH PROCEEDINGS AND SHOULD HAVE FULL OPPORTUNITY TO MEET THE CASE O F THE DEPARTMENT AND SHOW THAT THE CONDITIONS STIPULATED IN SECTION 271(1)(C) DO NOT EXIST AS SUCH HE IS NOT LI ABLE TO PAY PENALTY. THE PRACTICE OF THE DEPARTMENT SENDING A P RINTED FORM WHERE ALL THE GROUND MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIREMENT OF LAW WHEN THE CONSEQUENCES OF THE ASSESSEE NOT REBUTTING THE INIT IAL PRESUMPTION IS SERIOUS NATURE AND HE HAD TO PAY PEN ALTY FROM 100% TO 300%) OF THE TAX LIABILITY. AS THE SAI D PROVISIONS HAVE TO BE HELD TO BE STRICTLY CONSTRUED, NOTICE IS SUED UNDER SECTION 274 SHOULD SATISFY THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUST ICE IS OFFENDED IF THE SHOW CAUSE NOTICE IS VAGUE. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON TH E ASSESSEE. 60. CLAUSE (C) DEALS WITH TWO SPECIFIC OFFENCES, TH AT IS SAY, CONCEALING PARTICULARS OF INCOME OR FURNISHING INAC CURATE PARTICULARS OF INCOME. NO DOUBT, THE FACTS OF SOME CASES MAY ATTRACT BOTH THE OFFENCES AND IN SOME CASES THERE M AY BE OVERLAPPING OF THE TWO OFFENCES BUT IN SUCH CASES I NITIATION OF THE PENALTY PROCEEDINGS ALSO MUST BE FOR BOTH THE O FFENCES. BUT DRAWING UP PENALTY PROCEEDINGS FOR ONE OFFENCE AND FINDING THE ASSESSEE GUILTY OF ANOTHER OFFENCE OR F INDING GUILTY FOR EITHER THE ONE OR THE OTHER CANNOT HE SU STAINED IN IT IS NEEDLESS TO POINT OUT SATISFACTION OF THE EXISTE NCE OF THE GROUNDS MENTIONED IN SECTION 271(L)(C) WHEN IT IS A SINE QUA NON FOR INITIATION OR PROCEEDINGS, THE PENALTY PROC EEDINGS SHOULD BE CONFINED ONLY TO THOSE GROUNDS AND THE SA ID GROUNDS HAVE TO BE SPECIFICALLY STALED SO THAT THE ASSESSEE WOULD HAVE THE OPPORTUNITY TO MEET THOSE GROUNDS. A FTER, HE PLACES HIS VERSION AND TRIES TO SUBSTANTIATE HIS CL AIM, IF AT ALL, PENALTY IS TO BE IMPOSED, IT SHOULD BE IMPOSED ONLY ON I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 12 THE GROUNDS ON WHICH HE IS CALLED UPON TO ANSWER. I T IS NOT OPEN TO THE AUTHORITY, AT THE TIME OF IMPOSING PENA LTY TO IMPOSE PENALTY ON THE GROUNDS OTHER THAN WHAT ASSES SEE WAS CALLED UPON TO MEET. OTHERWISE THOUGH THE INITI ATION OF PENALTY PROCEEDINGS MAY BE VALID AND LEGAL, THE FIN AL ORDER IMPOSING PENALTY WOULD OFFEND PRINCIPLES OF NATURAL JUSTICE AND CANNOT BE SUSTAINED. THUS ONCE THE PROCEEDINGS ARE INITIATED ON ONE GROUND, THE PENALTY SHOULD ALSO BE IMPOSED ON THE SAME GROUND. WHERE THE BASIS OF THE INITIATI ON OF PENALTY PROCEEDINGS IS NOT IDENTICAL WITH, THE GROU ND, ON WHICH THE PENALTY WAS IMPOSED, THE IMPOSITION OF PE NALTY IS NOT VALID. THE VALIDITY OF THE ORDER OF PENALTY MUS T BE DETERMINED WITH REFERENCE TO THE INFORMATION, FACTS AND MATERIALS IN THE HANDS OF THE AUTHORITY IMPOSING TH E PENALTY AT THE TIME THE ORDER WAS PASSED AND FURTHER DISCOV ERY OF FACTS SUBSEQUENT TO THE IMPOSITION OF PENALTY CANN OT VALIDATE THE ORDER OF PENALTY WHICH, WHEN PASSED, WAS NOT SUSTAINABLE. 61. THE ASSESSING OFFICER IS EMPOWERED UNDER THE AC T TO INITIATE PENALTY PROCEEDINGS ON ANY PROCEEDINGS THA T THERE IS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF TOTAL INCOME UNDER CLAUSE (C). CONCEALMENT, FURN ISHING INACCURATE PARTICULARS OF INCOME ARE DIFFERENT. THU S, THE ASSESSING OFFICER WHILE ISSUING NOTICE HAS TO COME TO THE CONCLUSION THAT, WHETHER IS IT A CASE OF CONCEALMEN T OF INCOME OR IS IT A CASE OF FURNISHING OF INACCURATE PARTICULARS. THE APEX COURT IN THE CASE OF ASHOK PAI VS. CIT IN APPEAL (CIVIL) 2747 OF 2007 HELD THAT INACCURATE PARTICULARS OF INCOME CARRY DIFFERENT CONNOTATIONS. THE GUJARAT H IGH COURT IN THE CASE OF MANU ENGINEERING REPORTED IN 122 ITR 306 AND THE DELHI HIGH COURT IN THE CASE OF VIRGO MARKETING REPORTED IN 171 TAXMAN 156 , HAS HELD THAT LEVY OF PENALTY HAS TO BE CLEAR AS TO THE LIMB FOR WHICH IT IS LEVIED AND THE POSITION BEING UNCLEAR PENALTY IS NO T SUSTAINABLE. THEREFORE, WHEN THE ASSESSING OFFICER PROPOSES TO INVOKE THE FIRST LIMB BEING CONCEALMENT, THEN TH E NOTICE HAS TO BE APPROPRIATELY MARKED. SIMILAR IS THE CASE FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THE ST ANDARD I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 13 PROFORMA WITHOUT STRIKING OF THE RELEVANT CLAUSES W ILL LEAD TO AN INFERENCE AS TO NON-APPLICATION OF MIND. 14. THIS JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT HAS BEEN REITERATED BY THE SAME COURT IN THE CASE OF CIT VS. M/S. SSAS EMERALD MEADOWS IN ITA NO. 380/2015 ORDER DAT ED 23.3.2015 AND ALSO IN THE CASE OF SAFINA HOTELS (P) LTD. VS. CIT (2016) 137 DTR 0089 . FOLLOWING THE SAID JUDGMENTS OF HON'BLE KARNATAKA HIGH COURT, THE ITAT BENCHES IN SEVE RAL CASES (SOME OF THEM AS CITED BY THE LD. COUNSEL ABOVE) HAV E REITERATED THE SAME RATIO. EVEN PRIOR TO THESE JUDGMENTS, THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. VIRGO MARKETING PV T. LTD. REPORTED IN (2008) 171 TAXMAN. 156 HAS OPINED THE SAME PRINCIPLE, WHEREIN IT WAS HELD THAT THE ASSESSMENT ORDER MUST CLEARLY INDICATE AS TO UNDER WHICH PART OF SECTION 271( 1) (C) THE ASSESSING OFFICER CHOOSES TO INITIATE THE PENALTY PRO CEEDINGS AGAINST THE ASSESSEE. 15. THUS, WE HOLD THAT THE IMPUGNED PENALTY LEVIED BY THE ASSESSING OFFICER AND AS CONFIRMED BY THE LD. CIT ( A) CANNOT BE SUSTAINED ON THIS LEGAL GROUND AND IS DIRECTED TO BE D ELETED. 16. IN ASSESSMENT YEAR 2003-04, PENALTY HAS BEEN LEVIED BY THE ASSESSING OFFICER, FIRSTLY, ON DIFFERENCE BETWEEN THE ALV SHOWN BY THE ASSESSEE IN THE RETURN OF INCOME FILED I N RESPONSE TO NOTICE UNDER SECTION 148 AT RS.65,76,835/- AND AS PE R VALUATION REPORT OF ALV OF THE PROPERTY BY THE APPROV ED VALUER AT RS.76,04,853/-; SECONDLY, DISALLOWANCE OF LOSS OF SHARES OF RS.9,49,865/- ON ACCOUNT OF NON-FURNISHING OF DETAILS BY THE ASSESSEE; THIRDLY, CLAIM OF SET OFF OF BUSINESS LOSS OF RS.22,16,747/- MADE IN THE RETURN FILED IN RESPONSE TO NOTICE I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 14 UNDER SECTION 148 AS COMPARED TO THE CLAIM OF LOSS OF RS.20,023/- IN THE ORIGINAL RETURN OF INCOME; AND LASTLY, DISALLOWANCE UNDER SECTION 14A BY THE ASSESSING OFFIC ER OF RS.6,58,344/- BY APPLYING RULE 8D. 17. SO FAR AS THE FIRST ISSUE IS CONCERNED, WE HAVE ALR EADY HELD THAT ASSESSEE IS NOT LIABLE FOR LEVY OF PENALTY U NDER SECTION 271(1)(C) AND, THEREFORE, FOR THIS YEAR ALSO, WE DIRE CT DELETION OF PENALTY ON THIS SCORE. 18. SO FAR AS LEVY OF PENALTY ON DISALLOWANCE UNDER SEC TION 14A IS CONCERNED, ADMITTEDLY DISALLOWANCE HAS BEEN MA DE BY THE ASSESSING OFFICER BY APPLYING RULE 8D, WHICH IS NOT APPLICABLE PRIOR TO THE ASSESSMENT YEAR 2008-09 AND, THEREFORE, NO PENALTY CAN BE LEVIED ON SUCH A DISALLOWANCE WORKED OUT ON T HE BASIS OF RULE 8D. ACCORDINGLY, PENALTY LEVIED IS DELETED ON THIS SCORE. 19. SO FAR AS LEVY OF PENALTY ON LOSS OF SALE OF SHARES AND DISALLOWANCE OF SET OFF OF BUSINESS LOSS, WE FIND THA T HERE AGAIN THE ASSESSING OFFICER HAS SOUGHT TO LEVY PENALTY BOTH FOR CONCEALMENT AND FURNISHING OF INACCURATE PARTICULARS O F INCOME, WHICH IS EVIDENT FROM PARA 8 OF THE ASSESSMENT ORDER AS WELL AS PARAS 6 & 11 OF THE IMPUGNED PENALTY ORDER. WITHOUT SP ECIFYING THE CHARGE, UNDER WHICH LIMB HE IS INITIATING PENALTY PROCEEDINGS, THE ASSESSING OFFICER CANNOT LEVY PENALTY AS HELD BY THE HON'BLE KARNATAKA HIGH COURT IN THE AFORESAID CASE, AS DISCUSS ED WHILE DECIDING THE APPEAL FOR ASSESSMENT YEAR 2002-03. IN VIEW OF OUR FINDING GIVEN THEREIN, WE HOLD THAT UNDER THESE FACTS AN D CIRCUMSTANCES, PENALTY CANNOT BE LEVIED AND THE SAME I S DIRECTED TO BE DELETED. I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 15 20. IN ASSESSMENT YEARS 2004-05 AND 2005-06, AGAIN PENALTY HAS BEEN LEVIED ON ACCOUNT OF ALV AS WELL AS DISALLOWANCE MADE UNDER RULE 8D. SO FAR AS LEVY OF PENALTY ON THE ISSUE OF ALV, OUR FINDING GIVEN ABOVE WILL APPLY MUTATIS-MUTANDIS AND, THEREFORE, WE HOLD THAT NO PENALTY SHOULD BE LEV IED. ON THE ISSUE OF DISALLOWANCE UNDER SECTION 14A READ WITH RUL E 8D, ADMITTEDLY RULE 8D IS NOT APPLICABLE PRIOR TO ASSESSMEN T YEAR 2008-09 AND, THEREFORE, SUCH A DISALLOWANCE WILL NO T ATTRACT LEVY OF PENALTY AND THE SAME IS DIRECTED TO BE DELETED. 21. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH NOVEMBER, 2017. SD/- SD/- [PRASHANT MAHARISHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 9 TH NOVEMBER, 2017 JJ:0611 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR I.T.A. NO.2002, 2003, 2004 & 2005/DEL/2011 16 DATE 1. DRAFT DICTATED ON 2. DRAFT PLACED BEFORE AUTHOR 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE COMES BACK TO PS/SR. PS 8. UPLOADED ON 9. FILE SENT TO THE BENCH CLERK 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER.