DCIT CEN CIR 8(4), MUMBAI V. SAVITA OIL TECHNOLOGIES LTD, MUMBAI

ITA 2323/MUM/2017

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 9523 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2008-2009
• Appeal Filed On: 02-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RITU
• Keywords: Capital Gains
• Section: 147; 148; 271(1)(c); 143(3); 14A; 143(1); 250; 80IA; 274; 143(2); 153

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, “G” BENCH MUMBAI BEFORE SHRI PAVANKUMARGADALE,JUDICIALMEMBER AND SHRI AMARJIT SINGH ACCOUNTANT MEMBER ITA No.2323/MUM/2017 (A. Y.:2008-09) Deputy Commissioner of Income Tax-CC-8(4) 6 th Floor, Room No. 658, AayakarBhavan, M.K. Road, Mumbai- 400 020 Vs. M/s. Savita Oil Technologies Ltd. 66-67, NarimanBhawan, Nariman Point, Mumbai- 400 021 Pan No.AAACS7934A Appellant Respondent C.O. No.252/MUM/2018 (Arising out of ITA No. 2323/MUM/2017) (A.Y.-2008-09) M/s. Savita Oil Technologies Ltd. 66- 67,NarimanBhawan, Nariman Point, Mumbai- 400 021 Vs. Deputy Commissioner of Income Tax-CC-8(4) 6 th Floor, Room No. 658, AayakarBhavan, M.K. Road, Mumbai- 400 020 Pan No.AAACS7934A Cross Objector Respondent 2 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 Assessee by Shri.Hiro Rai & Ms.Ritu Punjabi.AR Revenue by Shri.Hemant Kumar Chimanlalleuva, CIT DR Date of Hearing 28.09.2022 Date of Pronouncement 30.09.2022 ORDER PER BENCH: The Revenue has filed an appeal against the order of Commissioner of Income Tax Appeals(CIT(A))-50 Mumbai, passed under Section 271(1)C and 250 of the Income Tax Act 1961 (hereinafter in short “the Act”) and the assessee has filed cross objections(C.O.). The Revenue has raised following grounds of appeal. 1) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty of Rs.4,85,51,154/- levied by the Assessing Officer ignoring the fact that the quantum additions have stood the test of appeal before the Ld.CJT(A) and has been duly confirmed by the Ld.CJT(A) ” 2) "On the facts and in the circumstances of the case and in law ,the Ld. CIT(A) erred in deleting the penalty of Rs.4,85,51,154/~ under section 271(l)(c) of the Act without appreciating that the proviso to section 275(1 )(a),inserted w.e.f.1.6.2003,mandates that the assessing officer shall pass the order imposing the penalty within one year from the end of the financial year in which such order of Ld.CIT(A) is received in the office of Pr.CIT." 3 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 3) "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in quashing the order passed under section 271(l)(c) of the Act without appreciating that the facts of the case as referred to in the case law cited (65 taxmann.com 293) are totally different from the facts in the case of the assessee." Further, the assessee has filed additional ground in the C.O. challenging the validity of notice issued u/sec274 r.w.s 271(1)(c) of the Act. The Ld.AR made submissions on the legal ground of appeal and the Ld.DR has no serious objections. Accordingly the additional ground of appeal is admitted. 2. The brief facts of the case that the assessee company is engaged in manufacturing of transformers and lubricating oils and generation of electricity. The assessee has filed return of income for the assessment year 2008-09 on 20.09.2008 disclosing a total income of Rs.54,46,03,403/- and return of income was processed under Section 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice under Section 143(2) of the Act was issued. In compliance, the learned Authorized Representative of the assessee appeared from time to time and filed the details. The AO find that the assessee has manufacturing units and also business of generation of electricity power in Maharashtra, Karnataka and Tamilnadu. The A.O. on perusal of the financial statements and The assessee has claimed deduction under Section 80IA (2) (iv) of the Act for two business units in industrial undertaking in industrial backward states and windmill installed as per provisions 4 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 of under Section 80IA 4 (iv) of the Act. The AO dealt on the facts with respect to provisions of Section 80IA of the Act and deduction claimed. Finally, the AO was not satisfied with the submissions and has denied the claim of deduction under Section 80IA of the Act of Rs.10,46,24,128/- and also made additions in respect of disallowance under Section 14A of the Act and Rs.25,15,608/- and other additions Rs.71,91,000/- is treated as business income. Similarly The AO has observed that the assessee is eligible for deduction under Section 24 of the Act and made disallowance of Rs.8,65,789/- further, the AO has made addition of short term capital gains of Rs.2,67,165/- and finally, assessed the total income of Rs.69,24,38,611/- and passed the order under Section 143(3) of the Act dated 23.12.2010. 3. Subsequently, the AO has initiated penalty proceedings and issued show cause notice for levying of penalty under Section 271(1)C of the Act. Whereas, the A.O. has made additions and the assessee has filed an appeal with the CIT(A) and was granted partial relief. whereas, in respect of certain expenditure and the claims, the CIT(A) has confirmed the addition. The assessee has filed reply to show cause notice on 12.02.2015 in respect to applicability of provisions of Section 271(1)C and there is no concealment of income nor furnishing of inaccurate particulars of income. The AO was not satisfied with the compliance and finally, the AO has relied on the facts, judicial decisions and appliedthe provision of Section 271(1)(c) and levied the penalty of Rs.4,85,51,154/- and passed the order under Section 271(1)C of the Act dated 31.03.2018. 5 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 4. Aggrieved by the penalty order, the assessee has filed an appeal with the CIT(A), whereas, the Ld. CIT(A) considered the grounds of appeal, findings of the AO in scrutiny assessment, submissions of the assessee and dealt on the provisions under Section 271(1)C of the Act and judicial decisions and has deleted the penalty and observed at page 3 Para 4 to 7.1 of the order read as under: 4. Brief facts of the case: 4.1. The appellant filed its return of income for the A.Y. 2008-09 on 29.09.2008 declaring total income of Rs. 54,96,03,403/-. In this case, an order under section 143(3) dated 23.12.2010 was passed. In the assessment order, the AO made certain additions and initiated penalty proceedings under section 271(1) (c) of the Act. 4.2. On appeal, the CIT(A) confirmed the additions made by the AO. Aggrieved by the order of CIT(A), the appellant filed an appeal before the Hon'ble ITAT (ITA No, 867/Mum/2014). The appeal by the appellant against the order of the CIT(A) is still pending before the ITAT . 4.3. Meanwhile, the AO passed an order dated 19.03.2015 u/s 271(l)(c) holding that the appellant had concealed income to the tune of Rs.14,29,54,087/-meaning of section 271(l)(c) of the Act. By the said order, the AO imposed penalty of Rs.4,85,51,154/-. Aggrieved by the penalty order, the appellant has filed this appeal 5. First groundof appeal: 6 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 5.1. In the first ground of appeal, the appellant contended that the Assessing Officer has erred both in law and facts of the case. 5.2. In the course of appeal proceedings on 21.12.2016, Shri Shiv Prakash, CA and AR of the appellant made a written submission. Regarding ground No.1, the AR submitted, inter alia, that the penalty order is illegal in view of the decision of the Bombay High Court in the case of R.B. ShreeramDurgaprasadVs. CIT. "[2016] 65 taxmann.com 293 (Bombay) HIGH COURT OF BOMBAY R.B. ShreeramDurgaprasad v. Commissioner of Income-tax, Nagpur* Whether on the facts and in the circumstances of the case and having regard to the form, content and language of the show-cause notices received by the assessee, the order of the Inspecting Assistant Commissioner imposing the penalty on the assessee was illegal and without jurisdiction?" 2. We have heard Official Liquidator as the assessee is already ordered to be wound up. Official Liquidator has taken assistance of panel Chartered Accountant M/s A.G. Pimperkhede& Company. We have heard Mr A.G. Pimperkhede, Chartered Accountant and perused brief note submitted by him along with photo copies of precedents. 3. Mr. AnandParchure, learned counsel for respondent submits that basic facts leading to the Reference are not in dispute. The Central Excise Authorities had carried out searches at various 7 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 premises including the premises of the assessee Company and its directors and share-holders in August and September 1 963 and they had seized a larger number of books of accounts and documents. The seized documents revealed that the assessee had under-assessed its income or it had escaped assessment. For example, it was noticed that the assessee had adopted, at the stage of export of manganese ore, the practice commonly described as under- invoicing and had thereby entered in the books of accounts a smaller amount of profits than the real profits. Because of this, a concealed income was discovered and for assessment years 1953-54 to 1958-59, a notice was issued under Section 148 read with Section 147 (a) of the Income Tax Act, 1951. He points out that this notice dated 25.1.1965 was served upon assessee September 1965 and, therefore, the period of limitation of four years asstipulated under Section 153 (2) fa) of the Income Tax Act, 1961 then in force, expired on 31.3.1970. The assessment order came to be passed on 18.3.1970. 4. Insofar as second question is concerned, he points out that the Reference was necessitated in the light of argument advanced before the ITAT by the respective counsel or assessee's representatives. He invited our attention to the finding of the Tribunal that clause (c) of Section 271 (1) relates to the various defaults as also "concealment of income", the use of word "etc" becomes redundant. The Tribunal has further considered whether the use of the disjunctive "or" 8 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 in the notices or communications issued by the Department gives rise to an ambiguity. He, therefore, states that altogether different complexion is now sought to be placed on question no. 2, as referred by pointing out various precedents which deal with technical aspects like recording a satisfaction on concealment etc. He urges that in present matter, ITAT has correctly found that if argument of assessee is accepted, it would lead to absurdity. He also by way of abundant precaution invites attention to the provisions of Section 275 (1) (a) of the Income Tax Act to point out that order imposing penalty passed on 24.2.1972 is within one year of adjudication of appeal by CIT, The appeal was adjudicated on 2.3.1971 and as such, the order is within limitation. 5. Learned Chartered Accountant and Official Liquidator have mainly relied upon a written note tendered to this Court. In written note, it is firstly contended that the Reference before this Court is in relation to assessment year 1959-60 when the provisions of Income Tax Act, 1922 only were in force. As such, the action taken is without jurisdiction. It is further pointed out that in terms of Section 153 (2) of the Income Tax Act, 1961 the re-assessment order after issuance of notice of re- opening dated 25.1.1965 has been passed beyond limitation. 6. Without prejudice to this contention, our attention has also been invited to the provisions of Section 275 (1) (a) to urge that against reassessment order dated 18.3.1970, on 9 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 24.2.1972 a further appeal before the ITAT was very much pending and as such during its pendency, penalty proceedings could not have been initiated and no penalty could have been inflicted. The contention is, thus initiation as also passing of order is premature and, therefore, the form contained and language of so-called notice which overlooked these aspects, clearly show that the penalty order is unsustainable. 7. Provisions of Section 297 (2) (d) (ii) of 1961 Act stipulate that any income chargeable to tax had escaped assessment within the meaning of that expression in section 147 and no proceedings under section 34 of the repealed Act i.e. 1922 Act, in respect of any such income are pending at the commencement of this Act, a notice under section 148 of new Act may, subject to the provisions contained in section 149 or section 150, be issued with respect to that assessment year and all the provisions of the 1961 Act shall apply accordingly. Issuance of such notice has been made subject to the provisions of Section 149 or Section 150 of 1961 Act. 8. Provisions of Section 149 of the Income Tax Act, 1961 prescribe a limitation of six years at the relevant time. Accordingly, it is not in dispute that the issuance of notice dated 12.1.1965 is within six years of assessment year 1959-60. But the question referred to is about the order of re- assessment dated 18.3.1970. We find that the provisions of Section 153 (2) at the relevant time prescribed limitation of four years from the end of assessment year in which notice under Section 10 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 148 of the Income Tax Act, 1961 is served upon assessee. Here, though notice is dated 25.1.1965, admittedly, it is served on assessee in September 1965 i.e. in financial year 1965-66 which expired on 31.3.1966. The assessment year for the purposes of Section 153 (2) (a) in present facts, therefore, shall be 1965-66 only and the order has been passed on 18.3.1970 i.e. before 31.3.1970. It is, therefore, within the stipulated time limit of four years. As such, it cannot be said that it is barred by limitation. Question No. (1) is answered accordingly in the negative i.e. in favour of the Department. 9. The provisions of Section 275 (1} (a) of the Act need to be looked into for considering the answer to second question. It is provided that no order imposing a penalty shall be passed where the assessment order is subject to appeal to the Commissioner (Appeals) or to further appeal to the Appellate Tribunal, after the expiry of period of two years from the end of financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed or six months from the end of the month in which the order of the Appellate Assistant Commissioner or the Appellate Tribunal is received by the Commissioner, whichever period expires later. In the present facts, it is not in dispute that against the assessment order dated 18.3. 1 970, the assessee had filed an appeal and the Appellate Assistant Commissioner of Income Tax has decided that appeal on 2nd March 1971. The order of penalty has been passed on 24.2.1972. 11 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 However, against this adjudication by 1st Appellate Authority, assessee had filed further appeal and that appeal before the ITAT was pending till 26.3.1974. These facts are not in dispute. 10. To point out the effect of adjudication of penalty under Section 271 (1) (c) before adjudication by ITAT, the assessee invited our attention to the fact that addition of Rs.10 lacs in assessment year 1959-60 by assessing officer was upheld by 1st Appellate Authority in its order dated 2.3.1971. This addition was also a foundation for penalty proceedings and assessee pleaded that it is not a concealed income before the Authority in penalty proceedings. Though the Authority did not accept it, later on the ITAT vide its order dated 26.3.1974 deleted that addition. With the result the submission is, had the penalty imposing authority awaited outcome of further appeal to ITAT, as per scheme of Section 275 (a), the penalty on amount of Rs. 10 lacs could not have been levied. It is contended that thus, the notices issued for initiating penalty proceedings and the order dated 24.2.1972 are premature. 11.With reference to various precedents placed on record, learned Chartered Accountant invited our attention to the order imposing penalty to show that in paragraph 6, it has been observed that the I.T.O. has in its order for the assessment year 1954-55 given specific instances of suppression of receipts. Absence of such finding in addition to assessment year 1959-60, was brushed aside by pointing out the specific instances which were 12 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 relevant for the assessment year 1954-55. The grievance about addition of Rs.10 lacs has also been similarly overlooked in paragraph 9 of the penalty order. 12.We have perused paragraphs 6, 9 and 10 of the penalty order. In the light of question referred to us, we have to appreciate the argument as advanced. However, we note that learned counsel for the Department has attempted to show that as penalty order was passed for several years, concealment in one of the assessment years has been referred to by way of illustration. He submitted that as finding of concealment was maintained by 1st Appellate Authority on 2.3.1971 and was only partly set aside by ITAT on 26.3.1974, contention that penalty order does not specifically record any finding about concealment, is misconceived. 13.The language of Section 275 (1) (a) noted supra clearly shows that the order imposing penalty cannot be passed if the appeal against basic order of assessment is pending before the Competent superior Authority. Here, on 24.2.1972 though 1st Appellate Authority had disposed of the appeal, further appeal of assessee before the ITAT was very much pending. The order imposing penalty, therefore, appears to be premature and, therefore, illegal and without Jurisdiction. The notices for initiation of those proceedings are, dated 12.1.1972, 3.2.1972 and 27.9.1972 i.e. during the pendency of appeal before the ITAT. Essential ingredients of Section 275 (1) are clearly not in contemplation of notice issuing authority on these 13 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 dates. The form or language of these notices shows clear non-application of mind in this respect. It is obvious that such notices initiating the penalty proceedings could not have been issued before 26.3.1974. 14. In this situation, we answer question no.2 in favour of assessee i.e. against the Department. 15. Accordingly, reference proceedings are disposed of. No costs. Needless to mention that Income Tax Department is free to initiate penalty proceedings afresh, if it is still open and as per law." 5.3. In the course of the appeal proceedings, the appellant submitted that appeal against the quantum order is pending before the Hon’ble ITAT, Mumbai. Respectfully following the decision of the Bombay High Court cited by the appellant above, I hold that the impugned penalty order is premature, void and non-est. Therefore, I delete the penalty imposed. Since, the penalty order is treated as non-est, the penalty proceedings will be treated as pending and the Assessing Officer will pass a fresh order once the assessment order attains finality subject to the provisions of section 275 of the Act. Thus, the first ground of appeal is allowed. 6. Grounds of appeal No. 2 to 7: 6.1. Since the appeal order has been treated as non- est, the other grounds of appeal has become irrelevant. Therefore, there is no need to adjudicate the other grounds of appeal. For statistical purposes, grounds of appeal no. 2 to 7 are treated as dismissed. 14 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 7.1 In the result, the appeal is treated as partly allowedand partly allowed the assessee appeal. Aggrieved by the CIT(A) order, the Revenue has filed an appeal before the Hon’ble Tribunal. 5. At the time of hearing, the learned DR submitted that the CIT(A) has erred in deleting penalty. Per Contra, the Ld. AR submitted that against the quantum addition. The assessee has filed an appeal before the Honble Tribunal. Whereas the Hon’ble Tribunal in ITA No. 867/M/2014 A.Y. 2008-09 dated 24-06-2022 has granted relief and placed the copy of the order. Further, the Ld.AR in the C.O. has raised additional ground of appeal on the validity of notice issued u/sec271(1)(c) of the Act as the show cause notice did not specify the relevant limb of sec271(1)(c) of the Act in levy of penalty and supported the submissions with the full bench decision of Honble Bombay High Court. 6. We heard the rival submissions and perused the materials on record. Prima facie, the Ld.AR contentions are that the Notice u/sec 274 r.w.s.271 of the Act issued by the Assessing officer is defective, as it does not mention whether the penalty is levied for concealment of particulars of income or furnishing inaccurate particulars of income. The Ld. AR has filed the submissions and demonstrated the copy of Notice. Whereas, the Ld.DR contentions are that the CIT(A) has erred in deleting the penalty and the Ld. AR has brought to the knowledge of the Honble Tribunal, the decision of coordinate bench of the Honble Tribunal in assessee own case deleting quantum additions in ITA No. 867/M/2014 A.Y. 2008- 15 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 09 dated 24.06.2002 observed at page 17 para 18 of the order read as under: 18. Therefore, in the aforesaid facts and circumstance, we find that the AO had erred in denying the claim of deduction u/s 80IA of the Act for A.Y. 2008- 09 and likewise the Ld. CIT(A) also erred in denying the claim of the assessee. Therefore, we are inclined to allow the claim of the assessee u/s 80IA of the Act and direct the AO to allow the claim. Ground No.1 is allowed. 7. Considering the facts that the Hon’ble Tribunal has deleted the addition the penalty order cannot be sustained. Further the Ld.AR also raised the legal grounds on challenging the validity of notice issued, that the notice issued for levying of penalty is invalid and the A.O. has not applied his mind and non striking of charge in the penalty notice i.e. whether the charge is for concealment of income or furnishing of in accurate particulars of income. We find the Jurisdictional Honble High Court of Bombay in Mohd Farhan A Shaikh Vs. DCIT in Tax Appeal No. 51 to 57 of 2012 dated 11.03.2021. (2021) 125. taxmann.com 253 (Bombay) has dealt on this disputed issue of not striking off charge in the penalty notice would vitiate the penalty proceedings. The Hon’ble High Court has made observations at page 56 as under: "180. One course of before us is curing a defect in the notice by referring to the assessment order, which may or not contain reason 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. 16 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 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 other, or both grounds mentioned in Sec. 271(l)(c) , does a mere defect in the notice - not striking off the irrelevant matter vitiate the penalty proceedings? 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under Sec. 271(1)(c) r.w.s. 274 of the Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a deferent statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness. 182. More particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee's favour." 8. We have considered the facts, circumstances and ratio of the decision of Hon’ble High Court and are of the view that in the A.O has not strike off the charge for levy of penalty for concealment of income or for 17 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 furnishing of inaccurate particulars of income. The Ld.DR could not controvert the decision of High Court with any new cogent material evidence or information to take a different view. Accordingly, we quash the penalty notice and allow the ground of cross objections in favour of the assessee. 9. Since, we have allowed the cross objection filed by the assessee and the revenue appeal becomes in fructuous and is dismissed. 10. In the result, the Revenue appeal is dismissed and the assessee Cross Objection is allowed. Order pronounced in the open court on 30 th day of September 2022. Sd/- Sd/- (AMARJIT SINGH) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated: 30/09/2022 M. Sonavane 18 Savita Oil Technologies Ltd. ITA No.2323/MUM/2017/ Co 252/M/18 Copy of the Order forwarded to: 1. The Appellant, 2. The Respondent 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER, (Dy./Asstt.Registrar)ITAT, Mumbai