KANAKIA HOSPITALITY P.LTD, MUMBAI V. ACIT CEN CIR 23 (OLD) CEN CIR 4(1) (NEW), MUMBAI

ITA 2327/MUM/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7808 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 17-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 23-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARJU GARODIA
• Keywords: Bogus purchase; Search and seizure; Principle of natural justice; Initiation of penalty proceedings
• Section: 143(3); 27; 15

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI R. C. SHARMA , AM & SHRI SANDEEP GOSAIN, JM ./ I.T.A. NO . 2327 / MUM/ 2015 ( / ASSESSMENT YEAR: 2009 - 10 ) KANAKIA HOSPITALITY PVT. LTD. ATTRIUM 215, 10 TH FLOOR, ANDHERI KURLA RD, NET TO COURTYARD MARIOFF HOSTEL ANDHERI(E) , MUMBAI / VS. ACIT CEN CIR. 23(OLD) CEN. CIR. 4(1) (NEW) 4 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI. ./ ./ PAN/GIR NO. AA CC K 7755 R ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI VIJAY MEHTA / RESPONDENTBY : MS. ARJU GARODIA / DATE OF HEARING : 10/11 /201 7 / DATE OF PRONOUNCEMENT : 28/12/2017 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISS I ONER OF INCOME TAX - 52 , MUMBAI FOR AY 2009 - 10 ON THE GROUNDS O F APPEAL MENTIONED HEREIN BELOW: - 2 I.T.A. NO. 2327 /MUM/201 5 (A.Y. 2009 - 10 ) KANAKIA HOSPITALITY PVT. LTD. 1. T HE LEARNED COMMISSI ONER OF INCOME - TAX (APPEALS) - 52 ERRED IN LAW AND ON FACTS IN CONFIRMING PENALTY LEVIED OF RS. 77,12,401/ - U/S 271(1)(C) OF THE INCOME - TAX ACT, 1961 ('THE ACT'). 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR TO MODIFY THE GROUNDS OF APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT TH E ASSESSEE COMPANY BELONGS TO KANAKIA GROUP OF CASES WHERE A SEARCH AND SEIZURE ACTION U/S 132(1) OF THE ACT WAS CARRIED OUT ON 29.03.11. DURING THE COURSE OF SEARCH, IT WAS GATHERED THAT THE ASSESSEE GROUP WAS DEBITING BOGUS PURCHASES TO THE BOOKS OF ACCO UNTS AND THE SAID FACT WAS ACCEPTED BY SHRI RASESH KANAKIA, DIRECTOR OF THE ASSESSEE COMPANY. THE SAID DIRECTOR SURRENDERED A TOTAL AMOUNT OF RS. 39.42 CRORES IN THE GROUP AS A WHOLE ON ACCOUNT OF SUCH BOGUS PURCHASES DEBITED TO THE BOOKS OF ACCOUNT OF SUC H BOGUS PURCHASES DEBITED TO THE BOOKS OF ACCOUNT, OUT OF WHICH AN AMOUNT OF R.S 4.41 CRORES WAS ADMITTED IN THE HANDS OF THE ASSESSEE COMPANY. OUT OF THE TOTAL BOGUS PURCHASES OF RS. 4.41 CRORES, AN AMOUNT OF RS. 2,49,59,227 RELATES TO THE PRESENT YEAR. 3 I.T.A. NO. 2327 /MUM/201 5 (A.Y. 2009 - 10 ) KANAKIA HOSPITALITY PVT. LTD. T HE ASSESSMENT U/S 143(3) R.W.S. 153(A) OF THE ACT WAS COMPLETED ON 28.03.13 IN WHICH THE AO REDUCED THE AMOUNT OF BOGUS PURCHASES OF RS. 2,49,59,227 FOR THE YEAR, OUT OF THE CLOSING WORK IN PROGRESS AND AS SUCH NO ADDITION WAS MADE IN THE HANDS OF THE ASSE SSEE. AGAINST THE SAID ASSESSMENT ORDER, ASSESSEE DID NOT FILE ANY APPEAL. SUBSEQUENTLY, AO LEVIED PENALTY OF RS. 77,12,401 U/S 271(1)(C) OF THE ACT ON THE ASSESSEE, IN RESPECT OF BOGUS PURCHASES VIDE ORDER DATED 25.09.13. 3 . AG GRIEVED BY THE ORDER OF THE AO , ASSESSEE FILED APPEAL BEFORE LD. CIT(A) AND THE LD. CIT(A) AFTER CONSIDERING THE CASE OF BOTH THE PARTIES DISMISSED THE APPEAL FILED BY THE ASSESSEE AND CONFIRMED THE ORDER OF LEVY OF PENALTY . 4. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE FILED THE PRESENT APPEAL BEFORE US ON THE GROUNDS MENTIONED HEREIN ABOVE. GROUND NO S 1 5 . THE SOLE GROUND RAISED BY THE ASSESSEE RELATES TO CHALLENGING THE ORDER OF LD. CIT(A) IN CONFIRMING THE PENALTY U/S 271(1)(C) OF THE I.T. ACT. 4 I.T.A. NO. 2327 /MUM/201 5 (A.Y. 2009 - 10 ) KANAKIA HOSPITALITY PVT. LTD. 6. LD. AR APART FROM ADDRESSIN G THE ARGUMENTS ON MERITS HAD ALSO CHALLENGED THE LEGALITY OF THE NOTICE ISSUED U NDER SECTION 274 R.W.S. 271 OF THE ACT FOR INITIATING OF THE PENALTY PROCEEDINGS UNDER SECTION 27 1(1)(C) OF THE ACT FOR A.Y. 2009 - 10. A PERUSAL OF THE NOTICE ISSUED UNDER SECTION 274 R.W.S. 271 OF THE ACT (COPY PLACED ON RECORD ) REVEALS THAT THE AO HAS NOT DELETED THE INAPPROPRIATE WORDS AND PARTS OF THE NOTICE, WHEREBY IT IS NOT CLEAR AS TO THE DEFAULT COMMITTED BY THE ASSESSEE, I.E. WH ETHER IT IS CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME THAT THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS SOUGHT TO BE LEVIED. IN THIS REGARD, WE FIND THAT THE HON'BLE HIGH COURT OF KARNATAKA IN ITS ORDER IN THE CASE OF M/S MANJUNATAH COTTON & GINNING FACTORY IN ITA NO. 2546 OF 2005 DATED 13.12.2012 , RELIED ON BY THE ASSESSEE, HAS HELD THAT SUCH A NOTICE, AS HAS ALSO BEEN ISSUED IN THE CASE ON HAND, IS INVALID AND THE CONSEQUENTIAL PENALTY PROCEEDINGS ARE ALSO NOT VALID. THE RELEVANT PORTION OF THEIR LORDSHIPS JUDGEMENT AT PARAS 59 TO 62 THEREOF ARE EXTRACTED HEREUNDER FOR REFERENCE: - 5 I.T.A. NO. 2327 /MUM/201 5 (A.Y. 2009 - 10 ) KANAKIA HOSPITALITY PVT. LTD. 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDINGS CAN BE INITIATED ON VARIOUS GROUND SET THEREIN. IF THE ORDER PASSED BY THE AUTHORITY CATEGORICALLY RECORDS A FINDING REGARDING THE EXISTENCE OF ANY SAID GROUNDS MENTIONED THEREIN AND THEN PENALTY PROCEEDINGS IS INITIATED, IN THE NOTICE TO BE ISSUED UNDER SECTION 274, THEY COULD CONVENIENTLY REFER TO THE SAID ORDER WHICH CONTA INS THE SATISFACTION OF THE AUTHORITY WHICH HAS PASSED THE ORDER. HOWEVER, IF THE EXISTENCE OF THE CONDITIONS COULD NOT BE DISCERNED FROM THE SAID ORDER AND IF IT IS A CASE OF RELYING ON DEEMING PROVISION CONTAINED IN EXPLANATION - 1 OR IN EXPLANATION - 1(B), THEN THOUGH PENALTY PROCEEDINGS ARE IN THE NATURE OF CIVIL LIABILITY, IN FACT, IT IS PENAL IN NATURE. IN EITHER EVENT, THE PERSON WHO IS ACCUSED OF THE CONDITIONS MENTIONED IN SECTION 271 SHOULD BE MADE KNOWN ABOUT THE GROUNDS ON WHICH THEY INTEND IMPOSING 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 OF THE DEPARTMENT AND SHOW THAT THE CONDITIONS STIPULATED IN SECTION 271(1)(C) DO NOT EXIST AS SUCH HE IS NOT LIABLE TO PAY 6 ITA NO.7602/MUM/2014(AY - 2005 - 06) TCFC FINANCE LTD. PENALTY. THE PRACTICE OF THE DEPARTMENT SENDING A PRINTED FARM WHERE ALL THE GROUND MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIREMENT OF 6 I.T.A. NO. 2327 /MUM/201 5 (A.Y. 2009 - 10 ) KANAKIA HOSPITALITY PVT. LTD. LAW WHEN THE CONSEQUENCES OF THE ASSESSEE NOT REBUTTING THE INITIAL PRESUMPTION IS SERIOUS IN NATURE AND HE HAD TO PAY PENALTY FROM 100% TO 300% OF THE TAX LIABILITY. AS THE SAID PROVISIONS HAVE TO BE HELD TO BE STRICTLY CONSTRUED, NOTICE ISSUED UNDER SECTION 274 SHOULD SATISFY TH E GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDED IF THE SHOW CAUSE NOTICE IS VAGUE. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON THE ASSESSEE. 60. CLAUSE (C) DEALS WITH TWO SPECIFIC OFFEN CES, THAT IS TO SAY, CONCEALING PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. NO DOUBT, THE FACTS OF SOME CASES MAY ATTRACT BOTH THE OFFENCES AND IN SOME CASES THERE MAY BE OVERLAPPING OF THE TWO OFFENCES BUT IN SUCH CASES THE INITI ATION OF THE PENALTY PROCEEDINGS ALSO MUST BE FOR BOTH THE OFFENCES. BUT DRAWING UP PENALTY PROCEEDINGS FOR ONE OFFENCE AND FINDING THE ASSESSEE GUILTY OF ANOTHER OFFENCE OR FINDING HIM GUILTY FOR EITHER THE ONE OR THE OTHER CANNOT BE SUSTAINED IN LAW. IT IS NEEDLESS TO POINT OUT SATISFACTION OF THE EXISTENCE OF THE GROUNDS MENTIONED IN SECTION 271(1)(C) WHEN IT IS A SINE QUA NON FOR INITIATION OR PROCEEDINGS, THE PENALTY PROCEEDINGS SHOULD BE CONFINED ONLY TO THOSE GROUNDS AND THE SAID GROUNDS HAVE TO BE S PECIFICALLY STATED SO THAT THE ASSESSEE WOULD HAVE THE OPPORTUNITY TO MEET 7 I.T.A. NO. 2327 /MUM/201 5 (A.Y. 2009 - 10 ) KANAKIA HOSPITALITY PVT. LTD. THOSE GROUNDS. AFTER, HE PLACES HIS VERSION AND TRIES TO SUBSTANTIATE HIS CLAIM, IF AT ALL, PENALTY IS TO BE IMPOSED, IT SHOULD BE IMPOSED ONLY ON THE GROUNDS ON WHICH HE IS CALLED UPON TO ANSWER. IT IS NOT OPEN TO THE AUTHORITY, AT THE TIME OF IMPOSING PENALTY TO IMPOSE PENALTY ON THE GROUNDS OTHER THAN WHAT ASSESSEE WAS CALLED UPON TO MEET. OTHERWISE THOUGH THE INITIATION OF PENALTY PROCEEDINGS MAY BE VALID AND LEGAL, THE FINAL ORD ER 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 INITIATION OF PENALTY PROCEEDINGS I S NOT IDENTICAL WITH THE GROUND ON WHICH THE PENALTY WAS IMPOSED, THE IMPOSITION OF PENALTY IS NOT VALID. THE VALIDITY OF THE ORDER OF PENALTY MUST BE DETERMINED WITH REFERENCE TO THE INFORMATION, FACTS AND MATERIALS IN THE HANDS OF THE AUTHORITY IMPOSING THE PENALTY AT THE TIME THE ORDER WAS PASSED AND FURTHER DISCOVERY OF FACTS SUBSEQUENT TO THE IMPOSITION OF PENALTY CANNOT VALIDATE THE 7 ITA NO.7602/MUM/2014(AY - 2005 - 06) TCFC FINANCE LTD. ORDER OF PENALTY WHICH, WHEN PASSED, WAS NOT SUSTAINABLE. 61. THE A SSESSING OFFICER IS EMPOWERED UNDER THE ACT TO INITIATE PENALTY PROCEEDINGS ONCE HE IS SATISFIED IN THE COURSE OF ANY PROCEEDINGS THAT THERE IS CONCEALMENT OF INCOME OR 8 I.T.A. NO. 2327 /MUM/201 5 (A.Y. 2009 - 10 ) KANAKIA HOSPITALITY PVT. LTD. FURNISHING OF INACCURATE PARTICULARS OF TOTAL INCOME UNDER CLAUSE (C). CONCEALMENT, FUR NISHING INACCURATE PARTICULARS OF INCOME ARE DIFFERENT. THUS THE ASSESSING OFFICER WHILE ISSUING NOTICE HAS TO COME TO THE CONCLUSION THAT WHETHER IS IT A CASE OF CONCEALMENT OF INCOME OR IS IT A CASE OF FURNISHING OF INACCURATE PARTICULARS. THE APEX COURT IN THE CASE OF ASHOK PAI REPORTED IN 292 ITR 11 AT PAGE 19 HAS HELD THAT CONCEALMENT OF INCOME AND FURNISHING INACCURATE PARTICULARS OF INCOME CARRY DIFFERENT CONNOTATIONS, THE GUJARAT HIGH 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 NOT SUSTAINABLE. THOM, WHEN THE ASSESSING OFFICER PROPOSES TO INVOKE THE FIRST LIMB BEING CONCEALMENT, THEN THE NOTICE HAS TO BE APPROPRIATELY MARKED. SIMILAR IS THE CASE FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THE STANDARD PROFORMA WITHOUT STRIKING OF THE RELEVANT CLAUSES WILL LEAD TO AN INFERE NCE AS TO NON - APPLICATION OF MIND. 7. THE CONCLUSION DRAWN THEREIN BY THEIR LORDSHIPS AT PARA 63 THEREOF AND PARTICULARLY AT P) TO S) THEREOF ARE AS UNDER: 9 I.T.A. NO. 2327 /MUM/201 5 (A.Y. 2009 - 10 ) KANAKIA HOSPITALITY PVT. LTD. 63 . A) . P) NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPECIFICALLY STATE THE GROUND MENTIONED IN SECTION 271(1)(C), I.E., WHETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INCORRECT PARTICULARS OF INCOME. Q)SENDING PRINTED FORM WHERE ALL THE GROUND MENTION ED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIREMENT OF LAW. R) THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDED. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMP OSED TO THE ASSESSEE. S) TAKING UP OF PENALTY PROCEEDINGS ON THE LIMB AND FINDING THE ASSESSEE GUILTY OF ANOTHER LIMB IS BAD IN LAW. 8. IT MAY BE MENTIONED THAT IN THIS REGARD, NO CONTRARY DECISION OF THE HON'BLE APEX COURT OR THE HON'BLE BOMBAY HIGH C OURT HAS BEEN BROUGHT TO OUR NOTICE OR PLACED BEFORE US FOR CONSIDERATION. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNING FACTORY REPORTED IN (2013) 359 ITR 565 (KAR), 10 I.T.A. NO. 2327 /MUM/201 5 (A.Y. 2009 - 10 ) KANAKIA HOSPITALITY PVT. LTD. DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VRS SAM SON PERINCHERY DATED 05.01.2017. APART FROM ABOVE, WE HAVE ALSO GONE THROUGH THE ORDERS PASSED BY CO - ORDINATE BENCH OF HONBLE ITAT IN ITA NO. 2326/M/15 FOR AY 2008 - 09 AND IT|A NO. 2328/M/15 FOR AY 201 0 - 11 IN ASSESSEES OWN CASE WHEREIN IDENTICAL GROUNDS THE PENALTY WAS DELETED. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH AND IN ORDER TO MAINTAIN JUDICIAL CONSISTENCY WHICH IS APPLICABLE MUTATIS MUTAND IS IN THE CASE OF THE ASSES SEE, WE HOLD THAT THE NOTICE ISSUED UNDER SECTION 274 R.W.S. 271 OF THE ACT DATED 28.03.13 FOR A.Y. 2009 - 10 FOR INITIATING PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT IN THE CASE ON HAND IS INVALID AND CONSEQUENTLY, THE PENALTY PROCEEDINGS ARE A LSO INVALID. SINCE THE VERY BASIS FOR THE LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT HAS BEEN HELD TO BE INVALID, WE ARE OF THE VIEW THAT THE OTHER GROUNDS OF APPEAL , RAISED BY THE ASSESSEE AGAINST THE MERITS OF THE LEVY OF PENALTY UNDER SECTION 27 1(1)(C) OF THE ACT REQUIRE NO ADJUDICATION AT THIS STAGE. 11 I.T.A. NO. 2327 /MUM/201 5 (A.Y. 2009 - 10 ) KANAKIA HOSPITALITY PVT. LTD. 9. IN THE RESULT, ASSESSEES APPEAL FOR A.Y. 20 09 - 10 I S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH DEC . , 2017 SD/ - SD/ - ( R. C. SHARMA ) ( SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 28 . 12 .201 7 SR.PS . DHANANJAY / 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 F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI