DCIT, V. M/s Ittina Properties P. Ltd.,

ITA 36/BANG/2014

• Counselvise Citation: 3621114 RSA 2014
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 31-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 10-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO CITI
• Keywords: Principle of natural justice; Initiation of penalty proceedings
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI , JUDICIAL MEMBER A ND SHRI JASON P.BOAZ, ACCOUNTANT MEMBER ITA NO. 36 / BANG/20 14 (ASSESSMENT YEAR: 20 0 9 - 10 ) DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 11 ( 4 ), BANGALORE. APPELLANT VS. M/S. ITTINA PROPERTIES PVT. LTD., NO. 380, OPP. CWPD QUARTERS, III BLOCK, KORAMANGALA, BANGALORE . P AN:AA ACI3805Q RESPONDENT APPELLANT BY: SHRI C.H.SUNDAR RAO, CIT - I (DR). RESPONDENT BY: SHRI SUDHEENDRA , CA . DATE OF HEARING : 31 /10/2014. DATE OF PRONOUNCEMENT: 21 /11/2014. O R D E R PER SMT.P.MADHAVI DEVI, JM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) - I, BANGALORE, DATED 1 3/09/2013 FOR THE ASSESSMENT EAR 2009 - 10. THE REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT(A) SETTING ASIDE THE PENALTY LEVIED BY THE ASSESSING OFFICER (AO) U/S 271(1)(C) OF THE INCOME - TAX ACT, 1961[HEREINAFTER REFERRED TO AS 'THE ACT']. ITA NO . 36 /BANG/20 1 4 M/S.ITTINA PROPERTIES PVT. LTD., PAGE 2 OF 7 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE - COMPANY FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR AND THEREAFTER ALSO REVISED THE SAME. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE INCOME - TAX ACT, 1961[HEREINAFTER REFERRED TO AS 'THE ACT'], THE AO OBSERVED THAT THE ASSESSEE HA S CHANGED ITS METHOD OF ACCOUNTING FROM AS - 7 TO AS - 9. AFTER DISCUSSION WITH THE AO, THE ASSESSEE FILED A REVISED CALCULATION OF INCOME DATED 28/12/2011 AS PER AS - 7 DUE TO WHICH THE ASSESSEE HAD ARRIVED A TOTAL LOSS OF RS.7,28,54,665/ - . THE AO OBSERVED T HAT THE ASSESSEE S BUSINESS LOSS HAS ACCRUED FROM 80 - IB PROJECT FROM WHOSE PROFITS IN THE PAST, EXEMPTION U/S 80 - IB HAS BEEN AVAILED OF . HE OBSERVED THAT AS PER THE PROVISIONS OF SEC.80 - IA(9) DEDUCTION IN RESPECT OF INCOMES FROM SUCH PROJECT SHALL IN NO C ASE EXCEED THE PROFITS AND GAINS OF SUCH ELIGIBLE BUSINESS. THEREFORE, ACCORDING TO HIM, LOSSES ARISING FROM SUCH 80 - IB PROJECTS SHOULD BE ADJUSTED AGAINST PROFITS OF 80 - IB PROJECTS OF EARLIER YEARS. HE, ACCORDINGLY, DISALLOWED THE BUSINESS LOSS OF RS.6, 06,33,060/ - AND ADDED IT TO THE RETURNED INCOME OF THE ASSESSEE AND ARRIVED AT THE TOTAL LOSS OF RS.1,22,21,610/ - . THE ASSESSEE ACCEPTED SUCH ADDITION MADE BY THE AO AND DID NOT FILE ANY APPEAL. THEREAFTER, THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1) (C) OF THE ACT AND LEVIED THE PENALTY AT 100% OF THE TAX SOUGH T TO BE EVADED. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) WHO DELETED THE SAME AND THE REVENUE IS IN APPEAL BEFORE US. ITA NO . 36 /BANG/20 1 4 M/S.ITTINA PROPERTIES PVT. LTD., PAGE 3 OF 7 3. AT THE TIME OF HEARING ON 30/10/2014 , IT WA S NOTICED THAT IN FORM NO.36 FILED BY THE REVENUE, IT IS MENTIONED THAT THE ORDER CHALLENGED IS ORDER U/S 143(3) DATED 28/12/2011 WHEREAS THE ORDER UNDER CHALLENGE IS PASSED U/S 271(1)(C) DATED 30/5/2012. THEREFORE, THE LEARNED DEPARTMENTAL REPRESENTATIVE SOUGHT TIME TO FILE A REVISED FORM NO.36 AND ALSO A COPY OF THE ORDER U/S 271(1)(C) OF THE ACT. ON 31/10/2014 THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS FILED THE REVISED FORM 36 ALONG WITH COPIES MENTIONED IN HIS LETTER DATED 30/10/2014. THE SAME IS TA KEN ON RECORD. THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDERS OF THE AO WHILE THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO HAD ISSUED THE NOTICE U/S 271(1)(C) OF THE ACT DATED 28/12/2011 AND THE NOTICE IS IN THE PRO - FORMA WITHO UT DELETING THE INAPPROPRIATE WORDS IN THE SAID NOTICE WHICH CLEARLY SHOWS NON - APPLICATION OF MIND BY THE AO AS REGARDS THE DEFAULT ALLEGEDLY COMMITTED BY THE ASSESSEE FOR WHICH THE PENALTY PROCEEDINGS WERE BEING INITIATED. COPY OF THE SAID NOTICE IS FILE D BEFORE US. HE SUBMITTED THAT THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S.MANJUNATHA COTTON AND GINNING FACTORY IN ITA NO.2564 OF 2005 DATED 13 - 12 - 2012 HAS HELD THAT THE NOTICE U/S 271(1)(C) WOULD BE INVALID IF INAPPROPRIATE PORTION OF THE N OTICE HAS NOT BEEN DELETED BY THE AO. FURTHER, AS REGARDS MERITS OF THE ORDER IS CONCERNED, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT DIFFERENCE IN THE ITA NO . 36 /BANG/20 1 4 M/S.ITTINA PROPERTIES PVT. LTD., PAGE 4 OF 7 CLAIM OF BUSINESS LOSS HAS ARISEN ONLY DUE TO CHANGE OF METHOD OF ACCOUNTING AND NOT DUE TO F URNISHING OF ANY INACCURATE PARTICULARS OR CONCEALMENT OF INCOME. HE SUBMITTED THAT MERELY BECAUSE THE ASSESSEE HAS NOT FILED ANY APPEAL AGAINST THE DISALLOWANCE MADE IN THE ASSESSMENT ORDER, IT WOULD NOT AUTOMATICALLY ATTRACT LEVY OF PENALTY. 4. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE NOTICE U/S 271(1)(C) DATED 28/12/2011 HAS BEEN ISSUED TO THE ASSESSEE WITHOUT STRIKING OFF THE INAPPROPRIATE WORDS THEREBY NOT SPECIFYING THE DEFAULT FOR WHICH THE PROCEE DINGS WERE BEING INITIATED, MAKING THE NOTICE INVALID. THE HON BLE HIGH COURT OF KARNATAKA, IN THE CASE OF M/S.MANJUNATHA COTTON AND GINNING FACTORY IN ITA NO.2564 OF 2005 DATED 13 - 12 - 2012 HAS HELD AS UNDER: 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDINGS CAN BE INITIATED ON VARIOUS GROUNDS SET OUT 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 T O BE ISSUED UNDER SECTION 274, THEY COULD CONVENIENTLY REFER TO THE SAID ORDER WHICH CONTAINS 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 MEN TIONED 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 ITA NO . 36 /BANG/20 1 4 M/S.ITTINA PROPERTIES PVT. LTD., PAGE 5 OF 7 DEPAR TMENT AND SHOW THAT THE CONDITIONS STIPULATED IN SECTION 271(1)(C) DO NOT EXIST AS SUCH HE IS NOT LIABLE TO PAY PENALTY. THE PRACTICE OF THE DEPARTMENT SENDING A PRINTED FORM WHERE ALL THE GROUND MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQ UIREMENT OF 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 ISSUE D UNDER SECTION 274 SHOULD SATISFY THE 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 OFFENCES, 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 T HE TWO OFFENCES BUT IN SUCH CASES THE INITIATION 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 O R 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 THOS E GROUNDS AND THE SAID GROUNDS HAVE TO BE SPECIFICALLY STATED SO THAT THE ASSESSEE WOULD HAVE THE OPPORTUNITY TO MEET 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 PROCEE DINGS MAY BE VALID AND LEGAL, THE FINAL 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 INITIATION OF PENALTY PROCEEDINGS IS 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 MATERI ALS IN THE HANDS OF THE AUTHORITY IMPOSING THE PENALTY AT THE TIME THE ORDER ITA NO . 36 /BANG/20 1 4 M/S.ITTINA PROPERTIES PVT. LTD., PAGE 6 OF 7 WAS PASSED AND FURTHER DISCOVERY OF FACTS SUBSEQUENT TO THE IMPOSITION OF PENALTY CANNOT VALIDATE THE ORDER OF PENALTY WHICH, WHEN PASSED, WAS NOT SUSTAINABLE. 61. THE ASSESS ING 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 FURNISHING OF INACCURATE PARTICULARS OF TOTAL INCOME UNDER CLAUSE (C). CONCEALMENT, FURNISHI NG 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 T HE 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. THEREFORE, 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 . SINCE THE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE ARE SIMILAR, RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT, WE HOLD THE NOTICE TO BE INVALID AND THEREFORE, THE CONSEQUENTIAL PENALTY ORDER IS ALSO INVALID. EVEN ON MERITS, WE ARE IN AGREEMENT WITH THE CONTENTIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THERE IS NO FINDING BY THE AO OR THE CIT(A) AS REGARDS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF ITS INCOME . ITA NO . 36 /BANG/20 1 4 M/S.ITTINA PROPERTIES PVT. LTD., PAGE 7 OF 7 5. IN THE RESULT, THE REVENUE S APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 21 ST OF NOVEMBER, 2014. SD/ - SD/ - (JASON P BOAZ) (SMT. P.MADHAVI DEV I) ACCOUNTANT MEMBER JUDICIAL MEMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE T RIBUNAL BANGALORE