District Co-operative Bank Ltd., Uttrakhand V. ITO, Uttrakhand

ITA 398/DEL/2015

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 4155 (ITAT-DEHRADUN)
• Duration Of Justice: 6 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 20-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N C UPPADHAY
• Keywords: Initiation of penalty proceedings; Bad and doubtful debts; Set aside
• Section: 271(1)(c); 143(3); 274; 13; 22; 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIB UNAL DEHRADUN CIRCUIT BENCH: DEHRADUN BEFORE, SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.398/DEL/2015 (ASSESSMENT YEAR: 2010-11) DISTRICT CO - OPERATIVE BANK LTD. BADRINATH MARG, KOTDWAR (UTTRAKHAND) PAN AAAAZ 0137G VS. INCOME TAX OFFICER , KOTDWAR. (APPELLANT) (RESPONDENT) APPELLANT BY DR. RAKESH GUPTA, ADV., SH. SOMIL AGGARWAL, ADV. RESPONDENT BY SH. N.C.UPPADHAY, SR. DR DATE OF HEARING 03.03.2021 DATE OF PRONOUNCEMENT 31.05.2021 ORDER PER SUDHANSHU SRIVASTAVA, JM: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST O RDER DATED 19 TH NOVEMBER, 2014 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-DEHRADUN {CIT (A)} FOR ASSESSM ENT YEAR 2009- 10 WHEREIN LD. CIT (A) HAS UPHELD THE LEVY OF PENALT Y TO THE TUNE OF 2 ITA NO.398/DEL/2015 DISTRICT CO-OPERATIVE B ANK LTD. VS. ITO RS.1,26,51,285/- U/S 271(1)(C) OF THE INCOME TAX AC T, 1961 (HEREINAFTER CALLED THE ACT). 2.0 THE BRIEF FACTS OF THE CASE ARE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE ASSESSING OFFICER (AO) NOTED THAT THE ASSESSEE HAD CLAIMED A DEDUCTION OF RS.4,69,52,670/- AGAINST PROVISION FOR BAD DEBTS AND DOUBTFUL DEBTS U/S 36(1)(VIIA) OF THE ACT WHILE IT H AD MADE PROVISION FOR ONLY RS.60,00,000/- FOR THE YEAR UNDER CONSIDER ATION. THE AO, VIDE ASSESSMENT ORDER DATED 22.02.2013, HELD THAT N O SUCH DEDUCTION COULD BE ALLOWED WITHOUT MAKING PROVISION FOR BAD & DOUBTFUL DEBTS IN THE ACCOUNT BOOKS OF THE PREVIOUS YEAR IN WHICH IT WAS CLAIMED, AND, THEREAFTER, QUOTING THE CASE OF STATE BANK OF PATIALA VS. CIT 272 ITR 54 (P&H ), HE RESTRICTED THE DEDUCTION TO RS.60,00,000/- AND THE BALANCE AMOUNT WAS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. PENALTY PROCEED INGS U/S 271(1)(C) OF THE ACT WERE ALSO INITIATED AND NOTICE U/S 274 DATED 22.02.2013 WAS ISSUED. 2.1 IN RESPONSE TO NOTICE ISSUED U/S 274 OF THE ACT, THE ASSESSEE SUBMITTED BEFORE THE AO THAT IT H AD FINALIZED ITS 3 ITA NO.398/DEL/2015 DISTRICT CO-OPERATIVE B ANK LTD. VS. ITO FINAL ACCOUNTS FOR THE YEAR BY MAKING PROVISIONS FO R BAD DEBTS AS PER THE PROVISIONS OF SECTION 36(1)(VIIA) OF THE AC T. HOWEVER, AT THE TIME OF FINALIZATION OF COMPUTATION OF INCOME DUE T O MISUNDERSTANDING BY THE AUTHORIZED REPRESENTATIVE, EXTRA DEDUCTION WAS CLAIMED WITHOUT LOOKING INTO THE CONTENTS OF THE PROVISIONS OF BAD DEBTS PROVIDED IN THE BALANCE SHEET AND A REFUN D OF PRE-PAID TAXES WAS CLAIMED. IT WAS SUBMITTED THAT AS THE RETU RN OF INCOME WAS FILED ONLINE, THERE WAS NO NEED OF SIGNATURE OF T HE ASSESSEE FOR VERIFICATION OF RETURN. HENCE, THIS FACT DID NOT CO ME TO THE KNOWLEDGE OF THE ASSESSEE, AND, ACCORDINGLY, THERE WA S NO DELIBERATE OMISSION ON THE PART OF THE ASSESSEE. IT WAS SUBMITTED THAT THE OMISSION AND NEGLIGENCE WAS ON THE PART OF THE AUTHORIZED REPRESENTATIVE BUT NOT ON THE PART OF THE ASSESSEE. THE AO CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND HELD THAT BOTH THE ELEMENTS OF SECTION 271(1)(C) WERE FULFILLED. IT IS WAS HELD BY THE AO IN ORDER U/S 271(1)(C) OF THE ACT VIDE ORDER DATED 27.08.2013 THAT THE ASSESSEE HAD DEDUCTED UNLAWFUL AND FALSE DEDUCTI ON ON ACCOUNT OF PROVISIONS FOR BAD DEBT & DOUBTFUL DEBTS (WITHOUT FULFILLING THE CONDITIONS) AND CLAIMED AS DEDUCTION, SUCH DEDUCTIO N KNOWING THAT 4 ITA NO.398/DEL/2015 DISTRICT CO-OPERATIVE B ANK LTD. VS. ITO IT WAS INCORRECT WHICH AMOUNTED TO CONCEALMENT. THE A O ALSO DID NOT AGREE WITH THE ASSESSEES SUBMISSION THAT IT HAD ACTED ON WRONG ADVICE AND THAT THERE WAS NEGLIGENCE ON THE PART OF THE AUTHORIZED REPRESENTATIVE, ON THE GROUND THAT INACCURATE PARTI CULARS WERE SUPPLIED IN THE RETURN WHICH RESULTED IN THE REDUCTI ON OF INCOME AND, THUS, CONCEALMENT OF INCOME WAS PROVED. ACCORDI NGLY, HE IMPOSED A PENALTY OF RS.1,26,51,285/- BEING THE MIN IMUM PENALTY. THE LD CIT (A) HAS, VIDE THE IMPUGNED ORDER UPHELD THE PENALTY. 2.2 THE ASSESSEE IS NOW BEFORE THIS TRIBUNAL AND HAS RAISED FOLLOWING GROUNDS OF APPEAL. 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANC ES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN C ONFIRMING THE PENALTY U/S 271(1)(C), LEVIED BY THE LD. A.O. OF RS .1,26,51,285/- 2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN NOT REVERSING THE ACTION OF THE LD. AO IN LEVYING PENALTY U/S 271 (1)(C), IS BAD IN LAW AS CONTRARY TO THE PRINCIPLES OF NATURAL JUS TICE AND HAS BEEN PASSED BY RECORDING INCORRECT FACTS AND FINDIN G AND THE SAME IS NOT SUSTAINABLE ON VARIOUS LEGAL AND FACTUA L GROUNDS. 5 ITA NO.398/DEL/2015 DISTRICT CO-OPERATIVE B ANK LTD. VS. ITO 3.0 THE LD. AR HAS DRAWN OUR ATTENTION TO THE NOTICE DATED 22 ND FEBRUARY, 2013 ISSUED U/S 274 OF THE ACT AND IT WAS SUBMITTED BY HIM THAT IN THIS NOTICE, PENALTY HA S BEEN PROPOSED TO BE IMPOSED FOR HAVING CONCEALED THE PAR TICULARS OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. IT WAS SUBMITTED THAT, THUS, THE ASSESSEE WAS NOT MADE AWARE OF THE CHARGE FOR WHICH THE PENALTY WAS BEING PROPOSED TO BE IMPOSED. IT WAS SUBMITTED THAT IT WAS SETTLED LAW THAT THE ASSESSE E SHOULD BE MADE AWARE OF THE CHARGE FOR WHICH THE PENALTY IS BE ING PROPOSED TO BE IMPOSED AND A DEFECT IN THE NOTICE IN THE NATURE OF THE SPECIFIC LIMB NOT BEING SATISFIED WOULD VITIATE THE ENTIRE PE NALTY PROCEEDINGS. IT WAS SUBMITTED THAT SUCH A VIEW HAS ALSO NOW BEEN U PHELD BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF SAHARA I NDIA INSURANCE COMPANY LTD VIDE ORDER DATED 02 ND AUGUST 2019 IN ITA 475/2019. THE LD. AR ALSO DREW OUR ATTENTION TO PAGE 3 OF THE PENALTY ORDER WHEREIN THE AO HAS HELD THAT THE ASSESSEE HAD FURNIS HED INACCURATE PARTICULARS. IT WAS SUBMITTED THAT THE PE NALTY OUGHT TO BE DELETED IN VIEW OF THE DEFECT IN THE NOTICE AS AF ORESAID. THE LD. AR PLACED HIS RELIANCE ON NUMEROUS JUDICIAL PRECEDE NTS IN SUPPORT 6 ITA NO.398/DEL/2015 DISTRICT CO-OPERATIVE B ANK LTD. VS. ITO OF HIS CONTENTION THAT THE DEFECT IN NOTICE WOULD M AKE THE IMPOSITION OF PENALTY UNSUSTAINABLE IN LAW. 4.0 PER CONTRA, THE LD. SR. DR PLACED EXTENSIVE RELIANCE ON THE OBSERVATIONS AND FINDINGS OF BOTH T HE LOWER AUTHORITIES. IT WAS ALSO POINTED OUT THAT THE GROUND RELATING TO THE DEFECT IN NOTICE WAS NOT RAISED BEFORE THE LD CIT ( A) AND, THEREFORE, THE ASSESSEE SHOULD NOT BE PERMITTED TO RAISE THIS GROUND AT THIS JUNCTURE. IT WAS ARGUED BY THE LD. SR. DR THAT THE P ENALTY SHOULD NOT BE DELETED ON A MERE TECHNICALITY. 5.0 WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GIVEN THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. THE LD. AR FOR THE ASSESSEE HAS CHALLENGED TH E IMPUGNED ORDER CONTENDING THAT THE SHOW-CAUSE NOTICE ISSUED BY THE AO IS NOT A VALID NOTICE TO INITIATE THE PENALTY PROCEEDI NGS AS THE ASSESSEE HAS NOT BEEN MADE AWARE AS TO WHETHER HE HAS CONCEALE D THE PARTICULARS OF INCOME OR HAS FURNISHED INACCURATE P ARTICULARS OF SUCH INCOME. IT IS SETTLED PRINCIPLE OF LAW THAT PEN ALTY CANNOT BE IMPOSED MERELY ON THE GROUND THAT ADDITIONS MADE IN THE INCOME OF THE ASSESSEE HAVE BEEN CONFIRMED. RATHER TO PROCEED WITH THE 7 ITA NO.398/DEL/2015 DISTRICT CO-OPERATIVE B ANK LTD. VS. ITO IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT, THE AO HAS TO PROVE THAT THERE WAS CONCEALMENT OF PARTICULARS OF INCOME OR THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF SU CH INCOME. 5.1 THE IMPUGNED NOTICE ISSUED U/S 274DATED 22.02.2013, IS REPRODUCED HERE IN UNDER FOR A READY REFERENCE: 8 ITA NO.398 /DEL/2015 DISTRICT CO- OPERATIVE BANK LTD. VS. ITO /DEL/2015 OPERATIVE BANK LTD. VS. ITO 9 ITA NO.398 /DEL/2015 DISTRICT CO- OPERATIVE BANK LTD. VS. ITO /DEL/2015 OPERATIVE BANK LTD. VS. ITO 10 ITA NO.398/DEL/2015 DISTRICT CO-OPERATIVE B ANK LTD. VS. ITO 5.2 A BARE PERUSAL OF THE NOTICE ISSUED TO THE ASSESSEE U/S 274 READ WITH SECTION 271(1)(C) OF THE ACT (AS REPRODUCED ABOVE) GOES TO PROVE THAT ASSESSEE HAS N OT BEEN CALLED UPON TO EXPLAIN IF IT HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. TH E HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY & ORS 359 ITR 565(KAR) HAS DEALT WITH THE IDENTICAL ISSUE THREADBARE AND COME TO THE FOLLOWING CONCLUSIO N:- 63. IN THE LIGHT OF WHAT IS STATED ABOVE, WHAT EME RGES IS AS UNDER: A) PENALTY UNDER SECTION 271(1)(C) IS A CIVIL LIABI LITY. B) MENS REA IS NOT AN ESSENTIAL ELEMENT FOR IMPOSIN G PENALTY FOR BREACH OF CIVIL OBLIGATIONS OR LIABILITIES. C) WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIE NT FOR ATTRACTING CIVIL LIABILITY. D) EXISTENCE OF CONDITIONS STIPULATED IN SECTION 27 1(1)(C) IS A SINE QUA NON FOR INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271. E) THE EXISTENCE OF SUCH CONDITIONS SHOULD BE DISCE RNIBLE FROM THE ASSESSMENT ORDER OR ORDER OF THE APPELLATE AUTH ORITY OR REVISIONAL AUTHORITY. 11 ITA NO.398/DEL/2015 DISTRICT CO-OPERATIVE B ANK LTD. VS. ITO F) EVER IF THERE IS NO SPECIFIC FINDING REGARDING T HE EXISTENCE OF THE CONDITIONS MENTIONED IN SECTION 271(1)(C), AT L EAST THE FACTS SET OUT IN EXPLANATION 1(A) & (B) IT SHOULD BE DISCERNIBLE FROM THE SAID ORDER WHICH WOULD BY A LEGAL FICTION CONSTITUTE CONCEALMENT BECAUSE O F DEEMING PROVISION. G) EVEN IF THESE CONDITIONS DO NOT EXIST IN THE ASS ESSMENT ORDER PASSED, AT LEAST, A DIRECTION TO INITIATE PROCEEDIN GS UNDER SECTION 271(L)(C) IS A SINE QUA NON FOR THE ASSESSM ENT OFFICER TO INITIATE THE PROCEEDINGS BECAUSE OF THE DEEMING PRO VISION CONTAINED IN SECTION 1(B). H) THE SAID DEEMING PROVISIONS ARE NOT APPLICABLE T O THE ORDERS PASSED BY THE COMMISSIONER OF APPEALS AND THE COMMI SSIONER. I) THE IMPOSITION OF PENALTY IS NOT AUTOMATIC. J) IMPOSITION OF PENALTY EVEN IF THE TAX LIABILITY IS ADMITTED IS NOT AUTOMATIC. K) EVEN IF THE ASSESSEE HAS NOT CHALLENGED THE ORDE R OF ASSESSMENT LEVYING TAX AND INTEREST AND HAS PAID TA X AND INTEREST THAT BY ITSELF WOULD NOT BE SUFFICIENT FOR THE AUTHORITIES EITHER TO INITIATE PENALTY PROCEEDINGS OR IMPOSE PE NALTY, UNLESS IT IS DISCERNIBLE FROM THE ASSESSMENT ORDER THAT, I T IS ON ACCOUNT OF SUCH UNEARTHING OR ENQUIRY CONCLUDED BY AUTHORIT IES IT HAS RESULTED IN PAYMENT OF SUCH TAX OR SUCH TAX LIABILI TY CAME TO BE 12 ITA NO.398/DEL/2015 DISTRICT CO-OPERATIVE B ANK LTD. VS. ITO ADMITTED AND IF NOT IT WOULD HAVE ESCAPED FROM TAX NET AND AS OPINED BY THE ASSESSING OFFICER IN THE ASSESSMENT O RDER. L) ONLY WHEN NO EXPLANATION IS OFFERED OR THE EXPLA NATION OFFERED IS FOUND TO BE FALSE OR WHEN THE ASSESSEE FAILS TO PROVE THAT THE EXPLANATION OFFERED IS NOT BONAFIDE, AN ORDER IMPOS ING PENALTY COULD BE PASSED. M) IF THE EXPLANATION OFFERED, EVEN THOUGH NOT SUBS TANTIATED BY THE ASSESSEE, BUT IS FOUND TO BE BONAFIDE AND ALL F ACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, NO PENALTY COULD BE IMP OSED. N) THE DIRECTION REFERRED TO IN EXPLANATION IB TO S ECTION 271 OF THE ACT SHOULD BE CLEAR AND WITHOUT ANY AMBIGUITY. O) IF THE ASSESSING OFFICER HAS NOT RECORDED ANY SA TISFACTION OR HAS NOT ISSUED ANY DIRECTION TO INITIATE PENALTY PR OCEEDINGS, IN APPEAL, IF THE APPELLATE AUTHORITY RECORDS SATISFAC TION, THEN THE PENALTY PROCEEDINGS HAVE TO BE INITIATED BY THE APP ELLATE AUTHORITY AND NOT THE ASSESSING AUTHORITY. P) NOTICE UNDER SECTION 274 OF THE ACT SHOULD SPECI FICALLY STATE THE GROUNDS MENTIONED IN SECTION 271(1)(C), I.E., W HETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INCORREC T PARTICULARS OF INCOME Q) SENDING PRINTED FORM WHERE ALL THE GRO UND MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SA TISFY REQUIREMENT OF LAW. 13 ITA NO.398/DEL/2015 DISTRICT CO-OPERATIVE B ANK LTD. VS. ITO R) THE ASSESSEE SHOULD KNOW THE GROUNDS WHICH HE HA S TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLE OF NATURAL JUSTI CE IS OFFENDED. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED TO THE ASSESSEE. S) TAKING UP OF PENALTY PROCEEDINGS ON ONE LIMB AND FINDING THE ASSESSEE GUILTY OF ANOTHER LIMB IS BAD IN LAW. T) THE PENALTY PROCEEDINGS ARE DISTINCT FROM THE AS SESSMENT PROCEEDINGS. THE PROCEEDINGS FOR IMPOSITION OF PENA LTY THOUGH EMANATE FROM PROCEEDINGS OF ASSESSMENT, IT IS INDEP ENDENT AND SEPARATE ASPECT OF THE PROCEEDINGS. U) THE FINDINGS RECORDED IN THE ASSESSMENT PROCEEDI NGS IN SO FAR AS 'CONCEALMENT OF INCOME' AND 'FURNISHING OF I NCORRECT PARTICULARS' WOULD NOT OPERATE AS RES JUDICATA IN T HE PENALTY PROCEEDINGS. IT IS OPEN TO THE ASSESSEE TO CONTEST THE SAID PROCEEDINGS ON MERITS. HOWEVER, THE VALIDITY OF THE ASSESSMENT OR REASSESS MENT IN PURSUANCE OF WHICH PENALTY IS LEVIED, CANNOT BE THE SUBJECT MATTER OF PENALTY PROCEEDINGS. THE ASSESSMENT OR RE ASSESSMENT CANNOT BE DECLARED AS INVALID IN THE PENALTY PROCEE DINGS. 5.3 THEREFORE, RESPECTFULLY FOLLOWING THE LAW AS LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA, AS STAT ED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT WHEN THE ASSESSEE HAS NOT BEEN SPECIFICALLY MADE AWARE OF THE CHARGES LEVELED AGAIN ST IT AS TO 14 ITA NO.398/DEL/2015 DISTRICT CO-OPERATIVE B ANK LTD. VS. ITO WHETHER THERE IS A CONCEALMENT OF INCOME OR FURNISHI NG OF INACCURATE PARTICULARS OF INCOME ON ITS PART, THE P ENALTY U/S 271(1)(C) OF THE ACT IS NOT SUSTAINABLE. RECENTLY, THE HONBLE DELHI HIGH COURT HAS APPROVED THE ORDER OF THE HONBLE KA RNATAKA HIGH COURT IN THE CASE OF SAHARA INDIA LIFE INSURANCE (SUPRA) . ACCORDINGLY, RESPECTFULLY FOLLOWING THE JUDICIAL PRE CEDENTS AS AFOREMENTIONED, WE SET ASIDE THE ORDER OF THE LD. FI RST APPELLATE AUTHORITY AND DIRECT THE AO DELETE THE PENALTY. 6.0 IN THE FINAL RESULT, APPEAL FILED BY THE ASSE SSEE IS ALLOWED. ORDER PRONOUNCED ON 31/05/2021. SD/- SD /- (PRASHANT MAHARISHI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31/05/2021 *DRAGON* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI (DEHRADUN CIRCUIT BENCH, DEHRADUN)