QL2 Software India Pvt. Ltd., Delhi V. ITO, Gurgaon

ITA 4805/DEL/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 1530 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC 2
• Next Hearing Date: 06-12-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 08-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Keywords: Principle of natural justice; Question of law; Initiation of penalty proceedings; Wrong claim
• Section: 271(1)(c); 143(3); 10B; 274; 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F, NEW DELHI BEFORE SHRI G.S. PANNU, HONBLE VICE PRESIDENT AND SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER ITANO.4805/DEL/2016 ASSESSMENT YEAR: 2012-13 M/S. QL2 SOFTWARE INDIA PVT. LTD., C/O- CHACHAN&LATH, 1308-09, BEST SKY TOWER, F-5, NETAJI SUBHASH PLACE, PITAMPURA, DELHI VS. ITO, WARD-3(2), GURGAON PAN: AAACQ1399R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KAPIL GOEL, ADVOCATE RESPONDENT BY:SHRI SURENDER PAL, SR. DR DATE OF HEARING: 03/12/2019 DATE OF ORDER : 12/12/2019 ORDER PER K. NARASIMHA CHARY, J.M. AGGRIEVED BY THE ORDER DATED 24/6/2016 IN APPEAL N O. 260/2015- 16 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-1, GURGAON (LD. CIT(A)) FOR ASSESSMENT YEAR 2012-13, SUSTAINING THE PENALTY OF RS.22,54,550/-LEVIED BY THE LEARNED ASSE SSING OFFICER, M/S QL2 SOFTWARE INDIA PRIVATE LIMITED (THE ASSESSEE) PRE FERRED THIS APPEAL. 2 ITA NO.4805/DEL/2016 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF INFORMATION TECHNOLOGY ENABLED SERVICES AND 100 PERCENT EOU UNIT. FOR THE ASSESSMENT YEAR 2012-13, IT HAD F ILED ITS RETURN OF INCOME ON 28/11/2012 DECLARING INCOME OF RS.52,840/ -AND CLAIMED DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) TO THE TUNE OF RS.36,48,138/-. ASSESSMENT UND ER SECTION 143(3) OF THE ACT WAS COMPLETE BY ORDER DATED 13/3/2015 DETER MINING THE TOTAL INCOME OF THE ASSESSEE AT RS.37,00,980/-BY MAKING A DDITION OF RS.36,48,138/-ON ACCOUNT OF DISALLOWANCE OF THE CLA IM OF EXEMPTION UNDER SECTION 10B OF THE ACT. LEARNED ASSESSING OFF ICER SIMULTANEOUSLY INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)( C) OF THE ACT AND CONCLUDED THEM BY ORDER DATED 18/9/2015 WITH THE LE VY OF PENALTY OF RS.22,54,550/-. 3. AGGRIEVED BY SUCH LEVY OF PENALTY, ASSESSEE PREF ERRED AN APPEAL BEFORE THE LD. CIT(A). LD. CIT(A) BY WAY OF IMPUGNE D ORDER REJECTED ALL THE CONTENTIONS OF THE ASSESSEE AND UPHELD THE LEVY OF PENALTY. ASSESSEE IS, THEREFORE, BEFORE US IN THIS APPEAL CHALLENGING THE PENALTY ORDER ON SEVERAL GROUNDS, WHICH INCLUDES THAT NEITHER THE AS SESSMENT ORDER NOR THE PENALTY NOTICESPECIFY THE EXACT CHARGE/LIMB OF SECTION 271(1)( C ) OF THE ACT UNDER WHICH THE PROCEEDINGS WERE INITIATED. LD. AR SUBMITTED THAT THE CLAIM BONA FIDE AND FULL AND COMPLETE FACT UAL DISCLOSURE WAS MADE BY THE ASSESSEE IN THE RETURN OF INCOME ITSELF . ON THIS ASPECT, LD. AR PLACED RELIANCE ON THE DECISIONS OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MANJUNATHA COTTON AND GINNIN G FACTORY (2013) 359 ITR 565, COMMISSIONER OF INCOME TAX V. SSAS EMERAL D MEADOWS (2016) 73 TAXMAN.COM 241 (KAR)AND ALSO THE DECISION OF THE HONBLE 3 ITA NO.4805/DEL/2016 JURISDICTIONAL HIGH COURT IN THE CASE OF LD. PCIT V S. SAHARA INDIA LIFE INSURANCE CO. LTD. IN ITA NO. 475 AND BATCH OF 2019 , AND SUBMITTED THAT PENALTY CANNOT BE SUSTAINED. 4. PER CONTRA, BY PLACING ON THE DECISION OF THE HO NBLE MADRAS HIGH COURT IN THE CASE OF SUNDARAM FINANCE LTD VS. CIT ( 2018) 403 ITR 407 (MADRAS),LD. DR SUBMITTED THAT THE ASSESSEE UNDERST OOD THE PURPORT OF THE NOTICE AND WITHOUT RAISING ANY OBJECTION WHATSO EVER THEY HAVE PARTICIPATED IN THE PENALTY PROCEEDINGS AS WELL AS THE PROCEEDINGS BEFORE THE LD. CIT(A) AND, THEREFORE, NO PREJUDICE WAS CAU SED TO THE CASE OF THE ASSESSEE. HE, THEREFORE, PRAYED TO DISMISS THE APPE AL. 5. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS MADE ON EITHER SIDE. WHILE RECORDING THE SATISFACTI ON IN THE ORDER DATED 13(3) OF THE ACT, 2015 PASSED UNDER SECTION 143(3) OF THE ACT, LEARNED ASSESSING OFFICER STATED THAT SHE WAS SATISFIED THA T THE INACCURATE PARTICULARS OF INCOME WERE FURNISHED THEREBY CONCEA LING AN INCOME ON ACCOUNT OF WRONG CLAIM OF DEDUCTION. IT COULD BE SE EN FROM THE NOTICES DATED 11/3/2015 ISSUED UNDER SECTION 274 OF THE ACT READ WITH SECTION 271(1)(C) OF THE ACT THAT THE ASSESSEE WAS CALLED U PON TO DEFEND THE CHARGE OF HAVING CONCEALED THE PARTICULARS OF INCOM E OR FURNISHING INACCURATE PARTICULARS THEREOF. PENALTY WAS LEVIED VIDE ORDER DATED 18/9/2015 FOR SUBMITTING INCORRECT AND INACCURATE P ARTICULARS OF INCOME. 6. IT IS PERTINENT TO NOTE THAT, ORDER PASSED IN SE CTION 143(3) OF THE ACT DOES NOT SPECIFY WHETHER THE PROCEEDINGS WERE T O BE INITIATED FOR EITHER CONCEALMENT OF INCOME OR FOR FURNISHING INAC CURATE PARTICULARS OR BOTH. IT READS THAT INACCURATE PARTICULARS OF INCOM E WERE FURNISHED 4 ITA NO.4805/DEL/2016 THEREBY CONCEALING AN INCOME ON ACCOUNT OF WRONG CL AIM. NOTICE UNDER SECTION 274 READ WITH SECTION 271(1)( C ) OF THE AC T, HOWEVER, READS THAT THE ASSESSEE HAD TO DEFEND ITSELF FOR CONCEALMENT O F PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS THER EOF. IT DOES NOT SPECIFY WHETHER IT WAS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS THEREOF. IMPUGNED PENALTY ORDER, HOWEVE R, READS THAT PENALTY WAS LEVIED FOR SUBMITTING INACCURATE PARTICULARS OF INCOME. THESE FACTS INDICATE THAT THERE IS DISCREPANCY AS TO IN RESPECT OF WHICH CHARGE THE ASSESSEE WAS CALLED UPON TO DEFEND ITSELF. IN THE L IGHT OF THIS FACTUAL POSITION, WE SHALL PROCEED TO READ THE DECISIONS RE LIED UPON BY THE ASSESSEE. 7. IN THE CASE OF CIT VS MANJUNATHA COTTON & GINNING FACTORY, 359 ITR 565 (KAR) . VIDE PARAGRAPH 60, THE HONBLE KARNATAKA HIGH CO URT HAS HELD AS FOLLOWS :- 60. CLAUSE (C) DEALS WITH TWO SPECIFIC OFFENCES, T HAT IS TO SAY, CONCEALING PARTICULARS OF INCOME OR FURNISHING INAC CURATE PARTICULARS OF INCOME. NO DOUBT, THE FACTS OF SOME CASES MAY ATTRA CT BOTH THE OFFENCES AND IN SOME CASES THERE MAY BE OVERLAPPING OF THE TWO OFFENCES BUT IN SUCH CASES THE INITIATION OF THE PE NALTY PROCEEDINGS ALSO MUST BE FOR BOTH THE OFFENCES. BUT DRAWING UP PENAL TY PROCEEDINGS FOR ONE OFFENCE AND FINDING THE ASSESSEE GUILTY OF ANOT HER 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 TH E 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 SPECIFICALLY STATED SO THAT THE ASSESSEE WOULD HAVE THE OPPORTUN ITY 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 I MPOSED 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 IMPOS E 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 5 ITA NO.4805/DEL/2016 FINAL ORDER IMPOSING PENALTY WOULD OFFEND PRINCIPLE S OF NATURAL JUSTICE AND CANNOT BE SUSTAINED. THUS ONCE THE PROCEEDINGS ARE INITIATED ON ONE GROUND, THE PENALTY SHOULD ALSO BE IMPOSED ON T HE SAME GROUND. WHERE THE BASIS OF THE INITIATION OF PENALTY PROCEE DINGS IS NOT IDENTICAL WITH THE GROUND ON WHICH THE PENALTY WAS IMPOSED, T HE 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 SUBSEQUEN T TO THE IMPOSITION OF PENALTY CANNOT VALIDATE THE ORDER OF PENALTY WHI CH, WHEN PASSED, WAS NOT SUSTAINABLE. 8. IN COMMISSIONER OF INCOME TAX V. SSAS EMERALD MEADOWS (20 16) 73 TAXMAN.COM 241 (KAR) THE HONBLE KARNATAKA HIGH COURT CONSIDERED THE QUESTION OF LAW AS TO,- WHETHER, OMISSION IF ASSESSING OFFICER TO EXPLICITLY MENTION THAT PENALTY PROCEEDINGS ARE BEING INITIATED FOR FURNISHIN G OF INACCURATE PARTICULARS OR THAT FOR CONCEALMENT OF INCOME MAKES T HE PENALTY ORDER LIABLE FOR CANCELLATION EVEN WHEN IT HAS BEEN PR OVED BEYOND REASONABLE DOUBT THAT THE ASSESSEE HAD CONCEALED INCOM E IN THE FACTS AND CIRCUMSTANCES OF THE CASE? 9. AND THE HONBE HIGH COURT RULED ANSWERED THE SAM E IN FAVOUR OF THE ASSESSEE OBSERVING THAT: THE TRIBUNAL HAS ALLOWED THE APPEAL FILED BY THE AS SESSEE HOLDING THE NOTICE ISSUED BY THE ASSESSING OFFICER UNDER SECTIO N 274 READ WITH SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) TO BE BAD IN LAW AS IT DID NOT SPECIFY WHICH LIMB OF SECT ION 271(1)(C) OF THE ACT, THE PENALTY PROCEEDINGS HAD BEEN INITIATED I.E., WH ETHER FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURAT E PARTICULARS OF INCOME. THE TRIBUNAL, WHILE ALLOWING THE APPEAL OF THE ASSESSEE, HAS RELIED ON THE DECISION OF THE DIVISION BENCH OF THI S COURT RENDERED IN THE CASE OF COMMISSIONER OF INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565. IN OUR VIEW , SINCE THE MATTER IS COVERED BY JUDGMENT OF THE DIVISION BENCH OF THIS COURT, WE ARE OF THE OPINION, NO SUBSTANTIAL QUESTION OF LAW ARIS ES IN THIS APPEAL FOR DETERMINATION BY THIS COURT. THE APPEAL IS ACCORDIN GLY DISMISSED. 6 ITA NO.4805/DEL/2016 10. THE SPECIAL LEAVE PETITION FILED BY THE REVENUE CHALLENGING THE AFORESAID JUDGEMENT OF THE HIGH COURT WAS DISMISSED BY THE HONBLE SUPREME COURT HOLDING: WE DO NOT FIND ANY MERIT IN THIS PETITION. THE SPECIA L LEAVE PETITION IS, ACCORDINGLY, DISMISSED. 11. IN PCIT VS. SAHARA INDIA LIFE INSURANCE COMPANY LIMITED, ITA NO 475/2019 AND BATCH ORDER DATED 02/08/2019, HONBLE DELHI HIGH COURT, UPHELD THE VIEW TAKEN BY THE TRIBUNAL BASING ON TH E DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNA THA COTTON AND GINNING FACTORY (SUPRA)AND SSAS EMERALD MEADOWS (S UPRA) WHEREIN IT WAS HELD THAT THE NOTICE ISSUED BY THE LEARNED ASSE SSING OFFICER WOULD BE BAD IN LAW, IF IT DID NOT SPECIFY WHICH LIMB OF SEC TION 271(1)(C) OF THE ACT THE PENALTY PROCEEDINGS HAD BEEN INITIATED, I.E., W HETHER FOR CONCEALMENT OF PARTICULARS OF INCOME OR FOR FURNISHING OF INACC URATE PARTICULARS THEREOF. RELEVANT OBSERVATIONS OF THE HONBLE HIGH COURT READ THAT,- 21. THE RESPONDENT HAD CHALLENGING THE UPHOLDING O F THE PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE ACT, WHICH W AS ACCEPTED BY THE ITAT. IT FOLLOWED THE DECISION OF KARNATAKA HIGH CO URT IN CIT V. MANJUNATHA COTTON & GINNING FACTORY 359 ITR 565 (KA R) AND OBSERVED THAT THE NOTICE ISSUED BY THE AO WOULD BE BAD IN LA W IF IT DID NOT SPECIFY WHICH LIMB OF SECTION 271(1)(C) THE PENALTY PROCEED INGS HAD BEEN INITIATED UNDER I.E. WHETHER FOR CONCEALMENT OF PAR TICULARS OF INCOME OR FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE KARNATAKA HIGH COURT HAD FOLLOWED THE ABOVE JUDGEMENT IN THE SUBSE QUENT ORDER IN COMMISSIONER OF INCOME TAX V. SSAS EMERALD MEADOWS (2016) 73 TAXMAN.COM 241 (KAR), THE APPEAL AGAINST WHICH WAS DISMISSED BY THE SUPREME COURT OF INDIA IN SLP NO. 11485 OF 2016 BY ORDER DATED 5 TH AUGUST, 2016. 22. ON THIS ISSUE AGAIN THIS COURT IS UNABLE TO FIN D ANY ERROR HAVING BEEN COMMITTED BY THE ITAT. 7 ITA NO.4805/DEL/2016 8. IT IS, THEREFORE, CLEAR THAT FOR THE AO TO ASSUM E JURISDICTION U/S 271(1)(C), PROPER NOTICE IS NECESSARY AND THE DEFEC T IN NOTICE U/S 274 OF THE ACT VITIATES THE ASSUMPTION OF JURISDICTION BY THE LEARNED ASSESSING OFFICER TO LEVY ANY PENALTY. IN THIS CASE, FACTS ST ATED SUPRA, CLEARLY ESTABLISH THAT THE NOTICE ISSUED UNDER SECTION 274 READ WITH 271 OF THE ACT IS DEFECTIVE AND, THEREFORE, WE FIND IT DIFFICU LT TO HOLD THAT THE LEARNED AO RIGHTLY ASSUMED JURISDICTION TO PASS THE ORDER L EVYING THE PENALTY. AS A CONSEQUENCE OF OUR FINDINGS ABOVE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE PENALTY IN QUESTION. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN OPEN COURT ON 12 TH DECEMBER, 2019. SD/- SD/- (G.S. PANNU) (K. NARASIMHA CHARY) VICE PRESIDENT JUDICIAL MEMBER DATED: 12/12/2019 RK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI