M/s. Ochoa Laboratories Ltd., New Delhi V. ACIT, New Delhi

ITA 4967/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8619 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 19-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Invalid notice; Depreciation; Business expenditure; Principle of natural justice; Question of law; Initiation of penalty proceedings; Reasonable cause; Wrong claim; Corroborative evidences; Set aside
• Section: 271(1)(c); 143(3); 37(1); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.4967/DEL./2016 (ASSESSMENT YEAR : 2009-10) OCHOA LABORATORIES LTD. VS. ACIT E- 360, CIRCLE 13(1) GREATER KAILASH-II NEW DELHI NEW DELHI (PAN : AAACO1370J) APPELLANT RESPONDENT ASSESSEE BY : SH. MANU MONGA, ADV. REVENUE BY : MS. RINKU SINGH, SR. DR DATE OF HEARING : 01.04.2019 DATE OF ORDER : 10 .04.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, OCHOA LABORATORIES LTD. (HEREI NAFTER REFERRED TO AS THE ASSESSEE), BY FILING THE PRESENT APPEAL S OUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 08.07.2016 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-7, NEW DELHI , AFFIRMING TH E PENALTY ORDER DATED 26.13.2016 PASSED U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT), QUA THE ASSESSMENT YEAR 2009-10 ON THE AMENDED GROUNDS INTER ALIA THAT :- 1. THAT THE ORDER OF THE LD. CIT(A) CONFIRMING THE ACTION OF THE LD. AO IN LEVYING PENALTY OF RS. 15,50,224/- U/ S. 271(1)(C) IS AGAINST THE PROVISIONS OF LAW, FACTS CIRCUMSTANCES OF THE CASE ITA NO.4967/DEL./2016 2 AND DESERVES TO BE QUASHED. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW IN CONFIRMI NG PENALTY UNDER SECTION 271(1)(C) LEVIED BY THE AO WHICH IS A RBITRARY AND CONTRARY TO THE PROVISIONS OF LAW AS SHOW CAUSE NOT ICE ISSUED BY THE LD. AO IS GENERAL IN NATURE WITH MENTIONING SPE CIFIC CHARGE OF IMPOSITION OF PENALTY. 3. THAT THE ISSUE IN QUESTION NOW SQUARELY COVERED BY THE DECISIONS OF THE CO-ORDINATE BENCHES OF THE ITAT, D ELHI BENCHES IN CASE OF SANJAY MITRA VS. DCIT, ITA NO. 5206/DEL/2016 AND ASHWINI MONGIA VS. ITO, ITA NO. 6044/DEL/2015. THE PENALTY OF RS. 15,50,224/- NEEDS TO BE DELETED. 4. THAT EVEN ON MERITS THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW AS THE MATERIAL PLACED ON RECORD WAS NOT CONSID ERED IN ITS PROPER PERSPECTIVE LEADING TO ERRONEOUS CONCLUSION. 5. THAT THE ORDER OF THE LD. CIT(A) CONFIRMING THE ERRONEOUS ORDER OF THE AO IS BAD IN LAW AND AGAINST THE FACTS OF THE CASE. 2. BRIEFLY STATED THAT FACTS NECESSARY FOR AD JUDICATION OF THE CONTROVERSY AT HAND ARE : ON THE BASIS OF COMPLETE D ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT) AT THE INCOME OF RS. 11,35,52,137/- BY MAKING ADDITION OF RS. 45,60,824/-, 54,725/- AND 88,53,764/- ON ACCOUNT OF DISALLOWANCE OF SALES PROMOTION , EXPENSES, DISALLOWANCE OF EXCE SS DEPRECIATION ON DISALLOWANCE OF FBT, PF & ESI RESPECTIVELY, O UT OF WHICH ADDITION OF RS. 88,53,764/- HAS BEEN DELE TED BY THE LD. CIT(A) IN RESPECT OF DISALLOWANCE OF FBT, PF, ESI A ND IT. THE ITA NO.4967/DEL./2016 3 AO INITIATED THE PENALTY PROCEEDINGS BY WAY OF ISSU ANCE OF NOTICE U/S 274 READ WITH SECTION 271 OF THE ACT FOR DISAL LOWANCE OF SALES PROMOTION EXPENSES OF RS. 45,60,824/- ONLY. DECLI NING THE CONTENTION RAISED BY THE ASSESSEE THAT THE ENTIRE E XPENDITURES WAS SUPPORTED BY BILLS VOUCHERS ETC. AND MOST OF THE PA YMENTS WERE MADE THROUGH BANKING CHANNEL AND GENUINENESS OF TH E EXPENDITURE HAS NOT BEEN DOUBTED AND THAT THERE WAS NO DELIBERA TE CONCEALMENT OF ANY PARTICULARS OF INCOME, AO LEVIED THE PENALTY OF RS. 15,50,224/- @ 100% AND SECTION 271(1)(C) OF THE ACT . 3. ASSESSEE SOUGHT TO RAISE ONE LEGAL GROUND CHALLE NGING THE SHOW CAUSE NOTICE ISSUED BY THE AO FOR INITIATION O F THE PENALTY U/S 271(1)(C) OF THE ACT AS GROUND NO. 2 IN THE AMENDED GROUNDS OF APPEAL DATED 01.04.2019, WHICH IS ALLOWED AS THE LE GAL GROUND AS TO THE DEFECTIVE SHOW CAUSE NOTICE CAN BE RAISED, AT A NY STAGE OF THE PROCEEDINGS AND IS ALSO NECESSARY FOR COMPLETE ADJU DICATION OF THE CONTROVERSY AT HAND. 4. ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) BY WAY OF FILING THE APPEAL WHO HAS CONFIRMED THE PENALTY BY DISMISSING THE APPEAL. FEELING AGGRIEVED THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. ITA NO.4967/DEL./2016 4 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIV ES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. UNDISPUTEDLY, QUANTUM PROCEEDINGS QUA ADDITION O F RS. 45,60,284/- ON ACCOUNT OF DISALLOWANCE OF SALE PROM OTION EXPENSES ARE PENDING BEFORE THE HONBLE HIGH COURT. IT IS ALSO NOT IN DISPUTE THAT ADDITION ON ACCOUNT OF DISALLOWANCE OF SALES PROMOTION EXPENSES HAVE BEEN MADE FOR WANT OF FURNI SHING SUPPORTING DETAILS OF SUCH EXPENSES, WHICH THE ASSE SSEE HAS SOUGHT TO PRODUCE DURING PENALTY PROCEEDINGS AND HAS NOT B EEN PROVIDED WITH ANY SUCH OPPORTUNITY. 7. IN THE BACKDROP OF THE AFORESAID UNDISPUTED FACT S & CIRCUMSTANCES OF THE CASE, ORDER PASSED BY THE LOWE R REVENUE AUTHORITIES AND ARGUMENTS ADDRESSED BY THE LD. AUTH ORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, THE S OLE QUESTION ARISES FOR DETERMINATION IN THIS CASE IS:- AS TO WHETHER THE ASSESSEE HAS CONCEALED PARTICULA RS OF INCOME OR HAS FURNISHED INACCURATE PARTICULARS O F SUCH INCOME DURING ASSESSMENT PROCEEDINGS? ITA NO.4967/DEL./2016 5 8. LD. AR FOR THE ASSESSEE CHALLENGING THE IMPUGNED ORDER CONTENDED INTER ALIA THAT AO IN ORDER TO INITIATE T HE PENALTY PROCEEDINGS HAS PRIMA FACIE FAILED TO SATISFY HIMSE LF THAT AS TO WHETHER THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR HAVE FURNISHED INACCURATE PARTICULARS OF INCOME IN THE ASSESSMENT ORDER AS WELL AS IN THE SHOW CAUSE NOTICE ISSUED UN DER SECTION 271(1)(C) / 274 OF THE ACT AND RELIED UPON THE DECI SION OF HONBLE KARNATAKA HIGH COURT IN CASE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY-359ITR 565 AND CIT VS. SSAS EM ERALA MEADOWS -73 TAXMANN.COM 241 (KAR.) (REVENUES SLP DISMISSED IN 242 TAXMAN 180). 9. LD. AR FOR THE ASSESSEE FURTHER CONTENDED THAT S INCE ISSUE AS TO THE DISALLOWANCE OF 50% OF THE EXPENDITURE CLAIM ED BY THE ASSESSEE UNDER THE HEAD SALES PROMOTION EXPENSES IS PENDING BEFORE THE HONBLE HIGH COURT THE PENALTY CANNOT BE LEVIED. 10. HOWEVER, ON THE OTHER HAND LD. DR FOR THE REVENUE TO REPEL THE ARGUMENTS ADDRESSED BY THE LD. AR FOR THE ASSESSEE CONTENDED THAT ASSESSEE HAS NEVER RAISED ANY SUCH Q UESTION OF INVALID NOTICE DURING PENALTY PROCEEDINGS NOR BEFOR E THE LD. CIT (A) WHICH HAS CAUSED NO PREJUDICE TO THE ASSESSEE A S THE ASSESSEE HAS UNDERSTOOD THE PURPORT AND IMPORT OF THE NOTICE UNDER SECTION ITA NO.4967/DEL./2016 6 274 READ WITH SECTION 271 OF THE ACT AND RELIED UPO N THE DECISION RENDERED BY THE HONBLE MADRAS HIGH COURT IN SUNDARAM FINANCE LTD. VS. CIT (2018) 403 ITR 407 (MADRAS) , IN WHICH SLP HAS ALSO BEEN DISMISSED BY HONBLE SUPREME COUR T IN THE CASE CITED AS SUNDARAM FINANCE LTD. VS. CIT (2018) 99 TAXMANN.COM 152 (SC) AND ALSO RELIED UPON THE JUDGMENT OF CIT VS. SMT. KAUSHALYA 216 ITR 660 (BOMBAY) & TRIMURT I ENGINEERING WORKS VS. ITO (2012) 138 ITD 189 (DEL .). LD. DR ALSO FILED WRITTEN SUBMISSION WHICH ARE MADE PAR T OF THE RECORD. 11. IN ORDER TO PROCEED FURTHER, WE WOULD LIKE TO P ERUSE THE NOTICE ISSUED BY AO U/S 274 READ WITH SECTION 271(1 )(C) OF THE ACT TO INITIATE THE PENALTY PROCEEDINGS WHICH IS EXTRAC TED AS UNDER FOR READY PERUSAL:- NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE INCOME TAX ACT, 1961. TO DATED : 18.11.2011 THE PRINCIPAL OFFICER, M/S. OCHOA LABORATORIES LTD., W-89A, VIKAS APPARTMENT, GREATER KAILASH PART- II NEW DELHI 110048. SIR, WHEREAS IN THE COURSE OF PROCEEDINGS BEFORE ME FOR ITA NO.4967/DEL./2016 7 THE ASSESSMENT YEAR 2009-10 IT APPEARS TO ME THAT Y OU :- HAVE WITHOUT REASONABLE CAUSE FAILED TO FURNISH TH E RETURN OF INCOME WHICH YOU WERE REQUIRED TO FURNISH BY A NOTICE GIVEN UNDER SECTION 22(1)/22(2)/34 OF T HE INDIAN INCOME TAX ACT, 1922 OR WHICH YOU WERE REQUIRED TO FURNISH UNDER SECTION 139(1) OR BY A NOTICE GIVEN UNDER SECTION 139(@)/148 OF THE INCOME TAX ACT, 1961 NO. .. DATED OR HAVE WITHOUT REASONABLE CAUSE FAILED TO FURNISH IT WITHIN THE TI ME ALLOWED AND THE MANNER REQUIRED BY THE SAID SECTION 139(1) OR BY SUCH NOTICE. HAVE WITHOUT REASONABLE CAUSE FAILED TO COMPLY WITH A NOTICE UNDER SECTION 22(1)/22(2)/34 OF THE INDIAN INCOME TAX ACT, 1922 OR UNDER SECTION 142(1)/143(2) OF THE INCOME TAX ACT, 1961. HAVE CONCEALED THE PARTICULARS OF YOUR INCOME OR OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. YOU ARE HEREBY REQUESTED TO APPEAR BEFORE ME AT 11 .00 AM/PM ON 20.12.2011 AND SHOW CAUSE WHY AN ORDER IMPOSING A PENALTY ON YU SHOULD NOT BE MADE UNDER SECTION 271 OF THE INCOME TAX ACT, 1961. IF YOU DO NOT WISH TO AVAIL YOURSELF OF THIS OPPORTUNITY OF BEING HEAR D IN PERSON OR THOUGH AUTHORIZED REPRESENTATIVE YOU MAY SHOW CAUSE IN WRITING OR BEFORE SAID DATE WHICH WILL BE CONSIDERED BEFORE ANY SUCH ORDER IS MADE UNDER SECT ION 271. SD/- ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 13(1), NEW DELHI DELETE THE APPROPRIATE WORDS AND PARAGRAPH. 12. BARE PERUSAL OF THE NOTICE ISSUED U/S 274 READ WITH SECTION 271(1)(C) OF THE ACT IN ORDER TO INITIATE PENALTY P ROCEEDINGS ITA NO.4967/DEL./2016 8 AGAINST THE ASSESSEE GOES TO PROVE THAT THE AO HIMS ELF WAS NOT AWARE AS TO WHETHER HE IS ISSUING NOTICE TO INITIAT E THE PENALTY PROCEEDINGS EITHER FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOM E BY THE ASSESSEE RATHER ISSUED VAGUE AND AMBIGUOUS NOTICE B Y INCORPORATING BOTH THE LIMBS OF SECTION 271(1)(C). WHEN THE CHARGE IS TO BE FRAMED AGAINST ANY PERSON SO AS TO MOVE THE PENAL PROVISIONS AGAINST HIM, HE/SHE SHOULD BE SPECIFICAL LY MADE AWARE OF THE CHARGES TO BE LEVELED AGAINST HIM/HER. 13. HONBLE HIGH COURT OF KARNATAKA IN CASE OF CIT VS. MANJUNATHA COTTON AND GINNING FACTORY (SUPRA) WHILE DECIDING THE IDENTICAL ISSUE HELD THAT WHEN THE AO HAS FAILE D TO ISSUE A SPECIFIC SHOW-CAUSE NOTICE TO THE ASSESSEE AS REQUI RED U/S 274 READ WITH SECTION 271, PENALTY LEVIED IS NOT SUSTAINABLE . THE OPERATIVE PART OF THE JUDGMENT IS REPRODUCED AS UNDER:- 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDINGS CAN BE INITIATED ON VARIOUS GROUND 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 NOTIC E TO BE ISSUED UNDER SECTION 274, THEY COULD CONVENIENTL Y REFER TO THE SAID ORDER WHICH CONTAINS THE SATISFACTION OF THE AUTHORITY WHICH HAS PASSED THE ITA NO.4967/DEL./2016 9 ORDER. HOWEVER, IF THE EXISTENCE OF THE CONDITIONS COULD NOT BE DISCERNED FROM THE SAID ORDER AND IF I T 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 CIV IL LIABILITY, IN FACT, IT IS PENAL IN NATURE. IN EITHE R 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 TH AT ASSESSEE HAS A RIGHT TO CONTEST SUCH PROCEEDINGS AN D SHOULD HAVE FULL OPPORTUNITY TO MEET THE CASE OF TH E DEPARTMENT AND SHOW THAT THE CONDITIONS STIPULATED IN SECTION 271 (1)( C) DO NOT EXIST AS SUCH HE IS N OT 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 REQUIREMENT OF LAW WHEN THE CONSEQUENCES OF THE ASSESSEE NOT REBUTTING THE INIT IAL PRESUMPTION IS SERIOUS IN NATURE AND HE HAD TO PAY PENALTY FROM 100% TO 300% OF THE TAX LIABILITY. AS SAID PROVISIONS HAVE TO BE HELD TO BE STRICTLY CONSTRUED, NOTICE ISSUED UNDER SECTION 274 SHOULD SATISFY THE GROUNDS WHICH HE HAS TO MEET SPECIFICAL LY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDE D IF THE SHOW CAUSE NOTICE IS VAGUE. ON THE BASIS OF SUC H PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON THE ASSESSEE. 60. CLAUSE (C) DEALS WITH TWO SPECIFIC OFFENCES, TH AT 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 INITIATIO N OF THE PENALTY PROCEEDINGS ALSO MUST BE FOR BOTH THE OFFENCES. BUT DRAWING UP PENALTY PROCEEDINGS FOR ITA NO.4967/DEL./2016 10 ONE OFFENCE AND FINDING THE ASSESSEE GUILTY OF ANOTHER OFFENCE OR FINDING HIM GUILTY FOR EITHER TH E 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, TH E PENALTY PROCEEDINGS SHOULD BE CONFINED ONLY TO THOS E GROUNDS AND THE SAID GROUNDS HAVE TO BE SPECIFICALL Y 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 TIM E 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 ORDER IMPOSING PENALTY WOULD OFFEND PRINCIPLES OF NATURAL JUSTICE AND CANNOT BE SUSTAINED. THUS ONCE THE PROCEEDINGS ARE INITIATED ON ONE GROUND, THE PENALT Y 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 MATERIALS IN THE HANDS OF THE AUTHORITY IMPOSIN G THE PENALTY AT THE TIME THE ORDER 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 ASSESSING OFFICER IS EMPOWERED UNDER THE ACT TO INITIATE PENALTY PROCEEDINGS ONCE HE IS SATISFIED IN THE COURSE OF ANY PROCEEDINGS THAT THE RE IS CONCEALMENT OF INCOME OR FURNISHING OF INACCURAT E ITA NO.4967/DEL./2016 11 PARTICULARS OF TOTAL INCOME UNDER CLAUSE (C). CONCEALMENT, FURNISHING 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 PARTICULAR S. THE APEX COURT IN THE CASE OF T ASHOK POI V. CIT [2007] 292 ITR 11 /161 TAXMAN 340 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 CIT V. MANU ENGG. [1980] 122 ITR 306 AND THE DELHI HIGH COURT IN THE CASE OF CIT V. VIRGO MARKETING (P) LTD. [2008] 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 INFERENCE AS TO NON- APPLICATION OF MIND. 14. HONBLE APEX COURT IN CASE OF CIT VS. SSAS EMERALA MEADOWS - (2016) 73 TAXMANN.COM 248 (SC) WHILE DISMISSING THE SLP FILED BY THE REVENUE QUASHING THE PENALTY B Y THE TRIBUNAL AS WELL AS HONBLE HIGH COURT ON GROUND OF UNSPECIFIED NOTICE HAS HELD AS UNDER:- SECTION 274, READ WITH SECTION 271(1)(C), OF THE INCOME-TAX ACT, 1961 - PENALTY - PROCEDURE FOR IMPOSITION OF (CONDITIONS PRECEDENT) - ASSESSMENT ITA NO.4967/DEL./2016 12 YEAR 2009-10 - TRIBUNAL, RELYING ON DECISION OF DIVISION BENCH OF KARNATAKA HIGH COURT RENDERED IN CASE OF CIT V. MANJUNATHA COTTON & GINNING FACTORY [2013] 359 1TR 565/218 TAXMAN 423/35 TAXMANN.COM 250, ALLOWED APPEAL OF ASSESSEE HOLDING THAT NOTICE ISSUED BY ASSESSING OFFICER UNDER SECTION 274 READ WITH SECTION 271 (1 )(C) WAS BAD IN LAW, AS IT DID NOT SPECIFY UNDER WHICH LIMB OF SECTION 271 (1 )(C) PENALTY PROCEEDINGS HAD BEEN INITIATED, I.E., WHETHER FOR CONCEALMENT OF PARTICU LARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS O F INCOME - HIGH COURT HELD THAT MATTER WAS COVERED BY AFORESAID DECISION OF DIVISION BENCH AND, THEREFORE, THERE WAS NO SUBSTANTIAL QUESTION OF LAW ARISING FOR DETERMINATION - WHETHER SINCE THERE WAS NO MERIT IN SLP FILED BY REVENUE, SAME WAS LIABLE T O BE DISMISSED - HELD, YES [PARA 2] [IN FAVOUR OF ASSESSEE] 15. HONBLE MADRAS HIGH COURT IN SUNDARAM FINANCE LTD. (SUPRA) RELIED UPON BY THE LD. DR FOR THE REVENUE UPHELD T HE ORDER PASSED BY THE TRIBUNAL CONFIRMING THE PENALTY LEVIED ON THE BASIS OF NOTICE ISSUED UNDER SECTION 274 READ WITH SECTION 271(1)(C) OF THE ACT IN WHICH SPECIFIC CHARGE WAS N OT POINTED OUT BY RETURNING THE FOLLOWING FINDINGS : - 16. WE HAVE PERUSED THE NOTICES AND WE FIND THAT THE RELEVANT COLUMNS HAVE BEEN MARKED, MORE PARTICULARLY, WHEN THE CASE AGAINST THE ASSESSEE IS THAT THEY HAVE CONCEALED PARTICULARS OF INCOME AND FURNISHED INACCURATE PARTICULARS OF INCOME. THEREFORE, THE CONTENTION RAISED BY THE ASSESSEE IS LIABLE TO BE REJECTED ON FACTS. THAT APART, THIS IS SUE ITA NO.4967/DEL./2016 13 CAN NEVER BE A QUESTION OF LAW IN THE ASSESSEE S CA SE, AS IT IS PURELY A QUESTI ON OF FACT. APART FROM TH AT, THE ASSESSEE HAD AT NO EARLIER POINT OF TIME RAISED THE PLEA THAT ON ACCOUNT OF A DEFECT IN THE NOTICE, THE Y WERE PUT TO PREJUDICE. ALL VIOLATIONS WILL NOT RESU LT IN NULLIFYING THE ORDERS PASSED BY STATUTORY AUTHORITI ES. IF THE CASE OF THE ASSESSEE IS THAT THEY HAVE BEEN PUT TO PREJUDICE AND PRINCIPLES OF NATURAL JUSTICE WERE VIOLATED ON ACCOUNT OF NOT BEING ABLE TO SUBMIT AN EFFECTIVE REPLY, IT WOULD BE A DIFFERENT MATTER. TH IS WAS NEVER THE PLEA OF THE ASSESSEE EITHER BEFORE TH E ASSESSING OFFICER OR BEFORE THE FIRST APPELLATE AUTHORITY OR BEFORE THE TRIBUNAL OR BEFORE THIS COURT WHEN THE TAX CASE APPEALS WERE FILED AND IT WAS ONLY AFTER 10 YEARS, WHEN THE APPEALS WERE LIST ED FOR FINAL HEARING, THIS ISSUE IS SOUGHT TO BE RAISE D. THUS ON FACTS, WE COULD SAFELY CONCLUDE THAT EVEN ASSUMING THAT THERE WAS DEFECT IN THE NOTICE, IT HA D CAUSED NO PREJUDICE TO THE ASSESSEE AND THE ASSESSE E CLEARLY UNDERSTOOD WHAT WAS THE PURPORT AND IMPORT OF NOTICE ISSUED UNDER SECTION 274 R/W.SECTION 271 OF THE ACT. THEREFORE, PRINCIPLES OF NATURAL JUSTICE CANNOT BE READ IN ABSTRACT AND THE ASSESSEE, BEING A LIMITED COMPANY, HAVING WIDE NETWORK IN VARIOUS FINANCIAL SERVICES, SHOULD DEFINITELY BE PRECLUDED FROM RAISING SUCH A PLEA AT THIS BELATED STAGE. 17. THUS, FOR THE ABOVE REASONS, SUBSTANTIAL QUESTIONS OF LAW NOS.1 AND 2 ARE ANSWERED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. THE ADDITIONAL SUBSTANTIAL QUESTION OF LAW, WHICH WAS FRAMED IS REJECTED ON THE GROUND THAT ON FACTS THE SAID QUESTION DOES NOT ARISE FOR CONSIDERATION AS W ELL AS FOR THE REASONS SET OUT BY US IN THE PRECEDING PARAGRAPHS. 16. HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT IN THE INSTANT ITA NO.4967/DEL./2016 14 CASE, NOT ONLY THE NOTICE ISSUED TO THE ASSESSEE UN DER SECTION 274 READ WITH SECTION 271(1)(C) IS DEFECTIVE BUT AO HAS NOT EVEN MADE HIMSELF SATISFIED AT THE TIME OF MAKING DISALLOWANC E / ADDITION IN ASSESSMENT ORDER IF THE ASSESSEE HAS FURNISHED INAC CURATE PARTICULARS OF INCOME OR HAS CONCEALED PARTICULARS OF HIS INCOME RATHER TO BE ON THE SAFER SIDE HE HAS INVOKED BOTH THE LIMBS OF SECTION 271(1) OF THE ACT. 17. SO, ULTIMATELY THERE WAS NO APPLICATION OF MIND ON THE PART OF AO EVEN AT THE TIME OF FRAMING ASSESSMENT, RATHE R INITIATED THE PENALTY PROCEEDINGS IN A MECHANICAL MANNER. NOT O NLY THIS, EVEN AT THE TIME OF PASSING THE PENALTY ORDER, AO WAS NO T CLEAR ENOUGH IF HE WAS LEVYING THE PENALTY ON ACCOUNT OF FURNISH ING OF INACCURATE PARTICULARS OF INCOME OR FOR CONCEALMENT OF INCOME. AO HAS LEVIED THE PENALTY WITHOUT SPECIFYING AS TO UN DER WHICH LIMB OF THE SECTION 271(1)(C) OF THE PENALTIES IS BEING LEVIED. OPERATIVE PART OF THE PENALTY ORDER IS EXTRACTED FOR READY PE RUSAL :- AS STATED ABOVE, THE ADDITION IN RESPECT OF SALES PROMOTION EXPENSES HAS BEEN MADE BY THE AO FOR THE REASONS THAT THE ASSESSEE COULD NOT CONCLUSIVELY PROVE WITH SUPPORTING EVIDENCE. THIS FINDING OF ASSESSING OFFICER HAS BEEN CONFIRMED BY THE LD. CIT(A) IN CLEAR TERMS. ACCORIDNGLY, I HOLD ITA NO.4967/DEL./2016 15 THAT THE CASE OF THE ASSESSEE CLEARLY FALLS WITHIN THE EXPLANATION TO SECTION 271(1)(C) OF THE INCOME TAX ACT AND THEREFORE, IS LIABLE TO PENALTY U/S 271(1)( C) OF I.T.ACT. I THEREFORE, IMPOSED A PENALTY OF RS. 15,50,224/-. 18. SO, WE ARE OF THE CONSIDERED VIEW THAT THIS IS NOT MERELY A CASE OF SERVING A DEFECTIVE NOTICE UNDER SECTION 27 4 READ WITH SECTION 271(1) ON THE ASSESSEE RATHER IT IS A CASE OF NON-APPLICATION OF MIND ON THE PART OF THE AO TO MAKE HIMSELF SATIS FIED AS TO UNDER WHICH LIMB OF SECTION 271(1)(C) OF THE ACT, HE IS G OING TO INITIATE/LEVY THE PENALTY ON THE ASSESSEE. 19. FURTHERMORE ASSESSEE BY RELYING UPON DECISION R ENDERED BY HONBLE HIGH COURT OF DELHI IN CASE CITED AS PR. CIT-8 VS. SAMTEL INDIA LTD. ITA NO. 43/2017 CONTENDED THAT FOR MERE DISALLOWANCE OF CLAIM RAISED BY THE ASSESSEE F OR EXPENDITURES, ASSESSEE CANNOT BE PENALIZED U/S 271(1)(C). OPERATI VE PART OF THE JUDGMENT (SUPRA) IS EXTRACTED FOR READY PERUSAL AS UNDER : 11. A GLANCE AT THE SECTION 271(1)(C) PRESENTS TWO ESSENTIALS - 'CONCEALMENT' AND 'FURNISHING INACCURATE PARTICULARS OF INCOME'. THE CURRENT APPEAL IS, HOWEVER, ONLY CONCERNED WITH THE INTERPRETATION OF THE PHRASE 'FURNISHING INACCURATE PARTICULARS OF INCOME.' THE REVENUE CLAIMS THAT BY FURNISHING A WRONG CLAIM THE ASSESSEE HAS 'FURNISHED INACCURATE PARTICULARS OF INCOME.'THE ITA NO.4967/DEL./2016 16 MEANING OF THE PHRASE 'FURNISHING INACCURATE PARTICULARS OF INCOME' WAS EXPLAINED BY THE SUPREME COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS RELIANCE PETROPRODUCTS PVT LTD [(2010)322 ITR 158] BY BIFURCATING 'PARTICULARS' AND 'INACCURATE' WHERE PARTICULAR WAS EXPLAINED TO INCLUDE THE DETAILS OF A CLAIM, OR THE SEPARATE ITEMS OF AN ACCOUNT. THE WORD 'INACCURATE' WAS EXPLAINED AS 'NOT ACCURATE, NOT EXACT OR CORRECT; NOT ACCORDING TO TRUTH; ERRONEOUS ; AS AN INACCURATE STATEMENT, COPY OR TRANSCRIPT.' WHEN THESE WORDS ARE READ IN CONJUNCTION WITH EACH OTHER THEN IT MAY SEEM THAT THE DETAILS SUPPLIED IN THE RETURN ARE NOT ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO TRUTH OR ERRONEOUS. NO DOUBT, THE EFFECT OF THAT JUDGMENT HAS BEEN EXPLAINED IN A LAT ER DECISION; YET ITS EMPHASIS ON THE LITERAL INTERPRETATION OF THE WORD 'INACCURATE' HAS NOT BEEN DILUTED. 12. FROM THE FACTS OF THIS CASE IT IS CLEAR THAT TH E ASSESSEE DISCLOSED ALL THE PARTICULARS OF HIS INCOM E. THE AO HAS DISALLOWED HIS CLAIM WITHOUT HOLDING IT TO BE BOGUS OR FALSE. HENCE, THE GENUINENESS OF THE LOSS OCCURRED IS NOT AT QUESTION HERE. THE SUPREME COURT WHILE ELABORATING THE SCOPE OF SECTION 271(1)(C) IN CIT VS RELIANCE PETROPRODUCTS PVT LTD [2010] 322 ITR 158 HELD THAT- 'A GLANCE OF PROVISION OF SECTION 271(L) (C) WOULD SUGGEST THAT IN ORDER TO BE COVERED, THERE HAS TO B E CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHE D INACCURATE PARTICULARS OF HIS INCOME. THE INSTANT CASE WAS NOT THE CASE OF CONCEALMENT OF THE INCOME. THAT WAS NOT THE CASE OF THE REVENUE EITHER. IT WAS AN ADMITTED POSITION IN THE INSTANT CASE THAT NO INFORMATION GIVEN IN THE RETURN WAS FOUND TO BE INCORRECT OR INACCURATE. IT WAS NOT AS IF ANY STATEMENT MADE OR ANY DETAIL SUPPLIED WAS FOUND TO BE FACTUALLY INCORRECT. HENCE, AT LEAST, PRIMA FACI E, THE ASSESSEE COULD NOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. THE REVENUE ARGUED THAT ITA NO.4967/DEL./2016 17 SUBMITTING AN INCORRECT CLAIM IN LAW FOR THE EXPENDITURE ON INTEREST WOULD AMOUNT TO GIVING INACCURATE PARTICULARS OF SUCH INCOME. SUCH CANNOT BE THE INTERPRETATION OF THE CONCERNED WORDS. THE WORDS ARE PLAIN AND SIMPLE. IN ORDER TO EXPOSE THE ASSESSEE TO THE PENALTY UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. BY ANY STRETCH OF IMAGINATION, MAKING AN INCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISHING OF INACCURATE PARTICULARS. [PARA 7]' SIMILARLY, IN THE PRESENT SCENARIO, THE ASSESSEE CANNOT BE PENALIZED FOR MAKING A CLAIM WHICH IN ITSELF IS UNSUSTAINABLE IN LAW. THE SUPREME COURT FURTHER HELD IN THE RELIANCE PETROCHEMICALS CASE THAT- 'MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT, BY ITSELF, WOU LD NOT ATTRACT THE PENALTY UNDER SECTION 271(1) (C). IF THE CONTENTION OF THE REVENUE WAS ACCEPTED, THEN IN CAS E OF EVERY RETURN WHERE THE CLAIM MADE WAS NOT ACCEPTED BY THE ASSESSING OFFICER FOR ANY REASON, T HE ASSESSEE WOULD INVITE PENALTY UNDER SECTION 271(1)(C) .' 13. THE INTENTION OF THE PARLIAMENT CANNOT BE TAKEN TO HAVE BEEN TO PENALIZE EVERYONE WHO MAKES A WRONG CLAIM FOR DEDUCTION. THE LEGISLATURE DOES NOT INTEND TO PENALIZE EVERY PERSON WHOSE CLAIM IS DISALLOWED. THIS IS NOT THE AIM OF THE LEGISLATURE. THE TRIBUNAL IN THE FACTS OF THIS CASE, THEREFORE, CORR ECTLY REACHED THIS CONCLUSION. THE QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE; THEREFORE, THE APPEAL HAS NO MERIT AND IS DISMISSED. 20. SO, IN THE INSTANT CASE ALSO ASSESSEE CLAIMED S ALE PROMOTION EXPENSES WHICH HAVE BEEN DISALLOWED BY THE AO AS WE LL AS LD. CIT(A) SPECIFICALLY ON THE GROUND THAT THE ASSESSEE HAS FAILED TO ITA NO.4967/DEL./2016 18 FURNISH THE SUPPORTING DETAILS TO SUSTAIN ITS CLAIM . BUT AT NO POINT OF TIME AO HAS DECLARED THE CLAIM AS BOGUS RATHER OBSE RVED THAT EXPENSES INCURRED ON BOARDING AND LODGING AND TRAVE LING OF DOCTORS ARE NEITHER BUSINESS EXPENSES NOR ETHICAL I N NATURES. SO FOLLOWING THE DECISION RENDERED BY HONBLE HIGH COU RT IN SAMTEL INDIA LTD. (SUPRA). WE ARE OF THE CONSIDERED VIEW THAT MERE DISALLOWANCE OF SALE PROMOTION EXPENSES C LAIMED BY THE ASSESSEE DOES NOT AMOUNT TO CONCEALMENT OF INCOME O R FURNISHING OF INACCURATE PARTICULARS OF INCOME AND AS SUCH PEN ALTY CANNOT BE LEVIED. FURTHER MORE WHEN IT IS NOT IN DISPUTE THAT THE QUESTION AS TO DISALLOWANCE OF 50% OF EXPENDITURE CLAIMED BY THE A SSESSEE UNDER THE HEAD SALE PROMOTION EXPENSES IS PENDING ADJU DICATION BEFORE THE HONBLE HIGH COURT IN ITA NO. 681/2018, ITA NO. 682/2018, ITA NO. 683/2018 AND 857/2018 OCHOLA LABORATORIES LTD. VS. PR. COMMISSIONER INCOME TAX-VII NEW DELHI IN WHICH FOLLOWING QUESTION OF LAW HAS BEEN FRAMED THAT : WHETHER THE INCOME TAX APPELLATE TRIBUNAL WAS JUSTIFIED AND CORRECT IN UPHOLDING DISALLOWANCE OF 50% OF THE EXPENDITURE CLAIMED BY THE ASSESSEE UNDER THE HEAD OF SALES PROMOTION EXPENSES AS NOT MEETING THE PARAMETERS SPECIFIED IN SECTION 37(1) O F ITA NO.4967/DEL./2016 19 THE INCOME TAX ACT, 1961. SO, WHEN, THE QUESTION OF DISALLOWANCE OF SALE PROM OTION EXPENSES IS DEBATABLE ONE PENALTY CANNOT BE IMPOSED. 20. SO, IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, T HE CASE OF SUNDARAM FINANCE LTD. (SUPRA) AND OTHER DECISION , AS RELIED UPON BY LD. DR FOR THE REVENUE ARE NOT APPLICABLE T O THE FACTS AND CIRCUMSTANCES OF THE CASE. HOWEVER, DECISION RENDER ED BY HONBLE APEX COURT IN CIT VS. SSAS EMERALA MEADOWS (SUPRA) AND HONBLE KARNATAKA HIGH COURT IN CIT VS. MANJUNATHA COTTON AND GINNING FACTORY (SUPRA) ARE APPLICABLE TO INSTANT CASE. IN VIEW OF DISCUSSION MADE IN THE PRECEDING PARAS AO /CIT(A) HAVE ERRED IN LEVYING /CONFIRMING THE PENALTY IN THIS CA SE WHICH IS NOT SUSTAINABLE IN THE EYES OF LAW. CONSEQUENTLY PENALT Y STANDS DELETED AND APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 10 TH DAY OF APRIL, 2019. SD/- SD/- (R.K.PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10 TH DAY OF APRIL, 2019 BR COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT ITA NO.4967/DEL./2016 20 3.CIT 4.CIT(A)-XXVI, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI. DATE OF DICTATION 04/04/2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER