Emdee Digitronics (P) Ltd, Kolkata V. DCIT, Circle-10(1), Kolkata, Kolkata

ITA 506/KOL/2019

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 9326 (ITAT-KOLKATA)
• Duration Of Justice: 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 14-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice; Question of law; Set aside
• Section: 271(1)(c); 69; 27

Judgement Text

ITA NO. 506/KOL/2019 EMDEE DIGITRONICS PVT. LTD. 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA B B ENCH, KOLKATA BEFORE : SHRI P.M. JAGTAP, VICE-PRESIDENT (KZ) AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBE R I.T.A. NO. 506/KOL/2019 A.Y : 2014-15 EMDEE DIGITRONICS P LTD. C/O, SUBASH AGARWAL & ASSOCIATES SIDDHA GIBSON, 1, GIBSON LANE, SUITE NO. 213, 2 ND FLOOR, KOLKATA-700069 PAN: AABCE 2934 M APPELLANT -VS- DCIT, CIRCLE-10(1), KOLKATA RESPONDENT APPEARANCES BY: FOR THE APPELLANT: SHRI SUBASH AGA RWAL, ADVOCATE FOR THE RESPONDENT: SHRI SANKAR HALDER, JCIT SR. DR DATE OF HEARING : 22/03/2019 DATE OF PRONOUNCEMENT : /04/2019 ITA NO. 506/KOL/2019 EMDEE DIGITRONICS PVT. LTD. 2 SHRI. S.S.VISWANETHRA RAVI, JM: 1. THIS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATE D 31.01.2019 PASSED BY THE CIT(A)-4, KOLKATA FOR ASSESSMENT YEAR 2014-15 WHEREIN HE CONFIRMED THE PENALTY IMPOSED BY THE ASSESSING O FFICER U/S 271(1)(C ) OF THE ACT. 2. AT THE TIME OF HEARING, UNDER THE CAPTION EARL Y HEARING, THE LD. AR BROUGHT TO OUR NOTICE THAT THE CIT(A) CONFIRME D THE PENALTY IMPOSED BY THE ASSESSING OFFICER U/S 271(1)(C ) OF THE ACT WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSEE. FURTHER HE SUBMITTED THAT THE ISSUE RAISED IN THE MAIN APPEAL IS RELATING TO QUES TIONING THE ACTION OF CIT(A) IN CONFIRMING THE PENALTY IMPOSED BY THE ASS ESSING OFFICER ON DEFECTIVE SHOW CAUSE NOTICE ISSUED U/S 274 READ WIT H SECTION 271 OF THE ACT. THE LD. AR SUBMITTED THAT THE ISSUE IS SQU ARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE S UPREME COURT. WITH THE CONSENT OF BOTH THE PARTIES, HE PROCEED TO HEAR THE MAIN APPEAL. 3. HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. DR ADOPTED THE SAME SET OF WRITTE N SUBMISSIONS WHICH WERE FILED BEFORE THE COORDINATE BENCH OF THI S TRIBUNAL IN THE CASE OF JEETMAL CHORARIA IN ITA 956/KOL/16 FOR AY 2 010-11, WHEREIN ITA NO. 506/KOL/2019 EMDEE DIGITRONICS PVT. LTD. 3 THE COORDINATE BENCH ELABORATELY DISCUSSED THE FAC TS IN THE DECISIONS AS RELIED UPON BY THE LD.DR AND THE PRINCIPLE LAID DOWN BY THE RESPECTIVE HONBLE HIGH COURTS AT BOMBAY AND PATNA AND PREFERRED TO FOLLOW THE RATIO LAID DOWN BY THE HONBLE HIGH COUR T OF KARNATAKA IN THE CASE OF MANJUNATHA COTTON AND GINNING SUPRA BY TAKING SUPPORT OF THE ESTABLISHED PRINCIPLE FOR A PROPOSITION WHEN TH ERE ARE TWO VIEWS ON THE ISSUE, ONE IN THE FAVOURING OF ASSESSEE SHOU LD BE ADOPTED, WHICH ENUNCIATED BY THE HONBLE SUPREME COURT IN T HE CASE OF VEGETABLE PRODUCTS LTD REPORTED IN 88 ITR 192 (SC). WE ARE IN AGREEMENT WITH THE REASONING OF THE CO-ORDIN ATE BENCH IN ITS ORDER DT: 01-12-2017 IN THE CASE OF JE ETMAL CHORARIA AND THE SAME IS REPRODUCED HEREIN BELOW FOR READY REFERENCE: 7. THE LEARNED DR SUBMITTED THAT THE HONBLE CA LCUTTA HIGH COURT IN THE CASE OF DR.SYAMAL BARAN MONDAL VS. CIT (2011) 244 CTR 631 (CAL) HAS TAKEN A VIEW THAT SEC.271 DOES NOT MANDATE THAT THE RECORDING OF SATISFACTION ABOUT CONCEALMENT OF INCO ME MUST BE IN SPECIFIC TERMS AND WORDS AND THAT SATISFACTION OF AO MUST REFLECT FROM THE ORDER EITH ER WITH EXPRESSED WORDS RECORDED BY THE AO OR BY HIS OVERT ACT AND ACTION. IN OUR VIEW THIS DECISIO N IS ON THE QUESTION OF RECORDING SATISFACTION AND NOT IN THE CONTEXT OF SPECIFIC CHARGE IN THE MANDAT ORY SHOW CAUSE NOTICE U/S.274 OF THE ACT. THEREFORE REFERENCE TO THIS DECISION, IN OUR VIEW I S NOT OF ANY HELP TO THE PLEA OF THE REVENUE BEFORE US. 8. THE LEARNED DR RELIED ON THREE DECISIONS OF MU MBAI ITAT VIZ., (I) DHANRAJ MILLS PVT. LTD. VS. ACIT ITA NO.3830 & 3833/MUM/2009 DATED 21.3.2017; ( II) EARTHMOVING EQUIPMENT SERVICE CORPORATION VS. DCIT 22(2), MUMBAI, (2017) 84 TAXMA NN.COM 51 (III) MAHESH M.GANDHI VS. ACIT VS. ACIT ITA NO.2976/MUM/2016 DATED 27.2.2017. REL IANCE WAS PLACED ON TWO DECISIONS OF THE HONBLE BOMBAY HIGH COURT VIZ., (I) CIT VS. KAUSHAL YA 216 ITR 660(BOM) AND (II) M/S.MAHARAJ GARAGE & CO. VS. CIT DATED 22.8.2017. THIS DECISIO N WAS REFERRED TO IN THE WRITTEN NOTE GIVEN BY THE LEARNED DR. THIS IS AN UNREPORTED DECISION AND A COPY OF THE SAME WAS NOT FURNISHED. HOWEVER A GIST OF THE RATIO LAID DOWN IN THE DECISION HAS B EEN GIVEN IN THE WRITTEN NOTE FILED BEFORE US. 9. IN THE CASE OF CIT VS. KAUSHALYA (SUPRA), THE H ONBLE BOMBAY HIGH COURT HELD THAT SECTION 274 OR ANY OTHER PROVISION IN THE ACT OR THE RULES, DO ES NOT EITHER MANDATE THE GIVING OF NOTICE OR ITS ISSUANCE IN A PARTICULAR FORM. PENALTY PROCEEDI NGS ARE QUASI-CRIMINAL IN NATURE. SECTION 274 CONTAINS THE PRINCIPLE OF NATURAL JUSTICE OF THE A SSESSEE BEING HEARD BEFORE LEVYING PENALTY. RULES OF NATURAL JUSTICE CANNOT BE IMPRISONED IN AN Y STRAIGHT-JACKET FORMULA. FOR SUSTAINING A COMPLAINT OF FAILURE OF THE PRINCIPLES OF NATURAL J USTICE ON THE GROUND OF ABSENCE OF OPPORTUNITY, IT HAS TO BE ESTABLISHED THAT PREJUDICE IS CAUSED TO T HE CONCERNED PERSON BY THE PROCEDURE FOLLOWED. ITA NO. 506/KOL/2019 EMDEE DIGITRONICS PVT. LTD. 4 THE ISSUANCE OF NOTICE IS AN ADMINISTRATIVE DEVICE FOR INFORMING THE ASSESSEE ABOUT THE PROPOSAL TO LEVY PENALTY IN ORDER TO ENABLE HIM TO EXPLAIN AS T O WHY IT SHOULD NOT BE DONE. MERE MISTAKE IN THE LANGUAGE USED OR MERE NON-STRIKING OF THE INACCURAT E PORTION CANNOT BY ITSELF INVALIDATE THE NOTICE. THE ITAT MUMBAI BENCH IN THE CASE OF DHANRAJ MILLS PVT.LTD. (SUPRA) FOLLOWED THE DECISION RENDERED BY THE JURISDICTIONAL HONBLE BOMBAY HIGH COURT IN THE CASE OF KAUSHALYA (SUPRA) AND CHOSE NOT TO FOLLOW DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNING FACTORY (SUPRA). RELIANCE WAS ALSO PLACED BY THE ITAT MUMB AI IN THIS DECISION ON THE DECISION OF HONBLE PATNA HIGH COURT IN THE CASE OF CIT V. MITHILA MOTOR 'S (P.) LTD. [1984] 149 ITR 751 (PATNA) WHEREIN IT WAS HELD THAT UNDER SECTION 274 OF THE INCOME-TAX ACT, 1961, ALL THAT IS REQUIRED IS THAT THE ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY TO SHOW CAU SE. NO STATUTORY NOTICE HAS BEEN PRESCRIBED IN THIS BEHALF. HENCE, IT IS SUFFICIENT IF THE ASSESSE E WAS AWARE OF THE CHARGES HE HAD TO MEET AND WAS GIVEN AN OPPORTUNITY OF BEING HEARD. A MISTAKE IN T HE NOTICE WOULD NOT INVALIDATE PENALTY PROCEEDINGS. 10. IN THE CASE OF EARTHMOVING EQUIPMENT SERVICE C ORPORATION (SUPRA), THE ITAT MUMBAI DID NOT FOLLOW THE DECISION RENDERED IN THE CASE OF MANJUNA THA COTTON & GINNING FACTORY (SUPRA) FOR THE REASON THAT PENALTY IN THAT CASE WAS DELETED FOR SO MANY REASONS AND NOT SOLELY ON THE BASIS OF DEFECT IN SHOW CAUSE NOTICE U/S.274 OF THE ACT. THI S IS NOT FACTUALLY CORRECT. ONE OF THE PARTIES BEFORE THE GROUP OF ASSESSEES BEFORE THE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNING (SUPRA) WAS AN ASSESSEE BY NAME M/S.VEERABH ADRAPPA SANGAPPA & CO., IN ITA NO.5020 OF 2009 WHICH WAS AN APPEAL BY THE REVENUE. THE TR IBUNAL HELD THAT ON PERUSAL OF THE NOTICE ISSUED UNDER SECTION 271(1)(C) OF THE ACT, IT IS CL EAR THAT IT IS A STANDARD PROFORMA USED BY THE ASSESSING AUTHORITY. BEFORE ISSUING THE NOTICE THE INAPPROPRIATE WORDS AND PARAGRAPHS WERE NEITHER STRUCK OFF NOR DELETED. THE ASSESSING AUTHORITY WAS NOT SURE AS TO WHETHER SHE HAD PROCEEDED ON THE BASIS THAT THE ASSESSEE HAD EITHER CONCEALED IT S INCOME OR HAS FURNISHED INACCURATE DETAILS. THE NOTICE IS NOT IN COMPLIANCE WITH THE REQUIREMENT OF THE PARTICULAR SECTION AND THEREFORE IT IS A VAGUE NOTICE, WHICH IS ATTRIBUTABLE TO A PATENT NON APPLI CATION OF MIND ON THE PART OF THE ASSESSING AUTHORITY. FURTHER, IT HELD THAT THE ASSESSING OFFI CER HAD MADE ADDITIONS UNDER SECTION 69 OF THE ACT BEING UNDISCLOSED INVESTMENT. IN THE APPEAL, THE SA ID FINDING WAS SET-ASIDE. BUT ADDITION WAS SUSTAINED ON A NEW GROUND, THAT IS UNDER VALUATION OF CLOSING STOCK. SINCE THE ASSESSING AUTHORITY HAD INITIATED PENALTY PROCEEDINGS BASED ON THE ADDI TIONS MADE UNDER SECTION 69 OF THE ACT, WHICH WAS STRUCK DOWN BY THE APPELLATE AUTHORITY, THE INI TIATED PENAL PROCEEDINGS, NOLONGER EXISTS. IF THE APPELLATE AUTHORITY HAD INITIATED PENAL PROCEEDINGS ON THE BASIS OF THE ADDITION SUSTAINED UNDER A NEW GROUND IT HAS A LEGAL SANCTUM. THIS WAS NOT SO IN THIS CASE AND THEREFORE, ON BOTH THE GROUNDS THE IMPUGNED ORDER PASSED BY THE APPELLATE AUTHORIT Y AS WELL AS THE ASSESSING AUTHORITY WAS SET- ASIDE BY ITS ORDER DATED 9TH APRIL, 2009. AGGRIEVED BY THE SAID ORDER, THE REVENUE FILED APPEAL BEFORE HIGH COURT. THE HONBLE HIGH COURT FRAMED T HE FOLLOWING QUESTION OF LAW IN THE SAID APPEAL VIZ., 1. WHETHER THE NOTICE ISSUED UNDER SECTION 27 1(1)(C) IN THE PRINTED FORM WITHOUT SPECIFICALLY MENTIONING WHETHER THE PROCEEDINGS ARE INITIATED ON THE GROUND OF CONCEALMENT OF INCOME OR ON ACCOUNT OF FURNISHING OF INACCURATE PARTICULARS IS VALID AND LEGAL? 2. WHETHER THE PROCEEDINGS INITIATED BY THE ASSESSING AUTHORITY WAS LEGAL AND VALID? THE HONBLE KARNATAKA HIGH COURT HELD IN THE NEGATIVE AND AGAINST THE REVENUE ON BOTH THE QU ESTIONS. THEREFORE THE DECISION RENDERED BY THE ITAT MUMBAI IN THE CASE OF EARTHMOVING EQUIPMEN T SERVICE CORPORATION (SUPRA) IS OF NO ASSISTANCE TO THE PLEA OF THE REVENUE BEFORE US. 11. IN THE CASE OF M/S.MAHARAJ GARAGE & CO. VS. CI T DATED 22.8.2017 REFERRED TO IN THE WRITTEN NOTE GIVEN BY THE LEARNED DR, WHICH IS AN UNREPOR TED DECISION AND A COPY OF THE SAME WAS NOT FURNISHED, THE SAME PROPOSITION AS WAS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SMT.KAUSHALYA (SUPRA) APPEARS TO HAVE BEEN REITERAT ED, AS IS EVIDENT FROM THE EXTRACTS FURNISHED IN THE WRITTEN NOTE FURNISHED BY THE LEARNED DR BEFORE US. 12. IN THE CASE OF TRISHUL ENTERPRISES ITA NO.384 & 385/MUM/2014, THE MUMBAI BENCH OF ITAT FOLLOWED THE DECISION OF THE HONBLE BOMBAY HIGH CO URT IN THE CASE OF SMT.KAUSHALYA (SUPRA). ITA NO. 506/KOL/2019 EMDEE DIGITRONICS PVT. LTD. 5 13. IN THE CASE OF MAHESH M.GANDHI (SUPRA) THE MUM BAI ITAT THE ITAT HELD THAT THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE MANJUNATHA COTTON & GINNING (SUPRA) WILL NOT BE APPLICABLE TO THE FACTS OF THAT CASE BECAUSE THE AO IN THE ASSESSMENT ORDER WHILE INITIATING PENALTY PROCEEDINGS HAS HELD THAT THE ASSESSEE HAD CONCEALE D PARTICULARS OF INCOME AND MERELY BECAUSE IN THE SHOW CAUSE NOTICE U/S.274 OF THE ACT, THERE IS NO MENTION WHETHER THE PROCEEDINGS ARE FOR FURNISHING INACCURATE PARTICULARS OR CONCEALING PAR TICULARS OF INCOME, THAT WILL NOT VITIATE THE PENAL TY PROCEEDINGS. IN THE PRESENT CASE THERE IS NO WHISPH ER IN THE ORDER OF ASSESSMENT ON THIS ASPECT. WE HAVE POINTED OUT THIS ASPECT IN THE EARLIER PART OF THIS ORDER. HENCE, THIS DECISION WILL NOT BE O F ANY ASSISTANCE TO THE PLEA OF THE REVENUE BEFORE US . EVEN OTHERWISE THIS DECISION DOES NOT FOLLOW THE RATIO LAID DOWN BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNING (SUPRA) IN AS MUCH AS THE RATIO LAID DOWN IN THE SA ID CASE WAS ONLY WITH REFERENCE TO SHOW CAUSE NOTICE U/S.274 OF THE ACT. THE HONBLE COURT DID N OT LAY DOWN A PROPOSITION THAT THE DEFECT IN THE SHOW CAUSE NOTICE WILL STAND CURED IF THE INTENTION OF THE CHARGE U/S.271(1) (C ) IS DISCERNIBLE FROM A READING OF THE ASSESSMENT ORDER IN WHICH THE PENALT Y WAS INITIATED. 14. FROM THE AFORESAID DISCUSSION IT CAN BE SEEN T HAT THE LINE OF REASONING OF THE HONBLE BOMBAY HIGH COURT AND THE HONBLE PATNA HIGH COURT IS THAT ISSUANCE OF NOTICE IS AN ADMINISTRATIVE DEVICE FOR INFORMING THE ASSESSEE ABOUT THE PROPOSAL TO LE VY PENALTY IN ORDER TO ENABLE HIM TO EXPLAIN AS TO WHY IT SHOULD NOT BE DONE. MERE MISTAKE IN THE LANG UAGE USED OR MERE NON-STRIKING OF THE INACCURATE PORTION CANNOT BY ITSELF INVALIDATE THE NOTICE. THE TRIBUNAL BENCHES AT MUMBAI AND PATNA BEING SUBORDINATE TO THE HONBLE BOMBAY HIGH COURT AND PATNA HIGH COURT ARE BOUND TO FOLLOW THE AFORESAID VIEW. THE TRIBUNAL BENCHS AT BANGALORE H AVE TO FOLLOW THE DECISION OF THE HONBLE KARNATAKA HIGH COURT. AS FAR AS BENCHES OF TRIBUN AL IN OTHER JURISDICTIONS ARE CONCERNED, THERE ARE TWO VIEWS ON THE ISSUE, ONE IN FAVOUR OF THE ASSESS EE RENDERED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNING (SUPRA) AND OTHER OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SMT.KAUSHALYA. IT IS SETTLED LEGAL PO SITION THAT WHERE TWO VIEWS ARE AVAILABLE ON AN ISSUE, THE VIEW FAVOURABLE TO THE ASSESSEE HAS TO B E FOLLOWED. WE THEREFORE PREFER TO FOLLOW THE VIEW EXPRESSED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNING (SUPRA). 15. WE HAVE ALREADY OBSERVED THAT THE SHOW CAUSE N OTICE ISSUED IN THE PRESENT CASE U/S 274 OF THE ACT DOES NOT SPECIFY THE CHARGE AGAINST THE ASSESSE E AS TO WHETHER IT IS FOR CONCEALING PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCO ME. THE SHOW CAUSE NOTICE U/S 274 OF THE ACT DOES NOT STRIKE OUT THE INAPPROPRIATE WORDS. IN THE SE CIRCUMSTANCES, WE ARE OF THE VIEW THAT IMPOSITION OF PENALTY CANNOT BE SUSTAINED. THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE WHICH IS BASED ON THE DECISIONS REFERRED TO IN THE EARLIER P ART OF THIS ORDER HAS TO BE ACCEPTED. WE THEREFORE HOLD THAT IMPOSITION OF PENALTY IN THE PRESENT CASE CANNOT BE SUSTAINED AND THE SAME IS DIRECTED TO BE CANCELLED. 4. WE FIND THE NOTICE DATED 11/05/2016 ISSUED U/ S. 274 R.W.S 271 OF THE ACT, PLACED ON RECORD, DOES NOT SPECIFY THE CHARGE OF OFFENCE COMMITTED BY THE ASSESSEE VIZ. WHETHER HAD CONCEALE D THE PARTICULARS OF INCOME OR HAD FURNISHED INACCURATE P ARTICULARS OF INCOME. HENCE THE SAID NOTICE IS TO BE HELD AS DEF ECTIVE. ITA NO. 506/KOL/2019 EMDEE DIGITRONICS PVT. LTD. 6 5. FURTHER, WE FIND THAT REVENUE HAD PREFERRED A SL P BEFORE THE HONBLE SUPREME COURT AGAINST THIS JUDGMENT WHICH W AS DISMISSED IN CC NO. 11485/2016 DATED 5.8.2016 BY OBSERVING AS UN DER:- UPON HEARING THE COUNSEL, THE COURT MADE THE FOLLO WING ORDER DELAY CONDONED. WE DO NOT FIND ANY MERIT IN THIS PETITION. THE SPE CIAL LEAVE PETITION IS , ACCORDINGLY DISMISSED. PENDING APPLICATION, IF ANY, STANDS DISPOSED OF. 6. WE ALSO FIND THAT THE HONBLE JURISDICTIONAL HIG H COURT IN ITS RECENT DECISION IN THE CASE OF PCIT VS. DR. MURARI MOHAN K OLEY IN ITAT NO. 306 OF 2017, G.A. NO. 2968 OF 2017 DATED 18.07.2018 HAD AFFIRMED THE AFORESAID VIEW. 7. RESPECTFULLY FOLLOWING THE ABOVE, WE SET ASIDE THE ORDER OF CIT-A AND CANCEL THE PENALTY OF RS. 4,30,205/- LEVIED BY THE AO U/S 271(1)(C) OF THE ACT FOR A.Y 2014-15. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. ITA NO. 506/KOL/2019 EMDEE DIGITRONICS PVT. LTD. 7 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03-04-2019. SD/- SD/- P.M. JAGTAP S.S. VISWANETHRA RAVI VICE-PRESIDENT JUDICIAL MEMBER DATE: 03-04-2019 SB,SR. PS COPIES TO : (1) APPELLANT/DEPARTMENT: EMDEE DIGITRONICS P LTD. (2) RESPONDENT/ASSESSEE: DCIT, CIRCLE-10(1), KOLKATA (3)COMMISSIONER OF INCOME-TAX (APPEALS) (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA