Gopal Clothing Company Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 5510/DEL/2016

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 9777 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 24-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Question of law; Wrong claim
• Section: 271(1)(c); 274; 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘C’ NEW DLEHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI N.K. CHOUDHRY, JUDICIAL MEMBER ITA No. 5510/Del/2016 Assessment Year: 2011-12 Gopal Clothing Company Private Limited,42, Sultanpur Farms, PrakirtiMarg, Mehrauli Road, New Delhi. PAN: AAACG4705B VersuS DCIT, Circle 12(1), New Delhi. (Appellant) (Respondent) Appellant by :Sh. Bharat Beriwal, Ld. Adv. Respondent by : Sh. AnujGarg, Ld. Sr. DR Date of hearing : 23.09.2022 Date of order : 28.09.2022 ORDER PER N.K. CHOUDHRY, J.M. This appeal has been preferred by the Assessee against the order dated 05.07.2016, impugned herein, passed by the learned Commissioner of Income-tax (Appeals)-16, New Delhi (in short “Ld. Commissioner”), u/s. 250(6) of the Income-tax Act, 1961 (in short ‘the Act’) for the assessment year 2011-12. ITA No. 5510/Del/2016 2 2. Brief facts, relevant for adjudication of the instant appeal, are that the Assessing officer, vide assessment order dated 30.12.2013,made two additions. The first addition of Rs.22,50,000/- was made on account of disallowance of deduction u/s. 24 of the Act claimed by the Assessee @ 30% of the annual letable value of Rs.75,00,000/- of the rented property situated at 274 UdyogVihar, Phase-II, Gurgaon. The Assessing Officer made this addition on the premise that the Assessee has also claimed depreciation on the same very building amounting to Rs.10,39,000/- which is included in the total depreciation of Rs.52,50,000/- and that the Assessee has included this building in the block of asset during the year under consideration. Therefore, according to the Assessing Officer, the Assessee was not entitled for double deductions on the same property as per the provisions of the Act and since the Assessee had already claimed depreciation on the said property, the Assessing Officer disallowed the deduction claimed by Assessee for repair and maintenance of Rs.22,50,000/- u/s. 24 of the Act. 2.1 The second addition made by the Assessing Officer was of Rs.11,50,000/- u/s. 40(ia) of the Act on account of non-deduction of tax at source on payments of 20,000 Euro (equivalent to Rs.11,50,654/-) made to a foreign entity, namely, Equinox Deutschland GMBH for development of unique designs and patterns of various garments. While making this addition, the Assessing Officer opined the services rendered by the aforesaid company for developing designs and patterns of garment have been rendered in India and therefore, the income from use of these services is also liable to be taxed in India as per provisions of section 9(1)(i) and 9(1)(vii)(b) of the Act, and the Assessee company while making ITA No. 5510/Del/2016 3 payment out of income arising in India and claiming the same as an expense, was liable to deduct tax at source, which it failed to do. Accordingly, the Assessing Officer made disallowance of Rs.11,50,000/- u/s. 40(ia) of the Act and added it to the total income of the Assessee. 2.2 Based on these two additions, the Assessing Officer also initiated penalty proceedings u/s. 271(1)(c) of the Actfor filling of inaccurate particulars of income and consequently issued the show cause notice dated 30.12.2013 u/s. 274 r.w.s. 271(1)(c) of the Actand fixed the date of hearing 07.01.2014. In response the Assessee furnished its reply on 07.02.2014. 2.3 In reply dated 07.02.2014, the Assesseecontended that the above disallowances do not constitute concealment of income nor does it amount to filling of inaccurate particulars of income. Thereafter another show cause notice u/s. 271(1)(c) dated 11.06.2014 was also issued to the Assessee, which remained un- complied. Being not satisfied with the said explanation of the Assessee, the Assessing Officer imposed a penalty of Rs.10,50,800/- equivalent to 100% of the tax sought to be evaded on both the above additions totalling to Rs.34,00,650/- for concealment of its incomeand furnishing of inaccurate particulars of its income. 3. Being aggrieved with the penalty order, the Assessee preferred first appeal before the ld. Commissioner, who vide impugned order, though affirmed the penalty imposed with reference to disallowance of Rs.11,50,000/- on account of non- ITA No. 5510/Del/2016 4 deduction of tax at source, however with regards to the penalty imposed qua addition of Rs.22,50,000/- on account of disallowance of deduction u/s. 24 of the Act, accepted the alternative plea of the Assesseeto the effects that the higher of the two deductions, i.e., depreciation of Rs.10,45,000/- and statutory deduction u/s. 24 of the Act of Rs.22,50,000/- should be allowed and consequently directed the Assessing Officer to recompute the penalty on the wrong claim of depreciation by allowing the statutory deduction and disallowing the depreciation. 4. Being aggrievedwith the impugned order, the Assessee is in appeal before us. 5. We have heard the parties and perused the material available on record. Though the Assessee and the Ld. DR argued the matter on merit as well, however the Ld. AR emphasized that in the instant case, the notice dated 30.12.2013 (copy filed on record)issued u/s 274 read with 271(1)(c) of the Act by the AO is vague, having not specified any particular limb of the penalty and, therefore, the penalty is not leviable. The Assessee in support of its contention also relied upon various judgments of the Hon’ble Apex Court and High Courts. 6. On the contrary the Ld. DR supported the orders passed by the authorities below and submitted that order under challenge does not suffer from any perversity, impropriety and/or illegality and hence needs no interference . ITA No. 5510/Del/2016 5 7. Heard the parties and perused the material available on record. In the instant case, the AO initiated the penalty under section 271(1)(c) of the Act for furnishing inaccurate particulars of Income and thereafter issued the notice u/s 274 r.w.s. 271(1)© of Act for concealment of the particulars of income or filling of inaccurate particulars of income but without specifying any particular limb and finally vide penalty order dated 30-06-2014 imposed the penalty on both of the limbs. 7.1 The Assessee by way of raising the plea which is legal in nature, challenged the Imposition of penalty mainly on the basis of notices itself, therefore we deem it appropriate to decide the legal issue involved in the instant case first,before dwelling into the merits of the case. 8. The Hon'ble Apex Court in case of M/s. SSA's Emerald Meadows, (2016) 73 taxmann.com 248(SC) dismissed the Special Leave Petition filed by the Revenue against the judgment rendered by Hon'ble High Court of Karnataka whereby identical issue was decided in favour of the Assessee. Operative part of the judgment in case of M/s. SSA's Emerald Meadows (supra) decided by Hon'ble High Court of Karnataka is reproduced below:- "2. This appeal has been filed raising the following substantial questions of law: (1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt ITA No. 5510/Del/2016 6 that the assessee had concealed income in the facts and circumstances of the case? (2 Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in. holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and. invalid inspite the amendment of Section 271(1 B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same? (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued, under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income? 3. The Tribunal has allowed the appeal filed by the Assessee holding the notice issued by the Assessing Officer under Section 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 Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income .The Tribunal, while allowing the appeal of the Assessee, has relied upon the decision of the Division Bench of this Court rendered In the case of COMMISSIONER or INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565. 4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we ITA No. 5510/Del/2016 7 are of the opinion, no substantial question of law arises in this appeal for determination by this Court, the appeal is accordingly dismissed." 8.1 The Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar) observed where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon'ble High Court also held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clause would lead to an inference of non-application of mind by the Assessing Officer and levy of penalty would suffers from non-application of mind. 8.2 Even the Hon’ble High Court of Delhi in the case of M/s. Sahara India Life Insurance Company Ltd. 432 ITR 84 (Del.) while following the cases referred above, held as under: “21. The Respondent had challenged the upholding of the penalty imposed under Section 271(1)(c) of the Act, which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar) and observed that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(l)(c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgment in the subsequent order in Commissioner of Income Tax v. SSA’s 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 5th August, 2016. ITA No. 5510/Del/2016 8 22. On this issue again this Court is unable to find any error having been committed by the ITAT. No substantial question of law arises. Thus, notice under Section 271(1)(c) r.w.s. 274 of the Act itself is bad in law. We, therefore, set-aside the order of the CIT(A) and direct the Assessing Officer to cancel the penalty so levied.” 8.3 The penalty provisions of section 271(1)(c) of the Act are attracted, where the Assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it is imperative for the Assessing Officer to specify the relevant limb so as to make the Assessee aware as to what is the charge made against him so that he can respond accordingly. 8.4 In the background of the aforesaid legal position and, having regard to the manner in which the Assessing Officer has issued the noticesreferred above under section 274 r.w.s. 271(1)(c) of the Act without specifying the limb under which the penalty proceeding has been initiated and proceeded with, apparently goes to prove that notice in this case has been issued in a stereotyped manner without applying mind which is bad in law, hence can not be considered valid notice sufficient to impose penalty u/s 271(1)(c) of the Act and therefore we are of the considered view that under these circumstances, the penalty is not leviable as held by the various Courts including the Hon’ble Apex Court and hence, we have no hesitation to delete the penalty under consideration, levied by the AO and affirmed by the Ld. Commissioner . ITA No. 5510/Del/2016 9 8.5 As we have decided the legalissuein favour of the Assessee and deleted the penalty, therefore not dwelling into the merits of the case as the same would become academic exercise only. 9. In the result, the appeal filed by the Assessee is allowed. Order pronounced in the open court on 28/09/2022 Sd/- Sd/- (N.K. BILLAIYA) (N.K. CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER *aks/-