GUPTA GEMHOUSE P.LTD, MUMBAI V. ITO 1(1)(4), MUMBAI

ITA 7370/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0729 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 31-03-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 10-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMA
• Assessee Lawyers: FARROKH IRANI LD
• Keywords: Principle of natural justice
• Section: 143(3)

Judgement Text

ITA NOS.7370-71/M/2014 GUPTA GEM HOUSE PRIVATE LTD. ASSESSMENT YEARS-2003-04 & 2006-07 IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.7370/MUM/2014 ( / ASSESSMENT YEAR: 2006-07) & ./I.T.A. NO.7371/MUM/2014 ( / ASSESSMENT YEAR: 2003-04) GUPTA GEMHOUSE PVT. LTD. 2 ND FLOOR, METRO HOUSE M.G.ROAD MUMBAI 400 020 / VS. INCOME T AX OFFICER (1)(4) ROOM NO. 579 AAYKAR BHAWAN M.K.MARG MUMBAI 400 020 ./ ./PAN/GIR NO. AAACG-1992-L ( ' /APPELLANT ) : ( #$ ' / RESPONDENT ) A SSESSEE BY : FARROKH IRANI. LD. AR RE VENUE BY : VIDISHA KALRA, LD. CIT DR DR. ANUPAMA SINGLA & SUMAN KUMAR, LD. SR. DRS / DATE OF HEARING : 21/04/2017 / DATE OF PRONOUNCEMENT : 17 /05/2017 ITA NOS.7370-71/M/2014 GUPTA GEM HOUSE PRIVATE LTD. ASSESSMENT YEARS-2003-04 & 2006-07 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THESE TWO APPEALS BY ASSESSEE FOR ASSESSMENT YEA R [AY] 2003-04 & 2006-07 CONTEST SEPARATE ORDERS OF CONFIRMATION O F LEVY OF PENALTY U/S 271(1)(C) PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-1 [CIT(A)], MUMBAI ON LEGAL GROUNDS AS WELL AS ON MER ITS. SINCE ADDITIONAL GROUNDS ARE LEGAL IN NATURE AND DO NOT REQUIRE APPR ECIATION OF NEW FACT, THE SAME ARE TAKEN ON RECORDS. AS PER REGISTRY NOTI NG, IT IS NOTICED THAT BOTH THE APPEALS HAVE BEEN FILED WITH A DELAY OF 25 DAYS AND THE ASSESSEE, BY WAY OF CONDONATION PETITION, HAS PLEAD ED FOR THE CONDONATION OF THE SAME AND ATTRIBUTED THE DELAY TO NON-AVAILABILITY OF DIRECTORS AT RELEVANT TIME TO SIGN THE APPEALS. KEE PING IN VIEW THE QUANTUM OF DELAY AND IN THE INTEREST OF JUSTICE, TH E DELAY IS CONDONED. 2. FIRST, WE TAKE UP ITA NO. 7371/M/2014 FOR AY 200 3-04 WHERE THE ASSESSEE IS SADDLED WITH PENALTY OF RS.80,94,048/- WHICH HAS BEEN CONFIRMED BY LD. CIT(A) VIDE ORDER DATED 28/08/2014 . SINCE LEGAL GROUNDS GOES TO THE ROOT OF THE MATTER, WE TAKE UP THE SAME FIRST. 3. BRIEFLY STATED THE ASSESSEE, BEING RESIDENT CORP ORATE ASSESSEE ENGAGED IN THE PROCESSING AND TRADING OF GEM STONES , WAS ASSESSED U/S 143(3) AT LOSS OF RS.13,46,690/- AFTER CERTAIN ADJU STMENTS / DISALLOWANCES AS AGAINST RETURNED LOSS OF RS.23,51,285/-. ONE OF THE DISALLOWANCE OF WAS RELATED TO ABNORMAL LOSS OF RS.2,20,24,623/- CL AIMED BY THE ASSESSEE AGAINST SALE TO ASSOCIATED CONCERN WHICH W AS DISALLOWED BEING NON BONA FIDE BUSINESS LOSS ON ACCOUNT OF UNJUSTIFIABLE SALE PRI CE. ITA NOS.7370-71/M/2014 GUPTA GEM HOUSE PRIVATE LTD. ASSESSMENT YEARS-2003-04 & 2006-07 3 AGAINST THE SAID DISALLOWANCE, PENALTY PROCEEDINGS U/S 271(1)(C) WERE INITIATED IN THE QUANTUM ASSESSMENT. 4. CONSEQUENTLY, THE ASSESSEE WAS ISSUED SHOW-CAUSE NOTICE FOR IMPOSITION OF PENALTY U/S 274 READ WITH SECTION 271(1)(C) DATED 30/12/2005. FINALLY, THE ASSESSEE WAS SADDLED WITH A PENALTY OF RS.80,94,048/- WHICH, UPON APPEAL, WAS UPHELD BY LD . CIT(A) ON THE PREMISES THAT THE ASSESSEE MADE AN ATTEMPT TO CLAIM FICTITIOUS LOSS AND ALSO RESORTED TO MANIPULATION IN BOOK ENTRIES IN RE SPECT OF VALUATION OF STOCK. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US AND CONTESTS THE PENALTY ON LEGAL GROUNDS AS WELL ON MERITS OF THE C ASE. 5. THE LD. COUNSEL FOR ASSESSEE [AR], WHILE RAISING LEGAL ISSUE, DREW OUR ATTENTION TO THE FACT THAT THE LD. AO DID NOT F ULFILL THE JURISDICTIONAL REQUIREMENT OF ARRIVING AT A CLEAR FINDING AND SATI SFACTION FOR THE LEVY OF PENALTY IN THE QUANTUM ORDER AS THE AO, IN THE BODY OF ASSESSMENT ORDER, STATED THAT THE PENALTY PROCEEDINGS U/S 271(1)(C) ARE INITIATE D ON ACCOUNT OF ADDITION OF RS.2,20,24,623/- BEING THE N ON BONAFIDE LOSS ON ACCOUNT OF SALES TO ASSOCIATE CONCERNS AND VARIOUS PARTIES DURING THE YEAR AT UNJUSTIFIABLE PRICES.PENALTY PROCEEDI NGS U/S 271(1)(C) ARE INITIATED . WHEREAS IN CONTRAST, SHOW CAUSE NOTICE U/S 274 READ WITH SECTION 271(1)(C) MENTIONS THE CHARGES AS HAVE CONCEALED THE PARTICULARS OF YOUR INCOME OR FURNISHED INACCUR ATE PARTICULARS OF SUCH INCOME WITHOUT STRIKING-OFF THE RELEVANT WORDS/CLAUSE/LIMB . FINALLY, THE PENALTY HAS BEEN IMPOSED BY LD. AO IN THE PENALTY O RDER BY STATING THAT IT HAS BEEN ESTABLISHED THAT THE ASSESSEE FURNISHE D INACCURATE PARTICULARS OF INCOME LEADING TO CONCEALMENT OF INC OME. THE ASSESSEE HAS FURNISHED PARTICULARS WHICH WERE FACTUALLY INCO RRECT AND NOT BONA FIDE ITA NOS.7370-71/M/2014 GUPTA GEM HOUSE PRIVATE LTD. ASSESSMENT YEARS-2003-04 & 2006-07 4 FOR WHICH PENALTY IS LEVIABLE.THUS, THE ASSESS EE NOT ONLY CONCEALED THE PARTICULARS OF ITS INCOME BUT ALSO FI LED INACCURATE PARTICULARS WHILE FILING RETURN OF INCOME. THEREFORE, THE SAME REFLECTS NON-APPLICATION OF MIND ON THE PART OF AO AND THE A O HIMSELF WAS NOT SURE ABOUT THE LIMB / EXACT CHARGE FOR WHICH THE AS SESSEE WAS BEING PENALIZED. THEREFORE, THE PENALTY ORDER STANDS VITI ATED FOR WANT OF PRINCIPLES OF NATURAL JUSTICE AND HENCE, NEED TO BE QUASHED. RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF APEX COURT IN DILIP N.SHROFF VS. JCIT (291 ITR 519) WHEREIN THE SUPREME COURT OBSERVED THAT THE CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME ARE DIFFERENT. THE HONBLE COURT FURTHER HEL D THAT NON-STRIKING OFF OF THE RELEVANT PORTIONS OF STANDARD SHOW-CAUSE NOT ICE REFLECTS NON- APPLICATION OF MIND BY AO AND HENCE VITIATES THE PE NALTY. OUR ATTENTION IS FURTHER DRAWN TO THE FACT THAT THE RATIO OF THIS CA SE WAS VERY MUCH RELEVANT AND VALID DESPITE THE JUDGMENT OF APEX COU RT IN THE CASE OF CIT VS. DHARMENDRA TEXTILE PROCESSOR ( 306 ITR 277) IN VIEW OF ANOTHER JUDGMENT OF SUPREME COURT IN CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. [322 ITR 158] WHEREIN IT WAS OBSERVED THAT REASONING GIVEN IN TH E CASE OF DILIP N.SHROFF COULD NOT BE FAULTED EXCEPT TO THE EXTENT OF OBSERV ATIONS REGARDING NECESSITY OF MENS-REA FOR THE PURPOSE OF SECTION 271(1)(C). RELIANCE IS ALSO PLACED ON THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN CIT VS. MANJUNATHA COTTON & GINNING FACTORY [2013 3 59 ITR 565] WHICH WAS LATER FOLLOWED BY THE SAME COURT IN CIT VS. SSAS EMERALD MEADOWS [ITA NO. 380 OF 2015 23/11/2015] AGAINST WHICH SPECIAL LEAVE PETITION [SLP] FILED BY THE REVENUE B EFORE APEX COURT IN CC NO.11485/2016 ORDER DATED 05/08/2016 WAS DISMISSED BY THE ITA NOS.7370-71/M/2014 GUPTA GEM HOUSE PRIVATE LTD. ASSESSMENT YEARS-2003-04 & 2006-07 5 HONBLE COURT, FINDING NO MERITS IN THE CASE. FURTH ER, HONBLE BOMBAY HIGH COURT HAS FOLLOWED THE RATIO OF SAME JUDGMENT IN CIT VS. SHRI SAMSON PERINCHERY [ITA NO. 1154 OF 2014 ORDER DATED 05/01/2017] AND FURTHER TRIBUNAL, IN CATENA OF JUDGMENT AND MORE PA RTICULARLY IN WADHWA ESTATE & DEVELOPERS VS. ACIT [ITA N0. 2158/MUM/2016 DATED 24/02/2017] HAS TAKEN THE SAME VIEW FOLLOWING THE AFORESAID JUD GMENTS. THEREFORE, THE PENALTY, BEING DEVOID OF JURISDICTIO N, WAS LIABLE TO BE QUASHED. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE ON SECTION 292B TO CONTEND THAT MERE DEFECT IN THE NOTICE DO NOT VITIATES THE PENALTY PROCEEDINGS AND NO PREJUDICE WAS CAUSED TO THE ASSESSEE BY NON-STRIKING OFF OF RELEVANT WORDS. THE ASSESSEE VERY WELL KNEW THE GROUNDS FOR WHICH HE WAS BEING PENALIZED AND THE LD . AO WITH DUE APPLICATION OF MIND INITIATED PENALTY PROCEEDINGS I N QUANTUM ASSESSMENT AND LEVIED THE SAME AFTER PROVIDING AMPLE OPPORTUNI TY TO THE ASSESSEE TO CONTEST THE SAME. MOREOVER, THE ASSESSEE ACTIVELY C ONTESTED THE PENALTY PROCEEDINGS BEFORE AO AND THEREFORE, THE LEGAL GROU NDS, BEING ONLY HYPER-TECHNICAL IN NATURE, DO NOT CARRY MUCH WEIGHT. THE ASSESSEE TRIED TO CLAIM FICTITIOUS BUSINESS LOSS ON SALE MADE TO A SSOCIATED CONCERNS AND INCORRECT VALUATION OF STOCK AND THEREFORE, RIG HTLY SADDLED WITH THE IMPUGNED PENALTIES. RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN CIT VS. SMT. KAUSHALYA [216 ITR 660 14/01/1992] . 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD INCLUDING CITED CASE LAWS. SINCE LEGAL GROUNDS GOES TO THE ROOTS OF THE MATTER, WE TAKE UP THE SAME FIRST. A PERUSAL OF THE ITA NOS.7370-71/M/2014 GUPTA GEM HOUSE PRIVATE LTD. ASSESSMENT YEARS-2003-04 & 2006-07 6 QUANTUM ASSESSMENT ORDER REVEALS THAT THE PENALTY H AS BEEN INITIATED WITHOUT SPECIFYING THE LIMB I.E. FURNISHING OF INAC CURATE PARTICULARS OF INCOME / CONCEALMENT OF INCOME FOR WHICH THE PENALT Y WAS BEING INITIATED AS BOTH THE LIMBS, AS PER SETTLED LEGAL PROPOSITION S, ARE DIFFERENT CONNOTATIONS AND CARRY DIFFERENT MEANING. THE SAME ALSO BECOMES CLEAR FROM THE LANGUAGE OF SHOW-CAUSE NOTICE WHICH STATES THAT THE ASSESSEE HAVE CONCEALED THE PARTICULARS OF INCOME OR FURNISH ED INACCURATE PARTICULARS OF INCOME. EVEN THE SHOW-CAUSE NOTICE D ID NOT SPECIFY THE LIMB / OFFENCE FOR WHICH THE PENALTY WAS BEING INIT IATED. FINALLY, THE PENALTY HAS BEEN LEVIED FOR FILING OF INACCURATE PA RTICULARS OF INCOME LEADING TO CONCEALMENT OF INCOME WHICH SHOWS INCONS ISTENT THINKING ON THE PART OF AO. UNDISPUTEDLY, THE AO WAS REQUIRED T O SPECIFY THE EXACT CHARGE FOR WHICH THE ASSESSEE WAS BEING PENALIZED W HICH HE HAS FAILED TO DO SO AND THE SAME HAS RESULTED INTO TAKING AWAY ASSESSEES VALUABLE RIGHT OF CONTESTING THE SAME AND THEREBY VIOLATES T HE PRINCIPLES OF NATURAL JUSTICE. OUR VIEW IS FORTIFIED BY THE CITED JUDICIA L PRONOUNCEMENTS OF SUPERIOR COURT AND EVEN THE SLP FILED BY THE REVENU E IN CIT VS. SSAS EMERALD MEADOWS [SUPRA] HAS BEEN DISMISSED BY THE APEX COURT, BEING DEVOID OF ANY MERITS. EVEN IN THE CASE OF CIT VS. SMT. KAUSHALYA [SUPRA], THE HONBLE JURISDICTIONAL HIGH COURT OBSERVED THAT THE NOTICE ISSUED UNDER SECTION 274 MUST REVEAL APPLICATION OF MIND BY THE ASSESSING OFFICER AND THE ASSESSEE MUST BE AWARE OF THE EXACT CHARGE ON WHICH HE HAD TO FILE HIS EXPLANATION. IT WAS FUR THER OBSERVED THAT VAGUENESS AND AMBIGUITY IN THE NOTICE DEPRIVES THE ASSESSEE OF REASONABLE OPPORTUNITY TO CONTEST THE SAME. THEREFO RE, VIEWED IN THE LIGHT OF PRINCIPLES LAID DOWN IN THE JUDICIAL PRECE DENTS DISCUSSED ITA NOS.7370-71/M/2014 GUPTA GEM HOUSE PRIVATE LTD. ASSESSMENT YEARS-2003-04 & 2006-07 7 HEREINABOVE, WE ARE INCLINED TO CONCLUDE THAT THE P ENALTY PROCEEDINGS STOOD VITIATED FOR WANT OF PRINCIPLES OF NATURAL JU STICE AND HENCE LIABLE TO BE QUASHED. ACCORDINGLY, WE DELETE THE SAME AND ALL OW ASSESSEES APPEAL ON LEGAL GROUNDS. 8. SIMILARLY, IN ITA NO. 7370/M/2014 FOR AY 2006-07 , THE ASSESSEE HAS CONTESTED THE LEVY OF PENALTY OF RS.39,07,742/- ON SIMILAR LEGAL GROUNDS. IN THIS YEAR, THE ASSESSEE HAS BEEN SADDLE D WITH IMPUGNED PENALTY AGAINST DISALLOWANCE OF RS.1,16,09,454/- ON ACCOUNT OF BOGUS / INADMISSIBLE LOSS ON SALE OF CERTAIN MACHINERY. 9. SIMILAR CONTENTIONS AND SUBMISSIONS HAVE BEEN RA ISED BY THE RESPECTIVE REPRESENTATIVE. A PERUSAL OF QUANTUM ASS ESSMENT ORDER DATED 30/12/2008, SHOW-CAUSE NOTICE ISSUED U/S 274 DATED 30/12/2008 AND AOS PENALTY ORDER DATED 28/03/2012 REVEALS SIMILAR NON-APPLICATION OF MIND BY AO AS THE PENALTY HAS BEEN INITIATED IN THE QUANTUM ASSESSMENT FOR CONCEALMENT AND FURNISHING OF INACCU RATE PARTICULARS WHEREAS THE NOTICE U/S 274 DO NOT SPECIFY THE EXACT LIMB FOR WHICH THE PENALTY WAS BEING LEVIED AND FINALLY THE PENALTY HA S BEEN IMPOSED FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME LEAD ING TO CONCEALMENT OF INCOME. AS WE HAVE ALREADY DECIDED THE ISSUE IN FAV OR OF ASSESSEE ON LEGAL GROUNDS ON SIMILAR FACTS IN AY 2003-04, TAKIN G THE SAME STAND, WE DELETE THE IMPUGNED PENALTY AND ALLOW ASSESSEES AP PEAL. OUR FINDING / OBSERVATION / CONCLUSION IN AY 2003-04 STAND APPLY TO THIS AY MUTATIS MUTANDIS. 10. SINCE, WE HAVE QUASHED THE PENALTY PROCEEDINGS FOR BOTH YEARS ON LEGAL GROUNDS, WE SEE NO NECESSITY TO DELVE UPON TH E MATTER ON MERITS ANY FURTHER. ITA NOS.7370-71/M/2014 GUPTA GEM HOUSE PRIVATE LTD. ASSESSMENT YEARS-2003-04 & 2006-07 8 11. RESULTANTLY, BOTH THE APPEALS FILED BY ASSESSEE STANDS ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH MAY, 2017. SD/- SD/- (JOGINDER SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 17.05.2017 SR.PS:- THIRUMALESH / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. #$ ' / THE RESPONDENT 3. + ( ) / THE CIT(A) 4. + / CIT CONCERNED 5. #&- , - , / DR, ITAT, MUMBAI 6. ./ / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI