M/s Vardhman Polytex Ltd., Chandigarh V. ACIT, Chandigarh

ITA 896/CHANDI/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9823 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2004-2005
• Appeal Filed On: 11-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Depreciation; Principle of natural justice; Question of law; Initiation of penalty proceedings
• Section: 80HHC; 80IB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI GEORGE GEORGE K. JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.896 /CHD/2015 (ASSESSMENT YEAR: 2004-05) M/S VARDHMAN POLYTEX LTD., VS. THE A.C.I.T., CHANDIGARH ROAD, LUDHIANA. CIRCLE-1, LUDHIANA. LUDHIANA. PAN NO. AAACV5821H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUBHASH AGGARWAL RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 28.06.2016 DATE OF PRONOUNCEMENT : 01.07.2016 O R D E R PER GEORGE GEORGE K., J.M . : THIS APPEAL AT THE INSTANCE OF THE ASSESS EE IS DIRECTED AGAINST THE ORDER OF THE PR. COMMISSIONER OF INCOME TAX (APPEALS)-I, LUDHIANA DATED 28.9.2015. T HE RELEVANT ASSESSMENT YEAR IS 2004-05. 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS FOLL OWS : 1. THAT THE LEARNED CIT(A)-1 HAS ERRED IN CONFIRMI NG THE LEVY OF PENALTY UNDER SECTION 271(1)(C) ON THE FOLLOWING DISALLOWANCES:- 2 I) DEPRECIATION ON CAR II) CLAIM OF DEPB AND RENT RECEIVED FROM EMPLOYEES FO R COMPUTING DEDUCTION U/S 80IB. III) FOREIGN TRAVELLING EXPENSES. 2. THAT IT HAS BEEN IGNORED THAT SUFFICIENT EVIDENCE WA S FILED BEFORE THE CLT(A) THAT NO PENAL PROVISIONS ARE CALLED FOR ON AFORESAID DISALLOWANCES. 3. THAT IN ANY CASE CONFIRMATION OF PENALTY IS AGAI NST THE LAW AND FACTS OF THE CASE. 4. THAT THE APPELLANT CRAVES LEAVE FOR PERMISSION T O ADD, AMEND OR ALTER ANY GROUND OF APPEAL AT THE TIME OF H EARING. 3. THE FACTS, IN BRIEF, ARE AS FOLLOWS : THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF COTTON, ACRYLIC AND BL ENDED YARN. FOR THE ASSESSMENT YEAR 2004-05, RETURN OF I NCOME WAS FILED ON 1.11.2004 DECLARING AN INCOME OF RS.3,70,11,050/-. THE ASSESSMENT UNDER SECTION 143( 3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) WAS C OMPLETED VIDE ORDER DATED 28.12.2006 FIXING THE TOTAL INCOME AT RS.4,51,84,100/-. THE PENALTY PROCEEDINGS WERE INI TIATED ON THE FOLLOWING ADDITIONS/DISALLOWANCES : I) REDUCTION OF DEDUCTION U/S 80HHC ON ACCOUNT OF EXCLUSION OF SCRAP SALES FROM TURNOVER AND THE PROFITS OF THE BUSINESS. II) ADDITION ON ACCOUNT OF REDUCTION OF DEDUCTION A LLOWED U/S 80IB ON ACCOUNT OF NON-INCLUSION OF THE FOLLOWING I NCOMES IN PROFITS ELIGIBLE FOR DEDUCTION. (A) DEPB BENEFIT - RS.98,606/- 3 (B) RENT - RS. 1,56,133/- III) DISALLOWANCE OF FOREIGN TRAVELING EXPENSES AMOUNTING TO RS.22,96,223/-. IV) DEPRECIATION ON CAR DISALLOWED AMOUNTING TO RS. 6,29,000/-. 4. THE ASSESSEE HAD FILED DETAILED REPLY VIDE ITS LETTER DATED 18.3.2010. THE OBJECTION RAISED AGAINST THE IMPOSITION OF PENALTY WAS REJECTED BY THE ASSESSING OFFICER AND PENALTY AMOUNTING TO RS.8,77,361/- WAS IMPOSED UNDER SECTION 271(1)(C) OF THE ACT. 5. AGGRIEVED BY THE IMPOSITION OF PENALTY, THE ASSESSEE PREFERRED AN APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT (APPEALS) PARTLY ALLOWED THE AP PEAL OF THE ASSESSEE. THE CIT (APPEALS) DIRECTED THE ASSES SING OFFICER NOT TO IMPOSE PENALTY ON REDUCTION OF DEDUC TION UNDER SECTION 80HHC OF THE ACT, ON ACCOUNT OF EXCLU SION OF SCRAP SALE FROM TURNOVER AND PROFITS FROM THE BUSIN ESS. THE CIT (APPEALS) HELD THE ISSUE BEING DEBATABLE IN NAT URE, THE PENALTY ON THIS ADDITION CANNOT BE SUSTAINED. WITH REGARD TO OTHER ADDITIONS/DISALLOWANCES, THE PENALTY ON TH E SAME WAS SUSTAINED BY THE CIT (APPEALS). 6. AGGRIEVED BY THE ORDER OF THE CIT (APPEALS), TH E ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LEA RNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITT ED THAT THE NOTICE ISSUED FOR INITIATING THE PENALTY PROCEE DINGS SUFFERS FROM INCURABLE DEFECT. IT WAS SUBMITTED TH AT NOTICE ISSUED UNDER SECTION 274 OF THE ACT, DOES NOT CLEAR LY SPECIFY 4 AS TO WHETHER THE ASSESSEE IS GUILTY OF CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS OF INCOME. THE ASSESSEE HAS PRODUCED COPY OF NOTIC E ISSUED UNDER SECTION 274 R.W.S. SECTION 271(1)(C) OF THE A CT, (REFER PAGE 6 OF THE PAPER BOOK FILED BY THE ASSESSEE). F OR THE ABOVE PROPOSITION, THE ASSESSEE HAD RELIED ON THE F OLLOWING JUDICIAL PRONOUNCEMENTS : I) CIT VS. MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565 (KARNATAKA) II) SANJAY VOHRA VS. ITO IN ITA NO.228 TO 224(ASR)/2014 DATED 30.5.2014 7. ON MERITS, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT MERE MISTAKE IN MAKING A CLAIM OF DE DUCTION WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF, WILL NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE ASSESSEE FOR THE ABOVE CONTENTION RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIA NCE PETROPRODUCTS (2010) 322 ITR 158 (SC). 8. ON THE OTHER HAND, THE LEARNED D.R. SUBMITTED THAT LEVY OF PENALTY WAS FOR FURNISHING INACCURATE PARTICULARS OF INCOME. ACCORDING TO THE LEARNED D .R., THE VAGUENESS OF NOTICE COULD NOT BE CONSIDERED AS A RE ASON FOR ANNULLING THE LEVY OF PENALTY WHEN THE ASSESSMENT O RDER WAS CLEAR THAT FOR WHAT REASON PENALTY PROCEEDINGS WERE BEING INITIATED. IT WAS FURTHER SUBMITTED BY THE LEARNE D D.R. THAT THE VALIDITY OR DEFECT IN NOTICE ISSUED UNDER SECTI ON 274 OF THE ACT, WAS NEVER SUBJECT MATTER OF ADJUDICATION B EFORE THE LOWER AUTHORITIES, NOR ANY GROUNDS RAISED BEFORE TH E 5 TRIBUNAL. 9. IN THE REJOINDER, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE VALIDITY OF NOTICE ISSU ED UNDER SECTION 274 OF THE ACT BEING THE PURELY A LEGAL ISS UE, WHICH DOES NOT REQUIRE THE INVESTIGATION OF NEW FACTS MAY BE CONSIDERED BY THE TRIBUNAL EVEN THOUGH THE SAME WAS NOT RAISED BEFORE THE LOWER AUTHORITIES. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. AT VERY OUTSET, WE WOULD LIKE TO STATE THAT THE LEARNED D.R. HAD CONTENDED THAT THE ISSUE OF VALIDITY OF NOTICES WAS NEVER IN DISPUTE B EFORE THE LOWER AUTHORITIES AND THE SAME WAS NOT RAISED IN TH E GROUNDS OF APPEAL FILED BEFORE THE TRIBUNAL. THIS CONTENTION OF THE LEARNED D.R. IS DEVOID OF ANY MERITS. ON CA REFUL APPRECIATION OF THE ISSUE RAISED BY THE LEARNED COU NSEL FOR THE ASSESSEE, WE FIND THAT THE ISSUE OF VALIDITY OF NOTICE WOULD GET COVERED IN GROUND NO.3 RAISED BEFORE THE TRIBUNAL. AS REGARDS THE SAID ISSUE WAS NOT IN DISPUTE BEFORE THE LOWER AUTHORITIES, WE ARE OF THE VIEW THAT THE VALI DITY OF NOTICE ISSUED UNDER SECTION 274 OF THE ACT, BEING A PURE QUESTION OF LAW WHICH GOES TO THE VERY ROOT OF VALI DITY OF INITIATION OF PENALTY PROCEEDINGS UNDER SECTION 271 (1)(C) OF THE ACT AND DOES NOT INVOLVE INVESTIGATION OF ANY N EW FACTS OTHER THAN ON THE RECORDS OF THE DEPARTMENT, THE SA ID ISSUE HAS TO BE CONSIDERED BY THE TRIBUNAL. ACCORDINGLY, WE PROCEED TO DISPOSE OF THE LEGAL ISSUE NAMELY WHETHE R NOTICE ISSUED UNDER SECTION 274 OF THE ACT, IS INVALID NOT ICE AND 6 PENALTY UNDER SECTION 271(1)(C) OF THE ACT IS TO BE QUASHED. 11. IN THE LAST PAGE OF THE ASSESSMENT ORDER IT IS CLEARLY MENTIONED THAT THE PENALTY PROCEEDINGS UNDE R SECTION 271(1)(C) OF THE ACT ARE INITIATED FOR FURN ISHING INACCURATE PARTICULARS. NOTICE UNDER SECTION 274 R .W.S. 271(1)(C) OF THE ACT, WAS ISSUED ON 28.12.2006. IN THE ABOVE-SAID NOTICE, THE ASSESSING OFFICER HAD TICKED THE FIRST LIMB, NAMELY HAVE CONCEALED PARTICULARS YOUR INCOME . THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MANJUN ATHA COTTON AND GINNING FACTORY (SUPRA) HAVE HELD THAT I N THE ABSENCE OF SPECIFYING THE GROUND ON WHICH THE PENAL TY IS SOUGHT TO BE LEVIED, THE ENTIRE PROCEEDINGS IMPOSIN G THE PENALTY HAVE TO BE HELD TO BE INVALID. THE RELEVAN T FINDING OF THE HON'BLE HIGH COURT IN THE CASE OF MANJUNATH A COTTON AND GINNING FACTORY (SUPRA) READ AS FOLLOWS : 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDING S CAN BE INITIATED ON VARIOUS GROUND SET OUT THEREIN. IF THE OR DER PASSED BY THE AUTHORITY CATEGORICALLY RECORDS A FIND ING REGARDING THE EXISTENCE OF ANY SAID GROUNDS MENTION ED THEREIN AND THEN PENALTY PROCEEDINGS IS INITIATED, IN THE NOTICE TO BE ISSUED UNDER SECTION 274, THEY COULD CONVENIENTLY REFER TO THE SAID ORDER WHICH CONTAINS THE SATISFACTION OF THE AUTHORITY WHICH HAS PASSED THE O RDER. HOWEVER, IF THE EXISTENCE OF THE CONDITIONS COULD NOT BE DISCERNED FROM THE SAID ORDER AND IF IT IS A CASE O F RELYING ON DEEMING PROVISION CONTAINED IN EXPLANATION-1 OR IN EXPLANATION-1(B), THEN THOUGH PENALTY PROCEEDINGS ARE IN THE NATURE OF CIVIL LIABILITY, IN FACT, IT IS PENAL IN NAT URE. IN EITHER EVENT, THE PERSON WHO IS ACCUSED OF THE COND ITIONS MENTIONED IN SECTION 271 SHOULD BE MADE KNOWN ABOUT THE GROUNDS ON WHICH THEY INTEND IMPOSING PENALTY ON HIM 7 AS THE SECTION 274 MAKES IT CLEAR THAT ASSESSEE HAS A RIGHT TO CONTEST SUCH PROCEEDINGS AND SHOULD HAVE FU LL OPPORTUNITY TO MEET THE CASE OF THE DEPARTMENT AND S HOW THAT THE CONDITIONS STIPULATED IN SECTION 271(1)(C) DO NOT EXIST AS SUCH HE IS NOT LIABLE TO PAY PENALTY. THE PRA CTICE OF THE DEPARTMENT SENDING A PRINTED FORM WHERE ALL TH E GROUND MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIREMENT OF LAW WHEN THE CONSEQUENCES OF THE ASSESSEE NOT REBUTTING THE INITIAL PRESUMPTION IS SERIO US IN NATURE AND HE HAD TO PAY PENALTY FROM 100% TO 300% OF THE TAX LIABILITY. AS THE SAID PROVISIONS HAVE TO BE H ELD TO BE STRICTLY CONSTRUED, NOTICE ISSUED UNDER SECTION 2 74 SHOULD SATISFY THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE I S OFFENDED IF THE SHOW CAUSE NOTICE IS VAGUE. ON THE B ASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON THE ASSESSEE. 60. CLAUSE (C) DEALS WITH TWO SPECIFIC OFFENCES, THAT I S TO SAY, CONCEALING PARTICULARS OF INCOME OR FURNISHING INAC CURATE PARTICULARS OF INCOME. NO DOUBT, THE FACTS OF SOME CA SES MAY ATTRACT BOTH THE OFFENCES AND IN SOME CASES THE RE MAY BE OVERLAPPING OF THE TWO OFFENCES BUT IN SUCH CASES THE INITIATION OF THE PENALTY PROCEEDINGS ALSO MUST BE FOR BOTH THE OFFENCES. BUT DRAWING UP PENALTY PROCEEDING S 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 THE EXISTENCE OF THE GROUNDS MENTIO NED IN SECTION 271(L)(C) WHEN IT IS A SINE QUA NON FOR INITIAT ION OR PROCEEDINGS, THE PENALTY PROCEEDINGS SHOULD BE CONFIN ED ONLY TO THOSE GROUNDS AND THE SAID GROUNDS HAVE TO B E SPECIFICALLY STATED SO THAT THE ASSESSEE WOULD HAVE T HE OPPORTUNITY TO MEET THOSE GROUNDS. AFTER, HE PLACES HI S VERSION AND TRIES TO SUBSTANTIATE HIS CLAIM, IF AT ALL, PENALTY IS TO BE IMPOSED, IT SHOULD BE IMPOSED ONLY ON T HE GROUNDS ON WHICH HE IS CALLED UPON TO ANSWER. IT IS NOT 8 OPEN TO THE AUTHORITY, AT THE TIME OF IMPOSING PENALTY TO IMPOSE PENALTY ON THE GROUNDS OTHER THAN WHAT ASSESS EE WAS CALLED UPON TO MEET. OTHERWISE THOUGH THE INITIATION OF PENALTY PROCEEDINGS MAY BE VALID AND LEGAL, THE FIN AL ORDER IMPOSING PENALTY WOULD OFFEND PRINCIPLES OF NATU RAL JUSTICE AND CANNOT BE SUSTAINED. THUS ONCE THE PROCEEDINGS ARE INITIATED ON ONE GROUND, THE PENALTY 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 T HE HANDS OF THE AUTHORITY IMPOSING THE PENALTY AT THE TIME THE ORDER WAS PASSED AND FURTHER DISCOVERY OF FACTS SUBSEQUENT TO THE IMPOSITION OF PENALTY CANNOT VALIDA TE 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 THERE IS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF T OTAL INCOME UNDER CLAUSE (C). CONCEALMENT, FURNISHING INACCURATE PARTICULARS OF INCOME ARE DIFFERENT. THUS THE ASSESSING OFFICER WHILE ISSUING NOTICE HAS TO COME T O THE CONCLUSION THAT WHETHER IS IT A CASE OF CONCEALMENT O F INCOME OR IS IT A CASE OF FURNISHING OF INACCURATE PARTICULARS. THE APEX COURT IN THE CASE OF ASHOK PAL REPORTED IN (2007) 292 ITR 11 (C) 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 MANU ENGINEERING REPORTED IN 122 ITR 306 AND THE DELHI HIGH COURT IN THE CASE OF VIRGO MARKETING REPORTED IN 171 TAXMANN 156, HAS HELD THAT LEVY OF PENALTY HAS TO BE CLEAR AS TO T HE LIMB FOR WHICH IT IS LEVIED AND THE POSITION BEING UNCLEAR 9 PENALTY IS NOT SUSTAINABLE. THEREFORE, WHEN THE ASSESSI NG OFFICER PROPOSES TO INVOKE THE FIRST LIMB BEING CONC EALMENT, THEN THE NOTICE HAS TO BE APPROPRIATELY MARKED. SIMILA R IS THE CASE FOR FURNISHING INACCURATE PARTICULARS OF IN COME. THE STANDARD PROFORMA WITHOUT STRIKING OF THE RELEVAN T CLAUSES WILL LEAD TO AN INFERENCE AS TO NON-APPLICATI ON OF MIND . (UNDERLINE SUPPLIED BY US) 12. IN VIEW OF THE ABOVE JUDGMENT OF THE HON'BLE H IGH COURT IN THE CASE OF MANJUNATHA COTTON AND GINNING FACTORY (SUPRA), IT IS A CLEAR NOTICE UNDER SECTION 274 OF THE ACT HAS TO APPROPRIATELY MARK. IN THE INSTANT CAS E, SINCE THE ASSESSING OFFICER HAD PROPOSED IN THE ASSESSMEN T ORDER TO INVOKE THE SECOND LIMB BEING FURNISHING OF INACCURATE PARTICULARS OF INCOME , THE NOTICE UNDER SECTION 274 OF THE ACT, OUGHT TO HAVE BEEN APPROPRIATELY MARKED. ON P ERUSAL OF THE NOTICE UNDER SECTION 274 OF THE ACT, THE ASS ESSING OFFICER HAS TICKED THE FIRST LIMB NAMELY HAVE CONCEALED PARTICULARS OF INCOME . THE LEARNED D.R. IN THE COURSE OF SUBMISSIONS, HAD CONTENDED THAT THE ORIGINAL NOTICE ISSUED UNDER SECTION 274 OF THE ACT HAS TO BE PERUSED. SI NCE IT IS ONLY A PHOTOCOPY OF THE NOTICE, WHICH HAS BEEN PLAC ED ON RECORD, THE LEARNED D.R. HAD PLEADED FOR REMANDING THE CASE TO THE CIT (APPEALS) FOR DE-NOVO CONSIDERATION. T HE LEARNED COUNSEL FOR THE ASSESSEE HAD ALSO AGREED TO THE ABO VE SUBMISSIONS OF THE LEARNED D.R. IN VIEW OF THE SUBMISSIONS MADE BY BOTH THE PARTIES, WE ARE OF THE VIEW THAT LEGAL ISSUE WITH REGARD TO THE VALIDITY OF ISS UANCE OF NOTICE UNDER SECTION 274 OF THE ACT, WHICH WAS NOT A SUBJECT 10 MATTER OF ADJUDICATION BEFORE THE LOWER AUTHORITIES , NEEDS FRESH CONSIDERATION IN THE LIGHT OF THE JUDGMENT OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MANJUN ATHA COTTON AND GINNING FACTORY (SUPRA). ACCORDINGLY, W E RESTORE THE MATTER TO THE CIT (APPEALS) FOR FRESH CONSIDERATION. SINCE THE LEGAL ISSUE HAS BEEN REST ORED TO THE CIT (APPEALS), THE ISSUE WITH REGARD TO THE MER ITS WHETHER THE PENALTY CAN BE IMPOSED ON VARIOUS ADDITIONS/DISALLOWANCES, ALSO NEEDS TO BE CONSIDERE D AFRESH BY THE CIT (APPEALS). IT IS ORDERED ACCORDINGLY. 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF JULY, 2016 SD/- SD/- (ANNAPURNA GUPTA) (GEORGE GEORGE K.) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 ST JULY, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH