THE RUBY MILLS LIMITED,MUMBAI V. DCIT, CIRCLE - 8(3)(1), MUMBAI

ITA 3021/MUM/2025

AI Insights

The case involves The Ruby Mills Limited, which appealed against the penalty of Rs 34,61,587 levied by the Assessing Officer under section 271(1)(c) for the assessment year 2012-13. The penalty was based on the disallowance of a short-term capital loss claimed by the assessee, which was initially disallowed during the assessment and upheld on appeal by the CIT(A). The main contention of the assessee was that the show cause notice did not specify whether the penalty was for concealment of income or for furnishing inaccurate particulars, which is a requirement as per various judicial precedents. The CIT(A) upheld the penalty, but the Tribunal found that the absence of specific charges in the show cause notice invalidated the penalty.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 706174 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2012-2013
• Other Referred Cases: CIT vs. Manjunatha Cotton & Ginning Factory, Principal Commissioner of Income-tax vs. Gopal Kumar Goyal, Principal Commissioner of Income-tax vs. Jehangir H. C. Jehangir, Principal Commissioner of Income-tax vs. Unitech Reliable Projects (P.) Ltd., Commissioner of Income-tax - I, Mumbai vs. SomanyEvergree Knits Ltd, CIT vs. Reliance Petroproducts Pvt. Ltd., CIT vs. Dalmia Dyechem Industries, Md. Farhan A. Shaikh vs DCIT, PCIT vs Jehangir H.C. Jehangir, CIT vs. Zoom Communication (P) Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UMA SHANKAR PRASAD
• Assessee Lawyers: SIMRAN DHAWAN; RAVI GANATRA
• Keywords: Set aside; Revenue expenditure; Question of law; Depreciation; Principle of natural justice; Wrong claim
• Section: 271(1)(c)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI PRABHASH SHANKAR, ACCOUNTANT MEMBER ITA No. 3021/MUM/2025 (AY: 2012-13) (Physical hearing) The Ruby Mills Limited 11th Floor, Ruby House A, J.K. Sawant Marg, Dadar West, Mumbai – 400028. [PAN No. AAACT0220G] Vs DCIT, Circle – 8(3)(1), AayakarBhawan,Mumbai-400020. Appellant / Assessee Respondent / Revenue Assessee by Ms. Simran Dhawan & Ravi Ganatra Advocates Revenue by Shri Umashankar Prasad, CIT-DR Date of institution of appeal 30.04.2025 Date of hearing 26.06.2025 Date of pronouncement 30.06.2025 Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee is directed against the order of ld. CIT(A)/ NFAC dated 20.02.2025 for AY 2012-13. The assessee has following grounds of appeal: 1. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), NFAC erred in upholding and not cancelling the penalty of Rs 34,61,587/- levied by the Assessing Officer u/s 271(1)(c) of the Income Tax Act, 1961 on 20.01.2022, despite the fact that the appellant has neither furnished inaccurate particulars of its income nor concealed its particulars of income. 2. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), erred in confirming levy of penalty despite the fact that the Assessing Officer failed to arrive at satisfaction during the course of assessment proceedings whether the levy of penalty u/s 271(1)(c) was for furnishing inaccurate particulars of income or for concealment of income, which constitutes the basis and foundation of the proceedings for levy of penalty, thereby making the notice dated 30.03.2014 levying penalty u/s 274 r.w.s271 of the Income ITA No. 3021/Mum/2025 The Ruby Mills Limited 2 Tax Act, 1961 not in accordance with the provisions of law and without application of mind on the part of the assessing officer and penalty proceedings ought to be unstainable, illegal, invalid, bad-in-law, incorrect and in gross violation of principles of natural justice. 3. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), erred in confirming levy of penalty failing to consider that the notice levying penalty failed to specify as to the limb under which penalty is sought to be imposed. i.e. Assessing Officer while issuing notice has to comethe conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars disregarding the settled legal position including by Judgements of Hon'ble Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565/218 Taxman 423/35 taxmann.com 250, Hon'ble High Court of Delhi in the matter of Principal Commissioner of Income-tax v. Gopal Kumar Goyal [2023] 153 taxmann.com 534 (Delhi) and the Hon'ble High Court of Bombay in the matter of Principal Commissioner of Income-tax v. Jehangir H. C. Jehangir [2023] 155 taxmann.com 209 (Bombay). 4. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), erred in confirming levy of penalty disregarding the well settled position in law including by the judgement of Hon'ble Supreme Court of India in the matter of Principal Commissioner of Income-tax v. Unitech Reliable Projects (P.) Ltd. [2024] 166 taxmann.com 135 (SC)[14-08-2024] wherein the Tribunal, having found that notice issued under section 274 did not specify as to limb under which penalty was sought to be imposed, i.e., notice did not indicate as to whether penalty was to be levied on account of concealment of income or for reason that assessee had furnished inaccurate particulars quashed penalty proceedings and High Court, on appeal, concluded that no substantial question of law arose for consideration as it was necessary for the Assessing Officer to indicate broadly as to limb under which penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 against assessee were triggered, Special Leave Petition filed against the said order of High Court was dismissed. 5. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), erred in confirming levy of penalty, without appreciating the fact that the impugned addition made by the Assessing Officer was solely on the basis of the documents filed by the appellant during the course of assessment proceedings and that the appellant has not concealed any material facts to attract penalty u/s 271(1)(c) of the Income Tax Act, 1961 as the factual information was provided during the course of assessment proceedings. This fact is supported by legally settled position including by the Judgement of Hon'ble ITA No. 3021/Mum/2025 The Ruby Mills Limited 3 Calcutta High Court in the case of CIT v. Smifs Capital Markets Ltd [2023] 149 taxmann.com 376 wherein it was held that since all relevant facts material to computation of total income were duly furnished by assesseeno deficiency in furnishing of facts had been pointed out by Assessing Officer, deeming provision under section 271(1)(c) would not stand attracted and accordingly. penalty was to be deleted. 6. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), erred in confirming levy of penalty, while failing to consider that the mere making of an unsustainable claim, by itself, does not amount to the furnishing of incorrect particulars of income ignoring the settled legal position including by the Judgment of Hon'ble Supreme Court in the case of CIT vs. Reliance PetroproductsPvt. Ltd. 322 ITR 158 (SC) which held that where information given is not found to be incorrect, assessee cannot be held guilty of furnishing inaccurate particulars of income for the purpose of levying penalty u/s 271(1)(c). It further held that mere making a wrong claim does not amount to furnishing inaccurate particulars. 7. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax(Appeals), erred in confirming levy of penalty ignoring the settled legal position included by the judgment of Hon'ble Jurisdictional High Court in the case of Commissioner of Income-tax - I, Mumbai v. SomanyEvergree Knits Ltd [2013] IT Appeal No. 1332 of 2011(Bombay), wherein it was held that the assessee company had wrongly claimed excess depreciation and loss on sale of machine as revenue expenditure in return and during the assessment proceedings, assessee itself pointed out mistake, which was claimed to be bonafide and inadvertent, penalty levied u/s 271(1)(c) was to be deleted. 8. On the facts and in the circumstances of the appellant company's case and in law, the Ld. Commissioner of Income Tax (Appeals), erred in confirming levy of penalty, ignoring the fact that there was no mens rea or intention or deliberate attempt on the part of the appellant to furnish any inaccurate particulars or conceal any material fact to evade tax including the judgement of Jurisdictional High Court in case of CIT vs. DalmiaDyechem Industries in ITA No.1396/2013 wherein it was held that no penalty could be levied unless assessee's conduct is dishonest, malafide and amounts concealment of facts and the AO must render the conclusive finding that there was active concealment or deliberate furnishing of inaccurate particulars and there was no deliberate attempt on part of assessee to conceal income, penalty was not justified. 9. The appellant craves leave to add to, alter, amend, modify and/or delete all or any of the foregoing grounds of appeal.” ITA No. 3021/Mum/2025 The Ruby Mills Limited 4 2. We find that assessee has raised multiple grounds of appeal whichcontains narration of facts and various case laws. The grounds of appeal are not inconsonance with Income Tax (Appellate Tribunal) Rules, 1963. In our considered view, the substantial ground of appeal relates to validity of penalty levied under section 271(1)(c) of Income Tax Act. 3. Brief facts of the case are that assessee is a company engaged in business of spinning and weaving of cloth. The assessee filed its original return of income under section 139(1) on 30.09.2012 declaring income of Rs. 64.45 crore. The assessment was completed on 30.04.2014 under section 143(3). The assessing officer while passing the assessment order, besides other additions and disallowances also disallowed Short Term Capital Loss (STCL) on sale machinery of Rs. 1.06 crore. On appeal before ld. CIT(A) in quantum assessment, this disallowance was confirmed. No further appeal was filed by assessee against this disallowance. The assessing officer issued show cause notice under section 271(1)(c) read with section 274 dated 30.03.2014 for levying penalty. In response to such show cause notice, the assessee stated that their appeal is pending before ld. CIT(A). On dismissal of appeal in quantum assessment a fresh show cause notice dated 28.10.2021 was served upon the assessee through e-mail. The assessing officer levied penalty @ 100% of tax sought to be evaded on disallowance of short term capital loss. The assessing officer worked out penalty of Rs. 34,61,587/- in his order dated 20.01.2022. ITA No. 3021/Mum/2025 The Ruby Mills Limited 5 4. Aggrieved by the order of penalty levied under section 271(1)(c), the assessee filed appeal before ld. CIT(A). Before ld. CIT(A), the assessee filed detailed written submission. The assessee in its submission challenged the action of assessing officer on validity of levy of penalty of legal issue as well as on facts. The submission of assessee are recorded from page no. 4 to 20 of order of ld. CIT(A). The assessee in its submission submitted that in the show cause notice, the assessing officer has not specified / spelt out the grounds on which the penalty is sought to be imposed. In the show cause notice, it is mandatory for assessing officer to specifically specify as to whether penalty is being imposed on concealment of income or furnishing inaccurate particulars of income. The assessing officer has not strike out inappropriate charge in the show cause notice. Thus, show cause notice itself is not valid. To support their contention, the assessee relied on the decision of Karnataka High Court in CIT vs Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 / 35 taxmann.com 250; Bombay High Court in CIT Vs Samson Perincherry (ITXA-1154-2014); Ganga Iron & Steel Trading Co. vs CIT (2021) 135 taxmann.com 244 (Bombay); Mohd. Farhan A. Shaikh Vs DCIT (2021) 125 taxmann.com 253 (Bombay) and various other decisions of different bench of Tribunal and High Courts. On merit, the assessee stated that they have made a bona fide claim pertaining to short term capital loss on sale of machinery. The assessee has neither filed inaccurate particulars of income nor has concealed particulars of income. Rather, they furnished all details pertaining to sale of machinery in the return of income. It is on the authorities to ITA No. 3021/Mum/2025 The Ruby Mills Limited 6 accept the claim or to reject. Mere disallowance of such claim does not attract penalty under section 271(1)(c). Disallowance of losses does not per seis furnishing inaccurate particulars of income. Concealment involve penal action. Concealment has to be proved as conscious act. Inadvertent error on the part of appellant does not mean that the assessee is guilty of either furnishing inaccurate particulars of income or to conceal its income. No penalty is leviable on a debatable issue. The issue relating to disallowance of short-term capital loss is alsodebatable issue. To support such contention, the assessee relied upon the decision of Delhi High Court in CIT Vs Shervani Hospitalities Ltd. (2013) 261 CTR 449 (Del); Punjab & Haryana High Court in CIT Vs Rubber UdvoctVikasPrivate Ltd. 335 ITR 558 (P&H) and Supreme Court in CIT Vs Reliance PetroproductsPrivate Limited. 322 ITR 158 (SC). In other alternative submission, the assessee stated that when assessee furnished all details of expenditure as well as income in its return and merely such expenditure has not been accepted by revenue authority that itself will not attract penalty under section 271(1)(c). To support such view, the assessee also relied on various decisions of High Courts and different Tribunals. 5. The ld. CIT(A) after considering the submission of assessee recorded that assessee has not responded to the show cause notice issued by Assessing Officer. The case was referred for verification unit which served the notice on assessee by speed post. The assessee did not submit any reply. Such fact proves that all facts material to the computation of income were not disclosed by assessee. The ITA No. 3021/Mum/2025 The Ruby Mills Limited 7 explanation offered by the assessee was not convincing and acceptable, moreover, the appellant could not establish the explanation as bona fide. The ld. CIT(A) further, recorded that block of asset of machinery was not exhausted and hence question of claiming of loss does not arise. Thus, the amount of Rs. 1.06 crore was added. The ld. CIT(A) by referring the decision of Delhi High Court in CIT Vs Zoom Communication (P) Ltd. 327 ITR 510, wherein it was held that if assessee made a claim it is not only incorrect in law but without any basis and explanation furnished by him for making claim is not found to be bona fide. Explanation 1 to section 271(1)(c) would come into play and assessee is liable to penalty. The decision of Delhi High Courtin CIT Vs Zoom Communication (P) Ltd. (supra) is squarely applicable on the present case. The concealment not only mean non-reporting of any item of claim, it also means claiming wrongful deduction and reducing taxable income. The assessee falsely claimed deduction which amounts to concealment of particulars of income or deliberately inaccurate particulars of income. On the basis of aforesaid observation, the ld. CIT(A) upheld the action of assessing officer. Further, aggrieved the assessee has filed present appeal before Tribunal. 6. We have heard the submissions of learned Authorised Representative (ld. AR) of the assessee and the learned Senior Departmental Representative (ld. Sr. DR) for the revenue and have gone through the lower authorities carefully. The ld. AR of the assessee submits that assessing officer while passing the assessment order disallowed short term capital loss of Rs. 1.06 crore and initiated penalty under ITA No. 3021/Mum/2025 The Ruby Mills Limited 8 section 271(1)(c). While initiating penalty, the assessing officer has not recorded his satisfaction about initiation of penalty either for concealment of income or furnishing inaccurate particulars of income. The ld AR of the assessee carried us through the relevant para of assessment order, and would submits that no such satisfaction is recorded therein. The assessee furnished complete details including chart of depreciation in the tax audit report. The assessee filed appeal before ld. CIT(A) against such disallowance, however, it was confirmed. No further appeal was filed by assessee. The assessee has paid due tax on such disallowances. The assessing officer while issuing show cause notice under section 271(1)(c) r.w.s. 274 has not specified the specific charge in the said notice. Copy of show cause notice is filed at page no. 39 & 40 of the paper book. At the time of issuance of such notice, appeal of assessee was pending before ld. CIT(A) so the assessee made request to keep the penalty proceeding in abeyance. The assessing officer levied penalty @ 100% of tax sought to be evaded in his order dated 20.01.2022. The ld. CIT(A) while deciding appeal has referred certain facts which are not related with the facts of assessee. The ld. CIT(A) while confirming the penalty invoked Explanation 1 to section 271(1)(c). No such explanation was invoked by assessing officer either at the time of passing assessment order or issuing show cause notice. The show cause notice itself is defective, therefore, entire proceeding initiated on such show cause notice is void ab initio. The ld. AR of the assessee submits that in a series of decision, various High Courts including jurisdictional High Court in its full bench decision has held that wherein the ITA No. 3021/Mum/2025 The Ruby Mills Limited 9 assessing officer while issuing show cause notice without non-application of mind in not strike out inappropriate limb of charge whether it is for concealment of income or furnishing inaccurate particulars, penalty order is liable to set aside. The Mumbai Bench in a recent decision in Ramji Harakchand Shah Vs ACIT in ITA No. 5362/M/2024 dated 28.02.2025 also held that without specifying charge neither penalty can be levied nor can it be sustained. 7. In support of his submission, the ld. AR relied upon 16 decisions of different High Courts and Tribunal. However, at the time of making submission, she mainly relied upon the following decision:  Md. Farhan A. Shaikh vs DCIT (2021) 125 taxmann.com 253 (Bombay) (Full Bench);  PCIT vs Jehangir H.C. Jehangir (2023) 155 taxmann.com 209 (Bombay);  CIT vs SomanyEvergree Knits Ltd. (2013) IT Appeal No. 1332 of 2011 (Bombay);  Ganga Iron & Steel Trading Co. vs CIT (2022) 135 taxmann.com 244 (Bombay);  CIT vs Samson Perincherry (ITXA-1154-2014). 8. In alternative submission, the ld. AR of the assessee submits that while filing return of income, the assessee has disclosed all facts necessary for assessment.There is no concealment of any particular or furnishing inaccurate particulars thereof. The assessee made a bona fide claim of short term capital loss which was not accepted by assessing officer. Mere, the claim of assessee was not accepted which does not tantamount to furnishing inaccurate particulars of income. A mere making of claim which is not sustainable in law or debatable, by itself will not amount to furnishing inaccurate particulars regarding the income of assesse. The claim made in return cannot amounts to inaccurate particulars as ITA No. 3021/Mum/2025 The Ruby Mills Limited 10 has been held by Hon’ble Apex Court in CIT Vs Reliance PetroproductsPvt. Ltd. 322 ITR 158. The Bombay High Court in CIT Vs DalmiaDyechem Industries Ltd. (2015) 61 taxmann.com 200 (Bombay) also held that where the assessee claimed deduction in respect of borrowed funds which was diverted to sister concern and not for business and the assessee bona fide claimed its deduction was covered by a particular provision of law, penalty could not be levied. 9. On the other hand, learned Senior Departmental Representative (ld. Sr. DR) for the revenue supported the order of lower authorities. The ld. Sr. DR for the revenue submits that assessee made an incorrect claim which was disallowed by assessing officer and on appeal it was upheld, thus, a good case for levying penalty. The ld. CIT(A) while confirming the action of assessing officer relied on the decision of Zoom Communication (P) Ltd. (supra) which is directly applicable on the facts of this case. 10. We have considered the rival submissions of both the parties and have gone through the orders of lower authorities carefully. There is no dispute that while passing the assessment order, the assessing officer disallowed short term capital loss. The assessing officer while passing the assessment order made such disallowance on the basis of details furnished by assessee. The assessing officer initiated penalty without recording his satisfaction whether the assessee concealed and the income or furnished any incorrect particular. It is an admitted fact that addition/disallowance on first appeal was upheld. It is settled position in law that penalty proceeding are separate and independent. No doubt penalty is ITA No. 3021/Mum/2025 The Ruby Mills Limited 11 initiated on the basis of certain additions or disallowances made in the assessment. Further, it is also settled position in the law that mere disallowance of any claim per se would not lead to levy of penalty. The language of section 271(1)(c) also suggest that penalty may be initiated on the satisfaction of assessing officer or Joint Commissioner or Commissioner (Appeal) or Principal Commissioner of Income Tax during the course of any proceeding. Thus, penalty proceedings mustbase on satisfaction of Income Tax Authority. The satisfaction must be recorded with cogent reasons as it is based on discretion of such authorities. Adverting to the facts of present case, we find that no specific charge was indicated in the show cause notice under section 271(1) rws 274 by assessing officer. Hence, we find convincing force in the submission of ld AR of the assessee. 11. We find that co-ordinate bench of Tribunal as well as different High Courts has held that assessing officer while initiating or levying penalty of a specific limb must specify the charge. Similarly, Hon’ble Apex Court in PCIT Vs Reliance PetroproductsPrivate Ltd. (supra) also held that mere making a claim which is not sustainable in law, by itself will not amount to furnishing inaccurate particulars regarding income of assessee. We find that during the penalty proceeding, the assessing officer recorded that assessee has not replied to the show cause notice. However, before ld. CIT(A), the assessee has filed a very detailed written submission as recorded at page no. 3 to 20 of impugned order. None of the submission is dealt with by ld. CIT(A). The ld. CIT(A) proceeded on different ITA No. 3021/Mum/2025 The Ruby Mills Limited 12 footing of deemed concealment by invoking Explanation 1 of section 271(1)(c). The background of the present case clearly suggest that it is not a case of deemed concealment rather disallowance of a claim which may be at the worst considered as incorrect claim on which the assessee has paid due tax if any. We find that Hon’ble Jurisdictional High Court in CIT Vs DalmiaDyechem Industries Ltd. (supra) also held that when assessee claimed deduction in respect of borrowed funds which were diverted to sister concern and not for business and the assessee bona fide and claimed that its deduction was covered by a particular provision of law, penalty could not be levied. Thus, in view of the aforesaid factual and legal discussion, we are of the considered view that mere disallowance of long-term capital loss will not attract the penalty under section 271(1)(c). 12. The case law relied by ld. CIT(A) in Zoom Communication (P) Ltd. (supra) is not applicable on the facts of the present case. In the said case, the assessee has conceded before assessing officer that deduction was not correct at all. In the result, the substantial ground of appeal is allowed. 13. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 30/06/2025 S/- S Sd/- PRABHASH SHANKAR ACCOUNTANT MEMBER - /-S/- Sd/- S PAWAN SINGH JUDICIAL MEMBER MUMBAI, Dated: 30/06/2025 Biswajit ITA No. 3021/Mum/2025 The Ruby Mills Limited 13 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. By order Assistant Registrar ITAT, Mumbai "