Income Tax Appellate Tribunal - Delhi
Lodhi Property Company Ltd., New Delhi vs Acit, New Delhi on 28 February, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'E' : NEW DELHI)
BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER
and
DR. M.L. MEENA, ACCOUNTANT MEMBER
ITA No.1232/Del./2016
(ASSESSMENT YEAR : 2003-04)
M/s. Lodhi Property Company Ltd., vs. ACIT, Circle 15 (2),
The Lodhi, Lodhi Road, New Delhi.
New Delhi - 110 003.
(PAN : AABCH0299N)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri R.S. Singhvi, CA
Shri Satyajeet Goel, CA
REVENUE BY : Ms. Rinku Singh, Senior DR
Date of Hearing : 05.02.2019
Date of Order : 28.02.2019
ORDER
PER KULDIP SINGH, JUDICIAL MEMBER :
The Appellant, M/s. Lodhi Property Company Ltd. (hereinafter referred to as the 'assessee') by filing the present appeal sought to set aside the impugned order dated 20.01.2016 passed by the Commissioner of Income-tax (Appeals)-5, Delhi qua the assessment year 2003-04 on the grounds inter alia that :-
"1. That on the facts and in the circumstances of the case, the Ld. CIT(A)-V, Delhi erred in law in upholding the order of ACIT, Circle 15(2), New Delhi, in imposing the penalty on an 2 ITA No.1232/Del./2016 addition of Rs.71,59,700 under Section 271(1)(c) of the Act, 1961.
2. That the penalty has been imposed without recording proper satisfaction and specific charge as to whether the penalty is for concealment of income or furnishing of inaccurate particulars.
3. That, even otherwise, Ld. CIT(A)-V, Delhi while upholding the penalty on an addition of Rs.71,59,700, failed to consider & appreciate that there was no concealment of income or furnishing of inaccurate particulars of such income by the appellant.
4. That Order dated 20.01.2016 passed by the CIT(A)-V, Delhi u/s 250(6) of the Income Tax Act, 1961 is not sustainable on facts and under the law."
2. Briefly stated the facts necessary for adjudication of the controversy at hand are : On the basis of completed assessment under section 143(3)/254 of the Income-tax Act, 1961 (for short 'the Act') at a loss of Rs.2,73,42,735/- by making disallowance of Rs.1,34,56,177/- claimed by the assessee under the head "professional and legal charges" by treating the same as capital expenditure, initiated the penalty proceedings by way of issuance of notice under section 274 r/w section 271 of the Act. Declining the contentions raised by the assessee that it is not a case of concealment of particulars of income or furnishing of inaccurate particulars of income attracting penalty under section 271(1)(c) of the Act, AO reached the conclusion that the assessee has furnished inaccurate particulars of income and concealment of income and 3 ITA No.1232/Del./2016 thereby levied the penalty of Rs.45,36,743/- @ 100% of the tax on income sought to be evaded under section 271(1)(c) of the Act.
3. Assessee carried the matter by way of an appeal before the ld. CIT (A) who has confirmed the penalty by dismissing the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
4. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
5. Undisputedly, AO has initially made disallowance of Rs.1,34,56,177/- claimed as expenditure by the assessee under the head "legal, professional and consultancy charges", which amount has been restricted by ld. CIT (A) in appeal to Rs.71,59,700/-. It is also not in dispute that AO made disallowance by treating the same as capital expenditure held to have been incurred for acquisition of new source of income, an advantage of enduring nature and towards acquisition of Lodhi Hotel. It is also not in dispute that it is a case of loss making company throughout.
6. In the backdrop of the aforesaid undisputed facts & circumstances of the case, order passed by the lower revenue authorities and arguments addressed by the Ld. Authorized 4 ITA No.1232/Del./2016 Representatives of the parties to the appeal, the sole question arises for determination in this case is:-
"As to whether the assessee has concealed particulars of income or has furnished inaccurate particulars of such income during assessment proceedings?"
7. Ld. AR for the assessee challenging the impugned order contended inter alia that AO in order to initiate the penalty proceedings has prima facie failed to satisfy himself that as to whether the assessee has concealed the particulars of income or have furnished inaccurate particulars of income in the assessment order as well as in the show cause notice issued under section 271(1)(c) / 274 of the Act and relied upon the decision of Hon'ble Karnataka High Court in case of CIT vs. Manjunatha Cotton and Ginning Factory-359ITR 565 and CIT vs. SSA's Emerala Meadows -73 taxmann.com 241 (kar.) (Revenue's SLP dismissed in 242 taxman 180).
8. Ld. AR for the assessee further contended that since in the assessment order AO himself stated that these are the capital expenses, there is no question of furnishing of inaccurate particulars or concealment of particulars of income, as the case may be, and relied upon the judgment of CIT vs. Reliance Petro Products Pvt. Ltd. 322 ITR 158 (S.C.).
5 ITA No.1232/Del./2016
9. In order to proceed further, we would like to peruse the notice issued by AO u/s 274 read with section 271(1)(c) of the Act to initiate the penalty proceedings which is extracted as under for ready perusal:-
"NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE INCOME TAX ACT, 1961.
Income tax Office New Delhi.
Dated: 8.12.010 To, M/s Lodhi Property Co. Ltd.
Formerly known as Hotel Scope Vista Ltd., Whereas in the course of proceedings before me for the assessment year 2003-04 it appears to me that you:-
• Have without reasonable cause failed to comply with a notice under section 142(1)/143(2) of the Income Tax Act, 1961 dated.........
• Have concealed the particulars of your income or furnished inaccurate particulars of such income in terms of explanation 1, 2,3,4 and 5.
You are hereby requested to appear before me at 11.00 AM/PM on 8.2.2011 and show cause why an order imposing a penalty on you should not be made under section 271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representatives you may show cause in writing on or before the said date which will be considered before any such order is made under section 271(1)(c).
Sd/-
(NIKHIL VARMA) Deputy Commissioner of Income Tax Circle 4 (1), New Delhi.
Delete inappropriate words and paragraphs."
10. Bare perusal of the notice issued u/s 274 read with section 6 ITA No.1232/Del./2016 271(1)(c) of the Act in order to initiate penalty proceedings against the assessee goes to prove that the AO himself was not aware as to whether he is issuing notice to initiate the penalty proceedings either for "concealment of particulars of income" or "furnishing of inaccurate particulars of such income" by the assessee rather issued vague and ambiguous notice by incorporating both the limbs of section 271(1)(c). When the charge is to be framed against any person so as to move the penal provisions against him, he/she should be specifically made aware of the charges to be leveled against him/her.
11. Hon'ble High Court of Karnataka in case of CIT vs. Manjunatha Cotton and Ginning Factory (supra) while deciding the identical issue held that when the AO has failed to issue a specific show-cause notice to the assessee as required u/s 274 read with section 271(l)(c), penalty levied is not sustainable. The operative part of the judgment is reproduced as under:-
"59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned 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 order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of 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 nature. In either event, the person who is accused of the conditions mentioned in Section 271 7 ITA No.1232/Del./2016 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271 (1)( c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the 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 serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there 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 proceedings for one offence and finding the assessee guilty of another 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 mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural 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 the 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 validate the order of penalty which, when passed, was not sustainable.8 ITA No.1232/Del./2016
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 total income under clause
(c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars.
The Apex Court in the case of T Ashok Poi v. CIT [2007] 292 ITR 11 /161 Taxman 340 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 CIT v. Manu Engg. [1980] 122 ITR 306 and the Delhi High Court in the case of CIT v. Virgo Marketing (P) Ltd. [2008] 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind. "
12. Hon'ble Apex Court in case of CIT vs. SSA's Emerala Meadows - (2016) 73 taxmann.com 248 (SC) while dismissing the SLP filed by the Revenue quashing the penalty by the Tribunal as well as Hon'ble High Court on ground of unspecified notice has held as under:-
"Section 274, read with section 271(1)(c), of the Income-tax Act, 1961 - Penalty - Procedure for imposition of (Conditions precedent) - Assessment year 2009-10 - Tribunal, relying on decision of Division Bench of Karnataka High Court rendered in case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 1TR 565/218 Taxman 423/35 taxmann.com 250, allowed appeal of assessee holding that notice issued by Assessing Officer under section 274 read with section 271 (1 )(c) was bad in law, as it did not specify under which limb of section 271 (1 )(c) penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income - High Court held that matter was covered by aforesaid decision of Division Bench and, therefore, there was no substantial question of law arising for determination - Whether 9 ITA No.1232/Del./2016 since there was no merit in SLP filed by revenue, same was liable to be dismissed - Held, yes [Para 2] [In favour of assessee]"
13. Ld. DR for the Revenue to repel the arguments addressed by the ld. AR for the assessee contended that assessee has never raised any such question of invalid notice during penalty proceedings nor before the ld. CIT (A) which has caused no prejudice to the assessee as the assessee has understood the purport and import of the notice under section 274 read with section 271 of the Act and relied upon the decision rendered by the Hon'ble Madras High Court in Sundaram Finance Ltd. vs. CIT (2018) 403 ITR 407 (Madras), in which SLP has also been dismissed by Hon'ble Supreme Court in the case cited as Sundaram Finance Ltd. vs. CIT (2018) 99 taxmann.com 152 (SC) and also relied upon the judgment of CIT vs. Smt. Kaushalya - 216 ITR 660 (Bombay) & Trimurti Engineering Works vs. ITO - (2012) 138 ITD 189 (Del.).
14. Hon'ble Madras High Court in Sundaram Finance Ltd. (supra) upheld the order passed by the Tribunal confirming the penalty levied on the basis of notice issued under section 274 read with section 271(1)(c) of the Act in which specific charge was not pointed out by returning the following findings :- 10 ITA No.1232/Del./2016
"16. We have perused the notices and we find that the relevant columns have been marked, more particularly, when the case against the assessee is that they have concealed particulars of income and furnished inaccurate particulars of income. Therefore, the contention raised by the assessee is liable to be rejected on facts. That apart, this issue can never be a question of law in the assessee s case, as it is purely a question of fact. Apart from that, the assessee had at no earlier point of time raised the plea that on account of a defect in the notice, they were put to prejudice. All violations will not result in nullifying the orders passed by statutory authorities. If the case of the assessee is that they have been put to prejudice and principles of natural justice were violated on account of not being able to submit an effective reply, it would be a different matter. This was never the plea of the assessee either before the Assessing Officer or before the first Appellate Authority or before the Tribunal or before this Court when the Tax Case Appeals were filed and it was only after 10 years, when the appeals were listed for final hearing, this issue is sought to be raised. Thus on facts, we could safely conclude that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice issued under Section 274 r/w.Section 271 of the Act. Therefore, principles of natural justice cannot be read in abstract and the assessee, being a limited company, having wide network in various financial services, should definitely be precluded from raising such a plea at this belated stage.
17. Thus, for the above reasons, Substantial Questions of law Nos.1 and 2 are answered against the assessee and in favour of the revenue. The additional substantial question of law, which was framed is rejected on the ground that on facts the said question does not arise for consideration as well as for the reasons set out by us in the preceding paragraphs."
15. However, we are of the considered view that in the instant case, not only the notice issued to the assessee under section 274 read with section 271(1)(c) is defective but AO has not even made himself satisfied at the time of making disallowance / addition in assessment order if the assessee has furnished inaccurate particulars of income or has concealed particulars of his income 11 ITA No.1232/Del./2016 rather to be on the safer side he has invoked both the limbs of section 271(1) of the Act. Not only this, even at the time of passing the penalty order, AO was not clear enough if he was levying the penalty on account of furnishing of inaccurate particulars of income or for concealment of income as is apparent from para 8 of the penalty order. So, we are of the considered view that this is not merely a case of serving a defective notice under section 274 read with section 271(1) on the assessee rather it is a case of non-application of mind on the part of the AO to make himself satisfied as to under which limb of section 271(1)(c) of the Act, he is going to initiate/levy the penalty on the assessee.
16. Furthermore, when all these facts are examined in the light of fact that it is categoric case of AO as is apparent from para 5 of the assessment order that, "It is evident that the expenditure under the head 'professional & legal charges' has been incurred for acquisition of a new source of income, an advantage of an enduring nature and towards acquisition of Lodhi Hotel. Accordingly, the entire expenditure of Rs.1,34,56,177/- is treated to be as capital expenditure and disallowed. Thus, an amount of Rs.1,34,56,177/- is disallowed and added back to the net taxable income of the assessee, it cannot be a case of furnishing of inaccurate particulars of income or concealment of income." 12 ITA No.1232/Del./2016 Because when the AO has himself disallowed the expenses claimed by the assessee by treating the same as capital in nature, no question arises to jump to the conclusion that it is a case of furnishing inaccurate particulars of income or concealment of income.
17. Hon'ble Apex Court in case of Reliance Petro Products Pvt. Ltd. (supra) held that merely making a claim which is not sustainable in law by itself would not amount to furnishing of inaccurate particulars by returning following findings :-
"A glance at the provisions of section 271(l)(c) of the I.T. Act, 1961 suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars"
used in section 271(l)(c) would embrace the detail of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. Where there is no finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(l)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars."
18. Even otherwise, when there is two views if the expenditure 13 ITA No.1232/Del./2016 claimed are capital or revenue in nature, again there is no question of attracting provisions contained under section 271(1)(c) of the Act.
19. So, in these circumstances, when AO himself is not satisfied since the time of framing assessment as to under which limb of section 271(1)(c) of the Act, penalty is to be levied, he cannot be permitted under law to wash of his hands by taking recourse to Explanation 1 to section 271(1)(c) of the Act by placing the entire onus on the assessee to prove that there is no concealment of income/furnishing of inaccurate particulars of income. Para 6 & 8 of penalty order further make it clear that at no point of time right from the passing of the assessment order till passing the penalty order, AO has not made himself satisfied or clear enough if the assessee has furnished inaccurate particulars of income or has concealed the particulars of income.
20. In view of what has been discussed above, the case of Sundaram Finance Ltd. (supra), as relied upon by ld. DR for the Revenue is not applicable to the facts and circumstances of the case. However, decision rendered by Hon'ble Apex Court in CIT vs. SSA's Emerala Meadows (supra) and Hon'ble Karnataka High Court in CIT vs. Manjunatha Cotton and Ginning Factory (supra) are squarely applicable to the facts and circumstances of 14 ITA No.1232/Del./2016 the case as the AO has miserably failed to specify in the notice issued under section 274 read with 271(l)(c) of the Act, "as to whether the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income", so in these circumstances, penalty levied by the AO and confirmed by Ld. CIT (A) is not sustainable in the eyes of law. Consequently, the appeal filed by the assessee is allowed.
Order pronounced in open court on this 28th day of February, 2019.
Sd/- sd/-
(DR. M.L. MEENA) (KULDIP SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 28th day of February, 2019
TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-5, Delhi.
5.CIT(ITAT), New Delhi.
AR, ITAT
NEW DELHI.