Income Tax Appellate Tribunal - Hyderabad
Bgm Mining &Infra; Limited, Hyderabad vs Asst. Commissioner Of Income Tax, ... on 19 July, 2019
ITA Nos 1911 1912 1913 and 1914 2012 of 2018
BGR Mining and Infra P Ltd Hyderabad.
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' B ' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
AND
Shri S.Rifaur Rahman, Accountant Member
ITA Nos.1911 and 1912/Hyd/2018
(Assessment Years: 2009-10 & 2010-11)
B. Girijapati Reddy & Co. Vs Asstt. Commissioner of
Nellore Income Tax, Central Circle,
PAN:AABFG9906A Tirupathi
(Appellant) (Respondent)
ITA Nos.1913 & 1914/Hyd/2018
(A.Ys 2012-13 & 2013-14)
B. G.R. Mining & Infra Ltd, Vs Asstt. Commissioner of
Hyderabad Income Tax, Central Circle,
PAN:AAECB5497R Tirupathi
(Appellant) (Respondent)
ITA No.2012/Hyd/2018
(A.Y. 2014-15)
Asstt. Commissioner of Vs B. G.R. Mining & Infra Ltd,
Income Tax, Central Circle, Hyderabad
Tirupathi PAN:AAECB5497R
(Appellant) (Respondent)
For Assessee : Shri A.V. Raghuram
For Revenue : Shri Y.V.S.T. Sai, CIT(DR)
Date of Hearing: 23.04.2019
Date of Pronouncement: 19.07.2019
ORDER
Per Smt. P. Madhavi Devi, J.M.
Appeals in ITA Nos.1911 to 1914/Hyd/2018 are filed by the assessee for the A.Ys 2009-10, 2010-11, 2012-13 and 2013-14 against the order of the CIT (A) confirming the penalty Page 1 of 12 ITA Nos 1911 1912 1913 and 1914 2012 of 2018 BGR Mining and Infra P Ltd Hyderabad.
u/s 271(1)(c) of the I.T. Act whereas appeal in ITA No.2012/Hyd/2018 is the Revenue's appeal against the order of the CIT (A) deleting the penalty levied by the AO u/s 271(1)(c) of the Act.
2. Brief facts of the case are that M/s. G. Girijapathi Reddy & Co. was a partnership firm established in the year 1995. Subsequently, the firm was converted into private limited company on 18.04.2011 in the name of M/s. BGR Mining & Infra Pvt. Ltd and is involved mainly in the business of mining, specializing in over burden removal and open cast mining & erection works. During the A.Ys 2009-10 & 2010-11, the assessee was assessed in the name of M/s. Girijapati Reddy & Co. and thereafter it is in the name of M/s. BGR Mining & Infra Pvt. Ltd. A survey u/s 133A of the I.T. Act was conducted in the assessee's business premises on 14.10.2014 based on the information that the assessee firm is involved in siphoning off huge funds through the partners' accounts. During the course of survey, the books of account maintained by the assessee was examined in details and the AO noticed that the claim of expenditure was mainly labour payments, but no details were available in respect of site and projects for which such expenses were claimed. He also noticed that the labour expenses were claimed by the firm as well as individual partners for and on behalf of the firm and at the business premises of the assessee, substantial volume of vouchers were found which were considered as incriminating in nature. Based on the above facts found during the course of survey, a warrant of authorization u/s 132 was obtained from Director of Income Tax (Inv.), Hyderabad and the survey was Page 2 of 12 ITA Nos 1911 1912 1913 and 1914 2012 of 2018 BGR Mining and Infra P Ltd Hyderabad.
converted into a search and seizure proceedings u/s 132 of the Act.
3. During the course of search, certain documents and incriminating evidence belonging to the assessee were found and seized. Thereafter, after recording the reasons as required u/s 153C of the Act a notice u/s 153C was issued to the assessee. The assessee filed its return of income u/s 153C on 31.08.2016 admitting a total income of Rs.20,57,36,340/- against the total income admitted in the original return of income filed u/s 139(1) on 1.10.2009 at Rs.18,47,36,340/-. During the assessment proceedings u/s 143(3), r.w.s. 153C of the Act, the AO observed that the assessee was booking bogus expenditure mainly on the last day of the financial year and the same is shown as outstanding labour maistry charges and such payments were carried forward year after year as against the principle of paying on weekly basis or a monthly basis to the labour as was the case in this line of business. Thus, according to him, the assessee firm is inflating expenditure which resulted in suppression of profit of the firm and later by the company. He also observed that during the search proceedings at the business premises of M/s. BGR Mining & Infra Pvt. Ltd, Hyderabad, a sworn statement of Sri Dugunapalli Venkat Rami Reddy, General Manager (Finance) was recorded wherein he had stated that the expenses recorded under "outstanding labour maistries" represented sundry creditors on account of work site expenses which was reduced gradually in the subsequent years, by showing cash payments against the outstanding balance through out the year. He had stated that he was not aware of the parties to whom these payments are made. When Sri I Sudhakar Reddy, Managing Director of the assessee company was confronted with these details, he replied that the Page 3 of 12 ITA Nos 1911 1912 1913 and 1914 2012 of 2018 BGR Mining and Infra P Ltd Hyderabad.
said work site is managed by one site Incharge and after completion of the work, the team is shifted to another site. It was submitted that in this line of business, huge labour is employed for execution of contract work and such labour is from different parts of the country and therefore, it is very difficult to maintain and ensure correctness of the address of the labour. It was also submitted that the labour mostly retain their salary with the company and take their amounts whenever they go to their native places in batches. When the assessee was asked to produce the bills and vouchers for the outstanding labour maistris, the Director submitted that the assessee cannot be in a position to maintain all the vouchers relating to labour maistris due to the volume of the turnover. However, he agreed to admit an amount of Rs.26.00 crores for the financial years 2008-09 to F.Y 2014-15 u/s 132(4) of the Act over and above the income already declared in the returns of income of the respective years. The AO therefore, observed that the assessee has not been able to substantiate its claim of labour expenses and has admitted additional income of Rs.26.00 crores for the financial years upto 2014-15 and the income was also declared in the returns of income of the respective years. The AO therefore, accepted the income returned by the assessee in response to the notice u/s 153C of the Act.
4. Thereafter, the AO initiated penalty proceedings u/s 271(1)(c) of the Act by issuing a show-cause notice u/s 271(1)(c) of the Act. The assessee vide letter dated 21.5.2017 filed his explanation stating that the expenditure claimed under the work site/labour expenses were not in dispute but since there were deficiencies regarding their maintenance, the assessee has offered Page 4 of 12 ITA Nos 1911 1912 1913 and 1914 2012 of 2018 BGR Mining and Infra P Ltd Hyderabad.
the additional income of Rs.26.00 crores over the period of 5 years. It was submitted that the returned income has been accepted by the AO and therefore, there was no furnishing of inaccurate particulars or concealment of income requiring levy of penalty u/s 271(1)(c) of the Act. However, the AO was not satisfied with the assessee's explanation and holding that the assessee could not have offered the additional income after the search and concealment of income based on an estimate, he levied the minimum penalty i.e. 100% of the amount sought to be evaded. Aggrieved, the assessee preferred an appeal before the CIT (A) who confirmed the order of the AO and the assessee is in second appeal before us by raising the following grounds of appeal:
"1. The Learned Commissioner of Income Tax (Appeals), Visakapatnam grossly erred in confirming the orders passed U/S 271(l)(c) of the Income Tax Act, 1961 for the A.Y. year 2009-10 by the Learned Asst. Commissioner of Income Tax Central Circle, Tirupathi ,levying a penalty of Rs. 71,37,9001-, without appreciating and considering the submission made by your appellant. The action of the Learned Commissioner of Income Tax (Appeals) Visakapatnam is grossly unjustified, unreasonable, unlawful and the reason adduced by the Learned Commissioner of Income Tax (Appeals), Visakapatnam in confirming the orders U/S 271(l)(c) passed by the assessing officer are against the facts and circumstances of the case.
2. The Learned Commissioner of Income Tax (Appeals), Visakapatnam, ought to have seen and appreciated the explanation and submission submitted by the appellant and ought to have held that provision of Section 271 (1)(
c) are not applicable as there was no concealment of income or furnishing of inadequate particulars of income within meaning of Section 271(l)(c) and its explanations, since the assessing officer vide orders passed U/S 143(3) r. w.s 153C, accepted the return without additions to the returned income filed in response to notice U/S 153C and he ought to have dismissed the orders passed U/S 271 (1)( c) of the Income tax Act by The Learned Asst. Commissioner of Income Tax, Central Circle, Tiruapathi.
3. The Learned Commissioner of Income Tax (Appeals), Visakaptnam, ought to have seen that the reasons Page 5 of 12 ITA Nos 1911 1912 1913 and 1914 2012 of 2018 BGR Mining and Infra P Ltd Hyderabad.
adduced and the case laws cited by the assessing officer in levying the penalty U/S 271 (1)( c) are contrary to the facts and circumstances of the case and ought to have appreciated the written submission made by your appellant and ought to have cancelled the penalty U/S 27 I (1)( c), levied by the Asst. Commissioner ofIncome Tax, Central Circle, Tiruapathi.
4. The Learned Commissioner of Income tax ought to have seen that for levying penalty U/S 271(l)(c), the Assessing officer is required to establish either concealment or furnishing of inaccurate particulars specifically, by brining positive material on record, and accordingly issue notice specifically, whether there were concealment of particulars or furnishing inaccurate particulars in the notice U/S 271(1)(c) itself and the Learned Commissioner ofIncome Tax ought to have held that penalty proceedings U/S 271(l)(c) was bad in law in the absence of specific reason in the notice issued U/S 271(l)(c), whether it is a case of concealment of particulars or furnishing of inaccurate particulars and ought to have cancelled the orders passed U/S 27I(l)(c) by Asst. Commissioner of Income Tax, Central Circle, Tiruapathi.
5. The Learned Commissioner of Income Tax (Appeals), Visakaptnam ought to have seen that explanation I of section 271 (1)( c) on which the assessing officer levied penalty is not applicable to the facts and circumstances of your appellant's case and ought to have cancelled the order passed U/S 271 (1)( c) of the Income Tax 1961, by the Asst. Commissioner of Income Tax, Central Circle, Tiruapathi.
6. Viewed from any angle, the action of the learned commissioner of income tax (Appeals), Visakaptnam in confirming the order U/S 27I(l)(c) passed by the assessing officer is unjustified, unwarranted, illegal and contrary to the facts and circumstances of the case.
For the reasons stated above and any other grounds that may be urged at the time hearing, your appellant prays the Hon'ble Income Tax Appellate Tribunal Hyderabad to kindly cancel the orders passed by the learned CIT confirming the orders passed by the AO and also prays the Hon'ble ITAT to cancel the penalty levied u/s 271(1)(c) of the Act for the A.Ys 200-10 and do justice".
5. Further, vide letter dated 9.2.2019, the assessee has raised the following additional ground of appeal:
Page 6 of 12ITA Nos 1911 1912 1913 and 1914 2012 of 2018 BGR Mining and Infra P Ltd Hyderabad.
"On the facts and circumstances of the case, the penalty order passed by the AO and partly upheld by the CIT (A) is unsustainable on the facts of the present case and also in law for non-application of mind on part of AO as the very basis i.e. penalty show cause notice does not specify the charge as to whether the notice was for 'concealment of income" or for "furnishing of inaccurate particulars of income".
6. It is submitted that while filing the appeal before the Tribunal, the assessee has inadvertently missed the legal ground with respect to non specification of the ground on which the show cause notice dated 31.12.2016 u/s 271(1)(c) of the Act was issued. Therefore, he prayed for admission of the same and decision on merits.
7. The learned DR, objected to the above ground of appeal stating that it is a matter of fact and not a legal ground. He submitted that the assessee's case involved both furnishing of inaccurate particulars and concealment of income and therefore, there was no need for the AO to strike off the irrelevant portion. Further, as regards assessee's contention that the assessee's returned income has been accepted and therefore, no penalty is leviable, he submitted that the admission of the additional income by the assessee is not voluntary but was made only after detection and confrontation in the search u/s 132 of the Act. He also relied upon the decision of the Hon'ble Madras High Court in the case of Sundaram Finance reported on 23.4.2018 for levy of penalty under such circumstances.
8. Having regard to the rival contentions and the material on record, we find that the penalty u/s 271(1)(c) is levied for not offering the additional income to tax in the original returns of income for offering the same only after confrontation during the Page 7 of 12 ITA Nos 1911 1912 1913 and 1914 2012 of 2018 BGR Mining and Infra P Ltd Hyderabad.
course of search. The assessee has raised the additional ground against non-striking off the irrelevant portion of the show cause notice u/s 271(1)(c) of the Act, we find that the show cause notice for the A.Y 2009-10 is as under:
"Penalty notice u/s 271(1)(c) of the Act, 1961 PAN: AABFG9906A Date:31-12-2016 To M/s.B.Girijapathi Reddy & Co.
16-11-380B Srinivasa Agraharam Sujathammacolony, Agrharaa Mitta Nellore 524001 Whereas the course of assessment proceedings before me for the A.Y 2009-10, it appears to me that you have concealed the particulars of your disclosed income or furnished inaccurate particulars of such income.
You are hereby requested to appeal before me at 11.45am on 25th January, 2017 and show cause why an order imposing a penalty on you should not be made u/s 271(1)(c) of the I.T. Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through your authorized representative you may show cause in writing on or before the said date which will be considered before any such order is made u/s 271(1)(c) of the Act.
Sd/-
(Selvi Arumugham) Asstt. CIT, Central Circle (I/c Tirupati)
9. Thus, it can be seen that the AO does not specify as to whether the assessee has concealed the particulars of income or furnished inaccurate particulars of income. The learned DR had submitted that the assessee had concealed the income as well as furnished inaccurate particulars of income, but we find that the AO has used "or" and not "and" between concealment of income and furnishing of inaccurate particulars of income. Therefore, it is clear that the AO was not clear in his mind whether it was a case of furnishing of inaccurate particulars or concealment of income or he has failed to strike off the irrelevant portion in the proforma Page 8 of 12 ITA Nos 1911 1912 1913 and 1914 2012 of 2018 BGR Mining and Infra P Ltd Hyderabad.
of the notice before issuing the same. Therefore, the additional grounds of appeal is to be admitted and allowed in view of the decision of the jurisdictional High Court in the case of Pr. CIT vs. Baisetty Revati reported in (2017) 398 ITR 88 A.P. The additional ground is therefore, allowed.
10. Even on merits of the other grounds, we find that the disallowance of expenditure was not because it has been found to be bogus expenditure but it was because the assessee could not substantiate the same with bills and vouchers. In response to the show cause notice u/s 271(1)(c) of the Act, the assessee had filed its explanation and there is no finding of the AO that the assessee's explanation is not acceptable or that it is not bonafide. Therefore, we are in agreement with the contentions of the learned Counsel for the assessee that though it is a good ground for making addition, it cannot be a ground for penalty u/s 271(1)(c) of the Act, as held by the Hon'ble Supreme Court in the case of Reliance Petrochem Ltd reported ion 322 ITR 158.
11. In the result, assessees' appeals for the A.Ys 2009-10, 2010-11, 2012-13 & 2013-14 are allowed.
12. As regards the Revenue's appeal for the A.Y 2014-15, the AO wanted to levy penalty u/s 271(1)(c) of the Act for the very same reasons as in the A.Y 2009-10 to 2013-14. However, he issued a notice u/s 271AAB of the Actto the assessee. The assessee submitted his explanation and thereafter the AO held that the notice u/s 271(1)(c) was to be issued and that erroneously the provisions of section 271AAB of the Act was Page 9 of 12 ITA Nos 1911 1912 1913 and 1914 2012 of 2018 BGR Mining and Infra P Ltd Hyderabad.
mentioned in the notice. He held that such mentioning will not invalidate the notice. Thereafter, he proceeded to levy penalty u/s 271(1)(c) of the Act. Aggrieved, the assessee preferred an appeal before the CIT (A), who observed that the requirements of conditions to be satisfied for initiating penalty u/s 271AAB of the Act and levy of penalty u/s 271(1)(c) of the Act are different. He held that having issued notice u/s 271AAB of the Act, the AO cannot levy penalty u/s 271(1)(c) of the Act. Accordingly, the penalty order was cancelled and the Revenue is in appeal before us by raising the following grounds of appeal:
"1. The order of the Ld.CIT(A) is erroneous both on the facts and in law.
2. The Ld.CIT(A) ought to have appreciated that the intention of the Aa was to levy penalty u/s. 271(1)(c) of the I.T.Act, 1961 and therefore, the notice was issued in the prescribed format used for levy of penalty u/s. 271(1)(c) of the I.T.Act, but the section was erroneously mentioned in the Heading as Sec.271AAB instead of Section 271(1)(c) of the Act.
3. The Ld.CIT(A) ought to have observed that the penalty notice u/s. 271AAB format is completely different from that of notice u/s. 271(1)(c). The penalty notice issued by Aa is in the format of Sec.271(1)(c) but only the "Heading" and last line only was mentioned as 271AAB, which shows that Aa intended to levy penalty u/s. 271(1)( c) and not 271AAB.
4. The Ld.CIT(A) ignored the fact that the objection raised by the appellant on this ground during the penalty proceedings was duly addressed in the penalty order itself by the Aa by relying on the decision of the Hon'ble Supreme Court of India in Civil appeal No.2099 arising out of SLP(Civil) No.2308 of 2009 in the case of "P. K. Palanisamy Vs. N. Arumugham and another" wherein it was held that "mentioning of wrong provision or non-mentioning of provisions does not invalidate an order if the court and/or statutory authority had jurisdiction there for".
5. The Ld.CIT(A) ought to have observed that the penalty provisions u/s. 271AAB are not applicable for the A.Y.2014-1S at all, as for this Assessment Year, Page 10 of 12 ITA Nos 1911 1912 1913 and 1914 2012 of 2018 BGR Mining and Infra P Ltd Hyderabad.
the penalty provisions applicable are only that of 271(1)(c).
6. The powers of CIT(A) are co-terminus with that of Aa and he should have rectified the mistake and upheld the order of Aa levying penalty u/s.271(1)(c).
7. Any other ground that may be urged at the time of hearing with the permission of the court".
13. The learned DR supported the orders of the AO stating that the wrong mentioning section 271AAB of the Act in the notice will not invalidate the penalty u/s 271(1)(c) of the Act. The learned Counsel for the assessee, on the other hand, submitted that the penalty u/s 271AAB and 271(1)(c) of the Act are under different circumstances and therefore, the order of the CIT (A) has to be upheld.
14. Having regard to the rival contentions and the material on record, we find that the this being the year of search and the assessee having offered undisclosed income in its return of income u/s 153C, the AO issued the notice u/s 271AAB of the Act, we find that penalty u/s 271AAB is leviable where search has been initiated and the assessee during the course of search admits undisclosed income and specifies the manner in which such income has been derived; and substantiates the manner in which the undisclosed income has been derived, whereas the penalty u/s 271(1)(c) is leviable for furnishing of inaccurate particulars or concealment of income. Thus, it is seen that these provisions are applicable in different situations and circumstances therefore, if the AO has issued notice u/s 271AAB of the Act without issuing a notice u/s 271(1)(c) of the Act. The AO gets the jurisdiction to levy the penalty by issuing a notice and therefore, it is not a procedural requirement but is a jurisdictional one. By issuing a notice, the AO has intimated the assessee the Page 11 of 12 ITA Nos 1911 1912 1913 and 1914 2012 of 2018 BGR Mining and Infra P Ltd Hyderabad.
reasons for initiating penalty and the assessee gets an opportunity to explain the circumstances under which the default, if any, was committed and as to why the penalty was not leviable. By issuance of notice u/s 271AAB of the Act, the AO is seeking assessee's explanation as to why the penalty should not be levied on the undisclosed income declared in the returns of income, whereas u/s 271(1)(c) of the Act he is seeking assessee's explanation for furnishing of inaccurate particulars or concealment of income. Therefore, we agree with the findings of the CIT (A) that these two provisions operate in different circumstances and by issuance of notice u/s 271AAB of the Act, the AO cannot thereafter change it to section 271(1)(c) of the Act and levy penalty thereunder. Therefore, we do not find any reason to interfere with the order of the CIT (A).
15. In the result, Revenue's appeal is dismissed.
16. To sum up, assessee's appeals are allowed and Revenues appeal is dismissed.
Order pronounced in the Open Court on 19th July, 2019.
Sd/- Sd/-
(S.Rifaur Rahman) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 19th July, 2019.
Vinodan/sps
Copy to:
1 I.Sundararaja Rao, C.A. D.No.24-3-380 Sujathamma Colony, Dargamitta, Nellore 524003 A.P 2 ACIT, Central Circle, Tirupathi 3 CIT (A)-3 Visakhapatnam 4 Pr. CIT - Central, Visakhapatnam 5 The DR, ITAT Hyderabad 6 Guard File By Order Page 12 of 12