Income Tax Appellate Tribunal - Cochin
M/S.Thoughtline Technologies P. Ltd, ... vs The Ito, Trivandrum on 15 November, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
BEFORE S/SHRI CHANDRA POOJARI, AM & GEORGE GEORGE K., JM
I.T.A. No. 614/Coch/2017
Assessment Year : 2011-12
M/s. Thoughtline Technologies P. Vs. The Income Tax Officer, Ward-
Ltd., Technopark, Kazhakootam, 1(1), Trivandrum.
Trivandrum.
[PAN:AACCT 8839M]
(Assessee-Appellant) (Revenue-Respondent)
Assessee by Shri R. Krishnan, Ca
Revenue by Smt. A.S. Bindhu, DR
Date of hearing 13/11/2018
Date of pronouncement 15/11/2018
ORDER
Per CHANDRA POOJARI, AM:
This appeal filed by the assessee is directed against the order of the CIT(A), Trivandrum dated 21/09/2017 and pertains to the assessment year 2011-12.
2. The facts of the case are that the assessee is engaged in the business of software development. It filed its return for the year under consideration on 27.09.2011 declaring a loss of Rs.3,76,848/- after claiming deduction under section 10A to the tune of Rs. 28,71,311/-. While completing the assessment under section 143(3) of the Act, the Assessing Officer called for proof to substantiate the eligibility of claim made under section 10A of the Act. During the I.T.A. No.614 /Coch/2017 course of assessment, it was submitted by the assessee that they are eligible for deduction under section I0A as they got registered with STPI as 100% Export oriented Unit (EOU). It was submitted that the registration certificate issued by the Director, STPI was not immediately available and the assesses had requested time to produce the same. Meanwhile, a letter was issued by the Assessing Officer to the Director, STPI enquiring whether assessee was registered as a 100% EOU to be eligible for deduction u/s 10A. In reply dated 19.02.2014, the Director, STPI intimated the Assessing Officer that the assessee had not been registered as STPI Unit. In the assessment, the claim for deduction made under section 10A of Rs.28,71,311/- was thus disallowed and the penalty proceedings u/s 271(1(c) got initiated.
2.1 During the course of penal proceedings, the assessee claimed to have stated that the claim for deduction under section 10A was made based on the assumption that they got registered with STPI as 100% EOU. However, since the assessee had claimed deduction under section 10A without having registration with the STPI, the Assessing Officer came to the conclusion that that it had concealed the true particulars of its income. According to the Assessing Officer, the assessee had willfully claimed deduction under section 10A without having necessary qualification to claim such a deduction which definitely points the finger towards willful concealment. Further, it was noted that the assessee had accepted the assessment and paid the tax as well without filing an appeal. 2
I.T.A. No.614 /Coch/2017 Accordingly, the Assessing Officer treated the entire claim of deduction made under section 10A of Rs.28,71311/- as the assessee concealed income by furnishing inaccurate particulars and thereby, levied penalty of Rs.4,19,460/-.
3. The CIT(A) held that by virtue of the provisions of section 271(l)(c), there must be concealment of income or the assessee must have furnished inaccurate particulars of his income. It was observed that the intention either to conceal the income or to furnish inaccurate particulars of such income should necessarily be established without which no penalty under the above mentioned section could be levied. Considering the fact that the assessee had claimed deduction under section 10A without having registration granted by the Director, Software Technology Park of India who is the competent authority to allow the assessee as 100% EOU without which no deduction u/s 10A could be claimed, the CIT(A) held that it cannot be said that the assessee had no intention either to conceal the income or has not filed inaccurate particulars of its income because, approval from the said competent authority not only to identify the assessee as 100% EOU but also to claim deduction u/s 10A, is must. According to the CIT(A), the assessee seems to have taken for granted this very important condition when the claim of deduction was made and the assessee was very much in the knowledge of the necessary approval which in turn was not obtained from the competent authority but still it went ahead with claiming deduction of Rs.28,71,311 u/s 10A without fulfilling the very import condition as mentioned above. According to the CIT(A), it is not the case of the assessee that it had 3 I.T.A. No.614 /Coch/2017 brought to the notice of the Assessing Officer about the claim of deduction wrongly made u/s 10A and it is also not the case of the assessee that it had disputed the very addition in the appeal and it had a prima facie case to rebut. The CIT(A) justified the penalty levied and held that the judgment of the Supreme Court in the case of CIT vs. Reliance Petroproducts Pvt. Ltd. (322 1TR
158) relied on by the assessee was totally misplaced since as per the judgment when there is finding that any details supplied by the assessee in its return are found to be incorrect or erroneous or false then there is a need to invite the penalty u/s 271(l)(c), The penalty levied was thus confirmed.
4. Against this, the assessee is in appeal before us by raising the following grounds of appeal:
1. The learned CIT(Appeals) erred in confirming the penalty of Rs.419460/-
levied by the AO u/s 271 (1 )(c) of the IT Act.
2. The learned CIT(A) erred in concluding that for the purpose of claiming deduction u/s 10A the appellant should have been registered with the STPI. Nowhere in the Act there is such a pre-condition.
3. The learned CIT(A) ought to have appreciated that that the appellant is a 100% EOU operating in the Software Technology Park and the section prescribes that if the appellant is a 100% EOU then they are eligible for exemption u/s 10A. Nowhere in the section it is stated that the approval from the competent authority is required.
4. The learned CIT(A) ought to have appreciated that the appellant had by ignorance accepted the assessment and paid tax, purely with an intention to purchase peace and avoid litigation. That the assessment was accepted is not a ground for levy of penalty u/s271(1)(c) of the IT Act.
5. The learned CIT(A) erred in concluding that the appellant had wilfully concealed the particulars of income and furnished inaccurate particulars, when 4 I.T.A. No.614 /Coch/2017 the appellant was under the bonafide belief that they had the registration in the STPI. Your appellant prays that the penalty sustained be deleted.
5. The assessee has also raised the following additional grounds along with a petition for admitting the additional ground.
1. The learned Assessing Officer erred in levying a penalty on a wrong notice u/s 274 r.w.s 271(l)(c ), without specifying under which of the limbs, the show cause notice is being issued.
2. The learned Assessing Officer erred in not specifically mentioning in the notice as to whether the action was being initiated for concealment of income or furnishing of inaccurate particulars. To that extent, the notice is ab-initio void.
5.1 The Ld. AR pleaded that the additional grounds of appeal raised by the assessee involved a point of law for which the necessary facts are already on record and, therefore, the same be admitted for adjudication for the reason that justice is to be rendered to the assessee by way of additional grounds. In so far as the additional grounds of appeal are concerned, there was no serious opposition by the Ld. DR except pointing out that this ground was otherwise not raised before the lower authorities.
5.2 We have carefully gone through the arguments of both the parties. The Supreme Court in the case of NTPC Ltd. vs. CIT (229 ITR 383) as well as in the case of Jute Corporation of India Ltd. (187 ITR 683) held that the additional ground raised deserves to be admitted for adjudication as it involves a point of 5 I.T.A. No.614 /Coch/2017 law which does not require any further or fresh investigation of facts. It was also noted that the issue raised by way of additional grounds of appeal go to the root of the jurisdiction of the Assessing Officer to impose penalty u/s. 271(1)(c) of the Act and, therefore, the same is relevant to levy of penalty u/s. 271(1)(c) of the Act. Therefore, the same is admitted for adjudication. The plea of the assessee in the additional ground is that the Assessing Officer erred in imposing penalty by issuing notice u/s. 274 r.w.s. 271(1)(c) of the Act without specifying under which limb, the show cause notice was issued. He drew our attention to the copy of notice dated 24/02/2014 issued u/s. 274 of the Act and submitted that it was non application of mind by the Assessing Officer in as much as the same was issued in the standard proforma and the irrelevant portion of the notice was not struck off by the Assessing Officer. It was also submitted by the Ld. AR that the issue has been decided in favor of the assessee in the following cases:
i) CIT vs. Manjunatha Cotton and Ginning Factory (359 ITR 565)
ii) CIT vs. SSA's Emerald Meadows (CC No. 11485/2016 dated 05/08/2016.
5.3 The Ld. DR submitted that the purpose of levying penalty was already indicated by the Assessing Officer through discussions in the assessment order wherein penalty has been initiated for concealment of income. She also submitted that a reading of penalty order itself shows that the assessee willfully 6 I.T.A. No.614 /Coch/2017 concealed the income by claiming deduction u/s. 10A of the Act without having the necessary qualification to claim such deduction which definitely attract penalty for concealment of income u/s. 271(1)(c) of the Act. It was therefore, contended that non-striking off the irrelevant portion of the notice issued u/s. 274 r.w.s 271(1)(c) of the Act dated 24/02/2014 does not create any ambiguity as the assessee was aware that penalty proceedings were initiated for concealment of income and not for furnishing inaccurate particulars of income. She also submitted that even otherwise the provision of section 292BB of the Act saves the error, if any, in the notice issued u/s. 274 r.w.s. 271(1)(c) of the Act and therefore, the plea of the assessee is to be rejected.
6. We have carefully considered the rival submissions. Sec.271(1)(c) of the Act postulates that penalty prescribed therein can be levied on existence of any of the two situations, namely for concealment of particulars of income or for furnishing inaccurate particulars of such income. It has been judicially well understood by now that 'concealment of particulars of income' and 'furnishing of inaccurate particulars of income' referred to in Sec. 271(1)(c) of the Act denote two different connotations. As a ready reference for the aforesaid proposition, we may look upon the judgments of the Supreme Court in the case of Dilip N. Shroff vs. JCIT (291 ITR 519) and also T. Ashok Pai vs. CIT (292 ITR 11) to appreciate that the aforesaid two expressions convey different connotations. Having understood that the two expressions have different connotations, in our opinion, it was imperative for the Assessing Officer to make the assessee aware 7 I.T.A. No.614 /Coch/2017 in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act as to which of the two limbs are being put-up against him for the purposes of levy of penalty u/s 271(1)(c) of the Act. Ostensibly, unless the assessee is made aware of the specific charge against him, it would be violative of the principles of natural justice inasmuch as the assessee would not be in a position to put up his defence appropriately. It is in this manner one has to appreciate the point being canvassed by the assessee before us, which is based on the tone and tenor of the notice issued u/s 274 r.w.s. 271(1)(c) of the Act dated 24/02/2014. It is in this background that one has to appreciate the preliminary plea of assessee, which is based on the manner in which the notice u/s 274 r.w.s, 271(1)(c) of the Act dated 24.02.2014 has been issued to the assessee- company. A copy of the said notice has been placed on record and the Ld. AR canvassed that the same was issued by the Assessing Officer in a standard proforma, without striking out the irrelevant clause. In other words, the notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealment of the particulars of income as well as furnishing of inaccurate particulars of income. Quite clearly, non striking off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges it has to respond. The aforesaid infirmity in the notice has been sought to be demonstrated as a reflection of non-application of mind by the Assessing Officer, and in support, reference has been made to the judgment of the Supreme Court in the case of Dilip N. Shroff (supra):- 8
I.T.A. No.614 /Coch/2017 "It is of some significance that in the standard proforma used by the Assessing Officer issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assesses had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations.
84. The impugned order, therefore, suffers from non-application of mind.
It was also bound to comply with the principles of natural justice. (See Malabar Industrial Co. Ltd. v. CIT [2000] 2 SCC 718]"
6.1 Factually speaking, the aforesaid plea of the assessee is borne out of record and having regard to the parity of reasoning laid down by the Supreme Court in the case of Dilip N. Shroff (supra), the notice in the instant case does suffer from the vice of non-application of mind by the Assessing Officer. The Karnataka High Court in the case of CIT vs. Manjunatha Cotton and Ginning Factory (supra) held that notice u/s. 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or furnishing of inaccurate particulars of income. Sending printed form where all the grounds mentioned im section 271(1)(c) would not satisfy the requirement of law.
Hence, the Tribunal was justified in holding that the entire penalty proceedings were vitiated on the ground that the notice issued was not in accordance with law. In fact, a similar proposition was also enunciated by the Karnataka High Court in the case of M/s. SSA's Emerald Meadows (supra) and against such a 9 I.T.A. No.614 /Coch/2017 judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Supreme Court vide order dated 5.8.2016.
6.2 The ITAT, Mumbai Bench in the case of Dr. Sarita Milind Davare (48 CCH
312) (Mumbai Tribunal) after considering the judgment of the Bombay High Court in the case of Smt. B. Kaushalya & Others (216 ITR 660) as also the judgments of the Supreme Court in the case of Dilip N. Shroff (supra) and Dharmendra Textile Processors (306 ITR 277) held as under ;-
"12. A combined reading of the decision rendered by Hon'ble Bombay High Court in the case of Smt. B. Kaushalya and Others (supra) and the decision rendered by Hon'ble Supreme Court in the case of Dilip N Shroff (supra) would make it clear that there should be application of mind on the part of the AO at the time of issuing notice. In the case of Lakhdir Lalji (supra), the AO issued notice u/s 274 for concealment of particulars of income but levied penalty for furnishing inaccurate particulars of income. The Hon'bie Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon'ble Kerala High Court has struck down the penalty imposed in the case of N.N. Subramania lyer Vs. Union of India (supra), when there is no indication in the notice for what contravention the petitioner was called upon to show cause why a penalty should not be imposed. In the instant case, the AO did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. The Hon'ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya & Others (supra) and observed as under:
"....The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In 10 I.T.A. No.614 /Coch/2017 this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified."
6.3 In the instant case also, we are of the view that the AO had issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the AO has failed to apply his mind at the time of issuing penalty notice to the assessee. 6.4 The aforesaid discussion clearly brings out as to the reasons why the parity of reasoning laid down by the Supreme Court in the case of Dilip N. Shroff (supra) is to prevail. Apart from the aforesaid discussion, we may also refer to one more seminal feature of this case which would demonstrate the importance of non-striking off of irrelevant clause in the notice by the Assessing Officer. However, in the notice issued u/s 274 of the Act dated 24/02/2014, both the limbs of Sec. 271(1)(c) are produced in the proforma notice and the irrelevant clause has not been struck-off. Quite dearly, the non-striking off of the irrelevant clause in the notice clearly brings out the fact that there is no clear and crystallized charge being conveyed to the assessee u/s 271(1)(c), which has to be met by him. As noted by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the action of the Assessing Officer in non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 11
I.T.A. No.614 /Coch/2017 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non- compliance with principles of natural justice in as much as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond.
6.5 Therefore, in view of the aforesaid discussion, in our view, the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act dated 24/02/2014 is untenable as it suffers from the vice of non-application of mind having regard to the ratio of the judgment of the Supreme Court in the case of Dilip N. Shroff (supra). Thus, on this count itself the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted. Since the penalty has been deleted on the preliminary point, we refrain from going into other grounds of appeal raised by the assessee. Therefore, in view of the aforesaid discussion, in our view, the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act dated 24.02.2014 is untenable and suffers from the infirmity of non-application of mind by the Assessing Officer. On this count itself, in our view, the penalty imposed u/s 271(1)(c) of the Act deserves to be deleted.
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I.T.A. No.614 /Coch/2017
7. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on this 15th November, 2018.
sd/- sd/-
(GEORGE GEORGE K.) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Place: Kochi
Dated: 15th November, 2018
GJ
Copy to:
1. M/s. Thoughtline Technologies P. Ltd., Technopark, Kazhakootam, Trivandrum.
2. The Income Tax Officer, Ward-1(1), Trivandrum.
3. The Commissioner of Income-tax(Appeals), Trivandrum
4. The Pr. Commissioner of Income-tax, Trivandrum.
5. D.R., I.T.A.T., Cochin Bench, Cochin.
6. Guard File.
By Order (ASSISTANT REGISTRAR) I.T.A.T., Cochin 13