TMI Blog2017 (4) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... lty proceedings/orders, that no cross examination of Shri Tarun Goyal took place, that no effort was made to find out the status of the supplier independently, that the assessee’s contention that software purchase was genuine was discounted on the basis of preponderance of probabilities and inferences, that no material was brought on record to establish that cash found its way back to the coffers of the assessee. It is apparent that no independent inquiry was made from the concerned party by issuing notices u/s 133(6)/131 and the entire foundation is laid on post search enquiries, search and seizure operation of Shri Tarun Goyal and statement of Shri Tarun Goyal. On an overall consideration of all these facts, we are inclined to agree with the Ld. AR’s argument that the present case may lie in the realm of “facts not proved” but cannot fall in the realm of “facts disproved”. Since the scales are different in penalty and quantum proceedings and penalty cannot be automatic to the confirmation of addition in the quantum proceedings, we are disinclined to agree with the contention of the department that the confirmation of the quantum by the ITAT would automatically result in confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 42,424,550/- from M/s. Macro Infotech Ltd. It was alleged by the AO that the assessee had taken the bogus bills to inflate their expenditure. Further vide letter dated 19.08.2011 the assessee was further asked about the Macro Infotech Ltd and its transaction with the assessee from Assessment Years 2003-04 to 2009-10 and the assessee was also asked to prove the genuineness of the transaction made with M/s. Macro Infotech Ltd. In response to this the assessee submitted on 28.11.2011 that M/s. Macro Infotech Ltd was engaged in the business of supply of various kinds of the computer software, graphics and other elite products and that during FY 2007-08, the assessee had purchased software of ₹ 42,424,550/- from the company and payment for which was made through account payee cheques. It was further submitted that these software were installed in the assesseee company and were recorded in the books of account. The assessee submitted that the software was sophisticated and was most effectively used as marketing and sales tool. It was further submitted that the software was later handed over to M/s Sobha Developers Limited for joint use of developing and marketing upon the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see reiterated in the penalty appeals before the Ld. CIT (A) that no cash had been received back by assessee from Micro Infotech Ltd. Request was again made by the assessee to summon Shri Tarun Goyal during the course of hearing of the penalty appeals before the Ld. CIT (A). The assessee also contended before the Ld. CIT (A) that penalty orders were invalid because the AO had failed to mention as to whether the penalty was levied for concealment of income or for furnishing inaccurate particulars of income. 2.6 However, the Ld CIT (A) confirmed the penalties by firstly rejecting the additional legal ground being not bona fide and confirming the penalties on merits by observing that assessee had made bogus software purchases. 2.7 Now, the assessee has approached the ITAT and has challenged the imposition of penalty in all the three years by raising the following grounds of appeal: 2.8 Grounds of Appeal in ITA 3791/Del/2016 (A.Y. 2008-09) 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) (CITA) upholding the levy of penalty by the AO u/s 271(1)(c) of the Act is bad, both in the eyes of law as well as on fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, both on facts and in law in upholding the levy of penalty of ₹ 45,80,882/- on account of disallowance of depreciation software made by the AO. 3. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in upholding the levy of penalty despite the fact that the AO has not recorded satisfaction as whether the penalty be initiated for concealment of income or for furnishing of inaccurate particulars. 4. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law in confirming the penalty despite the fact that the disallowance made by AO itself is not sustainable in view of the fact that in the absence of any incriminating material found during the course of search no such addition can be made in assessment under section 153A of the Act. 5. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and law in upholding the levy of penalty despite the fact that the disallowance made by the AO and sustained by the learned CIT(A) itself is not sustainable on merits also. 6. (i) On the facts and circumstances of the case, the learned CIT (A) has e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has erred, both on facts and in law in confirming the levy of penalty, despite the fact that the disallowance of depreciation claimed by the assessee cannot per se be treated as concealment of income or furnishing of inaccurate particulars of income 3. The Ld. AR submitted that the impugned penalty orders are bad in law because notices issued u/s 274 in all the three years are vague and mechanical as the irrelevant columns have not been struck off. It was submitted that nowhere has it been clearly spelt out as to under which limb the extant penalty was sought to be levied i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. Reliance was placed on The Hon ble Karnataka High Court s decision in the case of Manjunath Cotton Ginning Factory 359 ITR 565. It was submitted that this decision of the Hon ble Karnatake High Court was not challenged before the Hon ble Apex Court as recorded in the decision of the Hon ble Karnataka High Court in the case of Magnur Builders in ITA 616/2015 Dated 28/07/2016 in Para 5. Reliance was also placed on the decision of the Hon ble Karnataka High Court in the case of SSA s Emerald Meadow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that not mentioning the exact limb under which the penalty is levied is a mere technical defect and cannot invalidate the penalty proceedings/orders. Further, the Ld. DR placed heavy reliance on findings returned by the ITAT in the quantum order, highlighting that once software purchase stands rejected, and is denied, the assessee cannot escape from penalty. The Ld. DR argued that no case is made out by the assessee to escape from clutches of penalty provisions. Ld. DR prayed for total confirmation of penalty relying on orders of lower authorities. 5. We have heard the rival submissions and perused the material on record. The Hon ble Supreme Court, in the case of Hindustan Steel Ltd. v. State of Orissa 83 ITR 26, had laid down the position of law by holding that the Assessing Officer is not bound to levy penalty automatically simply because the quantum addition has been sustained. Also, in case of CIT v. Khoday Eswara (83 ITR 369) (SC), incidentally reported in same ITR Volume, it is held that penalty cannot be levied solely on basis of reasons given in original order of assessment. The Hon ble Supreme Court has also reiterated the law in the case of Dilip N. Shroff v. Jt. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lment of income or furnishing inaccurate particulars of income. Further if there is any material or additional evidence which was not produced during assessment proceedings, same can be produced in penalty proceedings as both assessment and penalty proceedings are distinct and separate. In CIT vs. M/s Sidhartha Enterprises (2009) 184 Taxman 460 (P H)(HC) it was held that the judgment in Dharmendra Textile cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. Even so, the concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default. 5.1 At this juncture it may also be apposite to refer to the decision of the Hon ble Supreme Court in the case of CIT v. Reliance Petroproducts (P.) Ltd. [2010] 322 ITR 158/189 Taxman 322, wherein the Hon ble Apex Court, while interpreting the provisions of section 271(1)(c) of the Act, has held that a glance at the said provision would suggest 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 inaccu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e particulars of his income. 5.2 Reverting to the facts of the present case, the AO, in the assessment orders, in the notices issued u/s 274 and in the penalty orders, has not stated the exact limb (concealment of particulars of income or furnishing of inaccurate particulars of income) under which the penalty is initiated and levied. We have very carefully considered this aspect. We have no hesitation in accepting assessee s contention that nowhere has the exact limb of penalty been specified. The Hon ble Karnataka High Court in case of CIT vs. Manjunatha Cotton and Ginning Factory Ors. (Supra) dealt with the identical issue threadbare and came to the following conclusion:- 63. In the light of what is stated above, what emerges is as under: a) Penalty under Section 271(1)(c) is a civil liability. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. e) The existence of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority and not the Assessing Authority. p) Notice under Section 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 for furnishing of incorrect particulars of income q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) The assessee should know the grounds which he has to meet specifically. Otherwise, principle of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. u) The findings recorded in the assessment proceedings in so far as concealment of income and furnishing of incorrect particulars would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at no independent inquiry was made from the concerned party by issuing notices u/s 133(6)/131 and the entire foundation is laid on post search enquiries, search and seizure operation of Shri Tarun Goyal and statement of Shri Tarun Goyal. On an overall consideration of all these facts, we are inclined to agree with the Ld. AR s argument that the present case may lie in the realm of facts not proved but cannot fall in the realm of facts disproved . We have gone through the orders of the co-ordinate Bench of the ITAT in the quantum proceedings confirming the additions. However, since the scales are different in penalty and quantum proceedings and penalty cannot be automatic to the confirmation of addition in the quantum proceedings, we are disinclined to agree with the contention of the department that the confirmation of the quantum by the ITAT would automatically result in confirmation of the penalty. We are of the considered opinion that mere probability can, at most, be the basis of addition but same cannot be good enough in penalty proceedings. Further, the findings in the quantum order of the ITAT on merits do not reflect any incriminating material unearthed from the search o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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