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2017 (5) TMI 904 - ITAT MUMBAI

2017 (5) TMI 904 - ITAT MUMBAI - TMI - Penalty u/s 271(1)(c) - validity of notice u/s 274 - non application of mind - reasons to believe - due application of mind by the Assessing Officer - Held that:- A copy of the said notice has been placed on record and the learned representative canvassed that the same has been issued by the Assessing Officer in a standard proforma, without striking out the irrelevant clause. The notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealme .....

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le as it suffers from the vice of non-application of mind having regard to the ratio of the judgment of the Hon'ble Supreme Court in the case of Dilip N. Shroff (2007 (5) TMI 198 - SUPREME Court ) as well as the judgment of the Hon'ble Bombay High Court in the case of Shri Samson Perinchery (2013 (11) TMI 369 - ITAT MUMBAI ). Thus, on this count itself the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted. - Decided in favour of assessee. - ITA No. 2555/MUM/2012 - Dated:- 28-4-201 .....

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his appeal, the solitary grievance of the assessee is with regard to imposition of penalty u/s 271(1)(c) of the Act. 3. In brief, the relevant facts are that the appellant is a company incorporated under the provisions of Companies Act, 1956 and for the assessment year under consideration it declared a total income of ₹ 86,94,668/- in a return filed on 29.9.2008, which was subject to a scrutiny assessment u/s 143(3) of the Act and vide order dated 10.12.2010 the final income has been asses .....

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us transaction and further the Assessing Officer also denied the carry forward of said loss. Subsequently, the Assessing Officer vide order passed u/s 271(1)(c) of the Act dated 29.6.2011 held the assessee guilty of furnishing of inaccurate particulars of income qua the aforesaid issue within the meaning of Sec. 271(1)(c) of the Act. The Assessing Officer levied penalty u/s 271(1)(c) of the Act @ 100% of the tax sought to be evaded, which was computed at ₹ 5,45,80,203/-. The CIT(A) has sus .....

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of assessment proceedings, the Assessing Officer noted that assessee had reported Long Term Capital Loss of ₹ 18,19,34,011/- on redemption of Preference shares of Shri Santram Finance Ltd., detailed as under :- Sale consideration 191,711,723 Less : Indexed cost of acquisition Convertible preference shares acquired in F.Y. 1997-98 (Rs.50,000,000/331*551) 83,232,628 Convertible preference shares acquired in F.Y. 1998-99 (Rs.185,000,000/351*551) 290,413,105 (373,645,734) Long term capital los .....

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rm Capital Loss was determined at ₹ 18,19,34,011/- as per the provisions of the Act. The relevant discussion in the assessment order reveals that assessee was also asked to produce the basis of valuation of shares and in response assessee furnished a copy of the financial statements of Shri Santram Finance Ltd. for the financial year ending 31.3.2008. From the discussion in the assessment order it is revealed that assessee explained that the redemption value was agreed upon mutually betwee .....

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, one R.K. Byramjee was a Director in both the concerns, i.e., assessee as well as the investee company and, therefore, it was a transaction between associate concerns. Secondly, as per the Assessing Officer, the basis of valuation of shares was not submitted by the assessee. Thirdly, the Assessing Officer observed that assessee has not been able to produce the details of the bank account through which the payment is effected. In the assessment order, the Assessing Officer further notes that mer .....

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icer. So however, it is sought to be pointed out that there is no justification for the levy of penalty u/s 271(1)(c) of the Act in the facts and circumstances of the case. The learned representative emphasised that so far as the adequacy of disclosure is concerned, the return of income filed by the assessee itself contains a Note explaining the loss computed under the head Capital Gains on account of redemption of Preference shares of Shri Santram Finance Ltd. during the year. In this context, .....

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per Book). On the basis of the aforesaid submissions made before the Assessing Officer, the learned representative has sought to demonstrate that not only assessee had furnished the complete details, but also explained the basis on which the redemption price was mutually agreed, and also justification for the same. In particular, the learned representative has emphasised that before the Assessing Officer, assessee has all along contended that in all probability, the impugned Capital Loss would n .....

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time of hearing, the learned representative for the assessee made a statement at Bar that upto Assessment Year 2016-17 assessee has not taken advantage whatsoever from the impugned Capital Loss inasmuch as assessee had not earned any positive income on account of Capital Gains so as to set-off such Capital Loss. The learned representative pointed out that in all eventuality, the impugned Capital Loss will expire after the unused period of 8 years and, therefore, this clearly demonstrates that th .....

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d deserves to be set-aside. In support of the aforesaid proposition, reliance has been placed on the following decisions :- i) M/s. SSA s Emerald Meadows, ITA No. 380/2015 dated 23.11.2015 (Hon'ble Karnataka High Court); ii) Manjunatha Cotton and Ginning Factory & Ors., 359 ITR 565 (Kar.); iii) Dilip N. Shroff, 161 Taxman 218 (SC); iv) Dr. Sarita Milind Davare, ITA No. 2187 & 1789/Mum/2014 dated 21.12.2016; v) Shri Samson Perinchery, ITA No. 4625 to 4630/Mum/2013 dated 11.10.2013 6. .....

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is a debatable issue and would not justify levy of penalty u/s 271(1)(c) of the Act; and, in particular, reliance has been placed on the judgment of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) in this regard. 7. On the other hand, the ld.CIT-DR appearing for the Revenue has defended the action of the income-tax authorities and pointed out that the loss was disallowed by the Assessing Officer noticing that the shares were purchased at a premium whereas the redemption pric .....

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out that in the assessment order itself the Assessing Officer in para 4 has recorded that the penalty u/s 271(1)(c) of the Act was initiated for furnishing of inaccurate particulars of income. It was, therefore, contended that the assessment order itself shows due application of mind by the Assessing Officer for initiation of proceedings u/s 271(1)(c) of the Act and that the notice issued u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 cannot be solely examined to see whether the Assessing .....

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Assessing Officer to impose penalty to the extent specified if, in the course of any proceedings under the Act, he is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In other words, what Sec. 271(1)(c) of the Act postulates is that the penalty can be levied on the existence of any of the two situations, namely, for concealing the particulars of income or for furnishing inaccurate particulars of income. Therefore, it is ob .....

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Shroff (supra) but also in the case of T.Ashok Pai, 292 ITR 11 (SC). Therefore, if the two expressions, namely concealment of the particulars of income and furnishing of inaccurate particulars of income have different connotations, it is imperative for the assessee to be made aware as to which of the two is being put against him for the purpose of levy of penalty u/s 271(1)(c) of the Act, so that the assessee can defend accordingly. It is in this background that one has to appreciate the prelim .....

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rs 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 following specific discussion in the order of Hon'ble Supreme Court in the case .....

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tor 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] 9. Factually speaking, the aforesaid plea of assessee is borne out of record and having regard to the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shro .....

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ng, the ld. CIT-DR has not disputed the factual matrix, but sought to point out that there is due application of mind by the Assessing Officer which can be demonstrated from the discussion in the assessment order, wherein after discussing the reasons for the disallowance, he has recorded a satisfaction that penalty proceedings are initiated u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income. In our considered opinion, the attempt of the ld. CIT-DR to demonstrate applicat .....

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rther, it is also noticeable that such proposition has been considered by the Hon'ble Bombay High Court also in the case of Shri Samson Perinchery, ITA Nos. 1154, 953, 1097 & 1126 of 2014 dated 5.1.2017 (supra) and the decision of the Tribunal holding levy of penalty in such circumstances being bad, has been approved. 11. Apart from the aforesaid, the ld. CIT-DR made an argument based on the decision of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Others, 216 ITR .....

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upra) as also the judgments of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) and Dharmendra Textile Processors, 306 ITR 277 (SC) deduced 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 notic .....

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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 t .....

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pportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified. In the instant case also, we are of the view that the AO has 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 no .....

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importance of non-striking off of irrelevant clause in the notice by the Assessing Officer. As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are to be initiated for furnishing of inaccurate particulars of income. However, in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act of even date, both the limbs of Sec. 271(1)(c) of the Act are reproduced in the proforma notice and the irrelevant clause has n .....

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