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2018 (2) TMI 963

Penalty u/s 271(1)(c) - expenses incurred on Linkside building claimed as capital expenditure or revenue expenditure - defective notice - non specify the limb of Sec. 271(1)(c) for which the penalty proceedings had been initiated - Held that:- We find that the issue involved in the present case is squarely covered by the case of Meherjee Cassinath Holdings Vs. ACIT, Circle-4(2), Mumbai (2017 (5) TMI 904 - ITAT MUMBAI) wherein concluded that as the non striking off the irrelevant charge in the notice clearly reflects the non application of mind by the A.O, therefore, the order passed under Sec. 271(1)(c) in the backdrop of the said jurisdictional defect would be rendered as invalid and void ab initio. - We find ourselves to be in agreement with the view taken by the CIT(A) that now when the only valid return of income was filed by the assessee as on 31.03.2011, therefore, the A.O could have imposed penalty only by pitting the income assessed vide order dated 19.03.2015, as in comparison to the income returned by the assessee in its return of income filed on 31.03.2011 - assessee had claimed the expenditure incurred on Linkside building as a capital expenditure in its original r .....

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, the Ld. CIT (A) was right in holding that the issue was not of Revenue expenditure vs. Capital expenditure. In fact, there is a deliberate attempt by the assessee to manipulate the accounts by booking the project expenses and by not correspondingly increasing the closing stock. 5. Whether on facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate the fact that if there had not been re-assessment proceedings, the assessee could have very well managed to get away with the claim of ₹ 1,07,94,855/- as Revenue Expenditure, without correspondingly increasing the stock in trade. 6. The appellant prays that the order of the CIT(A), on the grounds, be set aside and that of the Assessing Officer be restored. 7. The appellant craves leave to add, amend or alter all or any of the grounds of appeal which may be necessary. 2. Briefly stated, the facts of the case are that the A.O observing that the assessee company had not filed its return of income for the year under consideration, viz. A.Y 2009-10, therefore, initiated assessment proceedings under Sec. 147 of the Act. The assessee in compliance to the notice issued under Sec. 148 e-filed its return of .....

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the aforesaid facts submitted before the CIT(A) that as it had filed the original return of income under Sec. 139(4) on 31.03.2011, therefore, the provisions of Explanation 3 of Sec. 271(1)(c) were wrongly invoked by the A.O. The assessee fortifying its aforesaid contention, submitted before the CIT(A) that the penalty contemplated in Explanation 3 of Sec. 271(1)(c) was applicable only where the assessee was found to have not filed its return of income under Sec. 139 within the period specified in Sec. 153(1). The assessee further challenging the validity of the penalty imposed by the A.O under Sec. 271(1)(c), submitted that while for the penalty proceedings were initiated on the ground of furnishing of inaccurate particulars of income, however, the same was imposed for concealment of income. It was further submitted by the assessee that as it had in the earlier returns of income already added back the expense of ₹ 107,94,855/- to its loss and arrived at the returned income of ₹ 37,80,790/-, therefore, no penalty under Sec. 271(1)(c) could have been levied in its hands. The assessee further assailing the validity of the penalty imposed under Sec. 271(1)(c) on merits, su .....

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assessee in its return of income filed on 31.03.2011. The CIT(A) further observed that as the assessee had claimed the expenditure incurred on Linkside building as a capital expenditure in its original return of income, therefore, there was no basis for characterising the same as the concealed income of the assessee. The CIT(A) was further persuaded to be in agreement with the claim of the assessee that as the moot issue involved in the case was as regards characterisation of the expenditure incurred by the assessee as revenue or capital in nature, therefore, on the said count no penalty could justifiably have been imposed in the hands of the assessee. It was observed by the CIT(A) that as the assessee had clearly reflected the details of expenses in its records, therefore, it could safely be concluded that the assessee had not concealed the particulars of its income. The CIT(A) taking cognizance of the fact that the assessee should have brought the fact as regards filing of the original return of income to the notice of the A.O during the course of the assessment proceedings, however observed that the same was a bonafide mistake on the part of the assessee. The CIT(A) on the basi .....

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ought to adjudicate the validity of the penalty imposed in the hands of the assessee under Sec. 271(1)(c). We have given a thoughtful consideration to the issue before us and find that it remains as a matter of fact that in the notice issued under Sec. 274 r.w.s. 271, dated 19.03.2015, the A.O had failed to strike off the irrelevant default. We would now test the validity of the aforesaid notice and the jurisdiction emerging there from in the backdrop of the aforesaid facts. We are not oblivious of the fact that the A.O. is vested with the powers to levy penalty in the hands of the assessee under Sec. 271(1)(c) of the Act, if in the course of the proceedings, he is satisfied that any person has either concealed his income or furnished inaccurate particulars of his income . We are of the considered view that both of the aforesaid two defaults contemplated in Sec. 271(1)(c) operate in their exclusive independent fields and are neither interchangeable nor overlapping in nature. We are of a strong conviction that as penalty proceedings are in the nature of quasi criminal proceedings, therefore, the assessee as a matter of statutory right is supposed to know the exact charge he had to f .....

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d in law. The Special Leave Petition (SLP) filed by the revenue against the aforesaid order of the Hon ble Karnataka High Court had thereafter been dismissed by the Hon ble Supreme Court in CIT Vs. SSA s Emerald Meadows (2016) 73 taxmann.com 248 (SC). We further find that a similar view had also been taken by the Hon ble High Court of Bombay in the case of CIT Vs. Samson Perinchery (ITA No. 1154 of 2014; Dt. 05.01.2017)(Bom). 8. We find that the issue involved in the present case is squarely covered by the order of a coordinate bench of ITAT, Mumbai Bench B , Mumbai in the case of Meherjee Cassinath Holdings Vs. ACIT, Circle-4(2), Mumbai (ITA No. 2555/Mum/2012), dated 28.04.2017, wherein the Tribunal after deliberating on the aforesaid judicial pronouncements had concluded that as the non striking off the irrelevant charge in the notice clearly reflects the non application of mind by the A.O, therefore, the order passed under Sec. 271(1)(c) in the backdrop of the said jurisdictional defect would be rendered as invalid and void ab initio. The Tribunal in its aforesaid order in the case of Meherjee Cassinath Holdings Pvt. Ltd. (supra) had observed as under:- 8. We have carefully cons .....

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ection 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 of Dilip N. Shroff (supra):- 83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the some had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee 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 nonapplication 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. Shroff (supra), the .....

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the Honble Bombay High Court in the case of Smt. Kaushalya & Ors., (supra) 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 notice. In the case of Lakhdir Laiji (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'ble 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. .....

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clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of Assessing Officer and there is no clear and crystallised 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 observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non-compliance with principles of natural justice inasmuch 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. 14. 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 10 .....

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the Linkside building was a revenue expenditure or in the nature as that of a capital expenditure was in itself a debatable issue, therefore, merely for the reason that the view taken by the assessee did not find favour with the A.O would not justify imposition of penalty under Sec. 271(1)(c) in the hands of the assessee. We find that the aforesaid issue is fortified by the judgment of the Hon ble High Court of Bombay in the case of CIT Vs. Reliance Petro Products (P) Ltd. (2010) 322 ITR 158 (SC), wherein it was held as under: It was, therefore, reiterated before us that the AO had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the as .....

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