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ITO-13 (2) (3) , Mumbai Versus M/s Shangrila Sales Pvt. Ltd.

2018 (2) TMI 963 - ITAT MUMBAI

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 no .....

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rison 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 return of income, therefore, there was no basis for characterising the same as the concealed income of the assessee - as the assessee had duly disclosed the expenditure incurred on Linkside building in its return of income, therefore, merely for the reason that the said expenditure was claimed as a r .....

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rder passed by the CIT(A)-21, Mumbai, dated 03.10.2016, which in itself arises from the order passed by the A.O under Sec. 143(3) r.w.s 147 of the Income Tax Act, 1961 (for short Act ), dated 19.03.2015. The revenue assailing the order of the CIT(A) had raised before us the following grounds of appeal: 1. Whether, on facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the penalty levied u/s 271(1)(c) without appreciating the fact that neither the asses .....

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ject expenses of ₹ 1,07,94,855/- was debited to the P&L account without corresponding increase in the closing stock. 3. Whether, on facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the penalty levied u/s 271(1)(c) without appreciating the fact that the assessee has itself rendered the original return and the first revised return irrelevant by basing its contention, before the AO, on the accounting data submitted in its second revised retur .....

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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 .....

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4,853/- in its profit and loss account in respect of the expenses incurred on Linkside building, which were shown under the head Linkside Project (work-in- progress) in its books of accounts. The A.O being of the view that the aforesaid expenses which were in the nature of a capital expenditure and were required to be added to the cost of the fixed assets had wrongly been claimed by the assessee as a revenue expenditure, therefore, disallowed the said amount and added back the same to the block .....

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33,35,618/- for deemed concealment of the particulars of income as per Explanation 3 of Section 271(1)(c) in respect of the wrong claim of revenue expenditure of ₹ 107,94,855/- raised by the assessee in its return of income. 3. Aggrieved, the assessee assailed the penalty imposed by the A.O under Sec. 271(1)(c) in appeal before the CIT(A). During the course of the appellate proceedings it was for the very first time submitted by the assessee that an original return of income for the year .....

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incorrect computation of TDS, therefore, to undo the same it filed a second revised return of income on 15.11.2013, disclosing a depreciation loss of ₹ 17,422/-. The assessee in the backdrop of 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 .....

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me. 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, submitted that as the issue of capital or revenue expenditure was in itself a vexed issue, therefore, .....

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directed the A.O to verify the veracity of the claim of the assessee with respect to filing of the original return of income on 31.03.2011. The A.O in his report filed with the CIT(A) submitted that the claim of the assessee that it had filed its return of income on 31.03.2011 prior to issuance of any notice under Sec. 142(1) or under Sec. 148, was found to be in order. However, the A.O rebutting the contention of the assessee that while for the penalty proceedings were initiated by the A.O for .....

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for reopening of the assessment. It was observed by the CIT(A) that though the A.O had taken cognizance of the return of income filed by the assessee on 15.11.2013 wherein a depreciation loss of ₹ 17,422/- was disclosed, but however, there was no mention of the return of income which was filed by the assessee as on 31.03.2011. The CIT(A) observed that the return of income filed by the assessee on 15.11.2013 was an invalid return which had no existence in the eyes of law. That in the backd .....

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al 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 .....

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s of his aforesaid observations concluded that in the backdrop of the facts of the case the assessee was not liable to be visited with penalty under Sec. 271(1)(c). 5. The revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. The ld. Departmental Representative (for short D.R ) taking us through the facts of the case, submitted that as the assessee by claiming the capital expenditure incurred in respect of Linkside building as a revenue expenditure, had .....

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r furnishing of inaccurate particulars of income, but the penalty under Sec. 271(1)(c) was imposed for concealment of the particulars of income, therefore, the same even otherwise on the said count was not sustainable in the eyes of law. The ld. A.R further submitted that as the A.O had failed to strike off the irrelevant default in the Show cause notice (for short SCN ) issued to the assessee, therefore, the assessee remained unaware of the default for which it was called upon to show cause as .....

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as the assumption of jurisdiction by the A.O suffered from a material defect, therefore, the penalty imposed by the A.O under Sec. 271(1)(c) on the said count itself could not be sustained. 6. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present case had been sought to adjudicate the validity of the penalty imposed in the hands of the assessee under Sec. 271( .....

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der 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, the .....

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s judgments passed in the case of Dilip & Shroff Vs. Jt. CIT (2007) 210 CTR (SC) 228 and T. Ashok Pai Vs. CIT (2007) 292 ITR 11 (SC), wherein the Hon ble Apex Court had concluded that the two expressions namely concealment of particulars of income and furnishing of inaccurate of particulars of income have different connotation. The Hon ble Apex Court being of the view that the non-striking off the irrelevant limb in the notice clearly reveals a non-application of mind by the A.O, held as und .....

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reliance on 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. Vs. CIT (2000) 2 SCC 718]. 7. We have given a thoughtful consideration to the contentions of the authorized representatives before us and find that a similar issue had came up before the Hon ble High Court of Karnataka in the case o .....

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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 cov .....

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fect 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 considered the rival submissions. Sec. 271(1)(c) of the Act empowers the 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 .....

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e particulars of income' and 'furnishing of inaccurate particulars of income' referred to in Sec. 271(1)(c) of the Act denote different connotations. In fact, this distinction has been appreciated even at the level of Hon ble Supreme Court not only in the case of Dilip N. Shroff (supra) but also in the case 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 .....

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n 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. 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 i .....

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d 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 wi .....

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case of M/s. SSA's Emerald Meadows (supra) and against such a judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Hon ble Supreme Court vide order dated 5.8.2016, a copy of which is also placed on record. 10. In fact, at the time of hearing, the Id. 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, where .....

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the Assessing Officer. Since the factual matrix in the present case conforms to the proposition laid down by the Hon'ble Supreme Court, we proceed to reject the arguments advanced by the Id. CIT-DR based on the observations of the Assessing Officer in the assessment order. Further, 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) an .....

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set-up by the Id. CIT-DR and find that a similar issue had come up before our coordinate Bench in the case of Dr. Sarita Milind Davare (supra). Our coordinate Bench, after considering the judgment of 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 b .....

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nalty 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 .....

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napplication of mind in the case of Kaushalya (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 this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified. In the instant case also .....

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e decision of our coordinate Bench in the case of Dr. Sarita Milind Davare (supra), we hereby reject the aforesaid argument of the Id. CIT-DR. 13. Apart from the aforesaid discussion, we may also refer to the 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. As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that the penalty proceedings u/s 271(1)(c) o .....

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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 sh .....

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.12.2010 is untenable 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 (supra) as well as the judgment of the Hon'ble Bombay High Court in the case of Shri Samson Perinchery (supra). Thus, on this count itself the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted. We hold so. Since the penalty has been deleted on the preliminary point, the other arguments raised by the .....

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nder Sec. 271(1)(c) in the hands of the assessee. 9. We have further deliberated on the observations recorded by the CIT(A) on merits of the case and are persuaded to be in agreement with the same. 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 .....

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refore, merely for the reason that the said expenditure was claimed as a revenue expenditure would not justify imposition of penalty under Sec. 271(1)(c), for the reason that the same was held by the A.O to be in the nature as that of a capital expenditure. We find ourselves to be in agreement with the view taken by the CIT(A) that the issue as to whether an expenditure incurred by the assessee on the Linkside building was a revenue expenditure or in the nature as that of a capital expenditure w .....

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