TMI Blog2019 (4) TMI 704X X X X Extracts X X X X X X X X Extracts X X X X ..... in natures. We are of the considered view that mere disallowance of sale promotion expenses claimed by the assessee does not amount to concealment of income or furnishing of inaccurate particulars of income and as such penalty cannot be levied. Further more when it is not in dispute that the question as to disallowance of 50% of expenditure claimed by the assessee under the head “Sale Promotion expenses’ is pending adjudication before the Hon’ble High Court. So, when, the question of disallowance of sale promotion expenses is “debatable one penalty cannot be imposed. in view of what has been discussed above, the case of Sundaram Finance Ltd. [2018 (5) TMI 259 - MADRAS HIGH COURT] and other decision, as relied upon by ld. DR for the Revenue are not applicable to the facts and circumstances of the case. However, decision rendered by Hon’ble Apex Court in CIT vs. SSA’s Emerala Meadows [2016 (8) TMI 1145 - SUPREME COURT] and Hon’ble Karnataka High Court in CIT vs. Manjunatha Cotton and Ginning Factory [2013 (7) TMI 620 - KARNATAKA HIGH COURT] are applicable to instant case. In view of discussion made in the preceding paras AO/CIT(A) have erred in levying /confirming the penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 88,53,764/- has been deleted by the Ld. CIT(A) in respect of disallowance of FBT, PF, ESI and IT. The AO initiated the penalty proceedings by way of issuance of notice u/s 274 read with section 271 of the Act for disallowance of Sales Promotion expenses of ₹ 45,60,824/- only. Declining the contention raised by the assessee that the entire expenditures was supported by bills vouchers etc. and most of the payments were made through banking channel and genuineness of the expenditure has not been doubted and that there was no deliberate concealment of any particulars of income, AO levied the penalty of ₹ 15,50,224/- @ 100% and Section 271(1)(c) of the Act. 3. Assessee sought to raise one legal ground challenging the show cause notice issued by the AO for initiation of the penalty u/s 271(1)(c) of the Act as ground no. 2 in the amended grounds of appeal dated 01.04.2019, which is allowed as the legal ground as to the defective show cause notice can be raised, at any stage of the proceedings and is also necessary for complete adjudication of the controversy at hand. 4. Assessee carried the matter before Ld. CIT(A) by way of filing the appeal who has confirmed the pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT (A) which has caused no prejudice to the assessee as the assessee has understood the purport and import of the notice under section 274 read with section 271 of the Act and relied upon the decision rendered by the Hon ble Madras High Court in Sundaram Finance Ltd. vs. CIT (2018) 403 ITR 407 (Madras) , in which SLP has also been dismissed by Hon ble Supreme Court in the case cited as Sundaram Finance Ltd. vs. CIT (2018) 99 taxmann.com 152 (SC) and also relied upon the judgment of CIT vs. Smt. Kaushalya 216 ITR 660 (Bombay) Trimurti Engineering Works vs. ITO (2012) 138 ITD 189 (Del.). Ld. DR also filed written submission which are made part of the record. 11. In order to proceed further, we would like to peruse the notice issued by AO u/s 274 read with section 271(1)(c) of the Act to initiate the penalty proceedings which is extracted as under for ready perusal:- NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE INCOME TAX ACT, 1961. To Dated : 18.11.2011 The Principal Officer, M/s. OCHOA LABORATORIES LTD., W-89A, VIKAS APPARTMENT, GREATER KAILASH PART- II NEW DELHI 110 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired u/s 274 read with section 271, penalty levied is not sustainable. The operative part of the judgment is reproduced as under:- 59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation 1 or in Explanation 1 (B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of T Ashok Poi v. CIT [2007] 292 ITR 11 /161 Taxman 340 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of CIT v. Manu Engg. [1980] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and furnished inaccurate particulars of income. Therefore, the contention raised by the assessee is liable to be rejected on facts. That apart, this issue can never be a question of law in the assessee s case, as it is purely a questi on of fact. Apart from that, the assessee had at no earlier point of time raised the plea that on account of a defect in the notice, they were put to prejudice. All violations will not result in nullifying the orders passed by statutory authorities. If the case of the assessee is that they have been put to prejudice and principles of natural justice were violated on account of not being able to submit an effective reply, it would be a different matter. This was never the plea of the assessee either before the Assessing Officer or before the first Appellate Authority or before the Tribunal or before this Court when the Tax Case Appeals were filed and it was only after 10 years, when the appeals were listed for final hearing, this issue is sought to be raised. Thus on facts, we could safely conclude that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74 read with section 271(1) on the assessee rather it is a case of non-application of mind on the part of the AO to make himself satisfied as to under which limb of section 271(1)(c) of the Act, he is going to initiate/levy the penalty on the assessee. 19. Furthermore assessee by relying upon decision rendered by Hon ble High Court of Delhi in case cited as PR. CIT-8 vs. SAMTEL INDIA LTD. ITA No. 43/2017 contended that for mere disallowance of claim raised by the assessee for expenditures, assessee cannot be penalized u/s 271(1)(c). Operative part of the judgment (supra) is extracted for ready perusal as under : 11. A glance at the Section 271(1)(c) presents two essentials - concealment and furnishing inaccurate particulars of income . The current appeal is, however, only concerned with the interpretation of the phrase furnishing inaccurate particulars of income. The Revenue claims that by furnishing a wrong claim the assessee has furnished inaccurate particulars of income. The meaning of the phrase furnishing inaccurate particulars of income was explained by the Supreme Court in the case of Commissioner of Income Tax vs Reliance Petroproducts Pvt Ltd [(2010)322 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself is unsustainable in law. The Supreme Court further held in the Reliance Petrochemicals case that- Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the revenue, that, by itself, would not attract the penalty under section 271(1) (c). If the contention of the revenue was accepted, then in case of every return where the claim made was not accepted by the Assessing Officer for any reason, the assessee would invite penalty under section 271(1)(c). 13. The intention of the Parliament cannot be taken to have been to penalize everyone who makes a wrong claim for deduction. The legislature does not intend to penalize every person whose claim is disallowed. This is not the aim of the legislature. The Tribunal in the facts of this case, therefore, correctly reached this conclusion. The question of law is answered in favour of the assessee and against the Revenue; therefore, the appeal has no merit and is dismissed. 20. So, in the instant case also assessee claimed sale promotion expenses which have been disallowed by the AO as well as Ld. CIT(A) specifically on the ground that the assessee has failed to fur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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