ITAT Indore

Shri Vivek Chugh Vs ACIT

ITA No.636/Ind/2017

Dated 28/03/2019

 Assessment Year : 2013-14

This is an appeal filed by the Assessee against the order of Commissioner of Income Tax(Appeals)-III, Indore dated 31/07/2017 pertaining to assessment year 2013-14. The Assessee has raised following grounds of appeal:

“Grounds of Income-Tax Appeal before the Hon’ble Income-Tax Appellate Tribunal, Indore Bench, Indore, against the Appellate Order passed, under s. 250 of the income Tax Act, 1961, by the learned Commissioner of Income-Tax (Appeals)-III, Indore, pertaining to the A.Y. 2013-14 in response to the appeal filed against the Penalty Order under s. 271AAB of the Act, passed by the learned Assistant Commissioner of Income- Tax (Central)-2, Indore.

1.That, the learned CIT (A) grossly erred in law in confirming the penalty of Rs.3,50,000/- out of total penalty of Rs.7,00,000/- imposed by the Assessing Officer under s.271AAB of the Income-Tax Act, 1961 without considering and appreciating the material fact that the AO imposed the penalty without issuing a proper show-cause notice as contemplated under the provisions of section 274 of the Income-Tax Act, 1961.

2.That, without prejudice to the above, the learned CIT(A) grossly erred in confirming the penalty of Rs.3,50,000/- out of total penalty of Rs.7,00,000/imposed by the Assessing Officer under s.271 AAB of the Income-Tax Act, 1961 without considering and appreciating the material fact that the appellant had fully admitted undisclosed income and also specified the manner, in a very unequivocal and unambiguous way, in which such undisclosed income has been derived during the course of search, in a statement of his father namely Shri Mohanlal Chugh recorded under s. 132(4) of the Act.”

2. Briefly stated facts are that a search and seizure operation u/s 132 was carried out on the business as well as residential premises of the Chugh Group of Indore including the assessee. Thereafter, a notice u/s 153A was issued, in response thereto, the assessee filed his return of income on 22.12.2014 including additional income of Rs.35,00,000/- declared during the search. The assessing officer observed that the assessee could not specify and substantiate the manner in which the said undisclosed income has been derived hence penalty proceedings u/s 271AAB was initiated. Subsequently, the assessing officer imposed a penalty of Rs.7,00,000/- @ 20% of the concealed income.

4. Aggrieved by this the assessee preferred an appeal before the Ld. CIT(A) who however reduced the penalty and restricted the same @10% of the undisclosed income i.e. amounting to Rs.3,50,000/-.

The assessee is in present appeal against the order of the Ld. CIT(A). At the outset, Ld. counsel for the assessee submitted that initiation of penalty u/s 271AAB of the is ex facie bad in law. He drew our attention towards the notice dated 05.08.2015 and enclosed at page no.25 of the paper book. He submitted that the AO initiated penalty proceedings in a casual mechanical manner. That goes to demonstrate that assessing officer has not made a specific charge. Further Ld. counsel for the assessee relied upon the various case laws more particularly in the case of Sandeep Chandak, vs. ACIT in ITANos.416,417 and 418/Lkw/2016 dated 30.01.2017. Further reliance has made on the decision of the Hon’ble Supreme Court rendered in the case of CIT vs. M/s. SSA’s Emerald Meadows (2016) 8 TMI 1145(SC), judgment of the Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory (2012) 83 CCH 282 (Kar. HC). Ld. counsel has also placed reliance on the following decisions of the Tribunal rendered in the cases of:

To buttress his contention that notice so issued is illegal and therefore, is not sustainable in the eyes of law.

5. On the contrary Ld. DR opposes the submissions and supported the order of the authorities below. Ld. DR submitted that there no ambiguity under the law in case assessee admits amount being in disclosed then it is to be dealt with in the manner prescribed under 271AAB of the Act. In rejoinder Ld. counsel for the assessee submitted that even the Ld. CIT(A) has sustained penalty u/s 271AAB(1)(a) of the Act while the assessing officer had initiated penalty u/s 271AAB(1)(b) of the Act. No notice of initiating penalty u/s 271AAB(1)(a) was given to the assessee. This fact is sufficient to set aside the impugned order.

6. We have heard the rival submissions and perused the material available on records and gone through the orders of the authorities below. We find that the assessing officer had given a notice which enclosed in the paper book at page 25 for the sake of clarity notice is reproduced as under:

7. A bare reading of the above notice suggests that the notice has been issued in a casual fashion. The Assessing officer has not applied his mind and no specific charge is mentioned for which the assessee was required to be show caused. In absence of the requisite contents of specific charge the initiation of proceedings cannot be sustained being bad in law. Admittedly, Ld. CIT(A) reduced the penalty by applying the provisions of section 271AAB(1)(a). There is no ambiguity under the law so far powers of Ld. CIT(A) is concerned, he can modify the penalty order by enhancing or reducing the penalty. However, where the Act provides for two different rates under different two provisions of law in our considered view, the assessee ought to have been given an opportunity of hearing on this aspect. However, in the present case at the very inception notice initiating penalty is not in accordance with mandates of law. Moreover, it is settled position of law that such defect is not curable u/s 292BB of the Act. Therefore, we hereby quash the penalty order.

8. In the result, the appeal of the Assessee in ITANo.636/Ind/2017 is allowed.

Order was pronounced in the open court on 28.03.2019.

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Reassessment Not Valid if Income Tax Notice not issued on officially notified address : CHHATTISGARH HC

Income Tax Notice u/s 143(2) invalid as issued by ACIT instead of ITO

No penalty if Income Tax notice didn’t specify concealment or furnishing inaccurate income

[As amended by Finance Act, 2019]

POWER OF PRINCIPAL COMMISSIONER OR COMMISSIONER TO REDUCE OR WAIVE PENALTY

In the tutorial on ‘Penalties Under the Income-tax Act’, we discussed various penalties imposable under the Income-tax Act in respect of various defaults. Apart from enacting penalty provisions, the Income-tax Act also designed provisions empowering the Principal Commissioner of Income-tax or Commissioner of Income-tax to grant relief from penalty to taxpayers in genuine cases. Such power is granted under section 273A and section 273AA. In this part you can gain knowledge about the provisions of section 273A and section 273AA.

Overview of major penalties under the Income-tax Act

Before understanding the provisions of section 273A and 273AA it is better to take an overview of the penal provisions under the Income-tax Act. The following table highlights major penalties imposable under the Income-tax Act.

Power of Principal Commissioner or Commissioner to reduce or waive penalty under sections 273A(1), 273A(4) and 273AA

> Waiver or reduction of penalty under section 273A(1)

Section 273A(1) empowers the Principal Commissioner or Commissioner to grant waiver or reduction from penalty imposed or imposable under section 270A (i.e., penalty for under-reporting and misreporting of income) or under section 271(1)(c) (i.e., penalty for concealment of particulars of income or furnishing inaccurate particulars of income).

Initiation to be taken by Principal Commissioner or Commissioner or the taxpayer

The waiver or reduction under section 273A(1) can be granted by the Principal Commissioner or Commissioner either on his own motion or otherwise, i.e., on an application made by the taxpayer.

Conditions for granting relief

Relief under section 273A(1) is granted if following conditions are satisfied :

(1) Prior to the detection by the Assessing Officer of the concealment of particulars of income or of the inaccuracy of particulars furnished in respect of such income, the taxpayer voluntarily and in good faith, makes a full and true disclosure of such particulars.

For the purpose of section 273A(1), a person shall be deemed to have made full and true disclosure of his income or of the particulars relating thereto in any case where the excess of income assessed over the income returned is of such a nature as not to attract penalty under section 270A or under section 271(1)(c).

(2) The taxpayer should have co-operated in any enquiry relating to the assessment.

(3) The taxpayer either should have paid or made satisfactory arrangements for paying any tax or interest payable in consequence of an order passed under the Act in respect of the relevant year.

Previous approval of Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General

If the amount of income in respect of which the penalty is imposed or imposable for the relevant year or, where such disclosure relates to more than one year, the aggregate amount of such income for those years exceeds a sum of Rs. 5,00,000, no order reducing or waiving the penalty under section 273A(1) shall be made by the Principal Commissioner or Commissioner, except with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General, as the case may be.

Finality of the order

Every order made under section 273A shall be final and shall not be called into question by any Court or any other authority.

No relief if waiver claimed earlier

As per section 273A(3), where an order has been made under section 273A(1) in favour of any person, whether such order relates to one or more years, he shall not be entitled to any relief under section 273A in relation to any other year at any time after the making of such order.

Thus, if a person has claimed relief under section 273A(1) at any time, then he cannot claim relief under section 273A [i.e., 273A(1) as well as section 273A(4)] thereafter.

> Waiver or reduction of penalty under section 273A(4)

Section 273A(4) empowers the Principal Commissioner or Commissioner to waive or reduce any penalty imposable under the Income-tax Act as well as to stay or compound any proceeding for the recovery of penalty.

Initiation to be taken by the taxpayer

For obtaining waiver or reduction or stay or compound any proceeding for the recovery of penalty, the taxpayer has to make an application to the Principal Commissioner or Commissioner.

Conditions for granting relief

Relief under section 273A(4) is granted if following conditions are satisfied :

(1) Levy of penalty will cause genuine hardship on the taxpayer.

(2) The taxpayer has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him.

Previous approval of Chief Commissioner or Director General

If the amount of any penalty or, where such application relates to more than one penalty, the aggregate amount of such penalties exceeds Rs. 1,00,000, no order of reducing or waiving the amount or compounding any proceeding for its recovery under section 273A(4) shall be made by the Principal Commissioner of Commissioner, except with the previous approval of the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General, as the case may be.

Time-limit for passing order under section 273A(4)

The Principal Commissioner or Commissioner, as the case may be, shall pass order, either accepting or rejecting assessee’s application to reduce or waive penalty, within a period of 12 months from the end of the month in which application is received.

However, order shall be passed on or before May 31, 2017 in case of application pending as on June 1, 2016.

Further, no order rejecting the application shall be passed unless the assessee has been given an opportunity of being heard.

Finality of the order

Every order made under section 273A shall be final and shall not be called into question by any Court or any other authority.

No relief if waiver claimed earlier

Section 273A(1) empowers the Principal Commissioner or Commissioner to grant waiver or reduction from penalty levied under section 270A (i.e., penalty for under-reporting and misreporting of income) or under section 271(1)(c) (i.e., penalty for concealment of particulars of income or furnishing inaccurate particulars of income).

As per section 273A(3), where an order has been made under section 273A(1) in favour of any person, whether such order relates to one or more years, he shall not be entitled to any relief under section 273A in relation to any other year at any time after the making of such order.

Thus, if a person has claimed relief under section 273A(1) at any time, then he cannot claim relief under section 273A [i.e., section 273A(1) as well as section 273A(4)] thereafter.

Waiver of penalty under section 273AA

Section 273AA empowers the Principal Commissioner or Commissioner to grant immunity from imposition of any penalty under the Income-tax Act in a case where the taxpayer has made an application for settlement under section 245C and the proceedings for settlement have been abated under section 245HA and penalty proceedings are initiated under the Income-tax Act.

Initiation to be taken by the taxpayer

For obtaining waiver, the taxpayer has to make an application to the Commissioner.

Time-limit for passing order under section 273AA

The Principal Commissioner or Commissioner, as the case may be, shall pass order, either accepting or rejecting assessee’s application to reduce or waive penalty, within a period of 12 months from the end of the month in which application is received.

However, order shall be passed on or before May 31, 2017 in case of application pending as on June 1, 2016.

Further, no order rejecting the application shall be passed unless the assessee has been given an opportunity of being heard.

Other provisions applicable to the case of waiver under section 273AA

• The application to the Commissioner for waiver shall not be made after the imposition of penalty after abatement.
• The Commissioner may, subject to such conditions as he may think fit to impose, grant to the person immunity from the imposition of any penalty under the Income-tax Act.
• Before granting the waiver, the Commissioner should be satisfied that the taxpayer has, after the abatement, co-operated with the Income-tax authority in the proceedings before him and made a full and true disclosure of his income and the manner in which such income has been derived.
• The immunity granted under section 273AA shall stand withdrawn, if such person fails to comply with any condition subject to which the immunity was granted and after the withdrawal of the immunity, the provisions of the Act shall apply as if such immunity had not been granted.
• The immunity granted under section 273AA may, at any time, be withdrawn by the Principal Commissioner or Commissioner, if he is satisfied that such person had, in the course of any proceedings, after abatement, concealed any particulars material to the assessment from the income-tax authority or had given false evidence, and thereupon such person shall become liable to the imposition of any penalty under the Act to which such person would have been liable, had not such immunity been granted.

( Republished with Amendments, Source- Income Tax Act, Rules and http://www.incometaxindia.gov.in/ )

Related Post

Income Tax penalty under New Section 270A Income Tax Act

This appeal is directed by the Revenue against the order of ld.CIT(A)-43, New Delhi dated 31.03.2015 for the assessment year 2007-08 on the following grounds :

1. Whether on the facts and in the circumstances of the case, the Ld. CIT (A) has erred in deleting penalty of Rs.25,62,569/- u/s 271(1)(c) of the Income Tax Act, 1961(‘the Act’) imposed by the Assessing Officer.

1 (a). Whether the Ld CIT (A) has erred in relying upon, inter alia, the decision of the Hon ’ble High Court in the case of M/s Reliance Petroproducts [(2010) 322 ITR 158] in deleting the penalty, not appreciating the fact that the ratio of the said case is applicable only in cases where there is a bona fide difference of opinions with regard to admissibility of a claim and not to the cases where the claim of the assessee is patently untenable.

1(b). Whether the LD CIT(A) has erred in holding that it was a case of a bonafide error not amounting to furnishing of inaccurate particulars and that case is covered by the decision in Price Water House Coopers Vs CIT [348 ITR 306 (SC)], not appreciating the fact that the said case did not lay down any general proposition to the effect that penalty is not to be levied in all cases of so-called error.

1(ba). The Ld CIT (A) erred in not appreciating the fact that the decision in the case of Price Water House Coopers turned on the peculiar fact situation involved therein, as, a) the factum of non-allowability of the item was prominently mentioned in the Tax Audit Report and

b) the assessee filed a revised return immediately after the omission came to its notice. As against this, in the present case, the assessee was apparently aware of that the claim of loss was wrong and did not take any suo motu action for correcting the error either at the time of original assessment proceedings or at the time of re-assessment.

1(c). Whether the Ld CIT(A) has erred in ignoring the ratio of the decisions in the cases of Zoom Communications [327 ITR 510 (Del)] and Escorts Finance [328 ITR 44] wherein it has been held that the plea of “oversight” was not acceptable in the era of no-scrutiny assessment.”

2. The brief facts of the case are that the assessee filed return of income at a loss of Rs. 19,22,47,512/-. Assessment order u/s 143(3) was completed on 7.12.2009, whereby the declared loss was reduced to Rs. 16,78,25,520/- by making addition amounting to Rs. 2442 1992/- in the following heads :

Based on the above additions, the AO initiated penalty proceedings u/s 271(1)(c) and issued notice dated 7.12.2009. Pursuant to assessee’s submission made vide letter dated 5.1.2010, the AO dropped the penalty proceedings vide his order dated 7.1.20 10. Thereafter, the Assessing Officer on the basis of some information in his possession, reopened the case vide notice u/s 148 dated 27.3.2012. The AO recorded the following reasons:

“The assessee is a Non-Resident. For the year under reference, the assessment was done u/s 143(3) at loss of Rs.16,78,25,520/-.

The assessee has claimed an expenditure of Rs 61,21,337/ -on account of loss on sale of fixed assets. As this is a capital loss to the company, it should have been added back to the income of the assessee. This resulted in over assessment of loss of Rs 61,21,337/- involving potential tax effect, of Rs 25,59,943/-.

The assessee has claimed an expense of Rs (21517294- 19480078=203722) on account of provision for doubtful advance. As this is a capital loss to the company, it should be disallowed.

The assessee has claimed Rs 45,19,389/- on account of Bank guarantee Commission which as per Act is not an admissible expenditure. This should be disallowed.

In view of the above, I have reasons to believe that income of more than Rs 1 lakh of the assessee company for AY 2007-0 8, has escaped assessment. I am therefore satisfied that it is a suitable case to be reopened for reassessment.

Based on the above reasons, reassessment was completed u/s. 147/148 on 27.05.2013 making an addition of Rs.61,2 1,33 7/- observing as under :

“During the course of assessment the assessee was informed -about the provision section 50 of the income tax Act 1961. Wherein it is provided that the profit or loss of depreciable asset will be assessed only in the situation if the whole of the block of assets is exhausted and there is loss or profit which is to be assessed as such. In the case of assessee the block of assets exists and as per the provision of the Act the loss is not allowable. Therefore the loss claim at Rs 61,21,337/- is liable to be disallowed. The counsel of assessee did not make an objection to it thus an amount of Rs 61,21,337/- is disallowed and added back to the total income of assessee. ”

Based on this addition, the Assessing Officer initiated penalty proceedings u/s. 271(1)(c) of the Act and after considering the explanation of the assessee, a penalty of Rs.25,62,569/- was imposed against the assessee. In appeal, the ld. CIT(A) deleted the penalty vide impugned order. Aggrieved, the Revenue is in appeal before the Tribunal.

3. The learned DR reiterating the grounds of appeal submitted that the ld. CIT(A) was not justified in deleting the penalty ignoring the fact that the decisions relied on by first appellate authority are distinguishable on facts. It was submitted that there was no bona fide on the part of assessee to claim a capital loss as revenue loss. Therefore, the assessee has furnished inaccurate particulars of income and therefore, the Assessing Officer had rightly imposed penalty which has been wrongly deleted by the ld. CIT(A).

4. On the other hand, the ld. AR of the assessee reiterating the detailed submissions made before the ld. CIT(A) supported the impugned order and relied on various case laws as also relied by the ld. CIT(A). He has made extensive arguments on various aspects of the case, such as invalidity of notice specifying no particular charge and the bona fide of assessee in making the claim of loss etc.

5. We have heard the rival submissions and have gone through the entire material available on record. An insight over the penalty order, we find that the penalty was initiated on account of loss claimed by the appellant on sale of assets, even though, that particular block of assets had not been exhausted. We do not find any justification to discard the findings reached by the ld. CIT(A) that the assessee had duly disclosed the loss on sale of assets at Rs. 61,21,337/-, being part of administrative expenses and this amount was duly appearing in the schedules forming part of profit and loss account for the year under consideration. The accounts are audited by qualified chartered accountant. In presence of these facts, the ld. CIT(A) has not fallen in error while holding that this was not a case of concealment. However, the fact remains that the assessee had made ineligible claim, for which the bona fide of the assessee stands proved from the fact that as per Form No. 3CD, at item no. 17(a), the auditor has reported that there is no expenditure of capital nature which has been debited to the profit and loss account. Therefore, in our considered opinion, the claim of loss made on the basis of tax audit report cannot be said to be non-bona fide. We have also gone through the decisions relied by the ld. CIT(A) and we find that in the present scenario, the said decisions are found applicable to the case in hand and the distinguishing features given in the grounds of appeal are not found tenable in the eyes of law. It is also worth consideration that at the initial stage of original assessment, the assessee had claim similar loss, which was partly accepted by the Assessing Officer and penalty proceedings initiated at that point of time were also dropped. Therefore, there appear different opinions of revenue authorities at different points of time. In such circumstances, the ld. has rightly following the decision in CIT vs. Reliance Petro Products Pvt. Ltd, 322 ITR 158), where it has been held that “ mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.” Moreover, though the assessee is neither in appeal nor in cross objection, the ld. DR could also not rebut the contention of the assessee made before ld. CIT(A) as well as before us in its submissions that the penalty notice itself was defective having not specifying a particular charge – whether concealment of particulars of income or furnishing of inaccurate particulars thereof. We, therefore, do not find any infirmity in the order of the ld. CIT(A) while deleting the impugned penalty.

6. In the result, the appeal of the Revenue is dismissed.

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