2018 (2) TMI 45 - AT - Income Tax

Tribunal upholds CIT(A)'s decision, penalty deleted. Assessee's claims bona fide. Defective notice renders penalty invalid. Revenue appeal dismissed.

The Tribunal upheld the CIT(A)'s decision to delete the penalty, finding that the assessee had made bona fide claims and disclosed all relevant details. ... Penalty u/s. 271(1)(C) - claim as made by the assessee of reduction of its book profit as per clause (vii) of Explanation-1 below section 115JB(2) shows that it has filed inaccurate particulars of its income - defective notice - Held that:- The intent and purpose of this notice is to inform the assessee as to the specific charge for which he has been show caused so that he could furnish his reply without any confusion and to the point. In the present case, neither the assessee nor anyone else could make out as to whether the notice u/s. 274 r. w. S. 271 of the Act was issued for concealing the particulars of income or for furnishing inaccurate particulars of such income disabling it to meet with the case of the Assessing Officer. See CIT v. Manjunatha Cotton and Ginning Factory & Ors. and Veerabhadrappa Sangappa and Co. (2013 (7) TMI 620 - KARNATAKA HIGH COURT) - Decided in favour of assessee. Issues Involved:1. Deletion of penalty levied by AO under normal provisions versus MAT provisions.2. Alleged dubious method of tax avoidance by the assessee.3. Ignorance of factual findings by CIT(A) regarding tax avoidance.4. Ineligibility of the assessee's claim under Section 115JB due to non-registration as a sick industrial company.Detailed Analysis:Issue 1: Deletion of Penalty under Normal Provisions vs. MAT ProvisionsThe revenue challenged the deletion of penalty by CIT(A) based on the precedent of CIT vs. Aleo Manali Hydro Power P. Ltd. The revenue argued that unlike the Aleo Manali case, the addition in the current case was made on book profits, making the assessee liable to pay tax under MAT, resulting in a tax demand of Rs. 12,05,73,210/-. The assessee did not appeal this demand and paid the due taxes, leading to the penalty for tax evasion. The Tribunal noted that the CIT(A) had correctly applied the judgments of the Allahabad and Delhi High Courts, which stated that concealment of income under normal provisions does not affect the assessment under MAT, and hence, no penalty could be levied.Issue 2: Alleged Dubious Method of Tax AvoidanceThe revenue claimed that the assessee adopted a dubious method to avoid taxation on book profits by making an ineligible and inaccurate claim under clause (vii) of Explanation (1) to Section 115JB. The Tribunal observed that the assessee had declared book profit at Nil after claiming a reduction of Rs. 80,53,63,722/- under the said clause. The Tribunal found that the assessee had disclosed all relevant details in its return and audit report, and the AO did not point out any inaccurate particulars. The Tribunal referenced the Supreme Court's ruling in CIT v. Reliance Petro Products Pvt. Ltd., emphasizing that merely making an incorrect claim does not amount to furnishing inaccurate particulars.Issue 3: Ignorance of Factual Findings by CIT(A)The revenue argued that the CIT(A) ignored the AO's findings that the assessee adopted a colorable and dubious method to avoid tax payment. The Tribunal noted that the CIT(A) had carefully considered the facts and applied relevant judgments. The Tribunal also observed that the AO did not specify which particulars were inaccurate, and the assessee had disclosed all details in its return and computation of income. The Tribunal concluded that the assessee's claim, though not accepted, did not justify the penalty for furnishing inaccurate particulars of income.Issue 4: Ineligibility of Assessee's Claim under Section 115JBThe revenue contended that the assessee's claim under clause (vii) of Explanation (1) to Section 115JB was ineligible as the assessee was not registered as a sick industrial company under Section 17(1) of SICA. The Tribunal found that the assessee had become a sick industrial company in the previous year relevant to AY 2009-10 and had filed an application before BIFR. The Tribunal noted that the assessee was under a bona fide impression that it was entitled to the relief from book profits for AY 2010-11. The Tribunal concluded that the assessee's claim was bona fide and there was no justification for the penalty.Additional Legal Issue: Defective Notice under Section 274 r.w.s. 271The assessee challenged the legality of the notice issued under Section 274 r.w.s. 271, arguing it was defective as it did not specify whether the penalty was for concealment of income or furnishing inaccurate particulars. The Tribunal referenced the Karnataka High Court's decision in Manjunatha Cotton & Ginning Factory and other judgments, which held that a vague notice violates principles of natural justice. The Tribunal found the notice in the present case to be similarly defective and concluded that the penalty proceedings were invalid.Conclusion:The Tribunal upheld the CIT(A)'s decision to delete the penalty, finding that the assessee had made bona fide claims and disclosed all relevant details. The Tribunal also found the penalty notice to be defective, rendering the penalty proceedings invalid. Therefore, the revenue's appeal was dismissed.