2018 (6) TMI 961 - AT - Income Tax

Tribunal quashes penalty order citing vague notice, lack of application of mind, and bona fide claims. Appeal allowed, penalty set aside. Stay application dismissed.

M/s. Modi Rubber Ltd. Versus DCIT, Circle 17 (1), New Delhi

M/s. Modi Rubber Ltd. Versus DCIT, Circle 17 (1), New Delhi - TMI Issues Involved:1. Jurisdiction to levy penalty under section 271(1)(c) of the Income-tax Act, 1961.2. Limitation period for passing the penalty order under section 275 of the Act.3. Validity of the notice issued under section 274 read with section 271(1)(c) of the Act.4. Adequate opportunity of being heard and principles of natural justice.5. Penalty on disallowance of AED credit.6. Penalty on disallowance of long-term capital loss.Issue-wise Detailed Analysis:1. Jurisdiction to Levy Penalty:The assessee argued that the Commissioner of Income Tax Appeals (CIT(A)) erred in not holding that the penalty order dated 30.01.2015 under section 271(1)(c) was without jurisdiction, illegal, and bad in law. It was contended that the satisfaction required for levying penalty was not discernible from the assessment order, which is a sine qua non for assuming jurisdiction.2. Limitation Period for Passing Penalty Order:The assessee contended that the penalty order was barred by limitation as prescribed under section 275 of the Act. The CIT(A) had passed the order on 26.10.2012, and the penalty order was passed on 30.01.2015. The Tribunal noted that the penalty order should have been passed within one year from the end of the financial year in which the CIT(A)'s order was received. The penalty order was found to be passed beyond the prescribed period of limitation, making it unsustainable.3. Validity of Notice Issued:The assessee argued that the notice issued under section 274 read with section 271(1)(c) was vague and ambiguous, as it did not specify whether the penalty was for 'concealment of particulars of income' or 'furnishing of inaccurate particulars of income.' The Tribunal observed that the Assessing Officer (AO) had issued a notice incorporating both limbs of section 271(1)(c), which was not specific and violated the principles of natural justice. The Tribunal relied on the decisions of the Karnataka High Court in CIT vs. Manjunath Cotton and Ginning Factory and the Supreme Court in CIT vs. SSA’s Emerald Meadows, holding that such a vague notice renders the penalty proceedings unsustainable.4. Adequate Opportunity and Principles of Natural Justice:The assessee contended that the penalty was imposed without issuance and/or service of a valid notice and without affording an adequate opportunity of being heard, violating the principles of natural justice. The Tribunal found merit in this argument, noting that the AO had not properly applied his mind and had issued a mechanical notice without specifying the grounds for penalty.5. Penalty on Disallowance of AED Credit:The penalty was levied on the disallowance of AED credit amounting to Rs. 25.47 crores. The assessee argued that no penalty was leviable as the claim was not made in the original return but was considered during the set-aside proceedings. The Tribunal agreed, noting that the claim was raised by the assessee as an additional ground before the Tribunal and was not a case of concealment or furnishing inaccurate particulars. The Tribunal relied on the Delhi High Court's decision in Devsons (P.) Ltd. vs. CIT and the Supreme Court's decision in CIT vs. Onkar Saran & Sons, holding that the penalty was not sustainable as the claim was bona fide and disclosed to the authorities.6. Penalty on Disallowance of Long-Term Capital Loss:The penalty was also levied on the disallowance of long-term capital loss of Rs. 9,53,97,219 on account of extinguishment in the value of shares of Spice Net Ltd. The assessee contended that no penalty was leviable as the loss was not claimed in the revised computation of income and there was no concealment or furnishing of inaccurate particulars. The Tribunal found that the penalty was not sustainable, as the AO had not demonstrated that the assessee had concealed particulars or furnished inaccurate particulars of income.Conclusion:The Tribunal quashed the penalty order, holding that it was not sustainable in law due to the vague and ambiguous notice, non-application of mind by the AO, and the bona fide nature of the assessee's claims. Consequently, the appeal filed by the assessee was allowed, and the penalty was set aside. The stay application became infructuous and was dismissed. The order was pronounced in open court on 14th June 2018.