TaxTMI 
TaxTMI 
2018 (9) TMI 1829
X X X X Extracts X X X X
X X X X Extracts X X X X
.....CIT(A) has erred both on facts and in law in sustaining levy of penalty for concealment of income u/s 271(1)(c) of the Act, with respect to disallowance on account of write back of provision for slow moving inventory amounting to Rs. 5,690,249/-. 2. That the Ld.CIT(A) has erred both on facts and in law in sustaining levy of penalty with respect to disallowance on account of provision for bad and doubtful debts written off amounting to Rs. 1,996,181/- claimed as deduction by the appellant in its return of income filed for the subject year. 3. That the Ld.CIT(A) has erred both on facts and in law in sustaining levy of penalty with respect to unpsent liabilities written back amounting to Rs. 668,424 and in not appreciating the fact that such disallowance was subsequently deleted in the appellate proceedings. 4. That the Ld.CIT(A) has erred both on facts and in law in holding that ground no.5 of Memorandum of Appeal in Form No.35, stating that the appellant filed a loss return which was reduced on assessment, is baseless and untenable. 5. That the Ld.CIT(A) has erred both on facts and in law in not appreciating that penalty proceedings u/s 271(1)(c)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s been no deliberate concealment of income nor furnishing of inaccurate particulars, as the appellant made complete disclosure in the notes to return of income in AY 2001-02, in which year depreciation on actual cost of assets was claimed for the first time and relied on various judicial precedents in support of the claim of depreciation. 1.4. That there was no failure on part of the appellant to offer explanations with regard to facts material to the computation of total income and no explanations offered by the appellant were considered by the revenue authorities to be false, at any point of time. 1.5. That the appellant was under a bonafide belief and claimed depreciation on actual cost of assets in AY 2001-02 and following the same basis claimed depreciation for AY 2002-03. 1.6. That the appellant relied on various judicial precedents in support of claim of depreciation on actual cost of assets and where two opinions are possible or there are debatable views then there can be no penalty for concealment of income. 1.7. That the appellant filed a loss return which was reduced on assessment and therefore no penalty is leviable. The abov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s written off. 4. Aggrieved the assessee carried the matter in appeal. The Ld.CIT(A)-XV, New Delhi vide order dt 15.12.2006 granted relief on penalty levied relating to disallowance of depreciation. Penalty to the extent it relates to the other items were confirmed. 4.1. Aggrieved both the assesee and the Revenue are in appeal. 5. The Delhi "H" Bench of the Tribunal vide order dt. 20.12.2007 allowed the appeal of the assessee by following the decision of the Hon'ble Supreme Court in the case of M/s Virtual Soft Systems 289 ITR 83 and held that no penalty u/s 271(1)(c) of the Act can be levied in case there is no positive income prior to the change made by the Finance Act 2002 w.e.f. 1.4.2003. It held that as in the present case the total income ultimately assessed is a loss, after giving effect to the order of the Tribunal in the quantum proceedings, no penalty is leviable. Further the Tribunal held that the AO has not recorded his satisfaction before initiating proceedings u/s 271(1)(c) and hence the judgment of the Jurisdictional High Court in the case of CIT vs. Jai Bharathi, 165 Taxman 243 (Delhi) is applicable to the facts of the case. It granted relief. The Revenue c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. He specifically drew the attention of the Bench to page 29 of the assessee's paper book which is a computation of total income for the AY 2002-03. The provision for doubtful debts written back during the year was added. He further drew the attention to page no.103 of the paper book which is a letter dt. 04th March,2005 written by the assessee's Counsel M/s S.R.Batliboi & Co. to the AO and specifically to pages 107 and 108 and the tables contained therein to demonstrate the error that had crept in. 5.3. He relied on the following case laws. (i) Ms.Madhushree Gupta vs. UOI and another (2009) (Del) 317 ITR 107 (ii) CIT vs. Manjunatha Cotton and Ginning Factory & others (2013) 359 ITR 565 (Karnataka) and other case laws which we will be referring to in our order. He contended that there is no charge of concealment in the assessment order and that it was a silly mistake done by the clerks and hence penalty should not be levied. 5.4. Mr.Sameer Sharma, the Ld.D.R. on the other hand opposed the contentions and submitted that the deduction in question were deliberately claimed. He disputed the contentions of the assessee that these are silly mistakes by pointin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... computing the taxable income as it reflects provision created in prior assessment year(s) which was added back while computing taxable income for the relevant assessment year(s), which are no longer required and accordingly, written back. Therefore, in the event such provision is written back in the financial statements, the same is required to be reduced from the net profit as per profit and loss account while computing taxable income of the subject year, otherwise it would lead to taxation of the said amount (which has already been offered to tax in the prior assessment years in which the provision was created) twice i.e. once in the year in which the provision was created and then again the year in which the said amount is written back in the financial statements. Provision for doubtful debts:- In respect of provision for doubtful debts Rs. 4,795,485/- which pertains to provision created during the subject year, has been added back in computing the taxable income of HRI for the subject year and Rs. 1,763,688 being provisions written back, has been subtracted in computing the taxable income of HRI for the subject year. The sum of Rs. 1,763,688 as regards provision writt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....resulted in the deduction being claimed twice. Further, the balance amount of Rs. 232,493 pertains to sundry balances written off against provisions, which is not intended to be claimed. Accordingly, it is hereby submitted that the sum of Rs. 1,996,181 be added back to the income of the subject year." 6.3. A perusal of the above facts demonstrate that this is not a case of the assessee suo moto and voluntarily offering to tax an amount of Rs. 19,96,181/- being doubtful debts written off and an amount of Rs. 56,90,279/- being provision for slow moving inventory written back. It was only on the case being selected for scrutiny and on the specific queries raised by the AO during the proceedings on 25.02.2005 and subsequent hearings that the asssesee has admitted that it had wrongly claimed deductions on account of provision for slow moving inventory and on account of doubtful debts written off. In fact in this assessement order the AO has recorded that vide order sheet entry dated 25.02.2005 the Authorized Representative was asked to explain as to why provision for inventory written off should be allowed and also that vide order sheet entry dated 14.03.2005 the Authorized Rep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ely because the assessee agreed to the addition and the assessment order was passed on the basis of this admission, in the absence of any material on record to show concealment of income, no penalty can be levied. The facts of the case on hand are entirely different. Our finding of fact is that the assessee has not voluntarily offered the income to tax. In fact the explanation given is in our opinion not bonafide. The fact, in this decision that the Hon'ble Karnataka High Court at page 602 paragraph 63, after considering numerous decisions, has culled out the principles that govern levy of penalty u/s 271(1)(c ). These are extracted for ready reference. 63. In the light of what is stated above, what emerges is as under : (a) Penalty under section 271 (1) (c) is a civil liability. (b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. (c) Willful concealment is not an essential ingredient for attracting civil liability. (d) Existence of conditions stipulated in section 271 (1) (c) is a sine qua non for initiation of penalty proceedings under section 271. (e) The existence of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the assessing authority. (p) Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income (q) Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law. (r) The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. (s) Taking up of penalty, proceedings on one limb and finding the assessee guilty of another limb bad is bad in law. . (t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. (u) The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r was required to arrive at during the course of assessment proceedings for initiation of penalty proceedings was prima facie in nature as against a final conclusion that the assessee had committed an act of omission or commission which would bring him within the ambit of the provisions of clause (c) of subsection (1) of Section 271. The notice under Section 274 was to follow. What was important was that satisfaction had to be arrived at during the course of assessment proceedings and not issuance of notice under Section 274 of the Act. (See D.M. Manasvi (1972) 86 ITR 557 and and S.V. Angidi Chettiar (1962) 44 ITR 739. A bare reading of the aforesaid extract from Rampur Engineering (supra) would show that the Full Bench: (i) applied the law, as it ought to, as declared in D.M. Manasvi (supra) and S.V. Angidi Chettiar (supra)WP(C) No. 5059-2008 Page 49 of 64 (ii) a fortiori the principle for initiation of penalty proceedings being the prima facie satisfaction of the Assessing Officer during the course of assessment proceedings being discernible from the record, was reiterated. (iii) the irrelevance of - the Assessing Officer having to say so....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are initiated separately' if otherwise, it conforms to the parameters set out hereinabove are met." 6.8. Applying the propositions laid down to the facts of the case, we are of the considered opinion that the penalty proceedings were rightly initiated in this case and that the penalty was rightly confirmed by the Ld.CIT(A). 6.9. (i) CIT vs. Somany Evergree Knits Ltd. (2013) 35 Taxmann.com 529 (Bom) is a case where the claim of the assessee that the mistake is bonafide was not disputed by the Revenue. The Hon'ble Court came to a conclusion on the facts of that case that the mistake was bonafide and the time to file the revised return has expired. The Revenue had not disputed the claim of the assessee that this is a bonafide mistake. In the case on hand the Ld.D.R. disputed the claim of the assessee that this is a bonafide mistake. (ii) CIT vs. Oscar Udyog Ltd. (2014) 42 Taxmann.com 258 (Karnataka) the Hon'ble High Court was considering a case where the assessee was eligible to make a particular claim for deduction and it was only on a demand by the department that it withdrew the eligible deduction and in those circumstances it was held that the assessee had no malafide int....