TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 98
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....pect ive appeals are dealt with hereunder: ITA No.2631/Del/2018 AY 2008-09 3. As per the grounds of appeal, the challenge of the assessee against the imposition of penalty of Rs.29,09,607/- are two fold namely (a) lack of justification for imposition of penalty on merits (ii) the imposition of penalty on the strength of vague satisfaction recorded in the assessment order and also on the basis of vague notice issued under Section 274 r.w. Section 271(1)(c) of the Act without clearly specifying the nature of charge levelled against the assessee. 4. We shall first address ourselves on the merits of imposition of penalty. 5. Briefly stated, the assessee is engaged in providing engineering services etc. The search and seizure operation under Section 132 of the Act was conducted on the premises of the group cases including the assessee on 24.04.2012. The assessment was consequently carried out under Section 153A of the Act. During the course of search operation, a disclosure of Rs.65 lakh was made under S. 132(4) of the Act. The aforesaid disclosure was included the Return of Income (ROI) filed in S. 153A proceedings and the income was assessed. Simultaneously, the Assessing Officer....
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....notice omits to firmly allege any particular default committed by the Assessee. No strike off of irrelevant portion in the penalty notice has also been carried out by the AO. The Assessee thus contends that in the absence of any satisfaction formed in the course of assessment proceedings, the directions for initiation of penalty proceedings in the assessment order itself is bad in law. 9.2 To deal with legal objection, it may be relevant to capsule the law in this regard. 9.2.1 A bare look at the provisions of Section 271(1)(c) of the Act shows that satisfaction of the concerned tax authority to the effect that the assessee has either 'concealed the particulars of income' or 'furnished inaccurate particulars of income' is the condition precedent for levy of penalty and such satisfaction must be arrived it in the course of any proceedings under the Act. These are the two eventualities or to say two limbs which empowers the AO to impose the penalty u/s 271(1)(c) of the Act. These two terms holds two distinctive meanings and carry different connotations. The two expressions cannot be interchanged or interpreted for one another, as has been held in several judgments including Shri T.....
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.... penalty proceedings. Legislative intent was that such a satisfaction was required to be recorded only at the time of levy of penalty and not at the time of initiation of penalty. However, some of the judicial interpretations on this issue are favouring the view that satisfaction has to be recorded at the time of initiation of penalty proceedings also. It is therefore proposed to insert a new sub-section (1B) in section 271 of the Income-tax Act so as to provide that where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and if such order contains a direction for initiation of penalty proceedings under sub-section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under sub-section (1). This amendment will take effect retrospectively from 1st April, 1989." 9.2.4 As self evident from the Memorandum to the Finance Bill 2008, the new section 271(1B) was inserted with the intention to give validity to the 'satisfaction' made by the Assessing Officer on the basis of a simple direction to this ....
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....t has been clearly set out that mere direction of the Assessing Officer in his Assessment Order stating that 'penalty provisions are initiated separately', would not be sufficient to attract the provisions of subsection (1B) of section 271 of the Act. In order to qualify for deem satisfaction, the Assessing officer has to also mention as to which limb of subsection (c) of section 271 of the Act has been charged on the Assessee in order to satisfy the provisions of section 271(1B). By the same token, vague satisfaction by mentioning 'concealment of particulars or 'furnishing particulars' that is both limbs which are distinct would tantamount to lack of application of mind and no satisfaction qua the exact nature of default. 9.2.6 The ratio in Madhushree Gupta v. UOI was later adopted by the Hon'ble Karnataka High Court in the case of CIT v. Manjunatha Cotton and Ginning Factory (359 ITR 565) which reiterated that the AO must record a categorical finding regarding the charge alleged against the assessee i.e. 'concealment of particulars of income' or in the alternative, 'furnishing of inaccurate particulars of income' in the assessment order passed by him. 9.2.7 Noticiably, the Hon....
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....fault in the course of the assessment proceedings before initiation of penalty proceedings. The nature of default is neither traceable from the penalty notice nor from the directions in the assessment order. Thus, in the absence of satisfaction qua the nature of default committed, the initiation of penalty proceedings itself is a complete non-starter and consequent imposition of penalty is clearly vitiated in law. The imposition of penalty in question is thus liable to be quashed and set aside on this ground alone. 10. We shall however also advert to another facet of the plea raised on behalf of the assessee while assailing imposition of penalty. A plea has been inter alia raised on behalf of the assessee towards non fulfillment of prerequisites before invoking Explanation-5A to Section 271(1)(c) of the Act. As pointed out on behalf of the assessee, in order to invoke Explanation-5A, the assessee, in the course of search, must be found to be either (a) owner of assets in the nature of any money, bullion, jewellery or other valuable articles or things etc or in the alternative (b) the income is deduced on the basis of any entry in the books of account or other documents or transact....
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....t, a notice under Section 274 r.w. Section 271(1)(c) was also issued without showing the specific charge/nature of default alleged against the assessee. Consequently, penalty order dated 12.03.2018 was framed whereby penalty of Rs.53,02,440/- was imposed in respect of the aforesaid undisclosed income offered on the basis of statement under Section 132(4) of the Act. 13.1. The facts and issue in the present case is identical to ITA No.2631/Del/2018 relevant to Assessment Year 2008-09(supra). The nature of default being absent in the course of assessment proceedings, the initiation of penalty proceedings is bad in law. The penalty order passed by the Assessing Officer is liable to be cancelled on this score alone. 13.2 On merits, it is yet again seen that the sole reason for imposition of penalty is that the disclosure would not have come in the absence of search proceedings. We are unable to find any substance in the approach adopted by the Assessing Officer. The imposition of penalty under Section 271(1)(c) r.w. Explanation 5A thereon is dependent upon the conditions enjoined in Explanation-5A therein. The penalty order is unreasoned and does not make any discussion on how the co....
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.... 2631/D/2019 and 939/D/2019 supra, the entire penalty proceedings is void ab initio and consequent penalty order is bad in law. 15.3 Likewise, for the similarity of reasons the conditions of Explanation-5A has not been shown to be satisfied. Hence, the penalty is not sustainable on merits either. 16. Consequently, we set aside the first appellate order and direct the Assessing Officer to delete the penalty imposed under Section 271(1)(c) of the Act. 17. In the result, the appeal of the assessee is allowed. ITA No.941/Del/2019 Assessment Year 2011-12 18. As per the captioned appeal, the assessee has challenged imposition of penalty against the additions of Rs.5,77,02,769/- on account of disallowance of deduction claimed under Section 35D of the Act and additions of Rs.84,94,115/- towards disallowance of speculative business loss claimed by the assessee. The Assessing Officer imposed penalty of Rs.2,19,89,082/- under Section 271(1)(c) of the Act. In the first appeal, the CIT(A) deleted the penalty imposed on account of speculative loss but however sustained the penalty on disallowance of deduction claimed under Section 35D of the Act. 18.1 The appeal of the Revenue against the....
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.... the process of reasoning adopted in Assessment Year 2011-12, the penalty imposed by the Assessing Officer stands deleted. 25. In the result, the appeal of the assessee is allowed. ITA No.811/Del/2019 Assessment Year 2011-12 26. As per the captioned appeal, the Revenue has challenged the reversal of penalty imposed under Section 271(1)(c) of the Act by the Assessing Officer towards wrong claim of speculative loss of Rs.84,94,515/- as business loss. 27. Briefly stated, the Assessing Officer while framing the assessment inter alia observed that the assessee has claimed a loss on forward commodity trading amounting to Rs.2,33,69,140/- for Assessment Year 2012-13 and also Rs.84,94,515/- for Assessment Year 2011-12 in question. In response to inquiry on the loss claimed, the assessee-company replied before the Assessing Officer that it has done arbitrage in forward marketing trading in steels and aluminum which are used in the business of the assessee-company to hedge and safeguard against the losses which may arise in the ordinary course of business. It was thus claimed that loss on forward commodity in the nature of hedging transaction is excluded from the purview of definition o....
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....PK Steels Put. Limited [270 IT 156 (M.P.)], it was held by the Hon'ble Madhya Pradesh High Court that penalty under section 271(1)(c) was not eligible in respect of disallowance of assessee's claim for set off of share trading loss by treating the same as speculative in nature as per Explanation to Section 73 on the basis of preliminary details furnished by the assessee along with the return of income as the assessee could not be said to have filed inaccurate particulars or concealed particulars of his income, which was chargeable to tax. In the case of CIT -vs.- Auric Investment & Securities Limited /310 ITR 121 (Delhi)] before the Hon'ble Delhi High Court, the claim of the assessee for set off of share trading loss against other income of non speculative nature was disallowed by the Assessing Officer by treating the same as the loss of speculative nature by invoking the Explanation to section 73. The Assessing Officer also imposed penalty under section 271(1)(c) on the ground that the assessee had furnished inaccurate particulars of income to the extent of making a wrong claim for set off of share trading loss against normal income. Hon'ble Delhi High Court, howeve....
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....ithin the sweep of deeming fiction of S. 43(5) of the Act, the Assessing Officer disputed the claim of the Assessee on the ground that assessee is only a broker and does not require any hedging. On this point of difference, the loss has been reclassified from business to speculative loss. Thus, the loss arising on transaction of trading has not been disputed per se but the character of loss is subject matter of dispute. On such backdrop, the CIT(A) has applied the principles culled out from judicial pronouncements at the first appellate stage and found that the assessee is not exigible for penalty. 33. We observe, that the judgment rendered in the case of CIT Vs. Auric Investment & Securities Ltd., 310 ITR 201 (Del) is directly on the issue. Similar view has also been taken by the Hon'ble Delhi High Court in CIT vs. Bhartesh Jain, 235 CTR 220. The Hon'ble High Court in both the cases have unequivocally held that penalty levied on account of additions made due to change of treatment of business loss as claimed by the assessee to speculative loss as determined by the Assessing Officer would not justify imposition of penalty under Section 271(1)(c) of the Act. Hence, in the light of ....
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.... his income, which was chargeable to tax. In the case of CIT -vs.- Auric Investment & Securities Limited 310 IT 121 (Delhi)] before the Hon'ble Delhi High Court, the claim of the assessee for set off of share trading loss against other income of non speculative nature was disallowed by the Assessing Officer by treating the same as the loss of speculative nature by invoking the Explanation to section 73. The Assessing Officer also imposed penalty under section 271 (1)(c) on the ground that the assessee had furnished inaccurate particulars of income to the extent of making a wrong claim for set off of share trading loss against normal income. Hon'ble Delhi High Court, however, held that the penalty imposed by the Assessing Officer under section 271(1)(c) was not sustainable as mere treatment of business loss as speculation loss by the Assessing Officer did not automatically warrant inference of concealment of income and there was nothing on record to show that in furnishing its return of income, the assessee had either concealed its income or had furnished any inaccurate particulars of income. Similarly in the case of CIT -vs.- Bhartesh Jain [323 IT 358 (Delhi)], the Hon'....
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....n account of addition of Rs.6,60,000/- towards rent of guest house. 40. Briefly stated, in the assessment proceedings under Section 153A, the Assessing Officer inter alia observed that a sum of Rs.5,77,02,769/- has been claimed as deduction towards share issue expenses for Assessment Year 2012- 13. The Assessing Officer alleged that the expenses incurred are in the nature of capital expenditure as per Hon'ble Supreme Court decision in the case of M/s. Brooke Bond India Ltd. vs. CIT, 225 ITR 798 (SC). On being inquired, the assessee pointed out that it has incurred public issue expenses at the time of IPO during the Financial Year 2010-11 relevant to Assessment Year 2011- 12. The 1/5th of the public issue expenses amounting to Rs.5,77,02,769/- are written off during the Assessment Year 2012-13 in question under Section 35D of the Act. The Assessing Officer observed that the money received in the IPO has gone into capital investment in subsidiaries and therefore, no new unit can be said to be set up nor any expansion can be said to be undertaken. The Assessing Officer thus disallowed the share issue expense claimed under Section 35D(1) of the Act. The AO however also noted that (3.5....
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....m per se, we find that the issue cannot be said to be free of any debate to the least. Under the circumstances, it is a clear case of bona fide belief on the correctness of claim made. It is not the case of the Revenue that any particulars filed in this regard in the assessment proceedings were either false or inherently wrong. The disallowance has been carried out as result of difference of opinion on the allowability of a claim. Under the circumstances, the case of the assessee is covered by the judgment rendered by the Hon'ble Supreme Court in CIT vs. Reliance Petro Products, (2010) 322 ITR 158 (SC). In our view, the imposition of penalty on account of mere disallowance of expense is prima facie unjustified. Noticeably, the Hon'ble Punjab and Haryana High Court in CIT vs. B.B. Singhal (2011) 198 Taxman 158 (P&H) has held that bona fide mistakes could not be subject to penalty. In the instant case, it is undisputed fact that the assessee has disclosed all material facts and was under bona fide belief that it is entitled to deduction of share issue expenses under the provisions of Section 35D of the Act. The disallowance is only on the ground that the claim allegedly does not pass....