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On deleted or non existent disallowances, there is no section 271(1)(c) penalty

On deleted or non existent disallowances, there is no section 271(1)(c) penalty

Fact and issue of the case

These above appeals have been filed against the order of CIT(A), New Delhi dated 27.01.2023 for A.Ys. 2009-10 & 2011-12 to 2013-14. The ld. Representatives of both the sides agreed that the facts and circumstances of all four appeals are similar and identical therefore we taken appeal for AY 2011-12 ITA No. 733/Del/2023 as lead case for the sake of convenience and brevity. However, it is also pertinent to mention that in the appeals for AY 2011-12 & 2012-13 the penalty has been imposed on account of addition/disallowance on payment made under cost sharing arrangements, payment of sales commission and foreign travel expenses. In appeal for AY 2013-14 penalty has been imposed on addition/disallowance on account of payment made under cost sharing arrangements and sales commission and in AY 2009-10 penalty has been imposed only on account of disallowance of sales commission only but undisputedly, the facts and circumstances of said three issues are similar and identical.

The grounds raised by the revenue in ITA no. 733/Del/2023 are as under:-

That whether on the facts and in law, the Ld. CIT(A) is erred in deleting the penalty order u/s. 271(1)(c) of the Act levying penalty of Rs. 5,16,62,058/- that the assessee has knowingly and willingly furnished inaccurate particulars of its income in respect of addition of Rs. 4,42,76,395/- on account of payment made under cost sharing arrangements.

That whether, on the facts and in law, the Ld. CIT(A) is erred in deleting the penalty order u/s. 271(1)(c) of the Act levying penalty of Rs. 5,16,62,058/- that the assessee has knowingly and willingly furnished inaccurate particulars of its income in respect of addition of Rs. 10,60,97,836/- on account of payment of sales commission.

That whether on the facts and in law, the Ld. CIT(A) is erred in deleting the penalty order u/s. 271(1)(c) of the Act levying penalty of Rs. 5,16,62,058/- that the assessee has knowingly and willingly furnished inaccurate particulars of its income in respect of addition of Rs. 13,49,794/- on account of foreign travel expenses.

The ld. CIT(DR) submitted that on the facts and in law, the Ld. CIT(A) is erred in deleting the penalty order u/s. 271(1)(c) of the Act levying penalty of Rs. 5,16,62,058/-that the assessee has knowingly and willingly furnished inaccurate particulars of its income in respect of addition of Rs. 4,42,76,395/- on account of payment made under cost sharing arrangements. He further submitted that the Ld. CIT(A) is erred in deleting the penalty order u/s. 271(1)(c) of the Act levying penalty of Rs. 5,16,62,058/- that the assessee has knowingly and willingly furnished inaccurate particulars of its income in respect of addition of Rs. 10,60,97,836/- on account of payment of sales commission. It has also been contended by the ld. CIT(DR) that on the facts and in law, the Ld. CIT(A) is erred in deleting the penalty order u/s. 271(1)(c) of the Act levying penalty of Rs. 5,16,62,058/- that the assessee has knowingly and willingly furnished inaccurate particulars of its income in respect of addition of Rs. 13,49,794/- on account of foreign travel expenses. Therefore the ld. CIT(DR) submitted that first appellate order may kindly set aside by restoring that of the Assessing Officer.

Replying to have above, the ld. Assessee Representative (AR) supported the first appellate order and submitted that since the ld. CIT(A) has taken note of the Tribunal order for AY 2007-08 & 2008-09 and also noted that the Hon’ble High Court of Delhi has admitted substantial questions of law on the issues of disallowance/addition on account of royalty and sales commission paid and foreign travel expenses in the appeal filed by the assessee against Tribunal order confirming the disallowance. Therefore the said issues became debatable and on debatable issue penalty u/s. 271(1)(c) of the Act cannot be imposed and sustained. She further submitted that the disallowance/addition on account of payment made under cost sharing arrangements has been deleted by the Tribunal therefore no penalty could have been imposed against the assessee on the basis of non-existing and deleted disallowance. The ld. AR thus submitted that the ld. CIT(A) was right in deleting the penalty.

On careful consideration of above from the relevant operative part of first appellate order, we note that the ld. CIT(A) deleted penalty on all three issues with following observations and findings:-

para 7 to 12 7. Through multiple grounds of appeal, the levy of penalty has been challenged.

It has been informed that after the order of Ld. CIT(A), the appellant and the department, both, went in appeal before the Hon’ble ITAT. The Hon’ble ITAT vide order dated 03.11.2021 in ITA no. 2025/DEL/2017 & ITA no. 2209/DEL/2017 deleted the addition on account of cost sharing arrangements (amounting to Rs. 4,42,76,395/-) confirmed by the Ld. CIT(A) but confirmed the additions on account of payment of sales commission (amounting to Rs. 10,60,97,836/-) and foreign travel expenses (amounting to Rs. 13,49,794/-). The Hon’ble ITAT remanded the issue of addition of interest of Rs. 2,67,911/- to the file of TPO.

As the transfer pricing addition of Rs. 4,42,76,395/- on account of payment made under cost sharing arrangements have been deleted by the Hon’ble ITAT, no penalty can be imposed in respect of this addition. The AO is directed to modify the penalty order accordingly.

It is observed that the addition on account of sales commission of Rs. 10,60,97,836/- and foreign travel expenses of Rs. 13,49,794/-have been confirmed by the Hon’ble ITAT. The appellant has informed that against the order of ITAT, the appea l filed by the appellant has been admitted by the Hon’ble Delhi High Court vide order dated 07.04.2022, a copy of which has been filed, by framing the following substantia l question of law:-

“I. Whether Income Tax Appellate Tribunal was right in holding that Royalty and Sales Commission paid were separate and independent international transactions which were required to be benchmarked separately by applying the CUPM? II. Whether the Ld. ITAT erred in holding that foreign travel expenses on the visit of family members of the Directors have no nexus with the business contingencies and hence, such expenses cannot be considered having been incurred for business? “

It has been contended that the addition sustained by the Hon’ble ITAT are on account of issues which are covered within the aforesaid questions of law framed by the Hon’ble High Court of Delhi. It was submitted that it is trite law that where the issue in the Quantum appeal is susceptible to interpretation and debate, then penalty under section 271(1)(c) of the Act cannot be levied on the taxpayer. This position in law is based on the principle that where High Court admits appeal against the issue in quantum proceedings, it clearly indicates that the underlying issue is subject to judicia l scrutiny and interpretation of law. It was argued that admission of appeal by the High Court establishes the fact that the issues involved in the quantum proceedings are debatable and are subject to interpretation. Therefore, it has been submitted that since, the quantum appeal of the appellant has been admitted by the Hon’ble Delhi High Court, penalty under section 271(1)(c) of the Act should be deleted.

The appellant invited attention to the judgement of Hon’ble ITAT in the appellant’s 3 own case for the AY 2007-08 in ITA no. 2509/DEL/2016 and AY 2008-09 in ITA no.4510/DEL/2016, wherein the Hon’ble ITT vide order dated 01.10.2019 deleted the penalty levied in the case of the appellant, on this issue, by holding as follows: “10. Undisputedly, assessee has challenged the addition on the basis of which penalty has been levied us 271(1)(c) of the Act before the Hon’ble Delhi High Court vide ITA 732/2018 & Ors. and Hon’ble High Court vide order dated 12.11.2018 framed the following substantial question of law –

“Whether Income Tax Appellate Tribunal was right in holding that Royalty and Sales Commission paid were separate and independent international transactions which were required to be benchmarked separately by applying the Comparable Uncontrolled Price Method? “

It is settled principle of law that when substantial question of law has been framed by the Hon’ble High Court in the appeal filed by the assessee challenging the addition confirmed by the Tribunal, the issue become debatable and no penalty in such circumstances can be levied. Hon’ble Delhi High Court in case o f CIT vs. Liquid Investment & Trading Co. (supra) confirmed the order passed by the Tribunal setting aside the penalty confirmed by the Id. CIT(A) uls 271(1)(c) on the ground that the issue has become debatable by returning following findings “Both the CIT(A) as well as the ITAT have set aside the penalty imposed by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961 on the ground that the issue of deduction under Section 14A of the Act was a debatable issue. We may also note that against the quantum assessment where under deduction under Section 14A of the Act was prescribed to the assessee, the assessee has preferred an appeal in this Court under Section 260A of the Act which has also been admitted and substantial question of law framed. This itsel f shows that the issue is debatable. For these reasons, we are of the opinion tha t no question of law arises in the present case. This appeal is accordingly dismissed. “

In view of what has been discussed above, we are of the considered view that the penalty levied by the AO and confirmed by the Id. CIT (A) for AYs 2007­08 & 2008-09 is not sustainable in the eyes of law, hence ordered to be deleted. Consequently, appeals filed by the assessee are allowed. “

The issue involved in the present year is identical as decided in appellant’s favour by the Hon’ble ITAT in AY 2007-08 and 2008-09. Therefore, respectfully following the judgement of Hon’ble ITAT in the appellant’s own case for the AY 2007-08 in ITA no. 2509/DEL/2016 and AY 2008-09 in ITA no. 4510/DEL/2016, wherein the Hon’ble ITAT vide order dated 01.10.2019 has deleted the penalty levied, in view of the fact tha t Hon’ble High Court has framed substantial question of law on these issues, the penalty is deleted in respect of addition on account of sales commission of Rs. 10,60,97,8361-and foreign travel expenses of Rs. 13,49, 794/-. 11. It is observed that the Hon’ble ITAT has remanded the issue of addition of undisclosed interest of Rs. 2,67,911/- to the file of AO. Therefore, penalty on this issue is not adjudicated in this order. It is clarified that if the addition is made again by the AO in the set-aside proceedings, and if penalty is imposed; the same shall be subject matter of , separate appeal, in any filed by the appellant.

In the result, the appeal is allowed.

Observationof the court

In view of above noted rival submissions, basis taken by the Assessing Officer for imposing of penalty and the reasons and observations of the ld. CIT(A) for deleting the penalty we note that undisputedly the coordinate bench of the Tribunal in the order in assessee’s own appeal for AY 2007-08 & 2008-09 has deleted the addition/disallowance on account of payment made under cost sharing arrangements therefore deletion of penalty by ld. CIT(A) cannot be challenged or disputed as per settled principles of tax jurisprudence as and when the basis of penalty is not survive then consequent penalty also loses its legal existence.

So far as deletion of penalty on other two issues are concerned although the Tribunal confirmed disallowance/addition on account sales commission payment and foreign travel expenses through order dated 03.11.2021 in ITA No. 2025/Del/2017 and ITA No. 2209/Del/2017 and the assessee carried matter before Hon’ble High Court of Delhi wherein the Hon’ble High Court order dated 07.04.2022 has framed substantial questions of law on both the issues then the ld. CIT(A) was right in holding that since the issue has become debatable after framing of substantial questions of law by Hon’ble High Court therefore penalty on debatable issue do not survive. Therefore we are unable to see any ambiguity perversity or any other valid reason to interfere with the findings of ld. CIT(A) and thus we uphold the same. Accordingly, grounds of revenue for AY 2011-12 are dismissed.

Since undisputedly the facts and circumstances on all three issues involved in the above captioned appeals are quite similar and identical, therefore our conclusion for AY 2011-12 would apply mutatis mutandis to AY 2012-13 for all three issues, to AY 2013­14 on both the issues and to AY 2009-10 on sole issue. We, thus, uphold the conclusion drawn by the ld. CIT(A) deleting the penalty on all three issues in the captioned appeals. Accordingly, grounds of revenue in other three appeals are also dismissed uphold the deletion of penalty.

In the result, the appeals of revenue are dismissed.

Order pronounced in the open court on 30.08.2023

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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If there are no books of accounts kept, the Section 271B penalty is not applied

If there are no books of accounts kept, the Section 271B penalty is not applied

Fact and issue of the case

The aforesaid appeal has been filed by the assessee against order dated 16/03/2023 passed by NFAC, Delhi in relation to the penalty proceedings u/s.271B for the A.Y.2015-16.

The assessee is mainly aggrieved by levy of penalty of Rs.1,50,000/- u/s. 271B. The brief facts are that in this case assessee has filed return of income of Rs.12,50,340/-. He is engaged in the business of trading, financing, reality and commodities etc. Assessee has declared short term capital loss of Rs.34,94,555/- from trading in future and option and loss was arrived from business of trading in shares and derivatives. AO has treated this loss as business loss instead of short term capital loss declared by the ld. AO on the ground that assessee was trading in F & O and it is not sale of asset. The AO noted that the total turnover from transaction in future and option was of Rs. 89,78,78,650/- which is more than the limit prescribed in Section 44AB of the Act. Since, the assessee has failed to submit the report of the auditors and has not got the accounts audited, therefore, there was a contravention of Section 44AB and accordingly, penalty u/s.271B was initiated.

In response to the show-cause notice, assessee submitted that he has done all the investment considering himself as an investor and not as a trader. However, the ld. AO held that assessee has not given plausible reason for not auditing the accounts and therefore, he levied penalty at Rs.1,50,000/-u/s.271B. This penalty has been confirmed by the ld. CIT (A) also.

Before us ld. Counsel submitted that assessee has not maintained any books of accounts and once assessee has not maintained any books of accounts, then there is no question of the getting the books of accounts audited and therefore, no penalty u/s.271B can be applied. In support, he relied upon the following decisions of the Hon’ble High Court:-

CIT vs SK. Gupta and Co. [2010]322 ITR 86 (Allahabad)

CIT, Bareilly vs. Bisauli Tractors [2007] 165 Taxman (All)

CIT vs Surajmal Parsuram Todi [1996] 222 ITR 691 (Gauhati)

On the other hand, ld. DR submitted that turnover was more than Rs.1 Crore and assessee was required to get the accounts audited.

Observation of the court

After considering the relevant facts placed on record and also the orders passed by the authorities below, we find that the penalty has been levied u/s. 271B for violation of Section 44AB, i.e., failure to get the accounts audited. It is not in dispute that assessee has not maintained any books of accounts as required u/s.44AA. For violation of non maintenance of books of account u/s 44AA, there is a separate penal provision for levying penalty for non-maintaining of books of accounts prescribed u/s. 271A and therefore if at all penalty should have been levied under this section. The Hon’ble Allahabad High Court in the case of CIT vs. Bisauli Tractors reported in 299 ITR 219 had held that Section 271B of the Act is not attracted in the case where no account has been maintained and instead recourse u/s.271A can be taken. This principle has again been reiterated by the Hon’ble Allahabad High Court in the case of CIT vs. S.K Gupta reported in 322 ITR 86. Similar view has been taken by the Hon’ble Guahati High Court in the case of CIT vs. Surajmal Parsuram Todi supra. Accordingly, we hold that no penalty u/s.271B is leviable when assessee has not maintained the books of accounts. Accordingly, penalty is deleted.

In the result, appeal of the assessee is allowed.

Order pronounced on 23rd August, 2023.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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Due to the setting aside of the pertinent assessment order, HC voids the penalty notice

Due to the setting aside of the pertinent assessment order, HC voids the penalty notice

Fact and issue of the case

Allowed, subject to just exceptions.

W. P.(C) 6036/2021 2. Issue notice.

Mr Sunil Agarwal, learned senior standing counsel, accepts notice on behalf of the respondents/revenue.

In view of the directions that we intend to pass, Mr Agarwal says that he need not file a counter-affidavit in the matter and he will rely on the documents presently available with the court.

Therefore, with the consent of the learned counsels for the parties, the writ petition is taken up for hearing and final disposal, at this stage itself.

This petition concerns Assessment Year (AY) 2017-18.

The petitioner has approached this court against the show-cause notice dated 11.07.2023 issued under Section 271F of the Income Tax Act, 1961 [in short, “Act”] for imposition of penalty.

Mr M Sufian Siddiqui, who appears on behalf of the petitioner, says that what has been lost sight of is that the assessment order on the back of which impugned penalty notice has been issued, was set aside by a coordinate Bench of this court via order dated 31.05.2023 passed in W.P.(C) no.7904/2023.

Observation of the court

To be noted, via the said order, we had set aside the assessment order dated 09.05.2023, in terms set out in the order dated 31.05.2023.

This position is not disputed by Mr Agarwal.

Accordingly, the impugned show-cause notice dated 11.07.2023 is set aside.

Liberty is, however, given to the Assessing Officer (AO) to take the next steps, in accordance with the law.

The writ petition is disposed of, in the aforesaid terms.

Parties will act based on the digitally signed copy of the order.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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Initiation not based on Undisclosed Income Found During Search: No Section 271AAB Penalty

Initiation not based on Undisclosed Income Found During Search: No Section 271AAB Penalty

Fact and issue of the case

Both these appeals have been filed by the assessee against the common order of the ld. CIT(A)-3, Nagpur dated 20/07/2021 for the A.Y. 2014-15 and 2015-16 respectively.

Both these appeals have common issue, therefore, for the sake of convenience and brevity, a common order is being passed.

Firstly, we take ITA No. 125/Nag/2021 for the A.Y. 2014-15 for deciding the appeal. In this appeal, the assessee has basically aggrieved by the order of the ld. CIT(A) in confirming the penalty of Rs. 7,20,000/- levied U/s 271(1)(c) of the Income Tax Act, 1961 (in short, the Act).

The brief facts of the case are that the assessee derived income from salary, business, house property and other sources. The assessee had filed his return of income on 31/07/2014 declaring total income of Rs.19,66,100/-. A search and seizure operation U/s 132 of the Act was carried out at the residential premises of the assessee on 10/09/2014. The A.O. completed the assessment vide order dated 29/12/2016 determining total income of the assessee at Rs. 43,66,100/-. Thereafter proceedings U/s 271(1)(c) of the Act was initiated and the A.O. levied penalty of Rs. 7,20,000/- U/s 271(1)(c) of the Act.

Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions of both the parties and material placed on record, upheld the action of the A.O. in levying the penalty U/2 271(1)(c) of the Act. 6. Now the assessee is in appeal against the order of the ld. CIT(A) in upholding the penalty levied U/s 271(1)(c) of the Act.

The ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the ld. CIT(A). For the cost of repetition, there is no need to reproduce the written submissions filed before the ld. CIT(A).

On the contrary, the ld. DR has vehemently supported the orders of the lower authorities.

We have considered the rival contentions and carefully perused the material placed on record. From perusal of the record, we noticed that the assessee is a director of M/s. Karan Kothari Jewellers Private Limited (in short, the KKJPL) and derives income consisted of remuneration from the company and income from other sources only. During the year under consideration, the KKJPL had opened office in Mumbai and he was entrusted with the work of purchases from Mumbai. Hence, he used to frequently travel to Mumbai for business purposes of the company and had developed business contacts. During the search action on 10/09/2014 at the premises of the company KKJPL, the diaries containing the personal transactions were seized and he was asked to explain the said transactions. When he enquired with his representative, he was advised to declare income out of such transactions in his personal returns. He was ready to declare 2 % as his income out of the said transactions as for him that was the running rate in the market for such type of transactions. However, he was advised to declare 8% as net income out of such transactions otherwise he was required to get the said transactions audited, which would entail cost and was also time consuming as he would be required to get confirmation from all the said parties for audit purposes. He was also informed that the penalty provisions were not applicable in his case as he was declaring income on estimate basis. He was advised to declare 8% of total turnover plus some additional amount to take care of any deficiencies or discrepancies. Hence, he had declared Rs.21,20,000/- being 8% of turnover as also additional amounts of Rs.2,80,000/- for Asst. Year 2014-15. The said additional amount was declared voluntarily to buy peace and avoid litigation. He had also filed the returns for both the years and paid due taxes thereon. He had explained the said transactions alongwith modus oprendi to the A.O. through letter that was filed with the A.O. on 23/12/2016. Further, the A.O. had accepted the said declaration of income without any modification.

We further noticed that the AO has neither mentioned in the assessment order nor in his Penalty notice as to whether the penalty is initiated for concealment of income or for furnishing inaccurate particulars of income. He has also not mentioned in the order that the penalty is initiated under explanation 5 of section 271(1)(c) of the Act. We find that the only words used in the Assessment order are, “It is found that the assessee has shown additional income of Rs.24,00,000/- in the computation of income filed with the return, hence proceedings for penalty under section 271(1)(c) of the Act are to be initiated”. Further, the Final Show-cause notice issued on 29/12/2016 alongwith the Assessment order clearly mentions the words “Whereas in the course of proceedings before me for A.Y.2014-15, it appears that you have concealed the particulars of your income or furnished inaccurate particulars of such income”, and the AO has not stricken off the not applicable words. In this regard, we draw strength from the decision, as relied by the ld. AR, in the case of Manu Engineering Works (1980)122 ITR 306 (Guj), wherein it was held that “where there is no clear cut finding recorded by the AO on the point whether he intends to levy penalty for assessee’s concealing the particulars of income or for his furnishing inaccurate particulars of such income, the order of penalty is liable to be struck down. It is for the assessing officer to clearly say as to under which provision he is going to impose penalty”. The Coordinate Bench of the Mumbai ITAT has also taken a specific view in the case of Spykar Lifestyles (P) Ltd. 2021 182 TR (A) 93 -Mum Trib -2020 TaxPub(DT) 4773 wherein the Coordinate Bench has also taken a view that where there is no clear cut finding of the AO on the point whether the A.O. intends to levy penalty for assessee’s concealing the particulars of income or for his furnishing inaccurate particulars of such income, in view thereof, the order of penalty is liable to be struck down. We also draw strength from the decision in the case of CIT and others Vs. Manjunatha Cotton & Ginning Factory & others (2013) 359 ITR 565, (KAR)-HC), wherein it was held that “while issuing the notice under section 274, the AO has to come to conclusion as to whether it is concealment of income or furnishing of inaccurate particulars of income and sending printed forms where all grounds as mentioned in section 271 were mentioned would not satisfy requirement of Law. The Hon’ble Apex Court in the case of CIT & Anr. SSA’s Emerald Meadows (2016) 73 Taxman.com 248 has also upheld the said finding in case of Manjunatha Cotton & Ginning Factory & others (supra).

In the present case before us, we find that the AO has sent one printed form, wherein the specific finding of the AO as to whether he is initiating penalty for concealment of income or for furnishing inaccurate particulars of income is not mentioned. Further, the AO has also not mentioned that he intends to levy penalty under explanation 5 of Section 271(1)(c) and hence the said penalty U/s. 271(1)(c) is not justified and is directed to be deleted. Therefore, we direct to the delete the same.

In the result, this appeal of the assessee stands allowed.

Now we take ITA No. 126/Nag/2021 for the A.Y.2015-16. In this appeal, the assessee has basically aggrieved by the order of the ld. CIT(A) in confirming the penalty of Rs. 10,87,500/- levied U/s 271AAB of the Act.

Observation of the court

Having considered the rival contentions and carefully perused the material placed on record. From perusal of the record, we found that the AO had mentioned in his show cause notice dated 29/12/2016 that “it is seen that, on the basis of incriminating seized material, undisclosed income as per assessment order has been passed. Therefore you have committed default within the meaning of provisions of section 271AAB of the IT ACT. You are therefore liable to pay, by way of penalty, a sum computed at the rate of ten percent of the undisclosed income of that year.” However, the penalty was ultimately levied at 30% of the undisclosed income. This shows total non-application of mind on the part of the AO and hence the said penalty is required to be deleted as laid down in the case of Rainbow Products P. Ltd. Vs. ACIT (ITA 61/PAT/2019), wherein the Coordinate Bench of Patna ITAT, has held that “From going through the above three notices issued to the assessee on 22.03.2016, 03.06.2016 and 16.09.2016, we find that there is no mention about various conditions provided u/s 271 AAB of the Act. The Ld. A.O has very casually used the proforma used for issuing notice before levying penalty u/s 271(1)(c) of the Act for the concealment of income or furnishing of inaccurate particulars of income. Except mentioning the Section 271AAB of the Act in the notice, it does not talk anything about the provision of section 271AAB. Certainly, such notice has a fatal error and technically is not a correct notice in the eyes of law because it intends to penalize an assessee without spelling about the charge against the assessee.” In the case of assessee before us also the notice issued U/s. 271AAB of the Act, that except for mentioning the levy of penalty U/s. 271AAB, it does not mention about the various conditions provided under the said section. Further, the AO has also casually mentioned in the notice that penalty is leviable at 10%. Our attention was also drawn to the judgment in the case of Vivek Chug Vs. ACIT-2019 TaxPub (DT) 2665 (Ind-Trib) wherein, the Coordinate Bench of the Indore Tribunal has held that “Where notice for initiating penalty under section 271AAB, was issued in a casual fashion and where assessing officer did not apply his mind and no specific charge was mentioned in such notice for which the assessee was required to be show caused, in absence of the requisite contents of specific charge, the initiation of proceedings under section 271AAB, could not be sustained being bad in Law.”

We also draw strength from the decision of Coordinate Bench of Kolkata Tribunal in the case of Naresh Jalan HUF Vs, ACIT -2020 Tax Pub (DT) 4851 (Kol-Trib), wherein it is held that “Where AO in the show cause notice u/s.274 read with section 271AAB failed to specify default and charge against assessee which necessitated leavy of penalty U/s. 271AAB, penalty levied on the basis of such defective notice was deleted.”

So far as issue of levy of penalty u/s 271AAB of the Act whether is mandatory or not is concerned, the issue has been dealt with by the Co-ordinate Chandigarh Bench of the Tribunal in the case of ‘M/s SEL Textiles Ltd. Vs DCIT’ ITA No. 695/Chd/2018 order dated 18.04.2019. The Tribunal in the above case has relied upon the decisions of the Coordinate Benches of the Tribunal in the cases of ACIT Vs. Marvel Associates, ITA No. 147/Vizag/2017order dated 16.3.2018 (ITAT Visakhapatnam Bench); DCIT Vs. M/s Rashmi Metaliks Ltd., ITA No.1608/Kol/2017 dated 1.2.2019; (ITAT Kolkata Bench);DCIT Vs. Rashmi Cement Ltd, ITA No.1606/Kol/2017 order dated 28.2.2019 (ITAT Kolkata Bench). The co-ordinate Chandigarh bench of the Tribunal (supra) after analyzing the aforesaid decisions, wherein, reliance has also been placed on the decisions of the Hon’ble High Courts has held that levy of penalty u/s 271AAB of the Act is not mandatory. It has also been noted that the Legislature has consciously used the word ‘may’ in contradistinction to the word ‘shall’ in the opening words of Section 271AAB of the Act. That the choice of the expression ‘may’ and not ‘shall’ in the opening Section of 271AAB shows that the Legislature did not intend to make the levy of penalty statutory, automatic and binding on the Assessing Officer but the Assessing Officer has been given discretion in the matter of levy of penalty. Further that as per sub section (3) of section 271AAB of the Act, the provisions of section 274 and 275 of the Act have been made applicable in relation to the penalty referred to section 271AAB of the Act. It has been further observed that Section 274 deals with the procedure for levy of penalty, wherein, it directs that no order imposing penalty shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. Therefore, from plain reading of section 271AAB of the Act, it is evident that the penalty cannot be imposed unless the assessee is given a reasonable opportunity and assessee is being heard. Once the opportunity is given to the assessee, the penalty cannot be mandatory and it is on the basis of the facts and merits placed before the competent authority. It has also been held that the penalty u/s 271AAB will not be attracted if the surrendered income would not fall in the definition of ‘undisclosed income’ as defined under explanation to section 271AAB of the Act.

On a perusal of the provisions of section 271AAB, it is evident that the Section 271AAB is self-contained. There can be no doubt that there is no discretion with the AO as the parameters by which the AO or the tax authorities are bound in regard to the rate of penalty and the circumstances on the basis of which the penal provision can be attracted are self-explanatory. It can be noticed that the Co-ordinate Benches of the Tribunal have categorically held that the expression ‘undisclosed income’ is given a definite and specific meaning and the word has not been described in an inclusive manner so as to enable the tax authorities to give wider or elastic meaning which enables them to bring within its ambit the species of income not specifically covered by the definition. Moreover, such penal provisions are required to be interpreted in a strict, specific and restricted manner and not in an inclusive manner. If the surrendered income does not fall in the definition of “undisclosed income” as defined u/s 271AAB of the Act, the penalty is not warranted. It can be further noted that the penalty under section 271AAB can be initiated in respect of undisclosed income as defined in the section 271AAB itself found during the search action, independent of the assessment proceedings. Though, the fact in a case that the assessee has been able to explain the source of the alleged ‘undisclosed income’ may be relevant for final imposition of the penalty, however, for initiation of the penalty proceedings, the provisions of section 271AAB are self contained and are not dependent upon commencement or finalization of the assessment proceedings. It is further pertinent to note here it is not mandatory for the AO to invoke provisions of section 271AAB of the Act in each every case of levy of penalty pursuant to search action. Assessee has neither made any surrender of any undisclosed income during the search action nor the penalty has been initiated on the basis of undisclosed income found during such search action. In view of the above factual position, the impugned order of the AO imposing the penalty on the assessee under section 271AAB of the Act does not pass the mandate of the provisions of section 271AAB of the Act, therefore, the same being bad in law is hereby quashed and we direct to delete the penalty levied U/s. 271AAB of Rs. 10,87,500/-.

Finally, in the result, both these appeals of the assessee are allowed.

Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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No Penalty for Voluntary Section 43B Enhancement Disallowance

No Penalty for Voluntary Section 43B Enhancement Disallowance

Fact and issue of the case

This appeal concerns Assessment Year (AY) 2014-15.

Via this appeal the appellant/revenue seeks to assail the order dated 24.05.2019 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].

The Tribunal via the impugned order has set aside the penalty levied on the respondent/assessee under Section 271(1)(c) of the Income Tax Act, 1961 [in short, “the Act”] amounting to Rs.14,31,07,613/-. The Assessing Officer (AO) had levied the said amount as penalty on account of disallowance under Section 43B of the Act.

Mr Aseem Chawla, learned senior standing counsel, who appears on behalf of the appellant/revenue, says that the order of the Tribunal is not sustainable, in view of the fact that the disallowance said to have been made “voluntarily” by the respondent/assessee under Section 43B of the Act, was triggered on account of notices issued under Section 143(2) and/or Section 142(1) of the Act.

On the other hand, Mr Abhimanyu Jhamba, who appears on behalf of the respondent/assessee, contends to the contrary.

The following facts, as found by the Tribunal, are not in dispute:

(i) On account of floods in Himachal Pradesh, the respondent/assessee incurred huge losses and had to take recourse to Corporate Debt Restructuring Scheme (“CDR”), in respect of loans received from its lenders e., financial institutions.

(ii) CDR led to the working capital loan being converted into Working Capital Term Loan (“WCTL”) and the interest which had accrued on the loan was converted into Fund Interest Term Loan (“FITL”).

(iii) In respect of the AY in issue, Return Of Income (“ROI”) was filed by the respondent/assessee on 30.11.2014.

(iv) The original ROI was revised by the respondent/assessee on 01.09.2016 (online filing was made on 29.08.2016).

(v) The revision in the ROI was triggered by a revision in the tax audit report, which was carried out on 26.08.2016. The tax audit report was revised by the Chartered Accountant of the respondent/assessee suo motu.

(vi). The initial tax audit report adverted to a disallowance under Section 43B of the Act, albeit, amounting to Rs.6,08,64,813/-. In the revised tax audit report, the disallowance was suo motu enhanced to Rs.48,18,93,419/-.

(vii) The query with regard to the issue concerning disallowance under Section 43B of the Act was raised by the AO for the first time via a notice dated 21.11.2016 issued under Section 142(1) of the Act.

Having regard to these facts, which, as indicated above, are not in dispute, the Tribunal concluded that the disallowance was enhanced, voluntarily, and therefore, this was not a case in which penalty ought to have been imposed.

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Penalty for Failure to Disclose in an ITR as a Result of Accountant Ignorance, as Per Section 271(1)(c), is Removed by ITAT

Penalty for Failure to Disclose in an ITR as a Result of Accountant Ignorance, as Per Section 271(1)(c), is Removed by ITAT

Fact and issue of the case

The appeal filed by the assessee is against the order passed by the Ld. Commissioner of Income Tax (Appeals)-5, (in short “Ld. CIT(A)”), Ahmedabad on 21.06.2017 for A.Y. 2013-14.

The grounds of appeal raised by the assessee are as under:

The order passed u/s. 250 on 21.6.2017 for A.Y.2013-14 by CIT(A)-(5),A’bad, confirming penalty of Rs.48,435/- imposed towards addition of Rs.13,091/- for interest income and towards addition of Rs.2,15,471/- for LTCG is wholly illegal, unlawful and against the principles of natural justice.

The Ld. CIT(A) has grievously erred in law and or on facts in not considering fully and properly the explanations furnished and the evidence produced by the appellant.

The Ld. CIT(A) has grievously erred in law and or on facts in confirming the penalty of Rs.10,95,120/- levied u/s.271(1)(c) in respect of addition towards addition of Rs.13,091/- for interest income and towards addition of Rs.2,15,471/- for LTCG.

That in the facts and circumstances of the case as well as in law, the Ld. CIT(A) has grievously erred law and or in facts in confirming that the appellant had failed to rebut satisfactorily the alleged detection by AO. It is therefore prayed that the penalty of Rs.48,435/- imposed by AO and upheld by CIT(A) deserves to be deleted.”

The return of income was filed on 30.09.2013 declaring total income at Rs. 10,81,480/- alongwith tax audit report under Section 44AB of the Income Tax Act, 1961. The return was processed under Section 143(1) of the Act. The case was selected for scrutiny and statutory notices were issued. The Assessing Officer made addition of Rs. 2,15,471/- as Long Term Capital Gain and 13,091/- as interest income. The Assessing Officer initiated penalty proceedings and issued show cause notice under Section 274 r.w.s. 271(1)(c) on 21.02.2016. The assessee filed reply which was taken into account. The Assessing Officer imposed penalty of Rs. 48,435/- in respect of furnishing inaccurate particulars / concealment of income.

Being aggrieved by the penalty order the assessee filed appeal before the CIT(A). The CIT(A) dismiss the appeal of the assessee.

The Ld. A.R. submitted that there is a delay of 513 days for which the assessee has filed the condonation of delay alongwith the affidavit stating therein the reason as the assessee in the quantum matter did not prefer the appeal due to smallness of amount and therefore, after receiving the order of the CIT(A) the assessee was not aware the penalty order has to be challenged within the stipulated time and therefore, the assessee at that particular juncture did not file the appeal but on 24.01.2019 show cause notice for launching prosecution under Section 276C(1) was issued alleging the default of willfully attempting to evade taxes in respect of capital gain. Therefore, the delay may be condoned as prayed by the Ld. A.R. The Ld. D.R. vehemently oppose the delay. The explanation given by the assessee for condoning the delay appears to be genuine and therefore, the delay is condoned.

The Ld. A.R. submitted that the accountant of the assessee was unwell during the period of 2013 and therefore, the accountant of the firm had to finalize the particulars of income of the assessee. The assessee further submitted that the said accountant was admitted to the hospital during the subsequent period and therefore, the correct return of income was not filed stating therein the Long Term Capital Gain. The assessee has filed the revised return of income before the Assessing Officer thereby disclosing all the relevant income including the long term capital income and interest income. Thus, the Ld. A.R. submitted that the mistake on the part of the accountant cannot be held as a mistake of the assessee and the same should not be treated as furnishing inaccurate particulars of income / concealment of income as the assessee has filed revised return of income with the correct quantification of LTCG and interest income. The Ld. A.R. relied upon the decision of Hon’ble Apex Court in case of Price Waterhouse Cooper Pvt. Ltd. vs. CIT 348 ITR 306 (SC).

The Ld. D.R. submitted that the assessee has filed inaccurate particulars of income as the assessee has not disclosed Long Term Capital Gain as well as the interest income. If the Assessing Officer has not pointed during the assessment proceedings the assessee might have not furnished the revised return of income. Therefore, this is a fit case for imposing the penalty and the order of the CIT(A) sustained.

Observtion of the court

Heard both the parties and perused all the relevant material available on record. It is an admitted position that there was a mistake on part of the accountant for which the assessee has filed the affidavit of the accountant as well. From the perusal of the affidavit it appears that during the preparation of the particulars of return of income for A.Y. 2013-14 the said accountant was unwell and the subordinate accountant being ignorant above the actual quantification has filed incorrect return of income. The mistake on part of the accountant cannot be treated as mistake of the assessee and therefore, the decision of Hon’ble Supreme Court in case of Price Waterhouse Cooper Pvt. Ltd. (supra) is squarely applicable in the present case. The Assessing Officer as well as the CIT(A) was not right in imposing the penalty under Section 271(1)(c) of the Act. The appeal of the assessee is allowed.

In result, the appeal of the assessee is allowed.

This Order pronounced in Open Court on 21/07/2023

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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Without the need for bookkeeping, Section 271B does not impose penalties for non-audits

Without the need for bookkeeping, Section 271B does not impose penalties for non-audits

Fact and issue of the case

This appeal by the Assessee is directed against the order of Commissioner of Income Tax (Appeals)-34, New Delhi vide order dated 17.09.2019 for Assessment Year 2015-16. The Assessee has raised the following grounds of appeal:

That the Learned Assessing Officer has failed to appreciate the legal & factual position involed in the appellant’s case.

That the assessment order is replete with prejuidicial observations which are either unfounded or not suncepitble to any adverse conclusion.

That the authority below has failed to appreciate the legal and factual position involved in the Appellant’s case.

That no opportunity was afforded to the appellant to lead evidence on the issues involved.

That the provisions of section 271B are not attracted in the facts and circumstances of this case.

That the order is against law and facts of the case and merits to be cancelled.”

At the time of hearing, no one attended the proceeding. It is seen from the record that no one attended the hearing. The notices sent by the Registry have been duly served and the acknowledgment due has been placed on record. Under these facts, the appeal is taken up for hearing in the absence of assessee and materials available on records.

Apropos to the grounds of appeal, however, it is seen from the record that a letter dated 24.03.2023 has been placed on record.

On the other hand Ld. DR supported the orders of the authorities below.

Observation of the court

We have heard the Ld. DR and perused the material available on record. The contention of the assessee is that the assessment was framed on returned income ignoring the capital loss of Rs. 45,38,988/- it was not claimed by the assessee in his return of income. The Assessing Officer initiated the penalty proceedings U/s 271A of Income Tax Act, 1961 (hereinafter referred to as “the Act”) for non maintaining the books of accounts, as well as U/s 271B of the Act for not complying with the provisions of section 44AB of the Act. After considering the submissions of the assessee, the penalty proceedings initiated U/s 271A of the Act was dropped but the penalty U/s 271B of the Act was imposed and same was sustained by the Ld. CIT(A). It is further submitted that the appellant was not treated in default U/s 271A of the Act for non- maintenance of books of accounts, than how the provision of Section 271B of the Act would be attracted in the absence of books of accounts.

We have given our thoughtful consideration to the present appeal, admittedly, the penalty was initiated U/s 271A of the Act for non-maintenance of books of accounts as well as U/s 271B for not complying with the provisions of section 44AB of the Act regarding the auditing of the account. The penalty for non-maintenance on books of accounts was dropped but the penalty for not getting the accounts audited is sustained. We find merits into the contentions of the assessee that if he was not guilty of non maintaining of books of accounts, the presumption would be that he shall not required to maintain the books of accounts. Under these undisputed facts, imposing penalty for non auditing of books of accounts is not justified. Therefore, we hereby direct the Assessing authority to delete the penalty.

In the result, the appeal of the Assessee is allowed.

Order pronounced in the open court on 20th June, 2023.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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Simple errors in ITR claims do not constitute income hiding

Simple errors in ITR claims do not constitute income hiding

Fact and issue of the case

The present appeal of the assessee for the assessment year [‘AY’ in short] 2013-14 is directed against the order of National Faceless Appeal Centre, Delhi [‘NFAC’ in short] dt. 17/03/2023 passed u/s 250 of the Income-tax Act, 1961 [‘the Act’ in short].

The appellant assessee raised following grounds for adjudication of the issue in its favour;

Under the facts and circumstances of case and in law Ld. Assessing Officer is erred in levying penalty u/s. 271(1)(c).

Under the facts and circumstance of case and in law Ld. Assessing Officer is erred in levying penalty u/s. 271(1)(c) without adequate satisfaction.

Under the facts and circumstances and in law Ld. CIT(A) is erred in passing appeal order wherein appeal is already decided.

Appellant prays for just and equitable relief.

The appellant craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of appeal if deemed necessary at the time of hearing of the appeal. ’

In-spite of due notice none represented the assessee nor there is any application for adjournment on record; considering the material placed on record we proceeded to adjudicate the matter ex-parte in the light of rule 24 of ITAT Rules 1963. During the course of physical hearing the Ld. DR at the outset adverting to the impugned order solidified that, the assessee had filed two appeals against the levy of penalty one in physical regime and other in faceless mechanism. The present appeal lies against the order of Ld. NFAC confirming the penalty, whereas the appellant was successful before the Ld. CIT(A). Without contravening the other facts of the case, the Ld. DR relied on the orders of tax authorities below.

After hearing to Ld. DR and subject to the provisions of rule 18 of ITAT, Rules 1963 perused the material placed on records, we observed that;

The return of income [‘ITR’ in short] filed by the appellant society was subjected to regular assessment u/s 143(3) whereby certain additions were carried on account of disallowance u/s 80P of the Act and brought to tax the consequential income under the head ‘House Property’ and ‘Other Sources’, by the Income Tax Officer [‘AO’ in short] by an order dt. 12/02/2016.

Pursuant to the satisfaction noted in the aforestated assessment order, the Ld. AO initiated penalty proceedings for concealment u/s 271(1)(c) of the Act and considering the submission, has imposed penalty of ₹1,07,739/- by an order dt. 26/08/2016.

Aggrieved by the said levy, the assessee filed two appeals before the first appellate authority i.e. one filed before the learned Commissioner of Income Tax-Appeals, Kolhapur-1 [‘CIT-(A) in short] on 10/10/2016 and another appeal against the levy of penalty was also filed before Ld. NFAC on 19/10/2016. 4.4 The Ld. CIT(A) vide his DIN & order No. ITBA/APL/S250/2019-20/1022192303(1) dt. 12/12/2019 allowed the appeal of the assessee society in the light of Hon’ble Supreme Court decision in ‘Reliance Petro Products Pvt. Ltd.’ reported in 322 ITR 158 (SC). ]

Insofar as the faceless appeal against the said levy of penalty u/s 271(1)(c) of the Act is concerned, we note that, the Ld. NFAC vide DIN & Order No ITBA/NFAC/S/250-2022-23/1050917760(1) dt. 17/03/2023 confirmed the action of Ld. AO imposing the penalty, thus dismissed the appeal of the appellant society.

Saddled with the action of first appellate authority, the assessee set-up its case against the impugned order dt. 17/03/2023 passed u/s 250 of the Act by the Ld. NFAC.

Observation of the court

In this factual uncontroverted facts and circumstances, we note that, Ld. CIT(A) after careful perusal of the records, submission and averment vis-à-vis arguments put forth by the Ld. counsel for the assessee during the course of physical hearing, has rightfully allowed the appeal of the appellant assessee and deleted the penalty levied u/s 271(1)(c) of the Act in the light of judicial precedents. Per contra NFAC, on the basis of same submission placed on record, has failed to appreciate the facts and circumstances of the case and dismissed the appeal of the assessee outstepping the judicial discipline i.e. turning blind eye to the judicial precedents.

In these interesting circumstances, we fail to understand as to how same set of facts and circumstances in the light of settled legal position and judicial precedents could give rise to divergent adjudication by the same appellate forum i.e. one in the physical hearing mode before Ld. CIT(A) and other in faceless mechanism by the Ld. NFAC.

Nevertheless, on thoughtful consideration of facts and circumstance and judicial precedents, we are heedful to set-aside the impugned order of Ld. NFAC dt. 17/03/2023 appealed against on two counts; a) Following the judicial precedents laid by Hon’ble Apex Court (supra), that rejection of incorrect claim of deduction or expense made in the ITR, do not ispo-facto tantamount to concealment of income or furnishing of inaccurate particulars. b) The Ld. CIT(A) had passed his order on 12/12/2019, thus cause of action culminated the grievance brought before the first appellate authority, consequently rendered the appeal before Ld. NFAC as infructuous so the impugned order.

In result, the appeal of the assessee is ALLOWED. In terms of rule 34 of ITAT Rules,

the order pronounced in the open court on this Thursday 15th day of June,2023

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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Penalty Challenges to the proceedings cannot be made before formal order: Delhi ITAT

Penalty Challenges to the proceedings cannot be made before formal order: Delhi ITAT

Fact and issue of the case

The captioned appeal has been filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (‘CIT(A)’ in short) dated 09.02.2023 arising from the assessment order dated 14.09.2021 passed by the Assessing Officer (AO) under Section 144 r.w. Section 147 of the Income Tax Act, 1961 (the Act) concerning AY 2015-16.

The grounds of appeal raised by the assessee read as under:

Addition of Rs 9,13,100 was made on account of interest received on land compensation from Noida Authority. If the ITR-V filed against notice issued u/s 147 had been processed the addition of Rs 9,13,100 would not have been made since this income was already shown in the ITR filed against this notice and applicable taxes were adjusted from TDS claimed resulting in a refund of Rs. 70,540. The ITR was not verified or sent for verification due to the negligence of his tax consultant.

The appellant reserves the right to modify, withdraw or substitute any point in the Statement of facts and Grounds of appeal.

When the matter was called for hearing, the ld. counsel for the assessee pointed out that the assessee individual filed his return of income for Assessment Year 2015-16 on 12.07.2016 declaring total income at ‘Nil’ where exempt income shown was Rs.18,26,202/- being interest on land compensation from NOIDA Authority. The assessee thereafter filed revised return on 21.03.2017 again reporting ‘Nil’ taxable income and claimed the entire interest on land compensation of Rs.18,26,202/- as exempt. Thereafter, a notice under Section 148 dated 17.07.2019 was issued to assess the escapement of income on account of interest on land compensation. In response to notice under Section 148, the tax consultant of the assessee filed return of income on 16.08.2019 declaring total income of Rs.9,19,070/-. The ld. counsel thus submitted that the revised return in response to 148 proceedings included the escaped income in terms of provision of Section 56(2)(vii) r.w. Section 45A of the Act and 50% of the interest received on compensation was offered for tax as per the mandate of law. However, the revised return under section 148 was purportedly neither e-verified nor ITR-V (acknowledgement of ITR) was sent for verification out of inadvertence and ignorance. The ld. counsel however asserted the tax amount on revised return under Section 148 was duly paid. The Assessing Officer treated revised return in response to Section 148 is invalid due to error in e-verification etc. and added Rs.9,13,101/- to the taxable income (as per original return of income) offered and assessed the income at Rs.9,13,100/-.

Observation of the court

In this factual backdrop, the ld. counsel submitted that he has no objection to the assessed income rather the assessee himself had offered the aforesaid income in the revised return remaining unverified and also paid taxes thereon. The ld. counsel thus submitted that in so far as the assessment of interest on compensation amount is concerned, the assessee has no objection whatsoever. The ld. counsel for the assessee submitted that the present appeal has been filed primarily for the purposes of exoneration from the clutches of penalty proceedings when he has acted bona fide all along. The ld. counsel thus submitted that he seeks to basically challenge the initiation of penalty proceedings. As a consequence of the assessment framed under Section 147 of the Act, the ld. counsel thus urged for suitable relief in the matter.

On consideration of the submissions made on behalf of the assessee and also the first appellate order and the assessment order, it is manifest that the present appeal filed by the assessee in quantum proceedings is infructuous as both assessee and the Revenue are ad idem on taxability of the interest on income compensation from NOIDA Development Authority. Hence, mere initiation of penalty proceedings cannot be challenged unless some formal order on the point has been passed in accordance with law. The assessee may challenge the imposition of penalty if so legally advised at appropriate stage. The present appeal is infructuous in effect and substance and thus dismissed in limine.

In the result, the captioned appeal of the assessee is dismissed as infructuous.

Order pronounced in the open Court on 13/06/2023

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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ITAT Removes Penalty for Technological Ignorance and Third-Party Negligence Under Section 272A(1)(d)

ITAT Removes Penalty for Technological Ignorance and Third-Party Negligence Under Section 272A(1)(d)

Fact and issue of the case

The present appeal filed by the assessee for the assessment year 20 17-18 is directed against the order of Ld. CIT(A), National faceless Appeal Centre (“NFAC”), Delhi dated 01.03.2023.

The assessee has raised following grounds of appeal:-

Under the facts and circumstances of the case, Ld. CIT (Appeal) has erred in sustaining the penalty imposed by the A.O. u/s 272A(1)(d) of the IT Act, 1961 vide his order u/s 250 dt. 01.03.2023, which is unjust and unwarranted.

Under the facts and circumstances of the case, Ld. CIT (A) has erred in not considering the written submission regarding reasonable cause filed by the Appellant on 24.02.2023 in a right perspective.

Under the facts and circumstances of the case, Ld. CIT (A) did not consider the facts that being an illiterate person, the appellant did not respond the statutory notices as he was not aware about Government ITD Portal being first year of online interface and has a reasonable cause for not attending the assessment proceedings before Ld. A. O.

Under the facts and circumstances of the case, Ld. CIT (A) has erred in not establish the facts on records that statutory notices u/s 142(1) were got served properly upon the assessee during the course of assessment proceedings. The assessee can add, delete or modify any grounds of appeal during the time of proceedings.

The effective ground in this appeal is against the sustaining of penalty imposed u/s 272A(1)(d) of the Income Tax Act, 1961 (“the Act”).

Facts giving rise to the present appeal are that the assessee filed its return of income on 28.08.20 17 declaring income of Rs.2,40,000/- under the head “income from salaries”. The case was selected for scrutiny under CASS and a notice u/s 143(2) of the Act was issued through ITBA Portal but there was no compliance by the assessee. Thereafter, the Assessing Officer (“AO”) issued notices on 09.10.2018, 20.10.2019, 20.11.2019 and 28.11.2019 but there was no compliance by the assessee. The AO initiated penalty u/s 272A(1)(d) of the Act for failure to comply with notices and the impugned penalty of Rs.50,000/- was imposed vide order dated 01.12.202 1.

Aggrieved against this, the assessee preferred appeal before Ld.CIT(A) who after considering the submissions, sustained the addition and dismissed the appeal of the assessee.

Aggrieved against the order of Ld.CIT(A), the assessee is in appeal before this Tribunal.

Counsel for the assessee vehemently argued that the authorities below failed to appreciate that the assessee is an illiterate person and the notices were issued through e-mode on Govt. ITBA Portal. Therefore, he could not attend the proceedings before the assessing authority. The non-compliance of the notice was not deliberate but there was bonafide reason for not responding to the notices issued by the assessing authority. He further submitted that under the identical set of facts, the Co-ordinate Bench of the Tribunal in the case of Triumph International Finance India Ltd. vs DCIT in ITA No. 1870/Mum/2020 for Assessment Year 2017-18 dated 10.03.2022, deleted the penalty imposed on the assessee. He submitted that the facts are identical. The assessee should not be punished for his ignorance of technology. Therefore, a lenient and liberal view may be adopted in this case. He therefore, prayed that the impugned penalty may be deleted.

On the other hand, Ld. Sr. DR opposed the submissions and supported the orders of the authorities below.

Observation of the court

We have heard Ld. Authorized Representatives of the parties and perused the material available on record. We find that before Ld.CIT(A), it was stated that the assessee is an illiterate person and ignorant about the use of technology. He could not see the notices sent by the Revenue. It was further stated that the notices were sent at the address of the income tax return preparer who did not inform the assessee about the issuance of such notices sent by the Department. We find that Ld.CIT(A) has decided the issue by observing as under:- “During the course of appellate proceedings also, the appellant has not submitted any evidence or filed any cogent reasons for not complying with the notices issued u/s 142(1) of the I. T. Act. Within the meaning of section 273B of the 1.T. Act. The levy of penalty is subject to section 273B which provides that no penalty shall be imposable if the assessee proves that there was a reasonable cause for the said failure. However, in this case no such reasonable/sufficient cause has been put forth by the appellant. Hence, the action of the AO imposing penalty of Rs. 50,000/- is upheld and the appellant’s appeal is accordingly dismissed.”

As per section 273B of the Act, no penalty under sub-section (1) & (2) under the provision of section 272A of the Act shall be imposable on the assessee for any failure refer to in the said provision if he proves that there was reasonable cause of the said failure. In the present case, the assessee demonstrated that there was a reasonable cause. Firstly, on account of the fact that notices were sent on the email-id of the income tax return preparer but he did not inform the assessee and Secondly, the assessee himself is not technologically literate. Moreover, the return of income prepared by such income tax return preparer disclosed the income at wrong head. The assessee is having small business and is not a salaried employee. The foundation regarding presumption that the assessee is a literate person, is based upon that the assessee being a salaried person cannot be an illiterate person. It is infact an incorrect fact. Therefore, looking to the facts of the present case, we are of the view that there was a reasonable cause for non-compliance of the statutory notices sent by the Department to the assessee. The Co-ordinate Bench of the Tribunal in the case of Triumph International Finance India Ltd. vs DCIT (supra) has held as under:-

The first appellate authority has rejected the explanation furnished by the assessee for non-compliance of the notice issued under section 142(1) of the Act merely for the reason that during penalty proceedings under section 272A(1)(d) of the Act, the assessee has not stated the reasonable cause. We are not in agreement with the findings of CIT(A). The assessee has explained that about ongoing assessment proceedings the assessee came to know only on receipt of order u/s. 272A(1)(d) of the Act and demand notice. The explanation furnished by the assessee before the CIT(A) and before the Tribunal is consistent. We are satisfied that non- appearance of the assessee in response to the initial notice under section 142(1) of the Act was not deliberate. The year 2019 being the initial year of shift towards digital and electronic mode, the mistake appears to be bonafide. The assessee has been able to show reasonable cause for the failure to comply with statutory notice u/s. 142(1) of the Act. Thus, in our view penalty levied u/s. 272A(1)(d) of the Act is unsustainable. The Assessing Officer is directed to delete the penalty.

Facts are identical and similar in the present case as decided by the Co­ordinate Bench of the Tribunal in the case of Triumph International Finance India Ltd. vs DCIT (supra). Therefore, respectfully following the decision of the Co-ordinate Bench of the Tribunal, we direct the AO to delete the impugned Grounds of appeal raised by the assessee are allowed.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open Court on 21st June, 2023.

Conclusion

In the result, appeal of the assessee is allowed and ruled in favour of the assessee

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