M/s. OSE Infrastructure Ltd., Gurgaon v. ACIT, New Delhi, Income Tax Appellate Tribunal, Judgment, Law, casemine.com

Citation Codes

Equivalent Citations

citation codes

Case Number

ITA 5895/DEL/2016

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Acts

Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short the Act)
operations u/s 132 of the Income-tax Act, 1961 (the Act)
section 271(l)( c) of the Income Tax Act. 1961
SECTION 271 A INCOME TAX ACT 1961
u/s 271(I)(c) of the Income Tax Act, 1961
5A to Section 271(1)(c)
Section 271(1)(c)

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Smart Summary

Factual and Procedural Background

The appeals challenge a common order of the Commissioner of Income-tax (Appeals)-31, New Delhi dated 24.08.2016. The matters, which raise substantially similar facts for assessment years including 2009-10, were heard together and disposed of by a common order dated 14.08.2018.

Briefly, the assessee originally filed a return on 30.09.2009 declaring a loss of Rs.1,13,74,180/-. Following search and seizure operations under Section 132 of the Income-tax Act, 1961 (the Act) on 10.02.2012 and issuance of notice under Section 153A, the assessee filed a return declaring a loss of Rs.27,62,303/-, and thereafter revised that return to declare nil income. Assessment was completed on the basis of the nil income.

The Assessing Officer initiated penalty proceedings under Section 271(1)(c) on the view that the initial large loss declaration, subsequent reduction and eventual revision to nil income amounted to concealment of income by furnishing inaccurate particulars. The AO imposed a penalty by order dated 29.09.2015 in the sum of Rs.35,14,622 (100% of the tax sought to be evaded). The CIT(A) confirmed the penalty and the assessee appealed to the Income Tax Appellate Tribunal (ITAT), which issued the impugned common order.

Legal Issues Presented

Whether the penalty proceedings under Section 271(1)(c) are valid when the notice initiating penalty does not specify which limb of Section 271(1)(c) (concealment of particulars of income or furnishing inaccurate particulars of income) is being invoked.
Whether a return filed in response to a notice under Section 153A, and validly revised before the assessment is completed, is to be treated as the return filed under Section 139(1) for all purposes (including penalty under Section 271(1)(c)), thereby precluding penalty when the revised return is accepted and assessment is completed on that basis.
Whether Explanation 5A to Section 271(1)(c) (and the absence of incriminating material from search/seizure) precludes imposition of penalty in the facts of this case.

Arguments of the Parties

Appellant's Arguments (Assessee / Authorised Representative)

The show-cause notice under Section 274 / Section 271(1)(c) did not specify whether penalty was proposed for concealment of income or for furnishing inaccurate particulars; this omission prejudiced the assessee's ability to defend (relying on CIT vs Manjunatha Cotton Ginning Factory and CIT vs SSA's Emerald Meadows).
The return filed pursuant to notice under Section 153A, and the revision thereof, takes the place of a return filed under Section 139(1); since the revised return was accepted and assessment completed on that basis, penalty could not be levied (relying on CIT vs Neeraj Jindal, ACIT vs Splendor Landbase Ltd., Prem Arora vs DCIT and related authorities).
No incriminating documents, assets or income were discovered during the search that resulted in additions; therefore Explanation 5A to Section 271(1)(c) applies and no penalty is leviable.

Respondent's Arguments (Revenue / Departmental Representative)

The Department relied on the orders of the authorities below and contended that the case law cited by the assessee did not apply to the facts of the case.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT vs Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Kar)	Penalty proceedings under Section 271(1)(c) must specify the particular limb (concealment or furnishing inaccurate particulars) relied upon; initiating on one ground and imposing penalty on another is unsustainable and offends natural justice.	The Tribunal relied on this decision to hold that the AO's notice/penalty was defective for not specifying the limb; the ITAT applied this authority to conclude that the imposition of penalty could not be sustained on the basis of the defective notice.
CIT vs SSA's Emerald Meadows (High Court judgment upheld by Supreme Court dismissal of SLP)	Reiterates that omission by assessing officer to explicitly state which limb of Section 271(1)(c) is being invoked makes the penalty proceedings liable to be set aside even if concealment is otherwise proved.	The ITAT treated this judgment (and the Supreme Court's dismissal of the SLP) as binding support for the proposition that the defective notice under Section 274/271(1)(c) invalidates the penalty; it formed a principal basis for quashing the penalty in this case.
CIT vs Neeraj Jindal (2017) 393 ITR 1 (Del HC)	Return filed pursuant to notice under Section 153A takes the place of the return filed under Section 139(1); such a return can be revised and, if revised and accepted before assessment, the revised return governs assessment/outcome for penal consequences.	The ITAT applied this principle to find that the assessee's revised return (declaring nil income), which was accepted and assessed, precluded imposition of penalty under Section 271(1)(c).
ACIT vs Splendor Landbase Ltd., ITA No.2461/Del/2016 (ITAT Delhi)	Supports the proposition that returns filed under Section 153A are to be treated as returns under Section 139(1) and that revision/acceptance of such returns affects penalty liability.	The ITAT relied on this tribunal authority alongside other cases to support the conclusion that the accepted revised return removed scope for penalty.
Prem Arora vs DCIT (2017) 78 DTR 91	Used as an authority in support of the proposition that Section 153A returns are to be treated as returns under Section 139(1) for certain purposes, including revision and penalty consideration.	The ITAT cited this decision as part of the cluster of authorities supporting the assessee's contention that a revised/accepted return under Section 153A negates penalty under Section 271(1)(c).
CIT vs Reliance Petro Products P. Ltd. (2010) 322 ITR 158 (SC)	Invoked to support the proposition that in circumstances where the revised/accepted return governs assessment, no penalty can be levied.	The ITAT cited this Supreme Court decision to reinforce the conclusion that penalty could not be levied once the revised return was accepted and assessment completed on that basis.
Kirit Dahyabhai Patel vs ACIT (2017) 80 Taxmann.com 162 (Guj)	Holds that a return filed in response to a notice under Section 153A is to be considered as a return filed under Section 139 for the purpose of penalty; penalty under Section 271(1)(c) may be levied only on income assessed over and above the income returned under Section 153A.	The Tribunal applied this authority to the facts that both the returned income and the assessed income were nil, concluding that there was no scope for penalty on that ground as well.

Court's Reasoning and Analysis

The Tribunal examined the record and submissions and proceeded in a stepwise manner reflecting the legal issues raised in the case:

Fact-finding and procedural posture: The Tribunal observed that it was undisputed that the assessee filed a return pursuant to the Section 153A notice (14.07.2014), revised that return on 24.02.2015 to declare nil income, and that assessment had been completed on 24.03.2015 accepting the nil income. The question whether the assessee had set up business in the year (such that the earlier claimed loss would be contestable) was noted to be a debatable question of fact and was not finally determined by the AO because the assessee had withdrawn that claim by revising the return.
Defect in the penalty notice and natural justice: The Tribunal scrutinised the penalty initiation documents and concluded that the notice under Section 274 read with Section 271(1)(c) did not specify which limb of Section 271(1)(c) was invoked (i.e., concealment or furnishing inaccurate particulars). Relying on the reasoning in the Manjunatha decision and SSA's Emerald Meadows (and the Supreme Court's dismissal of the Revenue's SLP), the Tribunal held that initiation of proceedings on one ground and imposing penalty on another cannot be sustained. The Tribunal therefore found the notice defective and held that, due to that defect, the AO had not rightly assumed jurisdiction to pass the penalty order.
Effect of revised return and accepted assessment: Independently, the Tribunal considered the legal effect of a return filed pursuant to Section 153A and its subsequent valid revision. Applying Neeraj Jindal and other authorities (including Reliance Petro and Kirit Dahyabhai Patel), the Tribunal accepted the assessee's submission that a return filed under Section 153A stands in the place of a return under Section 139(1). Because the assessee had validly revised the Section 153A return declaring nil income, and the assessment was completed accepting that revised return, there was no scope for penalty: under the cited authorities penalty can only be levied on income assessed over and above the income returned under Section 153A. Here both returned and assessed income were nil.
Explanation 5A and absence of incriminating material: While the assessee also argued that Explanation 5A to Section 271(1)(c) applied because no incriminating material was found in the search, the Tribunal's order relied principally on the procedural defect in the notice and the legal consequences of the revised/accepted Section 153A return to quash the penalty. The Tribunal noted the absence of conclusive findings on the disputed factual question of whether any business had been set up during the relevant year, observing it was a debatable issue not finally decided by the AO.
Conclusion of analysis: Viewing the matter from either angle — the defective initiation notice under Section 274/271(1)(c) and the legal effect of the revised/accepted return under Section 153A — the Tribunal found no ground to sustain the penalty and therefore quashed the penalty proceedings.

Holding and Implications

Final Holding: The appeals are allowed and the penalty proceedings are quashed; the penalty imposed for the Assessment Years 2009-10 to 2013-14 is deleted. (Order pronounced in open court on 14 August 2018; Bench: G.D. Agrawal (President) and K. Narasimha Chary (Judicial Member).)

Implications:

Direct effect on the parties: The penalty order dated 29.09.2015 (and related penalty orders for the relevant assessment years up to 2013-14 as noted) is set aside and the assessed penalty amounts are deleted.
Legal consequence drawn by the Tribunal: Where a notice initiating penalty does not specify which limb of Section 271(1)(c) is being invoked, the initiation is defective and the resulting penalty cannot be sustained; alternatively, where a return filed under Section 153A is validly revised and the revised return is accepted and assessment completed on that basis, there is no scope for penalty under Section 271(1)(c) on the assessed outcome that matches the revised return.
Broader precedent: The Tribunal's decision relies on existing high court and supreme court authorities discussed in the opinion. The decision applies those authorities to these facts; the opinion does not purport to lay down a novel rule beyond the application of the cited precedents.

Order details: Appeals allowed; penalty deleted for AY 2009-10 to 2013-14. Order pronounced 14.08.2018. Bench Members: (G.D. AGRAWAL) PRESIDENT; (K. NARASIMHA CHARY) JUDICIAL MEMBER.

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M/s. OSE Infrastructure Ltd., Gurgaon v. ACIT, New Delhi

PER BENCH: Challenging the common order of the learned Commissioner of Income-tax (Appeals)-31, New Delhi (for short Ld. CIT(A)) dated 24.08.2016, assessee preferred these appeals. Date of Hearing 31.07.2018 Date of Pronouncement 14.08.2018

2. Parties, facts and question of law involved in all these matters are substantially the same, as such, we deem it just and fair to dispose of the same by way of common order with reference to the facts relating to the year 2009-10.

3. Brief facts of the case are that originally the assessee filed the return of income on 30.9.2009 declaring a loss of Rs.1,13,74,180/-. Pursuant to the search and seizure operations u/s 132 of the Income-tax Act, 1961 (the Act) on 10.2.2012 and issuance of notice u/s 153A of the Act, assessee filed the return of income declaring a loss of Rs.27,62,303/- which the assessee revised declaring nil income. Assessment was completed on the nil income only. However, the learned Assessing Officer (Ld. AO) opined that the conduct of the assessee in initially declaring a huge loss, which was reduced substantially pursuant to the notice u/s 153A and subsequent revision declaring nil income amounts to concealment of income by filing inaccurate particulars. He initiated proceedings u/s 271(1)(c) and concluded them by order dated 29.9.2015 with the levy of penalty of Rs.35,14,622/-, being the 100% of the tax sought to be evaded.

4. Appeal preferred by the assessee was dismissed by the learned CIT(A) by way of impugned order. Hence, the assessee filed this appeal stating that no material was found in the course of search and seizure operations basing on which any addition could have been made and the learned CIT(A) failed to appreciate that in search cases explanation 5A to Section 271(1)(c) is applicable.

5. Argument of the learned AR is three fold. Firstly, the notice does not spell out under which limb of Section 271(1)(c), whether it is for concealment of income or for furnishing of inaccurate particulars, the penalty was proposed. For this proposition he placed reliance on CIT vs SSAs Emerald Meadows (SC) in CC No.11485/2016 dated 5.8.2016 and CIT vs. Manjunatha Cotton Ginning Factory (2013) 359 ITR 565 (kar)(HC). Secondly, he submits that when the assessee filed the return pursuant to notice u/s 153A of the Act and validly revised it, such return takes the place and deemed to have been filed the return u/s 139(1) of the Act and since the assessment is complete accepting the revised return, no penalty could be levied. For this proposition, he placed reliance on CIT vs Neeraj Jindal (2017) 393 ITR 1 (Del)(HC); ACIT vs Splendor Landbase Ltd., ITA No.2461/Del/2016 (ITAT Del); and Prem Arora vs DCIT (2017) 78 DTR 91. Lastly, it is contended by the learned AR that during the search no incriminating documents, assets or income was found which resulted in the addition, as such, under Explanation 5A of Section 271(1)(c) of the Act, no penalty is leviable.

6. Learned DR heavily relied upon the orders of the authorities below and submitted that the case law relied upon by the assessee has no application to the facts of the case.

7. We have gone through the record in the light of the submissions made on either side. As a matter of fact, there is no dispute that pursuant to the notice issued u/s 153A, the assessee filed the return of income on 14.7.2014 which was revised on 24.2.2015 declaring nil income and the assessment was also completed on 24.3.2015 at nil income only. On the question of whether or not the assessee set up any business during the year and the loss claimed cannot be allowed, in the revised return the assessee withdrew such a claim and declared the income at nil. No doubt the question of whether or not the assessee set up any business during the year and whether no business could be turned out even after the business was set up is a disputed question of fact, and is a debatable issue.

8. However, learned AO felt that the claim of loss on the premise that the business was set up amounts to concealment of income by filing inaccurate particulars. From the assessment order it is not clear as to whether it was concealment of income or furnishing of inaccurate particulars.

9. So also the notice issued u/s 174 read with Section 271 of the Act, which reads as follows: Sub:- Penalty Proceedings u/s 271(I)(c) of the Income Tax Act, 1961 for the assessment year -Reg. With reference to the above you are given an opportunity to show cause as to why penalty under section 271(l)(

c) of the Income Tax Act. 1961 for the A.Y-2009-10 should not be imposed.

2. You are hereby requested to appear before me in Room no. 323, 3 Floor, ARA Centre, Jhandewalan Extn., New Delhi on 17.04.2015 at 11.00 and show cause why an order imposing a penalty on you should not be made under section 271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative you may show cause in writing on or before the said date which will be considered before any such order is made under section 271.

10. There is no mention of the limb, which is attracted in this matter so as to enable the assessee to defend themselves. On this aspect, in the case of CIT vs Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar) vide paragraph 60, the Honble Karnataka High Court has held as follows :-

60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.

11. Hon'ble Karnataka High Court in the case of CIT vs SSA's Emerald Meadows supra in ITA No. 380 of 2015 dated 23.11.2015, which was approved by the Hon'ble Supreme Court by dismissal of Special Leave Petition (SLP) filed by the Revenue in CC No. 11485/2016 dated 5.8.2016, considered the question of law as to,- Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?

12. And the Honbe High Court answered the same in favour of the assessee observing that: The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short the Act) to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of COMMISSIONER OF INCOME TAX - VS- MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.

13. The Special Leave Petition filed by the Revenue challenging the aforesaid judgement of the High Court was dismissed by the Honble Supreme Court holding : We do not find any merit in this petition. The special leave petition is, accordingly, dismissed.

14. It is, therefore, clear that for the AO to assume jurisdiction u/s 271(1)(c), proper notice is necessary and because of the defect in notice u/s 274 of the Act, we find it difficult to hold that the learned AO rightly assumed jurisdiction to passed the order levying the penalty.

15. Be that as it may, as the facts indicate the entire dispute relates to the question whether the business is set up or not. Whether the assessee did any business or not is not relevant if the business is set up during the year under consideration. This is a debatable issue and was not finally decided by the AO because the assessee withdrew their claim by revising the return of income. As is held in the case of Neeraj Jindal (supra) and other cases relied upon by the assessee, the return of income filed pursuant to the notice u/s 153A takes the place of the return filed u/s 139(1) which was validly revised by the assessee even before any defect was pointed out by the learned AO. In such circumstances, in view of the decision in the case of CIT vs Reliance Petro Products P. Ltd. (2010)

322 ITR 158 (SC), no penalty could be levied.

16. Lastly, when the revised return is accepted and the income is assessed as per the revised income, there is no scope for penalty. In the case of Kirit Dahyabhai Patel vs ACIT, (2017) 80 Taxmann.com 162 (Guj), the Honble High Court held that in view of specific provision of Section 153A, the return of income filed in response to notice u/s 153A is to be considered as return filed u/s 139, as the AO has made assessment on the said return and, therefore, the return has to be considered for the purpose of penalty u/s 271(1)(c) of the Act and the penalty is to be levied on the income assessed over and above the income returned u/s 153A, if any. Admittedly, in this matter both the returned income and the assessed income are nil. On this ground also, we cannot sustain the penalty order.

17. Viewing from any angle, we do not find any ground to sustain the penalty, as such, we find that the penalty proceedings have to be quashed. We do so accordingly.

18. Following the same, we answer the grounds in the other Appeal Nos. 5892 to 5895/Del/2016 accordingly.

19. In the result, all the appeals of the assessee are allowed and the penalty for the Assessment Years 2009-10 to 2013-14 is hereby deleted. Order pronounced in the open court on 14 August, 2018 Sd/- sd/- (G.D. AGRAWAL) (K. NARASIMHA CHARY) PRESIDENT JUDICIAL MEMBER Dated: 14 August, 2018 Copy forwarded to:

1. Appellant

2. Respondent

3. CIT

4. CIT(Appeals)

5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI Draft dictated on 01.08.2018 Draft placed before author 01.08.2018 Draft proposed & placed before the second member Draft discussed/approved by Second Member. Approved Draft comes to the Sr.PS/PS Kept for pronouncement on Date of uploading order on the website File sent to the Bench Clerk Date on which file goes to the AR Date on which file goes to the Head Clerk. Date of dispatch of Order.

M/s. OSE Infrastructure Ltd., Gurgaon v. ACIT, New Delhi

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments (Assessee / Authorised Representative)

Respondent's Arguments (Revenue / Departmental Representative)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

M/s. OSE Infrastructure Ltd., Gurgaon v. ACIT, New Delhi

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