Ventura Textiles Ltd vs. CIT (Bombay High Court)

ITXA958_17.odt
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.958 OF 2017
Ventura Textiles Ltd. … Appellant
Vs.
Commissioner of Income Tax-Mumbai City-11 … Respondent
Ms Aarti Sathe for Appellant.
Mr. Akhileshwar Sharma for Respondent.
CORAM : UJJAL BHUYAN &
MILIND N. JADHAV, JJ.
Reserved on : MARCH 11, 2020
Pronounced on : JUNE 12, 2020
P.C.:
Heard Ms Aarti Sathe, learned counsel for the appellant / assessee and Mr.
Akhileshwar Sharma, learned standing counsel, Revenue for the respondent.
2. This appeal has been preferred by the assesee under Section 260-A of the
Income Tax Act, 1961 (briefly ‘the Act’ hereinafter) against the order dated
11.01.2017 passed by the Income Tax Appellate Tribunal, ‘F’ Bench, Mumbai
(‘Tribunal’ for short) in I.T.A.No.5535/Mumbai/2014 for the assessment year
2003-04 filed by the assessee.
3. The appeal has been preferred by the assessee projecting the following
questions as substantial questions of law:-
“A. Whether on the facts and in the circumstances of the case and in
law the Tribunal erred in upholding the levy of penalty u/s.271(1)(c) of
the Act of Rs.22,08,860/- (Rupees Twenty-Two Lakhs Eight Thousand
Eight Hundred and Sixty only) on account of disallowance of
Rs.62,47,460/- (Rupees Sixty Two Lakhs Forty Seven Thousand Four
Hundred and Sixty only) which was allowable as a deduction under the
provisions of Section 37 of theAct?
B. Whether on the facts and in the circumstances of the case and in
law the Tribunal erred in not applying the ratio laid down by the Apex
Court in the case of CIT Vs. Reliance Petroproducts Private Limited
reported in 322 ITR 158(SC), which was squarely applicable to the
facts of the present case?
C. Whether on the facts and in the circumstances of the case and in
law the Tribunal grossly erred in upholding the levy of penalty under
Section 271(1)(c) of the Act without appreciating / considering that:
(i) the appellant had not been found to have concealed
particulars or furnished inaccurate particulars of its claims;
(ii) the aforesaid claim could be allowed under Section 37
of the Act as incurred wholly and exclusively for the purposes
of business;
(iii) no income has been concealed / avoided as inter alia
the settlement with JCT took place in assessment year 2003-
2004, when the claim was made by the appellant under the
provisions of Section 37 of the Act.
D. Whether on the facts and in the circumstances of the case the
Tribunal ought to have held that the order passed under Section 271(1)
(c) is bad in view of the fact that both at the time of initiation as well as
at the time of imposition of the penalty the Assessing Officer was not
clear as to which limb of Section 271(1)(c) was attracted?”
4. From the above it is evident that the core issue in this appeal is sustaining
by the lower appellate authorities the imposition of penalty of Rs.22,08,860.00
under Section 271(1)(c) of the Act by the Assessing Officer on account of
disallowance of Rs.62,47,460.00 claimed as a deduction under Section 36(i)(vii)
of the Act on account of bad debt and subsequently claimed as a deduction under
Section 37 of the Act as expenditure expended wholly and exclusively for the
purpose of business.
5. For appreciation of the questions proposed, it would be apposite to deal
with the relevant facts.
6. Respondent is an assessee under the Act (hereinafter referred to as ‘the
assessee’ also), having the status of resident company. Assessment year under
consideration is 2003-04. Assessee filed its return of income declaring total loss at
Rs.4,66,68,740.00. The case was selected for scrutiny assessment. During the
assessment proceedings it was found amongst others that assessee had debited
Rs.62,47,460.00 under the head ‘selling and distribution expenses’ and claimed it
as bad debt in the books of account thus claiming it as a deduction under Section
36(1)(vii) of the Act. Subsequently it was found that the aforesaid amount was
paid to M/s. JCT Ltd. as compensation for the supply of inferior quality of goods.
Thus Assessing Officer held that the amount of Rs.62,47,460.00 claimed as bad
debt was not actually a debt and therefore it was not allowable as a deduction
under Section 36(1)(vii) of the Act. Assessing Officer further held that the said
claim was also not admissible even under Section 37(1) of the Act, with the
observation that payment made to M/s. JCT Limited was not wholly and
exclusively for business purposes but for extraneous considerations. In view
thereof, assessee’s claim was rejected and Rs.62,47,460.00 was added back to the
total income of the assessee. In the assessment order dated 28.02.2006 passed
under Section 143(3) of the Act the total loss figure furnished by the assessee was
lessened by the aforesaid amount and by two other amounts, rounding it off to
Rs.3,53,48,680.00. Taking the view that assessee had furnished inaccurate
particulars of income, Assessing Officer ordered that penalty proceedings under
Section 271(1)(c) of the Act be initiated separately.
7. Following the same the Assessing Officer issued notice under Section 274
read with Section 271 of the Act on the same day i.e., on 28.02.2006 to the
assessee to show cause as to why an order imposing penalty should not be made
under Section 271 of the Act. It may however be mentioned that in the pertinent
portion of the notice the Assessing Officer did not strike off the inapplicable
portion. The pertinent portion reads as under:-
“ Whereas in the course of proceeding before me for the assessment
year 2003-04 it appears to me that you:-
* * * * * *
* * * * * *
* * * * * *

have concealed the particulars of your income or ….. furnished
inaccurate particulars of such income.
* * * * * * ”
8. It appears that assessee had challenged the disallowance of bad debt along
with other disallowances in the assessment order by filing appeal before the
Commissioner of Income Tax (Appeals) who by order dated 14.11.2012 confirmed
the disallowance of bad debt while deleting other disallowances.
9. In the penalty proceedings, Assessing Officer took the view that assessee’s
claim was not actually bad debt but represented payment made to M/s. JCT
Limited which was also not incurred wholly and exclusively for the purposes of
business. Had the case not been selected for scrutiny, income to the said extent
would have escaped assessment. Thus, by the order dated 14.02.2014 Assessing
Officer held that by making an improper and unsubstantiated claim of bad debt of
Rs.62,47,460.00, the assessee had wilfully reduced its incidence of taxation,
thereby concealing its income as well as furnishing inacurrate particulars of
income. Therefore, invoking Section 271(1)(c) of the Act, the Assessing Officer
imposed the minimum penalty being 100% of the tax which amount was
quantified at Rs.24,99,200.00 which included penalty on another disallowance.
10. Aggrieved by such imposition of penalty, assessee preferred appeal before
the Commissioner of Income Tax (Appeals)-18, Mumbai, briefly the First
Appellate Authority or CIT (A) hereinafter. By the appellate order dated
07.08.2014, CIT (A) deleted the penalty on the other disallowance by holding that
there was neither any concealment nor submission of inaccurate particulars by the
assessee. Regarding penalty levied on Rs.62,47,460.00 claimed as bad debt in the
assessment proceedings, CIT (A) held that assessee had made a wrong claim by
submitting inaccurate particulars of income by claiming bad debt which was not
actually a debt and also not an expenditure allowable under Section 37(1) of the
Act. Thus it was held that the assessee had wilfully submitted inaccurate
particulars of income which had resulted into concealment. Therefore, penalty
levied by the Assessing Officer on the amount of Rs.62,47,460.00 was upheld.
11. Assessee carried the matter in further appeal before the Tribunal assailing
the decision of CIT (A) in upholding imposition of penalty in respect of the
amount of Rs.62,47,460.00. By the order dated 11.01.2017, the Tribunal upheld
the order of CIT (A) and rejected the appeal of the assessee. According to the
Tribunal, it was rightly held by the CIT (A) that the assessee had made a wrong
claim by submitting inaccurate particulars of income by claiming a bad debt which
was not actually a debt and also not an expenditure allowable under Section 37(1)
of the Act. Therefore, the finding recorded by the CIT (A) that the assessee had
wilfully submitted inaccurate particulars of income which had resulted into
concealment was affirmed.
12. Hence this appeal by the assessee.
13. Ms Sathe, learned counsel for the appellant submits at the outset that the
notice issued to the petitioner under Section 274 read with Section 271 of the Act
proposing to impose penalty was in printed format but the inapplicable portion
therein was not struck off. Consequently, whether penalty was sought to be
imposed for concealment of particulars of income or for furnishing inaccurate
particulars of such income was not indicated in the notice. This is a fundamental
error which goes to the root of the matter and has vitiated the impugned order of
penalty. However she admits that this point was neither pleaded nor argued before
any of the lower authorities including the Tribunal. This point has been raised for
the first time in appeal before the High Court. But she contends that this being a
pure question of law touching upon jurisdiction, it can be raised even for the first
time in the High Court in a proceeding under Section 260-A of the Act. In this
connection, she has placed reliance on the following decisions:-
1. CIT Vs. Jhabua Power Limited, (2013) 37 Taxmann.com 162 (SC);

2. Ashish Estates & Properties (P) Ltd. Vs. CIT,
(2018) 96 Taxmann.com 305 (Bombay)
13.1. Elaborating further, Ms Sathe submits that Section 271(1)(c) has two limbs
i.e. concealing the particulars of income or furnishing inaccurate particulars of
income. Concealment of particulars of income and furnishing inaccurate
particulars of such income are two different things having separate connotation.
Therefore, in the show cause notice issued under Section 274 read with Section
271(1)(c) of the Act it must be specifically indicated on what ground penalty is
sought to be imposed, whether for concealment or for furnishing inaccurate
particulars. Such a notice being in printed format, the inapplicable portion or limb
of Section 271(1)(c) of the Act has to be struck off. Otherwise the notice would be
invalid rendering the consequential orders wholly untenable being bad in law. This
is the position in the present case, she submits. In this connection she has placed
reliance on the following decisions:-
1. CIT Vs. SSA’s Emerald Meadows, (2016) 73 Taxmann.com 248
(SC);
2. CIT Vs. SSA’s Emerald Meadows, (2016) 73 Taxmann.com 241
(Karnataka);
3. CIT Vs. Samson Pernchery, (2017) 98 CCH 39 (Bombay);
4. PCIT Vs. New Era Sova Mine, (2019) SCC OnLine Bom.1032;
5. PCIT Vs. Goa Coastal Resorts & Recreation Pvt.Ltd., (2019) 106
CCH 0183 (Bombay);
6. PCIT Vs. Shri Hafeez S. Contractor, ITA Nos.796 and 872 of
2016 decided on 11.12.2018.
13.2. On a query by the Court as to whether in a case where the Assessing Officer
directs initiation of penalty proceedings in the assessment order for furnishing
inaccurate particulars of income but in the show cause notice it is not indicated
whether penalty is sought to be imposed for furnishing inaccurate particulars of
income by not striking off the inapplicable portion in the printed notice, would it
still vitiate the penalty proceeding and the consequential order of penalty, Ms
Sathe, learned counsel for the appellant answers in the affirmative. She contends
that penalty proceeding is initiated by the show cause notice. Therefore in the
show cause notice it must be clearly mentioned as to why the penalty is sought to
be imposed; the charge against the assessee must be already indicated. Failure to
do so would reflect non-application of mind, thus vitiating the penalty proceedings
and the consequential order of penalty.
13.3. In addition to the above, learned counsel for the appellant submits that
assessee had made a bona-fide claim of deduction and had furnished all the
necessary particulars. In the assessment proceedings, the Assessing Officer may
not have agreed to such a claim and may have disallowed the same. Mere
disallowance of a claim made bonafidely would not amount to concealment of
particulars of income or furnishing inaccurate particulars of such income to
warrant imposition of penalty under Section 271(1)(c) of the Act. To support such
a contention, she has placed reliance on CIT Vs. Reliance Petroproducts Pvt. Ltd.,
322 ITR 158 (SC) and on a few other cases.
13.4. Summing up, learned counsel for the appellant submits that the questions
proposed are substantial questions of law which arise from the impugned order of
the Tribunal. Those may be answered in favour of the assessee and against the
Revenue.
14. Per contra, Mr. Sharma, learned standing counsel, Revenue supports the
impugned order passed by the Tribunal. He submits that assessee had made
improper and unsubstantiated claim of bad debt, thereby reducing the total income
and consequential quantum of tax which came to light only during scrutiny
assessment and rightly disallowed by the Assessing Officer. Had the case not been
selected for scrutiny, such inadmissible claim would have escaped assessment.
CIT (A) rightly held that the assessee had wilfully submitted inaccurate particulars
of income which had resulted into concealment, which was affirmed by the
Tribunal. Therefore, Assessing Officer was justified in imposing the penalty which
has been confirmed by both the lower appellate authorities by applying the correct
principles. In such circumstances, learned standing counsel submits that there is
no merit in the appeal, which should accordingly be dismissed.
15. Submissions made by learned counsel for the parties have been duly
considered. Also perused the materials on record including the judgments cited at
the Bar.
16. Since imposition of penalty is under Section 271(1)(c) of the Act, the same
may be adverted to at the outset. As per this provision, if the Assessing Officer or
the Commissioner (Appeals) or the Principal Commissioner or Commissioner in
the course of any proceedings under the Act is satisfied that any person had
concealed the particulars of his income or furnished inaccurate particulars of such
income, he may direct that such person shall pay by way of penalty, in addition to
the tax payable by him, a sum which shall not be less than but which shall not
exceed three times the amount of tax sought to be evaded by reason of
concealment of particulars of his income or furnishing of inaccurate particulars of
such income.
17. The two key expressions in Section 271(1)(c) of the Act are “concealment
of particulars of his income” and “furnishing inaccurate particulars of such
income”. These two expressions comprise of the two limbs for imposition of
penalty under Section 271(1)(c) of the Act. Gujarat High Court in the case of
Manu Engineering Vs. CIT, 122 ITR 306 and Delhi High Court in Virgo
Marketing P. Ltd. Vs. CIT, 171 Taxmann 156 held that levy of penalty has to be
clear as to the limb for which penalty is levied. If the Assessing Officer proposes
to invoke the first limb, then the notice has to be appropriately marked. Similarly,
if the Assessing Officer wants to invoke the second limb then the notice has also to
be appropriately marked. If there is no striking off of the inapplicable portion in
the notice which is in printed format, it would lead to an inference as to nonapplication
of mind. In such a case, penalty would not be sustainable.
18. Supreme Court in Ashok Pai Vs. CIT, 292 ITR 11 observed that
concealment of income and furnishing of inaccurate particulars of income in
Section 271(1)(c) of the Act carry different connotations.
19. Having discussed the above, let us address the submissions advanced by
learned counsel for the parties.
20. In so far the first contention of learned counsel for the appellant is
concerned i.e., raising a question of law for the first time before the High Court
though not raised before the lower authorities, our attention is drawn to a decision
of the Supreme Court in Jhabua Power Limited (supra) relied upon by learned
counsel for the appellant. In that case two questions were raised by the Revenue
for the first time before the Supreme Court. The two questions related to bar of
limitation for imposing penalty under Section 275(1) of the Act. Supreme Court
took the view that the two questions were required to be answered first by the
Tribunal. Accordingly, Supreme Court set aside the orders passed by the High
Court and the Tribunal and remanded the matter back to the Tribunal to decide the
two questions in accordance with law.
20.1. In Ashish Estates & Properties (P) Ltd. (supra), this Court was
confronted with the question as to whether Tribunal was justified in not giving any
reasons and in not deciding the issue relating to disallowance under Section 14A
of the Act qua strategic investments made in the firms and companies for
executing various projects. However, this Court noticed that the issue of strategic
investments was not urged by the assessee before the Tribunal more particularly
that disallowance under Section 14A of the Act could not be in excess of the total
exempt income. This Court referred to a series of decisions of the Supreme Court
as well as of this Court wherein it has been held that a question not raised before
the Tribunal and consequently not decided by the Tribunal would not be a question
arising out of the order of the Tribunal. An appeal under Section 260-A of the Act
can only be in respect of issues which were raised before the Tribunal. Reference
was made to the decisions in CIT Vs. Tata Chemicals (P) Ltd., 256 ITR 395 and in
CIT Vs. Smt. Lata Shantilal Shah, 323 ITR 297 where the Court had taken the
view that a question of law not raised before the Tribunal would not be allowed to
be urged before the High Court in an appeal under Section 260-A of the Act. After
going through the entire spectrum of case laws on this point, this Court ultimately
observed that notwithstanding the view taken in Tata Chemicals (P) Ltd. (supra)
and Smt. Lata Shantilal Shah (supra), it would not preclude the High Court from
entertaining an appeal on issue of jurisdiction even if the same was not raised
before the Tribunal. However, in that case, the proposed question was found to be
neither one of jurisdiction nor raising any substantial issue.
20.2. Therefore, from the above it can be culled out that if an issue is not urged
before the Tribunal, the same cannot be raised before the High Court in an appeal
under Section 260-A of the Act. However, in Jhabua Power Limited (supra),
Supreme Court had remanded the questions raised before it for the first time back
to the Tribunal for deciding the questions in accordance with law. Again, in
Ashish Estates & Properties (P) Ltd. (supra), this Court has taken the view that
an appeal under Section 260-A of the Act can be entertained by the High Court on
the issue of jurisdiction even if the same was not raised before the Tribunal.
21. Let us now advert to the fourth question i.e. Question number D framed /
proposed by the appellant. Through this question, appellant is contending that the
Tribunal ought to have held that the order of penalty passed under Section 271(1)
(c) of the Act was bad in law in view of the fact that at the time of initiation of
penalty proceedings as well as at the time of imposition of penalty, Assessing
Officer was not clear as to which limb of Section 271 (1)(c) of the Act was
attracted. At the time of hearing, learned counsel for the appellant had argued that
in the show-cause notice the inapplicable portion was not struck off; thus it was
not indicated in the notice whether the penalty was sought to be imposed for
concealment of particulars of income or for furnishing inaccurate particulars of
income, which has vitiated the impugned order of penalty. However, she fairly
submits that this point was not urged before the lower authorities including the
Tribunal. We have already noted and analyzed the two limbs of Section 271(1)(c)
of the Act and also the fact that the two limbs i.e. concealment of particulars of
income and furnishing inaccurate particulars of income carry different
connotations. We have also noticed that the Assessing Officer must indicate in the
notice for which of the two limbs he proposes to impose the penalty and for this
the notice has to be appropriately marked. If in the printed format of the notice the
inapplicable portion is not struck off thus not indicating for which limb the penalty
is proposed to be imposed, it would lead to an inference as to non-application of
mind, thus vitiating imposition of penalty.
21.1. Therefore, the question relating to non-striking off of the inapplicable
portion in the show-cause notice which is in printed format, thereby not indicating
therein as under which limb of Section 271(1)(c) of the Act penalty was proposed
to be imposed i.e. whether for concealing the particulars of income or for
furnishing inaccurate particulars of such income would go to the root of the lis.
Therefore, it would be a jurisdictional issue. Being a jurisdictional issue, it can be
raised before the High Court for the first time and adjudicated upon even if it was
not raised before the Tribunal.
21.2. In CIT Vs. Manjunath Cotton and Ginning Factory, 359 ITR 565,
Karnataka High Court held that Assessing Officer while issuing notice has to
come to the conclusion as to whether it is a case of concealment or furnishing of
inaccurate particulars. Levy of penalty has to be clear as to the limb for which it
was levied. The standard proforma without striking off the relevant causes will
lead to an inference as to non-application of mind.
21.3. In SSA’s Emerald Meadows (supra), Karnataka High Court was again
confronted with a similar question. In that case, Tribunal had allowed the appeal
filed by the assessee by holding that the notice issued by the Assessing Officer
under Section 274 read with 271(1)(c) of the Act was bad in law as it did not
specify under which limb of Section 271(1)(c) of the Act the penalty proceeding
was initiated i.e., whether for concealment of particulars of income or for
furnishing of inaccurate particulars of income. While allowing the appeal,
Tribunal had relied upon Manjunath Cotton & Ginning Factory (supra). In the
circumstances, Karnataka High Court dismissed the appeal of the Revenue.
21.4. Revenue preferred Special Leave Petition (SLP) before the Supreme Court
against the decision of the Karnataka High Court in SSA’s Emerald Meadows
(supra). In (2016) 242 Taxmann 180, Supreme Court dismissed the SLP.
21.5. Though the decision of the Karnataka High Court in SSA’s Emerald
Meadows (supra) which relied upon Manjunath Cotton & Ginning Factory
(supra) was not interfered with by the Supreme Court by dismissing the SLP, the
fact remains that dismissal of SLP would not lead to merger of the High Court’s
order with the order of the Supreme Court.
21.6. This Court in Samson Pernchery (supra) was examining the question as to
justification of the Tribunal in deleting the penalty levied under Section 271(1)(c)
of the Act. In that case, Tribunal had deleted the penalty imposed by the Assessing
Officer because initiation of penalty proceedings was for furnishing inaccurate
particulars of income whereas the order imposing penalty was for concealment of
income. Further Tribunal noted that the notice issued under Section 274 of the Act
was in a standard proforma without having striked out irrelevant clauses therein.
Revenue contended that there was no difference between furnishing of inaccurate
particulars of income and concealment of income. This contention of the Revenue
was rejected by this Court in view of the Supreme Court decision in Ashok Pai
(supra). Referring to the decision of the Karnataka High Court in Manjunath
Cotton & Ginning Factory (supra), this Court held that satisfaction of the
Assessing Officer with regard to only one of the two breaches mentioned in
Section 271(1)(c) of the Act for initiation of penalty proceedings will not warrant
penalty being imposed for the other breach. This is because the assessee would
respond only to the ground on which the notice was issued. In other words,
penalty cannot be imposed on a ground of which assessee had no notice. It was
further observed by this Court that nothing could be shown which would warrant
taking a view different from the view taken by the Karnataka High Court in
Manjunath Cotton & Ginning Factory (supra).
21.7. In Goa Coastal Resorts & Recreation Pvt. Ltd. (supra) both the lower
appellate authorities had categorically held that there was no record of satisfaction
of the Assessing Officer that there was any concealment of income or that any
inaccurate particulars were furnished by the assessee. In such circumstances, this
Court held that the two lower appellate authorities had correctly ordered dropping
of penalty proceedings against the assessee. It was in that context that this Court
noted that in the notice issued in printed format the inapplicable portion was not
struck off. Therefore in that case, this Court found that in addition to the notice
being defective, there was no finding or satisfaction recorded in relation to
concealment or furnishing of inaccurate particulars.
21.8. Similar is the view taken in New Era Sova Mine (supra) as well as in Shri
Hafeez S. Contractor (supra).
22. Coming to the facts of the present case, we have already noticed that in the
assessment order dated 28.02.2006, Assessing Officer had ordered that since the
assessee had furnished inaccurate particulars of income, penalty proceedings
under Section 271(1)(c) were also initiated separately. Therefore, it was apparent
that penalty proceedings were initiated for furnishing inaccurate particulars of
income.
23. The statutory show-cause notice under Section 274 read with Section 271 of
the Act proposing to impose penalty was issued on the same day when the
assessment order was passed i.e., on 28.02.2006. The said notice was in printed
form. Though at the bottom of the notice it was mentioned ‘delete inappropriate
words and paragraphs’, unfortunately, the Assessing Officer omitted to strike off
the inapplicable portion in the notice i.e., whether the penalty was sought to be
imposed for concealment of particulars of income or for furnishing inaccurate
particulars of such income. Such omission certainly reflects a mechanical
approach and non-application of mind on the part of the Assessing Officer.
24. However, the moot question is whether the assessee had notice as to why
penalty was sought to be imposed on it?
25. This brings us to the basic question as to what is a notice or what do we
mean by notice. Concise Oxford English Dictionary, Indian Edition, explains
notice to mean the fact of observing or paying attention to something; advanced
notification or warning; a displayed sheet or placard giving news or information. It
means to become aware of. In other words, to put someone on notice would mean
warn someone of something about or likely to occur. Black’s Law Dictionary,
Eighth Edition, defines the expression ‘notice’ to mean having actual knowledge of
a fact; has received information about it; has reason to know it; knows about the
related fact. In CST Vs. Subhash & Company, (2003) 3 SCC 454, Supreme Court
deliberated upon the concept of notice and observed that the term ‘notice’ has
originated from the Latin word “notifia” which means “being known” or “a
knowing”. Thereafter, Supreme Court referred to the definition of the word ‘notice’
in various general and judicial dictionaries. Without adverting to the large number
of definitions, suffice it to say notice would mean information, warning or
announcement of something impending; notice in its legal sense may be defined as
information concerning a fact communicated to a party by an authorized person or
actually derived by him from a proper source; the term “notice” in its full legal
sense embraces a knowledge of circumstances that ought to induce suspicion or
belief as well as direct information of that fact.
26. Reverting back to the facts of the present case, if the assessment order and
the show cause notice, both issued on the same date i.e., on 28.02.2006, are read in
conjunction, a view can reasonably be taken that notwithstanding the defective
notice, assessee was fully aware of the reason as to why the Assessing Officer
sought to impose penalty. It was quite clear that for breach of the second limb of
Section 271 (1)(c) of the Act i.e., for furnishing inaccurate particulars of income
that the penalty proceedings were initiated. The purpose of a notice is to make the
noticee aware of the ground(s) of notice. In the present case, it would be too
technical and pedantic to take the view that because in the printed notice the
inapplicable portion was not struck off, the order of penalty should be set aside
even though in the assessment order it was clearly mentioned that penalty
proceedings under Section 271(1)(c) of the Act had been initiated separately for
furnishing inaccurate particulars of income. Therefore, this contention urged by
the appellant / assessee does not appeal to us and on this ground we are not
inclined to interfere with the imposition of penalty.
27. Having held so, let us now examine whether in the return of income the
assessee had furnished inaccurate particulars of income. As already discussed
above, for imposition of penalty under Section 271(1)(c) of the Act, either
concealment of particulars of income or furnishing inaccurate particulars of such
income are the sine qua non. In the instant case, as we have seen, penalty
proceedings under Section 271(1)(c) of the Act were initiated on the ground that
assessee had furnished inaccurate particulars of income.
28. In the assessment proceeding, assessee filed its return of income on
28.11.2003 declaring total loss at Rs.4,66,68,740.00. Assessee disclosed that it had
debited Rs.62,47,460.00 under the head ‘selling and distribution expenses’ and
claimed it as bad debt in the books of account. As per the explanation given by the
assessee it was exporting fabrics through M/s. JCT Ltd., a recognized export house
for which assessee had an ongoing account with M/s. JCT Ltd. M/s. JCT Ltd.
raised quality claims from time to time and was pressing the assessee for
settlement. As the assessee was in need of funds, it could not settle the claims. It
was only during the assessment year under consideration that assessee had the
requisite funds and paid to M/s. JCT Ltd. Rs.62,47,460.00 as full and final
settlement, confirmation of which from M/s. JCT Ltd. was submitted. Assessee
clarified during the assessment proceedings that the said amount which was
written off was actually not bad debt but in the nature of rebate and discounts
given to M/s. JCT Ltd. on account of quality claims made by it from time to time.
This explanation of the assessee was not accepted by the Assessing Officer by
holding that subsequent payment made to M/s. JCT Ltd. would not be covered by
Section 36(1)(vii) of the Act since the amount claimed as bad debt was actually
not a debt. Thereafter Assessing Officer examined as to whether such payment
would be covered under Section 37(1) of the Act as per which an expenditure
would be allowable as a deduction if it pertains to that particular year and incurred
wholly and exclusively for the purpose of business. Assessing Officer held that the
assessee’s claim was not admissible even under Section 37(1) of the Act as the
circumstances indicated that the payments were not made wholly and exclusively
for business purpose. While disallowing the claim of the assessee, Assessing
Officer took the view that since the assessee had furnished inaccurate particulars
of income, penalty proceedings under Section 271(1)(c) of the Act was also
initiated separately.

29. We have already noticed that in the statutory show cause notice, Assessing
Officer did not indicate as to whether penalty was sought to be imposed for
concealment of income or for furnishing inaccurate particulars of income though
in the assessment order it was mentioned that penalty proceedings were initiated
for furnishing inaccurate particulars of income.
30. Be that as it may, in the order of penalty, Assessing Officer held that
assessee had concealed its income as well as furnished inaccurate particulars of
income.
31. Concealment of particulars of income was not the charge against the
appellant, the charge being furnishing inaccurate particulars of income. As
discussed above, it is trite that penalty cannot be imposed for alleged breach of
one limb of Section 271(1)(c) of the Act while penalty proceedings were initiated
for breach of the other limb of Section 271(1)(c). This has certainly vitiated the
order of penalty. In appeal, CIT (A) took a curious view that submission of
inaccurate particulars of income resulted into concealment, thus upholding the
order of penalty. This obfuscated view of the CIT (A) was affirmed by the
Tribunal.
32. On the ground that while the charge against the assessee was of furnishing
inaccurate particulars of income whereas the penalty was imposed additionally for
concealment of income, the order of penalty as upheld by the lower appellate
authorities could be justifiably interfered with, still we would like to examine
whether there was furnishing of inaccurate particulars of income by the assessee in
the first place because that was the core charge against the assessee.
33. In Reliance Petroproducts Pvt. Ltd. (supra), Supreme Court examined
meaning of the words ‘particulars’ and ‘inaccurate’. As per Law Lexicon, the word
‘particulars’ means ‘detail or details; the details of a claim or the separate items of
an account’. Therefore, it was held that the word ‘particulars’ used in Section
271(1)(c) of the Act would embrace the meaning of the details of the claim made.
Referring to Webster’s Dictionary where the word ‘inaccurate’ has been defined as
‘not accurate, not exact or correct; not according to truth; erroneous; as an
inaccurate statment, copy or transcript’, Supreme Court held that the two words
i.e., ‘inaccurate’ and ‘particulars’ read in conjunction must mean that the details
supplied in the return are not accurate, not exact or correct, not according to truth
or erroneous. It was held that mere making of a claim which is not sustainable in
law by itself would not amount to furnishing inaccurate particulars regarding the
income of the assessee. Therefore, such claim made in the return cannot amount to
furnishing inaccurate partiulars of income. Elaborating further, Supreme Court
held that if such stand of the Revenue was accepted then in case of every return
where the claim made is not accepted by the Assessing Officer for any reason, the
assessee will invite penalty under Section 271(1)(c) of the Act which is clearly not
the intendment of the Legislature.
34. This decision was followed by this Court in CIT Vs. M/s. Mansukh Dyeing
& Printing Mills, Income Tax Appeal No.1133 of 2008, decided on 24.06.2013.
In CIT Vs. DCM Ltd., 359 ITR 101, Delhi High Court applied the said decision of
the Supreme Court and further observed that law does not debar an assessee from
making a claim which he believes is plausible and when he knows that it is going
to be examined by the Assessing Officer. In such a case a liberal view is required
to be taken as necessarily the claim is bound to be carefully scrutinized both on
facts and in law. Threat of penalty cannot become a gag and / or haunt an assessee
for making a claim which may be erroneous or wrong. Again, in CIT Vs.
Shahabad Co-operative Sugar Mills Ltd., 322 ITR 73, Punjab & Haryana High
Court held that making of wrong claim is not at par with concealment or giving of
inaccurate information which may call for levy of penalty under Section 271(1)(c)
of the Act.

35. Reverting back to the present case it is quite evident that assessee had
declared the full facts; the full factual matrix or facts were before the Assessing
Officer while passing the asessment order. It is another matter that the claim based
on such facts was found to be inadmissible. This is not the same thing as
furnishing inaccurate particulars of income as contemplated under Section 271(1)
(c) of the Act.
36. Thus, on a careful examination of the entire matter, while we answer
question number D against the appellant / assessee, question numbers A, B and C
are answered in favour of the appellant / assessee. Therefore, on an overall
consideration, the appeal would stand allowed and the order of penalty as affirmed
by the two lower appellate authorities would consequently stand interfered with.
37. Accordingly, the appeal is allowed. However, there shall be no order as to
costs.
(MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.)