Wadhwa Estate & Developers India Pvt. Ltd vs. ACIT (ITAT Mumbai)

DATE: February 24, 2017 (Date of pronouncement)
DATE: March 11, 2017 (Date of publication)
AY: 2011-12
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S. 271(1)(c): Penalty cannot be levied if the omission to offer income, and the wrong claim of deduction, was by oversight and the auditors did not point it out. Also, the failure of the AO to specify the limb under which penalty u/s 271(1)(c) is imposed is a fatal error

(i) Undisputedly, in the return of income assessee has failed to offer interest on fixed deposit amounting to ` 5,92,186 and loss claimed on account of fixed asset written–off amounting to Rs 1,82,242. It is also a fact on record that in the course of assessment proceedings, the assessee accepted the taxability of these items of income and offered them to tax. The assessee has explained that non–disclosure of aforesaid two items of income is due to oversight and due to the fact that neither in the tax audit nor in the statutory audit such omission was pointed out. We find merit in the aforesaid explanation of the assessee. In fact, in Para–4.3.2 of his order, the learned Commissioner (Appeals) has observed that the explanation offered by the assessee with regard to imposition of penalty has not been found to be false. On a perusal of the audit report, we have also noted that the auditors have not pointed out the omission. Thus, assessee’s explanation that non–disclosure of two items of income is on account of omission due to oversight is believable since the auditors have also failed to detect such omission in the audit report. Therefore, in our opinion, the ratio laid down by the Hon’ble Supreme Court in PricewaterhouseCoopers Pvt. Ltd. (supra), clearly applies to the facts of the present case as, in our opinion, it is a bonafide mistake committed by the assessee. The other decision relied upon by the learned Authorised Representative also support such view. That being the case, in our opinion, imposition of penalty under section 271(1)(c) in the present case is not justified. Even otherwise also, the penalty imposed under section 271(1)(c) is not sustainable due to the following reasons:–

(ii) Perusal of the assessment order clearly demonstrate that the Assessing Officer has not recorded any satisfaction whether the facts of the case necessitate initiation of proceeding for imposition of penalty under section 271(1)(c) either for concealing particulars of income or for furnishing inaccurate particulars of income or for both. The Assessing Officer has simply initiated the proceedings for penalty under section 271(1)(c) without mentioning the offence committed by the assessee with reference to the provisions contained under section 271(1)(c). Further, on a reference to the notice issued under section 274 r/w section 271, which is in a standard printed format, a copy of which is placed at Page–17 of the paper book, we have found that the Assessing Officer has not specified which limb of the provision contained under section 271(1)(c) is attracted to the assessee. The Hon’ble Supreme Court in Dilip N. Shroff v/s JCIT, [2007] 291 ITR 519 (SC), has observed that while issuing the notice under section 274 r/w section 271, in the standard format, the Assessing Officer should delete the inappropriate words or paragraphs, otherwise, it may indicate that the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or had furnished inaccurate particulars of income. This, according to the Hon’ble Supreme Court, deprives the assessee of a fair opportunity to explain its stand, thereby, violates the principles of natural justice. As held by the Hon’ble Supreme Court in CIT v/s Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC), the aforesaid principle laid in Dilip N. Shroff (supra) still holds good in spite of the decision of the Hon’ble Supreme Court in UOI v/s Dharmendra Textile Processors (2008) 306 ITR 277 (SC). The Hon’ble Jurisdictional High Court in CIT v/s Smt. Kaushalya & Ors., [1995] 216 ITR 660 (Bom), observed that notice issued under section 274 must reveal application of mind by the Assessing Officer and the assessee must be made aware of the exact charge on which he had to file his explanation. The Court observed, vagueness and ambiguity in the notice deprives the assessee of reasonable opportunity as he is unaware of the exact charge he has to face. The Hon’ble Jurisdictional High Court in Samson Perinchery (supra), following the decision of Hon’ble Karnataka High Court in CIT v/s Manjunatha Cotton & Ginning Factory, [2013] 359 ITR 565 (Kar.), held, order imposing penalty has to be made only on the ground on which the penalty proceedings has been initiated. In the present case, neither the assessment order nor the notice issued under section 274 indicate the exact charge on the basis of which the Assessing Officer intends to impose penalty under section 271(1)(c). Therefore, viewed in the light of the principles laid down in the judicial precedents discussed herein above, we are of the opinion that the Assessing Officer having failed to record his satisfaction while initiating proceedings for imposition of penalty under section 271(1)(c) as to which limb of the provisions of section 271(1)(c) is attracted, the order imposing penalty is invalid. In view of the aforesaid, we hold that the imposition of penalty u/s 271(1)(c) in the present case is not justified.

Cases referred:

i) Price Water House Coopers Pvt. Ltd. v/s CIT, 348 ITR 306;
ii) DCIT v/s Kodak India Pvt. Ltd., ITA no.1533/Mum./2014 dated 05.12.2016; and
iii) CIT v/s Dalmiya Diechem Industries Ltd., ITA no.1396/ Mum./2013, dated 06.07.2015.

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