ITXA958_17.odt
\nIN THE HIGH COURT OF JUDICATURE AT BOMBAY
\nORDINARY ORIGINAL CIVIL JURISDICTION
\nINCOME TAX APPEAL NO.958 OF 2017
\nVentura Textiles Ltd. … Appellant
\nVs.
\nCommissioner of Income Tax-Mumbai City-11 … Respondent
\nMs Aarti Sathe for Appellant.
\nMr. Akhileshwar Sharma for Respondent.
\nCORAM : UJJAL BHUYAN &
\nMILIND N. JADHAV, JJ.
\nReserved on : MARCH 11, 2020
\nPronounced on : JUNE 12, 2020
\nP.C.:
\nHeard Ms Aarti Sathe, learned counsel for the appellant \/ assessee and Mr.
\nAkhileshwar Sharma, learned standing counsel, Revenue for the respondent.
\n2. This appeal has been preferred by the assesee under Section 260-A of the
\nIncome Tax Act, 1961 (briefly ‘the Act’ hereinafter) against the order dated
\n11.01.2017 passed by the Income Tax Appellate Tribunal, ‘F’ Bench, Mumbai
\n(‘Tribunal’ for short) in I.T.A.No.5535\/Mumbai\/2014 for the assessment year
\n2003-04 filed by the assessee.
\n3. The appeal has been preferred by the assessee projecting the following
\nquestions as substantial questions of law:-
\n\u201cA. Whether on the facts and in the circumstances of the case and in
\nlaw the Tribunal erred in upholding the levy of penalty u\/s.271(1)(c) of
\nthe Act of Rs.22,08,860\/- (Rupees Twenty-Two Lakhs Eight Thousand
\nEight Hundred and Sixty only) on account of disallowance of
\nRs.62,47,460\/- (Rupees Sixty Two Lakhs Forty Seven Thousand Four
\nHundred and Sixty only) which was allowable as a deduction under the
\nprovisions of Section 37 of theAct?
\nB. Whether on the facts and in the circumstances of the case and in
\nlaw the Tribunal erred in not applying the ratio laid down by the Apex
\nCourt in the case of CIT Vs. Reliance Petroproducts Private Limited
\nreported in 322 ITR 158(SC), which was squarely applicable to the
\nfacts of the present case?
\nC. Whether on the facts and in the circumstances of the case and in
\nlaw the Tribunal grossly erred in upholding the levy of penalty under
\nSection 271(1)(c) of the Act without appreciating \/ considering that:
\n(i) the appellant had not been found to have concealed
\nparticulars or furnished inaccurate particulars of its claims;
\n(ii) the aforesaid claim could be allowed under Section 37
\nof the Act as incurred wholly and exclusively for the purposes
\nof business;
\n(iii) no income has been concealed \/ avoided as inter alia
\nthe settlement with JCT took place in assessment year 2003-
\n2004, when the claim was made by the appellant under the
\nprovisions of Section 37 of the Act.
\nD. Whether on the facts and in the circumstances of the case the
\nTribunal ought to have held that the order passed under Section 271(1)
\n(c) is bad in view of the fact that both at the time of initiation as well as
\nat the time of imposition of the penalty the Assessing Officer was not
\nclear as to which limb of Section 271(1)(c) was attracted?\u201d
\n4. From the above it is evident that the core issue in this appeal is sustaining
\nby the lower appellate authorities the imposition of penalty of Rs.22,08,860.00
\nunder Section 271(1)(c) of the Act by the Assessing Officer on account of
\ndisallowance of Rs.62,47,460.00 claimed as a deduction under Section 36(i)(vii)
\nof the Act on account of bad debt and subsequently claimed as a deduction under
\nSection 37 of the Act as expenditure expended wholly and exclusively for the
\npurpose of business.
\n5. For appreciation of the questions proposed, it would be apposite to deal
\nwith the relevant facts.
\n6. Respondent is an assessee under the Act (hereinafter referred to as ‘the
\nassessee’ also), having the status of resident company. Assessment year under
\nconsideration is 2003-04. Assessee filed its return of income declaring total loss at
\nRs.4,66,68,740.00. The case was selected for scrutiny assessment. During the
\nassessment proceedings it was found amongst others that assessee had debited
\nRs.62,47,460.00 under the head ‘selling and distribution expenses’ and claimed it
\nas bad debt in the books of account thus claiming it as a deduction under Section
\n36(1)(vii) of the Act. Subsequently it was found that the aforesaid amount was
\npaid to M\/s. JCT Ltd. as compensation for the supply of inferior quality of goods.
\nThus Assessing Officer held that the amount of Rs.62,47,460.00 claimed as bad
\ndebt was not actually a debt and therefore it was not allowable as a deduction
\nunder Section 36(1)(vii) of the Act. Assessing Officer further held that the said
\nclaim was also not admissible even under Section 37(1) of the Act, with the
\nobservation that payment made to M\/s. JCT Limited was not wholly and
\nexclusively for business purposes but for extraneous considerations. In view
\nthereof, assessee’s claim was rejected and Rs.62,47,460.00 was added back to the
\ntotal income of the assessee. In the assessment order dated 28.02.2006 passed
\nunder Section 143(3) of the Act the total loss figure furnished by the assessee was
\nlessened by the aforesaid amount and by two other amounts, rounding it off to
\nRs.3,53,48,680.00. Taking the view that assessee had furnished inaccurate
\nparticulars of income, Assessing Officer ordered that penalty proceedings under
\nSection 271(1)(c) of the Act be initiated separately.
\n7. Following the same the Assessing Officer issued notice under Section 274
\nread with Section 271 of the Act on the same day i.e., on 28.02.2006 to the
\nassessee to show cause as to why an order imposing penalty should not be made
\nunder Section 271 of the Act. It may however be mentioned that in the pertinent
\nportion of the notice the Assessing Officer did not strike off the inapplicable
\nportion. The pertinent portion reads as under:-
\n\u201c Whereas in the course of proceeding before me for the assessment
\nyear 2003-04 it appears to me that you:-
\n* * * * * *
\n* * * * * *
\n* * * * * *<\/p>\n
have concealed the particulars of your income or ….. furnished
\ninaccurate particulars of such income.
\n* * * * * * \u201d
\n8. It appears that assessee had challenged the disallowance of bad debt along
\nwith other disallowances in the assessment order by filing appeal before the
\nCommissioner of Income Tax (Appeals) who by order dated 14.11.2012 confirmed
\nthe disallowance of bad debt while deleting other disallowances.
\n9. In the penalty proceedings, Assessing Officer took the view that assessee’s
\nclaim was not actually bad debt but represented payment made to M\/s. JCT
\nLimited which was also not incurred wholly and exclusively for the purposes of
\nbusiness. Had the case not been selected for scrutiny, income to the said extent
\nwould have escaped assessment. Thus, by the order dated 14.02.2014 Assessing
\nOfficer held that by making an improper and unsubstantiated claim of bad debt of
\nRs.62,47,460.00, the assessee had wilfully reduced its incidence of taxation,
\nthereby concealing its income as well as furnishing inacurrate particulars of
\nincome. Therefore, invoking Section 271(1)(c) of the Act, the Assessing Officer
\nimposed the minimum penalty being 100% of the tax which amount was
\nquantified at Rs.24,99,200.00 which included penalty on another disallowance.
\n10. Aggrieved by such imposition of penalty, assessee preferred appeal before
\nthe Commissioner of Income Tax (Appeals)-18, Mumbai, briefly the First
\nAppellate Authority or CIT (A) hereinafter. By the appellate order dated
\n07.08.2014, CIT (A) deleted the penalty on the other disallowance by holding that
\nthere was neither any concealment nor submission of inaccurate particulars by the
\nassessee. Regarding penalty levied on Rs.62,47,460.00 claimed as bad debt in the
\nassessment proceedings, CIT (A) held that assessee had made a wrong claim by
\nsubmitting inaccurate particulars of income by claiming bad debt which was not
\nactually a debt and also not an expenditure allowable under Section 37(1) of the
\nAct. Thus it was held that the assessee had wilfully submitted inaccurate
\nparticulars of income which had resulted into concealment. Therefore, penalty
\nlevied by the Assessing Officer on the amount of Rs.62,47,460.00 was upheld.
\n11. Assessee carried the matter in further appeal before the Tribunal assailing
\nthe decision of CIT (A) in upholding imposition of penalty in respect of the
\namount of Rs.62,47,460.00. By the order dated 11.01.2017, the Tribunal upheld
\nthe order of CIT (A) and rejected the appeal of the assessee. According to the
\nTribunal, it was rightly held by the CIT (A) that the assessee had made a wrong
\nclaim by submitting inaccurate particulars of income by claiming a bad debt which
\nwas not actually a debt and also not an expenditure allowable under Section 37(1)
\nof the Act. Therefore, the finding recorded by the CIT (A) that the assessee had
\nwilfully submitted inaccurate particulars of income which had resulted into
\nconcealment was affirmed.
\n12. Hence this appeal by the assessee.
\n13. Ms Sathe, learned counsel for the appellant submits at the outset that the
\nnotice issued to the petitioner under Section 274 read with Section 271 of the Act
\nproposing to impose penalty was in printed format but the inapplicable portion
\ntherein was not struck off. Consequently, whether penalty was sought to be
\nimposed for concealment of particulars of income or for furnishing inaccurate
\nparticulars of such income was not indicated in the notice. This is a fundamental
\nerror which goes to the root of the matter and has vitiated the impugned order of
\npenalty. However she admits that this point was neither pleaded nor argued before
\nany of the lower authorities including the Tribunal. This point has been raised for
\nthe first time in appeal before the High Court. But she contends that this being a
\npure question of law touching upon jurisdiction, it can be raised even for the first
\ntime in the High Court in a proceeding under Section 260-A of the Act. In this
\nconnection, she has placed reliance on the following decisions:-
\n1. CIT Vs. Jhabua Power Limited, (2013) 37 Taxmann.com 162 (SC);<\/p>\n
2. Ashish Estates & Properties (P) Ltd. Vs. CIT,
\n(2018) 96 Taxmann.com 305 (Bombay)
\n13.1. Elaborating further, Ms Sathe submits that Section 271(1)(c) has two limbs
\ni.e. concealing the particulars of income or furnishing inaccurate particulars of
\nincome. Concealment of particulars of income and furnishing inaccurate
\nparticulars of such income are two different things having separate connotation.
\nTherefore, in the show cause notice issued under Section 274 read with Section
\n271(1)(c) of the Act it must be specifically indicated on what ground penalty is
\nsought to be imposed, whether for concealment or for furnishing inaccurate
\nparticulars. Such a notice being in printed format, the inapplicable portion or limb
\nof Section 271(1)(c) of the Act has to be struck off. Otherwise the notice would be
\ninvalid rendering the consequential orders wholly untenable being bad in law. This
\nis the position in the present case, she submits. In this connection she has placed
\nreliance on the following decisions:-
\n1. CIT Vs. SSA’s Emerald Meadows, (2016) 73 Taxmann.com 248
\n(SC);
\n2. CIT Vs. SSA’s Emerald Meadows, (2016) 73 Taxmann.com 241
\n(Karnataka);
\n3. CIT Vs. Samson Pernchery, (2017) 98 CCH 39 (Bombay);
\n4. PCIT Vs. New Era Sova Mine, (2019) SCC OnLine Bom.1032;
\n5. PCIT Vs. Goa Coastal Resorts & Recreation Pvt.Ltd., (2019) 106
\nCCH 0183 (Bombay);
\n6. PCIT Vs. Shri Hafeez S. Contractor, ITA Nos.796 and 872 of
\n2016 decided on 11.12.2018.
\n13.2. On a query by the Court as to whether in a case where the Assessing Officer
\ndirects initiation of penalty proceedings in the assessment order for furnishing
\ninaccurate particulars of income but in the show cause notice it is not indicated
\nwhether penalty is sought to be imposed for furnishing inaccurate particulars of
\nincome by not striking off the inapplicable portion in the printed notice, would it
\nstill vitiate the penalty proceeding and the consequential order of penalty, Ms
\nSathe, learned counsel for the appellant answers in the affirmative. She contends
\nthat penalty proceeding is initiated by the show cause notice. Therefore in the
\nshow cause notice it must be clearly mentioned as to why the penalty is sought to
\nbe imposed; the charge against the assessee must be already indicated. Failure to
\ndo so would reflect non-application of mind, thus vitiating the penalty proceedings
\nand the consequential order of penalty.
\n13.3. In addition to the above, learned counsel for the appellant submits that
\nassessee had made a bona-fide claim of deduction and had furnished all the
\nnecessary particulars. In the assessment proceedings, the Assessing Officer may
\nnot have agreed to such a claim and may have disallowed the same. Mere
\ndisallowance of a claim made bonafidely would not amount to concealment of
\nparticulars of income or furnishing inaccurate particulars of such income to
\nwarrant imposition of penalty under Section 271(1)(c) of the Act. To support such
\na contention, she has placed reliance on CIT Vs. Reliance Petroproducts Pvt. Ltd.,
\n322 ITR 158 (SC) and on a few other cases.
\n13.4. Summing up, learned counsel for the appellant submits that the questions
\nproposed are substantial questions of law which arise from the impugned order of
\nthe Tribunal. Those may be answered in favour of the assessee and against the
\nRevenue.
\n14. Per contra, Mr. Sharma, learned standing counsel, Revenue supports the
\nimpugned order passed by the Tribunal. He submits that assessee had made
\nimproper and unsubstantiated claim of bad debt, thereby reducing the total income
\nand consequential quantum of tax which came to light only during scrutiny
\nassessment and rightly disallowed by the Assessing Officer. Had the case not been
\nselected for scrutiny, such inadmissible claim would have escaped assessment.
\nCIT (A) rightly held that the assessee had wilfully submitted inaccurate particulars
\nof income which had resulted into concealment, which was affirmed by the
\nTribunal. Therefore, Assessing Officer was justified in imposing the penalty which
\nhas been confirmed by both the lower appellate authorities by applying the correct
\nprinciples. In such circumstances, learned standing counsel submits that there is
\nno merit in the appeal, which should accordingly be dismissed.
\n15. Submissions made by learned counsel for the parties have been duly
\nconsidered. Also perused the materials on record including the judgments cited at
\nthe Bar.
\n16. Since imposition of penalty is under Section 271(1)(c) of the Act, the same
\nmay be adverted to at the outset. As per this provision, if the Assessing Officer or
\nthe Commissioner (Appeals) or the Principal Commissioner or Commissioner in
\nthe course of any proceedings under the Act is satisfied that any person had
\nconcealed the particulars of his income or furnished inaccurate particulars of such
\nincome, he may direct that such person shall pay by way of penalty, in addition to
\nthe tax payable by him, a sum which shall not be less than but which shall not
\nexceed three times the amount of tax sought to be evaded by reason of
\nconcealment of particulars of his income or furnishing of inaccurate particulars of
\nsuch income.
\n17. The two key expressions in Section 271(1)(c) of the Act are \u201cconcealment
\nof particulars of his income\u201d and \u201cfurnishing inaccurate particulars of such
\nincome\u201d. These two expressions comprise of the two limbs for imposition of
\npenalty under Section 271(1)(c) of the Act. Gujarat High Court in the case of
\nManu Engineering Vs. CIT, 122 ITR 306 and Delhi High Court in Virgo
\nMarketing P. Ltd. Vs. CIT, 171 Taxmann 156 held that levy of penalty has to be
\nclear as to the limb for which penalty is levied. If the Assessing Officer proposes
\nto invoke the first limb, then the notice has to be appropriately marked. Similarly,
\nif the Assessing Officer wants to invoke the second limb then the notice has also to
\nbe appropriately marked. If there is no striking off of the inapplicable portion in
\nthe notice which is in printed format, it would lead to an inference as to nonapplication
\nof mind. In such a case, penalty would not be sustainable.
\n18. Supreme Court in Ashok Pai Vs. CIT, 292 ITR 11 observed that
\nconcealment of income and furnishing of inaccurate particulars of income in
\nSection 271(1)(c) of the Act carry different connotations.
\n19. Having discussed the above, let us address the submissions advanced by
\nlearned counsel for the parties.
\n20. In so far the first contention of learned counsel for the appellant is
\nconcerned i.e., raising a question of law for the first time before the High Court
\nthough not raised before the lower authorities, our attention is drawn to a decision
\nof the Supreme Court in Jhabua Power Limited (supra) relied upon by learned
\ncounsel for the appellant. In that case two questions were raised by the Revenue
\nfor the first time before the Supreme Court. The two questions related to bar of
\nlimitation for imposing penalty under Section 275(1) of the Act. Supreme Court
\ntook the view that the two questions were required to be answered first by the
\nTribunal. Accordingly, Supreme Court set aside the orders passed by the High
\nCourt and the Tribunal and remanded the matter back to the Tribunal to decide the
\ntwo questions in accordance with law.
\n20.1. In Ashish Estates & Properties (P) Ltd. (supra), this Court was
\nconfronted with the question as to whether Tribunal was justified in not giving any
\nreasons and in not deciding the issue relating to disallowance under Section 14A
\nof the Act qua strategic investments made in the firms and companies for
\nexecuting various projects. However, this Court noticed that the issue of strategic
\ninvestments was not urged by the assessee before the Tribunal more particularly
\nthat disallowance under Section 14A of the Act could not be in excess of the total
\nexempt income. This Court referred to a series of decisions of the Supreme Court
\nas well as of this Court wherein it has been held that a question not raised before
\nthe Tribunal and consequently not decided by the Tribunal would not be a question
\narising out of the order of the Tribunal. An appeal under Section 260-A of the Act
\ncan only be in respect of issues which were raised before the Tribunal. Reference
\nwas made to the decisions in CIT Vs. Tata Chemicals (P) Ltd., 256 ITR 395 and in
\nCIT Vs. Smt. Lata Shantilal Shah, 323 ITR 297 where the Court had taken the
\nview that a question of law not raised before the Tribunal would not be allowed to
\nbe urged before the High Court in an appeal under Section 260-A of the Act. After
\ngoing through the entire spectrum of case laws on this point, this Court ultimately
\nobserved that notwithstanding the view taken in Tata Chemicals (P) Ltd. (supra)
\nand Smt. Lata Shantilal Shah (supra), it would not preclude the High Court from
\nentertaining an appeal on issue of jurisdiction even if the same was not raised
\nbefore the Tribunal. However, in that case, the proposed question was found to be
\nneither one of jurisdiction nor raising any substantial issue.
\n20.2. Therefore, from the above it can be culled out that if an issue is not urged
\nbefore the Tribunal, the same cannot be raised before the High Court in an appeal
\nunder Section 260-A of the Act. However, in Jhabua Power Limited (supra),
\nSupreme Court had remanded the questions raised before it for the first time back
\nto the Tribunal for deciding the questions in accordance with law. Again, in
\nAshish Estates & Properties (P) Ltd. (supra), this Court has taken the view that
\nan appeal under Section 260-A of the Act can be entertained by the High Court on
\nthe issue of jurisdiction even if the same was not raised before the Tribunal.
\n21. Let us now advert to the fourth question i.e. Question number D framed \/
\nproposed by the appellant. Through this question, appellant is contending that the
\nTribunal ought to have held that the order of penalty passed under Section 271(1)
\n(c) of the Act was bad in law in view of the fact that at the time of initiation of
\npenalty proceedings as well as at the time of imposition of penalty, Assessing
\nOfficer was not clear as to which limb of Section 271 (1)(c) of the Act was
\nattracted. At the time of hearing, learned counsel for the appellant had argued that
\nin the show-cause notice the inapplicable portion was not struck off; thus it was
\nnot indicated in the notice whether the penalty was sought to be imposed for
\nconcealment of particulars of income or for furnishing inaccurate particulars of
\nincome, which has vitiated the impugned order of penalty. However, she fairly
\nsubmits that this point was not urged before the lower authorities including the
\nTribunal. We have already noted and analyzed the two limbs of Section 271(1)(c)
\nof the Act and also the fact that the two limbs i.e. concealment of particulars of
\nincome and furnishing inaccurate particulars of income carry different
\nconnotations. We have also noticed that the Assessing Officer must indicate in the
\nnotice for which of the two limbs he proposes to impose the penalty and for this
\nthe notice has to be appropriately marked. If in the printed format of the notice the
\ninapplicable portion is not struck off thus not indicating for which limb the penalty
\nis proposed to be imposed, it would lead to an inference as to non-application of
\nmind, thus vitiating imposition of penalty.
\n21.1. Therefore, the question relating to non-striking off of the inapplicable
\nportion in the show-cause notice which is in printed format, thereby not indicating
\ntherein as under which limb of Section 271(1)(c) of the Act penalty was proposed
\nto be imposed i.e. whether for concealing the particulars of income or for
\nfurnishing inaccurate particulars of such income would go to the root of the lis.
\nTherefore, it would be a jurisdictional issue. Being a jurisdictional issue, it can be
\nraised before the High Court for the first time and adjudicated upon even if it was
\nnot raised before the Tribunal.
\n21.2. In CIT Vs. Manjunath Cotton and Ginning Factory, 359 ITR 565,
\nKarnataka High Court held that Assessing Officer while issuing notice has to
\ncome to the conclusion as to whether it is a case of concealment or furnishing of
\ninaccurate particulars. Levy of penalty has to be clear as to the limb for which it
\nwas levied. The standard proforma without striking off the relevant causes will
\nlead to an inference as to non-application of mind.
\n21.3. In SSA’s Emerald Meadows (supra), Karnataka High Court was again
\nconfronted with a similar question. In that case, Tribunal had allowed the appeal
\nfiled by the assessee by holding that the notice issued by the Assessing Officer
\nunder Section 274 read with 271(1)(c) of the Act was bad in law as it did not
\nspecify under which limb of Section 271(1)(c) of the Act the penalty proceeding
\nwas initiated i.e., whether for concealment of particulars of income or for
\nfurnishing of inaccurate particulars of income. While allowing the appeal,
\nTribunal had relied upon Manjunath Cotton & Ginning Factory (supra). In the
\ncircumstances, Karnataka High Court dismissed the appeal of the Revenue.
\n21.4. Revenue preferred Special Leave Petition (SLP) before the Supreme Court
\nagainst the decision of the Karnataka High Court in SSA’s Emerald Meadows
\n(supra). In (2016) 242 Taxmann 180, Supreme Court dismissed the SLP.
\n21.5. Though the decision of the Karnataka High Court in SSA’s Emerald
\nMeadows (supra) which relied upon Manjunath Cotton & Ginning Factory
\n(supra) was not interfered with by the Supreme Court by dismissing the SLP, the
\nfact remains that dismissal of SLP would not lead to merger of the High Court’s
\norder with the order of the Supreme Court.
\n21.6. This Court in Samson Pernchery (supra) was examining the question as to
\njustification of the Tribunal in deleting the penalty levied under Section 271(1)(c)
\nof the Act. In that case, Tribunal had deleted the penalty imposed by the Assessing
\nOfficer because initiation of penalty proceedings was for furnishing inaccurate
\nparticulars of income whereas the order imposing penalty was for concealment of
\nincome. Further Tribunal noted that the notice issued under Section 274 of the Act
\nwas in a standard proforma without having striked out irrelevant clauses therein.
\nRevenue contended that there was no difference between furnishing of inaccurate
\nparticulars of income and concealment of income. This contention of the Revenue
\nwas rejected by this Court in view of the Supreme Court decision in Ashok Pai
\n(supra). Referring to the decision of the Karnataka High Court in Manjunath
\nCotton & Ginning Factory (supra), this Court held that satisfaction of the
\nAssessing Officer with regard to only one of the two breaches mentioned in
\nSection 271(1)(c) of the Act for initiation of penalty proceedings will not warrant
\npenalty being imposed for the other breach. This is because the assessee would
\nrespond only to the ground on which the notice was issued. In other words,
\npenalty cannot be imposed on a ground of which assessee had no notice. It was
\nfurther observed by this Court that nothing could be shown which would warrant
\ntaking a view different from the view taken by the Karnataka High Court in
\nManjunath Cotton & Ginning Factory (supra).
\n21.7. In Goa Coastal Resorts & Recreation Pvt. Ltd. (supra) both the lower
\nappellate authorities had categorically held that there was no record of satisfaction
\nof the Assessing Officer that there was any concealment of income or that any
\ninaccurate particulars were furnished by the assessee. In such circumstances, this
\nCourt held that the two lower appellate authorities had correctly ordered dropping
\nof penalty proceedings against the assessee. It was in that context that this Court
\nnoted that in the notice issued in printed format the inapplicable portion was not
\nstruck off. Therefore in that case, this Court found that in addition to the notice
\nbeing defective, there was no finding or satisfaction recorded in relation to
\nconcealment or furnishing of inaccurate particulars.
\n21.8. Similar is the view taken in New Era Sova Mine (supra) as well as in Shri
\nHafeez S. Contractor (supra).
\n22. Coming to the facts of the present case, we have already noticed that in the
\nassessment order dated 28.02.2006, Assessing Officer had ordered that since the
\nassessee had furnished inaccurate particulars of income, penalty proceedings
\nunder Section 271(1)(c) were also initiated separately. Therefore, it was apparent
\nthat penalty proceedings were initiated for furnishing inaccurate particulars of
\nincome.
\n23. The statutory show-cause notice under Section 274 read with Section 271 of
\nthe Act proposing to impose penalty was issued on the same day when the
\nassessment order was passed i.e., on 28.02.2006. The said notice was in printed
\nform. Though at the bottom of the notice it was mentioned ‘delete inappropriate
\nwords and paragraphs’, unfortunately, the Assessing Officer omitted to strike off
\nthe inapplicable portion in the notice i.e., whether the penalty was sought to be
\nimposed for concealment of particulars of income or for furnishing inaccurate
\nparticulars of such income. Such omission certainly reflects a mechanical
\napproach and non-application of mind on the part of the Assessing Officer.
\n24. However, the moot question is whether the assessee had notice as to why
\npenalty was sought to be imposed on it?
\n25. This brings us to the basic question as to what is a notice or what do we
\nmean by notice. Concise Oxford English Dictionary, Indian Edition, explains
\nnotice to mean the fact of observing or paying attention to something; advanced
\nnotification or warning; a displayed sheet or placard giving news or information. It
\nmeans to become aware of. In other words, to put someone on notice would mean
\nwarn someone of something about or likely to occur. Black’s Law Dictionary,
\nEighth Edition, defines the expression ‘notice’ to mean having actual knowledge of
\na fact; has received information about it; has reason to know it; knows about the
\nrelated fact. In CST Vs. Subhash & Company, (2003) 3 SCC 454, Supreme Court
\ndeliberated upon the concept of notice and observed that the term ‘notice’ has
\noriginated from the Latin word \u201cnotifia\u201d which means \u201cbeing known\u201d or \u201ca
\nknowing\u201d. Thereafter, Supreme Court referred to the definition of the word ‘notice’
\nin various general and judicial dictionaries. Without adverting to the large number
\nof definitions, suffice it to say notice would mean information, warning or
\nannouncement of something impending; notice in its legal sense may be defined as
\ninformation concerning a fact communicated to a party by an authorized person or
\nactually derived by him from a proper source; the term \u201cnotice\u201d in its full legal
\nsense embraces a knowledge of circumstances that ought to induce suspicion or
\nbelief as well as direct information of that fact.
\n26. Reverting back to the facts of the present case, if the assessment order and
\nthe show cause notice, both issued on the same date i.e., on 28.02.2006, are read in
\nconjunction, a view can reasonably be taken that notwithstanding the defective
\nnotice, assessee was fully aware of the reason as to why the Assessing Officer
\nsought to impose penalty. It was quite clear that for breach of the second limb of
\nSection 271 (1)(c) of the Act i.e., for furnishing inaccurate particulars of income
\nthat the penalty proceedings were initiated. The purpose of a notice is to make the
\nnoticee aware of the ground(s) of notice. In the present case, it would be too
\ntechnical and pedantic to take the view that because in the printed notice the
\ninapplicable portion was not struck off, the order of penalty should be set aside
\neven though in the assessment order it was clearly mentioned that penalty
\nproceedings under Section 271(1)(c) of the Act had been initiated separately for
\nfurnishing inaccurate particulars of income. Therefore, this contention urged by
\nthe appellant \/ assessee does not appeal to us and on this ground we are not
\ninclined to interfere with the imposition of penalty.
\n27. Having held so, let us now examine whether in the return of income the
\nassessee had furnished inaccurate particulars of income. As already discussed
\nabove, for imposition of penalty under Section 271(1)(c) of the Act, either
\nconcealment of particulars of income or furnishing inaccurate particulars of such
\nincome are the sine qua non. In the instant case, as we have seen, penalty
\nproceedings under Section 271(1)(c) of the Act were initiated on the ground that
\nassessee had furnished inaccurate particulars of income.
\n28. In the assessment proceeding, assessee filed its return of income on
\n28.11.2003 declaring total loss at Rs.4,66,68,740.00. Assessee disclosed that it had
\ndebited Rs.62,47,460.00 under the head ‘selling and distribution expenses’ and
\nclaimed it as bad debt in the books of account. As per the explanation given by the
\nassessee it was exporting fabrics through M\/s. JCT Ltd., a recognized export house
\nfor which assessee had an ongoing account with M\/s. JCT Ltd. M\/s. JCT Ltd.
\nraised quality claims from time to time and was pressing the assessee for
\nsettlement. As the assessee was in need of funds, it could not settle the claims. It
\nwas only during the assessment year under consideration that assessee had the
\nrequisite funds and paid to M\/s. JCT Ltd. Rs.62,47,460.00 as full and final
\nsettlement, confirmation of which from M\/s. JCT Ltd. was submitted. Assessee
\nclarified during the assessment proceedings that the said amount which was
\nwritten off was actually not bad debt but in the nature of rebate and discounts
\ngiven to M\/s. JCT Ltd. on account of quality claims made by it from time to time.
\nThis explanation of the assessee was not accepted by the Assessing Officer by
\nholding that subsequent payment made to M\/s. JCT Ltd. would not be covered by
\nSection 36(1)(vii) of the Act since the amount claimed as bad debt was actually
\nnot a debt. Thereafter Assessing Officer examined as to whether such payment
\nwould be covered under Section 37(1) of the Act as per which an expenditure
\nwould be allowable as a deduction if it pertains to that particular year and incurred
\nwholly and exclusively for the purpose of business. Assessing Officer held that the
\nassessee’s claim was not admissible even under Section 37(1) of the Act as the
\ncircumstances indicated that the payments were not made wholly and exclusively
\nfor business purpose. While disallowing the claim of the assessee, Assessing
\nOfficer took the view that since the assessee had furnished inaccurate particulars
\nof income, penalty proceedings under Section 271(1)(c) of the Act was also
\ninitiated separately.<\/p>\n
29. We have already noticed that in the statutory show cause notice, Assessing
\nOfficer did not indicate as to whether penalty was sought to be imposed for
\nconcealment of income or for furnishing inaccurate particulars of income though
\nin the assessment order it was mentioned that penalty proceedings were initiated
\nfor furnishing inaccurate particulars of income.
\n30. Be that as it may, in the order of penalty, Assessing Officer held that
\nassessee had concealed its income as well as furnished inaccurate particulars of
\nincome.
\n31. Concealment of particulars of income was not the charge against the
\nappellant, the charge being furnishing inaccurate particulars of income. As
\ndiscussed above, it is trite that penalty cannot be imposed for alleged breach of
\none limb of Section 271(1)(c) of the Act while penalty proceedings were initiated
\nfor breach of the other limb of Section 271(1)(c). This has certainly vitiated the
\norder of penalty. In appeal, CIT (A) took a curious view that submission of
\ninaccurate particulars of income resulted into concealment, thus upholding the
\norder of penalty. This obfuscated view of the CIT (A) was affirmed by the
\nTribunal.
\n32. On the ground that while the charge against the assessee was of furnishing
\ninaccurate particulars of income whereas the penalty was imposed additionally for
\nconcealment of income, the order of penalty as upheld by the lower appellate
\nauthorities could be justifiably interfered with, still we would like to examine
\nwhether there was furnishing of inaccurate particulars of income by the assessee in
\nthe first place because that was the core charge against the assessee.
\n33. In Reliance Petroproducts Pvt. Ltd. (supra), Supreme Court examined
\nmeaning of the words ‘particulars’ and ‘inaccurate’. As per Law Lexicon, the word
\n‘particulars’ means ‘detail or details; the details of a claim or the separate items of
\nan account’. Therefore, it was held that the word ‘particulars’ used in Section
\n271(1)(c) of the Act would embrace the meaning of the details of the claim made.
\nReferring to Webster’s Dictionary where the word ‘inaccurate’ has been defined as
\n‘not accurate, not exact or correct; not according to truth; erroneous; as an
\ninaccurate statment, copy or transcript’, Supreme Court held that the two words
\ni.e., ‘inaccurate’ and ‘particulars’ read in conjunction must mean that the details
\nsupplied in the return are not accurate, not exact or correct, not according to truth
\nor erroneous. It was held that mere making of a claim which is not sustainable in
\nlaw by itself would not amount to furnishing inaccurate particulars regarding the
\nincome of the assessee. Therefore, such claim made in the return cannot amount to
\nfurnishing inaccurate partiulars of income. Elaborating further, Supreme Court
\nheld that if such stand of the Revenue was accepted then in case of every return
\nwhere the claim made is not accepted by the Assessing Officer for any reason, the
\nassessee will invite penalty under Section 271(1)(c) of the Act which is clearly not
\nthe intendment of the Legislature.
\n34. This decision was followed by this Court in CIT Vs. M\/s. Mansukh Dyeing
\n& Printing Mills, Income Tax Appeal No.1133 of 2008, decided on 24.06.2013.
\nIn CIT Vs. DCM Ltd., 359 ITR 101, Delhi High Court applied the said decision of
\nthe Supreme Court and further observed that law does not debar an assessee from
\nmaking a claim which he believes is plausible and when he knows that it is going
\nto be examined by the Assessing Officer. In such a case a liberal view is required
\nto be taken as necessarily the claim is bound to be carefully scrutinized both on
\nfacts and in law. Threat of penalty cannot become a gag and \/ or haunt an assessee
\nfor making a claim which may be erroneous or wrong. Again, in CIT Vs.
\nShahabad Co-operative Sugar Mills Ltd., 322 ITR 73, Punjab & Haryana High
\nCourt held that making of wrong claim is not at par with concealment or giving of
\ninaccurate information which may call for levy of penalty under Section 271(1)(c)
\nof the Act.<\/p>\n
35. Reverting back to the present case it is quite evident that assessee had
\ndeclared the full facts; the full factual matrix or facts were before the Assessing
\nOfficer while passing the asessment order. It is another matter that the claim based
\non such facts was found to be inadmissible. This is not the same thing as
\nfurnishing inaccurate particulars of income as contemplated under Section 271(1)
\n(c) of the Act.
\n36. Thus, on a careful examination of the entire matter, while we answer
\nquestion number D against the appellant \/ assessee, question numbers A, B and C
\nare answered in favour of the appellant \/ assessee. Therefore, on an overall
\nconsideration, the appeal would stand allowed and the order of penalty as affirmed
\nby the two lower appellate authorities would consequently stand interfered with.
\n37. Accordingly, the appeal is allowed. However, there shall be no order as to
\ncosts.
\n(MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.)<\/p>\n","protected":false},"excerpt":{"rendered":"
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.<\/p>\n