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2023 Supreme(Cal) 1045
IN THE HIGH COURT OF JUDICATURE AT CALCUTTA
T.S. SIVAGNANAM, HIRANMAY BHATTACHARYYA, JJ.
Principal Commissioner Of Income Tax, Central-2. Kolkata – Appellant
Versus
M/s. Industrial Safety Products Private Limited – Respondent
ITAT/88/2022 (IA No. GA/2/2022) with OCOT No. 7 Of 2022
Decided On : 03-07-2023
For the Appellant : Mr. Smarajit Roy Chowdhury, Mr. Soumen Bhattacharya.
For the Respondent: Mr. Ranjeet Kumar Muraka, Mr. Vivek Muraka, Mr. Dibanath Dey.
A show cause notice issued under Section 274 read with Section 271 of the Income Tax Act, 1961 must furnish particulars and all the relevant columns must be filled in order to be valid.
Headnote:
PENALTY - Undisclosed income - Disclosure petition - Section 271 AAB - Validity of initiation of penalty proceedings.
Fact of the Case:
The assessee disclosed an undisclosed income of Rs. 6,04,95,912/- in the disclosure petition made during search and seizure proceedings. The Assessing Officer levied penalty under Section 271 AAB of the Income Tax Act, 1961 on the ground that the said income was not recorded in the books of accounts or before the date of search. The CIT(A) deleted the penalty on the ground that the income was not undisclosed income. The Tribunal confirmed the order of the CIT(A).
Finding of the Court:
The Tribunal held that the income offered by the assessee in the return for the Assessment Year 2015-16 being the value of closing stock of Rs. 6,04,95,912/- cannot be considered to be undisclosed income found in the course of search so as to warrant levy of penalty under Section 271 AAB of the Act. The Tribunal also held that the show cause notice issued under Section 274 read with Section 271 of the Act was bad in law as it did not furnish any particulars and all the relevant columns have been left blank.
Issues: 1. Whether the income offered by the assessee in the return for the Assessment Year 2015-16 being the value of closing stock of Rs. 6,04,95,912/- can be considered to be undisclosed income found in the course of search so as to warrant levy of penalty under Section 271 AAB of the Act? 2. Whether the show cause notice issued under Section 274 read with Section 271 of the Act was bad in law?
Ratio Decidendi: 1. The Tribunal relied on the decision of its coordinate bench in the assessee’s group company M/s. New Horizon Private Limited wherein the facts were identical and the tribunal by order dated 28.08.2019 had affirmed the order passed by the CIT(A) in the case of New Horizon Limited which order had attained finality and held that no penalty could be levied under Section 271 AAB of the Act. 2. The Tribunal also examined the correctness of the submission of the revenue that the excess stock found was undisclosed income of the assessee on account of the admission made by the assessee’s Director in a statement under Section 132 (4) that it was not recorded in the books of accounts at the time of search. The tribunal noted that the assessee is a body corporate who is required to maintain and prepare its accounts in conformity with the provisions of the Companies Act. The accounts are required to be audited and the auditors of the Company is required to furnish his report in the manner prescribed in Section 227 of the Companies Act, 1956 and the rules made thereunder.
Final Decision: The appeal filed by the revenue is dismissed as no substantial question of law arises for consideration. The cross objection filed by the assessee is allowed and substantial question of law are answered in favour of the assessee and it is held that the penalty proceedings are bad in law.
JUDGMENT :
(T.S. Sivagnanam, J.)
1. The appeal in ITAT No. 88 of 2022 has been filed by the revenue under Section 260A of Income Tax Act, 1961 (the Act) challenging the order dated 31st October, 2019 passed by the Income Tax Appellate Tribunal, B Bench, Kolkata (Tribunal) in ITA No.2128/Kol/2017 for the Assessment Year 2015-16. The revenue has raised the following substantial questions of law for consideration:
(i) Whether the on the facts and circumstances of the case, the Learned Income Tax Appellate Tribunal has erred to hold that undisclosed income under the disclosure petition made during search and seizure proceedings as taken to books subsequently does not attract penalty in terms of Section 271AAB of the Income Tax Act, 1961.
(ii) Whether on the facts and circumstances of the case the Learned Income Tax Appellate Tribunal has erred in confirming the decision of Learned Commissioner of Income Tax (Appeal) which was decided in favour of the assessee, without examining the entire facts of the case.
2. OCOT No. 7 of 2022 is a cross-objection filed by the assessee questioning the very same order passed by the Tribunal in so far as that portion of the order where the Tribunal did not adjudicate the correctness of the penalty notice dated 31st March, 2016 issued under Section 271/ 274 of the Act.
3. We have heard Mr. Samarjit Roy Chowdhury, learned Standing Counsel assisted by Mr. Soumen Bhattacharyya, learned Senior Counsel appearing for the appellant revenue and Mr. Ranjeet Kumar Muraka, learned Senior Advocate assisted by Mr. Vivek Muraka and Mr. Dibanath Dey, learned Advocates for the respondent cross-objector.
4. The revenue had filed the appeal before the Tribunal questioning the correctness of the order passed by the Commission of Income Tax (Appeals), 21 Kolkata (CIT(A)) dated 04.07.2017 deleting the penalty levied on the assessee under Section 271 AAB of the Act. The Assessing Officer while completing the assessment for the Assessment Year under consideration, AY 2015-16 had issued a show-cause notice to the assessee calling upon them to explain as to why the under-valuation of physical stock of Rs. 10.75 crore deducted during the course of search in respect of such main companies in the group namely New Horizon Limited and Industrial Safety Products Private Limited should not be treated as suppression of profit made by the assessee during the year under consideration and added back to the total income of the assessee. The assessee stated that the excess stock found on the physical verification is related to the company amounting to Rs. 6,04,95,912/- and have been properly accounted for in the books for Financial Year 2014-15 and the same has also been disclosed in the disclosure petition dated 06.05.2015, the excess stock found during the course of physical verification has been duly accounted and hence, there is no question of suppression of profit made by the company and the profit reflected in statement of profit and loss includes the same. In this regard, the assessee referred Note number 37 of the financial statement where the auditor had certified that the surplus stock of leather found during the course of physical verification of inventory during the month of January- February, was subsequently disclosed in the statement recorded in course of proceedings under Section 132 of the Act and has been duly accounted for in the books of accounts. The Assessing Officer rejected the explanation offered by the assessee and held that the value of stock difference clearly represents undisclosed income coming under the purview of Explanation (c) of Section 271 AAB of the Act as it was not recorded in the books of accounts or before the date of search and accordingly, thought fit to impose penalty under Section 271 AAB. Challenging the said order, the assessee preferred an appeal to the CIT(A). the first ground of challenge before the Appellate Authority was that the order of penalty is ab initio void since the conditions
