Notice Didn't Contain Categorical Indication Of Furnishing Inaccurate Particulars Or Concealment Of Particular Income: ITAT Quashes Penalty Proceedings

The two-member bench headed by G.S. Pannu (President) and Anubhav Sharma (Judicial Member) has observed that in the assessment order and penalty order there is apparent ambiguity as to what was the basic ground for penalty. It was also established that the notice issued under section 274 of the Income Tax Act was defective as it was not clear as to which limb the penalty was levied.

During the course of the assessment proceeding, the assessee/appellant claimed depreciation. When the assessee was asked as to why rental income should not be added. The assessee submitted that the building is dilapidated and unsafe for occupation. Again, when asked why depreciation should not be disallowed, the assessee submitted that the building was being used for business purposes for conducting meetings of the Board of Directors.

The AO observed that a meeting of the Board of Directors cannot be held in a building which, by the assessee's own submissions, "is unsafe to occupy." The AO held that it was very clear that the assessee was misrepresenting itself. The AO also observed that from the perusal of the sale deed by which various parties had sold their land to the assessee company, it was very clear that no description had been given relating to any valuable structure.

The AO held that a dilapidated structure was of no value on which depreciation could be claimed. The structures had also been demolished in 2009. Therefore, the AO concluded that no depreciation could be allowed on the property.

During the assessment proceeding, the assessee had claimed an amount of Rs. 18,08,26,334 as interest expense. The assessee was asked to explain why the amount of interest should not be disallowed. The assessee, vide its letter, furnished a reply. Subsequently, the assessee furnished another letter withdrawing its claim of interest as claimed in the return of income for the A.Y. 2010-11.

However, the assessee had itself withdrawn the claim of interest for the A.Y. 2010–11 by furnishing a revised computation of income. Hence, the claim was disallowed and added to the total income of the assessee.

During the penalty proceedings, the assessee has not brought any evidence to counter the additions made in the assessment order. Therefore, the AO held it to be a case of concealment of the income and an assessee penalty was imposed under section 271(1)(c) of the Income Tax Act.

The assessee appealed against the order of AO before the CIT (A). The CIT (A) had set aside the penalty levied by AO. The CIT (A) did not sustain the appeal with regard to claim as it was barred by limitation.

The assessee argued that the CIT (A) failed to recognise that the notice issued under section 274 read with section 271(1)(c) of the Income Tax Act is not legally enforceable. The notice does not disclose that the notice was issued for furnishing inaccurate particulars or concealment of particular income.

The department submitted that there was an apparent false claim of depreciation in regard to a dilapidated building. The AO had made a finding in the assessment order that the assessee company had furnished inaccurate particulars and accordingly levied the penalty.

The ITAT noted that there was "no specific conclusion" as to whether there was concealment of income or submission of inaccurate income.

Case Title: DCIT Versus M/s. Minerals Managements Services India Pvt. Ltd.

Citation: ITA No.5478Del/2017

Dated: 15.06.2022

Counsel For Appellant: Advocate Salil Kappor

Counsel For Respondent: CIT-DR N.C.Swain

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