By Prakash Kumar Sinha, Chartered Accountant

1. Registration u/s. 12AA

On rejection of the assessee application u/s. 12AA on the grounds that the assessee didn’t submitted the books of account, vouchers in respect of the expenses claimed by the assessee, CIT(E) held that assessee trust is not carrying on any charitable activities and thus genuineness of the trust cannot be verified. Further the DR relied on case of Blue Star Ltd. as 217 ITR 514 in his contention.

The ITAT held that at the 12AA stage the CIT(E) has to satisfy on the object of the trust and genuineness of the activities of the trust. He is not required to examine either the books of account, source of income or the application of income at this stage, as these can be verified by AO at the assessment stage. The ITAT relied on Shavak Sikha Samiti as reported in 104 TTJ 127 and held that education per se is charitable activity. The tribunal relying on Bhartiya Kishan Sangh as reported in 59 ITR(T) 228 and Fifth Generation Education society 185 ITR 634 set aside the CIT(E) order and allowed the assessee’s appeal.

(Vidyadayani Shiksha Samiti vs. CIT(E) ITA No. 309/Del/2016 dated 14/12/2017)

Vidyadayani Shiksha Samiti

2. Bona fide omission in the return – No penalty u/s. 271(1)(C)

On notice being issued u/s. 148 and coming to know that certain capital gains was not covered in its income due to unawareness of the law by the assessee and himself attended the assessment proceedings and entire tax on the date of assessment even without contesting.

The ITAT held that the spirit of section 271(1)(C) is the “concealment of income or furnishing of inaccurate particulars of Income” and as per various judicial pronouncement it is clear that if in the return of income certain mistakes are there which is bone fide and there is no loss to the revenue, it cannot be concluded that the assessee deliberately concealed the income or furnished the inaccurate particulars of Income and therefore allowed the assessee appeal.

(Pankaj Kumar Gupta vs. ITO Ward -2, Bareilly, ITA No -486/LKW/2016, AY 2012-13)

Pankaj Kumar Gupta.

3. Satisfaction under penalty provision (Section 271(1)(C))

On being raised the issue of incorrect assumption of jurisdiction by the AO in the penalty proceedings on the ground that AO didn’t mention under which limb of the penalty proceedings was initiated the ITAT held that in the given facts no proper charge was levied by the AO either at the assessment order or penalty Notice or penalty order.

The ITAT following the Supreme Court ruling in the case of Emerald Meadow wherein the SC affirmed the HC view and was also applied in Manjunatha Cotton as reported in 359 ITR 565 that notice issued u/s. 274 by AO with reference to 271(1)(C) was bad in law as its didn’t specify which limb of section 271(1)(C) the penalty proceedings was initiated. The ITAT also distinguished the ruling of the Mehraj Garage of Bombay HC (Nagpur Bench) on which the revenue had highly relied stating that the relevant question didn’t come to court for consideration and hence couldn’t apply. The ITAT allowed the appeal of assessee.

(Aditya Chemicals vs. ITO Delhi ITA No-5006/DEL/2013, AY 1997-98)

Aditya Chemicals

4. Explanation-7 of section 271(1)(C) – In Good Faith and Due Diligence

Invocation of Penalty under Explanation 7 of Section 271(1)(C) needs to base on certain important ingredients, first being the price charged or paid in respect of international transaction has not been computed in accordance with the provision of Section 92C and in the manner prescribed in the section and the second the absence of good faith and due diligence by the assessee. Every adjustment under the TP cannot ipso facto trigger the explanation 7 if the assessee is able to demonstrate that the international transaction was computed as per section 92C and it was done in good faith and with due care.

The ITAT discussing the term “in good faith “which was defined under clause 3(22) of the General Clause Act which states that a thing shall be deemed to be done in good faith where it is in fact done honestly, and term “due diligence“ meaning due care, held that where assessee followed 92C for ALP determination, mere adjustments in the ALP by the AO adopting some other method, does not lead to a situation that the assessee has not acted in good faith and with due care. The ITAT relied on Reliance Petro products, RBS equities India limited, Mitsui Prime Advance Corporation, Verizon India in order to arrive a conclusion of setting aside the penalty imposed, therefore allowed the appeal of the assessee.

(Halcrow Consulting India Private Limited vs. DCIT circle -1(1) ITA No – 2647/DEL/2016 AY 2010-11)

Halcrow Consulting India Private Limited.

5. Penalty without Specific charge – U/s. 271(1)(C)

The assessee raising the issue of Jurisdictional defect by way of incorrect satisfaction submitted that where the AO has not recorded any satisfaction whether the assessee has concealed the income or furnished inaccurate particulars of income and issued a notice in a standard printed format without specific charge. The SCN issued even didn’t contain any specific charge.

The ITAT held that on the given fact, the penalty proceedings were initiated without recording any satisfaction and the notice was issued without any specific allegation. Further not striking off the inappropriate word in the SCN issued u/s. 274 and not mentioning specific charge, the assessee was deprived of a fair and reasonable opportunity to rebut and effectively deal with the issue. The ITAT relying on the Dilip N. Shroff case as reported in 291 ITR 519 (SC) and distinguishing the case of Maharaj Garage on which the revenue relied heavily, allowed the appeal of the assessee and therefore deleted the penalty.

(Indrani Sunil Pillai vs. ACIT, Mumbai ITA No. 1339/MUM/2016 AY 2010-11)

Indrani Sunil Pillai

Note: The Whole decisions can be downloaded from the CTC website under Knowledge Centre.

Go to top