Unreported Decisions – April 2021

By Ajay R. Singh, Advocate

1. Low Tax Effect Appeals – Applicability to penalty appeals- Clause 10(e) of the CBDT Circular No. 3/2018 (as amended on 20.08.2018), the same applied only to additions which were based on information received from external sources – Since the levy of penalty by no means could be construed as an addition within the meaning of Clause 10(e) of the aforesaid circular.

The assessee company which is engaged in the business of manufacturing of AC and grills dampers etc, had e-filed its return of income for A.Y. 2011-12 on 20.09.2011, declaring a total income of ₹ 2,11,35,525/-. On the basis of information received from the DGIT(Inv.), that the assessee as a beneficiary had obtained accommodation bills of purchases, its case was reopened u/s. 147 of the Act.

During the course of the assessment proceedings it was observed by the A.O. that the assessee had claimed to have made purchases, from the Renuka Sales Corporation of ₹ 47,89,018/-. As the assessee failed to substantiate the genuineness and veracity of the aforesaid purchase transaction, the A.O, disallowed the entire amount of the aforesaid purchases. At the same time, the A.O while culminating the assessment also initiated penalty proceedings u/s. 271(1)(c) of the Act.

As the assessee did not assail the quantum assessment any further in appeal before the CIT(A), the same, thus attained finality. After the culmination of the assessment proceedings, the A.O vide his notice issued u/s. 274 r.w.s 271(1) (c) called upon the assessee to explain as to why penalty under the aforesaid statutory provision may not be imposed on it for furnishing of inaccurate particulars of income relating to claim of nongenuine purchases. The A.O not finding favour with the claim of the assessee imposed a penalty of ₹ 14,79,806/- for furnishing of inaccurate particulars of income within the meaning of Sec. 271(1)(c) of the Act r.w. Explanation 1.

Aggrieved, the assessee assailed the penalty imposed by the A.O under Sec. 271(1)(c) before the CIT(A). The CIT(A) found favour with the claim of the assessee that no penalty under Sec. 271(1)(c) was liable to be imposed .

The revenue carried the matter in appeal before ITAT. The Tribunal held that the quantum of penalty under dispute is ₹ 14,79,806/- which is substantially below the threshold limit of ₹ 50 lac as had been provided in the latest CBDT circular No. 17/2019, dated 08.08.2019, that contemplates the tax effect for filing of the appeals by the revenue. It is the claim of the ld. D.R that as the present appeal is covered by the exception carved out in clause 10(e) of the CBDT Circular No. 3 of 2018 (as amended on 20.08.2018) thus, the appeal filed by the revenue is maintainable.

The exception carved out in clause 10(e) of the CBDT Circular No. 3/2018 (as amended on 20.08.2018), which reads as under:

“10. Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax

effect: –

(e) Where addition is based on information received from external sources in the nature of law enforcement agencies such as CBI / ED / DRI / SFIO / Directorate General of GST Intelligence (DGGI)”.

The Tribunal held that it is a settled position of law that quantum proceedings and penalty proceedings are independent and distinct proceedings and confirmation of an addition cannot on a standalone basis justify imposition/upholding of a penalty u/s 271(1)(c) of the Act. Adopting the same logic, it was held that unless a specific exception is provided in the circular w.r.t penalty also, it could by no means be construed that penalty was to be treated at par with the quantum additions. As is discernible from Clause 10(e) of the aforesaid CBDT Circular No. 3/2018 (as amended on 20.08.2018), the same applied only to additions which were based on information received from external sources. Since the levy of penalty by no means could be construed as an addition within the meaning of Clause 10(e) of the aforesaid circular, therefore, the contentions advanced by the revenue is rejected Accordingly, the appeal of the revenue is covered by the CBDT Circular No. 17/2019, dated 08.08.2019, the same, thus, is not maintainable. Accordingly, the appeal of the revenue was dismissed, for the reason, that the tax effect therein involved is lower than that contemplated in the aforesaid CBDT Circular fixing the monetary limit of filing of appeals by the revenue before the Tribunal.

Income-tax Officer-12(1)(1) v. M/s. Air Vision Technologies, [ ITA No. 4130/Mum/2019, A.Y. 2011-12, Bench. “A”, DOH:19/02/2021 (Mum) (Trib)]

2. S. 147: Reassessment – notice was issued beyond the period of four years – Where reasons recorded by Assessing Officer nowhere stated there was failure on part of assessee to disclose fully and truly all material facts necessary for assessment of that assessment year -the reopening of assessment is bad in law.

The assessee company is engaged in the business of marketing, promotion and distribution of ‘Red Hat Subscriptions’ to customers in Indian Sub-Continent. The assessee basically acts as a distributor of Red Hat Subscription which enables the customers in India to avail the support services for open source software systems. The return of income for the Asst Year 2007-08 was filed by the assessee company on 31.10.2007 admitting loss of ₹ 5,27,32,540/-. The original assessment was completed u/s. 143(3) of the Act on 26.11.2009 determining total loss of ₹ 5,03,97,261/-. Later this assessment was sought to be reopened by the ld AO vide issuance of notice u/s. 148 of the Act dated 2.12.2013. This reopening notice was admittedly issued beyond 4 years but within 6 years from the end of the relevant assessment year.

Tribunal held that it is mandatory on the part of the ld AO to duly mention in the reasons recorded itself as to whether there is any failure on the part of the assessee in disclosing fully and truly all material facts necessary for the assessment. In the instant case, from the reasons recorded, it could be seen that there is absolutely no mention of any failure on the part of the assessee in disclosing fully and truly all material facts necessary for the assessment during the original assessment proceedings. Admittedly the original assessment proceedings were completed u/s. 143(3) of the Act. Further, Tribunal find that the law is now very well settled that the reasons recorded by the ld AO for reopening the assessment should duly mention the failure, if any, on the part of the assessee in disclosing full and true information relevant for the assessment if the reopening is made beyond 4 years from the end of the relevant assessment year; and that the reasons recorded cannot be substituted at a later point in time by subsequent evidences by the ld AO and that the reasons recorded should speak by itself and duly express the clear mind of the ld AO which enabled him to frame an opinion that income of the assessee had escaped assessment within the meaning of section 147 of the Act. Reliance in this regard is placed on the decision of the Hon’ble Jurisdictional wherein it was held that where reasons recorded by Assessing Officer nowhere stated there was failure on part of assessee to disclose fully and truly all material facts necessary for assessment of that assessment year and notice was clearly beyond the period of four years reassessment was barred by limitation. The reopening of assessment is bad in law.

Respectfully following the aforesaid decision of Hon’ble Jurisdictional High Court, Tribunal held that the reopening of assessment made for the Asst Year 2007-08 is to be declared void abinitio and quashed..

M/s. Red Hat India Pvt. Ltd v DCIT-15(3)(1), [ITA NO.: 5832/M/2017, A.Y. 2007-08, Bench. “D”, date : 30/03/2021 (Mum)(Trib)]