M/s. Toyota Kirloskar Motor Private Limited, Bangalore Vs. The Deputy Commissioner Of Income Tax (LTU), Circle- 1, Bangalore

The Income Tax Appellate Tribunal (ITAT) Bangalore addressed an appeal by Toyota Kirloskar Motor Private Limited against a penalty imposed under Section 271(1)(c) of the Income Tax Act. The penalty stemmed from transfer pricing adjustments made during the assessment year 2006-07. The assessee argued that the penalty notice was invalid as it failed to specify whether the penalty was for concealing income or providing inaccurate particulars, a point supported by a Karnataka High Court ruling.

IN THE INCOME TAX APPELLATE TRIBUNAL
“C” BENCH : BANGALORE

BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT
AND SHRI B R BASKARAN, ACCOUNTANT MEMBER

ITA No.216/Bang/2020
Assessment year : 2006-07

Toyota Kirloskar Motor Private Limited,Plot No.1, Bidadi Industrial Area, Ramanagar District,Bangalore.
PAN: AAACT 5415B
APPELLANT 

Vs.
The Deputy Commissioner of Income Tax, LTU,Circle 1,Bangalore.
RESPONDENT

Appellant by : Shri Padamchand Khincha, CA.
Respondent by : Shri R.K. Mishra, CIT(DR)(ITAT), Bengaluru

Date of hearing : 29.10.2020
Date of Pronouncement : 03.11.2020

O R D E R

Per N.V. Vasudevan, Vice President

This is an appeal by the Assesee against the order dated 11.12.2019 of the CIT(Appeals), Bengaluru-10, Bengaluru relating to assessment year 2006-07.

2. In this appeal the Assessee has challenged the order of the CIT(A) confirming the order of the AO imposing penalty on the Assessee u/s.271(1)(c) of the Income Tax Act, 1961 (the Act).

3. The facts and circumstances under which penalty was imposed on the Assessee by the AO are that the assessee which is a company engaged in manufacture of Multi-Utility Vehicle, filed return of income for AY 2006-07 on 22.11.2006 declaring NIL income. The case was taken up for scrutiny and reference was made to the Transfer Pricing Officer (TPO) as per the provision of section 92CA of the Act. Assessment u/s 143(3) was completed on 18.10.2010 on a total income of Rs. 307,83,31,369. The total income included Rs. 240,11,91.692 being transfer pricing adjustment on account of determination of arm's length price (ALP) of international transactions with the AE of the assessee. Penalty proceedings were initiated accordingly. The assessee filed an appeal before ITAT which was subsequently withdrawn and an application for Mutual Agreement Procedure (MAP) was made. As per MAP, the ALP was determined at Rs.91,80,00,000. Before the AO, it was contended that the addition was made on account of MAP resolution and that there was no wilful concealment.But the AO did not agree with the contention made by assessee and held that penalty u/s 271(1)(c) is leviable on agreed additions also. Accordingly,he levied penalty of Rs. 30,89,98,800 u/s 271(1)(c).

4. Aggrieved with the order u/s 271(1)(c) passed by the DCIT, LTU,Circle-1, Bangalore, the assessee filed appeal before the CIT(Appeals),who confirmed the order of the AO.

5. Before the Tribunal the learned counsel for the Assessee contended that the notice issued before imposing penalty was not accordance with law and on this ground the order imposing penalty should be quashed. The learned counsel for the Assessee also drew our attention to the show cause notice issued u/s.274 of the Act before imposing penalty and submitted that the said notice does not specify as to whether the Assessee is guilty of having “furnished inaccurate particulars of income” or of having “concealed particulars of such income”. He pointed out that the show cause notice does not strike out the irrelevant portion viz., “furnished inaccurate particulars of income” or “concealed particulars of such income”.He drew our attention to a decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.) wherein it was held that if the show cause notice u/s.274 of the Act does not specify as to the exact charge viz., whether the charge is that the Assessee has “furnished inaccurate particulars of income” or “concealed particulars of income” by striking out the irrelevant portion of printed show cause notice, than the imposition of penalty on the basis of such invalid show cause notice cannot be sustained. The learned DR relied on the order of the CIT(A).

6. We have also perused the show-cause notice issued u/s.274 of the Act. The AO in the said show cause notice has not struck off the irrelevant portion as to whether the charge against the Assessee is “concealing particulars of income or furnishing of inaccurate particulars of income”. The AO has placed a tick mark in the printed form of notice which has both the charges i.e., “have concealed the particulars of your income or furnished in accurate particulars of such income”. The CIT(A) has construed the placing of tick mark in the beginning of the letters “have concealed” as akin to initiation of penalty proceedings on the ground of concealing particulars of income. This approach of the CIT(A) is contrary to the decision of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra). The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon’ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the Assessee guilty on another limb of Sec.271(1)(c) of the Act. The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down the following principles to be followed in the matter of imposing penalty u/s.271(1)(c) of the Act:-

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