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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: Justice (Retd.) C V Bhadang, Hon’ble & Shri B R Baskaran, Hon’ble
Both these appeals for assessment year 2010-11 and 2011-12 involve a challenge to the order levying penalty under Section 271(1)(c) of the Income Tax Act, 1961 (‘Act’ for short). As such, they are being disposed off by this common order.
The brief facts are that the appellant-assessee is a company engaged in the business of trading of scrap/metals. Insofar as assessment year 2010-11 is concerned, the appellant filed Return of Income (RoI) declaring a total income of Rs. 8,95,400/-. For assessment year 2011-12, RoI was filed & 2821/Mum/2023 Ramnik Sushil Chaudhry declaring income of Rs.16,17,750/-. Both these cases were reopened under Section 148 of the said Act, on the basis of the information received from Investigation Wing, Mumbai, that the assessee was a beneficiary of certain accommodation entries.
The Assessing Officer passed re-assessment order under Section 144 r.w.s. 147 of the Act making an addition of Rs.90,90,345/- for assessment year 2010-11 and Rs.1,36,75,257/- for assessment year 2011-12.
On appeal, the learned CIT(A) sustained addition only to the extent of Rs.11,36,293/- for assessment year 2010-11 and Rs.55,01,723/- for assessment year 2011-12.
It appears that thereafter penalty proceedings were initiated and the Assessing Officer by order dated 27.03.2018 levied penalty of Rs.3,51,114/- for assessment year 2010-11 and Rs.17,00,033/- for assessment year 2011- 12. Both these orders came to be challenged before the CIT(A). The learned CIT(A) by separate orders dated 19.6.2023 has dismissed the appeals, which brings the appellant-assessee before us.
We have heard the learned counsel for the appellant and the ld. CIT-DR for the Revenue. With their assistance we have gone through the record.
It is submitted by the learned counsel for the appellant that the show cause notice under Section 274 r.w.s. 271(1)(c) of the said Act issued by the AO did not mention any specific limb out of the twin requirements of Section 271(1)(c) of the Act. It is submitted that thus the show cause notice being vague, subsequent action of levying the penalty stands vitiated. Reliance is placed on the Full Bench decision of the jurisdictional Bombay High Court in & 2821/Mum/2023 Ramnik Sushil Chaudhry Mohd. Farhan A. Shaikh vs DCIT, Belgaum, 434 ITR 1 (Bom) in order to submit that a penal provision of the nature of Section 271(1)(c) of the Act, though has civil consequences, must be construed strictly. It is pointed out that the ambiguity or the vagueness in the notice should be resolved in favour of the assessee.
It is next submitted that while making substantive addition on account of alleged bogus purchases, the learned Assessing Officer as well as the learned CIT(A) had no positive evidence of concealment of income. It is submitted that the addition is made on the basis of an estimate which per se cannot lead to any inference of concealment of income or furnishing inaccurate particulars of income within the meaning of Section 271(1)(c) of the said Act. It is submitted that the assessee has given explanation in support of its claim, of the purchases being genuine transactions. The learned counsel has pointed out that even assuming that the explanation is held to be not proved or is not accepted by the department, it cannot lead to a conclusion that the explanation is false. It is submitted that in such cases no penalty can be imposed as held by the Bombay High Court in CIT vs Upendra V. Mithani, of 2009 dated 05.08.2009. It is submitted that the said decision has been followed by this Tribunal vide order dated 05.03.2021 in Anil Bajaria vs ACIT, ITA No. 5841/5482 & 5635/Mum/2019 and certain other decisions. It is submitted that the concealment of income or furnishing of inaccurate particulars of income is the necessary requirement for imposition of penalty and merely because the explanation was not accepted, making certain additions cannot automatically lead to order of penalty as held by Hon’ble Supreme Court in CIT, Ahmedabad vs Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158 (SC). It is submitted that the CIT(A) has failed to appreciate that the notice itself was vague and did not comply with the requirements of law and erred in confirming the order of penalty.
The learned CIT-DR has supported the impugned orders. It is submitted that assessee’s claim of the purchases being genuine transactions has not been accepted by the Assessing Officer consequent upon which necessary additions were made. It is submitted that this is a clear case which falls within the requirements of section 271(1)(c) of the Act. It is submitted that the claim based on the notice being vague cannot be accepted on facts as the appellant was aware of the ground on which the action for levying penalty was initiated and there was neither surprise nor prejudice demonstrated by the assessee resulting out of the notice being allegedly vague.
We have given our anxious consideration to the rival circumstances and submissions made.
The challenge in this appeal is broadly on two grounds. First on the validity of the notice and, secondly, on the quantum addition (which has given rise to the penalty proceedings] being made on the basis of an estimate.
In so far as the first ground is concerned, we have perused the notices dated 29.03.2018 [A.Y. 2010-11] and 19.03.2015 [A.Y. 2011-12]. These notices clearly show that they do not recite any one ground contemplated u/s. 271(1)(c) of the said Act. The notice in our opinion makes an omnibus statement of the assessee having concealed the particulars of income and/or furnished inaccurate particulars of such income. The issue about the validity of such notices is no longer res integra and is covered by the decision of Full Bench of the jurisdictional High Court in Mohd. Farhan A. Shaikh vs DCIT, Belgaum (supra). That was a reference made in view of the conflict of decision of the co-ordinate Benches between two sets of cases; first of which was led by the case in CIT vs. Smt. Kaushalya 216 ITR 660 (Bom) and the & 2821/Mum/2023 Ramnik Sushil Chaudhry contrary view was taken in CIT vs. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar).
The Full Bench dwelt upon the following questions:
“Question No.1: If assessment order clearly records satisfaction for imposing penalty on one or other, or both grounds mentioned in section 271(1)(c), does a mere defect in notice- not striking off irrelevant matter – vitiate penalty proceedings?
Question No.2: Has Kaushalya failed to discuss the aspect of ‘prejudice’?
Question No.3: What is effect of Supreme Court’s decision in Delip N Shroff v. Jt. CIT [2001] 161 Taxman 218/291 ITR 519 (SC), on issue of non-application of mind when irrelevant portions of printed notices are not struck off?”
The Full Bench in so far as the question no.1 is concerned in para 18 of the judgment held that a mere defect in the notice (not striking off the irrelevant matter) vitiates the proceedings. This is what is held in para 181 of judgment.
“181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with Section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the & 2821/Mum/2023 Ramnik Sushil Chaudhry assessee must be informed of the grounds of the penalty proceedings only through statutory notice An omnibus notice suffers from the vice of vagueness.”
The Full Bench has found that case of Kaushalya (supra) did not lay down the correct proposition of law. In our considered view, upon perusal of the impugned notices in these appeals, the matter would be squarely covered by the decision of the Full Bench in Mohd. Farhan A. Shaikh vs DCIT, Belgaum (supra), and the penalty proceedings would stand vitiated. Nonetheless, we also propose to deal with the second ground which is on the merits of the order levying penalty in pursuance of the addition, which is made on estimation.
14. In order to deal with the said ground, it is necessary to set out few more facts. The additions as aforesaid were made by the Assessing Officer which were scaled down to a certain extent by the learned CIT(A). It is necessary to note that the Assessing Officer had made 100% addition of the amount of the alleged bogus purchases which was reduced to 12.5% by the CIT(A). Both the Revenue as well as the assessee challenged the said decision before this Tribunal. These appeals were disposed off by this Tribunal vide orders dated 10.02.2020. A perusal of the said order shows that the Tribunal had made the addition on the basis of estimate @12.5% of the amount of the alleged bogus purchases. That decision has attained finality as the same was not carried any further.
The issue about the justifiability of levying of penalty when the addition is made on the basis of estimation, is an issue, which is also covered by decision of Hon’ble Gujarat High Court in the case of CIT vs Whitelene Chemicals, 360 ITR 385 (Guj) and Hon’ble Rajasthan High Court in the case of & 2821/Mum/2023 Ramnik Sushil Chaudhry CIT vs. Krishi Tyre Retrading & Rubber Industries 360 ITR 580 (Raj), which have been consistently followed by this Tribunal in various decisions.
Thus, considering the settled position and facts obtaining in this case viz; addition being made on the basis of estimate show the impugned orders levying penalty cannot be sustained. Therefore, the appeals deserve to be allowed. Accordingly, the appeals are allowed. The impugned orders levying the penalty are hereby set aside. Order pronounced in the open court on 12th December, 2023.