MEENA RAMKRISHNA CHAVAN,VASHI vs. ACIT-28(2), VASHI

Date of Hearing : 11.09.2023 Date of Pronouncement : 22.09.2023 O R D E R Per N. K. Choudhry, JM:

The Assessee/Appellant herein has preferred this appeal against the order dated 27.03.2023 impugned herein passed by Ld. Commissioner of Income Tax (Appeals)-26, Mumbai/National Faceless Appeal Centre, Delhi {in short ‘Ld. Commissioner’} under section 250 of the Income Tax Act 1961 (in short ‘the Act’).

Meena Ramkrishna Chavan 2. In the instant case on the basis of information provided by the Director of Income Tax (Intell. & Cr. Inv.) to the effect “that some brokers were indulging in transferring fictitious losses to different clients to reduce their tax liability and also fictitious profit and the Assessee by modifying its profit/loss to the extent of Rs. 44,37,313/- had taken a gain”, the case of the Assessee was re-opened under section 147/148 of the Act and consequently the Assessee was show- caused, in response to which the Assessee claimed that profit of speculation has already been offered by the Assessee.

2.1 By considering the claim of the Assessee, it was found by the Assessing Officer (AO) that profit offered by the Assessee in his revised computation is only Rs. 42,50,560/- as against accepted amount of Rs. 44,37,313/- and on the basis of confirmation received from the Assessee’s brother (M/s Trans Global Securities) who vide letter dated 18.02.2016 confirmed the gains of Assessee to the tune of Rs. 44,20,211/-, treated the gain of Rs. 44,20,211/- as unexplained credit under section 68 of the Act and added the same in the income of the Assessee and also initiated the penalty under section 271(1)(c) of the Act for concealing particulars of income AND furnishing inaccurate particulars of income, by passing Assessment order dated 02.03.2016 under section 143(3) r.w.s. 147 of the Act

4. The Assessee being aggrieved challenged the said penalty order before the Ld. Commissioner, who vide impugned order affirmed the same by confirming the penalty levied. The Assessee being aggrieved is in appeal before us.

The Assessee has challenged the penalty order on the basis 7.1 of notice u/s 274 of the Act as well, therefore we deem it

Meena Ramkrishna Chavan appropriate to decide the legal issue involved in the instant case first, instead of going into merits of the case.

7.2 The Hon'ble Apex Court in case of M/s. SSA's Emerald Meadows, (2016) 73 taxmann.com 248(SC) dismissed the Special Leave Petition filed by the Revenue against the judgment rendered by Hon'ble High Court of Karnataka wherein legality of notice issued under section 274 r.w.s. 271(1)© of the Act was under challenge. Operative part of the judgment in case of M/s. SSA's Emerald Meadows (supra) decided by Hon'ble High Court of Karnataka is reproduced below:-

"2. This appeal has been filed raising the following substantial questions of law: (1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in. holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and. invalid inspite the amendment of Section 271(1 B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same?

Meena Ramkrishna Chavan (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued, under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income? 3. The Tribunal has allowed the appeal filed by the Assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short 'the Act') to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income .The Tribunal, while allowing the appeal of the Assessee, has relied upon the decision of the Division Bench of this Court rendered In the case of commissioner or income tax -vs- manjunatha cotton and ginning factory (2013) 359 ITR 565.

7.3 The Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar) observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon'ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon'ble High Court also held that the standard proforma of notice

Meena Ramkrishna Chavan under section 274 of the Act without striking of the irrelevant clause would lead to an inference of non-application of mind by the Assessing Officer and levy of penalty would suffers from non-application of mind.

7.4 From the aforesaid judgments, it is clear that the penalty provisions of section 271(1)(c) of the Act are attracted, where the Assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it is imperative for the Assessing Officer to specify the relevant limb in the Notice, so as to make the Assessee aware as to what is the charge made against him so that he can respond accordingly. The AO also supposed to come to a positive finding, as to whether there was concealment of income by the Assessee or whether any inaccurate particulars of such income have been furnished by Assessee. If no such clear cut finding is reached by the authority, then penalty cannot be levied.

7.5 In the background of the aforesaid legal position and, having regard to the manner in which the Assessing Officer though initiated the penalty proceedings under both of the limbs, however issued the notice under section 274 r.w.s. 271(1)(c) for concealment of income or for furnishing inaccurate particulars of income i.e. without specifying any particular limb under which the penalty proceedings have been initiated and proceeded with, and finally imposed the penalty against the Assessee for concealment of its income, apparently goes to prove that the AO initiated the penalty proceedings and issued the notice in a stereotyped manner without applying mind and therefore levy of penalty is bad in law and consequently not sustainable, hence the same is deleted.

Meena Ramkrishna Chavan 8. In the result, appeal filed by the Assessee stands allowed.