PRINCIPAL COMMISSIONER OF INCOME TAX-II, LUCKNOW vs. SCOOTERS INDIA LIMITED, LUCKNOW

These six appeals have been filed by Revenue against the order of learned CIT(A)-2, Lucknow dated 07/02/2019 pertaining to assessment year 2002-2003 and dated 11/02/2019 pertaining to assessment years 2003-04 to 2007-08. The Revenue has taken similar grounds in all these appeals to 270/Lkw/2019 Assessment Years:2002-03 to 2007-08 2 which were heard together therefore, for the sake of convenience, a common and consolidated order is being passed. For the sake of convenience, the grounds of appeal taken by the Revenue in are reproduced below:

“1. The Ld. CIT(A) has erred in law and on facts in deleting the penalty amounting to Rs. 1,00,00,000/- levied u/s 271(1)(c) of the I.T. Act, 1961 ignoring the fact that the additions made by the AO had been confirmed in the appellate proceedings. The reliance is also placed on Hon'ble Supreme Court in the case of Union of India Vs Dharmendra Textile Processors (2008) 306 ITR 277/174 Taxman 571 and Hon'ble High court of Madras Order in the case of Sundaram Finance Ltd. Vs Assistant Commissioner of Income Tax Co. Circle -VI(4), Chennai, 93 taxmann.com 250 (Madras) (2018)403 ITR 407 where it had been held that mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities and that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice issued under section 274 r/w section 271 of the I.T. Act.

2. At the time of hearing Learned D. R. vehemently argued that the CIT(A) has erred in deleting the penalty overlooking the fact that the additions on which the penalty has been levied has been upheld in appeal and has also ignored the decision of Hon'ble Supreme Court in the case of Union of India Vs Dharmendra Textile Processors (2008) 306 ITR 277/174 Taxman 571 and Hon'ble High court of Madras Order in the case of Sundaram Finance Ltd. Vs Assistant Commissioner of Income Tax Co. Circle -VI(4), Chennai, 93 taxmann.com 250 (Madras), wherein the penalty levied to 270/Lkw/2019 Assessment Years:2002-03 to 2007-08 3 u/s 271(1)(c) has been upheld. Learned D. R. drew our specific attention to the decision of Hon'ble Madras High Court in the case of Sundaram Finance Ltd. (supra) wherein the issue of striking of the limb has been decided in favour of the Revenue.

3. On the other hand, Learned counsel for the assessee invited our attention to the paper book filed wherein show cause notice for penalty under section 274 read with 271(1)(c) of the Act was placed. It was submitted that from a perusal of this notice, it is crystal clear that the charge is not specific for which penalty is levied under section 271(1)(c) of the Act, whether for concealment of income or for furnishing of inaccurate particulars of income. The learned A.R. of the assessee vehemently argued that it is settled position of law that if notice under section 274 read with 271(1)(c) is not specific about the charge or limb under which penalty is being levied under section 271(1)(c) of the Act, then any penalty levied on the basis of such notice is bad in law and liable to be deleted. Learned counsel for the assessee placed reliance on the following case laws: i) PCIT vs. Sahara India Life Insurance Co. Ltd. Order dt. 02.08/2019. ii) Pr.CIT (Central) vs. Goa Coastal Resorts & Recreation Pvt. Ltd. ITA No. 24 of 2019 Order dt. 11.11.2019 High Court of Bombay at Goa. iii) International Tractors Ltd. vs. Dy.CIT ITA No. 6098/Del/2016 Order dt. 21.02.2020 ITAT, Delhi. iv) DCIT vs. Metro Tyres Pvt. Ltd.ITA No. 2874/Del/2016 Order dt. 24.06.2020 ITAT, Delhi. v) Radhika Surgical Pvt. Ltd. vs. ACIT – ITA No. 5089/Del/2017 Order dt. 31.05.2021 - ITAT Delhi. to 270/Lkw/2019 Assessment Years:2002-03 to 2007-08 4 vi) Singh Consultancy Pvt. Ltd. vs. ITO – Order dt. 09.04.2021- ITAT Delhi. vii) Sachin Arora vs. ITO - ITA No. 118/Agra/2015 Order dt. 19.12.2017 –ITAT, Agra. viii) M/s. Risha Tour & Travels vs. ITO-2(3), Kanpur – ITA No. 606/LKW/2018 Order dt. 23.01.2020, ITAT, Lucknow Bench. ix) Shri Suraj vs. Dy.CIT, CC-1, Kanpur – ITA No. 331/LKW/2019 Order dt. 26.06.2020, ITAT, Lucknow Bench. x) Off late the decision of Hon’ble ITAT Delhi Bench in the case of Addl.CIT, Spl. Range I vs. Airports Authority of India, ITA No. 369/Del/2018 Order dt. 13.08.2021 Learned counsel for the assessee submitted that relying upon the decision of Hon'ble Supreme Court in the case of CIT vs. SSA’s Emerald Meadows [2016] 73 Taxmann.com 248 and also of the decision of Hon'ble Karnataka High Court in the case of CIT and Another vs. Manjunath Cotton & Ginning Factory [2013] 359 ITR 565 (Kar), I.T.A.T. Lucknow Bench in various cases have held that that in absence of specific charge in the notice issued u/s 274 read with section 271(1)(c), the penalty cannot be levied. Learned counsel for the assessee submitted that the decision of Dharmendra Textile Processors, relied on by Learned D. R., is not applicable as that case was under Central Excise wherein the duty payable had not been paid and there was issue with respect to mens rea and the issue of validity of notice and the proceeding based thereon was not in question and it was submitted that the decision of Dharmendra Textile Processors has been considered by Hon'ble Apex Court in the case of Reliance Petrochemicals Ltd. and further the Agra Bench of the Tribunal in the case of Sachin Arora in I.T.A. No.118/Agra/2015, vide order dated 19/12/2017 in para 39 of its order has to 270/Lkw/2019 Assessment Years:2002-03 to 2007-08 5 considered such decision and after considering such decision has allowed relief to the assessee. As regards the reliance placed by Learned D. R. on the judgment of Hon'ble Madras High Court in the case of Sundram Finance Ltd., Learned counsel for the assessee submitted that the plea of notice being invalid was raised before Hon'ble High Court for the first time after a lapse of ten years at the time of hearing and therefore, the Hon'ble High Court was of the view that if the assessee had any grievance with respect to the validity of notice, it should have been raised before the lower appellate authority and moreover, Hon'ble High Court had decided the appeal on the merits of the case whereas in the present case, the issue regarding validity of notice has been raised before the authorities below therefore, learned CIT(A), after considering the legal position and after considering the decision of Hon'ble Apex Court in the case of SSA Emerald has held the notice issued u/s 271(1)(c) of the Act not a valid notice. It was submitted that the notice u/s 271(1)(c) is a jurisdictional notice and for levy of penalty, jurisdiction has to be assumed and for assuming jurisdiction, a valid notice has to be issued and if the notice itself is not valid, the Assessing Officer cannot assume jurisdiction and hence cannot impose penalty. Learned counsel for the assessee submitted that the case laws of Sundram Finance Limited has also been considered by the Lucknow Bench of the Tribunal in the case of Risha Tour and Travels vs. Income Tax Officer in vide order dated 23/01/2020 and after considering this decision, the issue has been decided in favour of the assessee and therefore, it was prayed that the order of learned CIT(A) be upheld.

5. We have perused the case records and heard the rival contentions and as apparent from notices under section 274 read with 271(1)(c) of the Act, we find that the charge on which penalty is levied is not specific. The copy of show cause notice issued for the assessment year 2002-03, which is to 270/Lkw/2019 Assessment Years:2002-03 to 2007-08 6 similar in all the assessment years, has been made part of this order, which is as under: to 270/Lkw/2019 Assessment Years:2002-03 to 2007-08 7 From a perusal of this notice, it is crystal clear that the charge is not specific for which penalty is levied under section 271(1)(c) of the Act, whether for concealment of income or for furnishing of inaccurate particulars of income. The notice has specified both charges i.e. concealment of income and furnishing of inaccurate particulars of income and has not specified the to 270/Lkw/2019 Assessment Years:2002-03 to 2007-08 8 charge for which action has been taken against assessee. The non specific nature of notice indicates non application of mind by Assessing Officer. It is a settled position of law that if notice under section 274 read with 271(1)(c) is not specific about the charge or limb under which penalty is being levied under section 271(1)(c) of the Act, then any penalty levied on the basis of such notice is bad in law and liable to be deleted.

6. The law mandates that the authority, who is proposing to impose penalty, shall be certain as to what basis penalty is being levied and notice must reflect that specific reason so that assessee, to whom such notice is given, can well prepare himself regarding defence, which he likes to take to support his case. This is even enshrined in the principles of natural justice and as has been upheld by Hon'ble Apex Court and other High Courts. Such legal position has been considered by Hon'ble Supreme Court and by various High Courts as relied on by Learned counsel for the assessee.

(1) In CIT vs. SSA’s Emerald Meadows [2016] 73 Taxmann.com 248 (SC). In this case the Hon'ble Apex Court looked into the facts before them that Tribunal relying on the decision of Division Bench of Hon'ble Karnataka High Court in the case of CIT and Another vs. Manjunath Cotton & Ginning Factory (supra) allowed the appeal of the assessee holding that notice issued by the Assessing Officer under section 274 read with section 271(1)(c) of the Act was bad in law as it did not specify under which limb of 271(1)(c) penalty proceedings has been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. When the matter travelled upto the High Court, it supported the judgment of Hon'ble Karnataka High Court in the case of CIT and Another vs. Manjunath Cotton & Ginning Factory (supra) and decided that there was therefore no substantial question of law to be decided. Thereafter an SLP was filed before the Hon'ble Apex Court and the Apex Court dismissed the SLP of the Revenue finding no merit therein and confirming the issue in favour of the assessee. to 270/Lkw/2019 Assessment Years:2002-03 to 2007-08 9 (2) In CIT and Another vs. Manjunath Cotton & Ginning Factory [2013] 359 ITR 565 (karn.). In this case, it has been clearly mentioned and held by the Hon'ble High Court that notice under section 274 read with section 271(1)(c) of the Act should specifically state the grounds mentioned in 271(1)(c) i.e. whether it is for concealment of income or for furnishing of inaccurate particulars of income. Sending printed form where all the grounds mentioned would not satisfy the requirement of law. Assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended. On the basis of such proceedings no penalty could be imposed to the assessee. Penalty proceedings are distinct from assessment proceedings though it emanates from the assessment proceedings still it is separate and independent proceedings all together. (3) In Meherjee Cassinath Holdings Pvt. Ltd vs. ACIT (ITAT Mumbai) order dated 28/04/2017 wherein the observation of the Bench was that penalty proceedings under section 271(1)(c) of the Act are "quasi- criminal" proceedings and ought to comply with the principles of natural justice. The non-striking of the irrelevant portion in the show-cause notice means that the Assessing Officer is not firm about the charge against the assessee and the assessee is not made aware as to which of the two limbs of s. 271(1)(c) he has to respond. (4) In Chandra Prakash Bubna vs. Income Tax Officer, Ward 27(3), Kolkata (ITAT Kolkata Bench) [2015] 64 taxmann.com 155 wherein it was held that when the Assessing Officer levied penalty without bringing out any specific charge for which penalty had been imposed, penalty was liable to be deleted.

the decision in ‘Dilip N. Shroff v. Joint CIT’, where the court explained the meaning of the terms conceal and inaccurate. It was only the ultimate inference in ‘Dilip N. Shroff v. Joint CIT’ to the effect that mens rea was an essential ingredient for the penalty under section 271(1) (c) that the decision in ‘Dilip N. Shroff v. Joint CIT’ was overruled.” The Hon'ble Tribunal has quoted the judgment of Reliance Petroproducts (P) Ltd (supra) wherein the Hon'ble Supreme Court has clarified as to why the judgment in the case of Dilip N. Shroff was overruled in UOI and Dharmendra Textile Processors. Therefore, the reliance placed by Learned D. R. on this case law will not help the Revenue. Similarly the reliance placed by Learned D. R. on the case of Sundram Finance of Hon'ble Madras High Court will not help the Revenue as the Lucknow Bench in the case of Risha Tour and Travels (supra) has also dealt with this case law and after considering the case law has decided the issue in favour of the assessee by holding as under:

“4. The ld. D.R., on the other hand, placing reliance on the orders of the authorities below, submitted that even assuming that there was defect in the notice, it had caused no prejudice to Page 3 of 8 the assessee and the assessee clearly understood what was the purport and import of the notice issued under section 274 read with section 271 of the Act. For this proposition, he placed reliance on the judgment of the Hon'ble Madras High Court, delivered on 11/4/2018, in ‘M/s Sundaram Finance Ltd. vs. ACIT’ in T.C. (Appeal) Nos.876 and 877 of 2008 and submitted that the ld. CIT(A) has rightly upheld the penalty levied under section 271(1)(c) of the Act and dismissed the appeal of the assessee.

7. In 'CIT vs. SSA's Emerald Meadows', [2016] 73 Taxmann.com 248, the Hon'ble Apex Court looked into the facts before them that Tribunal relying on the decision of the Division Bench of the Hon'ble Karnataka High Court in the case of ‘CIT and Another vs. Manjunath Cotton & Ginning Factory’ [2013] 359 ITR 565 (Karn.), allowed the appeal of the assessee, holding that notice issued by the Assessing Officer under section 274 read with section 271(1)(c) of the Act was bad in law, as it did not specify under which limb of section 271(1)(c) of the Act, penalty proceedings has been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. When the matter travelled upto the High Court, it supported the judgment of the Hon'ble Karnataka High Court in the case of ‘CIT and Another vs. Manjunath Cotton & Ginning Factory’ (supra) and decided that there was, therefore, no substantial question of law to be decided. Thereafter, an SLP was filed before the Hon'ble Apex Court and the Apex Court dismissed the SLP of the Revenue finding no merit therein and confirming the issue in favour of the assessee.

10. In 'Chandra Prakash Bubna vs. Income Tax Officer, Ward 27(3), Kolkata', (ITAT Kolkata Bench) [2015] 64 taxmann.com 155, it was held that when the Assessing Officer levied penalty without bringing out any specific charge for which penalty had been imposed, penalty was liable to be deleted.

8. In the present cases, unlike in the case of Sundram Finance Ltd., the assessee has taken this argument before learned CIT(A) and before us also whereas in Sundram Finance Ltd., the issue was raised for the first time before Hon'ble Supreme Court therefore, this case law is distinguishable from the facts of the present cases and therefore, is not applicable.

9. In view of these facts and circumstances and in view of the judicial precedents relied on by Learned counsel for the assessee, we do not find any infirmity in the order of learned CIT(A) therefore, the appeal filed by the Revenue are dismissed.

11. In the result, all the appeals of the Revenue and Cross Objections of the assessee are dismissed.

(Order pronounced in the open court on 02/11/2021)