JIK INDUSTRIES LIMITED,MUMBAI vs. DCIT, CIR-2(2)(1), MUMBAI

The appeal preferred by the Appellant before the CIT(A) against the above penalty order was dismissed by the CIT(A) vide order dated 17/03/2023. Being aggrieved, the Appellant has preferred the present appeal before 7. the Tribunal.

On perusal of Assessment Order, we find that in paragraph 4.8 of the Assessment Order, the Assessing Officer has directed initiation of separate penalty proceeding in the following manner: “4.8 In view of the foregoing discussion, the amount of Rs 162,81,36,515/- is added to total income of the assessee. Further, as evident from the discussion above, the assessee has failed to make true and full disclosure pertaining to income at the time of filing the return of income. It is the purpose of the assessment proceedings to identify such instances of concealment of income Hence, separate penalty proceedings u/s 271(1)(c) are initiated for furnishing of inaccurate particulars which has resulted in concealment of income.” Thus, in the assessment order, while recording satisfaction for initiating 11. penalty proceedings under Section 271(1)(c) of the Act, the charge 5 stated is furnishing of inaccurate particulars of income. Whereas on perusal of notice, dated 22/12/2017, issued under Section 274 of the Act, we find that the charge against the Appellant stated therein is that the Appellant had concealed the particulars of income. Similarly, in notice dated 25/06/2018, sent to the Appellant it has been stated that the penalty proceedings in the case of the Appellant were for concealed particulars of income. The relevant extract of the aforesaid notice read as under: “In connection with the penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 for A.Y. 2015-16 in your case for concealment of particulars of your income, You are hereby requested to appear before me on 26.06.2018 at 11.45 A.M. and show cause why an order imposing penalty on you should not be made.” (Emphasis Supplied) However, on perusal of penalty order impugned by way of present 12. appeal, we find that the Assessing Officer has levied penalty on the Appellant for furnishing inaccurate particulars of income.

Manjunatha Cotton & Ginning Factory : [2013] 359 ITR 565 (Karnataka) the Hon’ble Karnataka High Court has made following observations regarding issuance of notice under Section 274 of the Act: “Notice under section 274 59. As the provision stands, the penalty proceedings can be initiated on various grounds set out therein. If the order passed by the authority categorically records a finding regarding the existence of any 6 said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation 1 or in Explanation 1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in section 271 should be made known about the grounds on which they intend imposing penalty on him as section 274 makes it clear that the assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100 per cent. to 300 per cent. of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under section 274 should satisfy the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended if the show-cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.

Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out the satisfaction of the existence of the grounds mentioned in section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what the assessee was called upon to meet. Otherwise, though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend the principles of natural justice and cannot be sustained. Thus, once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the 7 basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. xx xx 62. xx xx CONCLUSION 63. In the light of what is stated above, what emerges is as under: (a) Penalty under section 271(1)(c) is a civil liability. xx xx (p) Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income (q) Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law. (r) The 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. (s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law.” (Emphasis Supplied) 15. The above judgment of Hon’ble Karnataka High Court was taken into consideration by the Full Bench of the Hon’ble Bombay High Court in the case of Mohd. Farhan A Shaikh Vs. DCIT, Central Circle-1, Belgaum : 434 ITR 1 (Bombay) wherein it was held as under: “Answers: Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned 8 in Section 271(1)(c), does a mere defect in the notice—not striking off the irrelevant matter—vitiate the penalty proceedings? 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 assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.” (Emphasis supplied) 16. On perusal of the above, it can be seen that the penalty notices put the Appellant to notice about the charge of concealment of particulars of income whereas in the impugned penalty order penalty under Section 271(1)(c) of the Act has been levied for furnishing inaccurate particulars of income. Thus, the Appellant has not been informed about the charge/grounds on which penalty under Section 271(1)(c) of the Act is sought to be levied through statutory notice issued under Section 274 of the Act and therefore, the test laid down by the Hon’ble Bombay High Court in the case of Mohd. Farhan A Shaikh (supra) is not satisfied. Since, in the present case the penalty proceedings were initiated under one limb of Section 271(1)(c) of the Act for furnishing inaccurate particulars of income whereas the penalty has been levied after finding the Appellant guilty under the other limb of Section 271(1)(c) of the Act for furnishing inaccurate particulars of income, the penalty order, dated 29/06/2018, levying penalty of INR 55,34,03,602/- under Section 271(1)(c) of the Act cannot be sustained in view of the judgment of the full Bench of the Hon’ble Bombay High Court in the case of Mohd. Farhan A Shaikh (supra). Accordingly, the penalty order, dated 29/06/2018, levying penalty under Section 271(1)(c) of the Act is quashed as being bad in law. In view of the 9 aforesaid, the contentions advanced by both the sides relating to levy of penalty on merits, having been rendered academic, are not require to be adjudicated upon and therefore, left open.