RIGHT TIGHT FASTNERS PVT LTD.,MUMBAI vs. DCIT-11(1)(1), MUMBAI

The Assessing Officer subsequently issued a notice initiating penalty proceedings under section 271(1)(c) of the Act for the reason that by claiming a 3 ITA 684/Mum/2023 M/s Right Tight Fastners Pvt Ltd deduction under section 80IC against the books profits, that is, by making an inadmissible claim, the assessee has not only concealed income but has filed inaccurate particulars of income. The assessee submitted before the Assessing Officer that assessee was under impression that its profit from the industrial unit in the backward area of Pantnagar, Uttarakhand was exempt not liable to included in the computation of book profits under MAT provision. Further, it has stated that this bonafide belief was based on the calculations of the book profit made by the Auditor in his report in Form 29B. It is also stated that none of the directors of the company is an expert in the field of taxation and therefore cannot be expected to know the niceties of technical provisions of taxations under sec.115JB. Further, none of the fact it has either concealed or any inaccurate particulars have been furnished with respect to such deduction u/s 80IC. Therefore, the allegation regarding concealment of income or furnishing of inaccurate particulars cannot arise. The Assessing Officer did not accept the submissions of the assessee and proceed to levy penalty by stating that it is the responsibility of the directors of the assessee company to see the genuineness and accuracy of the claim of any deduction / exemption while calculating the income under the normal provisions and also under the book profits.

Aggrieved, the assessee filed appeal before the CIT(A). The Ld.CIT(A) dismissed the appeal exparte for the reason that the assessee did not respond to various notices issued during the course of appellate proceedings. Considering the facts on record and the grounds of appeal

During the course of hearing, the Ld.AR presented arguments to submit that the CIT(A) passed an exparte order without giving an opportunity of being heard which is against the principles of natural justice. The Ld.AR also presented arguments to submit that the assessee was under a bona fide believe that the deduction under section 80IC is an allowable deduction while computing the book profits since the same is certified by the Chartered Accountant of the assessee in Form 29B. In this regard, the Ld.AR relied on the decision of the Supreme Court in the case of Price Water House Coopers Pvt Ltd vs CIT (2012) 25 taxmann.com 400 (SC). Ld.AR also contended the levy of penalty on the legal ground that the showcause notice issued under section 274 r.w.s. 271(1)(c) is issued without mentioning the specific charge for which penalty was being proposed to be levied.

For the purpose of adjudication we will first consider the legal contention raised by the ld AR. The Ld.AR in this regard submitted that the Assessing Officer while issuing the show cause notice has not brought to the notice of the assessee as to what is the charge for which the penalty was proposed to be levied. The Ld.AR drew our attention in this regard to the show cause notice (page 14 of the paper book) where the irrelevant clause was not struck off. The Ld.AR submitted that it is a well accepted proposition that out of the two limbs of section 271(1)(c), the Assessing Officer has to strike off the irrelevant clause since they carry different

The ld DR on the other hand submitted that the assessee failed to appear before the CIT(A) and did not raise the relied on the order of the lower authorities.

We heard the parties and perused the materials on record. Before proceeding further, let us look into the provisions of section 271(1)(c) of the Act. “271. (1) If the Assessing Officer or the [Joint Commissioner (Appeals) or the] Commissioner (Appeals) or the Principal Commissioner or Commissioner in the course of any proceedings under this Act, is satisfied that any person— (a) ****** (b) ****** (c) has concealed the particulars of his income or furnished inaccurate particulars of such income he may direct that such person shall pay by way of penalty,—****

We notice that the Hon ’ ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra) has held that the notice under section 274 r.w.. 271 should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing 7 ITA 684/Mum/2023 M/s Right Tight Fastners Pvt Ltd of inaccurate particulars of income. The Hon’ble High Court 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 further held that initiating penalty proceedings on one limb and find the assessee guilty on another limb of section 271(1)(c) of the Act is not tenable. We also notice that the Full Bench of the Hon’ble Bombay High Court in the case of Mohd. Farhan A. sheikh vs DCIT (supra) has considered the similar issue and held that - “Question No.1. If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in section 271(l)(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(l)(c), read with Section 274 of the 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.

More particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee's favour.

Therefore, we answer the first question to the effect that Goa Dourado Promotions and other cases have adopted an approach more in consonance with the statutory scheme. That means we must hold that Kaushalya does not lay down the correct proposition of law."

Since we have adjudicated the issue in favour of the assessee on the legal contentions on the validity of the show cause notice u/s.274 r.w.s 271(1)(c), the other arguments presented by the Ld AR have become academic and hence not warranting adjudication.

In the result, appeal of the assessee is allowed.