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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
PAN/GIR No. : AAFCP6744A Appellant .. Respondent Appellant by : Mr. V.K. Chaturvedi.DR Respondent by : Mr. Rushabh Mehta.AR Date of Hearing 09.02.2023 Date of Pronouncement 15.02.2023 आदेश / O R D E R
PER PAVAN KUMAR GADALE JM:
The revenue has filed the appeal against the order of the Commissioner of Income Tax (Appeals)-48, Mumbai passed u/s 250 of the Act.The revenue has raised the following grounds of appeal:
1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A)'s reliance on the Hon'ble Bombay HC's decision in the case of CIT Vs. Kaushalya is misplaced considering the Hon'ble Bombay HC in this M/s Patan Solar Pvt Ltd, Mumbai. - 2 - case held that "mere mistake in the language used or mere non- striking off of inaccurate portion could not by itself invalidate the notice. Entire factual background would fall for consideration in the matter and no one aspect would be decisive".
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the entire factual background of the case and held the penalty notice to be defective only because one of the limbs of the notice was not struck-off by the AO.
3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that the assessee, during the course of the penalty proceedings, never raised an objection as to the validity of the penalty notice and therefore, defect, if any, in the notice should have been held to be 'curable' in terms of provisions of section 292B and 292BB of the Act.
4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding the penalty notice to be 'defective' on the basis of a minor 'curable' technicality and without appreciating the entire facts and substance of the
5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding the penalty notice to be 'defective', considering the principles of natural justice was not violated in this case and due opportunity of being heard was provided to the assessee not once but twice during the course of the penalty proceedings and the assessee failed to respond to the show cause notice issued by the AO dated 19.03.2019.
M/s Patan Solar Pvt Ltd, Mumbai. - 3 -
The brief facts of the case are that the assessee company is engaged in the business of solar energy generation distribution. The assessee has filed the return of income for the A.Y 2013-14 on 15.09.2013 disclosing a total loss of Rs.40,45,449/- and the return of income was processed u/s 143(1) of the Act. Subsequently the case was selected for scrutiny and notice u/s 143(2) and 143(2) of the Act along with questionnaire was issued. Incompliance to the notices, the Ld. AR of the assessee appeared from time to time and filed the requisite details. The Assessing Officer (A.O) observed that the assessee company has not commenced its business activities. The assessee has filed the submissions on the issues on 26.10.2015 referred at Para 5 of the order. Further on perusal of the Profit & Loss account, the AO found that the assessee has disclosed under other income i.e interest received on loan, income tax refund and interest on income tax refund and the asssesee has deducted various expenses against the other income. The assessee was called to explain the reasons for claiming the deduction of expenses though the no business activities are carried out by the assessee.
M/s Patan Solar Pvt Ltd, Mumbai. - 4 - Further the asssessee has also advanced the loans to different persons and receiving interest. The assessee has filed the submissions on 26.10.2015 referred at Para 5.3 of the order explaining the claim of expenditure deducted from the other income. Whereas the A.O was not satisfied with the submissions and recomputed the total income disallowing 50% of salaries & Wages and other disallowance of expenses being staff welfare, bank charges, auditors remuneration, electricity expenses, insurance, legal charges, repairs and maintenance and other expenses and assessed the total income of Rs.2,38,73,670/- and passed the order u/s 143(3) of the Act dated 10.03.2016.
Subsequently the AO has initiated penalty proceedings u/s 271(1)(c) of the Act, whereas in the penalty proceedings the assessee was issued show cause notice and explanations are filed. Further it was brought on record before the AO in the penalty proceedings that, the assessee has filed an appeal against the quantum addition and the CIT(A) has granted partial relief, the AO considered the findings of the scrutiny assessment, submissions and the M/s Patan Solar Pvt Ltd, Mumbai. - 5 - decisions of the CIT(A) on the quantum addition and was not satisfied with the explanations and levied penalty of Rs.71,08,391/- and passed the order u/s 271(1)(c) of the Act dated 28.03.2019.
Aggrieved by the order, the assessee has filed an appeal before the CIT(A), in the appellate proceedings the CIT(A) considered the submissions of the assessee, provisions of law, findings the CIT(A) in quantum appeal and relied on the Honble High Court decisions on the validity of notice and deleted the penalty and partly allowed the assessee appeal. Aggrieved by the CIT(A)order, the revenue has filed an appeal before the Hon’ble Tribunal.
At the time of hearing, the Ld. DR submitted that the CIT(A) has erred in deleting the penalty levied u/s 271(1)(c) of the Act irrespective of the fact that the assessee has furnished inaccurate particulars of income and also the technicalities of defective notice are devoid of merits and supported the order of the Assessing officer.
Contra, the Ld. AR submitted that the assessee has cooperated in submitting the information with the M/s Patan Solar Pvt Ltd, Mumbai. - 6 - AO and the CIT(A) has rightly considered the facts and provisions of law that the notice issued for levy of penalty is invalid and also the CIT(A) has relied on the judicial decisions of the Honble High Courts and granted the relief and the Ld.AR supported the order of the CIT(A).
We heard the rival submissions and perused the material on record. The revenue has challenged the decision of the CIT(A), where the CIT(A) has erred in deleting the penalty considering the facts that the penalty notice issued is defective as the A.O. has not applied his mind and also non striking of charge in the penalty notice i.e. whether the charge is for concealment of income or furnishing of in accurate particulars of income. We find that the CIT(A) has relied on the Honble High Court decisions and deleted the penalty and observed at Page 17 Para 5.1 to 5.4 of the order read as under:
5.1. Decision on Ground No. 1, 2 & 3: I have carefully considered the facts of the case, order of the AO, and the submissions of the appellant. The appellant has challenged the validity of the penalty order passed u/s. 271(1)(c) primarily on the ground that no particular charge, whether, "concealment the income" or "furnishing
M/s Patan Solar Pvt Ltd, Mumbai. - 7 - of inaccurate particulars of income" has been specified in the notice u/s.
According to the appellant, the irrelevant clause has not been stroked off in the notice. Hence, the penalty is bad in law. On going through the assessment order passed and notice issued u/s. 271(1)(c) of the Act by the AO, I find that the AO has not mentioned as whether the appellant has concealed its income or furnished inaccurate particulars of income and the contentions raised by the appellant in the grounds of appeal as well as written submissions are correct.
5.2 The decision of Hon'ble Bombay High Court in the case of: (i) CIT Vs. Kaushalya (1995) (216 ITR 660 (Bom.) is on the same issue wherein it is ruled that "Section 274 or any other provision in the Act or the Rules, does not either mandate the giving of the notice or its issuance in a particular form Penalty proceedings are quasi-criminal in nature. Section 274 contains a principle of natural justice of the assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight- jacket formula. For sustaining a complaint for failure of principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice was caused to the concerned person by procedure followed. The issuance of notice is an administrative device for informing the assessee about proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non- striking off of inaccurate portion could not by itself invalidate the notice. Entire factual background would fall for consideration in the matter and no one aspect would be decisive. No doubt, there can exist a case where vagueness and ambiguity in the notice could demonstrate non- application of mind by the authority and/or ultimate prejudice to the right of opportunity of hearing
M/s Patan Solar Pvt Ltd, Mumbai. - 8 - contemplated under section 274. Also, the show cause notice did not strike out one of the two limbs, viz., 'concealment of income' or furnishing inaccurate particulars of income". It was held that the notice clearly demonstrated non application of mind. The vagueness and ambiguity in the notice also affected the right of reasonable opportunity of the assessee since he did not know the exact charges he faced. On the facts, quashing of penalty proceedings was held justified."
5.3 Decision of Hon'ble High Court of Karnataka in the case of (ii) CIT VS. Manjunath Cotton & Ginning Factory (2013) 359 ITR 565 (Kar.) is also on this point wherein it is stated that:"
Penalty under section 271(1)(c) is a civil liability. Therefore, mens rea is not an essential element for imposing penalty for breach of such civil obligations or liabilities. Wilful concealment is not an essential ingredient for attracting civil liability. [Para 63] Existence of conditions stipulated in section 271(1)(c) is a sine qua non for initiation of penalty proceedings under section 271. The existence of such conditions should be discernible from the assessment order or order of the Appellate Authority or Revisional Authority. Even if there is no specific finding regarding the existence of the conditions mentioned in section 271(1)(c), at least the facts set out in Explanation 1(A) and (B) should be discernible from the said order, which would, by a legal fiction, constitute concealment because of deeming provision. Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under section 271(1)(c) is a sine qua non for the Assessing Officer to initiate the proceedings because of the deeming provision contained in section 1(B). The M/s Patan Solar Pvt Ltd, Mumbai. - 9 - said deeming provisions are not applicable to the orders passed by the Commissioner (Appeals) and the Commissioner. [Para 63] The imposition of penalty is not automatic, i.e., imposition of penalty even if the tax liability is admitted, is not automatic. Even if the assessee has not challenged the order of assessment levying tax and interest and has paid the same, that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities which has resulted in payment of such tax or such tax liability came to be admitted, and if not, it would have escaped from tax net as opined by the Assessing Officer in the assessment order. Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty can be passed. If the explanation offered, even though not substantiated by the assessee, is found to be fide and all facts relating to the same and material for the computation of his total income have been disclosed by him, no penalty can be imposed. [Para 63] The direction referred to in Explanation 1B to section 271 should be clear and without any ambiguity. If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings in appeal, but the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority. Notice under section 274 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. Sending printed form,
M/s Patan Solar Pvt Ltd, Mumbai. - 10 - where all the grounds mentioned in section 271 are mentioned, would not satisfy requirement of law. The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. [Para 63] The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty, though emanate from proceedings of assessment, are independent and separate aspect of the proceedings. The findings recorded in the assessment proceedings in so far as 'concealment of income' and 'furnishing of incorrect particulars' would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings. [Para 63] Also the Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus, the Assessing Officer while issuing notice has to come to the conclusion that weather is it a case of concealment of income or is it as case of furnishing of inaccurate particulars. The apex court in the case of Ashok Pai[2007] 292 ITR 11 (SC) at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The 2019-20 71(1)(c) Gujarat
M/s Patan Solar Pvt Ltd, Mumbai. - 11 - High Court in the case of Manu Engineering reported in 122 ITR 306 and the Delhi High Court in the case of Virgo Marketing P. Ltd., reported in 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind". 5.4 In view of the above facts and respectfully following the judgments of Hon'ble High Courts including the jurisdictional High Courts which is binding on the lower authorities, it is held that the penalty notice is defective as the appellant has not been made aware as to whether penalty proceedings was initiated for "concealment of income" or "furnishing of inaccurate particulars of income". Thus, penalty of Rs. 71,08,390/- deserved to be deleted. Hence, Ground Nos. 1, 2 & 3 of appellant are Allowed.
8.We find the Jurisdictional Honble High Court of Bombay in Mohd Farhan A Shaikh Vs. DCIT in Tax Appeal No. 51 to 57 of 2012 dated 11.03.202 (2021) 125.taxmann.com 253 /434 ITR 1 (Bombay) has dealt on this disputed issue of not striking off charge in the penalty notice would vitiate the penalty proceedings. The Hon’ble High Court has made observations at page 56 as under;
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One course of before us is curing a defect in the notice by referring to the assessment order, which may or not contain reason for the penalty proceedings. The other course of action is the prevention of defect in the notice – and that prevention takes just a tick mark. Prudence demands prevention is better than cure. Answers: Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Sec. 271(1)(c), does a mere defect in the notice – not striking off the irrelevant matter vitiate the penalty proceedings?
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 Sec. 271(1)(c), r.w.s. 274 of the 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 deferent 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.
We have considered the facts, circumstances and ratio of the decision of Honble High Court and are of M/s Patan Solar Pvt Ltd, Mumbai. - 13 - the view that in the present case the CIT(A) has deleted the penalty as the A.O has not strike off the charge for levy of penalty for concealment of income or for furnishing of inaccurate particulars of income and the CIT(A) has also dealt on the facts, provisions of law and Honble High court decisions and passed a reasonable order. The Ld. DR could not controvert the findings of the CIT(A) on the disputed issue with any new cogent material or information to take different view. Accordingly, we do not find any infirmity in the order of the CIT(A) in deleting the penalty levied u/s 271(1)(c) of the Act and uphold the same and dismiss the grounds of appeal of the revenue.
In the result, the appeal filed by the revenue is dismissed.