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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI N.K. CHOUDHRY, HON’BLE & SHRI D.S. SUNDER SINGH, HONBLE
This appeal has been preferred by the Revenue Department against the order dated 26/06/2019 impugned herein passed by the ld. Commissioner of Income Tax (Appeals)-1 [for short, “ld. Commissioner”], Visakhapatnam u/sec. 250(6) of the Income Tax Act, 1961 (hereinafter referred to as "Act") for the A.Y. 2014-15.
Having heard the parties and perused the material available on record. The grievance of the Revenue Department is that the ld. Commissioner while cancelling penalty, ignored the decisions of the Hon'ble High Court of Andhra Pradesh in the case of CIT Vs. Chandulal (152 ITR 238) and Srinivasa Pitty & Sons Vs. CIT (173 ITR 306) and the Hon'ble Madras High Court in the case of CIT Vs. Sundaram Finance Ltd. [(2013) 35 taxmann.com 65 (Madras)], wherein it was held that mere failure to strike-off inappropriate portion in a notice will not render it invalid. Further even if there is defect in notice, it had caused no prejudice to the Assessee and the Assessee clearly understood what was the purport and import of the notice issued u/s 271 r.w.s 274 of the Act.
3. In the instant case, the ld. Commissioner deleted the penalty, by following the judgment of the Hon’ble jurisdictional High Court passed in the case of Pr.CIT v. Smt. Baisetty Revathi [2017] 398 ITR 88 (Andhra Pradesh and Telangana) and also the order of the jurisdictional bench in the case of Konchada Sreeram Vs. ITO (ITA No.388/VIZ/2015, dated 06/10/2017) and M/s. Narayana Reddy Enterprises Vs. ITO (ITANo. 229/VIZ/32015, dated 18/08/2017) and Smt. Makina Annapurna Vs. ITO (ITA No.604 & 605/VIZ/2014, dated 02/02/2017) wherein the penalty was deleted by holding that non-striking of the irrelevant column renders the notice issued u/s 271 of the Act as invalid.
3. No doubt there are contrary judgments on the issue in hand, however, as it is clarified by the Hon'ble Apex court in the case of CIT Vs. Vegetable Products Ltd. [(1973) 88 ITR 192 (SC)] by holding “if two reasonable constructions of a taxing provision are possible, that construction which favours the Assessee must be adopted.” Meaning thereby, the view/judgment which favours the Assessee is required to be followed, which in the instant case has been followed by the Ld. Commissioner while passing the impugned order.
Even Hon'ble Apex Court vide judgment 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 whereby identical issue was decided in favour of the Assessee. 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 had 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?
(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?
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 01 the derision 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.
4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court, the appeal is accordingly dismissed."
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 further held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clauses would lead to an inference of non-application of mind by the Assessing Officer.
Coming to the instant case, as the mind of the AO while issuing notice u/s 274 of the Act was not clear, under which limb the penalty supposed to be levied, and without specifying any charge under which the Assessee was to reply and to defend its case, the penalty is not leviable as held by the various Courts. Hence, we have no hesitation to uphold the impugned order.
In the result, the appeal filed by the Revenue Department stands dismissed. Order Pronounced in open Court on this 23rd day of Sep., 2021.