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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: SHRI RAJPAL YADAV & SHRI GIRISH AGRAWAL
ORDER PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: Both these appeals filed by the assessee are against the separate orders of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi vide Order No. ITBA/NFAC/S/250/2023-24/1053325945(1) and ITBA/NFAC/S/250/2023-24/1053497437(1) dated 30.05.2023 and 02.06.2023 passed against penalty orders u/s. 271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 20.06.2016 and 22.06.2016 for AYs 2007-08 and 2008-09 respectively. Since issues are identical and facts are common, except variation in amount, we dispose of both the appeals by this consolidated order for the sake of convenience.
First we take up ITA No. 658/Kol/2023. Assessee has raised three grounds in the present appeal on the imposition of penalty u/s. 271(1)(c) of the Act. However, the entire grievance is in respect of no 2 & 659Kol/2023 Santi Ram Mondal, AYs 2007-08 & 2008-09 specific charge mentioned in the show cause notice issued u/s. 274 read with section 271(1)(c) as to whether it was for concealment of particulars of income or for furnishing inaccurate particulars of income and, therefore, whether the issue deserves to be visited with penalty so imposed in the present case.
Brief facts of the case are that assessment u/s. 143(3) read with section 147 of the Act was completed on 29.12.2011 at a total income of Rs.10,15,210/- which included interest income from different savings bank accounts amounting to Rs.17,318/- which was added in the assessment so completed. Ld. AO had initiated penalty proceedings u/s. 271(1)(c) of the Act on the said interest income as it was treated as undisclosed income. Assessee went in appeal before the Ld. CIT(A) against the assessment order whereby the appeal was allowed on all the grounds except for addition made in respect of interest income from different saving bank accounts amounting to Rs.17,318/-. On this sustained addition, Ld. AO took up the penalty proceedings u/s. 271(1)(c) of the Act and imposed a penalty @ 100% amounting to Rs.8,785/-. Aggrieved, assessee went in appeal before the Ld. CIT(A) against the said penalty which was dismissed. Aggrieved, assessee is in appeal before the Tribunal.
Before us, none represented the assessee. However, from the perusal of the grounds, we find it appropriate to adjudicate on the matter with the assistance of Ld. Sr. DR. From the perusal of the appeal folder, we note that copy of notice issued u/s. 274 read with section 271(1)(c) of the Act dated 29.12.2011 is placed on record which assist us to deal with the grounds raised by the assessee. The facts are common in both the appeals except for the quantum of penalty imposed which is Rs.8,785/- for AY 2007-08 and Rs.12,993/- for AY 2008-09.
3 & 659Kol/2023 Santi Ram Mondal, AYs 2007-08 & 2008-09 5. In ground nos. 1 and 2, assessee has submitted that Ld. AO has failed to specify the particular condition or limb for which penalty proceedings are initiated, in the notice issued u/s. 274 read with section 271(1)(c) of the Act. Assessee contends that there is no specific mention as to the violation of which limb and condition, i.e. whether it is for “concealment of particulars of income” or for “the furnishing of inaccurate particulars of income” that the penalty proceedings were being conducted and the assessee was being put through herein through the said notice.
5.1. According to the assessee, the show cause notice u/s. 274 of the Act does not strike out the inappropriate words and thereby imposition of penalty is unlawful and liable to be struck down pursuant to the defective notice issued by the Ld. AO. On this claim of the assessee, we perused the copy of notice placed on record, and one such notice for AY 2008-09 is reproduced below for ease of reference:
Page left blank intentionally 5.2. It is a fact that Ld. AO had indeed failed to specify the particular limb under which the penalty was proposed to be imposed as apparent from the copy of the notice reproduced above.
We have heard the submission of Ld. Sr. DR and perused the material available on record. On due consideration of facts and circumstances, we find that in the show cause notice, Ld. AO has not specified the charge for which assessee is being visited with penalty. The fact stated above is undisputed and uncontroverted. The present issue in the appeal is squarely covered by several decisions of various authorities including Hon’ble High Courts and Coordinate Benches of ITAT including the Hon’ble jurisdictional High Court as well as ITAT Bench at Kolkata.
7.1. Foremost decision by Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565, while speaking about the procedure for the issue of notice u/s. 274 of the Act, has observed as under:
“(Para 59)…… 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."
7.2. This decision has been relied upon by the Hon'ble Karnataka High Court in the case of SSA Emerald Meadows, to take a similar view. Hon'ble Supreme Court has dismissed the appeal of department in the case of CIT and others vs. SSA Emerald Meadows [2016] 73 taxmann.com 248 (SC) by stating that no merits have being found in the Department's SLP against the order of the Hon'ble High Court of Karnataka.
In fact, this position of mandatory need for specifying the correct limb under which penalty u/s 271(1)(c) is proposed to be imposed has been affirmed to be valid even in those cases where the assessee has not challenged the order for assessment and has paid the corresponding taxes and interest. In the present case before us, assessee has not gone into appeal for the quantum addition and has discharged his tax liability arising out of the assessment completed and subsequent first appeal effect. This aspect has also been dealt by the Hon'ble Karnataka High Court, in the case of Manjunatha Cotton and Ginning Factory (supra) wherein it is stated that merely because the assessee has not challenged the order for assessment and has paid the corresponding taxes and interest, it would not be sufficient reason either to initiate or impose penalty u/s 271(1)(c). Once the initiation is not automatic, it stands to reason that the proper procedure for initiation of penalty proceedings would necessarily have to be followed. One of the necessary conditions to be satisfied in this context, as already discussed above, is the specification of the particular limb 7.3. In the decision by Coordinate Bench of ITAT Kolkata, in the case of ITO vs. Ambey Retailers Pvt. Ltd. in dated 05.09.2018, the Coordinate Bench came to the following conclusion:
"15. We have already observed that the show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the Id. Counsel for the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present case cannot be sustained and the same is directed to be cancelled."
In the present facts and circumstances of the case, ratios of the abovementioned decisions are squarely applicable. Notice for the imposition of penalty, being bad in law, automatically vitiates the order for imposition of impugned penalty of Rs.8,785/-. Therefore, we delete the penalty so imposed. Grounds taken by the assessee are allowed.
Since identical issue is involved in the appeal for AY 2008-09 except for variation in amount of penalty imposed, the observations and findings given above in the appeal for AY 2007-08 applies mutatis mutandis to this year also. Accordingly, penalty imposed of Rs.12,993/- is deleted.
Order is pronounced in the open court on 21st August, 2023.