THE DCIT, TRIVANDRUM vs. M/S.R.R HOLIDAYS HOMES (P). LTD, TRIVANDRUM

This appeal filed by the Revenue is directed against the order of the CIT(A), Trivandrum dated 14/11/2018 and pertains to assessment year 2014-15.

The Learned Commissioner of Income tax (Appeals), Trivandrum erred in concluding that "the notice issued u/s 274 r w s 271(1)(c) of the Act without, striking off the irrelevant limb is invalid and consequently, penalty order passed by the Assessing Officer is also invalid."

2. While relying on the decision in the case of Babu Mathew Vs ACIT in & 96/Coch/2016, the CIT(A) ought to have noticed that in the said case, penalty was cancelled observing that notice issued by the AO was not in conformity with or according to the intent and purpose of the Act since AO did

not specify the charge for which penalty proceedings were initiated and further there was non-application of mind on the part of the Assessing Officer. The facts and circumstances of the case relied upon by the CIT(A) is not applicable in the present case where both limbs of section 271(1)(c| i.e. "concealment of particulars of income" as well as "furnishing of inaccurate particulars of income" is relevant and applicable. Thus the CIT(A) ought to have noticed that the notice issued by the Assessing officer is valid.

3. For these and other grounds that may be advanced at the time of hearing the order of the learned Commissioner of Income-tax(Appeals), Thiruvananthapuram on the above points may be set aside and that of the Assessing Officer restored.

Subsequently, vide letter dated 31/07/2019, the CIT(DR), ITAT, Kochi directed this office to file the appeal afresh with necessary condonation petition after completing the formalities from the Higher Authorities. On that basis this office had once again obtained the order u/s. 253(2) from the Pr. CIT, Trivandrum on 26/08/2019. Thus, there was a delay of 232 days. It was submitted that delay may be condoned and the appeal heard on merits, otherwise it will cause heavy loss to the appellant. 2 3.1 We have gone through the condonation petition. The delay in filing the appeal before the Tribunal was due to administrative reasons. We find there is good and sufficient cause for belatedly filing the appeal before the Tribunal. Hence, we condone the delay of 232 days in filing the appeal and admit the appeal on merits for adjudication.

NOTICE U/S 274 READ WITH SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 No. AACCR7529L/C-1(1)/TVM/2016-17 Dated: 27.12.2016 To M/s. R R Holiday Homes Pvt Ltd, T T.C. 34/495, Karthikeyam, Sanghumugham Beach P.O. Trivandrum-695024 Where as in the course of proceedings before me for the assessment year 2014- 15, it appears that you “have concealed the particulars of your Income or ............. furnished inaccurate particulars of such income.

You are requested to appear before me at 2.40 P.M. on 04.01.2017 and show cause why an order imposing penalty on you should not be made under section 271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorised representative, you may show cause in writing on or before the said date which will be considered before my such order is made under section 271. sd/- (Aswathy V) Assistant Commissioner of Income Tax Circle 1(1), Thiruvananthapuram

5. On appeal, the CIT(A) observed that a similar issue was decided by the Tribunal in favour of the assessee in the case of Babu Mathew vs. ACIT in ITA Nos.

95&96/Coch/2018 dated 19/01/2018 wherein it was held as follows:

“10. We have heard the rival submissions and perused the material on record. We have given a careful consideration to the rival submissions. The argument of the learned counsel for the Assessee was that the show cause notice u/s.274 of the Act which is in a printed form and the AO has indicated in the said notice as to whether the penalty is sought to be levied on the assessee for "furnishing inaccurate particulars of income" or "concealing particulars of such income" by striking off the irrelevant portion of the printed show cause notice. On this aspect we find that in the show cause notice u/s.274 of the Act the AO has not struck out the irrelevant part. It is not spelt out as to whether the penalty proceedings are sought to be levied for "furnishing inaccurate particulars of income" or "concealing particulars of such income".

squarely apply and the orders imposing penalty have to be held as bad in law and liable to be quashed.

"NOTICE UNDER SECTION 274 59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any 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 the Section 274 makes it clear that 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 farm where all the ground mentioned in Section 271 are mentioned would not satisfy 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% to 300% 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, 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.

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 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 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 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.

The final conclusion of the Hon'ble Court was as follows:-

"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. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. f) 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) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest 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 it 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 and as opined by the assessing officer in the assessment order. l) 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 bonafide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority. 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 ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) 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. s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is 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."

15. For the reasons given above, we hold that levy of penalty in the present case cannot be sustained. We therefore cancel the orders imposing penalty on the Assessee and allow the appeals by the Assessee.”

4.1 In view of the above decision of the Tribunal, the CIT(A) held that the notice issued under section 274 r.w.s. 271(1)(c) of the Act without striking off the irrelevant limb was invalid and consequently, penalty order passed by the Assessing Officer was also invalid. Hence, the CIT(A) deleted the penalty levied u/s. 271(1)(c) of the Act and allowed the appeal of the assessee.

“Considering all of the above and based on the facts of the case, it is clear that the assessee had concealed the particulars of income till the survey was carried out and had failed to furnish return voluntarily. Only after the survey was conducted by the department, assessee has furnished the return of income.”

6.1 However, contrary to this, the Assessing Officer has mentioned in last but one para in page 3 of the penalty order as follows:

“Accordingly, a penalty of Rs.2,20,48,706/- is imposed u/s. 271(1)(c) of the I.T. Act, 1961 for furnishing inaccurate particulars of income and concealing its true and correct taxable income.”

6.2 Hence, in our opinion, it cannot be said that the penalty was levied for furnishing inaccurate particulars of income and concealment of income. When the penalty is levied for one of the offence, it is incumbent upon the Assessing Officer to struck down the irrelevant portion of the notice issued u/s 274 of the Act. We have gone through the contents of the notice issued u/s. 274 of the Act. As held by the Karnataka High Court in the case of CIT & Anr. vs. M/s. SSA’s Emerald Meadows (2015) (11) TMI 1620 that the notice issued by the Assessing Officer u/s. 274 r.w.s 271(1)(c) is 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. This view was confirmed by the Supreme Court in the same case, i.e., CIT & Anr. vs. M/s.

SSA’s Emerald Meadows reported in (2016) (8) TMI 1145.

6.3 In view of the above discussion, we are inclined to hold that the penalty proceedings initiated by the AO is void ab initio and allow the appeal of the assessee. Hence, we do not find any infirmity in the order of the CIT(A) and confirm the same. Since we have quashed the penalty proceedings itself, we refrain from adjudicating the other grounds of appeal raised by the assessee.