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Income Tax Appellate Tribunal, LUCKNOW BENCH “A”, LUCKNOW
Before: SHRI. A. D. JAIN & SHRI T. S. KAPOOR
PER A. D. JAIN, V.P.: This is assessee’s appeal against the order of the ld. CIT(A)-I, Kanpur, dated 13/6/2018 for assessment year 2014-15, taking the following grounds:
1. Because the CIT(A) has erred on facts and in law in summarily dismissing the appeal ex-parte without giving any opportunity of being heard.
2. Because the CIT(A) has failed to appreciate that no notice dated 08.12.2017 & 29.03.2018 seeking compliance for 08.01.2018 and 10.04.2018 were served on the assessee, the order passed ex-parte is bad in law and be quashed.
3. Because the CIT(A) has failed to appreciate the facts and circumstances of the case and should have passed a speaking order based on Statement of Facts and Grounds of Appeal as mentioned in the Memorandum of Appeal.
4. Because there being neither any concealment, nor furnishing of inaccurate particulars of income, nor there being any specific charge, the CIT(A) was not justified in upholding the levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 amounting to Rs.2,64,000/-.
5. Because the authority below has erred on facts and in law in treating the assessee in default and imposing a penalty of Rs.2,64,000/- u/s. 271(1)(c) of the Act, which penalty is bad in law and be deleted. 6. Because the assessment has been framed rejecting the books of account and estimating the total income, there being no concealment, the penalty imposed is bad in law and be deleted.
2. The grievance of the assessee is against imposition of penalty under section 271(1)(c) of the I.T. Act, which has been confirmed by the learned CIT(A).
3. At the time of hearing before us, the ld. A.R. of the assessee invited our attention to the show cause notice dated 8/12/2016 for levy of penalty under section 271(1)(c) of the Act. It was submitted that from a perusal of this notice, it is crystal clear that the charge, for which the penalty is proposed to be levied under section 271(1)(c) of the Act, is not specific, as to whether it is for concealment of income or for furnishing of inaccurate particulars of income. The ld. A.R. of the assessee vehemently argued that it is a settled position of law that if the notice under section 274 is not specific about the charge or limb under which penalty is being levied under section 271(1)(c) of the Act, any penalty levied on the basis of such a notice is bad in law and it is liable to be cancelled. 4. The ld. D.R., on the other hand, placing reliance on the orders of the authorities below, submitted that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of the notice issued under section 274 read with section 271 of the Act. For this proposition, he placed reliance on the judgment of the Hon'ble Madras High Court, delivered on 11/4/2018, in ‘M/s Sundaram Finance Ltd. vs. ACIT’ in T.C. (Appeal) Nos.876 and 877 of 2008 and submitted that the ld. CIT(A) has rightly upheld the penalty levied under section 271(1)(c) of the Act and dismissed the appeal of the assessee. 5. Heard. The show-cause notice in question is as follows:
6. From a perusal of this notice, it is crystal clear that the charge for which penalty is proposed to be levied under section 271(1)(c) of the Act, whether for concealment of income, or for furnishing of inaccurate particulars of income, is not specific. The law mandates that the authority, who is proposing to impose penalty, shall be certain as to the basis on which the penalty is being levied and the notice must reflect that specific reason, so that the assessee, to whom such notice is given, can prepare himself regarding the defence, which he would like to take to support his case. This is even enshrined in the principles of natural justice and as has been upheld by Hon'ble Apex Court and other High Courts. Remarkably, even in the assessment order, the Assessing Officer has observed as follows, in this regard: “……Penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 is being initiated against the assessee in assessment year 2014-15 separately for concealment of particulars of income or furnishing inaccurate particulars of income.”
Thus, even in the assessment order, the specific charge for the proposed levy of penalty has not been delineated.
In 'CIT vs. SSA's Emerald Meadows', [2016] 73 Taxmann.com 248, the Hon'ble Apex Court looked into the facts before them that Tribunal relying on the decision of the Division Bench of the Hon'ble Karnataka High Court in the case of ‘CIT and Another vs. Manjunath Cotton & Ginning Factory’ [2013] 359 ITR 565 (Karn.), allowed the appeal of the assessee, holding that notice issued by the Assessing Officer under section 274 read with section 271(1)(c) of the Act was bad in law, as it did not specify under which limb of section 271(1)(c) of the Act, penalty proceedings has been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. When the matter travelled upto the High Court, it supported the judgment of the Hon'ble Karnataka High Court in the case of ‘CIT and Another vs. Manjunath Cotton & Ginning Factory’ (supra) and decided that there was, therefore, no substantial question of law to be decided. Thereafter, an SLP was filed before the Hon'ble Apex Court and the Apex Court dismissed the SLP of the Revenue finding no merit therein and confirming the issue in favour of the assessee.
In 'CIT and Another vs. Manjunath Cotton & Ginning Factory', [2013] 359 ITR 565 (Karn.), it has been held by the Hon'ble High Court that notice under section 274 read with section 271(1)(c) of the Act should specifically state the grounds mentioned in section 271(1)(c) of the Act, i.e., whether it is for concealment of income or for furnishing of inaccurate particulars of income. Sending printed form, where all the grounds mentioned would not satisfy the requirement of law. The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. Penalty proceedings are distinct from assessment proceedings, though it emanates from the assessment proceedings; still it is separate and independent proceedings all together.
In 'Meherjee Cassinath Holdings Pvt. Ltd vs. ACIT (ITAT Mumbai)', order dated 28/04/2017, the observation of the Bench was that penalty proceedings under section 271(1)(c) of the Act are "quasi-criminal" proceedings and ought to comply with the principles of natural justice. The non- striking of the irrelevant portion in the show-cause notice means that the Assessing Officer is not firm about the charge against the assessee and the assessee is not made aware as to which of the two limbs of section 271(1)(c) he has to respond.
In 'Chandra Prakash Bubna vs. Income Tax Officer, Ward 27(3), Kolkata', (ITAT Kolkata Bench) [2015] 64 taxmann.com 155, it was held that when the Assessing Officer levied penalty without bringing out any specific charge for which penalty had been imposed, penalty was liable to be deleted.
In ‘M/s Sundaram Finance Ltd. vs. ACIT’ (supra), the judgment of the Hon'ble Madras High Court, on which reliance has been placed by the ld. D.R., their Lordships, dismissing the appeal of the assessee, held as under: “16. We have perused the notices and we find that the relevant columns have been marked, more particularly, when the case against the assessee is that they have concealed particulars of income and furnished inaccurate particulars of income. Therefore, the contention raised by the assessee is liable to be rejected on facts. That apart, this issue can never be a question of law in the assessee s case, as it is purely a question of fact. Apart from that, the assessee had at no earlier point of time raised the plea that on account of a defect in the notice, they were put to prejudice. All violations will not result in nullifying the orders passed by statutory authorities. If the case of the assessee is that they have been put to prejudice and principles of natural justice were violated on account of not being able to submit an effective reply, it would be a different matter. This was never the plea of the assessee either before the Assessing Officer or before the first Appellate Authority or before the Tribunal or before this Court when the Tax Case Appeals were filed and it was only after 10 years, when the appeals were listed for final hearing, this issue is sought to be raised. Thus on facts, we could safely conclude that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice issued
under section 274 r/w. section 271 of the Act. Therefore, principles of natural justice cannot be read in abstract and the assessee, being a limited company, having wide network in various financial services, should definitely be precluded from raising such a plea at this belated stage.”
It is seen that the Hon'ble Madras High Court in ‘M/s Sundaram Finance Ltd. vs. ACIT’ (supra) nowhere disagreed with the view taken by the Hon'ble Karnataka High Court in 'CIT and Another vs. Manjunath Cotton & Ginning Factory' (supra). Rather, the matter was decided on the facts of the case, holding, inter alia, that the case of the Revenue against the assessee was that of concealment of income as well as that of furnishing of inaccurate particulars of income. Therefore, ‘Sundaram Finance’ (supra) is of no aid to the Revenue.
Moreover, in the present case, as against that in ‘M/s Sundaram Finance Ltd. vs. ACIT’ (supra), this issue had been raised by the assessee before the ld. CIT(A), and it has also been raised before us, contending that prejudice has been caused to the assessee and the charge against the assessee in the assessment order as well as in the penalty notice is nebulous and the assessee has remained unable to understand the purport and import of the notice issued under section 274 read with 271 of the Act. Therefore, the principles of natural justice have been flagrantly violated. 14. In view of the above, we hold that the show cause notice, which has not specified the charge and limb under which the penalty is proposed to be levied, is void ab initio and the consequent penalty imposed on the basis of such notice is, therefore, illegal and bad in law and liable to be deleted.
Accordingly, the penalty is deleted and the appeal of the assessee is allowed. 15. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 23/01/2020.