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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Per CHANDRA POOJARI, AM:
This appeal filed by the assessee is directed against the order of the CIT(A),
Kottayam dated 25/06/2018 and pertain to the assessment year 1995-96.
The assessee has raised the following grounds of appeal:
The learned Commissioner of Income tax (Appeals), Kottayam erred in confirming the penalty levied under section 271(1)(c) of the IT Act, 1961 by the Income tax Officer, Ward-4, Kottayam. He ought to have found that since the Appellate order has been passed without giving an effective opportunity of being heard to the Appellant since there was denial of natural justice, the disposal of the Appeal itself was invalid.
It is submitted that at the time of filing the Appeal the Appellant was living in Kanjirappally, but by the end of the year 2008 due to circumstances beyond the control of the Appellant he had to shift his residence to Kochi and because
I.T.A. No.50/Coch/2019 of this the notices issued by the Commissioner of Income tax (Appeals), Kottayam have not reached the Appellant and that was why the Appeal, happened to be decided by the learned Commissioner of Income tax (Appeals), Kottayam ex parte.
Though the Appellate Order states that the Appeal was posted for hearing on 4-9-2015, 19-7-2016, 26-12-2017 and 16-4-2018, none of these notices has been received by the Appellant, probably because the notices have been sent to the Kanjirappally address. For this reason the Appellant did not get any opportunity to present his case against the levy of penalty u/s 271(1)(c) of the IT Act before the Commissioner of Income tax (Appeals). As there was denial of natural justice, it is prayed that the matter may be sent back to the Commissioner of Income tax (Appeals) for fresh disposal as per law.
Without prejudice to the ground relating to the denial of natural justice, it is submitted that there was no case for levy of a penalty on merit also. The only document relied on by the Department to hold that the Appellant has made a payment of Rs. 15,00,000 to purchase certain property in Thiruvananthapuram was an agreement dated 2-3-1995 with a Trust. But neither the Assessing Officer nor the Commissioner of Income tax (Appeals) did bother to enquire whether the said agreement was fully acted upon and the said property was transferred to the Appellant by the Trust either during the course of assessment or during the Appeal proceedings. All along the Appellant contented that he never purchased the said property, but was acting on behalf of another person. The Department never tried to know the truth. As a matter of fact the Appellant never paid the consideration or became owner of the impugned property.
Though the Appellant could not properly pursue the assessment or appeal proceedings due to a series of calamities encountered by him after the year 2008, it is submitted that for the reasons that:
(i) if a proper enquiry was made, the Department could have found out who actually paid the money for fulfilling the terms of the agreement dated 2-3-1995, as the entire money could be found to have been paid through bank by somebody else.
(ii) though the Appellant pleaded with the Department that if they called for the pay-in-slips'' from the banks by which the payment as per the agreement were made, they could have found out the actual purchaser, the Department did not attempt for this and as a result the entire payment was attributed to the Appellant and made assessment on the Appellant. (iii) all along the Department compelled the Appellant to prove that he has not made the payment; in other words the Department wanted the Appellant to prove what he did not do as it was not possible or 2
I.T.A. No.50/Coch/2019 practicable for a person to prove that he has not actually made any payment, whereas, for a person who has actually made the payment it was easy for him to prove such payment.
(iv) it may be observed that the Assessing Officer who was only an Income tax Officer to make an assessment towards the alleged unexplained investment in purchase of a property, because the assessment for a subsequent Asst. Year (i.e., for the Asst. Year 1996-97) was made by a Joint Commissioner of Income tax, who is a superior Officer than the Assessing Officer in which an addition of a similar nature was made and the ITO was bound to follow the decision of his superior Officer in the earlier assessment also, as the same was completed by the ITO after the completion of the subsequent assessment.
(v) even admitting, without conceding that the Appellant has made the initial payment of Rs. 3,00,000 on the date on which the impugned agreement was signed, there was no evidence to prove that the Appellant has actually made the remaining payments, as the agreement narrated that such remaining payments would be made on future dates and the Department was never able to prove that the Appellant had actually made such remaining payments.
(vi) as a matter of fact the Appellant never purchased the property as he did not have money to purchase the said property and if a proper enquiry was made the Department could have found out this and instead of doing this the entire alleged purchase money was attributed to the Appellant and made heavy assessments on him.
The Appellant should have given a benefit of doubt and exonerated from the levy of penalty u/s 271(1) (c) as this was not a fit case for payment of penalty.
In the result, the penalty of Rs.9,00,000 levied u/s 271(1)(c) may be cancelled and justice rendered.” \
The assessee has raised the additional grounds of appeal as follows:
“Without prejudice to the grounds already taken it is submitted that the penalty initiated u/s 271(l)(c) is invalid for the reason that the default for which the penal action has been taken has not been specified in the notice issued. The notice has mentioned both the defaults viz. concealment of income and furnishing of inaccurate particulars of income. Since both defaults have been mentioned in the notice without striking of the default not applicable to the Appellant, it was certain that the Assessing Officer 3
I.T.A. No.50/Coch/2019 himself was not sure about the default for which he was proposing to levy a penalty. In the light of the recent decisions of the Hon'ble Karnataka High Court reported as 396 ITR 398 (Karn) [ Muninaga Reddy Vs. ACIT] and as 396 ITR 538 (Karn) [S. Chandrasekar Vs. ACIT] and also that of Hon'ble Telangana & Andhra Pradesh High Court reported as 398 ITR 88 (T&AP) [ Pr.CIT Vs. Smt. Baisetty Revathi], since there was no valid initiation of penal provisions no penalty could have been levied in the Appellant's case and hence the penalty levied may be cancelled.”
3.1 The assessee has also filed a petition for admission of the additional grounds
of appeals as follows:
“The Petitioner has filed an appeal before this Hon'ble Bench against the order of the learned Commissioner of Income tax (Appeals), Kottayam confirming the penalty under section 271(1)(c) of the IT Act for the Asst. Year 1995-96 and this Appeal is numbered as ITA No. 50/Coch/ 2019 and the Appeal is coming up for hearing before the bench on 30-07-2019.
When the Appeal came up for hearing on 6-6-2019, the Hon'ble Bench directed the Appellant to produce a copy of the penalty notice received by the Appellant for the Asst. Year under appeal. As mentioned in the Affidavit filed by the Appellant on 30-05-2019, since the Appellant had to leave his hometown Kanjirappally to a rented house at Kochi in a hurry in the year 2009 some of the papers and documents relating to his business including those relating to Income tax matters also were misplaced and hence he could not immediately trace out the penalty notice directed to be produced by the Hon'ble Bench. Therefore the Petitioner tried to obtain a copy of the same from the Assessing Officer (Income tax Officer, Ward -4, Kottayam). But the Officer expressed his inability to furnish a copy of the said penalty notice as at present the IT records are in the office of the Senior Authorised Representative, Kochi. Since the copy of the notice was to be produced before the Hon'ble Bench on the next date of hearing it was considered advisable to get a copy of the notice by making a formal request to the Senior Authorised Representative. Accordingly, on making a formal request the Senior Authorised Representative was pleased to furnish a copy of the notice under section 271(1)(c) of the IT Act issued to the Petitioner at the time of completion of the Assessment on 22-03-2002 . A copy of the Notice under section 274 read with section 271 dated 22-03-2002 along with the covering letter received from the Office of the Senior Authorised Representative dated 10-07-2019 is submitted for the kind perusal of the Hon'ble Bench. In view of the fact that the penalty notice has not specified the default for which the penalty has been initiated - i.e., whether it was for concealment of income or for furnishing of inaccurate particulars of income, an
I.T.A. No.50/Coch/2019 additional ground challenging the validity of initiation of penalty is being raised by the Petitioner and the same is being filed along with this Petition.
It is submitted that it was due to the fact that at the time of filing this appeal a copy of the penalty notice was not immediately available with the Petitioner a ground challenging the very validity of initiation of the penal proceedings was not raised initially. Now, on getting copy of the notice the Petitioner was convinced that the penal proceedings have not been validly initiated as decided by the Courts (referred to in the Additional Ground of Appeal) and hence an Additional Ground has been raised now. It was not due to any negligence or latches such a ground happened to be not raised at the time of filing the appeal, but due to the circumstances narrated above. It is therefore prayed that the additional Ground now filed may be admitted and decided on merits and justice rendered. “
3.2 We have heard the rival submissions and perused the record. We find bona
fide reasons in the act of the assessee in not raising the additional ground on an
earlier occasion by placing reliance on the judgment of the Supreme Court in the
case of National Thermal Power Corporation Ltd. vs. CIT (229 ITR 383) wherein it
was held that Tribunal has the discretion to allow or not to allow additional ground
to be raised for the first time before the Tribunal. Accordingly, we admit the
additional ground for adjudication.
Coming to the merits of the additional ground, the Ld. AR drew our attention to
the notice issued for imposing penalty u/s. 274 of the Act which reads as follows:
I.T.A. No.50/Coch/2019 NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE INCOME-TAX ACT, 1961
Income Tax Officer, Kottayam Ward-2 To Shri M.R. Somarajan, Amba Rubber Industries, Thampalakadu, Kanjirapally Dated the 22/03/2002
Whereas in the course of proceedings before me for the assessment year 1995-96 it appears to me that you;-
“Have without reasonable cause failed to furnish me return of income which you were required to furnish by a notice given under section 22(1)/22(2)/34 of the Indian Income Tax Act, 1922 or which you were required to furnish under section 139(1) or by a notice given under section 139(2)/148 of the Income Tax Act, 1961 No…………………dated………….or have without reasonable cause failed to furnish it within the time allowed and the manner required by the said section 139(1) or by such notice.
“Have without reasonable cause failed to comply with a notice under section 22(4)/23(2) of the Income Tax Act, 1922 or under section 142(1)/142(2) of the Income Tax Act, 1961.
“Have concealed the particulars of your income of ………………….or furnished inaccurate particulars of such income”
You are hereby requested to appear before me at 11 AM on 08/04/2002 and show cause why an order imposing a 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 authorized representative you may show cause in writing on or before the said date which will be considered, before any such order is made under section 271.
sd/- (Income-tax Officer) Ward-2, Kottayam
I.T.A. No.50/Coch/2019 4.1 The Ld. AR submitted that the penalty initiated u/s 271(1)(c) was invalid for
the reason that the default for which the penal action was taken has not been
specified in the notice issued. The notice mentioned both the defaults viz.
concealment of income and furnishing of inaccurate particulars of income. it was
submitted that the Assessing Officer had not struck off the irrelevant portion of the
penalty notice which was not applicable to the assessee and does not clearly
mention whether he proposed to levy penalty for concealment of income or
furnishing of inaccurate particulars of income.
4.2 The Ld. AR relied on the recent judgments of the Karnataka High Court in the
case of Muninaga Reddy vs. ACIT reported in 396 ITR 398 and in the case of S.
Chandrasekar Vs. ACIT reported in 396 ITR 538 and also that of Telangana &
Andhra Pradesh High Court in the case of Pr.CIT Vs. Smt. Baisetty Revathi reported
in 398 ITR 88. Hence, it was submitted that the penalty levied may be cancelled.”
The Ld. DR submitted that it was only a technical mistake which was not to be
considered and the appeal should be decided on merit.
We have heard the rival submissions and perused the record. We have
carefully gone through the notice issued u/s. 274 r.w.s. 271 of the Act narrated in
para 4 of this order. As seen from the above notice issued u/s. 274 of the Act, the
Assessing Officer has not struck out the irrelevant portion of the notice. In other
words he has not specified whether he is levying penalty for concealment of 7
I.T.A. No.50/Coch/2019 particulars of income or furnishing of inaccurate particulars of income. 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.
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. Since we have quashed the penalty proceedings itself, we refrain from
adjudicating the other grounds of appeal raised by the assessee.
In the result, appeal of the assessee is allowed. Order pronounced in the open court on 1-8-2019.
sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER
Place: Kochi Dated: 1st August, 2019 GJ Copy to: 1. Shri M.R. Somarajan, Mappilaparambil,Thampalkkad, Kanjirapally, Kottayam. 2. The Income Tax Officer, Ward-4, Kottayam. 3. The Commissioner of Income-tax(Appeals), Kottayam. 4. The Commissioner of Income-tax, Kottayam.
I.T.A. No.50/Coch/2019 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order
(ASSISTANT REGISTRAR) I.T.A.T., Cochin