SRI.ALAVIKUTTY,VENGARA,MALAPPURAM vs. THE DCIT, CALICUT

Per CHANDRA POOJARI, AM:

This appeal filed by the assessee is directed against the order of the CIT(A)-

III, Kochi dated 21/08/2018 and pertains to the assessment year 2007-08.

AR submitted that the short delay of 6 days was due to inadvertent mistake on

the part of the assessee and prayed to condone the delay for which the Ld. DR

has not opposed it. In our opinion, there is good and sufficient reason for

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condoning the short delay of 6 days. Accordingly, we condone the delay and the

appeal is taken up for adjudication.

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the correct reason. A copy of the penalty notice is enclosed. Hence the penalty proceedings cannot be said as validly initiated. It is submitted that the ITAT Delhi Bench "G" New Delhi in the case of M/s. ABR Auto (P) Ltd. Vs. ACIT, Circle(1), New Delhi ( I.T.A. No. 6236/Del/2015 (AY-2009-10) has decided the similar issue in favour of the appellant by deleting the penalty without considering the issues on merits. While passing the order, the CIT(A)-III, Kochi has commented on this argument of the AR as “It is seen that the Assessing Officer has clearly spelt out in the assessment order itself, as to why and on what amount penalty is being levied and therefore not striking off the inaccurate particular is immaterial”. This view of the Ld. CIT(A)-III, Kochi appears to be against justice.

Ashraf on 12/09/2007 and certain documents were seized pertaining to the

assessee. As such notice u/s 153A r.w.s 153C was issued to the assessee for the

assessment year 2007-08. The return of Income was filed on 10-12-2009

declaring an income of Rs. Nil. The assessment was completed on 31/12/2009

on a total income of Rs. 13,13,400/- taking into account the investments made

and the short term capital gains accrued to the assessee on the sale of property

which was not disclosed by the assessee in the return of income filed in response

to notice-u/s 153C. Therefore, the Assessing Officer initiated penalty

proceedings u/s 271(l)(c). In reply to the notice issued u/s. 271(1)(c), the

assessee submitted that he had disclosed the income as his income in spite of

the same pertaining to that of himself and 7 others to purchase peace and

cooperate with the department and that the assessee had paid the tax on the

income assessed. The tax sought to be evaded on the concealed income is was

Rs. 3,50,900/- for the assessment year 2007-08. The Assessing Officer was of

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the opinion that but for the search and seizure of the documents in the premises

of Shri T. Ashraf, the assessee would not have disclosed the income. The income

was disclosed only after the issue of notice u/s. 153C of the Act. Hence, the

Assessing Officer levied penalty of Rs.3,50,900/- u/s. 271(1)(c) of the Act.

7,32,760/- (i.e. Rs.5,80,640/- + Rs.1,93,400/-). Accordingly, he directed the

Assessing Officer to rework the quantum of penalty leviable. The CIT(A)

observed that the assessee’s claim that he offered the amount of Rs.5,80,640/-

voluntarily during the course of search and therefore, penalty u/s. 271(1)(c)

need not have been levied is factually incorrect as the assessee did not disclose

this income in the return of income filed in response to notice u/s. 153C. The

CIT(A) noticed that the Assessing Officer had clearly spelt in the assessment

order iself as to why and on what amount penalty is being levied and therefore,

not striking off the inaccurate particular’ is immaterial. In view of the above, the

CIT(A) directed the Assessing Officer recalculate the amount of penalty leviable

after giving appeal effect to the quantum appeal.

of the Act does not specify the specific charge against the assessee as to

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whether the assessee is guilty of having concealed particulars of income or

having furnished inaccurate particulars of income. He submitted that unless the

Assessing Officer specified the charge against the assessee by striking out the

relevant portion of the show cause notice issued u/s. 274 of the Act, would

render the proceeding for imposition of penalty as null and void. He drew our

attention to the copy of the notice issued u/s. 274 dated 31/12/2009 for the

assessment year 2007-08.

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opportunity before the authorities and the assessee has participated in the

penalty proceedings. Hence, the assessee cannot raise this issue before the

Tribunal. He further submitted that the error in the issuance of notice u/s. 274

could be cured in view of the provisions of sec. 292B and sec. 292BB of the Act.

He submitted that the penalty order which was decided by the CIT(A) on merit

ought to be confirmed.

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 dated 31/12/2009 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 not 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".

Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of

the Act should specifically state as to whether penalty is being proposed to be

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imposed for concealment of particulars of income or for furnishing inaccurate

particulars of income. The Hon'ble High court has further laid down that certain

printed form where all the grounds given in section 271 are given would not

satisfy the requirement of law. The Court has also held that initiating penalty

proceedings on one limb and finding the assessee guilty in another limb is bad in

law. It was submitted that in the present case, the aforesaid decision will

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

and liable to be quashed.

Cotton and Ginning Factory (supra) has laid down the following principles to be

followed in the matter of imposing penalty u/s.271(1)(c) of the Act.

"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

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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.

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of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind."

12.1 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).

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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.

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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."

that the show cause notice u/s. 274 of the Act dated 31/12/2009 is defective as

it does not spell out the grounds on which the penalty is sought to be imposed.

Following the decision of the Hon'ble Karnataka High Court, we hold that the

orders imposing penalty in all the assessment years have to be held as invalid

and consequently penalty imposed is cancelled.

the basic defect in assumption of jurisdiction and only cure the mistake, defect or

omission in return of income, assessment, notice or the proceeding is in 11

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substance and effect in conformity with or according to intent and purpose of the

Act. As we have already seen that the Hon'ble Karnataka High Court in the

decision referred to earlier view the show cause notice and the reasons

mentioned in the show cause notice are part of the process of the natural justice

and the defect in such notice cannot be overlooked. In view of the aforesaid

decision we do not find any infirmity in the arguments advanced by the learned

AR before us.

penalty proceedings and hence the error, if any that has occurred would be

cured in view of the provisions of sec. 292B/292BB of the Act. Opposing the said

contention, reliance was placed on the decision rendered by the Bangalore Bench

of the Tribunal in the case of Shri K. Prakash Shetty vs. ACIT (ITA Nos. 265 to

267/Bang/2014 dt. 05/06/2014) wherein it was held that the provisions of

sec.292BB would not come to the rescue of the revenue, when the notice was

not in substance and effect in conformity with or according to the intent and

purpose of the Act. In our view, the notice issued by the Assessing Officer was

not in substance, and effect in conformity with or according to the intent and

purpose of the Act, since the Assessing Officer 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.

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case cannot be sustained. We, therefore, cancel the order imposing penalty on

the assessee and allow the appeal of the assessee.

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 24th January, 2019 GJ Copy to: 1. Shri K. Alavikutty, Kurukkan House, Valiyora, Vengara, Malappuram. 2. The Deputy Commissioner of Income-tax, Central Circle-2, Calicut. 3. Commissioner of Income-tax(Appeals)-III, Kochi. 4. The Commissioner of Income-tax, Central, Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin

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