THE COMMISSIONER OF INCOME T vs. N.BASKAR

T.C.A.No.239 of 2020 IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 11.09.2020 Coram THE HONOURABLE Mr. JUSTICE T.S.SIVAGNANAM AND THE HONOURABLE Mrs. JUSTICE V.BHAVANI SUBBAROYAN T.C.A.No.239 of 2020 The Commissioner of Income Tax Chennai .. Appellant Vs. N.Baskar

..Respondent Tax Case Appeal filed under Section 260-A of the Income Tax Act, 1961, is directed against the Order passed by the Income Tax Appellate Tribunal “A” Bench, Chennai in I.T.A No.2104/Mds/2017 dated 25.01.2018 for the assessment year 2011-2012 For Appellant

: Ms.R.Hemalatha

Senior Standing Counsel 1/13 http://www.judis.nic.in T.C.A.No.239 of 2020 J U D G M E N T [Judgment of the Court was delivered by T.S.SIVAGNANAM, J.] Heard Ms.R.Hemalatha, learned senior counsel for the appellant / revenue. 2. This appeal by the revenue filed under Section 260-A of the Income Tax Act, 1961 ['the Act' for brevity] is directed against the order passed by the Income Tax Appellate Tribunal 'A' Bench, Chennai in I.T.A.No.2104/Mds/2017 dated 25.01.2018 for the assessment year 2011-2012. 3. The appellant / revenue has filed the appeal raising the following substantial question of law: '1. Whether the Tribunal was right in deleting the penalty issued under Section 271(1)(c) merely on the ground that without adjudicating the case on merits, the AO has failed to specify the charges of the offence committed by the Assessee in the notice issued under Section 274 read with Section 271(1)(c) wherein the concealed particulars of income or furnishing of inaccurate particulars of income were available? ' 2/13 http://www.judis.nic.in T.C.A.No.239 of 2020 4. We have elaborately heard Ms.R.Hemalatha, the learned senior standing counsel for the appellant / revenue. 5. The respondent / assessee is an individual, who had owned certain extent of land, which was sold to a private limited company, which is a real estate company. During the financial year, 2010-2011, relevant to the assessment year under consideration, AY 2011-2012, the assessee did not file his return of income and the assessing officer issued notice under Section 148 of the Act on 07.01.2015. In response to such notice, assessee filed his return of income on 11.03.2015 declaring a income of Rs.1,08,33,900/-. Subsequently, after discussing the case with the Authorised Representative of the assessee, who responded to the notices issued under Section 143(2) / 142(1) of the Act, the assessment was completed by order dated 29.01.2016. 6. The assessing officer found that the assessee is a salaried person and the tax is deducted at source by its employer. Further, the assessing officer held that the assessee has earned long term capital gains on account of the sale of the land to the company and 3/13 http://www.judis.nic.in T.C.A.No.239 of 2020 accordingly, computed the long term capital gain and assessed the tax payable thereafter. It is not in dispute that the assessee has paid the tax. Penalty proceedings were initiated under Section 271(1)(c) of the Act by notice dated 29.01.2016. The assessee submitted his objections to the proposal to impose penalty. The assessing officer by an order dated 18.07.2016 rejected the objections raised by the assessee and held that there is concealment of income by the assessee and it is a fit case to levy penalty under Section 271(1) (c) of the Act. Accordingly, a penalty of Rs.22,00,998/- was imposed on the assessee. 7. The assessee preferred an appeal before the Commissioner of Income Tax (Appeals) - 4, Chennai [CITA]. The appeal petition was dismissed by an order dated 20.06.2017. Challenging the order passed by the CITA, the assessee filed appeal before the Tribunal. Before the Tribunal, the assessee argued that the show cause notice issued by the assessing officer under Section 274 read with 271(1) of the Act was defective inasmuch as it did not contain the offence committed by the assessee, i.e., whether the assessee had concealed the particulars of his income or had furnished inaccurate particulars of his income. It was 4/13 http://www.judis.nic.in T.C.A.No.239 of 2020 argued that unless the charge against the assessee was specific, the assessee cannot submit his objections in an effective manner. The assessee placed reliance on the decision of High of Karnataka in the case of CIT Vs. SSA's Emerald Meadows in ITA No.380 of 2015 dated 23.11.2015 and that the Special Leave Petition filed by the Revenue in SLP (CC No.11485/2016) was dismissed by the Hon'ble Supreme Court by order dated 05.08.2016. The Tribunal accepted the said plea and allowed the assesse's appeal. 8. It is argued by Ms.R.Hemalatha, learned senior standing counsel for the appellant that for the first time before the Tribunal, the assessee has raised a plea that the notice issued proposing to initiate penalty proceedings under Section 271(1) (c) was defective and this should not have been entertained by the Tribunal. In support of her contention, reliance was placed on the decision of this Court in the case of Sundaram Finance Limited Vs. Assistant Commissioner of Income-tax, Co., Circle VI(4), Chennai reported in [2018] 93 taxmann.com 250 (Madras). It is submitted that in the said decision such a plea was raised for the first time before the High Court alleging 5/13 http://www.judis.nic.in T.C.A.No.239 of 2020 that there is a defect in the notice. The Court did not agree with the said submission and held that the plea cannot be entertained at that juncture. It is also submitted that the Special Leave Petition filed by the assessee against the said decision has been dismissed by the Hon'ble Supreme Court reported in [2018] 99 Taxmann.com 152 (SC). Further, it is submitted that the Tribunal placed reliance on the decision of the High Court of Karnataka in the case of SSA's Emerald Medows and that the Special Leave Petition filed by the Revenue before the Hon'ble Supreme Court was dismissed. It is submitted that the Special Leave Petition was dismissed without assigning any reasons and therefore, the question of law is still open for consideration and the Tribunal ought to have taken note of the subsequent decisions on the point. 9. It is true that the assessee did not raise the contention that the penalty notice was defective at the earliest point of time. The question would be as to whether the assessee is precluded in doing so at a later stage, i.e., either before the CIT[A] or before the Tribunal or before this Court? So far as the appeal before this Court is concerned, the same is entertained in exercise of power under Section 260-A of the Act and the 6/13 http://www.judis.nic.in T.C.A.No.239 of 2020 case will be entertained to decide substantial questions of law. Therefore, to decide the substantial question of law, there shall be foundational facts available. Considering who the assessee was in the case of Sundaram Finance, the Court refused to entertain the plea regarding validity of the notice for the first time in Tax Case Appeal filed under Section 260-A of the Act. Very recently, in the case of Gangothri Textiles Ltd., Coimbatore Vs. The Deputy Commissioner of Income Tax, Corporate Circle 2, Coimbatore identical issue was raised by the assessee before this Court alleging defect in the notice proposing to initiate penalty proceedings, with the following reasoning, we refused to entertain such a plea and the relevant portion at Paragraph Nos.8 to 10 are extracted hereunder: '8.After elaborately hearing the learned counsels on either side and carefully perusing the materials placed before this Court including the decisions relied on by the learned counsels on either side, the first issue to be considered is whether the notice dated 12.03.2015 issued under Section 274 r/w. 271(1)(c) of the Act is defective. The argument of M/s.S.Yogalakshmi, learned counsel for the appellant is that the notice stated that it appears to the Assessing Officer that the assessee concealed the particulars of income or furnished inaccurate particulars of income. It is the argument that the word 'or' has been 12/24 used and not 'and' . The Assessing Officer did not apply his mind while issuing the notice to state as to whether he was of the prima facie view that the assessee concealed the 7/13 http://www.judis.nic.in T.C.A.No.239 of 2020 particulars of income or furnished inaccurate particulars of income. Therefore it is the submission that this defect is inherent, which goes to the root of the matter and all consequential proceedings would have to be rendered as nonest. Among the decisions, which were relied on by M/s.S.Yogalakshmi, learned counsel for the appellant, emphasis was laid on the decision in Manjunatha Cotton and Ginning Factory. This decision is pressed into service to substantiate her contention that if the notice does not specify as to which limb of Section 271(1)(c) is attracted, the penalty proceedings are vitiated. Unfortunately, no such contention was advanced by the assessee at any earlier point of time and for the first time before this Court such a contention is advanced. The submission of the learned counsel is that this, being the question of law, can be raised. We do not agree with the submission for more than one reason. Firstly a defect in the notice, if according to the assessee would result in a jurisdictional error, is not merely a pure question of law, but a mixed question of fact and law. If such is the position, the vigilant assessee, more particularly, a listed Company like the assessee before us should point out the factual issue at the very first instance. If that was not done by the assessee, then it goes to show that the assessee was not prejudiced by the use of the expression 'or'. 9.This very question was considered in the case of Sundaram Finance Ltd., wherein an identical submission was made by the assessee by placing reliance on Manjunatha Cotton and Ginning Factory. The Court taking note of the fact that the authorities concurrently rejected the explanation offered by the assessee and refused to interfere with the factual finding. In paragraph 16 of the judgment, the argument regarding the defective notice was considered and answered against the assessee which is quoted herein below: 8/13 http://www.judis.nic.in T.C.A.No.239 of 2020 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. 10.The SLP filed by the assessee against the above decision was dismissed, [(2018) 99 taxmann.com 152 (SC)]. Further, we find that in the reply given by the assessee on 08.04.2015, the assessee would state that there is no concealment any income or furnishing any inaccurate particulars. Therefore, the assessee understood the notice to be a notice for concealment of any income or furnishing any inaccurate particulars and therefore the assessee cannot be permitted to raise a contention before 9/13 http://www.judis.nic.in T.C.A.No.239 of 2020 this Court for the first time alleging defect in the notice. Thus, in the considered view of this Court, the assessee is precluded from raising any such contention regarding the validity of the notice.' 10. In both the cases, namely, Sundaram Finance Limited as well as in the case of Gangothri Textiles, they were corporate assessees having wherewithal to effectively manage their finances and getting the best brains to advice them on Income Tax matters. The assessee before us is a salaried person, who appears to have sold his property measuring a little over five grounds to his own employer. The assessee's states that the employer, though obtained the power of attorney did not pay him full sale consideration. It is only after the notice was issued under Section 148 of the Act, the assessee persuaded his employer for payment, filed return of income and paid the taxes, as assessed by the assessing officer. This factor was taken note of by the Tribunal in an indirect manner while considering the validity of the penalty proceedings. Though it did not give any elaborate reasons, but it had noted the grounds raised by the assessee in the grounds of appeal and in the written submissions given before the CIT(A). 11. Thus, we find that on the given facts and circumstances, we 10/13 http://www.judis.nic.in T.C.A.No.239 of 2020 cannot fault the ultimate conclusion of the Tribunal in allowing the assessee's appeal, but, we have our own reservation on the aspect as to whether the Tribunal should have entertained a plea regarding the defective show cause notice for the very first time in the appeal filed before the Tribunal, when it was never raised by the assessee at any earlier point of time. However, since we agree with the ultimate conclusion arrived at by the Tribunal by allowing the assessee's appeal, we leave the issue open, as the Division Bench of this Court has taken a decision that for a person to raise such plea at the belated stage can be refused to be entertained on the ground that the person concerned was never aggrieved person on account of such alleged defect because the proceedings were defended solely on merits. For the above reasons, we find that no substantial question of law arises for consideration in this appeal and the present Tax Case Appeal is dismissed. We make it clear that the decision has been arrived at on facts and this decision cannot be treated as precedent because we have found that no substantial question of law involved in this appeal. 11/13 http://www.judis.nic.in T.C.A.No.239 of 2020 No costs. (T.S.S.J.) (V.B.S.J.) 11.09.2020 Index :Yes / No Internet :Yes / No Speaking Judgment / Non Speaking Judgment ssd To The Income Tax Appellate Tribunal “A” Bench, Chennai 12/13 http://www.judis.nic.in T.C.A.No.239 of 2020 T.S.SIVAGNANAM,J., AND V.BHAVANI SUBBAROYAN, J., ssd T.C.A.No.239 of 2020 11.09.2020 13/13 http://www.judis.nic.in