ACIT LTD,NEW DELHI vs. ACIT, CENTRAL CIRCLE-30, NEW DELHI

Brief facts of the case mystery for the disposal of this appeal are that the assessee is a company engaged in the business of manufacturing automotive components such as crankshafts, crankshafts assembly, Conrod etc. They have filed the return of income for the assessment year 2011-12 on 26/11/2011 declaring an income of Rs. 34, 65, 89, 484/-and subsequently filed the return of income for the same amount pursuant to the proceedings under section 153A of the Income Tax Act, 1961 (for short “the Act”). Assessment under section 153A/143(3) of the Act was complete by order dated 28/3/2013 at Rs. 41, 50, 22, 020/- by making certain additions which include the addition of Rs. 31, 25, 632/-on account of bogus purchases. In appeal 25, 50, 938/-holding that the purchases as per the seized material were unaccounted purchases made and used for unaccounted turnover either by way of trading or manufacturing, and accordingly sustained an addition of Rs. 5, 74, 694/-.

Learned Assessing Officer issued notice dated 8/3/2016 calling upon the assessee to explain why penalty under section 271(1)( c ) of the Act shall not be levied. Assessee challenged such notice stating that the notices were vague on the basis of which the penalty cannot be levied in law, the basis of initiation of penalty that the assessee introduced bogus purchases in the books was jettisoned by the Ld. CIT(A) and, therefore, the penalty cannot be levied, the Ld. CIT(A) returned contradictory findings, which do not support the inference that the assessee either concealed the particulars of income or furnishing inaccurate particulars thereof, and if the explanation of the assessee is more consistent as supported by the evidence of the entities from which the assessee said to have purchased the material than the findings of the Ld. CIT(A) that the courts were purchased and sold outside the books without any evidence on record of sale, the former explanation as to prevail and, therefore, penalty cannot be levied under law.

Learned Assessing Officer found that the difference taken by the assessee was not tenable and the assessee was guilty of furnishing inaccurate particulars of income and therefore liable to penalty under section 271(1)( c ) of the Act. On this premise, learned Assessing Officer proceeded further and levied penalty of Rs. 1, 72, 408/-by way of order dated 28/3/2016, which was challenged before the Ld. CIT(A).

Before the Ld. CIT(A) also assessee had taken similar defences and the main plank of argument as could be seen from the impugned order is that the levy of penalty on the basis of notice which is vague and illegal cannot be sustained. Ld. CIT(A) recorded a finding that an examination of assessment order reveals that the learned Assessing Officer duly reached the satisfaction for initiation of penalty by applying the mind, which could be inferred from the assessment order itself. Ld. CIT(A) further noted that the notice issued by the learned Assessing Officer specifies that the penalty under section 271(1)( c ) of the Act was to be levied and, therefore, mere failure to specify in specific terms, or failure in striking out the requisite in subclause in a notice does not make the penalty action bad. Ld. CIT(A) placed reliance on the decision of the Bombay High Court in the case of CIT vs. Smt. Kaushalya 216 ITR 660 in support of his finding that non-striking off of“inaccurate particulars” or “concealed income” in the notice does not merit consideration to hold that the learned Assessing Officer did not assume jurisdiction validly.

Assessee preferred this appeal against such findings of Ld. CIT(A) and it could be seen from the grounds of appeal that the assessee is again taking the plea of non-assumption of jurisdiction as per law by the learned Assessing Officer. According to the assessee in such an event, no penalty could be sustained.

When the matter is called, neither the assessee nor any authorised representative entered appearance. It could be seen from the record that the notice sent to the address given in form No. 36 is returned with the endorsement of the postal servant that the addressee left. If the assessee is available in such address, such notice should have been served on the assessee. If for any reason, the assessee is not available there, it is for the assessee to make arrangements for service of such notice by furnishing the address where the assessee would be available, or to deliver it to some authorised person, or by making request to the postal department to detain the mail till the assessee claims the same. Since the assessee does not seem to have adopted any of these methods, we are the considered opinion that no time could be granted. Basing on the record we proceed to hear the counsel for Revenue and decide the matter on merits.

It is the argument of the Ld. DR that in view of the binding precedent relied upon by the Ld. CIT(A), the findings of the Ld. CIT(A) cannot be found fault with. According to the Ld. DR to the extent the addition was sustained by the Ld. CIT(A) in the quantum appeal, the learned Assessing Officer was reasonable holding that there is furnishing of inaccurate particulars of income and as a matter of fact for the very same default the penalty was levied.

We have gone through the record in the light of the submissions made on either side.From the orders under challenge, it is very clear that the main grievance of the assessee is that the levy of penalty on the basis of notice which is vague and illegal cannot be sustained. Such a question of the legality or otherwise of assumption of jurisdiction by the learned Assessing Officer under a notice issued under section 271(1)( c ) of the Act without striking off of the relevant limb under which the penalty is proposed is no longer res integra, and the Hon’ble jurisdictional High Court in the case ofPCIT vs. Sahara India Life Insurance company limited case and batch order dated 02/08/2019, while noticing the addition of the Hon’ble Karnataka High Court in CIT vs Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar)dealt with this issue.

In the case of CIT vs Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar). Vide paragraph 60, the Hon’ble Karnataka High Court has held as follows :-

“60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined 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.”

In the case of PCIT vs. Sahara India Life Insurance company limited case and batch order dated 02/08/2019, Hon’ble Delhi High Court, upheld the view taken by the Tribunal basing on the decision of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (supra) and SSA’s Emerald Meadows (supra) wherein it was held that the notice issued by the learned Assessing Officer would be bad in law if it did not specify which limb of section 271(1)( c ) of the Act the penalty proceedings had been initiated under i.e., whether for concealment of particulars of income or for furnishing of inaccurate particulars thereof. Relevant observations of the Hon’ble High Court read that,-

On this issue again this court is unable to find any error having been committed by the ITAT.”

It is, therefore, clear that for the AO to assume jurisdiction u/s 271(1)(c), proper notice is necessary and the defect in notice u/s 274 of the Act vitiates the assumption of jurisdiction by the learned Assessing Officer to levy any penalty. In this case, facts stated supra clearly establish that the notice issued under section 274 read with 271 of the Act is defective and, therefore, we find it difficult to hold that the learned AO rightly assumed jurisdiction to passed the order levying the penalty. As a consequence of our findings above, we direct the assessing officer to delete the penalty in question.

In the result, appeal of the assessee is allowed.