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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM & SHRI S. RIFAUR RAHMAN, AM
O R D E R
Per Amit Shukla, Judicial Member:
The aforesaid appeals have been filed by the assessee against the consolidated order of even date 19.09.2019, passed by Ld. CIT(A)-11, Pune in relation to penalty proceedings u/s 271(1)(c) for AY 2010-11 and 2012-13.
2 & 04/Mum/2021 Shri Rajesh Ramchandra Dake 2. In both assessment years, the issues are common arising out of identical set of facts, therefore, the same were heard together and are being disposed of by way of this consolidated order.
In both the appeals, assessee is aggrieved by levy of penalty of Rs. 7,41,986/- for AY 2010-11 and Rs. 20,96,744/- for AY 2012-13 on account of addition made u/s 68 of the Act. One of the legal ground in both the appeals reads as under:-
Because, Ld. CIT(A)-11, Pune erred in law and on facts in not acknowledging the fact that the order passed by the AO is bad in law as the AO has proceeded with the penalty proceedings without making specific averment that the appellant has furnished inaccurate particulars of income or concealment of income but both the charges. 4. Before us, Ld. Counsel for the assessee submitted that here in this case, AO while issuing notice u/s 274 r.w.s. 271 has not specified the charge under which limb, he intended to impose penalty which he pointed out from the copy of said notice produced before us. He pointed out that this issue was raised before the Ld. CIT (A) also and Ld. CIT(A) has observed and held as under:-
3 & 04/Mum/2021 Shri Rajesh Ramchandra Dake 6. I have examined the satisfaction recorded by the AO in the assessment orders for initiating penalty proceedings u/s 271(l)(c) of the Act. During the A.Y. 2010-11, as indicated above, the AO has initiated penalty proceedings u/s 271(1)(c) of the Act on both the additions on account of capital gain on sale of shares of Rs.9,24,164/- and unexplained cash credit u/s 68 of Rs.24,01,250/-. In the assessment order, in para-6 while making the addition on account of capital gains on sale of share, the AO has clearly recorded his satisfaction that the penalty proceedings u/s 274 r.w.s.271(1)(c) are initiated separately for 'concealing the particulars of income' for the addition of Rs.9,24,164/- on account of non disclosure of capital gain on sale of share. Similarly, in para- 7 of the assessment order, the AO has stated that the loan from Murji Faria of Rs.24,01,250/-, was unexplained cash credit and made an addition u/s 68 of the Act. While initiating penalty proceedings u/s 274 r.w.s.271(1)(c), the AO recorded his satisfaction that the penalty was initiated for 'furnishing inaccurate particulars of income'. Thus, clearly, the AO has mentioned the two different limbs of sec. 271(l)(c) for the two additions he made in the assessment order. It is true that in the notice u/s 274 r.w.s.271(1)(c) dtd. 31/3/2016, the specific limbs were not identified. It is also seen that the show cause notice dtd.31/3/2016, is issued along with the assessment order u/s 143(3) r.w.s.153A of the Act, in the case of the appellant for A.Y. 2010-11 and in the assessment order, the specific charge u/s 271(1)(c) for the two different additions, have been clearly stated.
4 & 04/Mum/2021 Shri Rajesh Ramchandra Dake The Bombay High Court in the case of CIT Vs. Smt. Kaushalya & Others (1995) 216 ITR 660 (BOM), have held that the show cause penalty notice should be read in conjunction with the assessment order and together if it indicates clearly to the assessee the reasons for initiation of penalty, then no prejudice is caused to the assessee as the A.O has clearly communicated the charge against which the penalty has been initiated. The Bombay High Court in the above said case has held as under: "We will first take up the show-cause notice dt. 29th March, 1972, pertaining to the asst. yrs. 1968-69 and 1969-70. The assessment orders were already made and the reasons for issuing the notice under s. 274 read with s. 271(1) (c) were recorded by the ITO. The assessee fully knew in detail the exact charge of the Department against him. In this background, it could not be said that either there was non-application of mind by the ITO or the socalled ambiguous wording in the notice impaired or prejudiced the right of the assessee to reasonable opportunity of being heard. After all, s. 274 or any other provision in the Act or the Rules, does not either mandate the giving of notice or its issuance in a particular form. Penalty proceedings are quasi-criminal in nature. Sec. 274 contains the principle of natural justice of the assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining a complaint of failure of the Principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice is caused to 5 I.T.A. No. 02 & 04/Mum/2021 Shri Rajesh Ramchandra Dake the concerned person by the procedure followed. The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non striking of the inaccurate portion cannot by itself invalidate the notice".
7. As in the case of the appellant for A.Y. 2010-11, as indicated above, the assessment order clearly indicates the two separate limbs on which, the penalty u/s 271(l)(c) of the Act was initiated and the show cause notice u/s 274 has been issued along with the assessment order on the same day, relying on the decision of the Bombay High Court in the above mentioned case, it is held that no prejudice was caused to the assessee for A.Y. 2010-11 and therefore the claim of the appellant, that the penalty proceedings was initiated without making specific averment that the appellant has furnished inaccurate particulars of income or concealment of income, and therefore, the levy of penalty is void ab initio, is rejected. He further submitted that such order is contrary to the order of Hon’ble Bombay High Court in Mohd. Farhan A. Shaikh Vs. Dy.CIT (2021) 125 taxmann.com 253 (Bom).
On the other hand, Ld. DR strongly relied on the order of AO.
6 & 04/Mum/2021 Shri Rajesh Ramchandra Dake 6. After considering the aforesaid submissions and on perusal of the material placed on record, we find that AO though in his assessment order while making the addition and capital gains u/s 68 of the Act, had stated that he was initiating the penalty for concealing the particulars of income. In so far as addition on account of un-explained cash credit u/s 68, he was initiated inaccurate particulars of income. However, it is an admitted fact that in the notice issued u/s 274 r.w.s. 271(1)(c), AO has not specified the charge under which limb, he intends to impose the penalty, which is a condition precedent before passing the penalty order.
Ld. CIT (A) has relied on the judgment of Hon’ble Bombay High Court in the case of CIT vs. Smit Kaushalya & Others (supra), which has been explained and considered by the full Bench of Hon’ble Bombay High Court in Mohd. Farhan A. Shaikh Vs. Dy.CIT (2021) 125 taxmann.com 253 (Bom). Answering the question in affirmative, the Full Bench held that a defect in notice of not striking the relevant words vitiates the penalty even though the AO had properly recorded the satisfaction for imposition of penalty in the order u/s 143(3) of the Act. In another judgment, the 7 & 04/Mum/2021 Shri Rajesh Ramchandra Dake Hon’ble Bombay High Court in Pr.CIT Vs. Golden Peace Hotels and Resorts (P.) Ltd. (2021) 124 taxmann.com 248 (Bom) also took similar view that where inapplicable portions were not struck off in the penalty notice, the penalty was vitiated. The SLP of the Department against this judgment has recently been dismissed by the Hon’ble Supreme Court in Pr. CIT Vs. Golden Peace Hotels and Resorts (P.) Ltd. (2021) 124 taxrnann.com 249 (SC). In view of the overwhelming position, it is clear that where the charge is not properly set out in the notice u/s 274 viz., both the limbs stand therein without striking off of the inapplicable limb, but the penalty has been, in fact, levied for one of the two, such a penalty order gets vitiated.