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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
O R D E R
PER PAVAN KUMAR GADALE JM:
The assessee has filed the appeal against the order passed by the National Faceless Appeal Centre (NFAC) – Delhi / CIT(A) u/s 271(1)(c) and 250 of the Act. The assessee has raised the fallowing grounds of appeal:
Ground No.1: EX-PARTE ORDER
1. The learned CIT(A) erred in dismissing the appeal and passing an Ex-parte order, without providing the Assessee sufficient opportunity of being heard.
2. The M/s. Harshavardhan International, Mumbai. - 2 -
learned CIT(A) erred in not adjudicating the appeal on the basis of the merits of the case.
Ground No. 2: STRIKING OFF
1. The learned AO & CIT (A) erred in levying penalty u/s 271(1)(c), although in the show cause Notice u/s. 274 r.w.s.271(1)(c), the charge of concealment or filing of inaccurate particulars was not struck off by the AO & hence the AO & CIT (A) did not apply their mind before levying and confirming the concealment penalty, as under what charge the penalty was being initiated was not ascertained.
Ground No. 3: PENALTY u/s. 271(1)(c) of Rs. 4,00,000/-
1. The learned AO and CIT(A) erred in levying a penalty u/s. 271(1)(c) with respect to the claim made by the Assessee on account of depreciation on land, on the ground that the Assessee has concealed the income.
2. The learned AO failed to take into consideration the bonafide claim and explanation thereto, provided during the assessment proceedings and erred in following the Supreme Court decision in the case of Reliance Petroproducts (230 CTR 320).
The learned AO and CIT(A) failed to take into consideration that all material facts, were disclosed in the Return of Income and there was no income that was hidden or concealed and therefore the allegation in the Penalty Order u/s. 271(1)(c), that the Assessee has "concealed income" is incorrect and bad in law.
The Appellant craves leave to add, alter or amend the Grounds of Appeal at or before the hearing of the appeal.
M/s. Harshavardhan International, Mumbai. - 3 -
The brief facts of the case are that the assessee is partnership firm engaged in the business of manufacturing of pipes and fittings. The assessee has filed the return of income for the A.Y 2014-15 on 08.11.2014 disclosing a total income of Rs. 92,51,610/-. Subsequently, the case was selected for scrutiny under the CASS and the notice u/s 143(2) and 142(1) of the Act were issued. In compliance to the notice, the Ld. AR of the assessee appeared from time to time and filed the information and the case was discussed. The AO on perusal of the financial statements, documents and details filed by the assessee in the assessment proceedings found that the assessee has claimed depreciation on land and building to the extent of Rs. 28,42,621/-. The AO found that the assessee has not submitted the value of land and the depreciation was claimed at a higher side and the details of addition of properties were not submitted. Whereas, the assessee has submitted the information and explained that the depreciation on building was claimed@10% and the assessee has filed the details and mentioning that the depreciation is claimed on land and building on the addition of Rs.
M/s. Harshavardhan International, Mumbai. - 4 - 1.98 crores being one common agreement. Whereas the AO was not satisfied with the explanations and dealt on the facts at Para 4.4 and disallowed the claim of depreciation on land and assessed the total income of Rs.1,04,80,362/- and passed the order u/s 143(3) of the Act on 23.12.2016.
3.Subsequently, the AO has initiated penalty proceedings u/s 271(1)(c) of the Act, whereas in the penalty proceedings the assessee was issued show cause notice and assessee has filed the detailed explanations on 12.01.2017 referred in the penalty order. Whereas the AO has considered findings of scrutiny assessment and explanations of the assessee and was not satisfied with the explanations as dealt in the penalty order and levied a penalty of Rs. 4 lakhs and passed the order u/s 271(1)(c) of the Act dated 12.06.2017.
4.Aggrieved by the penalty order, the assessee has filed an appeal before the CIT(A). In the appellate proceedings, the CIT(A) find that in spite of issuing notices of Hearing, there is no compliance and has confirmed the penalty levied by the A.O. and M/s. Harshavardhan International, Mumbai. - 5 - dismissed the appeal. Aggrieved by the CIT(A) order, the assessee has filed an appeal before the Hon’ble Tribunal.
At the time of hearing, the Ld. AR of the assessee submitted that the assessee has cooperated in submitting the information with the A.O. Further the notice issued for levy of penalty is invalid and relied on the judicial decisions and prayed for allowing the appeal.
Contra, the Ld.DR submitted that the CIT(A) has rightly confirmed the penalty though technicalities raised by the assessee in the grounds of appeal are devoid of merits and prayed for dismissal of the assessee appeal.
7. We heard the rival submissions and perused the material on record. The sole crux of the disputed issue is that the assessee has challenged the levy of penalty on legal issue as the A.O. has not applied his mind and non striking of charge in the penalty notice i.e. whether the charge is for concealment of income or furnishing of in accurate particulars of income. The Ld.AR demonstrated the copy of penalty notice and M/s. Harshavardhan International, Mumbai. - 6 - the submissions are realistic. We find the Jurisdictional Honble High Court of Bombay in Mohd Farhan A Shaikh Vs. DCIT in Tax Appeal No. 51 to 57 of 2012 dated 11.03.2021. (2021) 125. taxmann.com 253 (Bombay) has dealt on this disputed issue of not striking off charge in the penalty notice would vitiate the penalty proceedings. The Hon’ble High Court has made observations at page 56 as under;
180. One course of before us is curing a defect in the notice by referring to the assessment order, which may or not contain reason for the penalty proceedings. The other course of action is the prevention of defect in the notice – and that prevention takes just a tick mark. Prudence demands prevention is better than cure. Answers: Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Sec. 271(1)(c), does a mere defect in the notice – not striking off the irrelevant matter vitiate the penalty proceedings? 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under Sec. 271(1)(c), r.w.s. 274 of the Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other’s defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a deferent statutory scheme that remains
M/s. Harshavardhan International, Mumbai. - 7 - distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.
More Particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee’s favour.
We have considered the facts, circumstances and ratio of the decision of Honble High Court and are of the view that in the present case the A.O has not has not strike off the charge for levy of penalty for concealment of income or for furnishing of inaccurate particulars of income. Accordingly, we set aside the order of the CIT(A) and quash the penalty notice. And allow the grounds of appeal in favour of the assessee.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 19.12.2022.