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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM & SHRI M BALAGANESH, AM
O R D E R
Per Amit Shukla, Judicial Member:
The aforesaid appeal has been filed by the Assessee against order date 04.02.2019 passed by the CIT (Appeals), 24 Mumbai, in relation to penalty proceedings u/s 271(1) (c) for the AY 2013-2014. The Assessee has challenged the levy of penalty of Rs. 4,50,000/- I Maritime Consultancy P. Ltd. levied u/s 271(1) (c) on account of addition of Rs. 14,32,031/- debited to the profit & loss account which was in the nature prior period expanses.
2. However, at the outset the appeal of the Assessee is time barred by 1047 days. In support of the condo nation for the delay the Assessee has file and affidavit as which reads as under. I, RAMESH SINGHAL, aged about 54 years, having AN: AADES1929F, Resident Indian, presently residing at D 2202 Bhagwati Green I, Golf Course, Next to Iskon Temple, Sector 23 Kharghar, Navi Mumbai- 410210 do hereby solemnly affirm and sincerely state as under:
1. 1. I am a Resident Individual and having PAN: AADPS1929F I am a Director in M/s I-Maritime Consultancy Pvt Ltd having PAN: AAAC17284B.
2. I am in receipt of following Order passed in the name of the above mentioned company:
Type of Order Order U/s Date of Sr. AY Order No 1. 2013- Order passed by Hon’ble U/s 250 of the 04.02.2019 14 CIT(A)-24, Mumbai Income Tax Act,1961 I Maritime Consultancy P. Ltd.
3. I state that I was not aware about any of above such order passed in my case as the same was received and kept aside.
4. I state that on receipt of notice regarding recovery of demands, I Exp. Date 22nd my Chartered Accountant, who advised me for filing of appeal against this order. Then I realized that I failed to exercise my right to appeal against the above order passed within due course of time.
Accordingly I am filing an appeal against the said order before the Hon'ble ITAT now.
6. As I am not aware of the intricacies of the tax law as it was looked after by my regular Chartered Accountant. And as the right to appeal was explained to me by new Chartered Accountant, I realized my mistake and a delayed appeal are filed against the above mentioned order. I am making this affidavit in order to bring the correct facts on record. Whatever stated hereinabove is true and correct to the best of my belief, information and knowledge. It is prayed before your honour that this above appeal should be admitted in wake of principal of natural justice.
I Maritime Consultancy P. Ltd.
3. Though, the Assessee has acknowledged that he has received the order passed by Ld. CIT (A). However, he was not aware whether any appeal was to be filed. It was only when notice of demand was issued; he contacted a chartered accountant who advised him to file the appeal before the Tribunal. Though, the aforesaid reason may not be sufficient cause for such huge delay, however, in the interest of substantial justice and looking to the fact that penalty has been levied on disallowance of expanses, therefore, we are condoning the delay and deciding the appeal on merits.
The facts and briefs are that Assessee Company is engaged in the business of consultancy services. The return of income was filed on 01.10.2013, declaring income of Rs. 27,62,210/-. During the Course of the Assessment proceedings, The Assessing Officer on the perusal of the audit report noted that, Assessee has debited an amount of Rs. 14,32,031/- to the profit & loss account which were in the nature of prior period expenditure. The details of which were as under: i) Service Tax expenses Rs.10,58,092/- ii) Rent Rs. 23,150/- iii) Internet Rs.16,750/- iv) Professional fees Rs.45,000/- I Maritime Consultancy P. Ltd. v) Traveling Expanses Rs.2,89,039/-
5. These expenditures pertain to financial year 2011-2012 which have been booked by the Assessee in the current year which was not added back in the computation of income. Accordingly, the Assessing Officer had made disallowance of the said amount. In the assessment order, AO has mentioned that penalty proceedings u/s 271(1) (c) are separately initiated for furnishing inaccurate particulars of income.
However, while issuing the show cause notice u/s 274 r.w.s 271(1) (c), The Assessing Officer has not specified the charge that under which Limb he is trying to initiate the penalty, whether for furnishing of inaccurate particulars of income or consequent of income.
Thereafter, the Ld. Assessing Officer has levied the penalty holding that Assessee has furnished in accurate particulars for a making a wrong claim and levied the penalty of Rs. 4,50,000/-. The Ld. CIT (A) has confirmed the penalty.
Before us, the Ld. Counsel for the Assessee submitted that here in this case Assessing Officer while issuing penalty notice has not I Maritime Consultancy P. Ltd. specified the charge and now it is well settled by the Hon’ble Jurisdictional High Court that if the show cause notice did not indicate whether there was concealment of particulars of income or furnishing of inaccurate particulars of income, it would vitiate penalty proceedings. In support, he relied upon full bench decision of Hon’ble Bombay High Court in the case of Mohd. Farhan A. Shaikh vs. DCIT, reported in 434 ITR-1 and Ganga Iron & Steel Trading Company vs. CIT, reported in 286 Taxman 21. On the other hand, Ld. DR strongly relied upon order CIT (A).
We have heard the rival submissions and perused the records on the issue raised. No doubt in the assessment order, Assessing Officer has specified that he is initiating penalty proceedings for furnishing of inaccurate particulars of income. However, in the show cause notice, AO has failed to specify the charge or limb on which he intends to initiate the penalty proceedings. Now, it is well settled preposition that if in the show cause notice Assessing Officer has not indicated or specified the charge, then entire penalty proceedings vitiated. Hon’ble Bombay High Court in the case of I Maritime Consultancy P. Ltd. Ganga Iron & Steel Trading Company vs. CIT(Supra), wherein following substantial question of law was admitted. “ Whether the show cause notice dated 12.02.2008 issued to the appellant without indicating that there was concealment of particulars of income or furnishing of incorrect particulars of such income would vitiate the penalty proceedings or whether such notice as issued can be held to be valid?”
10. The Hon’ble High Court relying upon the judgment of full bench in the case of Mohd. Farhan A. Shaikh (Supra), Hon’ble High observed and held as under: “Since, substantial question of law no. III raises a jurisdictional issue going to the root of the proceedings initiated under section 271(1)(c) of the said Act we propose to answer that question first for the reason that if it is found that the show cause notice was vitiated on account of failure to expressly indicate as to whether there was any concealment of particulars of income of the Assessee or failure to furnish inaccurate particulars of income or both, answer to the other two substantial questions would be rendered academic.
I Maritime Consultancy P. Ltd. In the present case show cause notice dated 12-2-2008 issued to the Assessee under section 271(1) (c) of the said act reads as under: "Whereas in the course of proceedings before me for the AY 2006- 07 it appears that you have concealed the particulars of your income or furnished inaccurate particulars of such income." (other contents of the notice are not relevant for the present purpose.) The aforesaid notice thus indicates that according to the Assistant Commissioner of Income-tax the Assessee was called upon to show cause why penalty under section 271 of the said Act should not be imposed as "the Assessee had concealed the particulars of his income or furnished inaccurate particulars of such income".
We may at the outset refer to the judgment of the Full Bench of this Court in Mohd. Farhan A. Shaikh (supra), wherein this precise question was considered and answered. The said question reads as under: i). If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in section 271(1)(c) does a mere defect in the notice-not striking off the irrelevant matter-vitiate the penalty proceedings?
I Maritime Consultancy P. Ltd.
After considering various decisions of the Hon'ble Supreme Court and of this Court including the decision in Dilip N. Shroff (supra) the Full Bench answered the aforesaid question as under: "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 section 271(1)(c), read with Section 274 of the IT 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 different statutory scheme that remains distinct from the assessment proceedings. Therefore, the e assessee must be informed of the grounds of the penalty- proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.
I Maritime Consultancy P. Ltd. 182. 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.
Therefore, we answer the first question to the effect that 7 Goa Dourado Promotions and other cases have adopted an approach more in consonance with the statutory scheme. That means we must hold that Kaushalya does not lay down the correct proposition of law."
It is thus clear from the law as laid down that even if there was an order recording satisfaction for imposing penalty on one or the other, or on both grounds as mentioned in section 271(1)(c) of the said Act, if the show cause notice suffers from the vice of vagueness the same would vitiate such notice.”
We find that the law as laid down by the aforesaid judgments and Full Bench of jurisdictional High Court applies squarely to the facts of the present case, as in the show cause notice dated 12-2- 2008, the Assistant Commissioner of Income-tax is not clear or as to whether there was concealment of particulars of income or that the Assessee had furnished inaccurate particulars of income. We I Maritime Consultancy P. Ltd. therefore find that issuance of such the show cause notice without specifying whether the Assessee had concealed particulars of his income or had furnished inaccurate particulars of the same has resulted in vitiating the show cause notice. Heavy reliance was placed by the learned counsel for the Revenue on the decision in Mak Data (P) Ltd. (supra) to urge that the penalty contemplated by section 271 (1) (c) of the said Act was in the nature of civil liability and mens rea was not essential therein. The decision in Dilip N. Shroff (supra) having been held as not laying down good law in Dharmendra Textile Processors Ltd. (supra), it was submitted that the show cause notice issued in the present proceedings was liable to be upheld. It may be noted that all the decisions relied upon by the learned counsel for the Revenue were considered by the Full Bench while answering the issues referred to it on reference. The Full Bench having considered these decisions and having answered the question as O regards defect in the notice under section 271(1)(c) of the said Act resulting in vitiating the penalty proceedings, we find ourselves bound by the answers given by the Full Bench. It would not be permissible for us to disregard this aspect and take a different view of the matter.
I Maritime Consultancy P. Ltd. Accordingly, substantial question of law no . III is answered by holding that since the show cause notice dated 12-2-2008 does not indicate whether there was concealment of particulars of income or furnishing of incorrect particulars of such income, the same would vitiate the penalty proceedings.
11.. Since it has been found that the show cause notice dated 12- 2- 2008 that was issued to the Assessee was vague and the penalty proceedings initiated on that basis were vitiated, it would not be necessary to answer substantial questions of law as framed at serial nos. I and II. This is for the reason that the said substantial questions pertain to the merits of the adjudication of the proceedings under section 271(1)(c) of the said Act. Once it is found that the show cause notice dated 12-2-2008 issued to the Assessee was not in accordance with law, the orders passed thereon would automatic cease to operate.
12. In view of the answer given to the substantial question of law no.III, the impugned order passed by the Tribunal in I.T. (SS)A.No.05/Nag/2011 dated 10-7-2015 is set aside. Income-tax Appeal No. 5/2016 is allowed with no order as to costs.”
Thus, respectfully following the ratio and principles led down by the Hon’ble Jurisdictional High Court, we hold that penalty proceeding u/s 271(1) (c) is void-ab-intio as notice u/s 271(1) (c) is bad in law.
Accordingly, the penalty order is quashed. Appeal of the Assessee is allowed.