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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI AMARJIT SINGH, AM
O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-52, Mumbai dated 26.10.2021 for assessment year 2011-12 against the penalty confirmed u/s 271(1)(c) of the Income Tax Act, 1961 (hereinafter “the Act”).
The main grievance of the assessee is as under: - “1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in confirming the penalty levied by the AO u/s 271(1)(c) of the Act, on issue of advancing of interest free loans of Rs.4,68,220/- and so called bogus purchases of Rs.5,84,076/-.” 3. At the outset, the Ld. AR of the assessee Shri Sanjay B. Sawant brought to our notice that the assessee had filed return of income on 30.09.2011 declaring the total income of Rs.12,39,12,768/-. The scrutiny assessment was completed on 18.03.2014 u/s 143(3) of the Act assessing total income (normal computation) at Rs.21,59,51,554/-, 2 A.Y. 2011-12 Unique Estates Dev. Co. Pvt. Ltd. after making an addition of Rs.9,20,38,784/- wherein following additions were made as under: - (i) Interest-free advance/sticky loans ------------Rs.4,88,186 (ii) Disallowance u/s 14A r.w.r. 8D ------------Rs.12,52,396 (iii) Income from operation of mall treated as ‘income from House Property’ instead of ‘Business Income’ hence disallowance of proportionate expenses and depreciation ------Rs.8,97,14,126/- (iv) Bogus Purchase -----------Rs.5,84,076/- Total Additions --------Rs.9,20,38,784/-
4. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) against the addition made u/s 14A of the Act and income from operation of mall only. And the CIT(A) was pleased to dismiss the same vide order dated 10.09.2015 confirming disallowance made by the AO. The assessee being aggrieved filed an appeal before the Tribunal on 30.11.2015.
Meanwhile, the assessee was given a notice dated 18.03.2014 to explain as to why penalty u/s 271(1)(c) of the Act should not be levied. Pursuant to which the assessee requested the AO to specify the fault/charge against the assessee i.e. have “concealment of income” or “furnishing inaccurate particulars of such income”, since in the penalty notice dated 18.03.2014 there was no specific mention about the fault/charge which the AO proposed to proceed against the assessee for levy of penalty. However, the AO levied the penalty u/s 271(1)(c) of the Act dated 29.03.2017 of Rs.3,01,56,969/-. Aggrieved by the aforesaid action of the AO, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to note that the AO has made 3 A.Y. 2011-12 Unique Estates Dev. Co. Pvt. Ltd. the penalty levied on three (3) issues (i) Disallowance of interest-free advance/sticky loans of Rs.4,88,186/- (ii) disallowance of Business expenses (Infinity Mall) of Rs.8,97,14,126/- (iii) Bogus Purchases of Rs.5,84,076/-. And the income sought to be evaded according to the AO was to the tune of Rs. 9,07,86,388/- and therefore, tax sough to be evaded was to the tune of Rs.3,01,56,969/-, therefore, the AO levied penalty of Rs.3,01,56,969/-. And the Ld. CIT(A) taking note that the issue relating to the disallowance of business expenses claim in respect of Infinity Mall wherein additions of Rs.8,97,14,126/- was made, this Tribunal [in for AY. 2011-12 and ITA. No.314/Mum/2017 for AY. 2012-13 dated 29.09.2017] had set aside the issue to the file of the AO for reconsideration in the light of the Hon’ble Supreme Court decision in the case of M/s. Chennai Properties and M/s. Rayala Corporation and while giving effect to the order of the Tribunal, the AO has decided in favour of the assessee as under: - “6. The contentions and submissions of the assessee as also the penalty order of the AO have been duly considered. During the course of hearing, the assessee has submitted that the issue of rental income for AY 11-12 and AY 12-13 has been decided by ITAT through a common order while deciding the appeals filed through ITA No. 5465/M/2015 and ITA No. 314/M/2017 dated 29.9.2017, a copy of which has been filed by the assessee. The assessee has submitted that the ITAT had set aside the issue to the file of the AO for reconsideration of this issue in light of the Supreme Court decision in the cases of Chennai Properties and Rayala Corporation as well as to take a decision after analysing the decision of ITAT in the case of PFH 4 A.Y. 2011-12 Unique Estates Dev. Co. Pvt. Ltd. Mall and Retail Management Pvt Ltd. After the matter has been reconsidered by the AO, the AO has come at the following conclusion: “5.1 In view of the above observations, after taking into account the judgement of Hon’ble Supreme Court of India in the case of Chennai Properties & Investment Ltd as also all the details, documentary evidences and judgments as directed by the Hon'ble ITAT as also brought on record by the assessee, it is concluded that the receipts from Infinity Mall are assessable under the head “Business Income’ as against ‘House Property’ treated in the assessment proceedings. Accordingly, in line with the directions contained in the ITAT’s order for the year under consideration, the assessee is found to be eligible for relief on the issue of assessability of receipts from Infinity Mall. Consequently, the business expenditure & depreciation relatable to the e% | extent of the asset (Infinity Mall) used to earn rental income, which were disallowed in the order u/s 143(3) stands allowable since receipts from Infinity Mall are held to be assessable under the head ‘Business Income’ as contended by the assessee” 6.1 In light of the above position of the AO in the remand proceedings, the addition on account of rental income does not survive. As such, the penalty levied by the AO on the issue of rental income does not survive and stands deleted.”
6. In the light of the aforesaid action of the AO in favour of the assessee, the Ld. CIT(A) deleted the penalty on account of disallowance of business expenses to the tune of Rs.8,97,14,126/- and confirmed the penalty on the other two other issues i.e. (i) Disallowance of interest free advance of Rs.4,88,186/- (ii) Bogus purchases of Rs.5,84,076/-. Assailing the action of the Ld. CIT(A)/AO, the Ld. AR of the assessee submitted that the penalty notice dated 18.03.2014 is invalid because in the notice the AO has not specifically 5 A.Y. 2011-12 Unique Estates Dev. Co. Pvt. Ltd. stated the fault/charge against which the assessee is being proceeded against for levy of penalty. And even though the assessee asked the AO to specify the fault, the AO did not head to it and went ahead to levy the penalty, which is bad in law as held by the Full bench of the Hon’ble Jurisdictional of High Court in the case of Mohd. Farhan A. Shaikh Vs. DCIT (2021) 434 ITR 1 (Bombay), wherein their Lordships has held that the show cause notice issued prior to levy of penalty without specifying the fault/charge against to which the assessee is being proceeded against would vitiate the penalty itself. And thus the Hon’ble Court upheld the view of the division bench order in the case of PCIT Vs. Goa Dourado Promotions (P.) Ltd. (Tax Appeal No.18 of 2019, dated 26.11.2019) and held that the contrary view taken by an another division bench in the case of CIT Vs. Smt. Kaushalya (1995) 216 ITR 660 (Bom) does not lay down the correct proposition of law. In the light of the aforesaid case law, the Ld. AR wants us to cancel the penalty confirmed by the Ld. CIT(A).
We note that the notice in the instant case was issued by AO u/s 274 r.w. Section 271 of the Act dated 18.03.2014 calling upon the assessee to show cause as to why the penalty should not be imposed u/s 271(1)(c) of the Act for the following faults viz “to have concealed the particulars of his income” or furnished “inaccurate particulars of such income”. And further we note that from perusal of the notice, that a tick mark has been put on the first limb i.e. concealment of particulars of income. At the same time, it is also taken note that the AO has not stricken down the other limb of the default/charge i.e. “furnishing of inaccurate particulars”. Thus, even if we presume that 6 A.Y. 2011-12 Unique Estates Dev. Co. Pvt. Ltd. the tick portion denote only the charge/fault of “concealment of particulars of its income”, the AO holds the assessee at fault at para 5.5 of penalty order “5.5 the assessee has furnished inaccurate particulars of income as discussed above”. Further, the AO holds that assessee is liable for penalty for furnishing of inaccurate particulars of income and concealment, which means the assessee is at fault for both the faults given in Section 271(1)(c) of the Act. However, in the notice dated 18.03.2014, the disjunctive ‘or’ has been used between both faults and not the adjunctive ‘and’. So, we find that the specific fault/charge against which the assessee was called upon to explain vide the notice dated 18.03.2014 did not explicitly convey to the assessee for which fault/charge the assessee is being proceeded against. Resultantly, the show cause notice is found to be vague/defective/invalid, and therefore it is held to be bad in law as held in similar/identical cases wherein the Tribunal has held that when the notice itself is found invalid, the penalty levied pursuant to it is also bad in law and deleted the penalty. For that we note the decision of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning Factory reported in (2013) 359 ITR 565 (Kar) and the Department’s SLP against it has been dismissed by the Hon’ble Supreme Court. We also find that Hon’ble Karnataka High Court in the case of CIT Vs. SSA’s Emerald Meadows, reported in (2016) 73 taxmann.com 241 (Kar) endorsed the same view in Manjunatha Cotton and Ginning Factory (supra) and held as under:- “3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under section 274 read with 7 A.Y. 2011-12 Unique Estates Dev. Co. Pvt. Ltd. Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’), to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565/218 Taxman 423/35 taxmann.com 250(Kar).
4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.”
Respectfully following the judicial precedents as well as the binding decision of the Full bench decision of the Hon’ble jurisdiction High Court’s in the case of Mohd. Farhan A. Shaikh (supra), we direct the deletion of the penalty levied in this case.