SRI SURYA ANJANEYA INDUSTRIES,VIZIANAGARAM vs. INCOME TAX OFFICER, WARD-2, VIZIANAGARAM

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HON’BLE ACCOUNTANT MEMBER ITA No. 176/VIZ/2018 (Asst. Year : 2011-12) M/s. Sri Surya Anjaneya vs. ITO, Ward-2, Industries, D.No. 108/12, Vizianagaram. Opp.Fire Station, K.L.Puram, Cheepurupalli, Vizianagaram. PAN No. ABGFS 0809 J (Appellant) (Respondent)

Assessee by : Shri G.V.N. Hari – Advocate. Department By : Shri D.V. Subba Rao– Sr.DR Date of hearing : 21/06/2019. Date of pronouncement : 07/08/2019. O R D E R PER V. DURGA RAO, JUDICIAL MEMBER

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-1, Visakhapatnam, dated 02/01/2017 for the Assessment Year 2011-12. 2. There is a delay of 419 days in filing the appeal. The assessee has explained the delay by filing the affidavit as under:-

“1. x x x x 2. Sri P.B. Srinivas is the managing partner of the appellant firm. His spouse was diagnosed to be suffering from cancer in the year 2013. She was given treatment in Hyderabad in a reputed Cancer hospital. For this

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purpose, both wife and husband had to travel frequently to Hyderabad. At that time, Sri Srinivas had to take care of both of his children and also the treatment of his wife. 3. While it is so, the case of the appellant firm was taken up for scrutiny and assessment was completed on 30.03.2014 by disallowing the deduction of Rs.28,57,274/- claimed towards Research and Development expenditure u/s 35(2AB)(1) of the Income Tax Act, 1961. The appellant entrusted the matter of filing and representing the appeal to a Chartered Accountant in Vizianagaram. 4. During the year 2014, one of the partners, Smt P. Satya Shanti (copy of partnership deed enclosed) who is also the sister of managing partner SriP.B. Srinvias was also found to be suffering from breast cancer. She was already a heart patient. 5. In the meanwhile, the assessing officer had taken up the penalty proceedings u/s 271(1)(c) of the Act. In the circumstances explained above, the appellant could neither appear nor could request the assessing officer to keep the penalty proceedings in abeyance till the disposal of the appeal preferred against the assessment order. 6. The assessing officer levied a penalty of Rs.11,87,836/ u/s 271(1)(c) of the Act vide order dt.26.09.2014. The appellant filed an appeal against the penalty order but there was a delay of 46 days in filing the appeal. The learned Commissioner of Income Tax (Appeals) considered that the delay was on account of critical illness of the spouse of the managing partner and adjudicated the appeal. He noticed that the appeal filed against the quantum order was disposed of by the learned CIT(A)-1, Visakhapatnam vide order dt.20.12.2016 wherein it was held that the appellant is entitled for deduction of actual expenditure incurred towards research and development in Bio technology u/s 35(1)(i) of the Act. Therefore, the claim was restricted to 19,04,549/ as against claim of Rs. 28,57,274/ @150% of the actual expenditure u/s 35(2AB) of the Act. Based on this, the learned CIT(A) vide order dt. 02.01.2017 had directed the assessing officer to reduce the penalty to the extent of addition sustained. 7. The condition of the partner Smt P. Satya Shanti

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became critical during the month of January 2017 and she was taken to Apollo Hospitals in Ahmedabad for treatment. The managing partner Sri P.B.Srinivas being the only brother had to attend to his sister's treatment. The cancer spread to other internal organs. For further tests they returned to Visakhapatnam in the month during February, 2017. (copies of few reports of investigations conducted during February, 2017 are enclosed). Thereafter, cancer treatment was continued in Ahmedabad and even alternate remedies like Ayurveda were pursued. As such, the partners of the firm Sri P.B. Srinivas and also Smt P. Satya Shanti were not able to devote their time and attention to the affairs of the firm. Both of them were undergoing deep crisis financial as well as mental. Smt P. Satya Shanti died on 04.0.2017 (copy of death certificate enclosed). The managing partner had to devote his time for providing support to her family. In the above situation, the matter of filing the appeal before the hon'ble ITAT escaped his attention. 8. It is only when Sri P. B. Srinivas received a follow up call from the income tax department for payment of the tax dues, he could notice that the appeal against order dt.02.01.2017 of the learned CIT(A) was not yet filed. He immediately took steps to file the appeal against the above order and the appeal could be filed before the Hon'ble ITAT, Visakhapatnam on 9.5.2018. 9. The delay of 419 days in filing the appeal is on account of the circumstances explained above which were beyond the control of the appellant. The delay is neither intentional nor deliberate. Therefore, it is respectfully prayed that the said delay of 419 days may kindly be condoned and appropriate orders may kindly be passed in the interests of substantial justice. 3. From the above, it is very clear that wife of Sri P.B. Srinivas, who is the Managing Partner of the firm is suffered with cancer, not only that another partner Smt. P. Satya Shanti, who is the sister of Sri P.B. Srinivas was also found suffering from breast cancer. She was already a heart patient. As her condition was

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serious, taken to Apollo hospitals in Ahmedabad and Sri P.B. Srinivas being the only brother, had to attend her treatment. Ultimately she died on 04/06/2017. Under these facts and circumstances of the case, the assessee has not drawn attention on the order passed by the ld. CIT(A). When the Income-tax Department pursued the matter in respect of collection of tax, it came to the notice of the assessee and immediately filed appeal against the order of the ld. CIT(A). By considering the affidavit filed by the assessee and also the details explained by the assessee, we find that there is a sufficient cause for the assessee in non-filing the appeal in time. In our opinion, it is a fit case to condone the delay. Accordingly, delay is condoned. Facts of the case, in brief, are that the assessee is a firm, 4. filed its return of income by declaring total income of Rs.8,36,860/-. The case of the assessee was selected for scrutiny and assessment was completed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') by making certain additions. Subsequently, penalty notice u/sec. 274 r.w.s. 271 of the Act, dated 30/03/2014 was issued and thereafter penalty order u/sec. 271(1)(c) was passed on 26/09/2014. 5. On appeal, ld. CIT(A) confirmed the penalty order passed by the Assessing Officer.

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allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee‟. From the above, it is very clear that there is no fresh investigation on facts is required, the additional ground raised by the assessee has to be adjudicated, hence, the same has to be admitted by following the judgment of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd., (supra), the additional ground raised by the assessee is admitted. 11. Now coming to the validity of the notice issued by the Assessing Officer dated 30/03/2014. In this context, learned counsel for the assessee has submitted that the notice issued by the Assessing Officer is not clear whether notice issued under section 271(1)(c) is for concealment of income or furnished inaccurate particulars. Therefore, the notice issued by the Assessing Officer is not a valid notice in the light of the latest judgment of the Hon'ble Supreme Court in the case of CIT Vs. SSA‟s Emerald Meadows [(2016) 73 taxman.com 248 (SC)] and also the Hon'ble High Court of Telangana & A.P. in I.T.T.A. No. 684/2016 in Pr.CIT Vs. Smt. Baisetty Revathi, dated 13/07/2017. 12. On the other hand, learned Departmental Representative has submitted that at the time of issuance of notice, the Assessing Officer is not sure about the penalty either for concealment of

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income or furnishing inaccurate particulars. Therefore, it is a premature notice and submitted that the notice issued by the Assessing Officer is a valid notice. 13. We have heard both the sides, perused the material available on record and orders of the authorities below. 14. The only issue for adjudication before us is whether the notice issued by the Assessing Officer dated 30/03/2014 is valid or not. For the sake of convenience, the notice is extracted as under:- “Whereas in the course of proceedings before me for the Assessment Year 2011-12, it appears to me that you:- (i) x x x x (ii) x x x x √ (iii) have concealed the particulars of your income or furnished inaccurate particulars of such income.” 15. From the above, it is not clear whether Assessing Officer has initiated penalty proceedings for concealment of particulars of income or for furnished inaccurate particulars. That part, in 271(1)(c) order, the Assessing Officer has initiated the penalty proceedings on the ground of furnishing inaccurate particulars of expenditure. Therefore, the notice issued by the Assessing Officer is a vague notice and is liable to be quashed in the light of the decision of the Hon'ble High Court of Telangana & A.P. in the case of Smt. Baisetty Revathi (supra) and also the decision of the

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Hon'ble Supreme Court in the case of SSA‟s Emerald Meadows (supra). The coordinate bench of the Visakhapatnam tribunal in the case of Konchada Sreeram Vs. ITO in ITA No. 388/VIZ/2015, by order dated 06/10/2017 has considered the validity of notice by following the above referred to judgments and held that notice issued by the Assessing Officer is not a valid notice and accordingly quashed. For the sake of convenience, the relevant portion of the order is extracted as under:- 6. We have heard both the parties and perused the material placed on record. In this case, the assessee has not filed the return of income. The department has conducted the survey u/s 133A and completed the assessment u/s 143(3) on total income of Rs.15,43,041/- and initiated penalty proceedings u/s 271(1)(c). The fact is that long term capital gains for sale of the property have come to the notice of the assessing officer because of the efforts made by the department. Therefore, the AO has initiated the penalty proceedings u/s 271(1)(c) and issued show cause notice in the printed proforma of penalty. The AO has issued the penalty notice which reads as under : “WHEREAS in the course of the proceeding before me for the Asst. Year 2007-08 it appears to me that you have concealed the particulars of your some or furnished inaccurate particulars of such income.” 6.1. From the notice issued by the AO, it is observed that the assessing officer had issued the notice for concealment of income or for furnishing of inaccurate particulars. As per the notice, the assessing officer was not sure of which limb of the offence he sought the explanation from the assessee, whether it was for the concealment of income or for furnishing of inaccurate particulars. As per the decision of the Hon‟ble Jurisdictional High Court cited, for starting the penalty proceedings, the condition precedent is that the assessing officer must be satisfied that a person has either concealed the particulars of his income or furnished inaccurate particulars of such income. The person who is accused of the conditions mentioned in Section 271 should be made aware of the grounds on which imposition of penalty is proposed as he has a right to contest such proceedings and should have the full opportunity to meet the case of the revenue so as to show that the conditions stipulated in Section 271(1)(c) do not exist and that he is not liable to pay the penalty. The Hon‟ble High Court of Karnataka in the case

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law cited held that the practice of the revenue in sending the printed form where all the grounds mentioned in 271(1)(c) are mentioned would not satisfy the requirement of law when the consequence of the assessee not rebutting the initial presumption is serious in nature and has to pay the penalty ranging from 100% to 300% of the tax liability. As the provisions of section 271(1)(c) have to be strictly construed, the Hon‟ble High court of Karnataka mandated that the notice issued should be set out the grounds which the assessee has to meet specifically, otherwise the principles of natural justice would be offended as the show cause notice would be vague. On the similar facts, Hon‟ble Supreme Court dismissed the SLP in the case of SSA‟s Emerald Meadows (2016) 73 Taxman.com 248(SC). Ld. DR‟s argument that the case is distinguishable on facts is not acceptable since the Ld. DR relied on the passing observation of the Hon‟ble High Court of AP. In the assessee‟s case, the issue is the defective notice u/s 271(1)(c) but not the penalty order. Unless the notice issued u/s 271(1)(c) is valid the penalty order cannot be held to be valid. The assessing officer did not strike off the irrelevant column in the notice and made known the assessee whether the penalty was initiated for the concealment of income or for furnishing the inaccurate particulars. In the assessment order also the AO simply recorded that the penalty proceedings u/s 271(1)(c) are initiated separately. Neither in the assessment order nor in the penalty notice, the assessing officer has put the assessee on notice for which offence, the penalty u/s 271 was initiated. Therefore, the case is squarely covered by the decision of the Hon‟ble Jurisdictional High Court of cited (supra) wherein the Hon‟ble high court held as under: “On principle, when penalty proceedings are sought to be initiated by the revenue under Section 271(1)(c) of the Act of 1961, the specific ground which forms the foundation therefore has to be spelt out in clear terms Otherwise, on assesee would not have proper opportunity to put forth his defence. When the proceedings are penal in nature resulting in imposition of penalty ranging from 100% to 300% of the tax liability, the charge must be unequivocal and unambiguous. When the charge is either concealment of particulars of income or furnishing of inaccurate particulars thereof, the revenue must specify as to which one of the two is sought to be pressed into service and cannot be permitted to club both by interjecting an 'or' between the two, as in the present case. This ambiguity in the show-cause notice is further compounded presently by the confused finding of the Assessing Officer that he was satisfied that the assessee was guilty of both. We are therefore of the opinion that the order under appeal does not brook interference on any ground. We find no question of law, much less a substantial one, arising for consideration warranting admission of this appeal.” 6.2. On the similar facts, the Coordinate Bench of ITAT, Visakhapatnam in ITA No.229/Viz/2015 in the case of Narayana Reddy

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Enterprises, following the order of the Coordinate Bench in the case of Smt. Makina Annapurna Vs. ITO, Visakhapatnam in ITA Nos.604 & 605/Vizag/2014 dated 2.2.2017 held that non-striking of the irrelevant column renders the notice issued u/s 271 as invalid. Respectfully, following the decision of the Hon‟ble AP High Court cited supra and the decision of this Tribunal cited (supra), we hold that the notice issued u/s 271 is invalid and consequent penalty imposed by the AO is cancelled. “

Sd/- sd/- (D.S. SUNDER SINGH) (V. DURGA RAO) Accountant Member Judicial Member Dated: 07th August, 2019. vr/-

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Copy to: 1. The Assessee – M/s. Sri Surya Anjaneya Industries, D.No. 108/12, Opp.Fire Station, K.L.Puram, Cheepurupalli, Vizianagaram. 2. The Revenue – ITO, Ward-2, Vizianagaram. 3. The Pr.CIT-1, Visakhapatnam. 4. The CIT(A)-1, Visakhapatnam. 5. The D.R., Visakhapatnam. 6. Guard file. By order

(VUKKEM RAMBABU) Sr. Private Secretary, ITAT, Visakhapatnam.