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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI M. BALAGANESH, AM & SHRI AMARJIT SINGH, JM
O R D E R PER AMARJIT SINGH, (JM): The assessee has filed the present appeal against the order dated 29.12.2017 passed by the Commissioner of Income Tax (Appeals)-21, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y. 2008-09 in which the penalty levied by the AO has been ordered to be confirmed.
2. The assessee has raised the following grounds: - “1. Validity of penalty proceedings u/s 274 r.w.s 271(1)(c) a. The notice received by the assessee under S.274 read with S.271(1)(c) does not specify on which ground the penalty u/s.271(1)(c) is proposed to be levied. b. The learned CIT(A) erred in concluding that the penalty proceedings are valid although the learned Assessing officer has not striked off any of the option & hence not clarified whether penalty is for concealment of particulars of income or furnishing of inaccurate particulars of income. c. The learned CIT(A) erred in stating that the AO has clearly recorded the reason for initiation of penalty proceedings in the assessment order whereas no such reason is evident from the said order. d. The learned CIT(A) erred in confirming the penalty © 1065% without the AO specifying the reasons for levying an adhoc penalty and thus the levy of penalty without application of mind is bad in law. e. The penalty proceedings even if tenable suffer from legal infirmity at the stage of initiation itself and therefore no penalty can be levied.
Without prejudice to the above;
Incorrect levy of penaltv u/s 271(1)(C) a. The learned CIT(A) failed to appreciate that Your Appellant had relied on professional assistance for filing its return of income. Hence the error in the computation is not on account of any malafide intention on part of Your Appellant. b. The learned CIT(A) erred in facts in not appreciating that Your Appellant is continuously incurring losses, there were substantial brought forward losses during the year, the loss of year under reference has not been set off till date and thus, there was no malafide intention of Your Appellant to inflate the loss. c. The learned CIT(A) erred in not appreciating that there has been no concealment of income or furnishing of inaccurate particulars of income. d. Your appellant prays that the levy of penalty is bad in law & against the principle of justice & may please be deleted. General Grounds of appeal
The above Grounds of appeal are without prejudice to one another and your appellant craves leave to add, alter, amend, delete or modify any of the above grounds of appeal."
4. The brief facts of the case are that the assessee filed its return of income on 30.09.2008 declaring total loss to the tune of Rs.16,26,51,083/-. Thereafter, the revised return was filed on 26.09.2009 declaring total loss to the tune of rs.29,40,93,898/-. Subsequently, the assessment u/s 143(3) of the I. T. Act was completed on 29.11.2010 determining total loss to tune of Rs.29,40,93,898/-. The case of the assessee was reopened u/s 147 of the Act and notice u/s 148 of the Act was issued on 27.03.2015 and served upon the assessee. The necessary notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee is engaged in the business of Trading in imported consumer merchandise in the retail segment. On 23.03.2016, the assessee submitted a letter dated 07.03.2016 and agreed for certain disallowance which are as under: - “The response to the above notices, we scrutinized the tax returns and observe that there have been some inadvertent errors/mistakes apparent from the records. This is a bona fide omission purely due to oversight. Without prejudice the following addition made by your good self are being accepted. (i) Rs. 35,28,219/- Fixed assets written off (ii) Rs.6,83,657/- Unpaid Provision of leave encashment –(Provision of rs.7,36,766/- les paid Rs.53,109/-) (iii) Rs.2,78,762/- Unpaid CST. (iv) Rs.21,60,012/- Deferred Revenue Expesnes- Since Share Issue expenses is considered as capital in nature amortization be allowed under 35D 1/5th every year (Deferred Revenue expenses 27,00,015/- less allowable under 35D 5,40,003/-)… 5. Regarding the addition on account of Deferred Revenue Expenses at Rs.27,00,015/-, the assessee claimed that it is allowable @ 1/5th per year which is worked out at Rs.5,40,003/- u/s 35D as the assessee claims it to be Share Issue Expenses. However, the assessee did not submit any further details to substantiate its claim that these expenses of Rs.27,00,015/- is pertaining to Share Issue expenses. Therefore, the entire amount of Rs.27,00,015/- was disallowed and added to the income of the assessee. The total loss to the tune of Rs.(-)28,65,01,252/- was assessed. The penalty notice was issued and after the reply of the assessee, the penalty in sum of Rs.25,00,000/- was levied. Feeling aggrieved, the assessee filed an appeal CIT(A) who confirmed the penalty, therefore, the assessee has filed the present appeal before us.
We have heard the argument advanced by the Ld. Representative of the Department and has gone through the case carefully filed. All the issues are in connection with the confirmation of the penalty levied by the AO. At the very outset, the Ld. Representative of the assessee has argued that the penalty notice nowhere speaks about specific limb to levy the penalty because the particular charge was not tick off in the notice, therefore, in the said circumstances, the penalty is not liable to be sustainable in the eyes of law, hence the order of the CIT(A) confirming the penalty order of the AO is wrong against law and facts and is liable to be set aside. In support of these contentions the Ld. Representative of the assessee has placed reliance upon the law settled in in the case of CIT-11 Vs. Samson Perinchery and the order of the ITAT, Mumbai Bench in ITA. No.2555/M/2012 vide order dated 28.04.2017 titled as Meherjee Cassinath Holdings P. Ltd. Vs. ACIT, Circle-4(2). However, on the other hand, the Ld. Representative of the Department has refuted the said contentions. The copy of notice dated 23.03.2016 is on the file in which the Assessing Officer nowhere specify any limb to levy the penalty because none of the charge was tick off in the notice. It is not in dispute that the penalty u/s 271(c) of the Act is leviable on account of the concealment of particular of income and on account of furnishing the inaccurate particulars of income. Both have different connotations. In this regard, the Hon’ble Supreme Court has appreciated the distinction between both the limb in the case Dilip N. Shroff 161 taxman 218 (SC). As per the record, the assessment order speaks about levying the penalty on account of taken the 274 r.w.s. 271 (1)(c) of the Act but the notice nowhere specify any limb to levy the penalty. The notice is not justifiable in view of the law settled by the Bombay High Court in the case of CIT-11 Vs. Samson Perinchery. At the time of argument, the Ld. Representative of the assessee has also placed reliance upon the finding of the Hon’ble ITAT in ITA. No. 2555/M/2012 titled as Meherjee Cassinath Holdings P. Ltd. Vs. ACIT, Circle-4(2). The relevant para is hereby reproduced below:
“8. We have carefully considered the rival submissions. Sec. 271(1)(c) of the Act empowers the Assessing Officer to impose penalty to the extent specified if, in the course of any proceedings under the Act, he is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In other words, what Sec. 271(1)(c) of the Act postulates is that the penalty can be levied on the existence of any of the two situations, namely, for concealing the particulars of income or for furnishing inaccurate particulars of income. Therefore, it is obvious from the phraseology of Sec. 271(1)(c) of the Act that the imposition of penalty is invited only when the conditions prescribed u/s 271(1)(c) of the Act exist. It is also a well accepted proposition that „concealment of the particulars of income‟ and „furnishing of inaccurate particulars of income‟ referred to in Sec. 271(1)(c) of the Act denote different connotations. In fact, this distinction has been appreciated even at the level of Hon'ble Supreme Court not only in the case of Dilip N. Shroff (supra) but also in the case of T. Ashok Pai, 292 ITR 11 (SC). Therefore, if the two expressions, namely „concealment of the particulars of income‟ and „furnishing of inaccurate particulars of income‟ have different connotations, it is imperative for the assessee to be made aware as to which of the two is being put against him for the purpose of levy of penalty u/s 271(1)(c) of the Act, so that the assessee can defend accordingly. It is in this background that one has to appreciate the preliminary plea of assessee, which is based on the manner in which the notice u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 has been issued to the assessee-company. A copy of the said notice has been placed on record and the learned representative canvassed that the same has been issued by the Assessing Officer in a standard proforma, without striking out the irrelevant clause. In other words, the notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealment of the particulars of income as well as furnishing of inaccurate particulars of income. Quite clearly, non-striking-off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges it has to respond. The aforesaid infirmity in the notice has been sought to be demonstrated as a reflection of non-application of mind by the Assessing Officer, and in support, reference has been made to the following specific discussion in the order of Hon'ble Supreme Court in the case of Dilip N. Shroff (supra):-
“83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations.
The impugned order, therefore, suffers from non- application of mind. It was also bound to comply with the principles of natural justice. (See Malabar Industrial Co. Ltd. v. CIT [2000] 2 SCC 718]”
Factually speaking, the aforesaid plea of assessee is borne out of record and having regard to the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the notice in the instant case does suffer from the vice of non-application of mind by the Assessing Officer. In fact, a similar proposition was also enunciated by the Hon'ble Karnataka High Court in the case of M/s. SSA‟s Emerald Meadows (supra) and against such a judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Hon'ble Supreme Court vide order dated 5.8.2016, a copy of which is also placed on record.
In fact, at the time of hearing, the ld. CIT-DR has not disputed the factual matrix, but sought to point out that there is due application of mind by the Assessing Officer which can be demonstrated from the discussion in the assessment order, wherein after discussing the reasons for the disallowance, he has recorded a satisfaction that penalty proceedings are initiated u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income. In our considered opinion, the attempt of the ld. CIT-DR to Assessing Officer is no defence inasmuch as the Hon'ble Supreme Court has approved the factum of non-striking off of the irrelevant clause in the notice as reflective of non-application of mind by the Assessing Officer. Since the factual matrix in the present case conforms to the proposition laid down by the Hon'ble Supreme Court, we proceed to reject the arguments advanced by the ld. CIT-DR based on the observations of the Assessing Officer in the assessment order. Further, it is also noticeable that such proposition has been considered by the Hon'ble Bombay High Court also in the case of Shri Samson Perinchery, 953, 1097 & 1126 of 2014 dated 5.1.2017 (supra) and the decision of the Tribunal holding levy of penalty in such circumstances being bad, has been approved.
Apart from the aforesaid, the ld. CIT-DR made an argument based on the decision of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Others, 216 ITR 660 (Bom.) to canvass support for his plea that non-striking off of the irrelevant portion of notice would not invalidate the imposition of penalty u/s 271(1)(c) of the Act. We have carefully considered the said argument set-up by the ld. CIT-DR and find that a similar issue had come up before our coordinate Bench in the case of Dr. Sarita Milind Davare (supra). Our coordinate Bench, after considering the judgment of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Ors., (supra) as also the judgments of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) and Dharmendra Textile Processors, 306 ITR 277 (SC) deduced as under :-
“12. A combined reading of the decision rendered by Hon‟ble Bombay High Court in the case of Smt. B Kaushalya and Others (supra) and the decision rendered by Hon‟ble Supreme Court in the case of Dilip N Shroff (supra) would make it clear that there should be application of mind on the part of the AO at the time of issuing notice. In the case of Lakhdir Lalji (supra), the AO issued notice u/s 274 for concealment of particulars of income but levied penalty for furnishing inaccurate particulars of income. The Hon‟ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon‟ble Kerala High Court has struck down the penalty imposed in the case of N. N. Subramania Iyer Vs. Union of India (supra), when there is no indication in the notice for what contravention the petitioner was called upon to show cause why a penalty should not be imposed. In the instant case, the AO did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. The Hon‟ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya (supra) and observed as under:-
...The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified.
In the instant case also, we are of the view that the AO has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the AO has failed to apply his mind at the time of issuing penalty notice to the assessee.”
The aforesaid discussion clearly brings out as to the reasons why the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) is to prevail. Following the decision of our coordinate Bench in the case of Dr. Sarita Milind Davare (supra), we hereby reject the aforesaid argument of the ld. CIT-DR.
Apart from the aforesaid discussion, we may also refer to the one more seminal feature of this case which would demonstrate the importance of non-striking off of irrelevant clause in the notice by the Assessing Officer. As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are to be initiated for furnishing of inaccurate particulars of income. However, in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act of even date, both Sec. 271(1)(c) of the Act are reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of Assessing Officer and there is no clear and crystallized charge being conveyed to the assessee u/s 271(1)(c), which has to be met by him. As noted by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non- compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond.
Therefore, in view of the aforesaid discussion, in our view, the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 is untenable as it suffers from the vice of non-application of mind having regard to the ratio of the judgment of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) as well as the judgment of the Hon'ble Bombay High Court in the case of Shri Samson Perinchery (supra). Thus, on this count itself the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted. We hold so. Since the penalty has been deleted on the preliminary point, the other arguments raised by the appellant are not being dealt with.”
This preposition has been confirmed by the Hon’ble Bombay High Court in the case of Mohd. Farhan A. Shaikh Vs. DCIT, Central Circle- 1 Belgaum reported in 125 taxmann.com 253 dated 11.03.2021. In view of the above facts and circumstances, it is quite clear that the penalty is not leviable in accordance with law.
In the result, the appeal filed by the assessee is hereby allowed.