SHRI VARAD MEHTA,BHOPAL vs. THE DCIT 1(1), BHOPAL

PER MANISH BORAD, AM.

The above captioned appeal is filed at the instance of assessee

pertaining to Assessment Year 2008-09 and is directed against the

orders of Ld. Commissioner of Income Tax (Appeals)-I (in short

‘Ld.CIT(A)’], Bhopal dated 21.03.2016 which is arising out of the

order u/s 271(1)(c) of the Income Tax Act 1961(In short the ‘Act’)

dated 28.03.2013 framed by DCIT-1(1), Bhopal.

Varad Mehta ITA No.693/Ind/2016 2. Apart from raising an additional ground challenging the

legality of the initiation of penalty proceedings u/s 271(1)(c) of the

Act on merits the assessee has raised following grounds of appeal;

“1. In the facts and circumstances of the case and in law, Ld.CIT(A)-1, Bhopal erred in confirming the penalty of Rs.16,00,000/- u/s 271(1)(c) levied by Ld.A.O which is contrary to the facts and the applicable law”

ground at the time of filing the appeal but in our considered opinion

and following the ratio of judgment of Hon'ble Apex Court in the

case of National Thermal Power Company Limited 229 ITR 383(SC)

as well as in the case of Jute Corporation of India 178 ITR 668 (SC)

the additional legal grounds raised before us deserves to be

admitted for adjudication in as much as the same involves point of

law which does not require any further investigation of facts. It is

also clear that the issues raised in the additional ground of appeal

goes to the root of the jurisdiction of the Assessing Officer to levy

the penalty u/s 271(1)(c) of the Act and therefore the same are

relevant to determine the liability of the assessee for penalty u/s

271(1)(c) of the Act. Accordingly the additional ground is admitted

for adjudication. 2

Varad Mehta ITA No.693/Ind/2016 4. Briefly stated facts as culled out from the records are that the

assessee is an individual carrying out the business of running

marriage garden. Income of Rs.12,93,110/- shown as income in

the income tax return filed on 31.03.2009. A survey u/s 133A of

the I.T. Act was conducted at the premises of the assessee on

22.02.2008. The appellant had accepted undisclosed income of

Rs.10 lakhs during the survey and the said surrendered income

was duly shown by the appellant in the return of income filed by

him. The assessment u/s 143(3) of the Act was completed by

adding payments made out of undisclosed sources at

Rs.40,00,000/-, 5,00,000/- and Rs.6,00,000/- with the income

returned at Rs.12,93,110/- thus assessing the total income at

Rs.63,93,110/- Subsequently penalty proceedings u/s 271(1)(c) of

the Act were initiated for concealing the income by furnishing

wrong particulars of income. The assessee remained non compliant

to the notices of hearing given by the Learned Assessing Officer (In

short ‘Ld.A.O’) on various occasions. Penalty proceedings

completed after levying penalty of Rs.16,00,000/- on the

concealment of income of Rs.51,00,000/- for the alleged payments

made out of undisclosed sources of income for purchase of 3

Varad Mehta ITA No.693/Ind/2016 immoveable property.

again did not appear for almost 12 occasions which was sufficient

to infer by Ld.CIT(A) that the assessee has nothing material to place

on record to challenge the findings of Ld. A.O. Ld.CIT(A) confirmed

the levy of penalty u/s 271(1)(c) of the Act.

challenging the legality of the penalty proceedings as well as

raising grounds on merits challenging the penalty levied u/s

271(1)(c) of the Act at Rs.16,00,000/-.

of Section 271(1)(c) of the Act the penalty can be initiated either for

concealing the particulars of income or for furnishing inaccurate

particulars of income, whereas the Ld.A.O has recorded the charge

as ‘furnished wrong particulars and concealed the income’. Placing

reliance on the judgments mentioned in the written submission

reproduced below, the Ld. Counsel for the assessee contended that

the Ld.A.O has failed in comply the provisions of section 271(1)(c) of

Varad Mehta ITA No.693/Ind/2016 the Act by initiating the penalty proceedings with no specific

charge. The relevant extract of written submissions given by Ld.

Counsel for the assessee are reproduced below;

“Ground No.1:In the facts and circumstances of the case and in law, Ld. CIT(A)-I, Bhopal erred in confirming the penalty of Rs. 16,00,000 u/s 271{1}(c) levied by Ld. AO which is contrary to the facts and the applicable law.

(1) .

(c) "has concealed the particulars of his income or furnished inaccurate particulars of such income, or ….”

From the plain reading of the section, it is very clear that penalty under 5

Varad Mehta ITA No.693/Ind/2016 section 271(l)(c) can be initiated either for concealment of particulars of income or for furnishing inaccurate particulars of income.

Ld. AO has recorded the charge as –“furnished wrong particulars and concealed the income."

Ld. AO has failed in applying the provisions of Section 271(l)(c) by initiating the penalty proceedings with no specific charge as to concealment or furnishing of inaccurate particulars.

a. Hon'ble Kolkata Bench of ITAT in the case of Chandra Prakash Bubna - [2015] 64 taxmann.com 155 - order dated 21.05.2015 - Para 10 - "In this case, the Assessing Officer has not brought out any specific charge for which the penalty has been imposed on the assessee u/s 271(1)(c) of the Act. He has not brought out whether the assessee has concealed the particulars of income or whether the assessee has furnished inaccurate particulars of income.

Para 11- "The Assessing Officer in this case levied the penalty for both the charges without mentioning any specific charge. In CIT v. Atul Mohan Bindal [2009] 317 ITR 1/183 Taxman 444 (SC), where Hon'ble Supreme Court was considering the same provision, it observed that the assessing officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income. Thus the satisfaction of the Assessing Officer about the concealment of particulars of income or furnishing of inaccurate particulars of such income is essential before levying any penalty u/s 271(1)(c). The Assessing Officer as is apparent from the penalty order has not satisfied about the concealment of particulars of income or furnishing of inaccurate particulars of income on the part of the

Varad Mehta ITA No.693/Ind/2016 assessee. On this basis itself the penalty deleted." [emphasis supplied]

In the instant case, as Ld. AO failed to initiate the penalty proceedings without creating any specific charge, appellant contends that the penalty order be quashed.

Appellant, had already offered detailed explanation on the various property deals relating to the addition made by the Ld. AO in his statement recorded u/s 133A during the course of survey proceedings. Ld. CIT(A) failed to consider the same while disposing the appeal. [PB 11- 23]

Varad Mehta ITA No.693/Ind/2016 10. A legal fiction cannot be extended further by so interpreting it as to go beyond the Legislature's intention in creating the fiction. This is because legal fictions are created only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond their legitimate field. A legal fiction, no doubt, has to be carried to its logical conclusion but, that must be within the framework of the purpose for which it is created. It cannot be carried to an illogical length. One should not allow oneself to be so carried away by a legal fiction as to ignore the words of the very section which introduces it or its content or setting in the statute which contains that section. Also one should not lose sight of the purpose for which the legal fiction was introduced.

Accordingly, in the instant case, the provisions of Section 69 to 69D being deeming provisions cannot be extended to create another fiction for imposing penalty.

a. Hon'ble Gujarat High Court in the case of Baroda Tin Works - [1996] 221 ITR 661 - order dated 21.09.1995 - HEAD NOTE - Section 271(1)(c), read with section 69 of the Income-tax Act, 1961 - Penalty - For concealment of income _ Assessment year 1971-72 - Whether Explanation to section 271(1)(c) inserted with effect from 1-4-1976 by which presumption of concealment of particulars of income is raised on account of additions having been made or deductions being disallowed in returned income cannot be held to be retrospective in operation - Held, yes _ Whether fiction created under sections 68, 69, 69A, 69B and 69C by itself, cannot be extended to penalty proceedings to raise a presumption about concealment of such income - Held, yes - Whether on a finding that return of income which is less than 80 per cent of assessed income is not result of fraud or gross or wilful neglect, penalty cannot be sustained by raising a presumption of concealment of income under the 8

Varad Mehta ITA No.693/Ind/2016 Explanation to section 271(1)(c) - Held, yes .

b. Hon'ble Karnataka High Court in the case of M.M. Gujamgadi - [2007] 162 Taxman 211 - order dated 08.02.2005 - HEAD NOTE - Section 271(1)(c), read with section 68, of the Income-tax Act, 1961 - Penalty - For concealment of income - Assessing Officer found a sum of Rs. 2,01,000 in books of account of assessee - Assessing Officer issued notice to assessee asking him to explain source of said amount - Assessee replied that he borrowed same from different creditors _ However, despite best efforts, assessee could not secure creditors as witnesses to substantiate his claim - Having no other alternative, assessee voluntarily offered to treat said amount as cash credit - On basis of submission of assessee, Assessing Officer passed an assessment order adding said amount to total income and on that amount assessee paid taxes - Subsequently, Assessing Officer imposed penalty under section 271(1)(c) treating aforesaid amount as concealed income of assessee - Tribunal, however, set aside penalty order - Whether it could be said that explanation of assessee for non-inclusion of amount in question in his return of income was bona fide - Held, yes - Whether, therefore, order passed by Tribunal setting aside penalty proceedings was just and proper - Held, yes

c. Hon'ble Chennai Bench of ITAT in the case of T. Kodeeswaran - [2009] 33 SOT 3 - order dated 20.10.2008 - HEAD NOTE - Section 271(1}(c),read with sections 144and 132,of the Income-tax Act, 1961 - Penalty - For concealment of income - Assessment year 1986-87 - Whether there could be no concealment of income for a particular year, within meaning of section 271(1)(c), if for that year no return of income was filed by assessee - Held, yes - Whether where additions made were worked out on basis of pure estimation and those additions did not represent money, bullion, jewellery or other valuable article or thing, of

Varad Mehta ITA No.693/Ind/2016 which assessee was found to be owner in course of search, provisions of Explanation 5 to section 271(1)(c) were wrongly applied to such additions - Held, yes

d. Hon'ble Jurisdictional Bench of Indore ITAT in the case of Shri Jayesh Parmar - ITA No. 279/IND/2013 - order dated 20.09.2015 - following the above mentioned decisions deleted the penalty imposed. .'

Considering the above facts of the case, circumstances, submissions made, documents on record, judicial precedents, the penalty imposed for Rs. 16,00,000 ought to be deleted”.

(i) Chandra Prakash Babna (2015) 64 taxmann.com 155 (Kolkatta-Trib) (ii) Baroda Tin Works (1996) 221 ITR 661 (Gujrat) (iii)M.M. Gujamgadi (2007) 162 Taxman211 (Jar.) (iv) T. Kodeeswaran (2009) 33 SOT 3 (Chennai) (URO) (v) Dhanya Kumar Jain (2016) 27 ITJ 505 (Trib. Indore) (vi)Jayash Parmar (2016) 27 ITJ 515 (Trib. Indore) 9. Ld. Counsel for the assessee also placed reliance on the

judgments of Hon'ble jurisdictional High Court in the case of CIT

V/s Kulwant Singh Bhatia ITA No.9/2018 dated 9.5.2018,

judgment of Hon'ble High Court of Karnataka in the case of CIT V

SSA’s Emeralad Meadows ITA No.380/2015 dated 23.11.2015 and

Varad Mehta ITA No.693/Ind/2016 also the judgment of Hon'ble High Court of Karnataka in the case of

CIT V/s Majunatha Cotton Ginning Factory(2013) 359 ITR 565 in

support of the legal ground that existence of conditions stipulated

in Section 271(1)(c) of the Act are necessary for initiation of penalty

proceedings u/s 271(1)(c) and the Assessing Officer has failed to

mention the specific charge in the penalty notice issued u/s 274

r.w.s. 271(1)(c) of the Act.

supporting the orders of lower authorities.

placed before us. The issues raised by the assessee revolves

around the levy of penalty at Rs.16,00,000/- levied by the Ld. A.O

and confirmed by Ld.CIT(A) on the addition of Rs.51,00,000/- from

undisclosed sources for purchase of immovable properties. Perusal

of records shows that the assessee remaining negligent and non

compliant to various opportunities provided by the Ld. A.O as well

as Ld.CIT(A) during the course of penalty proceedings as well as

appellate proceedings towards the levy of penalty.

Varad Mehta ITA No.693/Ind/2016 12. Now the assessee is in appeal before the Tribunal, firstly

raising the legal issue pleading that Ld. A.O has wrongly initiated

the penalty proceedings by not specifying the charge for levy of

penalty i.e. whether the penalty proceedings has been initiated for

concealing of particulars of income or for furnishing the inaccurate

particulars of income. It was also pleaded by the Ld. Counsel for the

assessee that though the Ld. Assessing Officer has made proper

satisfaction on record in the assessment order for initiating penalty

proceedings but in the notice issue u/s 274 r.w.s. 271(1)(c) of the

Act, but Ld. A.O remained silent by not specifying as to which

charge the penalty proceedings have been initiated. To examine

this fact we have gone through the impugned notice issued for

initiating the penalty proceedings u/s 271(1)(c) of the Act which is

placed at Page-52 of the Paper book and the relevant extract is

reproduced below:

To

Shri Varad Mehta 239, Sunny Palace M P Nagar Zone-1, Bhopal Sir / Madam, 12

Varad Mehta ITA No.693/Ind/2016 Sub:- Penalty proceeding u/s .. 271( 1 ) ( c) .. of the Income Tax Act 1961 for the AY 2008.09 In connection with the penalty proceedings u/s, 271(1) (c) for the assessment year(s) 2008-09 you are requested to attend my office on 18.01. 2010 at 11.00 AM to show cause why penalty should not be imposed. However. if you do not wish to be heard in person in this regard, you may submit your written submissions so as to reach me by the above date which will be considered before disposal of the matter.

Sd/- ( Shrlkant Namdeo ) Deputy GommissfsonerOf1ncome Tax-1(1}, Bhopal Bhopal 13. From perusal of the above show cause notice we find that the

Ld.A.O has merely mentioned the section but the specific charge i.e.

whether the penalty have been initiated for concealment of

particulars of income or for furnishing inaccurate particulars of

income has not been mentioned. Now whether such type of notice

which does not speak about the specific charge leveled against the

assessee is valid and tenable in the eyes of law needs to be

examined.

High Court in the case of Shri Kulwant Singh Bhatia (supra)

Varad Mehta ITA No.693/Ind/2016 wherein the Hon'ble Court discussed the judgment of Hon'ble High

Court in the case of CIT V/s Manjunatha Cotton Ginning Factory

(supra) and CIT V/s SSA’s Emeralad Meadows (supra) held that “on

due consideration of the arguments of the Ld. counsel for the

appellant, so also considering the fact that the ground mentioned in

show cause notice would not specify the requirement of law, as

notice was not specific, we are of the view that Ld. Tribunal has

rightly allowed the appeal of the assessee and set side the order of

penalty enforced by the authority”.

Hon'ble High Court of Karnataka held that “the notice issued u/s

274 r.w.s. 271(1)(c) of the Act should specifically mention the ground

in section 271(1)(c) whether concealment of income or for furnishing

in accurate particulars of income. Sending printed form where all

ground of section 271(1)(c ) would not mentioned the specific

requirement of law. Assessee should know the grounds on which he

has charged specific otherwise opportunities of natural justice

denied. On the basis of such proceedings no penalty could be

imposed to the assessee. Taking up the penalty proceedings on one

Varad Mehta ITA No.693/Ind/2016 limb and finding the assesssee in another limb is bad in law”.

Though in the instant appeal the Ld. A.O has made proper

satisfaction in the body of the assessment order but in the notice

issued u/s 274 r.w.s. 271(1)(c) of the Act he failed to mention the

limbs for which penalty proceedings have been initiated. It is the

negligence of the Ld. A.O in not making proper specific charge in

the notice u/s 274 about the addition for which penalty

proceedings have been initiated. Ld. A.O should be clear as to

whether the alleged addition goes under the limb of “concealment of

particulars of income” or “furnishing inaccurate particulars of

income”. Merely issuing notice in general proforma will negate the

very purpose of natural justice as held by the Hon'ble Apex Court

in the case of Dilip N Shraf 161 Taxmann 218 that “the quasi-

criminal proceedings u/s 271(1)(c) of the Act ought to comply with

the principles of natural justice.

and in the given facts and circumstances of the case are of the

considered view that the alleged notice issued u/s 274 r.w.s.

271(1)(c) of the Act dated 31.12.10 is invalid, untenable and suffers

Varad Mehta ITA No.693/Ind/2016 from the infirmity of non application of mind by the Assessing

Officer. We accordingly direct to delete the penalty of

Rs.16,00,000/- imposed u/s 271(1)(c) on this ground itself. We

accordingly allow the additional ground raised by the assessee on

the legality of the penalty proceedings initiated u/s 271(1)(c) of the

Act. Since the penalty u/s 271(1)(c) also has been dealt on the

preliminary points other arguments of the assessee dealing with the

merits of the levy of penalty are not been dealt with, as the same

are rendered academic in nature and the appeal of the assessee for

the Assessment Year 2008-09 is allowed.

The order pronounced in the open Court on 06.12.2018.

Sd/- Sd/-

( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER �दनांक /Dated : 06 December, 2018 /Dev Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file.

By Order, Asstt.Registrar, I.T.A.T., Indore 16