DILIP KUMAR ARORA,AJMER vs. ITO, AJMER

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh Hkkxpan] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, AM vk;dj vihy la-@ITA No. 658/JP/2017 fu/kZkj.k o"kZ@Assessment Year : 2011-12 cuke Shri Dilip Kumar Arora The ITO, Vs. Prop. M/s Shri Arora Plywood, Ward-2(2), Nasirabad Road, Ajmer. Ajmer. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AGKPA 0070 G vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri S. L. Poddar (Adv.) jktLo dh vksj ls@ Revenue by : Smt. Poonum Rai (DCIT) lquokbZ dh rkjh[k@ Date of Hearing : 14/03/2018 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 11/04/2018 vkns'k@ ORDER

PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 26.07.2017 of CIT (A), Ajmer for the assessment year 2011-12. The assessee has raised the following grounds:-

“1. Under the facts and circumstances of the case and in law, the order dated 29.03.2014 passed by the Learned Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 without striking off the irrelevant portion of the printed show cause notice viz., "furnished inaccurate particulars of income" or "concealed particulars of such income" is bad in law.

The assessee has also raised the additional grounds as under:- “1. Under the facts and circumstances of the case the Learned CIT (A) has erred in confirming the order of the Learned. Assessing Officer u/s 271(1)(c) of the Income Tax Act on the basis of notice dated 29.03.2014 which is void-ab- initio and issued without application of mind by the Learned A.O. without striking off the irrelevant portion of the printed show cause notice viz., "furnished inaccurate particulars of income" or "concealed particulars of such income" is bad in law." 2. Under the facts and circumstances of the case the Learned CIT (A) has erred in passing two separate orders for ITA No.32/2016-17 which is the appeal against the order dated 2 17.03.2016 under section 271(1)(c) of the Income Tax Act and for ITA No.351/2016-17 which is the appeal against the order dated 22.11.2016 passed under section 271(1)(c)/154 of the Income Tax Act, 1961 and the first order dated 17.03.2016 merged in the subsequent order dated 15.11.2016. 3. Under the facts and circumstances of the case the Learned CIT (A) has erred in law in confirming, the order passed by the Learned Assessing Officer under Section 271(1)(c) of the Act, which is against the principles of judicial consistency and therefore, bad in law." 4. Under the facts and circumstances of the case the Learned CIT (A) has erred in confirming the penalty of Rs. 13,61,173/- u/s 271(1)(c)/154 of the Income Tax Act, 1961 without considering the submission of the assessee. 5. Under the facts and circumstances of the case the Learned CIT (A) has erred in deciding the appeal of the assessee without considering the adjournment applications and submissions filed by the AR of the assessee. 6. The assessee craves your indulgence to add amend or alter all or any grounds of appeal before or at the time of hearing.”

of additional grounds. The ld. AR of the assessee has submitted that

though this ground was not taken before the ld. CIT(A) however, the

assessee has raised this ground in the original grounds as per Form No.

36 while filing the appeal. The additional grounds raised by the

assessee goes to the root of the matter being the validity of show cause notice issued by the AO u/s 274 and therefore, the jurisdiction of the

Assessing Officer has been questioned by the assessee. He has further

contended that for adjudication of the additional grounds, no new facts

are required to be investigated but the facts already on record are

required to be considered for deciding the question law. The ld. AR has

relied upon the decision of Hon’ble Supreme Court in case of National

Thermal Power Co. Ltd. Vs. CIT 229 ITR 383. The ld. AR has also relied

upon the decision of Special Bench of Mumbai Benches of the Tribunal

in case of Mahindra & Mahindra Ltd. vs. Dy. CIT 122 TTJ 577 and

submitted that there is not embargo on any party to raise a legal

ground for the first time before the Tribunal provided the relevant

material for deciding the question is already existed on record and no

further investigation of facts is required. Hence, the ld. AR has

submitted that when the additional grounds raised by the assessee is

purely legal in nature and does not require any fresh investigation of

facts and also goes to the root of the matter then, the same may be

admitted for adjudication on the merits.

against the admission of additional ground and submitted that the

assessee was given sufficient opportunity by the AO in the penalty proceedings as well as by the ld. CIT(A) in the first appellate

proceedings but the assessee did not raise such objection against the

validity of notice issued u/s 274 of the Act. The ld. DR has further

contended that in the absence of disclosing a reasonable cause which

has prevented the assessee from raising such ground before the

authorities below the additional ground raise at this stage cannot be

accepted.

material on record. We note that the assessee has raised a legal issue

in the additional grounds regarding the validity of show cause notice

issued by the AO for initiation of the penalty proceedings u/s 271(1)(c)

of the I.T. Act. The copy of show cause notice is available on record

and the Revenue has not disputed the show cause notice issued by the

AO U/s 274 of the Act as filed by the Assessee. Therefore, for

adjudication of the additional grounds, no new facts are required to be

investigated but the same can be decided on the basis of the facts

already available on record. We further note that the issue raised by the

assessee in this additional grounds goes to the root of the matter being

challenging the jurisdiction of the AO for levy of penalty u/s 271(1)(c)

of the Act as show cause notice issued by the AO as U/s 274 of the Act its suffers from illegality therefore, the alleged legality in the show

cause notice and consequential order passed u/s 271(1)(c) are purely

legal in nature. Hence, in view of the decision of Hon’ble Supreme Court

in case of National Thermal Power Co. Ltd. vs. CIT (Supra) we admit

the additional grounds for adjudication on merits.

has submitted that the Assessing Officer has issued show cause notice

dated 29.03.2014 u/s 274 r.w.s. 271 of the I.T. Act however, the AO

has not specified the charge against which the AO proposed to levy the

penalty u/s 271(1)(c) of the Act. He has referred to the notice and

submitted that the Assessing Officer has neither specified nor strike off

the irrelevant part of the notice but the steno type printed notice has

been issued by the AO wherein no specific allegations were made

whether the assessee has “concealed particular of income or furnished

inaccurate particulars of income”. Thus, the notice was issued in a

routine manner without application of mind and without specifying the

default on the part of the assessee whether ‘concealment of particulars

of income’ or ‘furnishing inaccurate particulars of income’. The ld. AR

has submitted that when the show cause notice did not contain any

specific charge being concealment of particulars income or furnishing inaccurate particulars of income then, the said notice suffers from

illegality as held by the Hon’ble Karnataka High Court in case of CIT vs.

Manjunath Cotton and Ginning Factory 359 ITR 565 which has

been upheld by the Hon’ble Supreme Court in case of CIT vs. SSA’s

Emerald Meadows 242 taxman 150. The ld. AR has also relied upon a

series of decisions on this point and submitted that the Tribunal has

held that a defective notice which has not spelt out specifically the

grounds on which the penalty was sought to be levied is not a curable

defect and therefore, the consequential penalty levied u/s 271(1)(c) of

the Act is not sustainable and liable to be deleted. The ld. AR has

further submitted that the Hon’ble jurisdictional High Court Sheveta

Construction Company Pvt. Ltd vs. ITO vide decision dated

06.12.2016 in DB ITA No. 534/2008 has also decided this issue in

favour of the assessee and against the Revenue.

authorities below and submitted that when the addition was made by

the AO u/s 69 of the IT Act on account of excess stock then the nature

of default is already stated in the assessment order. The Assessing

Officer has also recorded a satisfaction for initiation of penalty u/s

271(1)(c) of the Act. Hence, there is no defect in the notice issued u/s 274 of the Act. The ld. DR has further contended that the assessee did

not raise these issues/grounds before the AO or ld. CIT(A). Hence, the

nature of default was not questioned before the authorities below.

material on record. It is undisputed fact that the Assessing Officer

initiated penalty u/s 271(1)(c) vide show cause notice dated 29.03.2014

wherein the AO has not specified the charge/default on the part of the

assessee against which the AO sought to levy the penalty u/s 271(1)(c)

of the Act. The relevant part of the notice is as under:-

“Concealed particular of income or furnished inaccurate particulars of income.”

Thus, it is clear that the Assessing Officer has not spelt out of a specific

ground on which the penalty was proposed to be levied but a general

allegations were stated in the show cause notice. The Hon’ble

Karnataka High Court in case of CIT vs. Manjunath Cotton and Ginning

Factory (supra) while dealing with an identical issue of validity of notice

u/s 274 r.w.s. 271 has held in para 59 to 63 as under:-

“59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which 8 contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation 1 or in Explanation 1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(l)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. 60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(l)(c) when it is a sine qua non for initiation or 9 proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of T. Ashok Pai v. CIT [2007] 292 ITR 11/161 Taxman 340at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of CIT v. Manu Engg. [1980] 122 ITR 306 and the Delhi High 10 Court in the case of CIT v. Virgo Marketing (P.) Ltd. [2008] 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind. INDEPENDENT PROCEEDING 62. The penalty proceedings are distinct from assessment proceedings, and independent therefrom. The assessment proceedings are taxing proceedings. The proceedings for imposition of penalty though emanating from proceedings of assessment are independent and separate aspects of the proceeding. Separate provision is made for the imposition of penalty and separate notices of demand are made for recovery of tax and amount of penalty. Also separate appeal is provided against order of imposition of penalty. Above all, normally, assessment proceedings must precede penalty proceedings. Assessee is entitled to submit fresh evidence in the course of penalty proceedings. It is because penalty proceedings are independent proceedings. The assessee cannot question the assessment jurisdiction in penalty proceedings. Jurisdiction under penalty proceedings can only be limited to the issue of penalty, so that validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter in penalty proceedings. It is not possible to give a finding that the reassessment is invalid in such penalty proceedings. Clearly, there is no identity between the assessment proceedings and the penalty proceedings. The latter are separate proceedings that may, in some cases, follow as a consequence of the assessment proceedings. Though it is usual for the Assessing Officer to record in the assessment order that penalty proceedings are being 11 initiated, this is more a matter of convenience than of legal requirement. All that the law requires, so far as the penalty proceedings are concerned, is that they should be initiated in the course of the proceedings for assessment. It is sufficient, if there is some record somewhere, even apart from the assessment order itself, that the Assessing Officer has recorded his satisfaction that the assessee is guilty of concealment or other default for which penalty action is called for. Indeed, in certain cases, it is possible for the Assessing Officer to issue a penalty notice or initiate penalty proceedings even long before the assessment is completed. There is no statutory requirement that the penalty order should precede or be simultaneous with the assessment order. In point of fact, having regard to the mode of computation of penalty outlined in the statute, the actual penalty order cannot be passed until the assessment is finalised. CONCLUSION 63. In the light of what is stated above, what emerges is as under:

(a) Penalty under Section 271(l)(c) is a civil liability.

(b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities.

(c) Wilful concealment is not an essential ingredient for attracting civil liability.

(d) Existence of conditions stipulated in Section 271(l)(c) is a sine qua non for initiation of penalty proceedings under Section 271.

(e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority.

(f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(l)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision.

(g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B).

(h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner.

(i) The imposition of penalty is not automatic.

(j) Imposition of penalty even if the tax liability is admitted is not automatic.

(k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the Assessing Officer in the assessment order.

(l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed.

(m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed.

(n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity.

(o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority.

(p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(l)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income

(q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law.

(r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee.

(s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law.

(t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings.

(u) The findings recorded in the assessment proceedings insofar as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.”

By following the said decision in case of CIT vs. Manjunath Cotton and

Ginning Factory (supra) the Hon’ble Karnataka High Court in case of CIT

SSA’s Emerald Meadows (supra) has again decided this issue in favour

of the assessee and against the Revenue. The SLP filed by the Revenue

against the said decision of Hon’ble Karnataka High court has been

dismissed by the Hon’ble Supreme Court reported in 242 taxman

150.Thus, the decision of Hon’ble Karnataka High Court in case of CIT

vs. Manjunath Cotton and Ginning Factory (supra) has not disturbed by

the Hon’ble Supreme Court. We further note that the Hon’ble

Jurisdictional High Court in case of Sheveta Construction Company Pvt.

Ltd vs. ITO (supra) has considered an identical issue in para 5 to 10 as

under:- “5. Counsel for the appellant relied upon the decision of Andhra Pradesh High Court in case of Chennakesava Pharmaceuticals Vs. Commissioner of Income Tax reported in (2012) 349 ITR 196, wherein it has been held as under:- In Reliance Petroproducts (P.) Ltd.'s case (1 supra), the Supreme Court also held that imposition of penalty is unwarranted when there is no finding in the assessment order that details supplied by the assessee were found to be false. This indicates that the view taken by the Delhi High Court in Ram Commercial Enterprises Ltd.'s case (6 supra) which has been approved in Dilip N. Shroff's case (10 supra) continues to be valid and this part of the judgment in Dilip N. Shroff's case (10 supra) has not been over ruled and continues to be good law. Moreover, the decision of the Delhi High Court in Ram Commercial Enterprises (supra) was also followed by the same High Court in CIT v. M.K. Sharma (9supra) and SLP(C) No. 17591 of 2008 filed against the said decision was dismissed by the Supreme Court on July 18, 2008.

Applying the above principle that the Assessing Officer should record in the assessment order his satisfaction that the assessee had either concealed the income or furnished inaccurate particulars of income in his return before imposing penalty, we noticed that in the assessment orders passed by the assessing officer for the assessment year 198283 (which is the subject matter of I.T.T.A.No.29 of 2000) and for the assessment year 198384 (which is subject matter of I.T.T.A.No.33 of 2000), no such satisfaction is recorded.”

“ It is of come 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 learned 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.

The Income Tax Officer had merely held that the assessee is guilty of furnishing of inaccurate particulars and not of concealment of income; which finding was arrived at also by the Commissioner of Income Tax and the Income Tax Appellate Tribunal. In the facts and circumstances of the case, there are enough material to show that the action on the part of the appellant may not be said to be such which would attract the penal provision under s. 271(1)(c). For the reasons aforementioned, the impugned judgment cannot be sustained.”

7.1 However, Mr. Singhi appearing for the department submits that a perusal of the order of penalty makes it amply clear that both the things are fulfilled. In that view of the matter the view taken by the Tribunal is required to be accepted. 8. We have heard Mr. Prakul Khurana and Mr. Anuroop Singhi. 9. Taking into consideration the decision of the Andhra Pradesh High Court which virtually considered the subsequent law and the law which was prevailing on the date the decision was rendered on 27.08.2012. In view of the observations made 17 in the said judgment, we are of the opinion that the contention raised by the appellant is required to be accepted and in the finding of Assessing Officer in the assessment order it is held that the AO, has to give a notice as to whether he proposes to levy penalty for concealment of income or furnishing inaccurate particulars. He cannot have both the conditions and if it is so he has to say so in the notice and record a finding in the penalty order. 10. In that view of the matter, the issue is answered in favour of the assessee and against the Department.” Accordingly, in view of the binding precedent we hold that when the AO

has not specifically indicated the grounds for initiation of proceedings

for levy of penalty is for concealment particular of income or for

furnishing inaccurate particular of income then, the said show cause

notice suffers from illegality and consequential order passed by the AO

u/s 271(1)(c) is not sustainable and liable to be quashed. Accordingly,

we set aside the impugned order passed u/s 271(1)(c) and delete the

penalty of levied by the AO u/s 271(1)(c) of the Act.

In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 11/04/2018. Sd/- Sd/- ¼Hkkxpan ½ ¼fot; iky jko½ (Bhagchand) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:-11/04/2018. 18

*Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Dilip Kumar Arora, Ajmer. 2. izR;FkhZ@ The Respondent- ITO, Ward-2(2), Ajmer. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 658/JP/2017} vkns'kkuqlkj@ By order,

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