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Income Tax Appellate Tribunal, Camp Bench at Jalandhar
Before: Shri N.K. Saini & Shri Ravish Sood
IN THE INCOME TAX APPELLATE TRIBUNAL Camp Bench at Jalandhar
Before Shri N.K. Saini, Vice President and Shri Ravish Sood, Judicial Member
ITA No. 377/Asr./2018 Assessment Year : 2009-10
Sh Barat Pal Sood, The ITO, Ward-1, Rattan Niwas, Phagwara G.T. Road, Vs. Phagwara
PAN – ACJPS0851J (Appellant) (Respondent)
Appellant by: Shri Sandeep Vijh, CA Respondent by: Sh Shakil Ahmad, D.R Date of Hearing: 16.01.2019 Date of Pronouncement: 17.01.2019
O R D E R PER RAVISH SOOD, JM The present appeal filed by the assessee is directed against the order
passed by the CIT(A)-2, Jalandhar, dated 04.04.2018 which in turn arises
from the order passed by the Assessing Officer u/s 271 (1) (c) of the Income
Tax Act, 1961 (for short 'I.T. Act'), dated 23.11.2015 for Assessment Year
2009-10. The assessee assailing the order of the CIT(A) has raised before us
the following grounds of appeal:
The Ld. CIT(A) has erred in sustaining the order u/s 271 (1) (c) which is bad in law.
That Ld. CIT(A) has further erred in sustaining an order which was premature and bad in law. The Ld. Assessing Officer had proceeded to levy penalty
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without even intimating the inability to wait till the decision of the ITAT in quantum appeal. The principles of natural justice thus also stood violated.
The Ld. CIT(A) erred in confirming the levy of penalty for concealment at Rs. 2,75,275/- . Even the error in computing the peak balance which was the basis of levy of penalty for concealment has not been appreciated.
Briefly stated, the assessee had filed his return of income for
Assessment Year 2009-10 on 25.8.2009, declaring an income of Rs.
1,98,390/-. The return of income filed by the assessee was processed as
such u/s 143(1) of the I.T.Act. Subsequently, the case of the assessee was
selected for scrutiny assessment u/s 143(2) if the I.T.Act. The Assessing
Officer assessed the income of the assessee at Rs. 22,55,590/- after making
the following additions / disallowances:-
Sr.No. Particulars Amount (in Rs.) 1 Addition on account of 18,16,500 unexplained cash credits in the bank account 2 Addition on account of 88,855 interest disallowed u/s 36(i)(iii) 3 Addition of bank 34,242 interest 4 Addition to the rental 1,97,400 income
Aggrieved, the assessee carried the matter in appeal before CIT(A).
The CIT(A) after deliberating on the contentions advanced by the assessee
allowed a relief of Rs. 8,97,600/- out of the addition of Rs. 18,16,500/-
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made on account of unexplained cash credits. Apart therefrom, the addition
of Rs. 1,97,400/- and Rs. 88,855/- that was made by the Assessing Officer
on account of rental income and disallowance of interest u/s 36(i)(iii) of the
I.T.Act was deleted by him. Insofar, the addition of Rs. 34,242/- made on
account of bank interest was concerned, the same was confirmed by the
CIT(A). In sum and substance, the CIT(A) sustained the addition of Rs.
9,18,900/- (out of unexplained cash credits of Rs. 18,16,500/-), as well as
upheld the addition of Rs. 34,242/- made by the Assessing Officer on
account of bank interest.
The Assessing Officer after receiving the order of the CIT(A) called
upon the assessee to explain as to why penalty u/s 271(1)(c) of the Act may
not be imposed on him. The explanation given by the assessee in order to
impress upon the Assessing Officer that no penalty u/s 271(1)(c) of the
I.T.Act was liable to be imposed, however, did not find favour with him and
he imposed a penalty of Rs. 2,75,275/- u/s 271(1)(c) of the I.T. Act for
concealing the particulars of income or filing “inaccurate particulars of
income” in the hands of the assessee.
Aggrieved, the assessee carried the matter in appeal before the Ld.
CIT(A). However, the CIT(A) not finding favour with the contentions
advanced by the assessee, dismissed the appeal.
The assessee being aggrieved with the order of the CIT(A) had carried
the matter in appeal before us. The Ld. Authorized Representative (for short
‘A.R’) of the assessee, at the outset of the hearing of the appeal, submitted
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that the Assessing Officer had failed to put the assessee to notice as regards
the default for which penalty u/s 271(1)(c) was sought to be imposed in the
hands of the assessee. In order to drive home his aforesaid contention, the
Ld. AR took us through the copy of the ‘Show Cause notice (for short ‘SCN’)’
dated 7.8.2015, Page 17 of the assessee’s Paper Book (in short ‘APB). Apart
thereform, it was averred by the Ld. AR that there was no specific mention of
the default for which penalty proceedings were initiated by the Assessing
Officer while framing the assessment vide his order passed u/s 143(3) of the
Act dated 23.12.2011. The Ld. AR drew our attention to the copy of the
assessment order wherein the Assessing Officer while framing the
assessment has initiated penalty proceedings u/s 271 (1) (c) for “concealing
/filing inaccurate particulars of income”. The Ld. AR further drew our
attention to the “SCN”, dated 23.12.2011 issued u/s 271 read with section
271 of the I.T.Act, which was issued by the Assessing Officer alongwith the
assessment order. It was submitted by the Ld. AR that a perusal of the
aforesaid “SCN” dated 23.12.2011 did not reveal the default for which the
assessee was called upon to explain as to why penalty may not be imposed
upon him us 271 (1) (c) of the I.T.Act. It was the claim of the Ld. AR that as
the Assessing Officer had ticked both the defaults viz “concealment of
particulars of income” or “furnishing of inaccurate particulars of such
income”, thus, it was not discernible as to for what default the penalty was
sought to be imposed by the Assessing Officer under the aforesaid statutory
provisions. The Ld. AR further submitted that the assessee in the course of
the penalty proceedings had vide his reply dated 10.9.2015 submitted
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before the Assessing Officer that the penalty proceedings initiated u/s 271
(1) (c) of the Act may be kept pending till the disposal of the appeal before
the Income Tax Appellate Tribunal, Amritsar. However, the Assessing Officer
despite the aforesaid request on the part of the assessee had proceeded with
and vide his order dated 23.11.2015 had imposed penalty u/s 271 (1) (c) of
the Act in the hands of the assessee. It was submitted by the Ld. AR that
where an appeal of the assessee against the addition made in the
assessment was pending before the Tribunal, an order imposing penalty u/s
271 (1) (c) would be pre-mature and, hence, not maintainable. In support of
his aforesaid contention, the Ld. AR relied upon the judgement of the
Hon'ble Bombay High Court in the case of R.B. Shree Ram Durga Prasad
vs CIT, Nagpur (2016) 65 taxman.com 293 (Bom.)
Per contra, the ld. Departmental Representative (for short ‘D.R’) relied
upon the orders of the lower authorities. It was submitted by the Ld.
Departmental Representative (for short 'D.R') that as multiple additions /
disallowances were made by Assessing Officer, therefore, the latter had
rightly initiated penalty proceedings for both the defaults viz “concealment of
income” and “ furnishing of inaccurate particulars of income”
We have heard the authorized representatives for both the parties,
perused the orders of the lower authorities and the material available on
record. Admittedly, the Assessing Officer in the “SCN” dated 23.12.2011
had earmarked both the defaults viz “concealment of particulars of income”
or “furnishing of inaccurate particulars of income”. Interestingly, though the
Assessing Officer had ticked both the defaults, however, the usage of the
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term “or” used between the said defaults clearly reveals that he had failed to
point out the default for which the assessee was called upon to explain as to
why penalty u/s 271 (1) (c) may not be imposed upon him. In our
considered view, on a bare perusal of the “SCN” dated 23/12/2011, it can
safely be gathered that the Assessing Officer himself was not aware as to for
what default the assessee was being put to notice and therein called upon to
explain as to why penalty may not be imposed upon him. Apart therefrom,
the subsequent “opportunity notice” issued by the Assessing Officer u/s 129
of the I.T. Act, dated 7.8.2015 also does not make any mention of the default
for which the assessee was called upon to explain as to why penalty may
not be imposed under the aforesaid statutory provision in his hands. Be that
as it may, in our considered view, the Assessing Officer had blatantly failed
to put the assessee to notice as regards the default for which the penalty
was sought to be imposed upon him
We have given a thoughtful consideration to the facts of the case and
are persuaded to subscribe to the claim of the ld. A.R that the A.O had in
the aforesaid ‘SCN’, dated 23.12.2011 and 07.08.2015 failed to point out the
default for which penalty was sought to be imposed by him on the assessee.
In our considered view, as both of the two defaults envisaged in Sec.
271(1)(c) i.e ‘concealment of income’ and ‘furnishing of inaccurate
particulars of income’ are separate and distinct defaults which operate in
their independent and exclusive fields, therefore, it was obligatory on the
part of the A.O to have clearly put the assessee to notice as regards the
default for which he was called upon to explain as to why penalty under Sec.
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271(1)(c) may not be imposed on him. As observed by us hereinabove, a
perusal of the ‘Show cause’ notices issued in the present case by the A.O
under Sec. 274 r.w. Sec. 271(1)(c), dated 23.12.2011 and 07.08.2015 clearly
reveals that there has been no application of mind on the part of the A.O
while issuing the same. We are of a strong conviction that the very purpose
of affording a reasonable opportunity of being heard to the assessee as per
the mandate of Sec. 274(1) would not only be frustrated, but would be
rendered redundant, if the assessee is not conveyed in clear terms the
specific default for which penalty under the said statutory provision was
sought to be imposed. In our considered view, the indispensable
requirement on the part of the A.O to put the assessee to notice as regards
the specific charge contemplated under the aforesaid statutory provision viz.
‘concealment of income’ or ‘furnishing of inaccurate particulars of income’ is
not merely an idle formality, but is a statutory obligation cast upon him,
which we find had not been discharged in the present case as per the
mandate of law.
We would now test the validity of the aforesaid ‘Show Cause’ notices
and the jurisdiction emerging therefrom in the backdrop of the judicial
pronouncements on the issue under consideration. Admittedly, the A.O is
vested with the powers to levy penalty under Sec. 271(1)(c) of the Act, if in
the course of the proceedings he is satisfied that the assessee had either
‘concealed his income’ or ‘furnished inaccurate particulars of his income’. In
our considered view, as penalty proceedings are in the nature of quasi
criminal proceedings, therefore, the assessee as a matter of a statutory right
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is supposed to know the exact charge for which he is being called upon to
explain that as to why the same may not be imposed. The non specifying of
the charge in the ‘Show cause’ notice not only reflects the non application of
mind by the A.O, but the same seriously defeats the very purpose of giving a
reasonable opportunity of being heard to the assessee as envisaged under
Sec. 274(1) of the I.T Act. We find that the fine distinction between the said
two defaults contemplated in Sec. 271(1)(c) viz. ‘concealment of income’ and
‘furnishing of inaccurate particulars of income’ had been appreciated at
length by the Hon’ble Supreme Court in its judgments passed in the case of Dilip & Shroff Vs. Jt. CIT (2007) 210 CTR (SC) 228 and T. Ashok Pai
Vs. CIT (2007) 292 ITR 11 (SC). The Hon’ble Apex Court in its aforesaid
judgments had observed that the two expressions, viz. ‘concealment of
particulars of income’ and ‘furnishing of inaccurate particulars of income’
have different connotation. The Hon’ble Apex Court being of the view that
the non-striking off the irrelevant limb in the notice clearly reveals a non-
application of mind by the A.O, had observed as under:-
“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 has furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing reliance on the order of assessment laid emphasis that he had dealt with both the situations. 84. 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. Vs. CIT (2000) 2 SCC 718].
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We are of the considered view, that now when as per the settled position of
law the two defaults viz. ‘concealment of income’ and ‘furnishing of
inaccurate particulars of income’ are separate and distinct defaults,
therefore, in case the A.O sought to have proceeded against the assessee for
either of the said defaults, then it was incumbent on his part to have clearly
specified his said intention in the ‘Show cause’ notice, which however we
find he had failed to do in the case before us. The aforesaid failure on the
part of the assessee cannot be characterised as merely a technical default,
as the same has clearly divested the assessee of his statutory right of an
opportunity of being heard and defend his case.
We find that the Hon’ble High Court of Karnataka in the case of CIT
Vs. SSA’s Emerald Meadows (73 taxmann.com 241)(Kar) following its
earlier order in the case of CIT Vs. Manjunatha Cotton and Ginning
Factory (2013) 359 ITR 565 (Kar) has held that where the notice issued by
the A.O under Sec. 274 r.w Sec. 271(1)(c) does not specify the limb of Sec.
271(1)(c) for which the penalty proceedings had been initiated, i.e. whether
for ‘concealment of particulars of income’ or ‘furnishing of inaccurate
particulars’, the same has to be held as bad in law. The ‘Special Leave
Petition’ (for short ‘SLP’) filed by the revenue against the aforesaid order of
the Hon’ble High Court of Karnataka had been dismissed by the Hon’ble
Supreme Court in CIT Vs. SSA’s Emerald Meadows (2016) 73
taxmann.com 248 (SC). Apart therefrom, we find that a similar view had
been taken by the Hon’ble High Court of Bombay in the case of CIT Vs.
Samson Perinchery (ITA No. 1154 of 2014; Dt. 05.01.2017)(Bom).
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We find that as averred by the Ld. A.R., the indispensable obligation
on the part of the A.O to clearly put the assessee to notice of the charge
under the aforesaid statutory provision viz. Sec. 271(1)(c) had been
deliberated upon by a coordinate bench of the Tribunal, i.e. ITAT “C” Bench,
Mumbai in the case of M/s Orbit Enterprises Vs. ITO-15(2)(2), Mumbai (ITA
No. 1596 & 1597/Mum/2014, dated 01.09.2017). The Tribunal in the
aforementioned case had in the backdrop of various judicial
pronouncements concluded that the failure to specify the charge in the
‘Show cause’ notice clearly reflects the non application of mind by the A.O,
and would resultantly render the order passed under Sec. 271(1)(c) in the
backdrop of the said serious infirmity as invalid and void ab initio.
We have given a thoughtful consideration to the issue before us and
after deliberating on the facts, are of the considered view, that the failure on
the part of the A.O to clearly put the assessee to notice as regards the
default for which penalty under Sec. 271(1)(c) was sought to be imposed on
him by failing to strike off the irrelevant default in the ‘SCN’, dated
23.12.2011 and 07.08.2015, had left the assessee guessing of the default for
which he was being proceeded against for. We thus in the backdrop of our
aforesaid observations, are of a strong conviction that as the A.O had clearly
failed to discharge his statutory obligation of fairly putting the assessee to
notice as regards the default for which he was being proceeded against,
therefore, the penalty under Sec. 271(1)(c) of Rs. 2,75,275/- imposed by him
in clear violation of the mandate of Sec. 274(1) of the Act, cannot be
sustained. We thus for the aforesaid reasons not being able to persuade
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ourselves to subscribe to the imposition of penalty by the A.O, therefore, set
aside the order of the CIT(A) who had upheld the same. The penalty of
Rs.2,75,275/- imposed by the A.O under Sec.271(1)(c) is quashed in terms
of our aforesaid observations.
As the penalty imposed on the assessee under Sec. 271(1)(c) of the Act
had been quashed by us for want of jurisdiction on the part of the A.O,
therefore, we refrain from adverting to and adjudicating the merits of the
case.
The appeal of the assessee is allowed in terms of our aforesaid
observations
The appeal of the assessee is allowed in terms of our aforesaid
observations.
Order pronounced in the open court on 17.01.2019. Sd/- Sd/- (N.K. Saini) (Ravish Sood) Vice President Judicial Member Place: Jalandhar; Date 17.01.2019 rkk आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT(A)- 4. आयकर आयु�त / CIT 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण DR, ITAT, Camp Bench at Jalandhar. 6. गाड� फाईल / Guard file. स�या�पत ��त //True Copy// आदेशानुसार/ BY ORDER,
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उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण/ ITAT, Camp Bench, Jalandhar.
Sr.No. Details Date Initials Designation 16.1.19 1 Draft dictated on Sr.PS/PS 17.1.19 2 Draft Placed before author Sr.PS/PS 3 Draft proposed & placed before the JM/AM Second Member 4 Draft discussed/approved by Second JM/AM Member 5 Approved Draft comes to the Sr.PS/PS 17.1.19 Sr.PS/PS 6 Kept for pronouncement on 171.19 Sr.PS/PS 7 File sent to the Bench Clerk 17.1.19 Sr.PS/PS 8 Date on which the file goes to the Head clerk 9 Date on which file goes to the AR 10 Date of Dispatch of order