M/S. UTTAR PRADESH FINANCIAL CORPORATION,KANPUR vs. DEPUTY COMMISSIONER OF INCOME TAX-6, KANPUR

PER: A.D. JAIN, VICE PRESIDENT:

This is assessee’s appeal for Assessment Year 2007-08, against the order of the ld. CIT(A)-II, Kanpur dated 28.11.2017, taking the following grounds:

“1) That the Ld. C.l.T. (Appeals)-ll, Kanpur has erred in law and on facts in sustaining the penalty of Rs.1,67,600/- arbitrarily imposed by the Ld. A,O. on account of disallowance of reimbursement of medical expenses to M.D. amounting to Rs.4.97.872/- ignoring the terms of appointment and contractual obligation of the Appellant. 2) That the Ld. C.l.T. (Appeals)-II, Kanpur has erred in law and on facts in not considering and appreciating written reply dated 29.11.2017 filed by the appellant along with photocopies of medical prescriptions, hospital and medical bills and supporting details submitted in support of genuinity and verification of expenses incurred on medical treatment of M.D., hence the penalty imposed is wholly unjustified, without proper basis, which is much too high and deserves to be deleted.

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3) The Ld. A.O. as well as Ld. CILT (Appeals) failed to appreciate that the assessment and the penalty proceedings are distinct and separate and any disallowance alone is not sufficient to levy penalty without proving beyond any doubt that such disallowance represents real income and is not based merely on estimate or bald hypothesis 4) That the order of the Ld. A.O. failed 10 mention specific charge of default for which the penalty proceedings were initiated hence, the penalty imposed is bald, unsustainable, and in any case much too high and excessive. 5) That the order of the Ld. C.l.T. (Appeals)-II, Kanpur is insupportable in law and on facts and is also contrary to the principles of natural justice and equity.” 2 The grievance of the assessee is against imposition of penalty under

section 271(1)(c) of the I.T. Act, which has been confirmed by the learned

CIT(A).

attention to the show cause notice for penalty under section 271(1)(c) of the

Act. It was submitted that from a perusal of this notice, it is crystal clear that the

charge, for which the penalty is proposed to be levied under section 271(1)(c)

of the Act, is not specific, as to whether it is for concealment of income or for

furnishing of inaccurate particulars of income. The ld. A.R. of the assessee

vehemently argued that it is a settled position of law that if the notice under

section 274 is not specific about the charge or limb under which penalty is

being levied under section 271(1)(c) of the Act, any penalty levied on the basis

of such a notice is bad in law and it is liable to be cancelled.

below.

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From a perusal of this notice, it is crystal clear that the charge for which penalty

is proposed to be levied under section 271(1)(c) of the Act, whether for

concealment of income, or for furnishing of inaccurate particulars of income, is

not specific. The law mandates that the authority who is proposing to impose

penalty shall be certain as to the basis on which the penalty is being levied and

the notice must reflect that specific reason, so that the assessee, to whom such

notice is given, can prepare himself regarding the defence which he would like

to take to support his case. This is even enshrined in the principles of natural

justice and as has been upheld by Hon'ble Apex Court and other High Courts.

We place reliance on the following cases:-

‘CIT vs. SSA’s Emerald Meadows’, [2016] 73 1. Taxmann.com 248 (SC). In this case the Hon'ble Apex Court looked into the facts before them that Tribunal relying on the decision of Division Bench of Hon'ble Karnataka High Court in the case of CIT and Another vs. Manjunath Cotton & Ginning Factory (supra) allowed the appeal of the assessee holding that notice issued by the Assessing Officer under section 274 read with section 271(1)(c) of the Act was bad in law as it did not specify under which limb of 271(1)(c) penalty proceedings has been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. When the matter travelled upto the High Court, it supported the judgment of Hon'ble Karnataka High Court in the case of CIT and Another vs. Manjunath Cotton & Ginning Factory (supra) and decided that there was therefore no substantial question of law to be decided. Thereafter an SLP was filed before the Hon'ble Apex Court and the Apex Court dismissed the SLP of the Revenue finding no merit therein and confirming the issue in favour of the assessee.

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‘CIT and Another vs. Manjunath Cotton & Ginning 2. Factory’, [2013] 359 ITR 565 (Karn.). In this case, it has been held by the Hon'ble High Court that notice under section 274 read with section 271(1)(c) of the Act should specifically state the grounds mentioned in 271(1)(c) i.e. whether it is for concealment of income or for furnishing of inaccurate particulars of income. Sending printed form where all the grounds mentioned would not satisfy the requirement of law. Assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended. On the basis of such proceedings no penalty could be imposed to the assessee. Penalty proceedings are distinct from assessment proceedings though it emanates from the assessment proceedings still it is separate and independent proceedings all together. ‘Meherjee Cassinath Holdings Pvt. Ltd vs. ACIT (ITAT 3. Mumbai)’, ITA NO. 2555/MUM/2012, order dated 28/04/2017 wherein the observation of the Bench was that penalty proceedings under section 271(1)(c) of the Act are "quasi-criminal" proceedings and ought to comply with the principles of natural justice. The non- striking of the irrelevant portion in the show-cause notice means that the Assessing Officer is not firm about the charge against the assessee and the assessee is not made aware as to which of the two limbs of s. 271(1)(c) he has to respond. ‘Chandra Prakash Bubna vs. Income Tax Officer, Ward 4. 27(3), Kolkata’, (ITAT Kolkata Bench) [2015] 64 taxmann.com 155 wherein it was held that when the Assessing Officer levied penalty without bringing out any specific charge for which penalty had been imposed, penalty was liable to be deleted. ‘Sachin Arora vs. ITO’ and other cases, order dated 5. 19.12.2017 passed by the Agra Bench of the Tribunal in ITA No.118/Agra/2015 etc.

cases, is apparent and we arrive at the considered view that the show cause

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notice, which has not specified the charge and limb under which the penalty is

proposed to be levied, is void ab initio and the consequent penalty imposed on

the basis of such notice is, therefore, illegal and bad in law and liable to be

deleted. We, therefore, direct deletion of the penalty.

(Order pronounced in the open court on 31/01/2019)

Sd/- Sd/- (T.S. Kapoor) (A.D. Jain) Accountant Member Vice President Aks – Dtd. 31/01/2019 Copy of order forwarded to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar