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Income Tax Appellate Tribunal, BANGALORE BENCHES “B”, BANGALORE
Before: Shri Chandra Poojari, AM & Shri George George K, JM
IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “B”, BANGALORE Before Shri Chandra Poojari, AM & Shri George George K, JM ITA No.770/Bang/2017 : Asst.Year 2004-2005 M/s. Ickon Projects The Income Tax Officer No.11/2, 2nd Floor, New Jayadeva Ward 7(2)(3) v. Hostel Commercial Complex Bengaluru. 5th Main, Gandhinagar Bangalore – 560 009. PAN : AABFI7099A. (Appellant) (Respondent) Appellant by : Sri.Narendra Sharma, Advocate Respondent by : Sri.Chetan R. Addl.CIT-DR Date of Pronouncement : 30.11.2021 Date of Hearing : 30.11.2021 O R D E R Per George George K, JM This appeal at the instance of the assessee is directed against CIT(A)’s order dated 27.01.2017. The relevant assessment year is 2004-2005.
The assessee has raised seven grounds. All the grounds relate to imposition of penalty u/s 271(1)(c) of the I.T.Act. In the additional ground, the assessee has raised a legal issue that notice for initiation of penalty u/s 274 of the I.T.Act is defective and does not spell out the grounds on which the penalty was sought to be imposed. Therefore, it was contended that since the notice is defective, the penalty order u/s 271(1)(c) of the I.T.Act is to be held as void ab initio.
The additional ground raised by the assessee does not involve any investigation of facts otherwise than found on
2 ITA No.770/Bang/2017 M/s.Ickon Projects. record of the department and are pure question of law. Since the additional ground raised is a pure question of law and goes to the root of jurisdiction, we admit the additional ground raised by the assessee in view of the judgment of the Hon’ble Apex Court in the case of National Thermal Power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC).
Brief facts of the case are as follows: The assessee is a partnership concern, carrying on the business of property development. For the assessment year 2004-2005, return of income was filed on 31.10.2004 declaring total income of Rs.33,412. Subsequently, search was conducted u/s 132 of the I.T.Act in the case of M/s.Davanam Jewellery Private Limited, wherein certain details relating to investment made by the assessee in purchase of erstwhile Minerva Mills was found. Consequent to the search, notice u/s 148 of the I.T.Act was issued to the assessee on 23.03.2011. In response to the notice issued u/s 148 of the I.T.Act, return of income was filed declaring total income of Rs.70,26,410, which included Rs.33,412 shown in the original return. The assessment u/s 147 r.w.s. 143(3) of the I.T.Act was completed on 27.12.2011 assessing the total income of Rs.1,05,26,412.
Thereafter notice u/s 274 of the I.T.Act was issued for imposition of penalty. The assessee filed objections vide letter dated 11.03.2014. However, the objections of the assessee was rejected and the Assessing Officer imposed minimum penalty of Rs.37,64,656 u/s 27(1)(c) of the Act.
3 ITA No.770/Bang/2017 M/s.Ickon Projects.
Aggrieved by the order imposing penalty u/s 271(1)(c) of the I.T.Act, the assessee preferred an appeal to the first appellate authority. The CIT(A) upheld the penalty imposed u/s 271(1)(c) of the I.T.Act.
Aggrieved, the assessee has filed this appeal before the Tribunal. The learned Counsel for the assessee has filed a paper book comprising of 47 pages enclosing therein copy of the penalty show cause notice issued u/s 274 of the I.T.Act, the return of income filed in response to notice issued u/s 148 of the Act, statement of the total income of the assessee for the relevant assessment year, copy of the confirmation letter issued from M/s.Shakti Promoters and Developers, copy of ledger extract of Sri.Prabhakar H.S. in the books of the assessee and judicial pronouncements relied on. The learned AR contended by placing reliance on the additional ground that notice issued u/s 274 of the Act is not in accordance with law. It was stated that on this ground alone the order imposing penalty should be quashed. The learned AR drew our attention to the show cause notice issued u/s 274 of the Act before imposing penalty and submitted that the said notice does not specify as to whether the assessee is guilty of having “furnished inaccurate particular of income” or “of having concealed particulars of such income”. He pointed out that the show cause notice does not strike out the irrelevant portion. In this context, the learned AR relied on the judgment of the Hon’ble jurisdictional High Court in the case of CIT v.
4 ITA No.770/Bang/2017 M/s.Ickon Projects. Manjunatha Cotton & Ginning Factory reported in (2013) 359 ITR 565 (Kar.). 8. The learned Departmental Representative relied on the Hon’ble Bombay High Court judgment in the case of Ventura Textiles Limited v. CIT in ITA No.958 of 2017 (judgment dated 12th June, 2020).
In the rejoinder, the learned AR relied on the latest Full Bench judgment of the Hon’ble Bombay High Court in the case of Mohd.Farhan A Shaikh v. DCIT reported in 431 ITR 1 (FB-Bom.).
We have heard rival submissions and perused the material on record. On perusal of the show cause notice issued u/s 274 of the Act (refer page 6 of the paper book filed by the assessee), it is clear that the same is defective as it does not spell out the ground on which the penalty is sought to be imposed, whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income . It can be seen from the copy of the notice proposing penalty u/s 271(1)(c) of the Act, the irrelevant portion has not been strike off. The Hon’ble Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory (supra) has laid down the following principles in the matter of imposing penalty u/s.271(1)(c) of the Act:-
“NOTICE UNDER SECTION 274 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
5 ITA No.770/Bang/2017 M/s.Ickon Projects. 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 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(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm 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(1)(c) when it is a sine qua non for initiation or 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
6 ITA No.770/Bang/2017 M/s.Ickon Projects. 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 Ashok Pai reported in 292 ITR 11 at 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 MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 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.” The final conclusion of the Hon’ble Court was as follows:- “63. In the light of what is stated above, what emerges is as under: a) Penalty under Section 271(1)(c) is a civil liability.
7 ITA No.770/Bang/2017 M/s.Ickon Projects. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions stipulated in Section 271(1)(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(1)(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.
8 ITA No.770/Bang/2017 M/s.Ickon Projects.
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(1)(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 in so far 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.” (emphasis supplied)
9 ITA No.770/Bang/2017 M/s.Ickon Projects.
10.1 It is clear from the aforesaid judgment of the Hon’ble jurisdictional High Court that on the facts of the present case that the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. The Hon’ble Karnataka High Court in the case of CIT vs. SSA’s Emerald Meadows in ITA No.380 of 2015 dated 23.11.2015 by following earlier judgment in the case of CIT vs Manjunatha Cotton and Ginning factory (supra) took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. The ld. Counsel further brought to our notice that as against the judgment of the Hon’ble Karnataka High Court the revenue preferred an appeal in SLP in CC No.11485 of 2016 and the Hon’ble Supreme Court by its order dated 05.08.2016 dismissed the SLP preferred by the department.
10.2 We have already observed that the show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. We therefore hold that imposition of
10 ITA No.770/Bang/2017 M/s.Ickon Projects. penalty in the present case cannot be sustained and the same is directed to be cancelled.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on this 30th day of November, 2021. Sd/- Sd/- (Chandra Poojari) (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore; Dated : 30th November, 2021. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT(A)-5, Bengaluru. 4. The Pr.CIT-5, Bengaluru. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore