PRITI SOMANI,KOLKATA vs. ITO, WARD-3(1), GANGTOK

After hearing the rival contentions of the parties and perusing the material on record issue before us is levy of penalty on the basis of invalid notice. We find that the ld. counsel of the assessee vehemently submitted before us that the penalty proceedings initiated by the AO vided notice dated 22.09.2021 u/s.274 r.w.s.271B of the Act is vague as the AO has not struck down the limb which was not applicable to the assessee’s case. Ld. AR argued that notice was issued on the ground that the assessee ‘has failed to get accounts audited or failed to furnish a report of such audit as required under Section 44AB of the Act’. Ld. AR in defense of his argument, relied on the decision of coordinate bench of the Tribunal in the case of North Eastern Constructions, reported in [2020] 117 taxmann.com 321 (Guwahati-Tribunal) wherein the issue has been decided in favour of the assessee. On the other hand, ld. Sr. DR relied on the orders of the authorities below.

After hearing the rival contentions of the parties and perusing the material on record, we note that the assessee is running a proprietary concern under the name M/s Chirag Enterprise and is situated in the state of Sikkim, India. We note that the assessee was in bonafide belief that he is not required to get her account audited and to file return of income as the income of the person with Sikkim domicile is not liable to tax u/s.10(26) of the Act. Admittedly, the assesee has not filed any return of income or got her account audited which was done after issuance of notice u/s.148 of the Act. The assessee filed return of income and got her account audited and furnished audit report before the AO. The ld. AR raised the legal issue before us that the notice issued by the AO initiating the penalty proceedings u/s.274 r.w.s.271B of the Act was vague as the AO has not mentioned the particular limb on which the penalty was proposed to be initiated. The said notice issued by the AO for both the assessment years under consideration are extracted below for the sake of convenience :-

After perusal of the notice, we note that the notice were issued for failure to get her accounts audited or on failure to furnish a report of such audit as required u/s.44AB of the Act. Thus, the AO mentioned both the limbs which renders it invalid on the ground of being issued mechanically and therefore not sustainable. The case of the assessee is supported by the decision of the coordinate bench of the Tribunal in the case of North Eastern Construction (supra), wherein the same issue has been decided in favour of the assessee by observing and holding as under :- 10. We have heard both the parties and perused the records. We note that the assessee had filed return of income for the AY 2015- 16 on 31-03-2016 along with TAR. Thereafter, we note the department accepted the return of income filed by the assessee by issuing intimation u/s. 143(1) of the Act on 28-05-2016. After two years on 15-05-2018, the AO had issued notice u/s. 274 read with section 271B of the Act proposing to levy of penalty u/s. 271B for the following faults: i) failed to get accounts audited or ii) failed to furnish a report of such audit as required u/s.44AB of the Act 11. Thus, we note that the AO has given a show cause notice, which is per-se vague. Thus, we note that the AO by issuing penalty notice u/s. 271B has not spelt out what was the fault for which the assessee is being proceeded against for levy of penalty. Since the AO North Eastern Constructions has not struck down the irrelevant portion/fault which is not applicable in the facts and circumstances of the case, the notice reproduced (supra) is vague and therefore, bad in law as held by the Co-ordinate Bench of the Tribunal in the case of Parkinson Electrical Corprn (supra). We are of the opinion that notice proposing penalty should clearly spell out the fault/charge for which the assessee is put on notice, so that he can defend the charge properly. The issue of bad/vague penalty notice was adjudicated by the Hon'ble Karnataka High Court [though in a different context i.e notice issued u/s. 274 read with section 271(1)( c) of the Act] in the case of CIT vs. SSA's Emerald Meadows in of 2015 dated 23.11.2015 wherein the Hon'ble High Court following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory (2013) 359 ITR 565 has held that if the penalty notice is vague, then the penalty order is also bad in the eyes of law. This decision of Karnataka High Court was challenged by the Revenue before the Hon'ble Apex Court, and the Hon'ble Supreme Court has dismissed the SLP. Therefore, applying the ratio- dicedenti in SSA's Emerald Meadows & M/s. Parkinson (supra), we are of the view that the notice issued by AO before levying penalty u/s. 271B of the Act is bad in law.

Moreover, we note that the assessee had furnished the TAR belatedly on 31-03-2016 along with the return of income, which has been accepted by the department and intimation u/s. 143(1) of the Act has been issued. Pursuant to the show cause notice before imposing penalty, the assessee had explained before the AO the cause for delay in filing the TAR. The assessee explained that delay happened due to the fact that for earlier year [i.e. AY 2014-15] the audit report could not be completed on time and could be completed only on 23-03- 2016. This happened because the accountant of the assessee, who used to handle the accounts had suddenly left the office/service in earlier year without properly handing over the books maintained by the assessee. We are of the opinion that the explanation given by the assessee cannot be held to be unreasonable. We note that in a similar case , where facts and circumstances of the case was same, the Ahmedabad Bench of this Tribunal in the case of Kamlesh R. Agarwal (HUF) has given relief to the assessee by holding that delay in getting accounts of the earlier year can be reasonable ground as stipulated u/s. 273B of the North Eastern Constructions Act. Therefore, we find that there was reasonable cause for not filing the TAR within due date. Moreover, we also note that there has been several mistakes which has crept in the impugned penalty order of the AO, which shows total non- application of mind of necessary facts by the AO. Therefore, from any angle as discussed supra, the penalty levied u/s. 271B cannot be sustained, so it needs to be deleted and we direct the AO to do so.

In the result, the appeal of assessee is allowed.

Considering the facts of the case in the light of the above decision, we are inclined to set aside the order of the ld. CIT(A) and direct the AO to delete the penalty imposed u/s.271B of the Act as the same is based on the invalid notice issued by the AO.

Since, the issue involved in is similar to the appeal of the assessee in AO for imposing penalty u/s.271B of the Act, which we have already held invalid and consequently quashed the assessment. Therefore, the decision made in the appeal of the assessee for A.Y.2012-2013 shall apply mutatis mutandis to this appeal of the assessee for A.Y.2013-2014 also. Accordingly, both the appeals of the assessee are allowed.