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Income Tax Appellate Tribunal, DELHI BENCH : D : NEW DELHI
Before: SHRI R.K. PANDA & SHRI SUDHANSHU SRIVASTAVA
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER Assessment Year: 2014-15 Kailash Chander Malhotra, HUF, Vs ACIT, L-7A (LGF), South Extension Part-2, Circle-45(1), New Delhi. New Delhi. PAN: AAAHK4297H (Appellant) (Respondent) Assessee by : Shri Raj Kumar Gupta, CA Revenue by : Shri R.K. Gupta, Sr. DR Date of Hearing : 21.09.2020 Date of Pronouncement : 29.09.2020 ORDER
PER R.K. PANDA, AM:
This appeal filed by the assessee is directed against the order dated 29th April 2019 of the CIT(A)-15, New Delhi, relating to assessment year 2014-15. The grounds raised by the assessee are as under:-
“1. That under the facts and circumstances, the initiation of penalty proceedings are illegal and unsustainable in law, more so, as the notice issued for initiating impugned proceedings is fatally defective for not specifying the specific charge i.e. either for concealment of particulars of income or for furnishing inaccurate particulars of income.
2. That without prejudice, the impugned penalty order is vitiated in law for imposing penalty for both the charges as per findings in Para-8 of impugned penalty order as:- “Hence, I am satisfied that this is a fit case for imposition of penalty for concealment of particulars of income and furnishins inaccurate particulars of income amounting to Rs.24,00,000/- as per the provisions of Sec.271(l)(c) of the Act”
That without prejudice, even on merits also, under the facts and circumstances, no penalty u/s.271(l)(c) should had been levied, hence the impugned order levying penalty of Rs.8,15,760/- @100% of the tax sought to be evaded needs to be quashed.”
Facts of the case, in brief, are that the assessee is an individual and filed his return of income on 19th July 2014 declaring total income at Rs.2,46,67,670/-. The AO completed the assessment determining the total income at Rs.2,70,67,670/- wherein he made an edition of Rs.24 lakhs treating the amount of Rs.24 lakhs credited in the bank account of the assessee as income under section 69A as against agricultural income declared by the assessee. The assessee did not prefer any appeal against the said addition. Thereafter, the AO initiated penalty proceedings under section 271(1)(c) of the IT Act. Rejecting the various explanations given by the assessee and holding that the additional income disclosed by the assessee has come only after it was detected by the AO and, therefore, the assessee has concealed the particulars of income and furnished inaccurate particulars of income, the AO levied penalty of Rs.8,15,760/- being the minimum penalty under section 271(1)(c) of the IT Act.
3. In appeal, the ld.CIT(A) upheld the penalty so levied by the AO. While doing so he also rejected the contention of the assessee before him that show cause notice issued did not spell out any specific charges as to whether penalty proceedings were being initiated for concealment or for furnishing of inaccurate particulars of income. According to him, the various decisions relied on by the ld. counsel for the assessee are not applicable to the facts of the present case since in this case the assessee had prior knowledge of cause of action before levying of penalty. In other words, the assessee was aware of the facts of section 271(1)(c) under which penalty proceedings were proposed to be initiated since it is discernible from the assessment order. Therefore, according to the ld. CIT(A), where satisfaction of the AO while completing the assessment has been correctly recorded, then, merely because of inappropriate portion has not been struck off in the notice, the penalty proceedings would not become invalid.
Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal.
The ld. counsel for the assessee drew the attention of the Bench to page 2 of the synopsis which contains the first show-cause notice under section 271(1)(c) of the Act dated 26th December, 2016. He submitted that a perusal of the same would show that the inappropriate words in the said notice has not been struck off and the AO has, in the notice issued under section 274 read with section 271 of the IT Act . dated 26th December 2016 has mentioned as under:- “To Kallash Chander Malhotra (HUF) J-3/127-128, Rajouri Garden Delhi—110027. 3
Whereas in the course of proceeding before me for the assessment year 2014- 15 it appears to me that you:- _ *Have concealed the particulars of your income or furnished inaccurate particulars of such Income in items of explanation 1,2,3,4,and 5. You are hereby requested to appear before me at 2:30 P.M. on 17/01/2017 and show cause why an order imposing a penalty on you should not be made under section 271 of the income tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative you may show cause in writing on or before that said date which will be considered before any such order is made under section 271(1)(c).”
Referring to the second show cause notice dated 2nd December 2017, he 6. submitted that the AO has not .referred to the first show cause notice and, here also, there is no mention as to under which limb of the provisions of section 271(1)(c) the penalty has been initiated. Referring to para 8 of the assessment order, the ld. counsel drew the attention of the Bench to the operative para and submitted that here also the AO is not clear as to under which limb of the provisions of section 271(1)(c) of the Act the penalty is being initiated. Referring to the decision of the Hon’ble Delhi High Court in the case of PCIT vs Sahara Life Insurance Company Ltd., vide ITA 426/2019, order dated 2nd August 2019, he submitted that the Hon’ble High Court in the decision has upheld the order of the Tribunal quashing the penalty proceedings on the ground that notice issued by the AO would be bad in law if it did not specify under which limit of section 271(1)(c) the penalty proceedings have been initiated, i.e., whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. 4 Referring to the decision of the Delhi Bench of the Tribunal in the case of Sanjay Mitra vs. DCIT, in order dated 01.10.2018, he submitted that under identical circumstances, the Tribunal has quashed the penalty proceedings on the ground that inappropriate words in the notice issued under section 274 read with section 271…..have not been struck off. Relying on various decisions placed in the paper book/synopsis, the ld. counsel submitted that since inappropriate words have not been struck off from the penalty notice and it is not clear as to under which limb the AO has initiated penalty proceedings under section 271(1)(c), therefore, the penalty so levied by the AO and upheld by the CIT(A) should be deleted.
So far as the merit of the case is concerned, he submitted that it was a bona fide claim made by the assessee which does not invite the rigours of penalty proceedings under section 271(1)(c) of the Act. He submitted that the assessee in the instant case has declared an income of Rs.24 lacs as agricultural income and the amount was received through cheque from M/s Nature Forms & Real Estate Pvt. Ltd., as rent of agricultural land to be used for agricultural purposes for cultivation of allavera by the said company. Referring to the provisions of section 2(1A)(a), he submitted that rent derived from land situated in India used for agricultural purposes is agricultural income. He submitted that there was no dispute to the fact that the assessee owns agricultural land and prior to assessment year 2014-15 the assessee had been carrying out agricultural activity himself and was declaring agricultural income of Rs.5,23,500/- in assessment year 2012-13 and Rs.5,24,500/- in assessment year 2013-14 which was accepted by the Department. He submitted that although the assessee had a strong case in his favour, however, to buy peace of mind he had accepted the addition made by the AO and paid taxes thereon. Relying on various decisions, he submitted that penalty under section 271(1)(c) of the Act is not leviable under the facts and circumstances of the case.
The ld. DR, on the other hand, heavily relied on the order of the CIT(A). So far as the argument of the ld. Counsel that the inappropriate words in the notice issued under section 274 read with section 271(1)(c) of the Act is concerned, i.e., under which limb the AO has initiated penalty proceedings, the ld. DR, referring to the decision of the Hon’ble Supreme Court in the case of MAK Data Private Limited vs CIT, reported in 358 ITR 593, drew the attention of the Bench to Para 10 of the order which reads as under:- “10. The AO has to satisfy whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the AO is not required to record his satisfaction in a particular manner or reduce it into writing. The scope of Section 271(l)(c) has also been elaborately discussed by this Court in Union of India vs. Dharmendra Textile Processors (2008) 13 SCCO 369 and CIT vs. Atul Mohan Bindal (2009) 9 SCC 589.”
He submitted that as per the above decision, the AO is not required to record his satisfaction in a particular manner or reduce it into writing. Therefore, the argument of the ld. counsel for the assessee should be rejected and there is no infirmity in the assessment and penalty order of the AO as well as in the notice issued while initiating penalty proceedings.
So far as the merit of the case is concerned, he submitted that the assessee has wrongly claimed bogus agricultural income and the AO has discussed this issue elaborately and made the addition which the assessee accepted and not preferred any appeal and paid the taxes. He submitted that but for the investigation the assessee would not have offered the income to tax. He accordingly submitted that under the facts and circumstances of the case, the penalty levied by the AO and upheld by the CIT(A) is fully justified.
We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the first issue to be decided in the grounds raised by the assessee is regarding the validity of initiation of penalty proceedings in absence of non-striking of the inappropriate words in the notice issued under section 274 read with section 271(1)(c) of the Act. A perusal of the penalty notice issued under section 274 read with 271 of the Act dated 26th December 2016 which has already been reproduced in the preceding paragraphs shows that the inappropriate words have not been struck off and it is not clear as to under which limb of provisions of section 271(1)(c) the AO has initiated penalty proceedings, i.e., for concealment or furnishing of inaccurate particulars of income.
Similarly, the subsequent notice issued by the AO on 2nd June 2017 does not 12. show anything and the AO simply asked the assessee to show cause as to why penalty under section 271(1)(c) should not be imposed in your case. We find Para 8 of the penalty order reads as under:- “Since the assessee had furnished inaccurate particulars of income, penalty proceedings u/s 271(l)(c) of the Act were initiated. Moreover, the assessee's disclosure for additional income has come only after it was detected by AO. Hence, I am satisfied that this is a fit case for imposition of penalty for concealment of particulars of income and furnishing inaccurate particulars in respect of his income amounting to Rs. 24,00,000/- as per the provisions of Sec. 271(1)(c) of The Act.´
Therefore, we find merit in the argument of the ld. counsel that the AO is not sure as to under which limb he has initiated penalty proceedings under section 271(1)(c) of the Act, i.e., for concealment of income or for furnishing inaccurate particulars of income. We find identical issue had come up before the Hon’ble Delhi High Court in the case of PCIT vs M/s Sahara India Life Insurance Company Limited. We find the Hon’ble High Court vide ITA 426/2019, order dated 2nd August 2019 at para 21 of the order has observed as under:- “21. The Respondent had challenged the upholding of the penalty imposed under Section 271(1) (c) of the Act. which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar) and observed that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(1) (c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgment in the subsequent order in Commissioner of Income Tax v. SSA’s Emerald Meadows (2016) 73 Taxman.com 241 (Kar), the appeal against which was dismissed by the Supreme Court of India in SLP No. 11485 of 2016 by order dated 5th August, 2016.”
Similarly, we find the co-ordinate Bench of the Tribunal in the case of Sanjay Mitra, vide order dated 1st October, 2018, while deciding identical issue has held as under:-
“15. We have considered the rival arguments made by both the sides and perused the material available on record. We have also considered the various decisions cited before us. We find the only issue to be decided in the grounds of appeal is regarding the sustainable of penalty levied u/s 271(1)(c) when the inappropriate words in the notice issued u/s 274 r.w.s. 271 have not been struck off. A perusal of the notice issued u/s 274 r.w.s. 271 dated 31.03.2004 shows that the inappropriate words in the said notice have not been struck off and it is a printed notice. Even the last line of the said notice only speaks of section 271 and does not even mention of section 271(1)(c) of the I.T. Act. We find an identical issue had come up before this Bench of the Tribunal in the case of Sahiwal Investment & Trading co. vs. ITO vide for assessment year 2006-07 order dated 18.07.2018 to which both of us parties. We find the Tribunal in the said decision while allowing the additional ground filed by the assessee has decided the issue in favour of the assessee by observing as under :-
12. Additional Ground No. (ii) is relating to absence of specific charge pointing out in the notice. It is pertinent to note here that the penalty order is based on furnishing of inaccurate particulars but the notice is not specifying exactly on which limb the penalty u/s 271(1)(c) has been initiated. From the notice dated 30.06.2013 produced by the Ld. AR during the hearing, it can be seen that the Assessing Officer was not sure under which limb of provisions of Section 271 of the Income Tax Act, 1961, the assessee is liable for penalty. The issue is squarely covered by the decision of the Hon'ble Supreme Court in case of M/s SSA' Emerald Meadows. The extract of ITA No.5206/Del/2016 the decision of the Hon'ble Karnataka High Court in M/s. SSA' Emerald Meadows are as under which was confirmed by the Hon'ble Apex Court:
3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short 'the Act') to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the ITA No. 4913/Del/2015 decision of the Division Bench of this Court 9 rendered in the case of COMMISSIONER OF INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565.
4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed." Thus, Additional Ground No. (ii) of the assessee's appeal is allowed. Since the inception of the notice issued u/s 271(1)(c) has become null and void, there is no need to comment on merit of the case. The Penalty u/s 271(1)(c) of the Act is quashed."
16. Since in the instant case also the inappropriate words in the penalty notice has not been struck off and the notice does not specify as to under which limb of the provisions, the penalty u/s 271(1)(c) has been initiated, therefore, we are of the considered opinion that the penalty levied u/s 271(1)(c) is not sustainable and has to be deleted. Although the ld. DR has relied on various decisions to the proposition that mere non-striking off of the inappropriate words will not invalidate the penalty proceedings, however, all these decisions are of non- jurisdictional High Court decisions. The decision of the Delhi Bench of the Tribunal relied on by the ld. DR is prior to the decision of the Hon'ble Karnataka High Court in the case of SSA'S Emerald Meadows (supra) where the SLP filed by the Revenue has been dismissed. Since there is no decision of the Jurisdictional High Court on this issue, therefore, we find merit in the argument of the ld. counsel for the assessee that if two views are available on a particular issue, the view which is favourable to the assessee has to be followed in the light of the decision of the Hon'ble Supreme Court in the case of Vegetable Products Limited (supra). We, therefore, set-aside the order of the ld. CIT(A) and direct the Assessing Officer to cancel the penalty so levied.
15. The decision in the case of MAK Data Private Limited relied on by the ld. DR is not applicable to the facts of the present case since the issue in that case was scope of Explanation-1 to Section 271(1)(c) of the Act and voluntary surrender of income to buy peace of mind. There was no occasion on the part of the Hon’ble Supreme Court to decide on the issue of non-striking off of inappropriate words in the notice issued while initiating penalty proceedings. Therefore, the decision relied on by the ld. DR is not applicable to the facts of the present case.
16. In this view of the matter, we hold that the penalty proceedings initiated by the AO is not in accordance with law and, therefore, the same has to be quashed. Since the assessee succeeds on this legal ground, the grounds on merit become academic in nature and, therefore, the same is not being adjudicated.