JITESH JAYENDRA BHADALIYA,MUMBAI vs. ITO 33(2)(1), MUMBAI

ORDER PER RAVISH SOOD, J.M: The present appeal filed by the assessee is directed against the order passed by the CIT(A)-45, Mumbai, dated 10.09.2018 which in turn arises from the penalty order passed by the A.O under Sec. 271(1)(c) of the Income Tax Act,1961 (for short „Act‟), dated 12.06.2017 for A.Y. 2014-15. The assessee has assailed the impugned order on the following grounds of appeal before us: “Being aggrieved by the order dated 10.09.2018 passed by the learned Commissioner of Income Tax (Appeals)-45, Mumbai ["Ld. CIT(A)"] u/s 250 of the Income-tax Act, 1961 ("Act"), your appellant prefers this appeal, among others, on the following grounds of appeal, each of which is without prejudice to, and independent of, the other:

1. Levy of Penalty u/s. 271(1)(c) ; Rs.6.02,767/- a. On the facts and in the circumstances of the case, and in law, the Ld. CIT(A) erred in not appreciating that the show cause notice u/s. 274 r. w. s. 271(1)(c) of the Act dated 23.12.2016 2 Shri Jitesh Jayendra Bhadaliya Vs. Income Tax Officer-33(2)(1) issued by the Ld. AO was bad in law, having been issued without specifying the precise charge for imposition of penalty. b. On the facts and in the circumstances of the case, and in law, the Ld. CIT(A) erred in not appreciating that the penalty order is bad in law inasmuch as the penalty was imposed by the Ld. AO for concealment of particulars of income, whereas the charge made out against the appellant in the relevant assessment order was for furnishing inaccurate particulars of income with a view to concealment of income. c. On the facts and in the circumstances of the case, and also in law, the Ld. CIT(A) erred in confirming the levy of penalty, without appreciating that the appellant had offered satisfactory explanation which was substantiated by the documentary evidence placed on record, and that therefore, there was no basis for imposition of the penalty under section 271(1)(c) of the Act.” Your appellant, therefore, prays that the Ld. AO's order imposing the penalty of Rs.6,02,767/- u/s. 271(1)(c) of the Act be quashed and the penalty be cancelled. Your appellant craves leave to alter, modify, amend or delete the above ground of appeal, or to add one or more new ground(s), as may be necessary.”

Sr. No. Particulars Amount 1. Addition under Sec. 68 of the sale proceeds of shares by Rs. 18,93,883/- rejecting the assessee‟s claim for exemption of LTCG on the sale of the same under Sec. 10(38) 2. Addition under Sec. 69C towards commission paid by Rs. 56,816/-. the assessee for obtaining the aforesaid LTCG. (3% of Rs.18,93,883/-)

At the time of culminating the assessment the A.O initiated penalty proceedings under Sec. 271(1)(c) for both of the aforesaid two additions for furnishing of inaccurate particulars of income with the view to concealment of income.

3 Shri Jitesh Jayendra Bhadaliya Vs. Income Tax Officer-33(2)(1) 6. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. At the very outset of the hearing of the appeal it was submitted by the ld. Authorized Representative (for short „A.R‟) for the assessee, that the A.O had wrongly assumed jurisdiction and without validly putting the assessee to notice as regards the default for which the impugned penalty was purported to be imposed on him, had therein levied penalty under the aforesaid statutory provision. In order to buttress his aforesaid claim the ld. A.R took us through the copy of the „Show cause‟ notice (SCN) issued under Sec. 274 r.w.s 271(1)(c), dated 23.12.2016, Page 1 of the assessee‟s paper book (for short „APB‟). Apart from that, it was submitted by the ld. A.R that even in the assessment order the impugned penalty proceedings were stated to have been initiated by the A.O without clearing pointing out the default and by merely stating that the same were initiated for furnishing inaccurate particulars and concealment of income. It was submitted by the ld. A.R that involving identical facts the A.O had imposed penalty in the case of a related party of the assessee, viz. Smt Divya Shailesh Bhadaliya. It was submitted by the ld. A.R that as the A.O in the case of the aforesaid related party had also failed to point out the default for which the penalty was sought to be imposed, the Tribunal, vide its order passed in dated 20.02.2019 had vacated the penalty (copy placed on record). The ld. A.R took us through the order passed by the Tribunal in the case of the aforesaid related party, viz. Smt Divya Shailesh Bhadaliya (supra), which revealed that the penalty was quashed by the Tribunal inter alia for the reason that pursuant to the failure on the part of the A.O to point out the specific charge for which penalty under Sec. 271(1)(c) was proposed to be levied, the assessee had remained divested of an opportunity to explain her case that no such penalty was liable to be imposed. Backed by his aforesaid contentions, it was submitted by the ld. A.R that as the factual position in the case of the assessee remained the same thus, the penalty imposed by the A.O under Sec. 271(1)(c) in the present case was also liable to be quashed on the ground of illegal assumption of jurisdiction by the A.O.

4 Shri Jitesh Jayendra Bhadaliya Vs. Income Tax Officer-33(2)(1) 8. We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. Admittedly, on a perusal of the „SCN‟, dated 23.12.2016, it stands revealed that the Assessing Officer had failed to strike off the irrelevant default while calling upon the assessee to explain as to why penalty u/s 271(1)(c) of the I.T Act may not be imposed on him. Insofar the validity of the jurisdiction assumed by the A.O is concerned, we find that the same has been assailed before us on the ground that as the irrelevant default in the „Show cause‟ notice, dated 23.12.2016 was not struck off by the A.O therefore, the assessee was not validly put to notice as regards the default for which penalty was sought to be imposed on him under Sec. 271(1)(c) of the I.T Act.

5 Shri Jitesh Jayendra Bhadaliya Vs. Income Tax Officer-33(2)(1) 10. We would now test the validity of the aforesaid „Show Cause‟ notice 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 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 on him. The non-specifying of the charge in the „Show cause‟ notice not only reflects the non- application of mind by the A.O but in fact 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 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.