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Before: SHRI G. S. PANNU & MS SUCHITRA KAMBLE
PER SUCHITRA KAMBLE, JM
These two appeals are filed by the assessee against two separate orders dated 28.02.2019 passed by CIT(A)-Ghaziabad for Assessment Year 2014-15 & 2015-16.
The Revised Grounds of appeal are as under:-
“This relates to captioned matter in which we wish to file revised grounds of appeal for forthcoming hearing (17/12/2019) Levy of Penalty u/s 271(1)(c) Rs.25,11,364
1. That on the facts and in the circumstances of the case and in law, learned CIT-A erred in upholding the penalty levied unlawfully u/s 271(1)(c) of the Act in violation of mandatory jurisdictional conditions stipulated under the Act and penalty so sustained is plainly without authority of law accordingly same deserves to be quashed.
2. That on the facts and in the circumstances of the case and in law, learned CIT(A) erred in upholding the penalty levied unlawfully u/s 271(1)(c) of the Act where there the addition made in quantum proceedings is itself based on estimates and without any clarity as to actual existence of stated income which is nowhere established in extant case accordingly penalty so sustained is plainly without authority of law accordingly same deserves to be quashed. Prayer: To quash the penalty u/s 271(1)(c) by Ld AO as confirmed by Ld CIT(A); That the appellant craves leave to add, to amend, modify, rescind, supplement or alter any of the grounds stated herein above, either before or at the time of hearing of this appeal.”
“This relates to captioned matter in which we wish to file revised grounds of appeal for forthcoming hearing (17/12/2019) Levy of Penalty u/s 271(1)(c) Rs.15,46,000
1. That on the facts and in the circumstances of the case and in law, learned CIT-A erred in upholding the penalty levied unlawfully u/s 271(1)(c) of the Act in violation of mandatory jurisdictional conditions stipulated under the Act and penalty so sustained is plainly without authority of law accordingly same deserves to be quashed.
2. That on the facts and in the circumstances of the case and in law, learned CIT(A) erred in upholding the penalty levied unlawfully u/s 271(1)(c) of the Act where there the addition made in quantum proceedings is itself based on estimates and without any clarity as to actual existence of stated income which is nowhere established in extant case accordingly penalty so sustained is plainly without authority of law accordingly same deserves to be quashed. Prayer: To quash the penalty u/s 271(1)(c) by Ld AO as confirmed by Ld CIT(A); That the appellant craves leave to add, to amend, modify, rescind, supplement or alter any of the grounds stated herein above, either before or at the time of hearing of this appeal.”
3. In both the appeals, the issue contested herein are identical, therefore, we are taking up facts of for A.Y. 2014- 15. The assessee is a partnership firm which is engaged in the business of civil construction. The assessee declared total income of Rs.3,77,73,030/- during the previous year relevant to Assessment Year 2014-15. The case was manually selected for scrutiny on account of survey u/s 133A in this case. During the course of assessment proceedings, direction was received from the Addl. CIT, Range -1, Ghaziabad on 07.12.2016 after giving opportunity to the assessee. As per the directions u/s 144A, an addition of Rs. 81,27,391/- as undisclosed income was made on account of negative peak worked out on basis of impounded material which was added to income returned by the assessee as cash spent out of books. The assessment was completed u/s 143(3) on 13.12.2016 determining assessee’s income at Rs.4,59,00,420/- against return income of Rs.3,77,73,030/-. An addition of Rs.81,27,391/- was made as undisclosed income in the hands of the assessee on the basis of material impounded during survey. Thereafter, a show-cause notice u/s 274 r.w.s. 271 of the Income Tax Act, 1961 was issued to the assessee on 13.12.2016 and 08.05.2017 asking the assessee to show as to why an order imposing a penalty should not be made u/s 271 of the Act. The assessee filed reply dated 09.05.2017 and the CA / AR of the assessee also appeared before the Assessing Officer. The Penalty u/s 271(1)(c) was imposed by the Assessing Officer thereby observing that the assessee was found to have concealed particulars of its income as well as furnished inaccurate particulars of income in respect of addition of Rs.81,27,391/-. The Assessing Officer imposed penalty of Rs.25,12,000/- vide order dated 27.06.2017.
4. The Ld. AR submitted that the notice dated 13.12.2016 and 08.05.2017 has not at all given any particular limb of Section 271(1)(c) of the Income Tax Act for issuing the show cause notice for imposing the penalty. The Ld. AR further submitted that there is no satisfaction given by the Assessing Officer in the assessment order dated 13.12.2016 as to whether the imposition of penalty is on the basis of filing of inaccurate particulars of income or concealment of income. Thus, inception of the penalty order itself is bad in law and hence penalty is not sustainable being void ab initio. The Ld. AR relied upon the decision of the Hon’ble Supreme Court in case of CIT vs. SSA’s Emerald Meadows (2016) 73 Taxman.com 248 (SC) and CIT v. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Kar). The Ld AR further submitted that the Hon’ble Delhi High Court in case of Pr. CIT Vs. M/s. Sahara India Life Insurance Company Ltd. (ITA No.475/2019 vide order dated 02.08.2019) held that notice issued by the Assessing Officer would be bad in law if it did not specify which limb of Section 271(1)(c) of the penalty proceedings had been initiated. The Ld. AR further submitted that in assessee’s own case for A.Y. 2012-13 the penalty was deleted on the same ground being order dated 21.06.2018 A.Y. 2012-13.
The Ld. DR submitted that the assessment order and the penalty order was just and proper, as the penalty u/s 271(1)(c) was initiated after duly recording satisfaction regarding undisclosed income on account of cash receipts and expenditure made thereunder. As the jurisdiction condition for imposition of penalty u/s 271(1)(c) of the Act is satisfaction of the Assessing Officer, the Assessing Officer assume the jurisdiction to initiate the penalty proceedings, the moment he has satisfied that the necessary conditions have been satisfied. Thus, there was an application of mind by the Assessing Officer and hence mere non-striking of correct limb in the notice cannot be taken as fatal error. On facts, it can be safely concluded that even assuming that there was a defect in the notice, it has caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice issued under Section 274 r.w.s. 271 of the Act. Therefore, principles of natural justice were followed. The Ld. DR further submitted that during the penalty proceedings and respective appellate proceedings assessee has not raised the issue of striking off of the limb of penalty in the notice. During the penalty proceedings and appellate proceedings, the assessee never raised objection that non mentioning of specific clause has caused prejudice to the assessee or has deterred the assessee from defending his case. The Ld. DR submitted that in the present case penalty has been imposed on account of the undisclosed income revealed on the basis of material impounded during the survey. The Ld. DR relied upon the decision of the Hon’ble Supreme Court in case of Sundaram Finance Limited vs. CIT (2018) 99 taxmann.com 152 wherein it is held that where assessee claimed depreciation on non-existent assets, penalty u/s 271(1)(c) was to be levied for filing inaccurate particulars of income. The Ld. DR also relied upon the decision of the Hon’ble Madras High Court in the said case of Sundaram Finance Limited being (2018) 93 taxmann.com 250 (Madras) wherein it is held that where notice did not show nature of default, it was a question of fact. The assessee had understood purport and import of notice, and hence, no prejudice was caused to the assessee. The Hon’ble Madras High Court has considered the decision of the Karnataka High Court in case of CIT vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565. The Ld. DR also relied upon the following decisions:
i. CIT vs. Smt Kaushalya (1994) 75 Taxman 549 (Bombay)/(1995) 216 ITR 660 (Bombay). ii. Trimurti Engineering Works vs. ITO (2012) taxmann.com 363 (Delhi)/(2012) 138 ITD 189 (Delhi)/(2012) 150 TTJ 195 (Delhi) iii. Commissioner of Income Tax vs. S. V. Angidi Chettiar (1962) 44 ITR 739 (SC) iv. CIT vs. Mithila Motors (P.) Ltd. 149 ITR 751
We have heard both the parties and perused all the relevant materials available on record. It is pertinent to note that in assessment order while initiating the penalty u/s 271(1)(c) of the Act, no satisfaction was recorded as to whether both the limbs of 271(1)(c) of the Act has been invoked that all concealment of income and furnishing of inaccurate particulars. Merely stating that 271(1)(c) of the Act penalty has to be initiated does not amount to satisfaction. The notice u/s 271(1)(c) of the Act is also silent on the particular limb under which the penalty order was passed. First of all, in the notice issued u/s 274 r.w.s 271(1)(c) of the Income Tax Act, 1961, there was no specific charges as relates to concealment of income or furnishing of inaccurate particulars of income. From the notice dated 13.12.2016 and 08.05.2017 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. Besides that the Assessment Order also did not specify the charge as to whether there is concealment of income or furnishing of inaccurate particulars of income in assessee’s case. Therefore we are taking up the contention of the assessee that there is no particular limb mentioned in the notice issued under Section 271(1)(c) r.w.s. 274 of the Act. This issue is squarely covered by the decision of the Hon’ble Supreme Court in case of M/s SSA’ Emerald Meadow. The extract of 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 decision of the Division Bench of this Court rendered in the case of COMMISSIONER OF INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565.
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.” 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) of the Act has been initiated, therefore, we are of the considered opinion that the penalty levied u/s 271(1)(c) of the Act is not sustainable and has to be deleted. Although the Ld. DR submitted that mere non-striking off of the inappropriate words will not invalidate the penalty proceedings, however, 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 is directly on the issue contested herein by the Assessee. Further, when the notice is not mentioning the concealment or the furnishing of inaccurate particulars, the ratio laid down by the Hon’ble High Court in case of M/s. Sahara India Life Insurance Company Ltd. (supra) will be applicable in the present case. The Hon’ble Delhi High Court held 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.
On this issue again this Court is unable to find any error having been committed by the ITAT. No substantial question of law arises.”
Thus, notice under Section 271(1)(c) r.w.s. 274 of the Act itself is bad in law. We, therefore, set-aside the order of the CIT(A) and direct the Assessing Officer to delete the penalty so levied. Thus, appeal being for A.Y. 2014-15 filed by the assessee is allowed.
As regards to A.Y. 2015-16, the issue contested by the assessee is also similar and the notice dated 12.04.2017 issued under Section 274 with Section 271 of the Income Tax Act, 1961 did not mentioned under which limb of Section 271(1)(c) of the Act, the penalty proceedings are initiated. Therefore, same finding as given by us in earlier para 8 will be applicable in the present assessment year i.e. 2015-16. Hence, appeal being for A.Y. 2015-16 filed by the assessee is allowed.
In result, both the appeals of the assessee are allowed.