MAHESH K. FARIA,MUMBAI vs. DCIT CEN CIR 4(4) CEN RG 4, MUMBAI

This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-52, Mumbai in Appeal No. CIT(A)-52/IT/AC-CC-4(4)/77/2015-16 dated 02.09.2016. The Assessment was framed by the Dy. Commissioner of Income Tax, Central Range-7, Mumbai (in short DCIT/ AO) for AY 2010- 2 | P a g e Shri. Mahesh K. Faria 11 vide dated 21.01.2013, under section 143(3) of the Income- tax Act, 1961 (hereinafter ‘the Act’).

The only issue in this appeal of assessee is against the order of CIT(A) confirming the levy of penalty by the AO under section 271(1)(c) of the Act in regard to addition made on account of unexplained cash credits amounting to ₹13.65 lakhs. The assessee has raised the ground on merits as well as the ground that the AO has levied excessive penalty at the rate of 200% of the tax evaded under section 271(1)(c) of the Act on the addition is amount of ₹13.65 lakhs. The assessee has also raised additional ground that penalty levied by the assessee, for which no notice was given whether on which charge penalty is levied. For this, assessee has raised the following additional grounds: - “1. On the facts and circumstances of the case and in law, the DCIT Central Circle-4(4), CR-4 (‘the AO’), Mumbai erred in passing the penalty order under section 271(1)(c) of the Income-tax Act, 1961 (‘the Act’) since the limb on which the penalty has been levied in the penalty order has not been specified in either the penalty notice nor the quantum order.”

Brief facts are that the assessee filed its return of income for AY 2010-11 and accordingly, AO completed the assessment under section 143(3) of the Act by estimating the business 3 | P a g e Shri. Mahesh K. Faria income of the assessee at ₹8 lacs and making addition of sundry creditors of ₹ 17,72,080/- and also unsecured loan of ₹ 1 lacs. The assessee preferred the appeal before CIT(A) against the assessment order and finally, the CIT(A) sustained the addition of sundry creditors of ₹ 3.50 lakhs. The assessee has not challenge the appellate order of CIT(A) before ITAT and addition of sundry creditor of ₹13.50 lakhs became final. In the meantime, the AO started the penalty proceedings. The AO has initiated the penalty proceedings under section 271(1)(c) of the Act, but no charge has been specified in the assessment order. However, AO issued notice under section 274 read with section 271 of the Act along with the assessment order dated 23.01.2013. The learned Counsel for the assessee before us filed copy of this notice issued under section 274 read with section 271(1)(c) of the Act and the same is enclosed in assessee’s paper book at page 9. The learned Counsel for the assessee stated that the AO has not striked-off the relevant or inappropriate word or paragraph, thereby it is clear that AO has not applied his mind for initiation of penalty and for which charge he has initiated the penalty, either for concealing the particulars of income or for furnishing inaccurate particulars of such income. The learned Counsel for the assessee drew our attention to notice No. DCIT/OSD-II/Show Cause/2013-14 dated 16.07.2013, wherein the AO required the assessee to explain as to why penalty under section 271(1)(c) of the Act be not levied. The relevant para of the penalty notice read as under: -: - 4 | P a g e Shri. Mahesh K. Faria “During the course of assessment proceedings, penalty u /s 271(1)(c) and 271(1)(b) for the AY2010-11 had been initiated in your case. In view of the above facts, you are hereby directed to furnish your submission for penalty proceedings within 8 days from the receipt of this letter why penalty should not be imposed on you? In case of non- compliance of you, the penalty order may be pass on the basis of details available on record, please note.”

The learned Counsel for the assessee further drew our attention to another notice dated 18.02.2015 vide No. DCIT/C.C.4(4)/2014-15 and the relevant tax of the notice read as under: - “During the course of assessment proceedings, penalty under section 271(1)(b) & 271(1)(c) of the Income-tax Act for the AY 2010-11 had been initiated in your case. You are hereby directed to show cause why the penalty us/ 271(1)(b) & 271(1)(c) of the Income Tax Act should not be imposed on you. The reply in this regard should reach the undersigned by 5 | P a g e Shri. Mahesh K. Faria 24.02.2016. In case of non-compliance by you, the penalty order will be passed on the basis of details available on records, without further intimation to you.”

The learned Counsel for the assessee stated that even in further notices, the AO has not specified any charge for levying the penalty under section 271(1)(c) of the Act and finally, the AO levied the penalty for furnishing of inaccurate particulars of income. When, these facts were pointed out to the learned Sr. Departmental Representative, she argued that the assessee’s case is covered by the decision of Hon’ble Supreme Court in the case of MAK Data (P.) Ltd. Vs. CIT [2013] 358 ITR 593 (SC), but she could not point out how this judgement will help the Revenue. She only contended that the AO is not required to record satisfaction in a particular manner or reduce it in writing, this is the ratio of Mak Data (P.) Ltd. (supra). On the other hand, the assessee’s Counsel relied on the decision of Hon’ble Bombay High Court in the case of CIT vs Samson Perinchery (2013) 392 ITR 4 (Bom), wherein Hon’ble Bombay High Court held as under: - “The impugned order of the Tribunal deleted the penalty imposed upon the Respondent Assessee. This by holding that the initiation of penalty under Section 271(1)(c) of the Act by Assessing Officer was for furnishing inaccurate particulars 6 | P a g e Shri. Mahesh K. Faria of income while the order imposing penalty is for concealment of income. The impugned order holds that the concealment of income and furnishing inaccurate particulars of income carry different connotations. Therefore, the Assessing Officer should be clear as to which of the two limbs under which penalty is imposable, has been contravened or indicate that both have been contravened while initiating penalty proceedings. It cannot be that the initiation would be only on one limb i.e. for furnishing inaccurate particulars of income while imposition of penalty on the other limb i.e. concealment of income. Further, the Tribunal also noted that notice issued under Section 274 of the Act is in a standard proforma, without having striked out irrelevant clauses therein. This indicates non application of mind on the part of the Assessing Officer while issuing the penalty notice.”

As the facts are very clear from the above notices that the AO has not specified any charge while issuing notice under section 274 read with section 271(1)(c) of the Act and also subsequent notices do not specify any charge, which means