COAST LINE SHIPPING (INDIA) PVT. LTD.,MUMBAI vs. DCIT , CC- 5(1), MUMBAI

O R D E R PER C.N. PRASAD (JM)

2 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., ITA.No. 4941 & 4942/Mum/2018 (A.Ys. 2013-14 & A.Y. 2014-15):

On hearing both the parties, we admit the additional ground since the ground taken is only a legal ground.

4. Ld. Counsel for the assessee referring to the notice issued u/s. 274 r.w.s 271(1)(c) of the Act which are placed at Page Nos. 109 and 69 of the Paper Book, submitted that the Assessing Officer is not clear as to the 3 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., charge for which the penalty is initiated i.e. either for concealment of income or for furnishing inaccurate particulars. Referring to the notice Ld. Counsel for the assessee submitted that the inappropriate limb in the notice was not strike off. Ld. Counsel for the assessee referring to the assessment order submitted that the Assessing Officer stated that penalty proceedings were initiated for furnishing inaccurate particulars and concealment of income. Referring to the notice and Penalty Order, Ld.Counsel for the assessee submitted that Assessing Officer did not specify charge for which the penalty proceedings were initiated but in the penalty order penalty was levied for furnishing inaccurate particulars of income and for concealment of income within the meaning of the section 271(1)(c) of the Act and therefore, the initiation of penalty proceedings itself is improper and not valid. Ld. Counsel for the assessee submitted that there is complete non-application of mind by the Assessing Officer in initiating penalty proceedings and therefore, levy of penalty is illegal, void, bad in law, initiated by non-application of mind and is without jurisdiction as the penalty notice issued by the Assessing Officer does not strike off the irrelevant portion thereon.

5. Reliance was placed on the following decisions: - (i) Samson Perinchery [2017] 88 taxmann.com 413 (Bom) (ii) Manjunath Cotton & Ginning Factory [359 ITR 565 (Kar)] (iii) ACIT v. Shri Haresh S. Jhaveir in ITA.No. 2561/Mum/2017 dated 28.09.2018

4 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., (iv) M/s. Wadhwa Estate & Developers India Pvt. Ltd., v. ACIT in ITA.No. 2155/Mum/2016 dated 02.02.2017 (v) Dr. Sarita Milind Davre v. ACIT in ITA.No. 2187/Mum/2014 dated 12.12.2016. (vi) Dilip N. Shroff v. Joint CIT [291 ITR 519 (SC)] (vii) CIT v. Samson Perinchery [2017] 392 ITR 4 (BOM) (viii) Pr. CIT v. Goa coastal Resorts and Recreation Pvt. Ltd., [Tax Appeal No. 24 of 2019, High Court of Bombay at Goa, dated 11.11.2019. (ix) Pr.CIT v. New Era Sova Mine [Tax Appeal No. 70 of 2018, High Court of Bombay at Goa dated 18.06.2019] (x) Pr. CIT v. Goa Dourado Promotions Pvt. Ltd., [Tax Appeal No. 18 of 2019, High Court of Bombay at Goa, dated 26.11.2019 (xi) ACIT v. Goa Dourado Promotions Pvt. Ltd., [ITA.No. 276/PAN/2017 dated 01.01.2019] (xii) ACIT v. Goa Dourado Promotions Pvt. Ltd., [ITA.No. 277/PAN/2017 dated 03.01.2019] (xiii) M/s. G.L Pangam & Associates v. ITO [ITA.No. 5860/Mum/2018 dated 03.12.2019]

6. Ld. DR vehemently supported the order of the Ld.CIT(A) and also relied on the decision of the Hon'ble Madras High Court in the case of Sundaram Finance wherein it was held that even assuming that there was defect in notice it had caused no prejudice to assessee as the assessee understood what was the purpose of notice. Ld. DR submitted that SLP filed by the assessee was also dismissed by the Hon'ble Supreme Court reported in 259 Taxman 220.

5 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., not strike off and specify the charge/limb for which he is proposing to initiate the penalty proceedings. In the assessment order Assessing Officer records that the penalty proceedings are initiated for furnishing inaccurate particulars and for concealment of income. However, in the penalty order passed U/s. 271(1)(c) of the Act the Assessing Officer records that it is a fit case for levy of penalty u/s. 271(1)(c) of the Act for furnished inaccurate particulars of income leading to concealment of income.

8. An identical situation has been considered by the Coordinate Bench in Meherjee Cassinath Holdings v. ACIT in ITA.No. 2555/MUM/2012 dated 28.04.2017 as to whether the action of the Assessing Officer in initiating penalty proceedings U/s. 271(1)(c) of the Act without striking off one of the limbs and without specifying the specific charge in the notice initiating penalty proceedings for inaccurate particulars of income in the assessment order and the Coordinate Bench considering the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Samson Perinchery [392 ITR 4] and also various decisions held that action of the Assessing Officer in non-striking off relevant clause in the notice shows that the charge being made against the assessee is not firm therefore proceedings suffer from non-compliance with principles of natural justice in as much as the Assessing Officer himself is not sure of the charge and 6 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., the assessee is not made aware as to which of the two limbs of section 271(1)(c) of the Act he has to respond.

9. Following the above decision, similar view has been taken by the Coordinate Bench in the case of Orbit Enterprises v. ITO [60 ITR(Trib.) 252]. In the case of DCIT v. Shri Dhaval D. Shah in dated 16.05.2018 the Coordinate Bench considered similar and identical issue and following the ratio laid down in the Dilip N. Shroff [210 CTR 228 (SC)] and the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Samson Perinchery (supra) held that the penalty proceedings initiated by the Assessing Officer is bad in law. While holding so the Coordinate Bench held as under: “9. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. We begin with the decisions relied on by the Ld. DR. In the case of Smt. Kaushalya & Ors. (supra), the Hon’ble Bombay High Court held: “9. We will first take up the show-cause notice dated March 29, 1972, pertaining to the assessment years 1968-69 and 1969-70. The assessment orders were already made and the reasons for issuing the notice under section 274 read with section 271(1)(c) were recorded by the Income-tax Officer. The assessee fully knew in detail the exact charge of the Department against him. In this background, it could not be said that either there was non-application of mind by the Income- tax Officer or the so-called ambiguous wording in the notice impaired or prejudiced the right of the assessee to reasonable opportunity of being heard. After all, section 274 or any other provision in the Act or the Rules, does not either mandate the giving of notice or its 7 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., issuance in a particular form. Penalty proceedings are quasi-criminal in nature. Section 274 contains the principle of natural justice of the assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining a complaint of failure of the principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice is caused to the concerned person by the procedure followed. The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The entire factual background would fall for consideration in the matter and no one aspect would be decisive. In this context, useful reference may be made to the following observation in the case of CIT v. Mithila Motor's (P.) Ltd. [1984] 149 ITR 751 (Patna) (head note): ‘Under section 274 of the Income-tax Act, 1961, all that is required is that the assessee should be given an opportunity to show cause. No statutory notice has been prescribed in this behalf. Hence, it is sufficient if the assessee was aware of the charges he had to meet and was given an opportunity of being heard. A mistake in the notice would not invalidate penalty proceedings.’ In M/s Maharaj Garage & Co. (supra), the Hon’ble Bombay High Court at para 15 held: “The requirement of section 274 of the Income Tax Act for granting reasonable opportunity of being heard in the matter cannot be stretched to the extent of framing a specific charge of asking the assessee an explanation in respect of the quantum of penalty proposed to be imposed, as has been urged. The assessee was supplied with the findings recorded in the order of re-assessment, which was passed on the same date on which the notice u/s 271(1)(c) was issued, initiating the proceedings of imposing the penalty. The assessee had sufficient notice of the action of imposing penalty. We, therefore, do not find either any jurisdiction error or unjust exercise of power by the authority.” In Sky Light Hospitality LLP (supra), the assessee (Sky Light Hospitality LLP) who had taken over on 13.05.2016 and acquired rights and liabilities of M/s Sky Light Hospitality Pvt. Ltd. upon conversion under the Limited Liability Partnership Act, 2008, filed a 8 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., writ petition impugning notice dated 30.03.2017 issued by the AO u/s 147/148 for the AY 2010-11. The contention of the assessee before the Hon’ble High Court was that notice u/s 147/148 of the Act dated 30.03.2017 was addressed and issued to M/s Sky Light Hospitality Pvt. Ltd., PAN No. AALCS3800N, a company which had ceased to exist and was dissolved on 13.05.2016. It was stated that the said notice issued to a dead juristic person is invalid and void in the eyes of law. Also contentions were raised stating that section 292B was inapplicable. The Hon’ble Delhi High Court held as under: “21. Our attention was drawn to Parashuram Pottery Works Co. Ltd. V. ITO, Circle I, Ward A, Rajkot, (1977) 106 ITR 1 (SC) which records that the Assessing Officer entrusted with the task of calculating and realizing tax should familiarize themselves with the relevant provisions and become well versed with the law on the subject. This is a salutary advice. Indeed, there have been lapses and faults resulting in the present litigation. Notice under Section 147/148 of the Act was issued at the end of the limitation period. Noticeably, Assessment Order for the assessment year 2013-2014 was passed on 31.03.20I6, one year earlier. Second lapse is also apparent. Despite correctly noting the background, notice under Section 147/148 of the Act was not addressed in the correct name and even the PAN Number mentioned was incorrect. Nevertheless, human errors and mistakes cannot and should not nullify proceedings which are otherwise valid and no prejudice had been caused. This is the effect and mandate of Section 292B of the Act.” In Smt. Shantidevi Mahavir Prasad Gupta (supra), the Tribunal held as under: “10. The question before us is not whether the income is of the nature of “notional income” but the question is whether the assessee has filed inaccurate particulars or concealed the true facts. As stated hereinabove, in our humble opinion, the assessee has concealed the true facts thereby filed inaccurate particulars. Therefore, we do not find any error or infirmity in the findings of the Ld. CIT(A). The penalty u/s. 271(1)(c) is leviable on the facts of the case. The reliance on the decision of the Tribunal is clearly distinguishable on the facts. We, accordingly confirm the levy of penalty u/s. 271(1)(c) of the Act.” In Ms. Laudres Austin (supra), the Tribunal held the following: “In the instant case also we hold that penalty proceedings were initiated properly as there is no defect in the recording of satisfaction by the AO as well there is no defect in the notice issued u/s 271 r.w.s. 274 of the 1961 Act. The decision of Hon’ble Bombay High Court in Samson Perincherry (supra) is 9 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., concerning the issuance of penalty proceedings under one limb while levying of penalty under another limb of section 271(1)(c) which is no permissible as per ratio of this decision. The Hon’ble Supreme Court in SSA’s Emerald Meadows (supra) while dismissing SLP recorded finding that the Hon’ble Lordships did not find any merit in this petition which means ratio of decision of Hon’ble Karnataka High Court in SSA’s Emerald Meadows in of 2015 stood confirmed. The Hon’ble Karnataka High Court in SSA’s Emerald Meadows has affirmed the ratio of judgment of Manjunatha Cotton and Ginning Factory (supra). We have already seen that Hon’ble Karnataka High Court in Manjunatha Cotton and Ginning Factory (supra) has affirmed that alternate charge is possible under both the limbs simultaneously.” 9.1 In the instant case, the AO vide his order u/s 143(3) dated 28.12.2011 has initiated the penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income or concealment of income. In the draft penalty order u/s 271(1)(c) dated 24.03.2014, the AO has imposed penalty of Rs.46,59,047/- for concealment of income. Also we find that there is no provision in the Income Tax Act, 1961 for a draft penalty order u/s 271(1)(c) of the Act. 9.2 It would be apposite to refer here to the decision in Dilip N. Shroff v. JCIT (2007) 210 CTR (SC) 228, wherein it has been held: “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 had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations.

10. The Hon'ble Telangana and Andhra Pradesh High Court in the case of Pr. CIT v. Smt Baisetty Revathi [398 ITR 88 (T & AP)] held as under: “7. Perusal of the order reflects that the assessee did not raise the issue of invalidity of the penalty notice before the Commissioner. In her second appeal before the Income-tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam, in the assessee, for the first time, raised the issue that the show-cause notice under Section 271(1)(c) did not specify as to whether it was prompted by concealment of particulars of income or furnishing of inaccurate particulars of income. Dealing with this contention, the Tribunal placed reliance on the judgment of the Karnataka High Court in The CIT V/s. M/s. Manjunatha Cotton And Ginning Factory and opined that unless the show-cause notice is clear as to whether the penalty proposed to be imposed is for concealment of particulars of income or for furnishing inaccurate particulars of income, no penalty could be imposed, as such a notice would be defective. The Tribunal took note of the fact that in the penalty order; the Assessing Officer had not given a conclusive finding as to whether the penalty imposed was for concealment of particulars of income or for furnishing inaccurate particulars of income and accordingly held imposition of the penalty to be invalid. 8. Smt.M. Kiranmayee, learned counsel representing Sri J.V.Prasad, learned senior standing counsel for the revenue, would argue that the assessee never raised the issue as to ambiguity in the show-cause notice before any of the lower authorities and that this indicated she was fully aware as to what was the allegation leveled against her. Learned counsel would point out that in her reply to the show-cause notice, the assessee sought to explain the lapses on her part which evidenced her awareness as to the exact allegations made against her in the said show-cause notice. Learned counsel would therefore argue that raising the issue of lack of clarity in the show- cause notice for the first time before the Tribunal was an 11 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., afterthought and that the Tribunal ought not to have given the assessee the benefit of doubt in this regard.

12. In CIT v/s. Manu Engineering Works [122 ITR 3006 (GUJ)] , a Division Bench of the Gujarat High Court observed that the Assessing Officer must give a positive finding as to whether there is concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee. In the event there was no such clear-cut finding, the penalty order was held liable to be struck down.

13. Smt.Kiranmayee, learned counsel, placed reliance on the judgment of the Supreme Court in K.P.Madhusudhanan v/s. CIT [251 ITR 99 (SC)]. Therein, the Supreme Court held that it is not necessary for the Assessing Officer, while issuing a notice under Section 271(1)(c), to expressly invoke Explanation 1(B) appended to the provision. It is however relevant to note that Explanation 1(B) merely adverts to a case of failure of an assessee to substantiate the explanation offered whereby the amount added or disallowed while computing the total income of such person for the purposes of the penalty provision shall be deemed to represent the income in respect of which particulars had been concealed. The Supreme Court observed that the statutory provision included the Explanation and once the assessee was put on notice, no express invocation of the Explanation is necessary.

16. Reliance placed by the revenue upon Mak Data Private Limited v/s. CIT [358 ITR 593 (SC)], is of no assistance as the Supreme Court merely observed therein that the Assessing Officer is not required to record his satisfaction in a particular manner while imposing the penalty or reduce it to writing. That is not the controversy in the case on hand.

18. We are therefore of the opinion that the order under appeal does not brook interference on any ground. We find no question of law, much less a substantial one, arising for consideration warranting admission of this appeal.”

11. Recently the Hon'ble Bombay High Court in the case of the PCIT v. Goa coastal Resorts and Recreation Pvt. Ltd., in Tax Appeal No.24 of 2019 order dated 11.11.2019, held as under: - “3. Ms Razaq, learned Advocate submits that in this case the revised returns filed by the respondents indicated that the disclosures were made only by piecemeal. Relying upon Mak Data 14 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., (P.) Ltd v/s. Commissioner of Income Tax 1 , she submits that such disclosure does not relieve the assessee of the requirement of paying penalty. He submits that the assessment order in the present case makes reference to concealment and/or inaccurate particulars. In this view of the matter, she submits that the substantial questions of law as aforesaid will be arises and the view taken by the Commissioner (Appeals) as well as the ITAT in relation the deletion of penalty, warrants interference.

7. In the present case, as well if the notice dated 30/09/16 (at page 33) is perused, it is apparent that the relevant portions have not 15 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., been struck off. This coupled with the fact adverted to in paragraph (5) of this order, leaves no ground for interference with the impugned order. The impugned order are quite consistent by the law laid down in the case of Samson Perinchery and New Era Sova Mine(supra) and therefore, warrant no interference.

ITA.No. 4943/MUM/2018 (A.Y. 2015-16):

14. Coming to the appeal of the assessee for the A.Y. 2015-16, assessee has raised the following grounds in its appeal: - (1) In the facts and circumstances of the case and in law, the Ld.CIT(A) erred in confirming the penalty u/s. 271AAB of the Act in principle.

16 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., (2) In the facts and circumstances of the case and in law, the Ld.CIT(A) erred in exercising his jurisdiction in partly allowing the appeal and providing for the proceedings to revive in case the Appellant succeeds in the earlier year’s appeals. The Ld.CIT(A) could not have passed such an order under the provisions of the Act”

15. At the outset, Learned Counsel for the assessee submitted that the penalty order passed u/s. 271AAB of the Act for the assessment year under consideration i.e. A.Y. 2015-16 is illegal as no search has been initiated u/s. 132 of the Act in assessee’s case and therefore no such penalty is leviable.

On merits, the Ld. Counsel for the assessee submitted that during 17. current assessment year the opening written-down value [for short “WDV”] on block of assets came to be reduced due to the reason that the block of assets got reduced in the earlier assessment years i.e. A.Y. 2013-14 and A.Y. 2014-15 on account of disallowance made. Therefore, he submits

17 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., that there is no concealment of income or furnishing of inaccurate particulars during the current assessment year.

18 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., 20. The provisions of section 271AAB read as under: - “271AAB. (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012, [but before the date on which the Taxation Laws (Second Amendment) bill, 2016 receives the assent of the President], the assessee shall pay by way of penalty, in addition to tax, if any, payable by him, – – (a) a sum computed at the rate of ten per cent. of the undisclosed income of the specified previous year, if such assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived; (ii) substantiates the manner in which the undisclosed income was derived; and (iii) on or before the specified date–– (A) pays the tax, together with interest, if any, in respect of the undisclosed income; and (B) furnishes the return of income for the specified previous year declaring such undisclosed income therein; (b) a sum computed at the rate of twenty per cent. of the undisclosed income of the specified previous year, if such assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, does not admit the undisclosed income; and (ii) on or before the specified date–– (A) declares such income in the return of income furnished for the specified previous year; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income; (c) a sum [computed at the rate of sixty per cent] of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b).”

19 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., 21. As could be seen from the above, a plain reading of the provision suggests that penalty u/s. 271AAB of the Act is levied in a case where search has been initiated u/s. 132 of the Act on or after the first day of July, 2012. It is the contention of the assessee that no search has been initiated in its case u/s. 132 of the Act. We have perused the Assessment Order passed u/s. 143(3) of the Act on 30.11.2016 as well as the penalty order passed on 31.05.2017 u/s. 271AAB of the Act and found that the search and seizure operation u/s. 132 of the Act was conducted on M/s.Geochem Laboratories Pvt. Ltd., on 11.11.2014 and no where it is mentioned either in the assessment order or in the penalty order that search and seizure was initiated u/s. 132 of the Act in assessee’s case. We have also perused the Assessment Orders for the A.Y. 2013-14 and A.Y. 2014-15 and found that search and seizure operation was conducted u/s. 132 of the Act on 11.11.2014 on M/s. Geochem Laboratories Pvt. Ltd., based on which the assessments were framed in assessee’s case and nowhere in the Assessment Orders passed for the A.Y. 2013-14 and A.Y.2014-15 u/s. 153C of the Act, it has been mentioned that search was initiated in assessee’s case. We also observed that penalty proceedings were initiated u/s. 271(1)(c) of the Act for the A.Y. 2013-14 and A.Y. 2014- 15 in assessee case. Therefore, we are of the view that for levy of penalty u/s.271AAB of the Act, the first and foremost condition to be satisfied is 20 ITA.NOs. 4941, 4942 & 4943/MUM/2018 M/s Coast Line Shipping (India) Pvt. Ltd., that search u/s. 132 of the Act should have been initiated on the assessee for invoking the provisions of section 271AAB of the Act and levying penalty under this provision. Similar view has been taken by various Tribunals as referred to above. In the case before us since there was no search and seizure operation initiated u/s. 132 of the Act, the penalty proceedings initiated u/s.271AAB as against the provisions of statute. Thus, we quash the penalty order passed u/s. 271AAB of the Act for the A.Y. 2015-16.