SUMITA SHREEGOPAL BARASIA,MUMBAI vs. ASST CIT RG 16(1), MUMBAI

The present Appeal filed by the assessee is against the order of Ld. CIT (Appeal) – 30, Mumbai dated 31.07.15 for AY 2008-09 on the grounds mentioned herein below:-

Ld. AR submitted before us that before Ld. CIT(A), it was contended that penalty order passed by the AO was bad in law as the notice issued u/s 274 of the Act did not specify whether the Notice is issued for concealing the particulars of income or furnishing inaccurate particulars of income. The copy of said notice dated 28th Dec 2010 has also been enclosed as Annexure-II, therefore, it is bad in law and the order passed pursuant thereto is void. It was further submitted that inadvertently, the assessee had not raised legal ground that the penalty notice dated 28th Dec 2010 issued u/s 271(1)(c) r.w.s 274 of the Act is bad in law. Since, it is a legal ground, thus the SunitaShreegopalBarasia assessee can take the same at any stage of hearing. It was further submitted that the additional ground is purely question of law and no new facts are required to be brought on record. Therefore, applicant be allowed to raise additional grounds.

On the other hand Ld. DR submitted that the application dated 26.07.19 is misconceived and is liable to be dismissed.

The brief facts of the case are that assessee is an individual deriving income from house property and other sources. The return of income for the year under appeal was filed on 31.07.08 declaring total income of Rs. 43,12,063/-. Thereafter assessment u/s 143(3) was completed by the Ld. AO on 28.12.10 determining the total income at Rs. 2,62,21,860/-.

Now before us, the assessee has preferred the present appeal by raising the above grounds.

Since the assessee has raised legal grounds, thereby challenging the legality of the notice for levying penalty u/s SunitaShreegopalBarasia 271(1)(c) r.w.s. 274 of the I.T. Act, therefore we have decided to adjudicate these grounds firstly, which have been raised by the assessee by way of additional grounds.

The additional grounds Nos. 6 & 7 raised by the assessee are inter connected and inter related and relates to challenging the Penalty Notice dated 28th December, 2010 issued u/s 271(1)(c) read with section 274 of the Income Tax Act, 1961, therefore we thought it fit to dispose of the same by this common order.

Learned AR submitted that as the notice u/s. 274 does not specify the charge against the assessee and the same is invalid and thereby the penalty order is liable to be quashed as without jurisdiction. In support the assessee seeks to rely on judgment of Hon'ble Karnataka High Court in case of Manjunatha 359 ITR 565 (Kar) and the assessee specifically seeks to draw attention to pages 600 to 603 of the said judgment. The said judgment has SunitaShreegopalBarasia been followed in various subsequent judgments. In case of SSA Emerald before the Hon'ble Karnataka High Court, question of law 3 read as follows:

As per learned AR, in the case of Baisetty Revathi before the Hon'ble Andhra Pradesh High Court, the department had relied on judgment of Hon'ble Supreme Court in case of K P Madhusudhan, 251 ITR 99 and the same was distinguished and penalty was deleted following ratio laid down in case of Manjunatha (supra). The relevant of the said judgment is reproduced below:-

In the case of Mrs. Indrani Pillai before the Hon'ble Mumbai Bench of the Income Tax Appellate Tribunal, the judgment of Hon'ble Bombay High Court in case of Maharaj Garage was relied on by the department and the same was distinguished. The operative portion of the said the judgment is reproduced below:-

On the other hand learned DR relied on the order of lower authorities and contended that the penalty in this case was correctly levied considering the facts of the case.

We have heard arguments on this issue and a perusal of the notice issued under section 274 r.w.s. 271 of the Act dated 28.12.10 reveals that the AO has not deleted the inappropriate words and parts of the notice, whereby it is not clear as to the default committed by the assessee, i.e. whether it is concealment of particulars of income or furnishing of inaccurate particulars of income that the penalty under section 271(1)(c) of the Act is sought to be levied. In this regard, we find that the Hon'ble High Court of Karnataka in its order in the case of M/s Manjunatah Cotton & Ginning Factory in of 2005 dated 13.12.2012, relied on by the assessee, has held that such a notice, as has also been issued in the case on hand, is invalid and the consequential penalty proceedings are also not valid. The relevant portion of their Lordships judgement at paras 59 to 62 thereof are extracted hereunder for reference: - “59. As the provision stands, the penalty proceedings can be initiated on various ground set therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, inthe notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.

Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in SunitaShreegopalBarasia such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.

The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the SunitaShreegopalBarasia Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations, The Gujarat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Thom, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind.”

The conclusion drawn therein by their Lordships at para 63 thereof and particularly at p) to s) thereof are as under: - “63 ………………………………. a) ………………………………. p) Notice under section 274 of the Act should specifically state the ground mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is SunitaShreegopalBarasia offended. On the basis of such proceedings, no penalty could be imposed to the assessee. s) Taking up of penalty proceedings on the limb and finding the assessee guilty of another limb is bad in law.”

It may be mentioned that in this regard, no contrary decision of the Hon'ble Apex Court or the Hon'ble Bombay High Court has been brought to our notice or placed before us for consideration. Therefore, respectfully following the decision of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory reported in (2013) 359 ITR 565 (Kar), decision of Hon’ble Bombay High Court in the case of CIT Vrs Samson Perinchery dated 05.01.2017, we hold that the notice issued under section 274 r.w.s. 271 of the Act dated 28.12.10 for A.Y. 2008-09 for initiating penalty proceedings under section 271(1)(c) of the Act in the case on hand is invalid and consequently, the penalty proceedings are also invalid. Therefore the penalty levied by AO and upheld by the Ld. CIT(A) is hereby dropped.

Apart from above, on the merits of the other grounds raised

We have heard the submissions made by the representatives of both the sides, and have also perused the orders of the authorities below. The assessee has not disclosed interest from Fixed Deposits in his return of income for the AY under consideration. The assessee had made investment in NRE Fixed Deposits from his NRE SB A/c in the year 2002. During that period, the assessee was sent on a particular assignment by the employer company to US. The assessee was allegedly under bonafide impression that since the deposits are made from NRE A/c, the interest income there from is exempt u/s.10(4), even though the assessee had returned to India and was a resident in India. The FERA, 1973 has been repealed and has been replaced with FEMA, 1999. The corresponding provisions contain in section 2(q) defining ‘person resident outside India’ in FERA, 1973 are contained in section 2(w) of FEMA, 1999. The ‘person resident outside India’ and ‘persons resident in India’ as defined under FEMA, 1999 are re- produced as under:

In the present case, we find that the assessee has not offered interest income for tax due to wrong interpretations of the provisions of the Act and not on account of deliberate concealment of income or furnishing inaccurate particulars of such income. The SunitaShreegopalBarasia assessee was under bonafide impression that he is a ‘person resident outside India’ as defined under FEMA. The explanation furnished by the assessee in not disclosing the interest income in the return appears to be quite genuine. We do not agree with the findings of the authorities below that the explanation furnished by the assessee is not covered by Clause(B) of Explanation-1 to Section 271(1)(c) of the Act. After examining chronology of events and documents on record, we are satisfied that the explanation furnished by assessee is bonafide and acceptable. Accordingly, we set aside the impugned order and allow the appeal of the assessee.

In the present case also, we find that the assessee has not offered interest income for tax due to wrong interpretations of the provisions of the Act and not on account of deliberate concealment of income or furnishing inaccurate particulars of such income. The assessee was under bonafide impression that she is a ‘person resident outside India’ as defined under FEMA. The explanation furnished by the assessee in not disclosing the interest income in the return appears to be quite genuine. We also SunitaShreegopalBarasia do not agree with the findings of the authorities below that the explanation furnished by the assessee is not covered by Clause(B) of Explanation-1 to Section 271(1)(c) of the Act. After examining chronology of events and documents on record, we are satisfied that the explanation furnished by assessee is bonafide and acceptable.

Therefore, while concurring with the findings of the Coordinate Bench, we also set aside the impugned order and allow the appeal of the assessee.