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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVAN & SHRI JASON P BOAZ
Per Shri Jason P Boaz, A.M. :
This appeal by the assessee is directed against the ex-parte order of CIT(A)-3, Bangalore, dated 01.03.2018 upholding the levy of penalty of Rs.1,75,000/- under section 271(1)(c) of the Income Tax Act, 1961 (in short ‘the Act’) in Assessment Year 2005-06.
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ORDER ON PETITION FOR CONDONAITON OF DELAY IN FILING APPEAL BEFORE TRIBUNAL
At the outset, the learned AR for the assessee submitted there was a delay of 19 days in filing this appeal before the Tribunal and an Affidavit sworn to by the assessee dated 24.05.2018 has been filed by the assessee along with the appeal. The learned AR prayed that the delay be condoned in keeping with the principles laid down by the Hon’ble Apex Court in MST Katiji and Others (1987) 167 ITR 471 (SC). The reasons for delay in filing this appeal have been explained in the Affidavit at paras 3 to 8 thereof, are extracted hereunder:-
That being aggrieved by the order of penalty u/s 271[1][c] of the Act passed by the learned A.O. for the aforesaid assessment year, I had instituted an appeal before the learned Commissioner of Income-tax [Appeals]- 1 and later file transferred to the learned CIT[A]-3, BENGALURU. 2. That, the learned Commissioner of Income-tax [Appeals] disposed off the appeal instituted by me in ITA No.432]/CIT[A]-3/BNG/2016-17 by his order dated 01/03/2018, which was received by my authorized representative on 07/03/2018 and the appeal against the said appellate order ought to have been filed before the Hon'ble ITAT on or before 06/05/2018. 3. That, the appeal against the said appellate order came to be instituted before the Hon'ble Income-tax Appellate Tribunal, Bangalore Bench, Bangalore belatedly and there is a delay of 19 days in filing the appeal. The reasons for the delay in filing the appeal are explained hereinafter. 4. That, soon after being informed about the receipt of the aforesaid appellate order by my authorized representative, I could not immediately contact him because I was unwell with back pain and advised bed rest by my Doctors. 5. That, after my recovery also, I was not fully fit and attending to all matters since I was still recuperating and therefore, I was able to
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contact my AR only recently and by then, the due date for filing the appeal had already expired. 6. That, recently, when I contacted my authorized representative, I was advised that I ought to have filed an appeal against the order of the learned CIT[A] and thereafter I approached M/s. S.VENKATESAN & Co., Chartered Accountants, for seeking further advise in the matter and they advised me to file an appeal immediately by seeking condonation of delay and thereafter, immediate steps were taken to file the appeal before the Hon'ble ITAT. 7. That, the delay in filing the appeal was due to reasonable cause and beyond my control and the delay was neither intentional, willful nor deliberate and was occasioned on account of the reasons stated above. 8. That, it is, therefore, prayed that the delay in filing the appeal may kindly be condoned and the appeal may kindly be admitted and disposed off on merits for the advancement of substantial cause of Justice.
2.2 The learned DR for Revenue opposed the assessee’s plan for condonation of delay.
2.3 We have heard and considered the rival contentions and the material on record in respect of the matter of condonation of delay of 19 days in filing this appeal before the Tribunal. Taking into account the principles laid down by the Hon’ble Apex Court in the case of MST Katiji and Others (supra), wherein the Hon’ble Apex Court laid down the principles for dealing with matters relating to condonation of delay, and the reasons of health issues cited by the assessee in the Affidavit (supra), we are of the view that the assessee was prevented by reasonable and sufficient cause from filing the appeal for Assessment Year 2005-06 on time. In this view of the matter and respectfully following the principles laid down by the Hon’ble Apex Court in the case of MST Katiji and Others (supra), we condone the delay of 19 days by the assessee
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in filing this appeal before the Tribunal and accordingly admit the assessee’s appeal for Assessment Year 2005-06 for consideration and adjudication.
O R D E R
Briefly stated the facts relevant for disposal of this appeal are as under:-
3.1 The assessee filed the return for Assessment Year 2005-06 on 31.05.2005 declaring total income of Rs.1,08,250/-. Proceedings under section 147 of the Act were initiated for this Assessment Year and notice under section 148 of the Act was issued to the assessee on 18.08.20106. As there was no response / compliance by the assessee to notices issued under section 143(2) / 142 of the Act, the assessment was concluded ex-parte under section 144 r.w.s 147 of the Act vide order dated 26.03.2007, wherein the assessee’s income was determined at Rs.9,49,677/-; in view of an addition of Rs.8,41,427/- on account of re-computation of capital gains by virtue of denying the assessee’s claim for exemption under section 54F of the Act.
3.2 Penalty proceedings under section 271(1)(c) of the Act was initiated simultaneously vide notice under section 274 r.w.s. 271(1)(c) of the Act of even date viz., 26.03.2007 in respect of the aforesaid addition. After considering the assessee’s replies in the matter, the AO proceeded to levy penalty of Rs.1,75,000/- under section 271(1)(c) of the Act vide order dated 30.03.2012. On appeal, the CIT(A)-3, vide the impugned ex-parte order dated 01.03.2018, upheld the levy of penalty under section 271(1)(c) of the Act by the Assessing Officer (AO).
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4.1 Aggrieved by the order of the CIT(A)-3, Bengaluru dated 01.03.2018 upholding the levy of penalty under section 271(1)(c) of the Act for Assessment Year 2005-06 in the case on hand, the assessee has preferred this appeal before the Tribunal, wherein she has raised the following grounds:-
The orders of the authorities below in so far as levying penalty 1. u/s 271 [1 ][c] of the Act against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. The learned CIT[A] it not justified in upholding the penalty 2. of Rs. 1,75,000/- levied u/s. 271[1][c] of the Act in respect of the denial of the exemption claimed u/s 54F of the Act under the facts and in the circumstances of the appellant's case. 3. The learned CIT[A} failed to appreciate that the appellant has neither concealed any income nor furnished inaccurate particulars of income in respect of the above addition made to warrant levy of penalty and therefore, the penalty levied u/s.271[1][c] of the Act requires to be cancelled. 4. Without prejudice to the above, the penalty levied is highly excessive and liable to be reduced substantially. 5. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.
4.2 The assessee also filed the following additional grounds of appeal:
The order of penalty passed u/s 271[1][c] of the Act is bad in law as the notice issued under section 274 rws 271 of the Act is not discernable as to whether the penalty proceedings is initiated for furnishing of inaccurate particulars of income or
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concealment of income under the facts and in the circumstances of the appellant's case and therefore, the impugned order passed deserves to be cancelled. 2. For the above and other grounds that may be urged at the time of -earing of the appeal, your appellant humbly prays that the appeal may be -.,,lowed and Justice rendered. 4.3 We have heard the rival contentions in the matter of admission of the additional grounds (supra). Taking into account the factual matrix of the case and that the additional grounds raised, we find that they are purely questions of law that do not involve facts otherwise those that are already on the records of the Department. They also go to the very root of the matter of jurisdiction and validity of the imposition of penalty under section 271(1)(c) of the Act. Further, taking into account the ratio of the decision of the Hon’ble Apex Court in the case of NTPC Ltd., (229 ITR 383) (SC), we admit the additional grounds raised (supra) for consideration and adjudication.
Additional grounds Nos. 1 & 2 – Defective notice issued under section 274 r.w.s. 271 of the Act
5.1 At the outset , the learned Counsel for the assessee urged additional ground Nos.1 and 2 contending that the CIT(A) ought to have deleted the penalty levied u/s 271(1)(c) of the Act for Assessment Years 2005-06 following the binding decision of Hon’ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar); since the notice u/s 274 r.w.s. 271 of the Act for initiation of penalty u/s 271(1)(c) of the Act dated 26.03.2007 was defective and issued without any application of mind by the AO, the conditions precedent for a passing of valid penalty orders u/s 271(1)(c) of the Act were absent. In this regard, the learned AR drew the
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attention of the Bench to the copy of the impugned notice, issued u/s 274 r.w.s. 271(1)(c) of the Act dated 26.03.2007 for Assessment Year 2005-06 filed by the assessee, to demonstrate that the said notice was defective, in as much as it did not indicate whether it was issued to the assessee for concealment of income or for furnishing of inaccurate particulars of income. In support of the proposition that notice issued u/s 274 r.w.s. 271 of the Act, without specifying the default; i.e., whether the notice is issued for concealment of income or furnishing of inaccurate particulars of income; is invalid and consequential penalty proceedings / orders are also not valid; the learned AR placed reliance on the decision of the Hon’ble Karnataka High Court in the case of M/s. Manjunatha Cotton & Ginning Factory in 359 ITR 565 (Kar). It was prayed that in the light of the above judicial pronouncements of the Hon’ble Karnataka High Court (supra), the orders levying penalty u/s 271(1)(c) of the Act for Assessment Year 2005-06 in the case on hand is liable to be quashed / cancelled.
5.2 Per contra, the learned DR for Revenue placed reliance on the orders of the authorities below as being in order.
5.3.1 We have heard and carefully considered the rival contentions and submissions on record and the decision of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (Supra). The notice issued by the AO u/s 274 r.ws 271 of the Act dated 26.03.2007 for initiation of penalty proceedings u/s 271(1)(c) of the Act for Assessment Year 2005-06 in the case on hand (copy filed by the learned AR), has been carefully perused and we find that the AO has not deleted the inappropriate words and portions in the relevant paragraph of the notice; whereby it is not clear as to which default is
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committed by the assessee, i.e., whether it is for furnishing of inaccurate particulars of income OR concealing particulars of income that the penalty u/s 271(1)(c) of the Act is sought to be levied.
5.3.2 The Hon'ble Karnataka High Court in the case of M/s Manjunatha Cotton & Ginning Factory in (359 1TR 565) (Kar) has held that a notice issued u/s 274 r.ws 271 of the Act without specifying the nature of default; i.e. whether the notice is issued for concealment of particulars of income or furnishing of inaccurate particulars of income; is invalid and the consequential penalty proceedings/orders are also not valid. The relevant portion of the aforesaid judgment of the Hon'ble Karnataka High Court (Supra) at paras 59 to 61 are extracted hereunder:-
"59. As the provision stands, the penalty proceedings can be initiated on various ground set out 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, in the 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 rase of relying on deeming provision contained in Explanation-I 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 oil 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 (I)(c) c/a 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 tax liability. As the said provisions have to be held to be standby 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.
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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 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. 61. 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 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 Pal 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 M4NU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO IvL4RKETING reported in 171 Taxman 156, has held that penalty has to be clear as to the limb for which it is levied and the action being unclear penalty is not sustainable. Therefore, 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."
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5.3.3 The aforesaid view taken by the Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (Supra) was followed by the Hon'ble Karnataka High Court in the case of SSAS Emerald Meadows in ITA No.380 of 2015 dated 23/11/2015; wherein the Hon'ble Court upheld the order of co-ordinate bench of this Tribunal, cancelling the penalty levied on the basis of the defective notice issued by the AO. Revenue's SLP filed against the said judgment of the Hon'ble High Court in the case of SSAS Emerald Meadows (Supra) has also been dismissed by the Hon'ble Apex Court in CC/I485/2016 dated 5/8/2016.
5.3.4 Respectfully following the judgments of the Hon'ble Karnataka High Court in the cases of M/s. Manjunatha Cotton & Ginning Factory (359 ITR 565) (Kar) and SSAS Emerald Meadows in ITA No.380 of 2015 dated 23/11/2015, we hold that the notice issued by the AO u/s 274 r.w.s 271 of the Act dated 26.03.2007 for initiating penalty proceedings for Assessment Year 2005-06 is invalid and consequently, the penalty proceedings conducted in pursuance thereof, are also invalid. We therefore cancel the penalty levied u/s. 271(1)(c) of the Act for Assessment Year 2006-06. Consequently, ground No.2 raised by the assessee is allowed.
In view of our finding rendered in respect of Additional Ground Nos.1 and 2, the other grounds of appeal at grounds 1 to 5 (supra) raised by the assessee on merits of the levy of penalty become academic in nature and do not require adjudication.
In the result, the assessee’s appeal for Assessment Year 2005-06 is allowed as indicated above.
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Order pronounced in the open court on this 16th day of April, 2019.
Sd/- Sd/- Sd/- (N. V. VASUDEVAN) (JASON P BOAZ) Vice President Accountant Member Bangalore. Dated: 16th April, 2019. /NS/*
Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard file By order
Assistant Registrar, ITAT, Bangalore.