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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI M. BALAGANESH, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 26.06.2018 passed by the Commissioner of Income Tax (Appeals)-45, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y. 2002-.03 in which the penalty levied by the AO has been order to be confirmed.
The assessee has raised the following grounds: -
2. A.Y. 2002-03 “1 That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the penalty amounting to Rs.4,36,611/- u/s 271(1)(c) of the I.T. Act, 1961.
2. That on the facts and circumstances of the case and in law the penalty order u/s 271(1)(c) of the I.T. Act, 1961 is barred by limitation and beyond the time limit prescribed u/s 275 of the Act.
3. That on the facts and circumstances of the case and in Law, the Ld. AO as well as the Ld. --IT(A) failed to appreciate the fact that the penalty u/s 271(1)(c) could not be levied simply because of the additions were Sustained in the quantum proceedings without controverting the explanations of the appellant and without discharging the onus of the Revenue by providing positive material to prove that the said loan actually pertained to the year under consideration, as such, the penalty is unsustainable in law.
4. That the Ld. AO erred in law in issuing notice u/s 274 (r.w.s. 271(1)(c) without mentioning the specific limb of section 271(1)(c) under which penalty is proposed to be levied, and as such, the notice issued without application of mind is bad in law and is liable to be quashed and that the proceedings are void-ab- initio.
5. That on facts and circumstances of the case and in law, it be held that, the penalty levied depending upon the assessment framed u/s 147 r. w.s 143(3) of the Act which was in itself bad in law, though not appealed, deserves to be deleted.
6. That on the facts and circumstances of the case and in law, the penalty order u/s 271(1)(c) of the Act is bad in law as the said penalty proceedings have been initiated on the basis of the order u/s 147 r.w.s. 143(3) which is itself void-ab-initio, and as such, the penalty order is not sustainable in law." The brief facts of the case are that the assessee filed its return of 3. income on 29.10.2002 declaring total income to the tune of Rs.3,09,540/-. The return was processed u/s 143(1) of the I.T. Act, 1961. The case of the assessee was selected for scrutiny and the assessment u/s 143(3) of the Act was completed on 26.02.2004 ITA. No1762/M/2019 A.Y. 2002-03 accepting the returned income. Thereafter, a survey action u/s 133A of the I.T. Act, 1961 was carried out in the case of the assessee by the DDIT(Inv.), Unit-IV(3), Mumbai on 27.09.2006 and the copy of survey report was forwarded to the AO by revealing the following facts:- (1) Assessee has claimed expenses of Rs.1,32,00,000/- towards pocket expenses to inflate the cost of land and part of the expenses have been paid in cash. (ii) Assessee has paid interest of Rs.57,82,000/- to Shakti Insulated and also reflects loan of kundan Shah amounting to Rs.12,23,300/- and Rs.10,00,000/- from other persons. (iii) Assessee has paid the brokerage to Durga Estate of Rs.12,00,000/-. (iv) Assessee has paid Rs.12,65,000/- to Ms. VT for shops in the project Ekta Bhoomi Garden.
4. Thereafter, the case of the assessee was reopened u/s 148 of the Act and the assessment u/s 143(3) r.w.s. 147 of the I.T. Act, 1961was completed on 13.12.2009 by assessing the income to the tune of Rs.2,41,25,540/-. The AO raised the addition on account of Pocket expenses in sum of Rs.1,32,65,000/-, on account of interest paid to Shakti Insulated of Rs.57,82,000/-, loan of Kundan Shah of Rs.12,23,300/- and on account of loan from others of Rs.10,00,000/- A.Y. 2002-03 and on account of brokerage paid to Durga Estate of Rs.12,00,000/-. The penalty u/s 274 r.w.s. 271(1)(c) of the I.T. Act, 1961 was initiated. Thereafter, the assessee filed an appeal before the CIT(A) who confirmed the addition on account of loan of Kundan Shah of Rs.12,23,000/- and deleted the remaining additions. Thereafter, the revenue has filed the appeal before the Hon’ble ITAT and the Hon’ble ITAT restored the issue of pocket expenses to the AO, however, confirmed the addition of loan of Kundan Shah amounting to Rs.12,23,000/-. Thereafter, the penalty u/s 271(1)(c) was initiated. The notice was given and after the reply of the assessee, the penalty in sum of Rs.4,36,611/- was levied. Thereafter, the assessee filed an appeal before the CIT(A) who confirmed the said addition, therefore, the assessee has filed the present appeal before us.
We have heard the argument and advanced by the Ld. Representative of the parties and perused the record. The Ld. Representative of the assessee has argued that no doubt the present appeal has been filed 165 days delay but the reason for that the assessee doesn’t want to file the appeal on seeing the quantum but the Department issued the notice for prosecution in respect of the penalty sustained by the CIT(A), therefore, under the compelled circumstances the assessee filed the present appeal, therefore, the delay is liable to be condoned. However, the Ld. DR refuted the said contention and argued that there is no plausible explanation, therefore, ITA. No1762/M/2019 A.Y. 2002-03 the delay is not liable to be condoned. In the present case the AO levied the penalty in sum of Rs.4,36,611/- which has been confirmed by the CIT(A). It may happen that the assessee was taking the issue lightly but after the prosecution notice, the assessee filed the present appeal. The delay is not so long. The issue is required to be decided on merits. Terefore, in the said circumstances, we condone the delay. At the very outset, the Ld. Representative of the assessee has argued that the penalty notice nowhere speaks about specific limb to levy the penalty because the particular charge was not tick off in the notice, therefore, in the said circumstances the penalty is not justifiable hence the order of the CIT(A) confirming the penalty order of the AO is wrong against law and facts and is liable to be set aside. In support of these contentions the Ld. Representative of the assessee has placed reliance upon the law settled in in the case of CIT-11 Vs. Samson Perinchery and the order of the ITAT, Mumbai Bench in ITA. No.2555/M/2012 dated 28.04.2017 titled as Meherjee Cassinath Holdings P. Ltd. Vs. ACIT, Circle-4(2). However, on the other hand, the Ld. Representative of the Department has refuted the said contentions. The copy of notice dated 30.12.2009 is on the file in which the Assessing Officer nowhere specify any limb to levy the penalty because none of the charge was specifically tick off in the notice. It is not in dispute that the penalty u/s 271(c) of the Act is leviable on account of the concealment of particular of income and on account of furnishing the inaccurate particulars of income.
ITA. No1762/M/2019 A.Y. 2002-03 Both have different connotations. In this regard, the Hon’ble Supreme Court has appreciated the distinction between both the limb in the case Dilip N. Shroff 161 taxman 218 (SC). As per the record the assessment order speaks about levying the penalty on account of furnishing the inaccurate particulars of income and concealment of particulars income but the notice the notice nowhere specify any limb to levy the penalty. The notice is not justifiable in view of the law settled by the Bombay High Court in the case of CIT-11 Vs. Samson Perinchery and the order of the ITAT, Mumbai Bench. At the time of argument, the Ld. Representative of the assessee has also placed reliance upon the finding of the Hon’ble ITAT in titled as Meherjee Cassinath Holdings P. Ltd. Vs. ACIT, Circle-4(2). The relevant para is hereby reproduced below: - “8. We have carefully considered the rival submissions. Sec. 271(1)(c) of the Act empowers the Assessing Officer to impose penalty to the extent specified if, in the course of any proceedings under the Act, he is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In other words, what Sec. 271(1)(c) of the Act postulates is that the penalty can be levied on the existence of any of the two situations, namely, for concealing the particulars of income or for furnishing inaccurate particulars of income. Therefore, it is obvious from the phraseology of Sec. 271(1)(c) of the Act that the imposition of penalty is invited only when the conditions prescribed u/s 271(1)(c) of the Act exist. It is also a well accepted proposition that „concealment of the particulars of income‟ and „furnishing of inaccurate particulars of income‟ referred to in Sec. 271(1)(c) of the Act denote different connotations. In fact, this distinction has been appreciated even at the level of Hon'ble Supreme Court not only in the case of Dilip N. Shroff (supra) but also in the case of T.Ashok Pai, 292 ITR 11 ITA. No1762/M/2019 A.Y. 2002-03 (SC). Therefore, if the two expressions, namely „concealment of the particulars of income‟ and „furnishing of inaccurate particulars of income‟ have different connotations, it is imperative for the assessee to be made aware as to which of the two is being put against him for the purpose of levy of penalty u/s 271(1)(c) of the Act, so that the assessee can defend accordingly. It is in this background that one has to appreciate the preliminary plea of assessee, which is based on the manner in which the notice u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 has been issued to the assessee-company. A copy of the said notice has been placed on record and the learned representative canvassed that the same has been issued by the Assessing Officer in a standard proforma, without striking out the irrelevant clause. In other words, the notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealment of the particulars of income as well as furnishing of inaccurate particulars of income. Quite clearly, non-striking-off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges it has to respond. The aforesaid infirmity in the notice has been sought to be demonstrated as a reflection of non-application of mind by the Assessing Officer, and in support, reference has been made to the following specific discussion in the order of Hon'ble Supreme Court in the case of Dilip N. Shroff (supra):- “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.
The impugned order, therefore, suffers from non- application of mind. It was also bound to comply with the principles of natural justice. (See Malabar Industrial Co. Ltd. v. CIT [2000] 2 SCC 718]”
ITA. No1762/M/2019 A.Y. 2002-03
Factually speaking, the aforesaid plea of assessee is borne out of record and having regard to the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the notice in the instant case does suffer from the vice of non-application of mind by the Assessing Officer. In fact, a similar proposition was also enunciated by the Hon'ble Karnataka High Court in the case of M/s. SSA‟s Emerald Meadows (supra) and against such a judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Hon'ble Supreme Court vide order dated 5.8.2016, a copy of which is also placed on record.
In fact, at the time of hearing, the ld. CIT-DR has not disputed the factual matrix, but sought to point out that there is due application of mind by the Assessing Officer which can be demonstrated from the discussion in the assessment order, wherein after discussing the reasons for the disallowance, he has recorded a satisfaction that penalty proceedings are initiated u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income. In our considered opinion, the attempt of the ld. CIT-DR to demonstrate application of mind by the Assessing Officer is no defence inasmuch as the Hon'ble Supreme Court has approved the factum of non-striking off of the irrelevant clause in the notice as reflective of non-application of mind by the Assessing Officer. Since the factual matrix in the present case conforms to the proposition laid down by the Hon'ble Supreme Court, we proceed to reject the arguments advanced by the ld. CIT-DR based on the observations of the Assessing Officer in the assessment order. Further, it is also noticeable that such proposition has been considered by the Hon'ble Bombay High Court also in the case of Shri Samson Perinchery, 953, 1097 & 1126 of 2014 dated 5.1.2017 (supra) and the decision of the Tribunal holding levy of penalty in such circumstances being bad, has been approved. 11. Apart from the aforesaid, the ld. CIT-DR made an argument based on the decision of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Others, 216 ITR 660 (Bom.) to canvass support for his plea that non-striking off of the irrelevant portion of notice would not invalidate the imposition of penalty u/s 271(1)(c) of the Act. We have carefully considered the said ITA. No1762/M/2019 A.Y. 2002-03 argument set-up by the ld. CIT-DR and find that a similar issue had come up before our coordinate Bench in the case of Dr. Sarita Milind Davare (supra). Our coordinate Bench, after considering the judgment of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Ors., (supra) as also the judgments of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) and Dharmendra Textile Processors, 306 ITR 277 (SC) deduced as under :- “12. A combined reading of the decision rendered by Hon‟ble Bombay High Court in the case of Smt. B Kaushalya and Others (supra) and the decision rendered by Hon‟ble Supreme Court in the case of Dilip N Shroff (supra) would make it clear that there should be application of mind on the part of the AO at the time of issuing notice. In the case of Lakhdir Lalji (supra), the AO issued notice u/s 274 for concealment of particulars of income but levied penalty for furnishing inaccurate particulars of income. The Hon‟ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon‟ble Kerala High Court has struck down the penalty imposed in the case of N.N.Subramania Iyer Vs. Union of India (supra), when there is no indication in the notice for what contravention the petitioner was called upon to show cause why a penalty should not be imposed. In the instant case, the AO did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. The Hon‟ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya (supra) and observed as under:- “....The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the A.Y. 2002-03 penalty proceedings for the assessment year 1967-68 seems to be fully justified.” In the instant case also, we are of the view that the AO has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the AO has failed to apply his mind at the time of issuing penalty notice to the assessee.”
The aforesaid discussion clearly brings out as to the reasons why the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) is to prevail. Following the decision of our coordinate Bench in the case of Dr. Sarita Milind Davare (supra), we hereby reject the aforesaid argument of the ld. CIT-DR.
Apart from the aforesaid discussion, we may also refer to the one more seminal feature of this case which would demonstrate the importance of non-striking off of irrelevant clause in the notice by the Assessing Officer. As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are to be initiated for furnishing of inaccurate particulars of income. However, in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act of even date, both the limbs of Sec. 271(1)(c) of the Act are reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of Assessing Officer and there is no clear and crystallised charge being conveyed to the assessee u/s 271(1)(c), which has to be met by him. As noted by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non- compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware A.Y. 2002-03 as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond.
Therefore, in view of the aforesaid discussion, in our view, the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 is untenable as it suffers from the vice of non-application of mind having regard to the ratio of the judgment of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) as well as the judgment of the Hon'ble Bombay High Court in the case of Shri Samson Perinchery (supra). Thus, on this count itself the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted. We hold so. Since the penalty has been deleted on the preliminary point, the other arguments raised by the appellant are not being dealt with.”
In view of the above facts and circumstances, it is quite clear that the penalty is not leviable in accordance with law. Since the penalty is not sustainable on the issue of defective notice, therefore, we are not inclined to decide the matter of controversy on merits. In view of the said circumstances, we are of the view that the finding of the CIT(A) is wrong against law and facts and is not liable to be sustainable in the eyes of law, therefore, we set aside the finding of the CIT(A) on this issue and delete the penalty.