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Income Tax Appellate Tribunal, BENGALURU BENCH C, BENGALURU
Before: SHRI. J. SUDHAKAR REDDY & SHRI. LALIET KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER & 1479/Bang/2018 (Assessment Year : 2001-02 & 2004-05) Sri Rakesh Singh, l/R of late Sri lakhan Singh, No.2, 4th floor, R. R. Chambers, Vasanthanagar, Bengaluru .. Appellant PAN : ARDPS8589G v. Deputy Commissioner of Income-tax, Circle – 6 (3), Bengaluru .. Respondent Assessee by : Shri. V. Srinivasan, Advocate Revenue by : Dr. P. V. Pradeep Kumar, Addl. CIT Heard on : 04.03.2019 Pronounced on : 04.03.2019 O R D E R
PER LALIET KUMAR, JUDICIAL MEMBER :
The present two appeals are filed by the assessee against separate orders passed by the CIT (A) dt.15.02.2018, for the assessment years 2001-02 and 2004-05 respectively, involving a common issue with regard to levy of penalty u/s.271(1)(c) , which was confirmed by the CIT (A).
ITA.1478 & 1479/Bang/2018 page - 2
The CIT (A) had confirmed the penalty imposed on the assessee pursuant to the notices issued by the AO on 31.12.207, which are similar to both the assessment years, read as under ; ITA.1478 & 1479/Bang/2018 page - 3 The CIT (A) had held that the notice issued by the AO was not defective and therefore upheld the imposition of penalty for concealment of income.
The ld. AR had submitted that the AO was duty bound to score out the provision which is not applicable i.e., whether the penalty was imposed for concealment of income or for furnishing of inaccurate particulars of such income. Merely issuing a blank form is not sufficient. The ld. AR has relied on the Hon’ble jurisdictional High Court judgment in the matter of Manjunatha Cotton & Ginning Factory [ 359 ITR 565], SLP [CC 11485/2016, dt.05.08.2016 of the hon’ble Apex Court in SSAS Emerald meadows, and has drawn our attention to the order passed by the coordinate bench in the matter of C. Ramaiah Reddy v. DCIT [ITA.977/Bang/2017, dt.22.09.2017].
On the other hand the ld. DR supported the order of the lower authorities.
We have heard the rival submissions and perused the material on record. In our view, the issue is squarely covered in favour of the assessee by the decisions cited by the assessee, and more particularly paras 5.3.1 to 5.3.4 of C. Ramaiah Reddy (supra), which is to the following effect : 5.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. At the outset we may mention that the assessee has raised the aforesaid issue of defective notice before the ld CIT(A) and find that there is no finding rendered by the id CIT(A) on this issue in the impugned order. However, since the facts of the matter on this issue are apparent from the copy of the said notice issued u/s ITA.1478 & 1479/Bang/2018 page - 4 274 r.w.s 271 of the Act dated 26/2/2013 (filed by the assessee at page 6 of paper book pages 1 to 33) and the judicial view of Courts and ITAT co-ordinate bench in the matter (Supra) in our view, no useful purpose would be served in restoring the matter to the file of the ld CIT(A) as prayed for by the Id DR for Revenue. We have perused the copy of the notice issued u/s 274 r.w.s 271 of the Act dated 26/2/2013 and find that it reveals that the AO has not deleted the inappropriate words and parts in the relevant paragraph of the notice, whereby it is not clear as to which default has been committed by the assessee; i.e whether by furnishing of inaccurate particulars of income or concealing particulars of income for which 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 ITR 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/order 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 grounds 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 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 section 274 makes it clear that the 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 form where all the grounds mentioned in ITA.1478 & 1479/Bang/2018 page - 5 section 271 are mentioned would not satisfy the 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 per cent. to 300 per cent. 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, the 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 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 the 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 the 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 the 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.
ITA.1478 & 1479/Bang/2018 page - 6
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 Pai reported in [2007] 292 ITR 11 (SC) 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 Works reported in [1980] 122 ITR 306 (Guj) and the Delhi High Court in the case of CIT v. Virgo Marketing P. Ltd. reported in [2008] 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. 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. 5.3.3. The aforesaid view taken by the hon’ble Karnataka High Cout 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 of 2015 dated 23.11.2015, wherein the Hon’ble Court upheld the order of coordinate 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/1485/2016 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 26/2/20133 for initiating penalty proceedings is invalid and consequently, the penalty proceedings, conducted in pursuance thereof, are also invalid and we therefore delete the penalty of Rs.2,08,365/- levied u/s ITA.1478 & 1479/Bang/2018 page - 7 271(1)(c) of the Act for asst. year 2011-12. Consequently, the grounds raised by the assessee at S.Nos. 2 and 3 (Supra) are allowed.
In view of the above, we find that the issue is covered in favour of the assessee and against the assessee. Therefore following the above decision of the coordinate bench and also the judgment of the Hon’ble jurisdictional High Court, we hereby delete the penalty for both years.
In the result, appeals of the assessee are allowed. Order pronounced in the open court on 4th day of March, 2019.