ANURADHA KHANNA,MEERUT vs. ITO, WARD- 1(1), MEERUT

PER: BHAVNESH SAINI, JM

Both appeals by different assessees are directed against the different orders of Ld. Commissioner of Income Tax (Appeals), Meerut, dated 20.11.2017 for Assessment Year 2014-15, challenging the levy of penalty u/s 271(1)(c) of the Income Tax Act, 1961.

ITA No. 514/Del/2018 (Miss Anisha Khanna)

3. Briefly the facts of the case are that the assessee has e-filed her return of income declaring income of Rs. 8,20,050/- and exempt income of Rs. 41,84,861/-. The case was selected for scrutiny in order to examine “suspicious long term capital gain on shares”. The AO noted that there is information from Directorate of Investigation, Kolkata that racket is organized for bogus entries of long term capital gains which is claimed exempt from tax. The AO after detailed investigation concluded that the transactions conducted by assessee were sham transactions and aimed only to bring unaccounted money in the guise of exempted long term capital gains. He therefore disallowed the claim of the assessee because assessee surrendered the amount in question. The AO made addition of Rs. 37,77,465/- u/s 68 of the Act. The AO noted that the assessee has deliberately and willfully concealed its unaccounted income and initiated penalty proceedings u/s 271(1)(c) of the Act. The AO vide separate orders levied the penalty u/s 271(1)(c) of the Act, on account of assessee has furnished inaccurate particulars of her income in ITR by making bogus claim of long term capital gains exempted u/s 10(38) of the Act. The Ld. CIT(A) vide impugned order confirmed the levy of the penalty.

4. Ld. Counsel for the assessee referred to PB 31 which is show-cause notice u/s 271(1)(c) of the Act dated 29.12.2016 and submitted that the penalty notice do not mention specific charge, whether it was for concealment of income or furnishing inaccurate particulars of income. Such vague show-cause notice is not valid in law for levy of penalty. In notice the AO has mentioned that “have concealed the particulars of your Income or furnished inaccurate particulars of such Income”. He has submitted that on the identical issue in the case of other family member of the assessee Sh. Vinay Raj Khanna, Ld. Commissioner of Income Tax (Appeals), Meerut vide order dated 30.01.2018 for Assessment Year 2014-15 cancelled the penalty. The copy of the order is placed on record. The Ld. Counsel for the assessee relied upon the following decisions:

1. CIT vs. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar.)

2. CIT vs. SSA’s Emerald Meadows 242 Taxman 180 (SC)

3. Muninaga Reddy V. Asst. CIT 396 ITR 398 (Karn)

The Ld. Counsel for the assessee submitted that the AO in the assessment order initiated the penalty proceedings for concealment of income, however penalty have been imposed for furnishing inaccurate particulars of income. Therefore, no penalty is leviable on the assessee.

5. On the other hand, Ld. DR relied upon the orders of the authorities below and submitted that the assessee agreed for the addition before AO because it was a sham transactions and as such penalty was rightly imposed against the assessee. The Ld. DR relied upon the following decision:-

2. R L Traders vs. ITO (2017-TIOL-2583-HC-DEL-IT)

327 ITR 510 (Delhi)/[2010] 233 CTR 465]

(SC)/[2013] 263 CTR 1]

ITR 99 (SC)/[2001] 169 CTR 489 (SC)]

6. Sundaram Finance Ltd v. CIT 403 ITR 407 (Mad), on the proposition that assessee had understood purport and Import of notice hence no prejudice was caused to assessee.

6.1 Considering the above facts, it is apparent that show-cause notice issued by the Assessing Officer u/s 274 read with section 271(1)(c) of the IT Act is bad in law as it did not specify which limbs of section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing inaccurate particulars of income. The Hon’ble Karnataka High Court in the case of CIT vs. SSA’s Emerald Meadows 73 taxmann.com 241 following its earlier decision in the case of CIT vs. Manjunatha Cotton & Ginning Factory 359 ITR 565, dismissed the departmental appeal in which the Tribunal allowed the appeal of the assessee on the above identical reasons. The Judgment of the Hon’ble Karnataka High Court has been confirmed by the Hon’ble Supreme Court by dismissing the SLP of the Department reported in 73 taxmann.com 248.

6.2 In view of the above discussion, it is clear that the show-cause notice issued before levy of the penalty is bad in law and as such the entire penalty proceedings are vitiated and are liable to be set aside. The decisions relied upon by the Ld. DR would not support the case of the Revenue because of the reasons noted above. Ld. DR relied upon the decision of Hon’ble Madras High Court in the case of Sundaram Finance Ltd. (supra). However, it is well settled law that when two views are possible, the view favourable to assessee may be followed. In view of this matter, we set aside the orders of the authorities below and Cancel the penalty u/s 271(1)(c) of the IT Act.

There is no need to consider the issue on merit at this stage.

Anisha Khanna (supra), we set aside the order of the authorities below and cancel the penalty.

Order pronounced in the open court on 10/8/2018