Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI N.K. PRADHAN, HONBLE
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)–29, Mumbai dated 05.03.2007 for the Assessment Year 2001-02 in enhancing the penalty u/s. 271(1)(c) of the Act and directing the Assessing Officer to levy penalty on loss of ₹.4,04,27,000/-.
(A.Y: 2001-02) M/s. Sheetal Diamonds Ltd.
Ld. Counsel for the assessee submits that, in quantum proceedings the Assessing Officer rejected the Books of Accounts and estimated the income from purchases @10% on the ground that the purchase details have not been furnished by the assessee. Ld. Counsel for the assessee submitted that the Tribunal considering the submissions of the assessee that the purchases were recorded in earlier years were accepted in the proceedings computed u/s. 143(3) of the Act estimated the income at NIL. Ld. Counsel for the assessee submits that as the books are rejected and income is estimated no penalty is leviable. Reliance is placed on the decision of the Coordinate Bench in the case of Mrs. Sonali A. Shah v. I.T.O in ITA.No. 5720/Mum/2013 dated 07.11.2016.
Ld. Counsel for the assessee further submitted that initiation of penalty proceedings is bad in law as the Assessing Officer has not specified the limb on which the penalty was proposed to be levied. Ld. Counsel for the assessee referring to the notice issued u/s. 274 r.w.s. 271 of the Act submitted that Assessing Officer is not clear as to the charge for which the penalty is initiated i.e. either for concealment of income or for furnishing inaccurate particulars of income. Referring to the said notice Ld. Counsel for the assessee submitted that the inappropriate limb in the notice was not strike off. Referring to the Assessment Order, the Ld. Counsel for the assessee submits that the penalty proceedings were (A.Y: 2001-02) M/s. Sheetal Diamonds Ltd. initiated for concealment of income and furnishing of inaccurate particulars. Referring to the penalty order u/s. 271(1)(c) of the Act Ld. Counsel for the assessee submits that Assessing Officer recorded that he is satisfied that the assessee has concealed its income and filed inaccurate particulars of income.
Referring to the Ld.CIT(A) order, Ld. Counsel for the assessee submits that, it is the observation of the Ld.CIT(A) that merely because income is estimated it does not mean that there is no concealment of income. Ld. Counsel for the assessee submitted that there is complete non application of mind by the Assessing Officer in initiating the penalty proceedings and therefore levy of penalty is illegal, void and bad in law. He submitted that initiation of penalty by non-application of mind is without jurisdiction as the penalty notice does not strike off the irrelevant portion thereon. Reliance is placed on the following decisions: -
(i). M/s. Bhumiraj Constructions v. ACIT in ITA.No. 5267/Mum/2014 dated 20.02.2019. (ii). Shri Mohd. Arif Shaikh v. I.T.O in ITA.No. 2344/Mum/2014 dated 14.11.2018. (iii). M/s. Thirumalai Chemicals Ltd., v. DCIT in ITA.No. 1969 & 2059/Mum/2015 dated 21.12.2018. 5. Ld. Counsel for the assessee submits that the loss declared by the assessee which was not allowed by the Assessing Officer was never setoff in subsequent years and there is no intention to claim set off of any (A.Y: 2001-02) M/s. Sheetal Diamonds Ltd. excess loss by the assessee. Ld. Counsel for the assessee submitted that since the assessee had no intention to set off the loss in any subsequent year it proves the bonafides of the assessee in claiming the loss.
Ld. DR vehemently supported the orders of the authorities below. Ld. DR submits that the income was estimated since no details were furnished by the assessee. Penalty was levied by the Assessing Officer as the assessee failed to furnish the details and the Ld.CIT(A) has rightly enhanced the penalty on the loss disallowed by the Assessing Officer.
We have heard the rival submissions, perused the orders of the authorities below. In so far as the contention of the assessee that initiation of penalty proceedings is bad in law as there is non-application of mind by the Assessing Officer in initiation penalty proceedings as the Assessing Officer has not strike off the irrelevant portion of the wing, we find that the issue has been considered by the Mumbai Bench of this Tribunal in various decisions and held that when once there is non-application of mind by the Assessing Officer and the irrelevant portion of the limb of the penalty notice issued u/s. 274 r.w.s. 271(1)(c) is not strike off, the penalty proceedings are bad in law. The case laws relied on by the assessee supports the contentions of the assessee.
(A.Y: 2001-02) M/s. Sheetal Diamonds Ltd.
We find that an identical situation has been considered by the Coordinate Bench in Meherjee Cassinath Holdings v. ACIT in ITA.No. 2555/MUM/2012 dated 28.04.2017 as to whether the action of the Assessing Officer in initiating penalty proceedings U/s. 271(1)(c) of the Act without striking off one of the limbs and without specifying the specific charge in the notice initiating penalty proceedings for inaccurate particulars of income in the Assessment Order and the Coordinate Bench considering the decision of the Hon’ble Jurisdictional High Court in the case of CIT v. Samson Perinchery [392 ITR 4] and also various decisions held that action of the Assessing Officer in non-striking off relevant clause in the notice shows that the charge being made against the assessee is not firm therefore proceedings suffer from non-compliance with principles of natural justice in as much as the Assessing Officer himself is not sure of the charge and the assessee is not made aware as to which of the two limbs of section 271(1)(c) of the Act he has to respond. Following the above decision, similar view has been taken by the Coordinate Bench in the case of Orbit Enterprises v. ITO [60 ITR(Trib.) 252].
In the case of DCIT v. Shri Dhaval D. Shah in ITA.No. 1337/Mum/2016 & C.O.NO.08/Mum/2018 dated 16.05.2018 the Coordinate Bench considered similar and identical issue and following the ratio laid down in the Dilip N. Shroff [210 CTR 228 (SC)] and the decision
(A.Y: 2001-02) M/s. Sheetal Diamonds Ltd. of the Hon’ble Jurisdictional High Court in the case of CIT v. Samson Perinchery (supra) held that the penalty proceedings initiated by the Assessing Officer is bad in law. While holding so the Coordinate Bench held as under:
“9. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. We begin with the decisions relied on by the Ld. DR. In the case of Smt. Kaushalya & Ors. (supra), the Hon’ble Bombay High Court held: “9. We will first take up the show-cause notice dated March 29, 1972, pertaining to the assessment years 1968-69 and 1969-70. The assessment orders were already made and the reasons for issuing the notice under section 274 read with section 271(1)(c) were recorded by the Income-tax Officer. The assessee fully knew in detail the exact charge of the Department against him. In this background, it could not be said that either there was non- application of mind by the Income-tax Officer or the so-called ambiguous wording in the notice impaired or prejudiced the right of the assessee to reasonable opportunity of being heard. After all, section 274 or any other provision in the Act or the Rules, does not either mandate the giving of notice or its issuance in a particular form. Penalty proceedings are quasi-criminal in nature. Section 274 contains the principle of natural justice of the assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining a complaint of failure of the principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice is caused to the concerned person by the procedure followed. The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The entire factual background would fall for consideration in the matter and no one aspect would be decisive. In this context, useful reference may be made to the following observation in the case of CIT v. Mithila Motor's (P.) Ltd. [1984] 149 ITR 751 (Patna) (head note): ‘Under section 274 of the Income-tax Act, 1961, all that is required is that the assessee should be given an opportunity to show cause. No statutory notice has been prescribed in this behalf. Hence, it is sufficient if the assessee was aware of the charges he had to meet and was given an opportunity of being heard. A mistake in the notice would not invalidate penalty proceedings.’ In M/s Maharaj Garage & Co. (supra), the Hon’ble Bombay High Court at para 15 held: “The requirement of section 274 of the Income Tax Act for granting reasonable opportunity of being heard in the matter cannot be stretched to the extent of framing a specific charge of asking the assessee an explanation in respect of the quantum of penalty proposed to be imposed, as has been urged. The assessee was supplied with the findings recorded
(A.Y: 2001-02) M/s. Sheetal Diamonds Ltd. in the order of re-assessment, which was passed on the same date on which the notice u/s 271(1)(c) was issued, initiating the proceedings of imposing the penalty. The assessee had sufficient notice of the action of imposing penalty. We, therefore, do not find either any jurisdiction error or unjust exercise of power by the authority.” In Sky Light Hospitality LLP (supra), the assessee (Sky Light Hospitality LLP) who had taken over on 13.05.2016 and acquired rights and liabilities of M/s Sky Light Hospitality Pvt. Ltd. upon conversion under the Limited Liability Partnership Act, 2008, filed a writ petition impugning notice dated 30.03.2017 issued by the AO u/s 147/148 for the AY 2010-11. The contention of the assessee before the Hon’ble High Court was that notice u/s 147/148 of the Act dated 30.03.2017 was addressed and issued to M/s Sky Light Hospitality Pvt. Ltd., PAN No. AALCS3800N, a company which had ceased to exist and was dissolved on 13.05.2016. It was stated that the said notice issued to a dead juristic person is invalid and void in the eyes of law. Also contentions were raised stating that section 292B was inapplicable. The Hon’ble Delhi High Court held as under: “21. Our attention was drawn to Parashuram Pottery Works Co. Ltd. V. ITO, Circle I, Ward A, Rajkot, (1977) 106 ITR 1 (SC) which records that the Assessing Officer entrusted with the task of calculating and realizing tax should familiarize themselves with the relevant provisions and become well versed with the law on the subject. This is a salutary advice. Indeed, there have been lapses and faults resulting in the present litigation. Notice under Section 147/148 of the Act was issued at the end of the limitation period. Noticeably, Assessment Order for the assessment year 2013-2014 was passed on 31.03.20I6, one year earlier. Second lapse is also apparent. Despite correctly noting the background, notice under Section 147/148 of the Act was not addressed in the correct name and even the PAN Number mentioned was incorrect. Nevertheless, human errors and mistakes cannot and should not nullify proceedings which are otherwise valid and no prejudice had been caused. This is the effect and mandate of Section 292B of the Act.” In Smt. Shantidevi Mahavir Prasad Gupta (supra), the Tribunal held as under: “10. The question before us is not whether the income is of the nature of “notional income” but the question is whether the assessee has filed inaccurate particulars or concealed the true facts. As stated hereinabove, in our humble opinion, the assessee has concealed the true facts thereby filed inaccurate particulars. Therefore, we do not find any error or infirmity in the findings of the Ld. CIT(A). The penalty u/s. 271(1)(c) is leviable on the facts of the case. The reliance on the decision of the Tribunal is clearly distinguishable on the facts. We, accordingly confirm the levy of penalty u/s. 271(1)(c) of the Act.” In Ms. Laudres Austin (supra), the Tribunal held the following : “In the instant case also we hold that penalty proceedings were initiated properly as there is no defect in the recording of satisfaction by the AO as well there is no defect in the notice issued u/s 271 r.w.s. 274 of the 1961 Act. The decision of Hon’ble Bombay High Court in Samson Perincherry (supra) is concerning the issuance of penalty proceedings under one limb while levying of penalty under another limb of section 271(1)(c) which is no permissible as per ratio of this decision. The Hon’ble Supreme Court in SSA’s Emerald Meadows (supra) while dismissing SLP recorded finding that the Hon’ble Lordships did not find any merit in this petition which means ratio of decision of Hon’ble Karnataka High Court in SSA’s Emerald Meadows in of 2015 stood confirmed. The Hon’ble Karnataka High Court in SSA’s Emerald Meadows has affirmed the ratio of judgment of Manjunatha Cotton and Ginning Factory (supra). We have already seen (A.Y: 2001-02) M/s. Sheetal Diamonds Ltd. that Hon’ble Karnataka High Court in Manjunatha Cotton and Ginning Factory (supra) has affirmed that alternate charge is possible under both the limbs simultaneously.” 9.1 In the instant case, the AO vide his order u/s 143(3) dated 28.12.2011 has initiated the penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income or concealment of income. In the draft penalty order u/s 271(1)(c) dated 24.03.2014, the AO has imposed penalty of Rs.46,59,047/- for concealment of income. Also we find that there is no provision in the Income Tax Act, 1961 for a draft penalty order u/s 271(1)(c) of the Act. 9.2 It would be apposite to refer here to the decision in Dilip N. Shroff v. JCIT (2007) 210 CTR (SC) 228, wherein it has been held : “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. Commissioner of Income Tax, Kerala State, (2000) 2 SCC 718]” In CIT vs. Samson Perincherry (ITA No. 953, 1097, 1154 & 1226 of 2014), the Hon’ble Bombay High Court held: “Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under Section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/permit penalty being imposed for the order breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated/notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground of which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the assessee has no notice.” Respectfully following the ratio laid down in Dilip N. Shroff (supra) and Samson Perincherry (supra), we hold that the penalty proceedings initiated by the AO is bad in law. We may herein observe that since the order of the AO has been held as bad in law on the preliminary ground, the other grounds raised
by the revenue on merits before us having been rendered as academic, are thus not being dealt with.”
10. Respectfully following the above said decision, we hold that the notice issued by the Assessing Officer U/s. 274 r.w.s 271(1)(c) of the Act is on account of non-application of mind and therefore the penalty proceedings initiated are bad in law. Thus, we direct the Assessing Officer to delete the penalty levied U/s. 271(1)(c) of the Act.
(A.Y: 2001-02) M/s. Sheetal Diamonds Ltd. 11. As we have held that the penalty be deleted on the preliminary point the other arguments raised by the Ld. Counsel for the assessee are not being dealt with as it becomes only academic.
In the result, appeal of the assessee is allowed as indicated above.
Order pronounced in the open court on the 15th March, 2019