S. NARENDRAKUMAR & CO.,MUMBAI vs. ACIT 22(2), NAVI MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in A.Y.2009-10 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-25, Mumbai in appeal No.CIT(A)-25/IT/114/14-15 dated 15/09/2016 (ld. CIT(A) in short) in the matter of imposition of penalty u/s.271(1)(c) of the Income Tax Act, 1961. 2. The only issue to be decided in this appeal is as to whether the ld. CIT(A) was justified in confirming the levy of penalty u/s.271(1)(c) of Shri S. Narendrakumar &Co., the Act in the sum of Rs.16,54,500/- in the facts and circumstances of the case. 2.1. The assessee had raised a preliminary ground that no specific charge of offence committed by the assessee was mentioned by the ld. AO in the penalty show-cause notice by striking off the inapplicable words thereof and accordingly prayed for deletion of penalty on this technical ground. The assessee had also raised additional ground of appeal stating that the ld. CIT(A) erred in not appreciating the judicial position that if no proper satisfaction is recorded by the ld. AO in the assessment order u/s.143(3) of the Act dated 21/11/2011 for initiation of penalty u/s.271(1)(c) of the Act then the levy of penalty is bad in law. We find that admission of this additional ground of appeal goes to the root of the matter and does not involve any fresh investigation of facts and accordingly, the same is admitted for the purpose of adjudication. 2.2. It would be pertinent to note the relevant facts in this regard. We find that the assessee is a partnership firm engaged in the business of manufacturing of Everest Masala Products. The assessee filed its return of income for the A.Y.2009-10 on 29/09/2009 declaring the total income of Rs.20,29,83,000/-. The assessment was completed u/s.143(3) of the Act on 29/11/2011 determining total income of the assessee at Rs.20,46,60,930/-. 2.3. In the said assessment, the ld. AO made following disallowances: (i) Disallowance of expenses under the head „Miscellaneous Expenses‟, general expenses, sales promotion expenses, repairs and maintenance expenses, telephone/mobile expenses and other administrative expenses on an adhoc basis to the tune of Rs.5 lakhs. (ii) Disallowance of donation has not incurred for the purpose of business to the tune of Rs.4004/-.

2.4 At the end of the assessment order, the ld. AO specifically recorded that penalty proceedings u/s.271(1)(c) of the Act are initiated separately for Concealment and furnishing inaccurate particulars of income. Admittedly the ld. AO did not initiate any penalty on disallowance of expenses of Rs.5 lakhs and disallowance of donation of Rs 4,004/-. The penalty was u/s.271(1)(c) was initiated only on the addition of consideration received towards transfer of allotment letter received from M/s. RIIPL to the extent of Rs.50 lakhs on the ground that assessee has made inadmissible claim of income as long term capital gains on sale of flat. This is reflected in page 8 of the assessment order of the ld. AO. This had to be construed as penalty proceedings being initiated for furnishing of inaccurate particulars of income by the assessee. The ld. AR placed on record the copy of the show-cause notice issued u/s.271(1)(c) of the Act r.w.s. 274 of the Act, wherein we find that the ld. AO had neither struck off the inapplicable words or had not specified the specific charge of offence as to whether the assessee has concealed the particulars of income or furnished inaccurate particulars of income. The assessee made its submissions before the ld. AO on merits by stating that it had neither concealed its income nor furnished any inaccurate particulars of income. Based on that the assessee requested the ld. AO to drop the penalty proceedings. Later, there was yet another show-cause notice issued by the ld. AO vide show- cause notice dated 06/02/2014 wherein the assessee was show-caused as to why the penalty u/s. 271(1)(c) of the Act should not be levied as concealed income or furnishing of inaccurate particulars of income. The ld. AO in the penalty order passed Shri S. Narendrakumar &Co., u/s.271(1)(c) of the Act dated 11/03/2014 in page 1 para 3 of his order states as under:- 3. Brief facts in respect of concealment of income or furnishing of inaccurate particulars of income for which additions were made during the assessment proceedings are as under: (i)During the course of assessment proceedings, it was noticed that the assessee has shown long term capital gain of Rs 38, 26,076 on transfer of right in the offices in the Building named as Platinum Techno Park, Vashi. The assessee, accordingly, asked to furnish the complete details in this regard. On verification of details, it was seen that the assessee got final allotment of offices on 04.08,2006 and the rights were sold /transferred on 17.12.2008, as the holding period of the right was less than 36 months, therefore, the surplus of Rs 50,00,000 arising out of the transaction was taxed as income from the other sources .The penalty proceedings u/s.271(1)(c) of the I.T. Act were initiated for concealment and furnishing inaccurate particulars of the income . (Underlining provided by us)

2.5. Hence, it could be safely concluded that in page 1, the ld. AO had mentioned the word “or” without mentioning the specific charge of offence committed by the assessee. In page 2 para 5 of the penalty order, the ld. AO with reference to the show-cause letter dated 06/02/2014 that was issued to the assessee stated that the show cause notice was issued as to why the penalty u/s.271(1)(c) of the Act should not be levied for Concealment and furnishing of inaccurate particulars of income. In this regard, it would be pertinent to note that in the show- cause letter dated 06/02/2014 enclosed in page 11 of the paper book, the ld. AO had not used the word “and” instead used the code “/” which had to be considered as “or”. In page 3 para 7 of the penalty order, the ld. AO concludes that the addition made under the head „income from other sources‟ to the tune of Rs.50 laksh is a clear case of under assessment of income by change in head of income. By doing so, the assessee furnished inaccurate particulars of income. Finally in page 4 para 8 of his penalty order, the ld. AO proceeds to levy penalty by stating that the assessee‟s case is a fit case for levy of penalty for providing inaccurate particulars of income. But while computing the levy of penalty, Shri S. Narendrakumar &Co., the ld. AO used the expression „concealed income‟. Ultimately, the AO proceded to levy penalty u/s.271(1)(c) of the Act to tune of Rs.16,54,500/- which was further reduced by the ld. CIT(A) to Rs.7,87,511/- 2.6.The ld. AR placed on record the series of decisions of various High Courts and Tribunal wherein it had been held that when there is no specific charge of offence mentioned by the ld. AO in the show-cause notice or in the assessment order or in the penalty order, the assessee cannot be expected to reply to the said penalty notices and accordingly, prayed for deletion of the penalty on this technical ground. 2.7. In response there to, the ld. DR stated that this technical ground was not taken before the ld. CIT(A) and hence, the same cannot be admitted at this stage.

3. The impugned order of the Tribunal deleted the penalty imposed upon the Respondent-Assessee. This by holding that the initiation of penalty under Section 271 (1)(c) of the Act by Assessing Officer was for furnishing inaccurate particulars of income while the order imposing penalty is for concealment of income. The impugned order holds that the concealment of income and furnishing inaccurate particulars of income carry different connotations. Therefore, the Assessing Officer should be clear as to which of the two limbs under which penalty is imposable, has been contravened or indicate that both have been contravened while initiating penalty proceedings. It cannot be that the initiation would be only on one limb i.e. for furnishing inaccurate particulars of income while imposition of penalty on the other limb i.e. concealment of income. Further, the Tribunal also noted that notice issued under Section 274 of the Act is in a standard proforma, without having striked out irrelevant clauses therein. This indicates non-application of mind on the part of the Assessing Officer while issuing the penalty notice. 4 The impugned order relied upon the following extract of Karnataka High Court's decision in CIT v/s. Manjunath Cotton and Ginning Factory 359 ITR 565 to delete the penalty:- “ 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 as 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 Shri S. Narendrakumar &Co., different connotations. The Gujarat High Court in the case of Manu Engineering reported in 122 ITR 306 and the Delhi High Court in the case of Virgo Marketing P. Ltd., reported in 171 Taxmn 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 non­application of mind.” 5 The grievance of the Revenue before us is that there is no difference between furnishing of inaccurate particulars of income and concealment of income. Thus, distinction drawn by the impugned order is between Tweedledum and Tweedledee. In the above view, the deletion of the penalty, is unjustified. 6 The above submission on the part of the Revenue is in the face of the decision of the Supreme Court in Ashok Pai v/s. CIT 292 ITR 11 [relied upon in Manjunath Cotton & Ginning Factory (supra)] – wherein it is observed that concealment of income and furnishing of inaccurate particulars of income in Section 271(1)(c) of the Act, carry different meanings/ connotations. 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 other 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. 7 Therefore, the issue herein stands concluded in favour of the Respondent-Assessee by the decision of the Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra). Nothing has been shown to us in the present facts which would warrant our taking a view different from the Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra). 8 In view of the above, the question as framed do not give rise to any substantial question of law. Thus, not entertained.

3.1.Respectfully following the said decision, we hold that penalty levied by the ld. AO deserves to be deleted on this technical ground of not specifying the specified charge of the offence committed by the assessee.

Shri S. Narendrakumar &Co., Accordingly, the ground No.4 and additional ground of appeal raised by the assessee are allowed. 3.2.In view of the aforesaid finding, we refrain to give our opinion on the validity of levy of penalty on merits and accordingly, the grounds No.1 to 3 raised by the assessee before us are left open and no decision is rendered herein.

4. In the result, appeal of the assessee is allowed.