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Income Tax Appellate Tribunal, “D”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAM LAL NEGI, JM Shri Ritesh P. Burad
आदेश / O R D E R PER R.C.SHARMA (A.M):
This is an appeal filed by the assessee against the order of CIT(A)- 3, Thane dated 17/02/2017 for A.Y.2011-12 in the matter of imposition of penalty u/s.271(1)(c) of the IT Act. 2. This appeal is delayed by 7 days. After considering the reasons for delay, we are satisfied that due to mother’s illness, assessee could not file the appeal within the time. The medical certificate for the same is enclosed. Considering the reasonableness we condone the delay and appeal is heard on merit.
Shri Ritesh P Burad 3. We have heard the rival contentions and carefully gone through the orders of the authorities below. From the record we found that the assessee is engaged in providing consultancy and rendering services. During course of survey u/s 133A conducted on 08/05/2013, the assessee, in statement recorded u/s. 131, stated that he supervised the non-genuine purchase and sale bills belonging to his clients on checking their accounts and earned the income of approximately 0.05% of net transaction amount. In assessment, Ld. AO made the addition on estimating the suppressed income of Rs.43,99,550/- (0.5% of gross transaction of sales and purchase of Rs.879.90 crores). The assessee, to buy a peace of mind and to avoid prolonged litigation, did not file the appeal and agreed to pay the tax on such income. However, Ld. AO levied the penalty u/s.271(l)(c) of Rs.13,59,461/- being 100% of the tax sought to be evaded. It was argued by learned AR that entire addition, in assessment order, of Rs.43,99,550/- had been made only on estimation basis on determining the suppressed commission income @ 0.05% of gross sales and purchase transaction. The assessee submits that once the income had been computed on estimation basis, then the levy of penalty u/s.271(l)(c) would be unjustified. There exists certain degree of guess work while estimation the suppressed income and does not involve accuracy in the figures. The income determined on estimation basis does not reflect the real income of an assessee since estimation is a mere attempt to judge the estimated income. For this purpose reliance was Shri Ritesh P Burad also placed on the decision reported at 71 DTK 189,221 ITR 110, 254 ITR 191, 177 CTR 580, 180 Taxman 355.
Learned AR also challenged validity of notice issued u/s.274. It was argued that AO while initiating the penalty, issued the notice u/s.274 in mechanical manner which is a blank unfilled form without intimating as-to whether the penalty has been initiated for concealment of income or for furnishing the inaccurate particulars of income. The AO, while initiating the penalty, was not sure and has not intimated to the assessee of the specific reason for initiation of the penalty. Reliance was placed on the following judicial pronouncements in support of the proposition that notice u/s.274 issued in a mechanical manner without precisely intimating as whether penalty has been initiated for concealment of income or furnishing inaccurate particulars of income, is not valid in the eyes of law.
CIT vs. SSA's Emerald Meadows (CC No. 11485/2016 - SLP Dismissed by Supreme Court) (Karnataka High Court decision affirmed in ITA 380 of 2015) 2. CIT vs. Shri Samson Perincherry (Bombay High Court decision affirmed in ITA 1 154 of 2014) 3. CIT vs. Manjunatha Cotton & Ginning Factory 359 ITR 565(Kar-HC) 4. CIT vs. Steel Centre 51 Taxmann.com 127(Kar-HC) 5. Shri Hafeez S Contractor vs. ACIT
6. Sanghavi Savla Commodity Brokers P. Ltd vs. ACIT ITANo.l746/Mum/2011 7. Dharni Developers vs. ACIT 40 ITR 720 (Mum-Trib) 8. H. Lakshminarayana vs. ITO : 61 Taxmann.com 373 (Bang-Trib)
Shri Ritesh P Burad 5. On the other hand, learned DR relied on the order of lower authorities and contended that AO has properly initiated penalty after recording satisfaction with regard to concealment of particulars of income.
We have considered rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncements referred by lower authorities in their respective orders as well as cited by learned AR during the course of hearing before us in the context of factual matrix of the case. The Hon'ble High Court of Gujarat in the case of New Sorathia Engineering Co. vs. CIT (282 ITR 642) and Mum-ITAT in the case of Mangalam Drugs & Organics Ltd vs. DCIT (ITA No.5454/ Mum/ 2011) has decided that the penalty u/s 271(1) (c) cannot be levied for dual charge and has to be levied under one specific charge only for concealment of income or for furnishing the inaccurate particulars of income.
In the instant case, we found that notice dated 24/03/2015 issued u/s.274 r.w.s. 271 of the Income Tax Act did not strike irrelevant portion meaning thereby it was not specified as to whether penalty was to be imposed with respect of concealment of particulars of income or furnishing of inaccurate particulars of income.
There can be no doubt that penalty u/s. 271(1)(c) of the Act is levied for concealing particulars of income or for furnishing inaccurate particulars of such Income, which are the two limbs of this provision. In other words, it is only when the authority invested with the requisite Shri Ritesh P Burad power is satisfied that either of the two events existed in a particular case that proceedings u/s. 271(1)(c) of the Act are initiated. This pre-requisite should invariably be evident from the notice issued u/s. 274 r.w.s. 271 of the Act, which is the jurisdictional notice, for visiting an assessee with the penal provision. The intent and purpose of this notice is to inform the assessee as to the specific charge for which he has been show caused so that he could furnish his reply without any confusion and to the point. In the present case, neither the assessee nor anyone else could make out as to whether the notice u/s. 274 r.w.S. 271 of the Act was issued for concealing the particulars of income or for furnishing inaccurate particulars of such income disabling it to meet with the case of the Assessing Officer. There are a catena of judgments highlighting the necessity for identifying the charge for which the assessee is being visited and in all those decisions, Hon'ble Courts have repeatedly held that where the jurisdictional notice is vague, similar to the one in the present case, the consequent levy cannot be sustained.
In this connection, reliance is first placed upon the judgment of the Hon'ble Karnataka High Court In the case of CIT v. Manjunatha Cotton and Ginning Factory & Ors. and Veerabhadrappa Sangappa and Co. (359 ITR 565, 577, 601, 603-604) in which the facts are similar. In those bunch of tax appeals, several assessee and several issues were involved. In so far as of 2009 was concerned, one of the substantial questions on which the appeal was filed by the revenue was:
Shri Ritesh P Burad "Whether the notice issued under section 271(1)(c) in the printed form without specifically mentioning whether the proceedings are initiated on the ground of concealment of income or on account of furnishing of inaccurate particulars is valid and legal?"
While answering the above in favour of the assessee, the following findings were recorded by the Hon'ble Court: "61. 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. "(p) Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c) i.e. whether it is for concealment of income or for furnishing of incorrect particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non- application of mind.
Thereafter, in so far as the manner in which the statutory notice was required to be issued, the Hon'ble Court concluded thus: (p) Notice u/s 274 of the Act should be specifically state the grounds mentioned in section 271(1)(c), i.e. whether it is for concealment of income or for furnishing of incorrect particulars of income.
Shri Ritesh P Burad 12. Finally, in concurring with the findings recorded in the order of the Tribunal, it was held thus: 66. In view of the aforesaid law, we are of the view that the Tribunal was justified in holding that the entire proceedings are vitiated as the notice issued is not in accordance with law and accordingly justified in interfering with the order passed by the appellate authority as well as the assessing authority and in setting aside the same. Hence, we answer the substantial questions of law framed in this case in favour of the assessee and against the Revenue. "
The aforesaid judgment was unsuccessfully challenged by the revenue before the Supreme Court, as it was rejected vide Petition for Special Leave to Appeal (C) No. 13898/2014 dated 11.07.2016. Reliance was next placed upon another judgment of the Hon'ble Karnataka High Court in the case CIT v. SSA'S Emerald Meadows (Income Tax Appeal No. 380 of 2015 decided on 23.11.2016). In this case also s similar situation arose in as much as the Hon’ble Court was required to adjudicate on the following substantial question: (1) Whether, omission of assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?"
The aforesaid question was dealt with by the Hon’ble Court in favour of the assessee in the following words: “3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with section 271(1)(c) of the Income-tax Act 1961 (for short 'the Act; to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act the penalty proceedings had been initiated le. whether for concealment of particulars of income or furnishing of inaccurate Shri Ritesh P Burad particulars of income. The Tribunel while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of Commissioner of Income-tax vs. Manjunatha Cotton And Ginning Factory (2013) 359 ITR 565. 4. In our view since the matter is covered by judgment of the Division Bench of this Court we are of the opinion no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.”
The SLP filed by the department in the aforesaid case also was dismissed by the Hon'ble Supreme Court vide Petition for Special Leave to Appeal (C) No .... ./2016 (CC No. 11485/2016) dated 05.08.2016.
The Hon’ble jurisdictional High Court in the case of CIT v. Shri Samson Perinchery [Income Tax Appeal No. 1154 of 2014 and others dated 05.01.2017] had also occasion to consider a similar issue. In this case, though proceedings u/s. 271(1)(c) of the Act were initiated for furnishing of inaccurate particulars of income, in the notice issued u/s. 274 r.w.s. 271 of the Act in the standard form, the charge for which it was issued was also not identified, as in the present case. In deleting the levy, so far as non-specification of the default in the jurisdictional notice, the following findings were recorded by the Hon'ble Bombay High Court: "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 Menjuneth 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"
Shri Ritesh P Burad 17. The Hon'ble Supreme Court in Dilip N. Shroff v/s JCIT, [2007] 291 ITR 519 (SC), has observed that while issuing the notice under section 274 r/w section 271, in the standard format, the Assessing Officer should delete the inappropriate words or paragraphs, otherwise, it may indicate that the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or had furnished inaccurate particulars of income. This, according to the Hon'ble Supreme Court, deprives the assessee of a fair opportunity to explain its stand, thereby, violates the principles of natural justice. As held by the Hon'ble Supreme Court in CIT v/s Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC), the aforesaid principle laid in Dilip N. Shroff (supra) still holds good in spite of the decision of the Hon'ble Supreme Court in UOI v/s Dharmendra Textile Processors (2008) 306 ITR 277 (SC). The Hon'ble Jurisdictional High Court in CIT v/s Smt. Kaushalya & Ors., [1995] 216 ITR 660 (Bom), observed that notice issued under section 274 must reveal application of mind by the Assessing Officer and the assessee must be made aware of the exact charge on which he had to file his explanation. The Court observed, vagueness and ambiguity in the notice deprives the assessee of reasonable opportunity as he is unaware of the exact charge he has to face. The Hon'ble Jurisdictional High Court in Samson Perinchery (supra), following the decision of Hon'ble Karnataka High Court in CIT v/s Manjunatha Cotton & Ginning Factory, [2013] 359 Shri Ritesh P Burad ITR 565 (Kar.), held, order imposing penalty has to be made only on the ground on which the penalty proceedings has been initiated.
In addition to the aforesaid binding judgments, there are several orders passed by co-ordinate Benches of the Tribunal on this very point. In all those orders also penalty levied u/s. 271(l)(c) of the Act on the basis of similar vague notice was cancelled.
19. ITAT Amritsar Bench in Third Member order dated 07/05/2018, in the case of HPCL Mittal Energy Ltd., observed as under:- 15. The moot question is that what should be the nature of specification of a charge by the AO at the stage of initiation of penalty proceedings and at the time of passing the penalty order. Is the AO required to specify in the penalty notice/order as to whether it is a case of "concealment of particulars of income'; or 'furnishing of inaccurate particulars of income'; or both of them, which can be expressed by using the word "and1 between the two expressions. When the AO is satisfied that it is a clear-cut case of concealment of particulars of income, he must specify it so in the notice at the time of initiation of penalty proceedings and also in the penalty order. The AO cannot initiate penalty on the charge of "concealment of particulars of income', but ultimately find the assessee guilty in the penalty order of "furnishing inaccurate particulars of income'. In the same manner, he cannot be uncertain in the penalty order as to concealment or furnishing of inaccurate particulars of income by using slash between the two expressions. When the AO is satisfied that it is a clear-cut case of "furnishing of inaccurate particulars of income', he must again specify it so in the notice at the time of initiation of penalty proceedings and also in the penalty order. After initiating penalty on the charge of "furnishing of inaccurate particulars of income. In the same manner, he cannot impose penalty by finding the assessee guilty of "concealment of particulars of income'. Again, he cannot be uncertain in the penalty order as to concealment or furnishing of inaccurate particulars of income by using slash between the two expressions. When the AO is satisfied that it is a clear-cut case of imposition of penalty u/s 271(l)(c) of the Act on two or more additions/disallowances, one or more Shri Ritesh P Burad falling under the expression 'concealment of particulars of income' and the other under the 'furnishing of inaccurate particulars of income", he must specify it so by using the word "and' between the two expressions in the notice at the time of initiation of penalty proceedings. If he remains convinced in the penalty proceedings that the penalty was rightly initiated on such counts and imposes penalty accordingly, he must specifically find the assessee guilty of "concealment of particulars of income' and also "furnishing of inaccurate particulars of income' in the penalty order. If the charge is not levied in the above manner in all the three clear-cut situations discussed above in the penalty notice and also in the penalty order, the penalty order becomes unsustainable in law.
16. The Hon'ble Karnataka High Court in Manjunatha Cotton and Ginning Factory 359 ITR 565 (Kar) has held that a 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 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(l)(c) do not exist as such he is not liable to pay penalty. The Hon'ble High Court went on to hold that : 'Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income.... 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. ...... 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.
In CIT vs. Manu Engineering Works (1980) 122 ITR 306 (Guj) penalty was imposed by noting : vthat the assessee had concealed its income and/or that it had furnished inaccurate particulars of such income'. Striking down the penalty, the Hon'ble High Court held that : vit was incumbent upon the IAC to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee. No such clear-cut finding was reached by the IAC and, on that ground alone, the order of penalty passed by the IAC was liable to be struck down.'
18. In Padma Ram Bharali vs. CIT (1977) 110 ITR 0054 (Gait), the Hon'ble High Court did not sustain penalty levied u/s 271(l)(c) when : "the initiation of the penalty proceeding was for concealment of the particulars of income. But the Tribunal finally held that the assessee would be deemed to have concealed the particulars of income or to have furnished inaccurate particulars of such income.
Thus it is evident that when the AO is satisfied at the stage of initiation of penalty proceedings of a clear-cut charge against the assessee in any of the three situations discussed above (say, concealment of particulars of income), but imposes penalty by holding the assessee as guilty of the other charge (say, furnishing of inaccurate particulars of income) or an uncertain charge (concealment of particulars of income/furnishing of inaccurate particulars of income), the penalty cannot be sustained. 20. In view of the above discussions, we do not find any merit for the penalty so imposed., accordingly, AO is directed to delete the penalty so imposed u/s. 271(1)(c) of the IT Act. 21. In the result, appeal of the assessee is allowed.