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Income Tax Appellate Tribunal, KOLKATA BENCH, “C” AT KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
Per Shri A.T.Varkey, JM
This is an appeal preferred by the Assessee against the action of Ld. CIT(A) – 22 Kolkata dated 29.12.2017 in confirming the penalty levied by A.O u/s 271(1)(c) of the Income Tax Act (hereinafter referred to as the ‘Act’) for Assessment Year 2001-02.
2. At the outset itself, the learned AR drew our attention to the defective notice dated 06.03.2006 wherein the show cause notice reveals that the AO has not stricken down either of the limbs that is for which specific fault the assessee is being proceeded against for levy of penalty u/s 271(1)(c) of the Act i.e. to have concealed particulars of income or having furnished inaccurate particulars of income. Assailing the decision of the ld. CIT(A) in confirming penalty, the ld. AR cited several decisions including the decision of the Hon’ble Jurisdictional High Court & Hon’ble Supreme Court (which we will discuss infra while adjudicating the issue) & pleaded that the penalty be cancelled for defect of show-cause notice.
M/s. Yachio Engineering Co. Ltd.. AY- 2001-02
3. However, learned DR submitted written submission which is as under:
“2. Briefly stated, facts of the case are that the assessee is a company having its registered office at Japan. The assessee was appointed by the Government of West Bengal under an agreement executed by the company with the Transport Department, Govt. of West Bengal for the purpose of construction of the flyovers in Kolkata with the funds provided by the Overseas Economic Corporation Fund of Japan. The assessee received fees from the Government of West Bengal, through its agent, Hooghly River Bridge Commissioners. In the account, the assessee disclosed its income, and debited other regular business expenses, but in assessment, the income of the Company was treated as Royalty income and thereby Section 44D was invoked. Section 44D was a presumptive section for assessment of entities having income in the nature of Royalties, Fees for Technical Services etc at a lower rate of taxation.
The Assessing Officer also initiated penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961.
During the penalty proceedings the Authorized Representative on behalf of the Representative assessee submitted that appeal has been filed against the impugned order before the Hon'ble ITAT and the penalty proceedings is required to be kept in abeyance. However, on requisition, he failed to furnish any evidence of filing appeal. The assessee furnished a submission requesting to drop the penalty proceedings. The submission, general in nature was considered by the Assessing Officer but penalty u/s 271(1)(c) amounting to Rs.1,49,70,591/- was imposed. As a matter of fact it may be submitted that the assessee who provide consultancy services and assessable u/s 44D of the IT Act furnished incorrect particulars in as much as it claimed various expenses against the consultancy income which was not allowable as per the provision of law prevalent for the AY 2001-02. Therefore, the AO had correctly imposed penalty as per provisions of the law.
5. The matter was agitated before the Ld. ClT(A)-22, Kolkata who upon analysis of the factual and legal implications, confirmed the action of the Assessing Officer. The operative part of his decision vide page-S of the order is reproduced as below :
"1. I have carefully considered the action of the Ld. AO in imposing a penalty of Rs.1,49,70,591/- on the assessee on grounds of filing of "inaccurate particulars of income". It is seen that for the year under appeal, the appellant has not preferred appeal before the Hon'ble ITAT against the order of the Ld.AO which had been confirmed by the 1st Appellate Authority. I am not inclined to agree with the Ld. AR for the assessee that the factual and legal matrix being the same as the other years that were set aside by the Hon'ble ITAT, the appeal ought to be dropped.
M/s. Yachio Engineering Co. Ltd.. AY- 2001-02
By the appellant's own admission if does not have any documents relating to the impugned A.Y. 2001-02 for which the Ld.AO has imposed the penalty. I am also not in agreement with the plea that the Ld.AO will need to adjudicate afresh, as there is no occasion to do so, and the order of assessment has been confirmed by the 1st Appellate Authority, and the assessee has not preferred appeal before the Hon'ble ITAT. Despite being allowed more than two years since the last hearing, the appellant has not been able to submit proof of agitating the quantum assessment before the Hon'ble ITAT. In fact the appellant has not responded to notice u/s 250 in the last two years even while they were served successfully on the representative assessee. Therefore, in my considered view, the assessment proceedings have reached finality, and there is no merit in the contention of the appellant that the Ld.AO will again have to reconsider what he had done in the assessment proceedings for the A.Y.2001-02 which have attained finality. Hon'ble Courts have held that once the assessment order becomes final, it was binding on both parties, and neither party could seek to reopen matters in a penalty proceedings • Bharat Rice Mill vs CIT(All) 278 ITR 599 • CIT vs Ram Nivas Agarwal (All) 126 ITR 432
4. Therefore. after examining the factual matrix., I am of the considered view that the Ld.AO in the reassessment proceedings, detected the incorrect claims as made by appellant and that it was ineligible claim any deductions of any expenditure as the profits were to be determined u/s 44AD of the Income Tax Act. To that extent, there was a clear element of inaccurate claims by the assessee, which were detected by the Ld.AO in the set aside proceedings. By not agitating the matter in further appeal, whatever be the cause the appellant has tacitly admitted that there're incorrect particulars filed, and therefore, in my considered view of the matter, he is deserving of the penalty which is merely compensation for Revenue for taxes not paid before the defection by the Ld. AO. Accordingly, I find no reason to interfere with the action of the penalty which is accordingly confirmed. The grounds are decided against the appellant, and stand dismissed.
In the final result, appeal filed by the appellant is treated as ‘dismissed’.
The assessee is in appeal before the Hon’ble Tribunal on the following grounds:
1. That the imposition of penalty is bad in law, since the assessment has been set aside by Hon’ble ITAT, and hence needs to be quashed and nullified.
2. That the levy of penalty, even otherwise is not sustainable in the absence of satisfaction in the order.
3. That appellant craves to raise, additional grounds during hearing.
M/s. Yachio Engineering Co. Ltd.. AY- 2001-02
It is found that the 1st ground of appeal
is factually incorrect since the assessment order has not been set aside and it has attained finality after being confirmed by the Ld. CIT(A), since the assessee has preferred not to file any appeal against the order of the First Appellate Authority.
8. As for the 2nd ground of appeal regarding absence of satisfaction of the assessment order the same is again factually not correct since the Assessing Officer had in clear terms mentioned that there is a prima facie case for initiation of penalty proceedings u/s 271(1)(c) of the IT Act, 1961. Without prejudice to the above, it may be mentioned that Hon’ble Jurisdictional High Court in the case of Dr. Shyamal Baran Mondal vs CIT (2011 244 CTR 631) held that Section 271 nowhere mandates that recording of satisfaction about concealment of assessee’s income must be in specific terms and words; satisfaction of Assessing Officer must reflect from order either with expressed words recorded by the Assessing Officer himself or by overt act and action.
9. In this case, the satisfaction of the Assessing Officer was already there and due process of law was observed before imposition of penalty. Furthermore, the assessment has reached finality and the penalty order has also been upheld by the Ld. CIT(A).
10. Prayer: It is humbly requested that the order of the Ld. CIT(A) may kindly be sustained and the appeal be dismissed.”
4. Heard both the parties and perused the records, especially the show-cause notice dt. 06.03.2016 issued by AO before levying Penalty u/s 271 (1)(c) of the Act. In order to buttress his contentions that the show-cause notice dt.06.03.2016 issued prior to levy of penalty u/s 271(1)(c) of the Act was defective, the ld. Counsel for the assessee drew our attention to the decision of the Hon’ble Karnataka High Court in the case of CIT vs. SSA’s Emerald Meadows in of 2015 dated 23.11.2015 wherein the Hon’ble Karnataka High Court following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory (2013) 359 ITR 565 took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. The ld. Counsel further brought to our notice that as against the decision of the Hon’ble Karnataka High Court the revenue preferred an appeal in SLP in CC No.11485 of 2016 and the Hon’ble Supreme Court by its order dated 05.08.2016 dismissed the SLP preferred by the department. The ld. Counsel also brought to our notice the decision of the Hon’ble Bombay
M/s. Yachio Engineering Co. Ltd.. AY- 2001-02 High Court in the case of CIT vs Shri Samson Perinchery in of 2014 dated 05.01.2017 wherein the Hon’ble Bombay High Court following the decision of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning factory (supra) came to the conclusion that imposition of penalty on defective show cause notice without specifying the charge against the assessee cannot be sustained. Our attention was also drawn to the decision of ITAT in the case of Suvaprasanna Bhattacharya vs ACIT in ITA No.1303/Kol/2010 dated 06.11.2015 wherein identical proposition has been followed by the Tribunal. Our attention was also drawn to a recent judgment of Hon’ble Calcutta High Court in the case of Pr. CIT-19 Vs. Dr. Murari Mohan Koley, ITAT No. 306 of 2017, GA No.2968 of 2017 dated 18.07.2018 wherein also the Hon’ble High Court has upheld the above proposition of law and dismissed the appeal of the revenue.
We note that all the case laws cited before us by the Ld. DR has been dealt with elaborately by the Coordinate Bench of this Tribunal in the case of Jeetmal Choraria Vs. ACIT, for AY 2010-11 dated 01.12.2017, wherein the Tribunal has noted as under:
“7. The learned DR submitted that the Hon’ble Calcutta High Court in the case of Dr.Syamal Baran Mondal Vs. CIT (2011) 244 CTR 631 (Cal) has taken a view that Sec.271 does not mandate that the recording of satisfaction about concealment of income must be in specific terms and words and that satisfaction of AO must reflect from the order either with expressed words recorded by the AO or by his overt act and action. In our view this decision is on the question of recording satisfaction and not in the context of specific charge in the mandatory show cause notice u/s.274 of the Act. Therefore reference to this decision, in our view is not of any help to the plea of the Revenue before us.
The learned DR relied on three decisions of Mumbai ITAT viz., (i) Dhanraj Mills Pvt. Ltd. Vs. ACIT & 3833/Mum/2009 dated 21.3.2017; (ii) Earthmoving Equipment Service Corporation Vs. DCIT 22(2), Mumbai, (2017) 84 taxmann.com 51 (iii) Mahesh M.Gandhi Vs. ACIT Vs. ACIT ITA No.2976/Mum/2016 dated 27.2.2017. Reliance was placed on two decisions of the Hon’ble Bombay High Court viz., (i) CIT Vs. Kaushalya 216 ITR 660(Bom) and (ii) M/S.Maharaj Garage & Co. Vs. CIT dated 22.8.2017. This decision was referred to in the written note given by the learned DR. This is an unreported decision and a copy of the same was not furnished. However a gist of the ratio laid down in the decision has been given in the written note filed before us.
In the case of CIT Vs. Kaushalya (supra), the Hon’ble Bombay High Court held that 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 M/s. Yachio Engineering Co. Ltd.. AY- 2001-02
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 ITAT Mumbai Bench in the case of Dhanraj Mills Pvt.Ltd. (supra) followed the decision rendered by the Jurisdictional Hon’ble Bombay High court in the case of Kaushalya (supra) and chose not to follow decision of Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra). Reliance was also placed by the ITAT Mumbai in this decision on the decision of Hon’ble Patna High court in the case of CIT v. Mithila Motor's (P.) Ltd. [1984] 149 ITR 751 (Patna) wherein it was held that 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 the case of Earthmoving Equipment Service Corporation (supra), the ITAT Mumbai did not follow the decision rendered in the case of Manjunatha Cotton & Ginning Factory (supra) for the reason that penalty in that case was deleted for so many reasons and not solely on the basis of defect in show cause notice u/s.274 of the Act. This is not factually correct. One of the parties before the group of Assessees before the Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) was an Assessee by name M/s.Veerabhadrappa Sangappa & Co., in OF 2009 which was an appeal by the revenue. The Tribunal held that on perusal of the notice issued under Section 271(1)(c) of the Act, it is clear that it is a standard proforma used by the Assessing Authority. Before issuing the notice the inappropriate words and paragraphs were neither struck off nor deleted. The Assessing Authority was not sure as to whether she had proceeded on the basis that the assessee had either concealed its income or has furnished inaccurate details. The notice is not in compliance with the requirement of the particular section and therefore it is a vague notice, which is attributable to a patent non application of mind on the part of the Assessing authority. Further, it held that the Assessing Officer had made additions under Section 69 of the Act being undisclosed investment. In the appeal, the said finding was set-aside. But addition was sustained on a new ground, that is under valuation of closing stock. Since the Assessing Authority had initiated penalty proceedings based on the additions made under Section 69 of the Act, which was struck down by the Appellate Authority, the initiated penal proceedings, no longer exists. If the Appellate Authority had initiated penal proceedings on the basis of the addition sustained under a new ground it has a legal sanctum. This was not so in this case and therefore, on both the grounds the impugned order passed by the Appellate Authority as well as the Assessing Authority was set-aside by its order dated 9th April, 2009. Aggrieved by the said order, the revenue filed appeal before High Court. The Hon’ble High Court framed the following question of law in the said appeal viz., 1. 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? 2. Whether the proceedings initiated by the Assessing Authority was legal and valid? The Hon’ble Karnataka High Court held in the negative and against the revenue on both the questions. Therefore the decision rendered by the ITAT Mumbai in the case of Earthmoving Equipment Service Corporation (supra) is of no assistance to the plea of the revenue before us.
M/s. Yachio Engineering Co. Ltd.. AY- 2001-02
In the case of M/S.Maharaj Garage & Co. Vs. CIT dated 22.8.2017 referred to in the written note given by the learned DR, which is an unreported decision and a copy of the same was not furnished, the same proposition as was laid down by the Hon’ble Bombay High Court in the case of Smt.Kaushalya (supra) appears to have been reiterated, as is evident from the extracts furnished in the written note furnished by the learned DR before us.
In the case of Trishul Enterprises & 385/Mum/2014, the Mumbai Bench of ITAT followed the decision of the Hon’ble Bombay High Court in the case of Smt.Kaushalya (supra).
In the case of Mahesh M. Gandhi (supra) the Mumbai ITAT the ITAT held that the decision of the Hon’ble Karnataka High Court in the case Manjunatha Cotton & Ginning (supra) will not be applicable to the facts of that case because the AO in the assessment order while initiating penalty proceedings has held that the Assessee had concealed particulars of income and merely because in the show cause notice u/s.274 of the Act, there is no mention whether the proceedings are for furnishing inaccurate particulars or concealing particulars of income, that will not vitiate the penalty proceedings. In the present case there is no whisper in the order of assessment on this aspect. We have pointed out this aspect in the earlier part of this order. Hence, this decision will not be of any assistance to the plea of the revenue before us. Even otherwise this decision does not follow the ratio laid down by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) in as much as the ratio laid down in the said case was only with reference to show cause notice u/s.274 of the Act. The Hon’ble Court did not lay down a proposition that the defect in the show cause notice will stand cured if the intention of the charge u/s.271(1) (c ) is discernible from a reading of the Assessment order in which the penalty was initiated.
From the aforesaid discussion it can be seen that the line of reasoning of the Hon’ble Bombay High Court and the Hon’ble Patna High Court is that 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 Tribunal Benches at Mumbai and Patna being subordinate to the Hon’ble Bombay High Court and Patna High Court are bound to follow the aforesaid view. The Tribunal Benchs at Bangalore have to follow the decision of the Hon’ble Karnataka High Court. As far as benches of Tribunal in other jurisdictions are concerned, there are two views on the issue, one in favour of the Assessee rendered by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) and other of the Hon’ble Bombay High Court in the case of Smt.Kaushalya. It is settled legal position that where two views are available on an issue, the view favourable to the Assessee has to be followed. We therefore prefer to follow the view expressed by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra).
We have already observed that the show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld. Counsel for the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present case cannot be sustained and the same is directed to be cancelled.”
M/s. Yachio Engineering Co. Ltd.. AY- 2001-02
6. Respectfully following the aforesaid order of the Hon’ble Calcutta High Court in the case of Dr. Murari Mohan Koley, supra and consistent view of this Tribunal, we, therefore, hold that penalty imposed by the AO and confirmed by the Ld. CIT(A) u/s. 271(1)(c) of the Act in the present case is not sustainable, since the notice dt.06.03.2016 is bad in law and therefore penalty levied cannot be sustained and hence, we delete the same. The appeal of assessee is allowed.