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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI N.K. PRADHAN, HONBLEShri Haresh S Jhaveri
O R D E R PER C.N. PRASAD (JM) 1. This Appeal is filed by the Revenue against the order of the Learned Commissioner of Income-tax (Appeals)–28, Mumbai dated 02.01.2017 for the Assessment Year 2006-07 in deleting the penalty levied u/s.271(1)(c) of the Act.
Briefly stated the facts are that, the assessee filed return of income on 23.10.2006 declaring income of ₹.6,67,78,820/- and the assessment was completed on 09.05.2008 accepting the income return.
(A.Y: 2006-07) Shri Haresh S Jhaveri Subsequently, the assessee filed revised return on 31.10.2011 declaring income of ₹.12,07,78,820/- by offering additional income of ₹.5.40 Crores, on the basis of this revised return notice u/s 148 of the Act dated 25.03.2013 was issued to the assessee and in response to the said notice assessee filed letter dated 09.04.2013 stating that the return already filed on 31.10.2011 should be treated as filed in response to the notice u/s. 148 of the Act. The re-assessment was completed u/s.143 r.w.s. 147 of the Act on 07.03.2014 accepting the total income of ₹.12,07,78,820/- returned in the revised return. Simultaneously, penalty proceedings u/s.271(1)(c) were initiated on 07.03.2014 by issuing notice u/s. 274 r.w.s. 271 (1)(c) of the Act. Penalty Order dated 30.09.2014 passed u/s.271(1)(c) of the Act was served on the assessee on 31.10.2014.
On receiving the Penalty Order the assessee filed appeal before the Ld. CIT(A) contending that the show cause notice dated 15.09.2014 which was referred to by the Assessing Officer fixing the date of hearing on 29.09.2014 was never issued to the assessee and therefore the Assessing Officer has not given any proper and sufficient opportunity of being heard before imposing the penalty and thereby violated the principles of natural justice. It was also further contended before the Ld.CIT(A) that the re-assessment Order for the year in question was passed on 07.03.2014 and the penalty was initiated in the said order on (A.Y: 2006-07) Shri Haresh S Jhaveri the very same date. As per Provisions of Section 275(1)(c) the Assessing Officer was supposed to pass the Penalty Order on or before 30.09.2014. It was contended that neither the assessee has received any penalty show cause notice nor received any Penalty Order within the said prescribed time.
It was also contended before the Ld. CIT(A) that the disclosure was made by the assessee voluntarily and the reason for reopening the assessment is only to regularize the revised return filed by the assessee and there was no any detection of income by the Revenue and hence no penalty is leviable. Considering the submissions of the assessee the Ld.CIT(A) accepted the contentions of the assessee that the order was passed beyond the limitation and also accepted the contention of the assessee that no penalty shall be levied even on merits as it is only a voluntary disclosure by the assessee. Against this order the Revenue is in appeal.
The Ld. DR strongly supported the order of the Assessing Officer in levying the penalty u/s. 271(1)(c) of the Act.
The Ld. Counsel for the assessee submitted before us that original assessment u/s.143(3) of the Act was completed on 09.05.2008 accepting the income returned by the assessee. Revised return was filed on (A.Y: 2006-07) Shri Haresh S Jhaveri 31.10.2011 offering additional income of ₹.5.40 Crores by the assessee based on the revised return, the Revenue has issued notice u/s.148 of the Act on 25.03.2013 to regularize the return and the re-assessment was completed on 07.03.2014 accepting the additional income voluntarily offered by the assessee in the revised return and there was no addition made whatsoever by the Assessing Officer. Ld. Counsel for the assessee invited our attention to the Page No. 11 & 12 of the Paper Book which are the reasons for reopening and submitted that the reasons clearly specify that since the assessee has voluntarily accepted that he did not offer income of ₹.5.40 Crores in Assessment Year 2006-07 on account of not maintaining the records of closed bank accounts the assessment was reopened. The Ld. Counsel for the assessee submitted that there is nothing on record to suggest that the income had escaped assessment, and the reasons did not reveal other than the voluntarily disclosure to believe that income had escaped assessment. It is stated before us that the Assessing Officer said to have issued notice on 15.09.2014 which was never served on the assessee. The Ld. Counsel for the assessee submitted that the order is said to have been passed on 30.09.2014 and this order was served only on 31.10.2014, therefore, it is submitted that since the order was passed without issue of any notice to the assessee it
(A.Y: 2006-07) Shri Haresh S Jhaveri is in violation of principles of natural justice and hence the Penalty Order passed is bad in law.
Ld. Counsel for the assessee further referring to the Page Nos. 15 & 16 of the Paper Book which is the notice issued u/s. 274 r.w.s. 271 of the Act submitted that the Assessing Officer failed to specify the charge for which the penalty is imposed. Ld. Counsel referring to the notice submitted that Assessing Officer did not specify in the notice as to whether the penalty is going to be levied for either concealment of income or for furnishing of inaccurate particulars of income. Ld. Counsel for the assessee submitted that in the absence of specific charge mentioned in the notice by striking off of irrelevant charge the initiation of penalty is bad in law. Ld. Counsel for the assessee referring to Penalty Order submitted that, Assessing Officer stated in the Penalty Order that the penalty proceedings were initiated for concealing the taxable income by furnishing inaccurate particulars. Therefore, he submitted that the charge is vague and the Assessing Officer is not clear as to for which charge i.e. whether it is for concealment of income or is it for furnishing inaccurate particulars, the penalty is levied and hence the order is bad in law.
We have heard the rival submissions perused the orders of the Authorities below. In so far as the contention of the assessee that the show cause notice dated 15.09.2014 was never served on the assessee
(A.Y: 2006-07) Shri Haresh S Jhaveri and therefore penalty order suffers from principles of natural justice and barred by limitation is concerned the Ld.CIT(A) has given the following categorical findings: -
“6.2 The appellant, to ascertain whether the Assessing Officer had in fact issued the order u/s. 271(1)(c) of the Act on 30.09.2014 and the show cause notice on 15.09.2014 as alleged by the Assessing Officer, had undertaken inspection of the case-records for the year under consideration. For doing the same, the appellant had written a letter to the Assessing Officer for copy of the complete file. After going through the same, the appellant found that there was no envelope or any other document to establish the at the Assessing Officer had actually issued the show cause notice and penalty order to the postal authorities and that the same had returned unserved. Instead, as per the Inspector's Report dated 31.10.2014 (Page No. 61 of the Paper Book), the Assessing Officer had issued the penalty order on 30.10.2014, i.e. after expiry of limitation period, and had asked the Inspector to serve the same on the appellant at his Dalal Street address on 30.10.2014. However, on the said date, the office was closed and there was a paper pasted on the outside wall of the office stating the office address of Vile Parle and certain contact numbers. The Inspector had then contacted one Shri Rajaram, who was the accountant of Shri Haresh Jhaverl. The accountant stated that he will send some person to collect penalty order from the Department. Thereafter, one Shri J. C. Thakkar had collected the penalty order on 31.10.2014. I have perused the enquiry report of the ITI dated 31st October 2016 and I find the facts claimed by the appellant are corroborated. 6.3. The appellant contends further that the Assessing Officer had issued order u/s. 271(1)(c) of the Act only on 30.10.2014 and not on 30.09.2014 as was claimed by him. The legal position with regards to the Issue under consideration is that to make an order effective and complete, the same should be issued so as. to be beyond the control of the authority concerned or modification and the must be done within the limitation period though the actual service may be after the limitation period. Moreover, when there is an unreasonable delay in service of an order in the absence of any explanation whatsoever it can safely be presumed that the order was not made on the date on which it purports to have been made and on the basis of such presumption it can be held that the order was passed after the expiry of limitation. 6.4. Reliance for this contention is placed on the following case laws: a) Judgement of Hon'ble Bombay High Court in case of Petlad Bulakhidas Mills Co. ltd v Raj Singh reported at 37 ITR 264 has held as under: "What we have to decide is what is the meaning to be attached to the word "order" used in-the expression "from the date of the order". If "order" means a unilateral arriving at a decision by the AAC without the person affected having any knowledge of that decision, then undoubtedly limitation would begin to run from the date when the AAC chooses to pass the order. In this view of the case, the AAC may make the order, put it in a drawer, forget about it, and if a year has passed after it the right of the (A.Y: 2006-07) Shri Haresh S Jhaveri assessee to go in revision would be barred. Now that seems to us to be an entirely untenable contention. If the legislature gave the right of revision to the assessee under s. 33A it was an effective right and if the Legislature provided a period of limitation that period must equally be an effective period. When we say "effective" what we mean is that the whole period must be permitted to the person affected by the order within which he can prefer the application for revision.' In our opinion, therefore, the expression "order" in this section means an order of which a party affected has actual or constructive notice. The right of appeal is given to an assessee against the order, and that right of appeal can only be effectively exercised if the party affected has knowledge of that order. We do not suggest that the knowledge must be in every case actual knowledge. It may be constructive knowledge. The AAC may announce that he is going to pass this order on a particular date. The assessee may not choose to turn up on that date. In such a case the assessee cannot contend that he had no knowledge of that order, because he could have had knowledge if he was present on the date announced /or publication of the order. But if the assessee has neither actual nor constructive knowledge, it cannot possibly be suggested that there is an order within the meaning of s. 33A(2) against which the assessee could possibly have appealed" b) Order of the Hon'ble Mumbai Tribunal in the case of Pawan Kumar Jain vs. DCIT reported at (2013) 155 TTJ 0014 (Mum) wherein it has been held as under: "16. From the principles and maxims laid down by the Hon'ble Supreme Court in catena of cases as referred to above, it is amply clear that the 'date of order' should be construed and reckoned with the date of knowledge of the order i.e., when the order has been communicated to the party. The legal maxim behind this is how a person concerned or a person aggrieved is expected to exercise the right of remedy conferred by the statute, unless the order is communicated or known to him either actual or constructively. The underlying principle is of fair play that parties, whose rights are effected by an order must have a knowledge or notice of it, otherwise, the legal rights to remedy Is lost to the party, even when he is not at fault” c) Judgement of the Hon'ble Kerala High Court m the case of Government Wood Works vs State of Kerala reported at 69STC 62 (Ker) wherein it has been held as under: "The order of any authority cannot be said to be passed unless it is in some way pronounced or published or the party affected has the means of knowing it. It is not enough if the order is made, signed, and kept in the file, because such order may be liable to change at the hands of the authority who may modify it or even destroy it, before it is made known, based on subsequent information, thinking or change of opinion. To make the order complete and effective, it should be issued, so as to be beyond the control of the authority concerned, for any possible change or modification therein. This should be done within the prescribed period, though the actual service of the order may be beyond that period…..'' (A.Y: 2006-07) Shri Haresh S Jhaveri d) Order of the Hon'ble ITAT, Kolkata Bench in the case of Shri Subrata Roy vs. ITO, and 985/Kol/2010 wherein it was held as under: "from the facts discussed above as well the case laws, it is obvious that this Bench allowed repeated opportunities to the revenue for producing evidences so that the fact regarding date of framing of assessment order could be verified, However, the Department could not produce any evidence which prove that the assessment order was ready as on 31,12,2008. Thus, we have no option but to accept the contention of assessee that the assessment order was not passed on 31.12.2008. No doubt the provisions of section 153 requires that assessment order shall not be passed after the expiry of two years from the end of the assessment year in which the income was first assessable. This is applicable to this case. There is no requirement that service must be effected before the expiry date but there must be evidences to show that assessment order was indeed passed before the limitation. In the present case before us no such evidence has been adduced by revenue that the order was indeed passed on or before 31.12.2008. Even though the assessee has taken up this Issue in appeal and revenue has repeatedly been asked to produce evidences to that effect. There is no evidence produced before this Bench to show that the assessment order and demand notice was dispatched by registered post as on the date of assessment order of 31.12.2008. Rather, evidences are against the revenue that the assessment order and demand notice were dispatched only on 12.02.2009 and the same was served on assessee on 16.02.2009 i.e. beyond 47 days of limitation. There can be postal delay of a week's time or a fortnight's time at the maximum and it cannot be 47 days' delay. Hence, we ore of the view that in order to make the assessment order complete and effective, it should be Issued so as to be beyond the control of the authority concerned for any possible change or modification and this should be done within the limitation period though actual service of the assessment order may be beyond that period. When an assessment order has been purported to have been passed within the prescribed period of limitation but the same is served on the assessee after unreasonable delay without being an explanation coming forward for such delay, in the absence of any explanation whatsoever it can safely be presumed that the order was not made on the date on which it purports to have been made and on the basis of such presumption it can be held that the order was passed after the expiry of limitation. In such circumstances, taking into consideration all the facts, we hold that the assessment order was barred by limitation, Hence, we allow this jurisdictional issue in favour of assessee."
9. None of the above findings and observations of the Ld.CIT(A) have been rebutted with evidences by the Revenue and thus we do not see any valid reason to disturb the finding that the penalty order suffers from principles of natural justice and barred by limitation. The Revenue could
(A.Y: 2006-07) Shri Haresh S Jhaveri not produce any evidence to show that the penalty order was in fact passed on 30.09.2014 and why it could not be served immediately after passing the order and why it took one month to serve the order. The conduct shows that the order was passed beyond limitation period but was dated 30.09.2014.
10. It is not in dispute that the assessee filed revised return voluntarily on 31.10.2011 and this return was regularized by issue of notice u/s. 148 of the Act on 25.03.2013. From the reasons recorded for reopening we observed that there is no material on record to suggest that there is a concealment of income by the assessee, except the revised return where the assessee himself has offered the additional income. The reasons for reopening clearly specify that the assessee has voluntarily accepted and offered the income for the Assessment year 2006-07 on account of not maintaining the records of closed bank account and this is said to be the reason to believe that the income escaped assessment which in our view is not correct. There is no enquiry at all, there is nothing on record to suggest that the income had escaped assessment and the assessee offered additional income voluntarily and the Department has not detected any concealed income of the assessee. The Ld.CIT(A) considered this aspect of the matter elaborately and has given a finding that there is no detection of any concealed income by the assessee and the assessment
(A.Y: 2006-07) Shri Haresh S Jhaveri was reopened u/s.148 of the Act is only to regularize the revised return filed by the assessee who offered an additional income while holding so, the Ld.CIT(A) observed as under: -
“10. I find that there is overwhelming factual and legal support in respect of the contentions which have been raised by the appellant. Even if the challenge to limitation is discounted and the merit of the case looked at it is crystal clear that in spite of referring to some alleged ongoing enquiry and reference to credible information there is no reference of either in the recorded reasons to believe or in the order which was passed under section 147. 10.1. These aspects notwithstanding, the key issue which remains is the manner and content of the penalty order which has been passed. I am constrained to pass strictures regarding the casual and flippant way in which the whole matter has been dealt with and without appreciating either the factual aspects of the case, the objections and vital contentions raised by the appellant, the position of law, all have been completely given a go by while passing this cryptic and non-speaking order which does not reveal in any manner as to how and why this penalty has been imposed. It is merely an ipse dixit kind of order in which the content clearly reveals more of a diktat on part of the AO, rather than having passed a judicial speaking order capable of withstanding the judicial scrutiny of the appellate authorities. Needless to say the judgements, which have been cited and discussed above, overwhelmingly and quite decisively swing the case in favour of the appellant. It is noteworthy that, and I say this at the risk of repeating myself, the appellant came forward voluntarily & willingly to offer the impugned amount to tax. The notice which was issued under section 148 was much later and also the reason recorded shows in no uncertain manner that there was no information whatsoever, what to speak of credible Information which was in possession of the assessing officer while reopening the assessment It is noteworthy further that the initial assessment was also completed under scrutiny, wherein all the aspects of the return were looked at by the AO. 10.2 I can also faithfully and validly conclude that this reopening of assessment was merely to create a justification for initiating and imposing of penalty because even in the reopened proceedings, no credible satisfaction of any manner was recorded nor did the AO conduct any worthwhile enquiry even in penalty proceedings to "establish either the filing of inaccurate particulars or of concealment of income. In fact, by merging both the allegations together even in the penalty order the confused state of mind of the AO is reflected. The case, if any, had to be clearly of concealment and when there were no particulars filed by the assessee in the original ROI where could the question of. Inaccurate particulars have risen. Nonetheless this is merely a theoretical exposition which has absolutely no bearing on the case except to reveal the fact that the assessing officer had made absolutely no application of mind while initiating the penalty proceedings and there was no worthwhile satisfaction while recording the aspect of issuance of notice of penalty. The cryptic nature of the order further reveals that (A.Y: 2006-07) Shri Haresh S Jhaveri it is made complete haste, In a lackadaisical manner and with complete disregard to fact and law. The supervisory authorities may take note of this fact. 10.3. It is further held that it is trite law now that penalty and assessment are two distinct proceedings and what may be a good basis for making a sustainable addition may not hold good, while initiating and imposing a penalty, which requires an entirely independent basis and reasons for being sustainable, I'm absolutely astonished by complete lack of any verificatory exercise or field enquiry which could hold good. 10.4 While the powers of the FAA are coterminous with that of the AO, this particular order is of such a nature that even an enquiry at the stage of appellate proceedings cannot save the order in any manner. Not that any is factually possible, all relevant facts being already on record. Further, the satisfaction which is required while imposing the penalty has to be that of the AO and the FAA also cannot substitute his satisfaction with that of the Assessing Officer. In view of this fact also, it is clear that there is no further verificatory exercise is possible which can save the order from being bad in law and fact. 10.5. Accordingly, it is held in view of the overwhelming factual and legal position that the return was filed voluntarily, and in spite of it being time-barred, the AO, strangely and for reasons best known to him, chose to regularize the same and accept the revised return u/s 147. That order is in any ease a fait accompli and is not under challenge as well. Once the revised return was accepted, any case for imposition of penalty got destroyed at that particular juncture itself. It did not help matters that the subsequent penalty order was passed in an apparent undue haste and in a manner that even the limitation aspect became a valid and justifiable defence for the appellant, Accordingly, it is held that the order is vitiated on fact and is bad in law. Penalty imposed is hereby directed to be deleted and the appeal of the assessee is allowed both on the aspect of limitation and merit.”
11. None of the findings and observations of the Ld.CIT(A) have been rebutted with evidences by the Revenue and thus we do not see any infirmity in the order passed by the Ld.CIT(A) in deleting the penalty.
12. In so far as the non-striking off of irrelevant charge in the notice in initiation penalty proceedings is concerned. An identical situation has been considered by the Coordinate Bench in Meherjee Cassinath Holdings v. ACIT (supra) as to whether the action of the Assessing Officer in initiating penalty proceedings u/s.271(1)(c) of the Act without striking off
(A.Y: 2006-07) Shri Haresh S Jhaveri 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 u/s. 271(1)(c) of the Act he has to respond. While holding so the Coordinate Bench observed as under: -
8. We have carefully considered the rival submissions. Sec. 271(1)(c) of the Act empowers the Assessing Officer to impose penalty to the extent specified if, in the course of any proceedings under the Act, he is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In other words, what Sec. 271(1)(c) of the Act postulates is that the penalty can be levied on the existence of any of the two situations, namely, for concealing the particulars of income or for furnishing inaccurate particulars of income. Therefore, it is obvious from the phraseology of Sec. 271(1)(c) of the Act that the imposition of penalty is invited only when the conditions prescribed u/s 271(1)(c) of the Act exist. It is also a well-accepted proposition that ‘concealment of the particulars of income’ and ‘furnishing of inaccurate particulars of income’ referred to in Sec. 271(1)(c) of the Act denote different connotations. In fact, this distinction has been appreciated even at the level of Hon'ble Supreme Court not only in the case of Dilip N. Shroff (supra) but also in the case of T.Ashok Pai, 292 ITR 11 (SC). Therefore, if the two expressions, namely ‘concealment of the particulars of income’ and ‘furnishing of inaccurate particulars of income’ have different connotations, it is imperative for the assessee to be made aware as to which of the two is being put against him for the purpose of levy of penalty u/s 271(1)(c) of the Act, so that the assessee can defend accordingly. It is in this background that one has to appreciate the preliminary plea of assessee, which is based on the manner in which the notice u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 has been issued to the assessee company. A copy of the said notice has been placed on (A.Y: 2006-07) Shri Haresh S Jhaveri record and the learned representative canvassed that the same has been issued by the Assessing Officer in a standard proforma, without striking out the irrelevant clause. In other words, the notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealment of the particulars of income as well as furnishing of inaccurate particulars of income. Quite clearly, non-striking-off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges it has to respond. The aforesaid infirmity in the notice has been sought to be demonstrated as a reflection of non-application of mind by the Assessing Officer, and in support, reference has been made to the following specific discussion in the order of Hon'ble Supreme Court in the case of Dilip N. Shroff (supra):-
“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. CIT [2000] 2 SCC 718]”
Factually speaking, the aforesaid plea of assessee is borne out of record and having regard to the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the notice in the instant case does suffer from the vice of non-application of mind by the Assessing Officer. In fact, a similar proposition was also enunciated by the Hon'ble Karnataka High Court in the case of M/s. SSA’s Emerald Meadows (supra) and against such a judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Hon'ble Supreme Court vide order dated 5.8.2016, a copy of which is also placed on record.
In fact, at the time of hearing, the ld. CIT-DR has not disputed the factual matrix, but sought to point out that there is due application of mind by the Assessing Officer which can be demonstrated from the discussion in the assessment order, wherein after discussing the reasons for the disallowance, he has recorded a satisfaction that penalty proceedings are initiated u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income. In our considered opinion, the attempt of the ld. CIT-DR to demonstrate application of mind by the Assessing Officer is no defence inasmuch as the Hon'ble Supreme Court has approved the factum of non-striking off of the irrelevant clause in the notice as reflective of non- application of mind by the Assessing Officer. Since the factual matrix in the present case conforms to the proposition laid down by the Hon'ble Supreme Court, we proceed to reject the arguments advanced by the ld. CIT-DR based on the observations of the Assessing Officer in the assessment order. Further, it is also noticeable that such proposition has been considered by the Hon'ble Bombay High Court also in the case of Shri Samson Perinchery, 953, 1097 &
(A.Y: 2006-07) Shri Haresh S Jhaveri 1126 of 2014 dated 5.1.2017 (supra) and the decision of the Tribunal holding levy of penalty in such circumstances being bad, has been approved.
Apart from the aforesaid, the ld. CIT-DR made an argument based on the decision of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Others, 216 ITR 660 (Bom.) to canvass support for his plea that non-striking off of the irrelevant portion of notice would not invalidate the imposition of penalty u/s 271(1)(c) of the Act. We have carefully considered the said argument set-up by the ld. CIT-DR and find that a similar issue had come up before our coordinate Bench in the case of Dr. Sarita Milind Davare (supra). Our coordinate Bench, after considering the judgment of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Ors., (supra) as also the judgments of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) and Dharmendra Textile Processors, 306 ITR 277 (SC) deduced as under:-
“12. A combined reading of the decision rendered by Hon’ble Bombay High Court in the case of Smt. B Kaushalya and Others (supra) and the decision rendered by Hon’ble Supreme Court in the case of Dilip N Shroff (supra) would make it clear that there should be application of mind on the part of the AO at the time of issuing notice. In the case of Lakhdir Lalji (supra), the AO issued notice u/s 274 for concealment of particulars of income but levied penalty for furnishing inaccurate particulars of income. The Hon’ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon’ble Kerala High Court has struck down the penalty imposed in the case of N.N.Subramania Iyer Vs. Union of India (supra), when there is no indication in the notice for what contravention the petitioner was called upon to show cause why a penalty should not be imposed. In the instant case, the AO did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. The Hon’ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya (supra) and observed as under: -
“.... The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified.”
(A.Y: 2006-07) Shri Haresh S Jhaveri In the instant case also, we are of the view that the AO has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the AO has failed to apply his mind at the time of issuing penalty notice to the assessee.”
The aforesaid discussion clearly brings out as to the reasons why the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) is to prevail. Following the decision of our coordinate Bench in the case of Dr. Sarita Milind Davare (supra), we hereby reject the aforesaid argument of the ld. CIT-DR.
13. Apart from the aforesaid discussion, we may also refer to the one more seminal feature of this case which would demonstrate the importance of non- striking off of irrelevant clause in the notice by the Assessing Officer. As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are to be initiated for furnishing of inaccurate particulars of income. However, in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act of even date, both the limbs of Sec. 271(1)(c) of the Act are reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of Assessing Officer and there is no clear and crystallised charge being conveyed to the assessee u/s 271(1)(c), which has to be met by him. As noted by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non-compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond.
14. Therefore, in view of the aforesaid discussion, in our view, the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 is untenable as it suffers from the vice of nonapplication of mind having regard to the ratio of the judgment of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) as well as the judgment of the Hon'ble Bombay High Court in the case of Shri Samson Perinchery (supra). Thus, on this count itself the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted. We hold so. Since the penalty has been deleted on the preliminary point, the other arguments raised by the appellant are not being dealt with.
Following the above decision, similar view has been taken by the Coordinate Bench in the case of Orbit Enterprises v. Income Tax Officer [60 ITR (trib.) 252]. Respectfully following the said decision, we hold that (A.Y: 2006-07) Shri Haresh S Jhaveri 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 on this account itself the penalty imposed u/s.271(1)(c) is liable to be deleted.
In the result, appeal filed by the Revenue is dismissed.
Order pronounced in the open court on the 28th September, 2018