ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1, RAICHUR vs. M/S THE RAICHUR DISTRICT CENTRAL CO-OPERATIVE BANK LTD , RAICHUR

Per Shri Jason P Boaz, A.M. : This appeal by Revenue is directed against the order of the Commissioner of Income Tax (Appeals), Gulbarga dt.30.11.2016 deleting

2 ITA No.195/Bang/2017 & C.O. No.49/Bang/2018 the penalty of Rs.12,00,000 levied by the Assessing Officer under Section 271(1)(c) of the Income Tax Act, 1961 (in short 'the Act') for the Assessment Year 2012-13. The assessee has filed Cross Objections (C.O.) in this regard.

2.1 The assessment, in the year under consideration i.e. A.Y. 2012-13 was concluded under Section 143(3) of the Act vide order dt.16.3.2015, wherein the income of the assessee was determined at Rs.1,33,53,710 in view of the following two disallowances :-

(i) Income Tax debited to P&L Account : Rs.35,70,000. (ii) Provision for erosion of Govt. Securities : Rs.3,10,000.

In the last line of the order of assessment it was stated “Penalty initiated under Section 27(1)(c).” Notice under Section 274 r.w.s. 271 of the Act dt.16.3.2015 was also simultaneously issued. The assessee did not prefer any appeal against the above order of assessment for Assessment Year 2012-13. 2.2 Subsequent to the issue of notice dt.16.3.2015 for initiating penalty proceedings under Section 271(1)(c) of the Act to which there was no response from the assessee, the Assessing Officer issued another notice on 21.8.2015 fixing the hearing on 4.9.2015. After considering the submissions of the assessee put forth on 10.9.2015, the Assessing Officer vide order dt.28.9.2015 levied penalty of Rs.12 lakhs on the assessee

3 ITA No.195/Bang/2017 & C.O. No.49/Bang/2018 under Section 271(1)(c) of the Act for furnishing of inaccurate particulars of its income for Assessment Year 2012-13. 3. Aggrieved by the order levying penalty of Rs.12,00,000 under Section 271(1)(c) of the Act for Assessment Year 2012-13, the assessee preferred an appeal before the CIT (Appeals), Gulbarga. The learned CIT (Appeals) vide the impugned order dt.30.11.2016 deleted the said penalty holding as under at para 4.1.2 of the impugned order :-

4 ITA No.195/Bang/2017 & C.O. No.49/Bang/2018 Assessee's C.O. No.49/Bang/2018 for A.Y. 2012-13.

Order on Petition for Condonation of Delay in filing Cross Objections before the Tribunal.

3.1 Along with the C.O., the assessee filed a petition for condonation of delay of 210 days in filing the C.O. before the Tribunal accompanied by an Affidavit Sworn to by the assessee. In the petition for condonation of delay the assessee has submitted as under :-

5 ITA No.195/Bang/2017 & C.O. No.49/Bang/2018

3.2 The learned Authorised Representative was heard and reiterated the submissions made by the assessee in the Affidavit. Reliance was also placed on the following judicial pronouncement for condonation of delay in filing the C.O. :-

(i) Collector, Land Acquisition V MST Katiji & Others (167 ITR 471)( SC)

6 ITA No.195/Bang/2017 & C.O. No.49/Bang/2018 (ii) Raghavendra Constructions in ITA No.425/Bang/2012 dt.14.12.2012. (iii) Radhakrishna Rai Vs. Allahabad Bank & Others (2009) 9 SCC 733. (iv) Shakuntala Hegde, L/R of R K Hegde V ACIT in ITA No.2785/Bang/2004. 3.3 Per contra, the learned Departmental Representative opposed the condonation of delay in filing the appeal.

3.4 We have heard the rival contentions, perused and carefully considered the material on record; including the judicial pronouncements cited. At the outset, we observe that the Hon'ble Apex Court in the case of MST Katiji (supra) while explaining and laying down the principles that need to be kept in mind while considering an application for condonation of delay has emphasized that substantial justice should prevail over technical considerations. The Hon'ble Court also explained that a litigant does not stand to benefit by lodging the appeal late and that the expression ‘every day’s delay must be explained’ does not that a pedantic approach should be taken. The doctrine should be applied in a rational, common sense and pragmatic manner. The facts and circumstances of the case do not suggest that the assessee had acted in a mala fide manner or that the reasons put forth by the assessee are only a device to cover an ulterior purpose. Therefore, when the explanation and reason for delay are bona fide, then the Court should be liberal in construing sufficient and reasonable

7 ITA No.195/Bang/2017 & C.O. No.49/Bang/2018 cause. Taking into account the aforesaid principles laid down by the Hon'ble Apex Court and after careful consideration of the submissions / reasons put forth by the assessee in the Affidavit, we are of the opinion that there was sufficient and reasonable cause for delay of 210 days delay in filing the C.O and that even if the delay is condoned there would be no loss to the Revenue, as legitimate taxes payable in accordance with law will be collected. We, therefore, being of the opinion that this is a fit case for condonation of delay; accordingly condone the delay in filing this C.O. before the Tribunal and admit the C.O. for consideration and adjudication. It is ordered accordingly.

O R D E R Assessee's Cross Objections in 49/Bang/2018 (A.Y. 2012-13) 4.1 We will first take up for consideration of the C.O. filed by the assessee, as the technical issue raised therein go to the very root of the proceedings that resulted in the levy of penalty of Rs.12 lakhs under Section 271(1)(c) of the Act for A.Y. 2012-13. In the C.O., the grounds raised by the assessee are as under :- “1. The impugned order levying penalty under Section 271(1)(c) of IT Act, 1961 is bad in law for want of jurisdiction as also being not in compliance with provisions of law and also being against the principles of natural justice and hence is required to be quashed. 2. In any case, the notice issued for initiating the penalty being improper, the consequent order also becomes bad in law and the ld. CIT (Appeals) has erred in not giving any finding on this ground. The order of CIT (Appeals) to that extent is erroneous.”

8 ITA No.195/Bang/2017 & C.O. No.49/Bang/2018

4.2 In these grounds (Supra), the sum and substance of the assessee’s contentions are that the penalty proceedings initiated by the AO for asst. year 2012-13 vide notice issued u/s 274 r.w.s 271 of the Act dated 16.3.2015 for levy of penalty u/s 271(1)(c) of the Act, is defective. In this regard the ld AR for the assessee has placed reliance on the decision of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (359 ITR 565) (Kar) and the rejection of the Revenue’s SLP by the Hon’ble Apex Court in the case of SSAS Emerald Meadows in SLP: (CC 11485/2016) dated 5/8/2016. The ld AR also placed reliance on the decision of the coordinate bench of this Tribunal in the following cases of - (1) C Ramaiah Reddy in ITA No.977/Bang/2017 dated 22/9/2017 and (ii) Arun Kumar in ITA No.117/Bang/2016 dated 16/12/2106 in support of the assessee’s case. It is contended that in similar circumstances, as in the case on hand, the co-ordinate benches of this Tribunal have held that the penalty proceedings initiated on the basis of defective notice has to be cancelled.

4.3 Per contra, the ld DR for Revenue supported the orders of the authorities below. It was submitted that since the ld CIT(A) had not considered and decided the issue of defective notice u/s 274 r.w.s 271 of the Act for initiation of penalty proceedings u/s 271(1)(c) of the Act, therefore the matter requires to be sent back to the file of the CIT(A) for adjudication of this ground. Reliance was placed on the decisions of the

9 ITA No.195/Bang/2017 & C.O. No.49/Bang/2018 co-ordinate benches in the case of Jaysons Infrastructure India Pvt. Ltd., in ITA No.997/Bang/2015 dt.9.6.2017 and Sri P.M. Abdulla in ITA Nos.1223 & 1224/Bang/2012 dt.17.10.2016.

4.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. At the outset we may mention that while the aforesaid issue of defective notice was not before the ld CIT(A), however, since the facts of the matter on this issue are apparent from the copy of the said notice issued u/s 274 r.w.s 271 of the Act dated 16.3.2015 (filed by the assessee at page 21 of the C.O. Memorandum) and the judicial view of Courts and ITAT co-ordinate benches in the matter (Supra) in our view, no useful purpose would be served in restoring the matter to the file of the ld CIT(A) as prayed for by the ld DR for Revenue. We have perused the copy of the notice issued u/s 274 r.w.s 271 of the Act; dated 16.3.2015 and find that it reveals that the AO has not deleted the inappropriate words and parts in the relevant paragraph of the notice, evidencing clear lack of application of mind, whereby it is not clear as to which default has been committed by the assessee; i.e whether it is for furnishing of inaccurate particulars of income or concealing particulars of income that penalty u/s 271(1)(c) of the Act is sought to be levied.

4.4.2 The Hon’ble Karnataka High Court in the case of M/s Manjunatha Cotton & Ginning Factory in (359 ITR 565) (Kar) has held that a notice issued u/s 274 r.ws 271 of the Act without specifying the nature of

10 ITA No.195/Bang/2017 & C.O. No.49/Bang/2018 default; i.e; whether the notice is issued for concealment of particulars of income or furnishing of inaccurate particulars of income; is invalid and the consequential penalty proceedings/order are also not valid. The relevant portion of the aforesaid judgment of the Hon’ble Karnataka High Court (Supra) at paras 59 to 61 are extracted hereunder:-

“59 As the provision stands, the penalty proceedings can be initiated on various ground set out therein, if the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-I or in Explanation- l(B), then though penalty proceedings are in the nature of civil liability, in fact, it is' penal in nature. in either event, the person who is accused Of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty oil as the 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(I)(c) c/a not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of tax liability. As the said provisions have to be held to be standby construed notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended

11 ITA No.195/Bang/2017 & C.O. No.49/Bang/2018 if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. 60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. 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. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. 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. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot

12 ITA No.195/Bang/2017 & C.O. No.49/Bang/2018 validate the order of penalty which, when passed, was not sustainable. 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 292 ITR 11 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 M4NU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO IvL4RKETING reported in 171 Taxman 156, has held that penalty has to be clear as to the limb for which it is levied and the action 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 relevant1 clauses will lead to an inference as to non-application of mind." 4.4.3 The aforesaid view taken by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (Supra) was followed by the Hon’ble Karnataka High Court in the case of SSAS Emerald Meadows in ITA No.380 of 2015 dated 23/11/2015; wherein the Hon’ble Court upheld the order of co-ordinate bench of this Tribunal, cancelling the penalty levied on the basis of the defective notice issued by the AO. Revenue’s SLP filed against he said judgment of the Hon’ble

13 ITA No.195/Bang/2017 & C.O. No.49/Bang/2018 High Court in the case of SSAS Emerald Meadows (Supra) has also been dismissed by the Hon’ble Apex Court in CC/1485/2016 dated 5/8/2016. In view of the aforesaid decisions of Hon’ble Karnataka High Court holding the ground (Supra), the decisions of the co-ordinate benches cited by the ld DR would not come to Revenue’s rescue. In the case of Jaysons Infrastructure India P. Ltd. (supra), the aforesaid binding decision of the Hon'ble Karnataka High Court (supra) has not been considered by the Bench and therefore cannot be applied. With regard to the decision in the case of P.M. Abdulla (supra), we are of the view that the same is contrary to the binding decision of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra) and therefore cannot be applied.

4.4.4 Respectfully following the judgments of the Hon’ble Karnataka High Court in the cases of M/s Manjunatha Cotton & Ginning Factory (359 ITR 565( (Kar) and SSAS Emerald Meadows in ITA No:380 of 2015 dated 23/11/2015, we hold that the notice issued by the AO u/s 274 r.w.s 271 of the Act dated 16.3.2015 for initiating penalty proceedings for asst. year 2012-13 is invalid and consequently, the penalty proceedings conducted in pursuance thereof, are also invalid and we therefore delete the penalty levied u/s 271(1)(c) of the Act for asst. year 2012-13. Consequently, the C.O. grounds raised by the assessee at S. Nos. 1 & 2 (supra) are allowed.

14 ITA No.195/Bang/2017 & C.O. No.49/Bang/2018 5. In the result, the assessee's Cross Objections for Assessment Year 2012-13 are allowed.

Revenue’s Appeal in ITA No.195/Bang/2017 for A.Y. 2012-13.

Order pronounced in the open court on the 4th day of May, 2018.

Sd/- Sd/- (N.V. VASUDEVAN) (JASON P BOAZ) Judicial Member Accountant Member Bangalore, Dt. 04.05.2018.

*Reddy gp

15 ITA No.195/Bang/2017 & C.O. No.49/Bang/2018 Copy to : 1 Appellant 4 CIT(A) 2 Respondent 5 DR. ITAT, Bangalore 3 CIT 6 Guard File

Senior Private Secretary Income Tax Appellate Tribunal Bangalore.