DCIT CC 3(4) CEN RG 3, MUMBAI vs. LAXMICHAND D. ROHIRA, MUMBAI

ITA. Nos. 1178 to 1184/Mum/2016 CO. Nos. 250 to256/Mum/2017 A.Ys. 2002-03, 2003-04, 2004-05, 2005-06 , 2006-07, 2008-09 & 2007-08 आदेश / O R D E R PER BENCH: The Revenue as well as assessee have filed the above mentioned appeals/cross-objection against the order dated 18.12.2015 passed by the Commissioner of Income Tax (Appeals)-51, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y. 2002-03, 2003-04, 2004-05, 2005-06, 2006-07, 2008-09 & 2007-08 in which the penalty levied by the AO has been ordered to be deleted.

1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) Mumbai erred in deleting the penalty on club income stating that the same is estimated by AO without appreciating that statements of his employees have clearly disclosed concealment of the actual income of the club.

2. The appellant craves to leave, to add, to amend and/ or to alter any of the grounds of appeal if need be.”

3. The brief facts of the case are that the assessee runs a club in the name of Shreeram Social Club and Navrang Social Club. During the search action u/s 132 of the Act, it was found that the gambling activities was being carried out in the club. On the basis of the statements of the assessee employees, the club’s daily income was estimated to the tune of Rs.1,00,000/-. Thereafter, the assessee filed an appeal before the CIT(A) who confirmed the addition to the extent of 13,750/- in the hands of the assessee. Besides the addition on account of club income, some more additions was also raised in the to 1184/Mum/2016 CO. Nos. 250 to256/Mum/2017 A.Ys. 2002-03, 2003-04, 2004-05, 2005-06 , 2006-07, 2008-09 & 2007-08 above said assessment years. All the additions finally sustained by the CIT(A) and assessment year’s wise addition are being mentioned below.: - A.Y. Club Income Other additions 2002-03 50,18,750 1,30,731/- (income from unaccounted source) 2003-04 50,18,750 2,00,000/- (gifts) 2004-05 50,18,750 3,36,065/- (gifts) 2006-07 50,18,750 - 2007-08 50,18,750 - 2008-09 50,18,750 9,71,220/- (renovation& electronic items purchased) Subsequently, the penalty proceeding was initiated and the penalty was levied. The assessee challenged the penalty before the CIT(A) and the CIT(A) restricted to levy the penalty upon the amount of Rs.1,30,731/- for the A.Y. 2002-03 and for the remaining years, the penalty was ordered to be deleted.

11. After considering the reply of the assessee the AO levied penalty under Section 271(1)(c) of the Act by observing as under: - "8. In view of the fact and circumstances mention here-in- above, it is being concluded that assessee has knowingly furnished inaccurate particulars and concealed its income within the meaning of Sec.271(1)(c) of the I.T. Act to the tune of Rs.50,18,750/- (addition is partly allowed by the Ld.CIT(A) in respect of club income) and hence it is a fit case where penalty under section 271(1) (c) is required to be imposed. Accordingly, the undersigned is proposed to levy penalty under section 271(1) (c) in this case which is worked out as under: Tax sought to be evaded Rs.15,37,173/- Minimum penalty leviable u/s. 271(1)(c) of Rs.5,37,173/- The I T Act @ 100% of the tax sought to be evaded comes to Maximum penalty leviable u/s. 271(1)(c) of Rs.46,11,51 the I T Act @ 300% of the tax sought to be evaded comes to

9. Taking a balanced view on a well settled principle, I levy minimum penalty @100% which works out to Rs. 15,37,173/- u/s.271(1)(c) of the Income Tax Act, 1961." to 1184/Mum/2016 CO. Nos. 250 to256/Mum/2017 A.Ys. 2002-03, 2003-04, 2004-05, 2005-06 , 2006-07, 2008-09 & 2007-08 12. Similarly penalty has been levied in each of the assessment years. When the matter went before the CIT(A), the CIT(A) deleted the penalty in Shri Dhanvinder Bindra each of the assessment years on the basis that the AO has not brought out any specific charge while levying penalty. 13. The learned D.R. before us vehemently contended by referring to various case laws which we will discuss why the order of the CIT(A) should be reversed. Firstly he relied on the order of the Hon'ble Allahabad High Court in the case of Sushil Kumar Sharad Kumar vs. CIT 232 ITR 588. In that case we noted that the penalty has been levied for concealment of particulars of income. The Hon'ble High Court confirmed the levy of penalty as there is evidence of higher expenditure incurred by the assessee and during the penalty proceedings the assessee did not lead any evidence to prove that the expenditure incurred by him for household were low. Therefore under these facts the Hon'ble High Court confirmed the penalty. This decision, in our opinion, is not applicable to the facts of the case before us. In the case of the assessee, we noted, the AO had not levied penalty for concealment of particulars of income. 14. In this regard we may refer to the provisions of Section 271(1)(c). This section empowers the AO to levy penalty under these provisions if the AO is satisfied any person had concealed particulars of his income or furnished inaccurate particulars of such income. This means penalty can be imposed on the assessee under two circumstances; one the AO finds that the assessee has concealed particulars of income or the other circumstance is that the AO finds that the assessee has furnished inaccurate particulars of such income. The word under Section 271(1)(c) between concealed the particulars of his income and furnished inaccurate particulars of such income is 'or' not 'and'. This denotes if the assessee has committed any of these two defaults penalty under Section 271(1)(c) has to be imposed by the AO. Both these defaults, as the provision of 271(1)(c) denotes, are different from each other although the consequence of both the defaults may be that the assessee has concealed income. However, we noted that there is Explanation 1 given under Section 271(1)(c) which is applicable in the case of concealment of particulars of income. If the contentions to 1184/Mum/2016 CO. Nos. 250 to256/Mum/2017 A.Ys. 2002-03, 2003-04, 2004-05, 2005-06 , 2006-07, 2008-09 & 2007-08 stipulated under Explanation 1 are satisfied it is deemed that Shri Dhanvinder Bindra particulars of income have been concealed by the assessee. Explanation 1, no doubt, is rebuttable and the assessee can always adduce the evidence or put the explanation to come out of the applicability of Explanation 1. In view of this deeming provision the onus is on the assessee to prove that he has not concealed the particulars of income. So far the other default of furnishing of inaccurate particulars of income is concerned, there is no deeming provision and the onus, in our view, lies on the Revenue to prove that the assessee has furnished inaccurate particulars of income and for that the Revenue is bound to bring necessary evidence on record and put this evidence before the assessee so that the assessee can counter them and rule of natural justice is not violated. Since both the defaults are different, therefore, the Legislature, in our opinion, has used the word between both the defaults 'or' instead of 'and'. We cannot take the view that the assessee has committed both the defaults together although the nature of consequence of both the defaults is one, i.e. concealment of income. The only common attribute between both the defaults is the particulars. 15. We have also gone through the decision of the "I" Bench of this Tribunal in the case of Shri Mahesh M. Gandhi vs. ACIT, ITA No. 2976/Mum/2016. We noted that in this decision the Tribunal has 'confirmed the penalty as notice has not been issued in standard printed format, rather the same has been specifically been drafted by the AO before sending notice to the assessee and therefore the Tribunal was of the view that before initiating the penalty the AO has applied his mind. The Tribunal was also aware that in the case where the AO has framed charge under one limb of section 271(1)(c)but levied penalty under the other limb of section 271(1)(c). This fact is clear from the findings of the Tribunal which are reproduced as under: - "We do not find any infirmity in the notice dated 20-02-2014 issued by the A.O. u/s 271(1)(c) r.w.s. 274 of the Act wherein the AO has clearly framed an alternate charges for levying penalty u/s 271(1)(c) of the Act at the stage of issue of notice u/s 274 r.w.s. 271(1)(c) of the Act. More-so it is not a standard printed format which is sent to the Shri Dhanvinder Bindra to 1184/Mum/2016 CO. Nos. 250 to256/Mum/2017 A.Ys. 2002-03, 2003-04, 2004-05, 2005-06 , 2006-07, 2008-09 & 2007-08 assessee rather the same is specifically drafted by the AO before sending to the assessee which showed application of mind by the AO. It is also not the case that the AO has framed charge under one limb of Section 271(1)(c) of the Act and levied the penalty under the second limb of Section 271(1)(c) of the Act. The assessment order dated 20- 02-2014 also clearly showed application of mind by the AO before initiating penalty proceedings u/s 271(1)(c) of the Act." 16. In that case, we noted, the Tribunal also found that the AO before initiating penalty proceedings during the course of assessment recorded his satisfaction in detail and that was not the case where no satisfaction has been recorded with reference to the charge to be levied on the assessee. Even we noted that the Tribunal in that decision did not appreciate the notice issued by the AO even though it was specifically been drafted by the AO. The AO has not brought out any specific charge but confirmed the penalty levied on the assessee. We noted that in that case the Tribunal mainly referred to the decision of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory 359 ITR 565. In that decision, we noted, the Hon'ble High Court under para 50 has clearly mentioned as under: - 50. A reading of Section clearly indicates that the assessment order should contain a direction for initiation of penalty proceedings. The meaning of the word direction is of importance. Merely saying that penalty proceedings are being initiated will not satisfy the requirement. The direction to initiate proceedings should be clear and not be ambiguous. It is well settled law that fiscal statutes are to be construed strictly and more so the deeming provisions by way of legal fiction are to be construed more strictly. They have to be interpreted only for the said issue for which it has deemed and the manner in which the deeming has been contemplated to be restricted in the manner sought to be deemed. As the words used in the legal fiction or the deeming provisions of Section 271(1B) is Direction, it is imperative that the assessment order contains a direction. Use of the phrases like (a) penalty proceedings are being initiated separately and (b) penalty proceedings under Section 271(l)(c) are initiated separately, do not comply to 1184/Mum/2016 CO. Nos. 250 to256/Mum/2017 A.Ys. 2002-03, 2003-04, 2004-05, 2005-06 , 2006-07, 2008-09 & 2007-08 with the meaning of the word direction as contemplated even in the amended provisions of law. The direction should be clear and without any ambiguity. The word 'direction' has been interpreted by the decision of the Apex Court in the case of Rajendranath 120 ITR pg.14,where it has been held that in any event whatever else it may amount to, on its very terms the observation that the ITO is free to take action, to assess the excess in the hand of the co-owners cannot Shri Dhanvinder Bindra be described as a direction. A direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the option and discretion of the ITO whether or not take action, it cannot be described as a direction. 51. Therefore, it is settled law that in the absence of the existence of these conditions in the assessment order penalty proceedings could not be proceeded with. The proceedings which are initiated contrary to the said legal position are liable to be set aside." 17. If the finding given by the Hon'ble High Court which has been referred to by the Bench in that case heavily relied by the learned D.R., are applicable to the impugned case of the assessee. We find that in the case of the impugned assessee the AO while initiating penalty has simply observed "penalty proceedings under Section 271(1)(c) are initiated separately". The Hon'ble Karnataka High Court, as has been relied upon by the "I" Bench, while confirming the penalty in the case of Manjunatha Cotton and Ginning Factory (supra) has clearly held that merely saying the penalty proceedings are initiated will not satisfy the requirement with regard to the direction for initiation of penalty proceedings. Not only this, we noted, in the decision the Hon'ble Member has not appreciated the findings given by the Hon'ble Bombay High Court in the case of CIT vs. Samson Perinchery (supra) . In that case the question before the Hon'ble High Court was "Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the penalty levied under section 271(1)(c) of the Income Tax Act, 1961?" While deciding this issue the Hon'ble High Court observed as under: - to 1184/Mum/2016 CO. Nos. 250 to256/Mum/2017 A.Ys. 2002-03, 2003-04, 2004-05, 2005-06 , 2006-07, 2008-09 & 2007-08 "3 The impugned order of the Tribunal deleted the penalty imposed upon the Respondent Assessee. This by holding that the initiation of penalty under Section 271 (1)(c) of the Act by Assessing Officer was for furnishing inaccurate particulars of income while the order imposing penalty is for concealment of income. The impugned order holds that the concealment of income and furnishing inaccurate particulars of income carry different connotations. Therefore, the Assessing Officer should be clear as to which of the two limbs under which penalty is imposable, has been contravened or indicate that both have been contravened while initiating penalty proceedings. It cannot be that the initiation would be only on one limb i.e. for furnishing inaccurate particulars of income while imposition of penalty on the other limb i.e. concealment of income. Further, the Tribunal also Shri Dhanvinder Bindra noted that notice issued under Section 274 of the Act is in a standard proforma, without having striked out irrelevant clauses therein. This indicates non- application of mind on the part of the Assessing Officer while issuing the penalty notice. 4 The impugned order relied upon the following extract of Karnataka High Court's decision in CIT v/s. Manjunath Cotton and Ginning Factory 359 ITR 565 to delete the penalty: "The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus, the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it as case of furnishing of inaccurate particulars. The apex court in the case of Ashok Pai reported in [2007] 292 ITR 11 (SC) at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of Manu Engineering reported in 122 ITR 306 and the Delhi High Court in the case of Virgo Marketing P. Ltd., reported in 171 Taxmn 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to 1184/Mum/2016 CO. Nos. 250 to256/Mum/2017 A.Ys. 2002-03, 2003-04, 2004-05, 2005-06 , 2006-07, 2008-09 & 2007-08 to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to nonapplication of mind." 5. The grievance of the Revenue before us is that there is no difference between furnishing of inaccurate particulars of income and concealment of income. Thus, distinction drawn by the impugned order is between Tweedledum and Tweedledee. In the above view, the deletion of the penalty, is unjustified. 6. The above submission on the part of the Revenue is in the face of the decision of the Supreme Court in Ashok Pai v/s. CIT 292 ITR 11 [relied upon in Manjunath Cotton & Ginning Factory (supra)] - wherein it is observed that concealment of income and furnishing of inaccurate particulars of income in Section 271(1)(c) of the Act, carry different meanings/ connotations. Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under Section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/ permit penalty being imposed for the other breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated/notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground of Shri Dhanvinder Bindra which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the Assessee has no notice. 7 Therefore, the issue herein stands concluded in favour of the Respondent Assessee by the decision of the Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra). Nothing has been shown to us in the present facts which would warrant our taking a view different from the Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra). Ultimately it was held that the question as framed do not give rise to any substantial question of law. Therefore the finding given by the Tribunal that penalty must be initiated for specific charge has been confirmed. Even the finding of the Tribunal that ITA. Nos. 1178 to 1184/Mum/2016 CO. Nos. 250 to256/Mum/2017 A.Ys. 2002-03, 2003-04, 2004-05, 2005-06 , 2006-07, 2008-09 & 2007-08 the notice issued under Section 274 of the Act is in a standard proforma, without having striked out irrelevant clauses therein represent non-application of mind on the part of the AO while issuing penalty notice has not been disturbed.

10. 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, ITA Nos. to 1184/Mum/2016 CO. Nos. 250 to256/Mum/2017 A.Ys. 2002-03, 2003-04, 2004-05, 2005-06 , 2006-07, 2008-09 & 2007-08 1154, 953, 1097 & 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.

13. At this point, we may also make a reference to the judgment of the Hon'ble Patna High Court relied by the ld. CIT-DR before us. The issue before the Hon'ble Patna High Court was relating to levy of penalty for shortfall in the payment of advance tax paid as compared with the tax finally assessed as payable, but in to 1184/Mum/2016 CO. Nos. 250 to256/Mum/2017 A.Ys. 2002-03, 2003-04, 2004-05, 2005-06 , 2006-07, 2008-09 & 2007-08 the notice issued u/s 274 r.w.s. 273(b) of the Act it was incorrectly mentioned that assessee had failed to file its estimate of advance tax. The Hon'ble Patna High Court held that mention of such incorrect charge would not render the penalty proceedings void-ab-initio. The aforesaid parity of reasoning has been relied upon by the ld. CIT-DR before us to state that non-striking off of the irrelevant portion of the notice u/s 274 r.w.s. 271(1)(c) of the Act does not render the proceedings invalid. In our view, the said decision does not help the case of the Revenue qua the issue before us. Firstly, the Hon'ble Patna High Court itself noted that it was a case of mere "wrong labelling of the section or some mistake in the charge framed against the assessee" which does not prejudice the assessee. Secondly, non-striking off of the irrelevant clause in the notice u/s 274 r.w.s. 271(1)(c) of the Act has been completely differently understood by the various High Courts, including that by the Hon'ble Jurisdictional High Court of Bombay. In the case of Shri Samson Perinchery (supra), the Hon'ble Bombay High Court noted that the order imposing penalty u/s 271(1)(c) of the Act has to be made only on the ground on which the penalty proceedings have been initiated. In the case of Shri Samson Perinchery (supra), the Revenue had put up an argument to the effect that there is no difference between furnishing of inaccurate particulars of income and concealment of income. The aforesaid argument has been specifically rejected by the Hon'ble High Court by referring to the judgment of the Hon'ble Supreme Court in the case of T. Ashok Pai, 292 ITR 11 (SC). It was further noted that the judgment in the case of T. Ashok Pai (supra) has been relied upon by the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory & Ors., 359 ITR 565 (Karn.). The Hon'ble High Court approved the proposition that once the two limbs contained in the notice u/s 274 r.w.s. 271(1)(c) of the Act, namely concealment of income and furnishing of inaccurate particulars of income are understood to be carrying different meanings/connotations, non-striking off of the irrelevant clause or striking off one of the limbs and imposing penalty on the other limb is not as per law. Thirdly, it may be noted that the issue before the Shri Dhanvinder Bindra Hon'ble High Court was incorrect mentioning of charge in the show cause notice, but the case before us is of non-mentioning of the charge at all. to 1184/Mum/2016 CO. Nos. 250 to256/Mum/2017 A.Ys. 2002-03, 2003-04, 2004-05, 2005-06 , 2006-07, 2008-09 & 2007-08 Therefore, for all the above reasons, non-striking off of the irrelevant clause in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act cannot be said to be a mere wrong labelling of the section or some mistake of the nature that was before the Hon'ble Patna High Court in the case of Mithila Motors (P.) Limited (supra). Therefore, the judgment of the Hon'ble Patna High Court does not help the case of the Revenue before us.

14. The other plea of the ld. CIT-DR before us was that there was no ambiguity inasmuch as the Assessing Officer had made aware the assessee about the charge being made against him, namely concealment of income, by referring to the assessment order and also the reply of the assessee filed at the time of penalty proceedings. In our considered opinion, if one were to examine the entire conspectus of fact-situation starting from the assessment order upto the passing of penalty order, the error in the argument set-up by the ld. CIT-DR would be clear. In the assessment order dated 22.12.2008, the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are initiated for concealment of income while 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 left intact in the standard printed notice, as the irrelevant clause has not been struck-off. This contradiction in the assessment order vis-a-vis the penalty notice issued u/s 274 r.w.s. 271(1)(c) of the Act on the same date clearly brings out a confusion on the part of the Assessing Officer, and apparently it is a situation where assessee is not aware about the clear and crystallised charge being made against him, thus violating the principles of natural justice. The penalty proceedings being quasi- criminal in nature, as noted by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the same are necessarily required to be in compliance with the principles of natural justice. In this view of the matter, in our view, the ld. CIT-DR is not correct in contending that non- striking off of the irrelevant clause in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act is not material, and that the assessee had understood that the proceedings were initiated for concealment of income based on the observations in the assessment order itself. Before parting, we may also refer to a recent judgment of the Hon'ble Karnataka High Court in the case of S. Chandrashekar, 396 ITR 538 (Karn.) wherein a notice ITA. Nos. 1178 to 1184/Mum/2016 CO. Nos. 250 to256/Mum/2017 A.Ys. 2002-03, 2003-04, 2004-05, 2005-06 , 2006-07, 2008-09 & 2007-08 issued u/s 274 r.w.s. 271(1)(c) of the Act in printed form without specifying the grounds of initiation of penalty proceedings was held to be invalid and untenable in law. As per the Hon'ble High Court, in the absence of any specific ground in the notice so issued, there is a breach of principles of natural justice and accordingly, the order imposing penalty cannot be sustained."