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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 8TH DAY OF SEPTEMBER, 2021
PRESENT
THE HON’BLE MRS.JUSTICE S.SUJATHA
AND
THE HON’BLE MR. JUSTICE RAVI V. HOSMANI
I.T.A.No.530/2018
BETWEEN :
SRI P.M.ABDULLA S/O LATE MAMMU AGED ABOUT 49 YEARS PROP M/s SULLIAKAR RUBBER AGENCY SAITHU BUILDING, GANDHINAGAR, SULLIA-574239 PAN NO: ACRP3294R
...APPELLANT
(BY SRI K.MALHARA RAO, ADV. FOR SRI S.PARTHASARATHI, ADV.)
AND :
THE INCOME TAX OFFICER WARD-1, PUTTUR -574201
…RESPONDENT
(BY SRI K.V.ARAVIND, ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 17.10.2016 PASSED IN ITA NO.1223 & 1224/BANG/ 2012, FOR THE ASSESSMENT YEARS 2003-2004 & 2004-2005. PRAYING TO 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. 2. ALLOW THE APPEAL AND SET-ASIDE THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL BEARING ITA NO.1223 & 1224/BANG/2012 FOR THE ASSESSMENT YEARS 2003-2004 AND 2004-2005 AND ETC.
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THIS APPEAL COMING ON FOR ORDERS, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
This appeal is filed by the assessee under Sec.260A of the Income Tax Act, 1961 (for short, ‘the Act’) assailing the order of the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru, dated 17.10.2016 relating to the assessment years 2003-04 and 2004-05.
The assessee is an individual and proprietor of M/s Sulliakars Rubber Agencies carrying on the business of wholesale business in raw rubbers. The assessee had filed his return of income for the assessment years in question. The Assessing Officer has issued an order under 143 (3) read with 254 of the Act and made additions.
The Assessing Officer also initiated penalty proceedings u/s 271 (1) (c) of the Act against which the assessee preferred an appeal before the Commissioner
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of Income Tax (Appeals), Mangaluru. The appellate authority dismissed the appeal confirming the order of penalty. Aggrieved by the same, the assessee has preferred an appeal before the Appellate Tribunal which came to be dismissed by the order dated 17.10.2016. Hence, this appeal by the assessee.
Learned counsel for the appellant-assessee argued that the relevant material was available in the returns filed by the assessee and there was no concealment or suppression of income to invoke the penalty proceedings. He further submitted that the penalty order passed under Section 271 (1) (c) of the Act is not maintainable in law since the notices issued under Section 274 read with 271 of the Act are defective. Referring to the decisions of this Court in the cases of:
(i) COMMISSIONER OF INCOME TAX AND ANOTHER .v. MANJUNATHA COTTON AND
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GINNING FACTORY [(2013) 359 ITR 0565 (Karn.)], (ii) M/s SAFINA HOTELS PRIVATE LIMITED .v. COMMISSIONER OF INCOME TAX AND ANOTHER, [137 DTR 0089 (Karn.)] and (iii) S.CHANDRASHEKAR .v. ASST. COMMISSIONER OF INCOME TAX [(2017) 396 ITR 0538 (Karn.)],
he submitted that the Appellate Tribunal failed to consider the judgments rendered by this Court in the right perspective.
Our attention was drawn to the notices issued under Section 274 read with 271 of the said Act of 1961 (Annexures-D and D1) to contend that the same are not in conformity with law and are vitiated as per the law laid down by this Court in the judgments cited supra. Learned counsel further argued that sufficient material was available in the returns filed by the assessee and there was no concealment or suppression of income to invoke the penalty proceedings.
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Per contra, learned counsel for the Revenue made an endeavour to justify the action of the authorities and the order of the Appellate Tribunal impugned, contending that the Assessing Officer has ticked a portion which was relevant and the same has been rightly considered by the Tribunal while rejecting the claim of the assessee.
Adverting to the arguments of the learned counsel appearing for the parties, we have carefully examined the notices issued by the Assessing Officer (Annexures-D and D1) to initiate proceedings under Section 274 read with 271 of the said Act of 1961. The notice issued in the said printed format, though specifies “delete the inappropriate words and paragraphs,” the tick mark is found with respect to the clause “have concealed the particulars of your income”. The next limb of the said clause remains
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undeleted as the penalty order deals with only the first limb of concealment of the particulars of income.
At this juncture, it is beneficial to refer to the judgment in the decision of Manjuntha Cotton & Ginning Factory, (supra) wherein it has been categorically held thus: “NOTICE UNDER SECTION 274 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-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either
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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 on him 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(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form 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 the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
Clause (c) deals with two specific offences, that is to say, concealing particulars
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of income or furnishing 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 validate the order of penalty which, when passed, was not sustainable.”
The validity of the order of penalty must be determined on the basis of the initiation of penalty proceedings. The defects being ex facie apparent in the notices issued, the initiation of proceedings being vitiated, the impugned order of the Tribunal confirming
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the order of the authorities cannot be sustained and is accordingly set aside. The substantial questions are answered in favour of the Assessee and against the Revenue.
In the result, the appeal is allowed. No order as to costs.
Sd/- JUDGE
Sd/- JUDGE
VGH