SH. MANISH PERIWAL,KOLKATA vs. DCIT, NEW DELHI

This appeal has been preferred by the assessee against the order dated 16.07.2014 passed by the ld. CIT(A)-I, New Delhi wherein vide order dated 16.7.2014 for assessment year 2006-07, the ld. CIT(A) has confirmed imposition of penalty amounting to Rs. 30,000/- u/s 271(1)(b) of the Income Tax Act, 1961.

ITA 5156/D/2014 Assessment year 2006-07 2. At the outset, the Ld. AR sought an adjournment which we deem appropriate to refuse and we proceed to hear both the sides on merits.

The assessee did not comply; Thereafter further reminders for hearings were issued. Penalty proceedings u/s 271(1)(b) were initiated vide notice dated 5.8.13 for non- compliance of notice dated 11/07/2013 u/s 142(1) fixing the date for compliance on 2.8.2013. However subsequently, penalty of Rs. 10,000/- each was levied for default in compliance of notices issued on 2.5.2013, 12.6.2013 and 11.7.2013. Before the ld. CIT (A), it was the contention of the assessee that the Assessing Officer had issued the notice for levy of penalty only for one ITA 5156/D/2014 Assessment year 2006-07 default but had finally levied the penalty for three defaults whereas it was judicially settled that a separate notice had to be given for each default and penalty had to be levied separately for each default. However, the ld. CIT (A) did not accept the contentions of the assessee and confirmed the imposition of penalty of Rs. 30,000/- and now, the assessee is in appeal before us and has raised the following grounds of appeal:-

“1. Under the facts and circumstances of the case, the appellate order confirming the penalty u/s 271(l)(b) of the IT Act, 1961 is illegal being against the principles of natural justice and against the provisions of the Act.

3. The Ld. CIT(A) has grossly erred on facts as well as in law in confirming the penalty on the alleged defaults for compliance of notices u/s 142(1) issued on 2/5/2013 and 12/6/2013 though the penalty was initiated on 5/8/2013 only for default of non compliance on 2/8/2013 in respect of notice u/s 142(1) dated 11/07/2013. 4. The Ld. CIT (A) has grossly erred on facts as well as in law in confirming the single penalty order for alleged three defaults. 5. The Ld. AO has grossly erred on facts as well as in law in confirming the penalty for not executing the consent letter inspite of the fact that section 142(1) does not authorize the revenue authorities to supply any letter to the assessee and forcing him to sign the same. 3 ITA 5156/D/2014 Assessment year 2006-07 6. The Ld. AO has grossly erred on facts as well as in law in confirming the penalty of Rs. 30,000/- though the show cause notice was issued for Rs. 10,000/- only. 7. The appellant craves leave to add, alter, modify and withdraw any ground of appeal before or during the appellate proceedings.”

“The appellant derives income from salary as Director in M/s Pioneer Urban Land and Infrastructure Limited and interest. Search u/s 132 was conducted on 13/1/2012 in the case of the assessee and his group. Penalty u/s 271(l)(b) was initiated vide notice dated 5/8/2013 for non compliance on 2/8/2013 in response to notice u/s 142(1) dated 11/07/2013. The penalty has been levied for the alleged default for compliance of notices u/s 142(1) issued on 2/5/2013 (Date of Hearing 15- 05-2013), 12/06/2013(Date of Hearing 28-06- 2013) and 11/07/2013 (Date of Hearing 18-07- 2013) without issuing any notice for initiation of penalty w.r.t. these alleged defaults. Since penalty u/s 271(l)(b) cannot be levied without issuing the notice for initiating the same, the penalty order is bad in law. Though the penalty was initiated on 5/8/2013 only for default of non compliance on 2/8/2013 yet the fact remains that the impugned order is not for this default as the same has been duly explained vide letters dated 12/8/2013. Since the AO was satisfied with the reply, he did not levy any penalty for this default on 2/8/2013 but levied the penalty for earlier alleged defaults. Since, penalty order is for certain ITA 5156/D/2014 Assessment year 2006-07 defaults and the notice for initiating the penalty is for other defaults, the same is bad in law. Show cause notice u/s 271(l)(b) dated 05/08/2013 required the assessee to show cause as to why penalty of Rs. 10,000/- should not be levied. But the Ld. AO levied the penalty at Rs. 30,000/-. Therefore, penalty order is bad in law because penalty was levied at Rs. 30,000/- though the notice was for Rs. 10,000/- only. Without prejudice to the above, the Ld. AO has issued only one penalty order for alleged three defaults and has levied a total penalty of Rs. 30,000/- @ Rs. 10,000/- for each default. By now it is judicially settled that a separate notice has to be given for each default and penalty has to be levied separately for each default. The non appearance on 15/05/2013 and 28/06/2013 in response to notice dated 2/5/2013 and 12/06/2013 were condoned by the Ld. AO by issuing fresh notices u/s 142(1) on 11/7/2013 and by not issuing any notice u/s 271 (l)(b) w.r.t. non appearance on 15-05-2013 and 18-06-2013. In response to the notice dated 11/7/2013 fixing the hearing on 18/7/2013, adjournment was sought which was allowed for 2/08/2013. Penalty notice dated 5/8/2013 was issued only for non-compliance on 2/8/2013 and not 18-07- 2013, Once the penalty notice was issued for one default to show cause as to why penalty of Rs. 10,000/- should not be levied, penalty levied at Rs. 30,000/- for 3 defaults is illegal. Reliance is placed on the following: - BABU LAL vs. DCIT, (2004) 91 TTJ (Jd) 368

"9.We have circumspectiously perused the above chart as framed by the AO. So far as the notices, etc. issued by the Asstt. CIT, Bikaner, are concerned, they seem to be complied with by the assessee. Otherwise, the AO would have taken 5 ITA 5156/D/2014 Assessment year 2006-07 the proceedings under s. 271(l)(b) then and there........ So for each such default, show-cause notice has to be issued separately and penalty has to be levied separately.

10. The AO has not levied the penalty for a specific instance as we have mentioned above because the AO is bound to issue show-cause notice and levy penalty in case of each and every such default. So, the officer has generalised the pattern of proceedings by taking extracts from the order-sheet and on the basis of that has tried to come to a conclusion that the assessee wilfully evaded the compliance of notice or directions. Thus, in such a way, the AO has not followed the proper procedure for levy of penalty. He has not even pointed out any specific amount against which he was levying penalty. In such a situation, we are left with no option but to come to a finding that general penalty as has been levied in this case, cannot be sustained in the eyes of law when the assessee or his representative appeared before the authority for compliance of notices/directions.” Without prejudice to the above, notice u/s 142(1) was issued on 2/5/2013 calling for certain information in respect of alleged foreign bank accounts fixing the hearing on 15/5/2013. On this date, adjournment was sought vide letter dt. 15/05/2013 on the ground that the assessee was travelling abroad. A fresh notice u/s 142(1) was issued on 12/06/2013 fixing the hearing on 28/06/2013 at 11:30 a.m. However, this notice was received by the assessee on 28/06/2013 itself at 4:00 p.m. i.e., after the time fixed for hearing. Again notice u/s 142(1) was issued on 11/7/2013 fixing the hearing on 18/07/2013. An adjournment was sought on 18/07/2013 as the assessee was abroad. Accordingly, adjournment was allowed for 02/08/2013. Since the adjournments were given by the Ld. AO after considering the genuineness of the 6 ITA 5156/D/2014 Assessment year 2006-07 circumstances, the default, if any, for the earlier periods gets condoned. Had he not been satisfied, he could not have given any adjournment at all and rather would have issued notices u/s 271(l)(b). Since, adjournments were given and notices u/s 271(l)(b) were not issued, it conclusively proves that the Ld. AO was satisfied with the reasons for adjournment and hence the question of non compliance / default u/s 271(l)(b) does not arise. Penalty u/s 271(l)(b) was initiated vide notice dated 5/8/2013 for non compliance on 2/8/2013. The assessee was required to show cause as to why a penalty of Rs.10,000/- should not be imposed u/s 271(l)(b). Reply was filed vide letter dated 12/8/2013 explaining that the assessee could not appear on 2/8/2013 as he was not well and on earlier occasions adjournment was sought as the assessee was travelling abroad due to pre-lined up appointments. Medical certificate dated 1/8/2013 was also filed before the Ld. AO. Accordingly the circumstances were beyond the control of the assessee due to which compliance could not be made on 2/8/2013. Since the Ld. AO was transferred and the new AO took over, he issued a fresh show cause notice u/s 271(l)(b) dated 20/9/2013 for non compliance on 2/8/2013. But this notice was issued only for A.Y. 2012-13 and not for the impugned A.Y. Reply was again filed on 1/10/2013 in the forenoon and another reply again in the afternoon. However, the penalty amounting to Rs. 30,000/- has been levied for the alleged default on other dates for which penalty was never initiated. In fact, the Ld. AO, vide notice u/s 142(1), required the assessee to file information about his foreign bank accounts. The information could not be filed as the assessee did not possess, to the best of his knowledge, any such bank accounts. Moreover, the Department, during the course of search, showed some foreign bank 7 ITA 5156/D/2014 Assessment year 2006-07 accounts to the assessee wherein he surrendered the amount involved in those accounts subject to certain conditions. He was not provided even a copy of those documents. The source and authenticity of the impugned documents in possession of the department was never informed to the assessee. Therefore, the Department was asking the assessee for the information which was already with the Department and not with the assessee as no such document relating to any foreign bank account was found during the course of search. However, letter dt. 14/03/2014 was filed before Ld. AO providing the necessary information u/s 142(1). Since, the ld. AO was not satisfied, he made the addition of Rs. 3,99,72,014 in the assessment. Without prejudice to the above, the Ld. AO asked for consent form u/s 142(1) vide notice dated 11/7/2013 which is against the authority given to him by the statute. A perusal of section 142(1) shows that the Ld. AO is authorized to take the following action under this section: - To call for return of income To call for statement of assets and liabilities To require to produce, or cause to be produced, such accounts or documents as he may require Accordingly, u/s 142(1), the Ld. AO is not authorized to supply any letter / document to the assessee and ask him to sign and get notarized the same. Therefore, the notice u/s 142(1) itself is bad in law being outside the purview of section 142(1) and hence the penalty order is illegal on this count also. The Ld. CIT(A) has relied on the case law of Dhakeswari Cotton Mills Ltd., 27 ITR 126 (SC). This case law pertains to assessment proceedings and not penalty proceedings. Moreover, this case law pertains to rules of evidence while in the case of the appellant, it is the question of levying penalty without initiating the same and levying the penalty at Rs. 30,000/- while show cause notice was for Rs. 10,000/- only. The Ld. CIT (A)

ITA 5156/D/2014 Assessment year 2006-07 has also relied on the case law of Rangalal Jajodia vs CIT, 79 ITR 505 (SC). In this case the issue was that notice for assessment was given to one legal representative and not to the other. This is not the case where penalty was not initiated. In the case of the appellant penalty was not initiated at all for the defaults for which penalty has been levied. The Ld. CIT (A) has further relied on the case law of Isha Beebi, 101 ITR 449 (SC). The issue involved in this case was reference to wrong section and not non issue of penalty notice. Therefore, in all the three case laws, the issues are entirely different and hence these case laws are not applicable to the appellant.”

The Ld. CIT (A) has discussed the issue in great length before confirming the penalty. The relevant discussion and findings of the Ld. CIT (A) are in Para 6.1 to 7.5 of the impugned order which are being reproduced here-in-under for a ready reference –

“6.1 I have considered the penalty order and the submissions made. The objections raised by the appellant are three-fold - (i) that penalty was imposed without notice / adequate notice, (ii) penalty could not be levied for the information / documents sought as proceedings u/s 142 do not require furnishing of such documents, and (iii) no specific default or amount of tax has been referred to in the penalty order. 6.2 So far as the first objection is concerned, it is noted that appellant had been searched u/s 132 and was well aware of the tax proceedings against him. The appellant was specifically asked in the notices dated 02.05.2013 and 12.06.2013 about the details of foreign bank accounts 9 ITA 5156/D/2014 Assessment year 2006-07 opened and maintained by the appellant and his relatives. A third notice was issued to him on 11.07.2013, in which the information sought earlier was again sought and in addition the appellant was required to execute the enclosed consent document to get the aforesaid information. No reply was filed by the appellant to any of these notices except seeking adjournment on one or the other pretext. Seeking adjournment is not compliance to the law. Show- cause notices were duly issued on 05.08.2013 and 20.09.2013 by the revenue asking the appellant to explain the reasons for not furnishing the information called for and as to why penalty should not be imposed for such failure u/s 271(l)(b). One of the objections raised by the appellant is that the show-cause notice was only in regard to the notice dated 11.07.2013 and not in regard to the earlier notices dated 02.05.2013 and 12.06.2013. As the defaults of the appellant were continuing defaults, the appellant was given one more opportunity during this appeal also, and a show-cause notice was issued to him on 24.06.2014 to explain as to why penalty should not be levied for failure to submit the information sought vide the three notices issued by the revenue. Till date, the appellant has not furnished the information sought in the said three notices nor filed the consent documents. Thus, there is no basis to conclude that the penalty was imposed without notice or adequate notice. 6.3 So far as the second objection is concerned, in the background of the matter as reproduced in Para- 4 above, and in view of the fact that appellant had paid the tax with interest on the amount of deposit in a foreign bank account brought to his notice by the Department during the search and seizure, the information called for was necessary for the correct assessment of the income of the appellant chargeable to tax under the Act as the appellant is a tax resident of India, it cannot be concluded that the information / document sought was not required u/s 142(1). The appellant, having admitted the amount of deposit in the said bank account, continues to plead ignorance about the existence of the said account and details thereof. In such an event, he is bound to execute the consent documents which will enable the Department to get the requisite information from the bank. Having failed to execute this document also, the appellant is 10 ITA 5156/D/2014 Assessment year 2006-07 in continuous default of noncooperation with the ongoing investigations and non-compliance to these statutory notices. 6.4 So far as the third objection is concerned, penalty is leviable u/s 271(1 )(b) for each failure to comply with a notice u/s 142(1). There is no requirement under the law for escapement of tax or any reference to any tax quantum. Thus, this objection raised by the appellant has no legal basis." 7.1 Background of the matter is that in April / May. 2011 India received information from a foreign government under the relevant Double Taxation Avoidance Agreement (DTAA) that certain Indian passport holders had opened and maintained bank accounts with Hongkong & Shanghai Banking Corporation (HSBC) in Switzerland, etc. The information received was covered under the confidentiality clause of the DTAA, and its contents could not be disclosed by the Income Tax department (1TD) without express consent of the country which had shared the information. Based on the information received, investigations were initiated by the ITD in July, 2011. When the investigations were on, some persons appeared suo motu before the tax authorities and admitted having opened bank account with HSBC, and also paid the due tax on the maximum amount deposited / outstanding in the account. In several cases, searches conducted by ITD led to admission by the persons searched that they had opened accounts overseas and not disclosed it for tax purposes in India. Some persons, when summoned u/s 131 by the ITD, admitted having opened the accounts and transacted therein but claimed that these accounts were opened when they were employed overseas or maintained for legitimate business with due permission under the law. However, during the investigations, several persons have denied outright having opened any such bank accounts overseas, while some persons have admitted opening the account but denied having any transaction. Based on the investigations, further information has been sought from the respective countries. In several cases, where details of the transactions in the accounts are not available with the ITD, or where persons have denied any account or any transaction in the account, reference has been made to HSBC by way of a consent letter ITA 5156/D/2014 Assessment year 2006-07 signed by the alleged account holder and duly notarized, to enable HSBC to furnish the requisite details such as account opening form Other documents, names of beneficiaries, details of transactions, etc., to the account-bolder. In some such eases, account holders have already received information / documents from HSBC and are cooperating with the ITD in its investigations. The Income Tax Act, 1961 has also been amended to provide for reopening of tax assessments for a period of 16 years in cases where the income a taxpayer in relation to any asset, including financial interest in any entity, located outside India and chargeable to tax has escaped assessment. It is only in such cases where such persons have refused to deliver the signed and notarized consent letters that penalty has been initiated and imposed u/s 271(1 Kb). The appellant herein is also guilty of failure to furnish the information sought and the consent documents required to obtain the said information. 7.2 These cases are not of simple tax evasion, but of suspected tax evasion by transferring or keeping funds overseas in an illicit manner. These persons suspected of having opened and maintained undisclosed bank account overseas, were required to sign and execute / notarize the consent letter to verify the truth of the allegation against them. It is the duty of every citizen of India to cooperate with and join the investigation to ascertain the truth regarding cases with such serious allegation. The purpose of the penal provision contained in section 271(1)(b) is to ensure compliance to tax enquiry / investigation. This penalty is attracted where there is failure to comply with notices u/s 142(1) or u/s 143(2). In criminal law, similar provisions are contained in Sections 160 and 161 in the Code of Criminal Procedure, 1973 and the punishment for the same is prescribed in Section 174 of the Indian Penal Code, 1860. Under the civil law, the relevant provisions are contained in Sections 31 & 32 and Order XVI (Schedule-!) of the Code of Civil Procedure, 1908. Under the Income Tax Act, 1961 the enforcement provisions are contained in Sections 131, 132, 133, 133A 142 and143. The penal provisions contained in Chapter XXI relevant to enforcement of sections 142/ 143 are Sections 271 and 272A.

ITA 5156/D/2014 Assessment year 2006-07

7.3 It is noted that the documents received were covered under the confidentiality clause of the DTAA and could not be provided as such. The appellant was made aware of the information received, which he admitted during the search and subsequent enquiry, particularly by paying the tax and interest on the maximum amount of deposit in the said bank account. Therefore, executing the consent letter would not have caused any injury or jeopardy to the denial of having opened the bank account himself is correct; he has nothing to worry. But refusal to execute the consent documents tantamount to refusal to join the investigation. The appellant, having failed to sign the consent letter, and having no reasonable cause to do so has violated the said provision. At this stage, it is immaterial whether he has opened any bank account and indulged in undisclosed transactions. That is a fact to be verified and ascertained in the investigation. But refusal of the appellant to execute the consent document is deliberate refusal to join the investigation for which liability to penal consequence arises at this stage itself. I hold accordingly. The appellant has also availed of further opportunity to explain his refusal during this appeal proceeding and he has not brought any new explanation or any further evidence, and continues to be in default. 7.4 In Dhakeswari Cotton Mills Ltd. v. C1T [1955] 27 ITR 126 (SC) it was held that technical rules of evidence cannot apply to tax proceedings. The 1TO is not fettered by technical rules of evidence and pleadings, and he is entitled to act material which may not be accepted as evidence in a court of law. In Estate of Late Rangalal Jajodia v. CIT [1971] 79 ITR 505 (SC) it was held that want of not, a minor mistakes will no, vitiate tax proceedings. An assessment proceeding does not cease to be a proceeding under the Act merely by reason of want of notice will be a proceeding liable to be challenged and corrected. Similarly, if there is a mistake as to name or there is a misdescription of the name, the proceeding will be liable to be challenged and corrected by giving notice to the assessee subject to such just exceptions as an assessee can take under law. In Isha Beevi vs TRO (1975) 101 ITR 449 (SC) it was held that reference to wrong provisions w, no vitiate actions taken.

ITA 5156/D/2014 Assessment year 2006-07 Where the power to proceed is actually there, the mere is not enough if a wrong section or provision of law is cited in a notice or order if the power to proceed is actually there under another provision. Thus, tax proceedings are a matter between the taxpayer and the tax department for the determination of the correct tax payable by the taxpayer and such proceedings cannot be put to strict rules of general law.

7.5 In view of the above factual and legal position in the matter, the penalties imposed u/s 271(l)(b) for refusal, without reasonable cause, to furnish the information sought and to execute the consent letter vide the three notices issued by the revenue, is upheld. These orders shall be read as three separate orders. I also find that for refusal to sign / execute a document, penalty is imposable u/s 271 as well as u/s 272A. Accordingly, the provision shall be read as Section 271(l)(b) and alternately as Section 272A.”

Respectfully following the same, we dismiss the appeal of the assessee.

The order is pronounced in the open court on 4th October, 2017.