M/S NANDLAL KESHARDEO,RANCHI vs. ACIT, CENTRAL CIRCLE (1), RANCHI

5. Before the ld.CIT(A),the assessee claimed that the AO in the show cause notice for levying penalty did not specifically point out as to whether the penalty was in respect to Section 271(1)(c) or u/s 271AAB and on this very ground the show cause notice was claimed to be defective and no penalty could be imposed. The ld.CIT(A),however, rejected the contention of the assessee and held that mere not striking off of one limb in the show cause notice issued u/s 274 of the Act will not invalidate the whole penalty order.

6. Before us, the ld. AR of the assessee appeared and filed a written submissions In the written submission, it has claimed that during assessment proceedings u/s 153A, all the details were provided to the ld. AO and no adverse inference was drawn while accepting the return of income. No fact has been brought on record to prove that any concealment has been made or inaccurate particulars have been submitted. The assessee had filed written submission along with copy of penalty notices issued under Section 274 r.w.s. 271AAB of the Act. It is M/s Nandlal Keshardeo Vs ACIT further submitted that the notice issued u/s 274 of the Act for the initiation of penalty by the ld. AO is defective in as much as the said notice did not specifically state as to whether it was under Section 271(1)(c) or under Section 271AAB of the Act. The assessee has placed reliance on various case laws in support of the contention that if certain show cause notice of penalty in printed form was issued u/s 274 without pointing the relevant default, initiation of penalty proceedings on one limb while finding the assessee guilty in another limb is bad in law as held in the case of CIT & Anr. vs. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar.) It is further contended the Hon'ble Supreme Court in the case of in SSA’s Emeralds Meadows vs. CIT 242 taxmann 180 on similar facts has held there was no substantial question of law and dismissed the SLP of the Department with regard to the above penalty proceedings.

7. The learned Sr. DR has relied on the orders of lower authorities holding that penalty was rightly initiated and imposed.

(c) a sum which shall not be less than thirty per cent but which shall not exceed ninety per cent of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b)

(2) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1)

(3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation-For the purposes of this section,-- (a) "specified date" means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be; (b) "specified previous year" means the previous year- 5 (i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of search, or (ii) in which search was conducted, (c) "undisclosed income" means-- (i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has-- (A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year, or (B) otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of search, or (ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted; (1) No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard (2) No order imposing a penalty under this Chapter shall be made (a) by the Income-tax Officer, where the penalty exceeds ten thousand rupees; (b) by the Assistant Commissioner, where the penalty exceeds twenty thousand rupees, except with the prior approval of the Deputy Commissioner.] (3) An income- tax authority on making an order under this Chapter imposing a penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer')

8. From perusal of the above provision we observe that sub section 3 of Section 271AAB of the Act talks about issuing the notice u/s 274 of the Act. So for initiating the penalty proceedings u/s 271AAB of the Act the first step to be taken by Ld. A.O is to issue a valid notice u/s 274 of the Act. Sub-section (1) to Section 274 of the Act provides a procedure that" No order imposing a penalty under this Chapter shall be made unless the assessee has been heard, or has been given a reasonable opportunity of being heard". To comply with this requirement the notice u/s 274 should be clear enough to convey the assessee about the charge which is to be levelled against him/her/it for levying the penalty for the contravention of the related 6 provisions of the Act which in the instant case relates to not surrendering of undisclosed amount during the course of search which is subsequently admitted during the course of assessment and not challenged before the Ld. CIT(A). So it was incumbent for Ld. 4.0 that in the notice issued w/s 274 of the Act he should have mentioned that penalty w/s 271AAB of the Act may be levied (@10/20/30% since the assessee falls in Clauses (a)/(b)/(c) of section 271AAB of the Act. He should have further mentioned that as the assessee's case falls under clause-c of section 271AAB of the Act, why she should not be visited by penalty @30% of the undisclosed income. Against this charge the assessee should have been given a reasonable opportunity of being heard.

9. Now let us revert back to the fact of the instant case of the assessee and look into what has been mentioned in the alleged notices issued w/s 274 r.w.s. 2371AAB of the Act, which are reproduced below,

NOTICE UNDER SECTION 274 READ WITH SECTION 271AAB OF THE INCOME TAX ACT, 1961 PAN ACFPB45901 OFFICE OF THE Asstt. Commissioner of Income Tax (Central)-1, Indore Date: 22.03.2016 To Shri Ashok Kumar Bhatia 33-A Radha Nagar Neelkanth Colony Indore-452006 Whereas in the course of proceedings before me for the assessment year 2014- 15 it appears to me that you:-

*Have without reasonable cause failed to furnish me return of income with you were required to furnish by a notice given under section 22(1)/22(2)/34 of the India Income Tax Act, 1922 or which you were required to furnish under section 193(1) or by a notice given under section 193(2)/148 of the Income Tax Act 1961. No…………. Dated... or have without reasonable cause failed to furnish it within the allowed and the manner required by the side section 139(1) or by such notice.

*Have without reasonable cause failed to comply with a notice under section 22(4)/23(2) of the India Income Tax Act, 1922 or under section 142(1)/143/2) of the Income Tax Act 1961. No dated have concealed the particulars of your Income or furnished inaccurate particulars of such Income. You are hereby requested to appear before me on 21.04.2016 at 3.30 PM and show cause why an order imposing a penalty on you should not be made under section 271AAB of the Income Tax Act 1961 if you do not wish to avail yourself of this opportunity of bearing heard in person or through authorized representative you may show cause in writing on or before the side date which will be considered before any such order is made under section 271AAB.

Sd/- (Amit Kumar Soni) Asstt. Commissioner of Income Tax (Central)-I Indore

OFFICE OF THE Deputy Commissioner of Income Tax (Central)-1, Indore

PAN ACFPB4590H Date: 03.06.2016 To Shri Ashok Kumar Bhatia 33-A Radha Nagar Neelkanth Colony Indare-452006

Sir Sub: Penalty fixation u/s 271AAB of the Income Tax Act, 1961 for the A.Y. 2014-15- reg Please refer to the penalty proceedings w/s 271AAB of the Income Tax Act 1961 for the A.Y. 2014-15 in the above mentioned case, you are hereby requested to appear before the undersigned on 10.06.2016 at 11.50AM in my office at Room No. 101, Aayakar Bhawan, Main opp White Church, Indore personally or through authorized representative to show cause as to why penalty ws 271AAb of the LT. Act 1961 be not levied against you? If you do not want to appear personally, you may send your written reply on or before above mentioned date. otherwise penalty proceedings shall be decided on merits. Sd/- (Amit Kumar Soni) Deputy Commissioner of Income Tax (Central)-1 Indore

OFFICE OF THE Deputy Commissioner of Income Tax (Central)-I, Indore

PAN. ACFPB4590H Date: 16.09.2016 To Shri Ashok Kumar Bhatia 33-A Radha Nagar Neelkanth Colony Indore-452006 Sir Sub: Penalty fixation w/s 271AAB r.ws. 129 of the Income Tax Act, 1961 -reg Please refer to the above The following penalty proceeding are initiated during assessment as mentioned below. S. No. A.Y. Section Penalty initiated on 1 2014-15 271AAB 22.03.2016 You are requested to appear before the undersigned on 19.09.2016 at 11.00 AM in my office at Room No.101, Aayakar Bhawan, Main opp. White Church, Indore personally or through authorized representative to show cause as to why penalty w/s 271AAb of the LT. Act 1961 be not levied against you? If you do not want to appear personally, you may send your written reply on or before above mentioned date. If any that you have nothing to say in this regard It is to brought to your notice that there is a change in incumbent hence this notice is issued to provide opportunity of being heard to the assessee. Sd/- (Amit Kumar Soni) Deputy Commissioner of Income Tax (Central)-1 Indore

10. From going through the above three notices issued to the assessee on 22.03.2016, 03.06.2016 and 16.09.2016, we find that there is no mention about various conditions provided u/s 271 AAB of the Act. The Ld. A.O has very casually used the proforma used for issuing notice before levying penalty u/s 271(1)(c) of the Act for the concealment of income or furnishing of inaccurate particulars of income. Except mentioning the Section 271AAB of the Act in the notice it does not talk anything about the provision of section 271.A.AB. Certainly such notice has a fatal error and technically is not a correct notice in the eyes of law because it intends to penalize an assessee without spelling about the charge against the assessee.

(1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and invalid despite the amendment of Section 271 (1 B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same?

(3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order When the assessing officer has specified that the assessee has concealed particulars of income?

4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed"

In the earlier case of Manjunatha Cotton and Ginning Factory (supra) their lordship had observed as under- "Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), ie, whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law.

The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended. On the basis of such proceedings, no penalty could be imposed on the assessee) taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law, penalty proceedings are distinct from the assessment proceedings though proceedings for imposition of penalty emanate from proceedings of assessment, they are independent and a separate aspect of the proceedings.

The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the proceedings on the merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared invalid in the penalty proceedings."

View taken by the Hon'ble Karnataka High Court in the above judgment was indirectly affirmed by the Hon'ble Apex Court, when it dismissed an SLP filed by the Revenue against the judgment in the case of SSA's Emerald Meadows (supra), specifically observing that there was no merits in the petition filed by the Revenue. Considering the above cited judgments, we hold that the notice issued ujs.274 r.w.s. 271AAB of the Act, reproduced by us at para 5 above was not valid. Ex-consequenti, the penalty order is set aside.

The assessee has challenged that the principles followed by the AO. The detailed submissions of A.R. in this regard has already been reproduced above The A.R. did not produce any evidence to show that he was not given proper opportunity of hearing. It is clear from the penalty order that the AO has given notice and which was also replied by the assessee. Therefore, in my opinion, principle of natural justice has not been violated. Thus in view of above discussion penalty imposed by AO u/s 211AA8 of the Act is confirmed."

Thus it was found by the Hon'ble High Court that the mistake in mentioning the section in the show cause notice is covered under section 292BB and the AO will get the benefit of the same. The said decision will not help the case of the revenue so far as the issue involves the merits of levy of penalty under section 271AAB. As regards the decision of Kolkata Benches of the Tribunal in the case of DCIT vs Amit Agrawal (TS-7675-ITAT-2017/Kolkata)-0) (Supra), we find that the said decision was subsequently recalled by the Tribunal and a fresh order dated 14th March, 2018 was passed by the Tribunal in favour of the assessee. Therefore, the decision relied upon by the Ld DR is no more in existence."