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ORDER PER PAWAN SINGH, J.M. 1. This appeal by assessee under section 253 of the Income-tax Act (the Act) is directed against the order of ld. Commissioner of Income-tax (Appeals) (ld. CIT(A)-17, Mumbai dated 25.06.2014 for Assessment Year 2010-11, which in turn arises from the penalty levied by Assessing Officer under section 271(1)(c) of the Act dated 28.08.2013. The assessee has raised the following grounds of appeal:
1. The CIT(A) erred in confirming the levy penalty of amount Rs. 13,26,711/- u/s 271(1)(c) of Income Tax Act, 1961.
The assessee craves leave to add further grounds of or to amend or alter the existing grounds of appeal
on or before the date of hearing.
2. Brief facts of the case are that the assessee filed return of income for relevant Assessment Year 2010-11 on 16.03.2011 declaring total income of Rs. 16,85,000/-. The assessment was completed on 01.02.2013 assessing the total income at Rs. 55,88,280/-. The Assessing Officer Ashok Narayanan. while passing the assessment made the addition of Rs. 39,03,238/- on account of undisclosed investment in commodities and initiated the penalty under section 271(1)(c) of the Act. The Assessing Officer levied the penalty of Rs. 13,26,711/- being minimum penalty @ 100% of the amount of income sought to be evaded. On appeal before the ld. CIT(A), the action of Assessing Officer was confirmed. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
We have heard ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The ld. AR of the assessee submits that while issuing the show-cause notice, the Assessing Officer has not strike out the inappropriate portion of the notice specifying, if the show-cause notice is issued for concealing the particulars of income or furnishing the inaccurate particulars. Thus, the notice was issued without application of mind. The Assessing Officer was not sure, if the penalty initiated for furnishing inaccurate particulars or concealing the income. Even while passing the penalty order, the Assessing Officer has not specified any which limb of section 271(1)(c) of the Act, the penalty is levied. The ld. AR of the assessee filed copy of notice under section 274 read with section 271(1)(c) dated 01.02.2013 along with copy of assessment order dated 01.02.2013 passed under section 143(3) of the Act. The ld AR 2 ITA No.6464/M/14- Ashok Narayanan. submits that this is a purely legal submission and can be raised at any stage of the proceedings. On merit, it was argued that the assessee has not furnished inaccurate particulars or not concealed any income. Mere addition of income or surrender of income did not imply the concealment of income. The penalty cannot be levied, as the assessee agreed for addition and no further appeal was filed. The Assessing Officer levied the penalty on the basis of estimation of income. The Assessing Officer levied the penalty on the basis of peak credit theory. The claim of the assessee was bonafide. In support of his submission, the ld. AR of the assessee had filed a brief synopsis in the form of written submission narrating the reliance on law made therein.
On the other hand, the ld. DR for the Revenue supported the order of lower authorities. The ld. DR for the Revenue submits that the Assessing Officer while passing the assessment clearly mentioned that penalty is initiated for furnishing inaccurate particulars of income as well as concealment of income. The assessee was aware about the charges. The assessee has not raised any specific grounds of appeal about striking off inappropriate portion of the notice under section 274 read with section 271(1)(c) of the Act. To strengthening its submission, the reliance is made on the decision of jurisdictional High Court in case of CIT Vs Smt.
Kaushalya (2005) 216 ITR 660(Bom) and decisions of Tribunal in case of Ms. Laudres Austin vs. ITO in dated 3 ITA No.6464/M/14- Ashok Narayanan.
28.09.2017 and Sansui Steel Pvt. Ltd. vs. ITO in dated 30.11.2017.
We have considered the rival submission of the parties and have gone through the orders of authorities below. We have noted that during the assessment, the Assessing Officer noted that the assessee was undertaking a transaction in different commodities. The assessee was asked to furnish trading account maintained by assessee with cardholder. The statement of assessee was also recorded under section 131 of the Act on 22.01.2013.
The assessee furnished computation of trading account issued by India Bulls for period of 01.04.2009 to 31.03.2010. The Assessing Officer noted that the assessee disclosed source of income by salary from M/s Orian Commodities & Services Pvt. Ltd. in its return of income. The assessee has undertaken trading transaction of huge amount, periodically in various commodities. The trading transactions are rooted through bank account maintained with Kotak Mahindra Bank. On the basis of statement of Kotak Mahindra Bank, the Assessing Officer noted the peak balance of Rs. 39,03,238/- as on 29/08/2009. The assessee explained that such source of peak amount was received as a loan from his friend namely Uma Shanti on 29.09.2008 of Rs. 39,00,000/-. The Assessing Officer on the basis of peak credit in the bank account and the statement of assessee recorded, made the addition of Rs. 39,03,238/- on the basis of peak credit as undisclosed investment in commodities. The addition in the assessment 4 Ashok Narayanan. order was made on estimation basis. No appeal was filed against the addition. The Assessing Officer initiated the penalty vide notice dated 01.02.2013. The perusal of notice reveals that the Assessing Officer has not strike out the inappropriate portion in the notice, if the penalty is initiated for furnishing inaccurate particulars or concealment of income.
The Assessing Officer levied the penalty @ 100% of the amount of tax sought to be evaded. The ld. CIT (A) confirmed the action of Assessing Officer that assessee has not disclosed the transaction on commodity in the return of income and the Assessing Officer on the basis of details from ITS Computer Data scrutinized the account of assessee and made the addition on peak balance as on 29.09.2008. The assessee was asked to explain the identity, creditworthiness and genuineness of the lender, no evidence could be adduced by the assessee. The ld. CIT(A) further concluded that where the assessee was found to have tried his best to escape its income, surrendering of income could not be said to be voluntary but compulsion, when cornered by the Revenue and this being the case of concealment of income and penalty under section 271(1)(c) of the Act is leviable. We have noted that the assessing officer has not strike out the inappropriate portion of the notice. However, while levying the penalty under section 271(1)(c), the AO levied penalty for furnishing inaccurate particular of income thereby concealed the particular of income. The co-ordinate bench of Mumbai Tribunal in Meherjee 5 Ashok Narayanan.
Cassinath Holdings Pvt. Ltd. V/s. ACIT in (this combination) while considering the similar issues held as under:
“8. We have carefully considered the rival submissions. Sec. 271(1)(c) of the Act empowers the Assessing Officer to impose penalty to the extent specified if, in the course of any proceedings under the Act, he is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In other words, what Sec. 271(1)(c) of the Act postulates is that the penalty can be levied on the existence of any of the two situations, namely, for concealing the particulars of income or for furnishing inaccurate particulars of income. Therefore, it is obvious from the phraseology of Sec. 271(1)(c) of the Act that the imposition of penalty is invited only when the conditions prescribed u/s 271(1)(c) of the Act exist. It is also a well accepted proposition that 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income' referred to in Sec. 271(1)(c) of the Act denote different connotations. In fact, this distinction has been appreciated even at the level of Hon'ble Supreme Court not only in the case of Dilip N. Shroff (supra) but also in the case of T. Ashok Pai, 292 ITR 11 (SC). Therefore, if the two expressions, namely 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income' have different connotations, it is imperative for the assessee to be made aware as to which of the two is being put against him for the purpose of levy of penalty u/s 271(1)(c) of the Act, so that the assessee can defend accordingly. It is in this background that one has to appreciate the preliminary plea of assessee, which is based on the manner in which the notice u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 has been issued to the assessee- company. A copy of the said notice has been placed on record and the learned representative canvassed that the same has been issued by the Assessing Officer in a standard proforma, without striking out the irrelevant clause. In other words, the notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealment of the particulars of income as well as furnishing of inaccurate particulars of income. Quite clearly, non-striking-off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges it has to respond. The aforesaid infirmity in the notice has been sought to be demonstrated as a reflection of non-application of mind by the Assessing Officer, and in Ashok Narayanan. support, reference has been made to the following specific discussion in the order of Hon'ble Supreme Court in the case of Dilip N. Shroff (supra):-
"83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations.
The impugned order, therefore, suffers from non-application of mind. It was also bound to comply with the principles of natural justice. (See Malabar Industrial Co. Ltd. v. CIT [2000] 2 SCC 718]" 9. Factually speaking, the aforesaid plea of assessee is borne out of record and having regard to the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the notice in the instant case does suffer from the vice of non-application of mind by the Assessing Officer. In fact, a similar proposition was also enunciated by the Hon'ble Karnataka High Court in the case of M/s. SSA's Emerald Meadows (supra) and against such a judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Hon'ble Supreme Court vide order dated 5.8.2016, a copy of which is also placed on record.
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 Ashok Narayanan.
on the observations of the Assessing Officer in the assessment order. Further, it is also noticeable that such proposition has been considered by (supra) and the decision of the Tribunal holding levy of penalty in such circumstances being bad, has been approved.
Apart from the aforesaid, the ld. CIT-DR made an argument based on the decision of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Others, 216 ITR 660 (Bom.) to canvass support for his plea that non-striking off of the irrelevant portion of notice would not invalidate the imposition of penalty u/s 271(1)(c) of the Act. We have carefully considered the said argument set-up by the ld. CIT-DR and find that a similar issue had come up before our coordinate Bench in the case of Dr. Sarita Milind Davare (supra). Our coordinate Bench, after considering the judgment of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Ors., (supra) as also the judgments of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) and Dharmendra Textile Processors, 306 ITR 277 (SC) deduced as under :- "12. A combined reading of the decision rendered by Hon'ble Bombay High Court in the case of Smt. B Kaushalya and Others (supra) and the decision rendered by Hon'ble Supreme Court in the case of Dilip N Shroff (supra) would make it clear that there should be application of mind on the part of the AO at the time of issuing notice. In the case of Lakhdir Lalji (supra), the AO issued notice u/s 274 for concealment of particulars of income but levied penalty for furnishing inaccurate particulars of income. The Hon'ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon'ble Kerala High Court has struck down the penalty imposed in the case of N.N.Subramania Iyer Vs. Union of India (supra), when there is no indication in the notice for what contravention the petitioner was called upon to show cause why a penalty should not be imposed. In the instant case, the AO did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. The Hon'ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya (supra) and observed as under:-
ITA No.6464/M/14- Ashok Narayanan.
....The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified.
In the instant case also, we are of the view that the AO has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the AO has failed to apply his mind at the time of issuing penalty notice to the assessee."
The aforesaid discussion clearly brings out as to the reasons why the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) is to prevail. Following the decision of our coordinate Bench in the case of Dr. Sarita Milind Davare (supra), we hereby reject the aforesaid argument of the ld. CIT-DR.
Apart from the aforesaid discussion, we may also refer to the one more seminal feature of this case which would demonstrate the importance of non-striking off of irrelevant clause in the notice by the Assessing Officer. As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are to be initiated for furnishing of inaccurate particulars of income. However, 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 reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of Assessing Officer and there is no clear and crystallised charge being conveyed to the assessee u/s 271(1)(c), which has to be met by him. As noted by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non-compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond.
ITA No.6464/M/14- Ashok Narayanan.
Therefore, in view of the aforesaid discussion, in our view, the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 is untenable as it suffers from the vice of non- application of mind having regard to the ratio of the judgment of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) as well as the judgment of the Hon'ble Bombay High Court in the case of Shri Samson Perinchery (supra). Thus, on this count itself the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted.”
Considering the above referred legal and factual matrix, we are of the view that the penalty order passed by assessing officer is not sustainable and the same is set-aside. As we have observed earlier that the addition, which is the basis of levying the penalty was made on telescoping method/ adhoc basis. It is settled legal position that on adhoc addition no penalty under section 271(1)( c) is leviable.
The decision relied by ld DR in Ms. Laudres Austin vs. ITO(supra) and Sansui Steel Pvt. Ltd. vs. ITO (supra) are not applicable on the facts of this case. As we have observed in Meherjee Cassinath Holdings Pvt. Ltd. (supra) while relying on the judgment of Hon'ble Supreme Court not only in the case of Dilip N. Shroff (supra) but also in the case of T. Ashok Pai, 292 ITR 11 (SC), wherein it was held the two expressions, namely 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income' have different connotations, it is imperative for the assessee to be made aware as to which of the two is being put against him for the purpose of levy of penalty u/s 271(1)(c) of the Act. With utmost regards to the decision of coordinate bench, we noted that the decisions of Ashok Narayanan.
Hon’ble Apex Court were not brought to the notice of coordinate benches. With this observation, we accepted the legal submissions of the ld. AR for the assessee and allow the grounds of appeal raised by the assessee. As we have allowed the appeal of the assessee on legal ground, the discussion on merit and other grounds of appeal became academic.