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Income Tax Appellate Tribunal, BANGALORE BENCH ‘ B ’
Before: SHRI GEORGE GEORGE K & SHRI JASON P BOAZ
Per Bench : These are a bunch of 12 appeals by the assessee, directed against
the separate orders of the Commissioner of Income Tax (Appeals), Hubli
all dt.26.12.2016 for Assessment Years 1997-98, 2000-01 to 2002-03,
2004-05 and 2005-06. Six of these appeals are filed in respect of levy of
2 ITA Nos.891 to 902/Bang/2017 penalty under Section 271(1)(c) of the Income Tax Act, 1961 (in short 'the
Act') and six for levy of penalty under Section 271F of the Act for the
aforesaid assessment years. Since these appeals were heard together
and connected issues are involved, these appeals are being disposed off
by way of this consolidated order. We now proceed to dispose off these
appeals hereunder.
Appeals in ITA Nos.892, 894, 896, 898, 900 & 902/Bang/2017
2.1 These six appeals by the assessee are directed against the separate orders of the CIT (Appeals), Hubli dt.26.12.2016 for Assessment Years 1997-98, 2000-01 to 2002-03, 2004-05 and 2005-06, upholding the levy of penalty under Section 271(1)(c) of the Act for the aforesaid six assessment years.
2.2 In these appeals, the assessee has raised the following grounds :
3 ITA Nos.891 to 902/Bang/2017
3 Ground No: 4 -
3.1 In this ground (Supra), the sum and substance of the assessee’s contentions are that the penalty proceedings initiated by the AO for asst. years 1997-98, 2000-01 to 2002-03, 2004-05 and 2005-06 vide notices issued u/s 274 r.w.s 271 of the Act dated 24/12/2009 for levy of penalty u/s 271(1)(c) of the Act, are defective. In this regard the ld AR for the assessee has placed reliance on the decision of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (359 ITR
4 ITA Nos.891 to 902/Bang/2017 565) (Kar) and the rejection of the Revenue’s SLP by the Hon’ble Apex Court in the case of SSA’s Emerald Meadows in SLP: (CC 11485/2016) dated 5/8/2016. The ld AR also placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of Shri Moorsavirappa C Batli in ITA No.668/Bang/2015 dated 10/2/2016 in support of the assessee’s case. It is contended that in similar circumstances, as in the case on hand, the co-ordinate bench has held that the penalty proceedings initiated on the basis of defective notices has to be cancelled. 3.2 Per contra, the ld DR for Revenue supported the orders of the authorities below. It was submitted that since the ld CIT(A) had not considered and decided the issue of defective notices u/s 271 r.w.s 271 of the Act for initiation of penalty proceedings u/s 271(1)(c) of the Act, therefore the matter requires to be sent back to the file of the CIT(A) for adjudication of this ground. Reliance was placed on the decision of the co-ordinate bench in the case of Sri PM Abdulla (ITA No. 1223 & 1234/Bang/2012). 3.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. At the outset we may mention that while the aforesaid issue of defective notice was not before the ld CIT(A), however, since the facts of the matter on this issue are apparent from the copies of the said notices issued u/s 274 r.w.s 271 of the Act dated 24/12/2009 (filed by the assessee at pages 1 to 6 of paper book pages 1 to 154) and
5 ITA Nos.891 to 902/Bang/2017 the judicial view of Hon'ble Courts and ITAT co-ordinate bench in the matter (Supra), in our view, no useful purpose would be served in restoring the matter to the file of the ld CIT(A) as prayed for by the ld DR for Revenue. We have perused the copies of the notices issued u/s 274 r.w.s 271 of the Act; all dated 24/12/2009 and find that it reveals that the AO has not deleted the inappropriate words and parts in the relevant paragraph of the notice, whereby it is not clear as to which default has been committed by the assessee; i.e whether it is for furnishing of inaccurate particulars of income or concealing particulars of income that penalty u/s 271(1)(c) of the Act is sought to be levied. 3.3.2 The Hon’ble Karnataka High Court in the case of M/s Manjunatha Cotton & Ginning Factory in (359 ITR 565) (Kar) has held that a notice issued u/s 274 r.ws 271 of the Act without specifying the nature of default; i.e; whether the notice is issued for concealment of particulars of income or furnishing of inaccurate particulars of income; is invalid and the consequential penalty proceedings/order are also not valid. The relevant portion of the aforesaid judgment of the Hon’ble Karnataka High Court (Supra) at paras 59 to 61 are extracted hereunder:-
“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
6 ITA Nos.891 to 902/Bang/2017 provision contained in Explanation-I or in Explanation- l(B), then though penalty proceedings are in the nature of civil liability, in fact, it is' penal in nature. in either 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 oil 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(I)('c,) c/a not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm 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 tax liability. As the said provisions have to be held to be standby 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 of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon
7 ITA Nos.891 to 902/Bang/2017 to meet. Otherwise 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 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 a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 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 M4NU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO IvL4RKETING reported in 171 Taxman 156, has held that penalty has to be clear as to the limb for which it is levied and the action being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes 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 relevant1 clauses will lead to an inference as to non-application of mind."
8 ITA Nos.891 to 902/Bang/2017 3.3.3 The aforesaid view taken by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (Supra) was followed by the Hon’ble Karnataka High Court in the case of SSA’s Emerald Meadows in ITA No.380 of 2015 dated 23/11/2015; wherein the Hon’ble Court upheld the order of co-ordinate bench of this Tribunal, cancelling the penalty levied on the basis of the defective notice issued by the AO. Revenue’s SLP filed against he said judgment of the Hon’ble High Court in the case of SSA’s Emerald Meadows (Supra) has also been dismissed by the Hon’ble Apex Court in CC/1485/2016 dated 5/8/2016. In view of the aforesaid decisions of Hon’ble Karnataka High Court holding the ground (Supra), the decision cited by the ld DR would not come to Revenue’s rescue. 3.3.4 Respectfully following the judgments of the Hon’ble Karnataka High Court in the cases of M/s Manjunatha Cotton & Ginning Factory (359 ITR 565( (Kar) and SSA’s Emerald Meadows in ITA No:380 of 2015 dated 23/11/2015, we hold that the notices issued by the AO u/s 274 r.w.s 271 of the Act dated 24/12/2009 for initiating penalty proceedings for asst. years 1997-98, 2000-01 to 2002-03, 2004-05 and 2005-06 are invalid and consequently, the penalty proceedings conducted in pursuance thereof, are also invalid and we therefore delete the penalty levied u/s 271(1)(c) of the Act for asst. years 1997-98, 2000-01 to 2002- 03, 2004-05 and 2005-06. Consequently, the grounds raised by the assessee at S.No. 4 (supra) is allowed.
9 ITA Nos.891 to 902/Bang/2017 4. Since the very basis for levy of penalty u/s 271(1)(c) of the Act has been held by us to be invalid as discussed in paras 3.1 to 3.3.4 of this order (Supra), the other grounds of appeal at S.Nos. 1 to 3 and 5 to 7; raised on the merits of the levy of penalty u/s 271(1)(c) of the Act require no adjudication by us at this stage. 5. In the result, assessee’s appeals for asst. year 1997-98, 2000-01 to 2002-03, 2004-05 and 2005-06 are allowed as indicated above.
Assessee's appeals in ITA Nos.891, 893, 895, 897, 899
and 902/Bang/2017.
6.1 These are six appeals by the assessee directed against the separate orders of the CIT (Appeals), Hubli, dt.26.12.2016 for Assessment Years 1997-98, 2000-01 to 2002-03, 2004-05 and 2005-06 for upholding the levy of penalty under Section 271F of the Act for the aforesaid assessment years.
6.2 In these appeals, the assessee has raised the following identical grounds :
10 ITA Nos.891 to 902/Bang/2017
The facts of the case, relevant for disposal of these appeals w.r.t the levy of penalty under Section 271F of the Act, are as under :
7.1 The assessee is engaged in the business of trading in stock and claims to have no independent status and to be a unit of the Karnataka Chamber of Commerce & Industry (‘ KCCI ‘). For the relevant assessment years under consideration i.e. 1997-98, 2000-01 to 2002-03, 2004-05 and 2005-06, it is not disputed that the assessee's income / surplus has been reflected in the financial statements and offered to tax in the consolidated accounts of ‘ KCCI ‘. As per the details on record, ‘ KCCI ‘ had filed an application for registration under Section 12AA of the Act on 16.3.2000 which was rejected by the CIT, Hubli’s order dt.27.9.2000 with the finding that ‘ KCCI ‘ and the assessee were different entities with
11 ITA Nos.891 to 902/Bang/2017 different Membership, activities, etc. On appeal, the co-ordinate bench of this Tribunal in its order in ITA No.800/Bang/2000 dt.12.7.2001 reversed the finding of the ld. CIT, Hubli holding that the assessee is a unit of ‘ KCCI ‘ and directed the ld. CIT to grant ‘ KCCI ‘ registration under Section 12AA of the Act with retrospective effect from Assessment Year 1994-95. On further appeal by Revenue, the Hon'ble Karnataka High Court vide order in ITA No.374/2001 dt.31.7.2007 held that ‘ KCCI ‘ and the assessee were separate entities. It was submitted that the assessee's SLP against the aforesaid order of the Hon'ble High Court of Karnataka is pending disposal before the Hon'ble Supreme Court.
7.2 Subsequent to the judgment of the Hon'ble High Court of Karnataka in ITA No.374/2001 dt.31.7.2007, Revenue initiated reassessment proceedings under Section 147 of the Act, inter alia, for the six assessment years under consideration in these appeals, and notices under Section 148 were issued to the assessee on 4.7.2008 requiring it to file returns of income for these years. The assessee did not file returns of income for these assessment years in response to the notices issued under Section 148 of the Act on the grounds that (i) the assessee is not an independent entity but a division of ‘ KCCI ‘ and had offered its income for these six years in the hands of ‘ KCCI ‘ and therefore it is incorrect to say that income of the assessee liable for taxation had escaped assessment and that it has concealed income or furnished inaccurate particulars of income; (ii) the same income cannot be taxed in the hands of two different persons, which is against the basic tenets of
12 ITA Nos.891 to 902/Bang/2017 taxation and (iii) the status as to whether the assessee is an independent entity or is a unit of ‘ KCCI ‘ has not attained finality as the assessee's SLP in this regard is pending disposal before the Hon'ble Apex Court. These contentions of the assessee were brushed aside by the Assessing Officer and assessments were completed by ex-parte orders under Section 144 r.w.s. 147 of the Act on 24.12.2009 bringing the income of the assessee to tax in its hands, separately from ‘ KCCI ‘. Penalty proceedings, inter alia, were also initiated by the Assessing Officer for levy of penalty under Section 271F of the Act by issue of notices under Section 274 r.w.s. 271F dt.23.12.2009 for belated filing of the returns of income for these six years. Subsequently, the Assessing Officer passed separate orders under Section 271F of the Act on 29.6.2010, levying penalty of Rs.5,000 thereunder for the six assessment years before us i.e. A.Ys 1997-98, 2000-01 to 2002-03, 2004-05 and 2005-06 for failure on the part of the assessee to file returns of income in response to notice under Section 148 of the Act. In levying the penalty, the Assessing Officer held that the mere fact that the assessee has shown its income in the statements and returns of income of ‘ KCCI ‘ cannot be taken as the assessee having disclosed its income.
7.3 On appeal, the ld CIT(A), the assessee reiterated its submission put forth before the Assessing Officer in penalty proceedings that it was not liable for levy of penalty under Section 271F of the Act for late filing of returns of income for these six years in the peculiar facts and circumstances of the case. The ld. CIT(A), in the impugned orders,
13 ITA Nos.891 to 902/Bang/2017 however, brushed aside the contentions of the assessee and proceeded to uphold the levy of penalty under Section 271F of the Act on the grounds that the reasons adduced by the assessee did not constitute a justifiable reason and also for the reason that the assessee had not filed the returns of income for these six years within the time specified under Section 139(1) of the Act.
7.4 We have heard the rival contentions of both the learned Authorised Representative as well as learned Departmental Representative; have perused and carefully considered the material on record and the peculiar facts of the case on hand w.r.t the levy of penalty of Rs.5,000 under Section 271F of the Act for each of the six assessment years i.e. 1997-98, 2000-01 to 2002-03, 2004-05 and 2005-06 for failure on the part of the assessee filing the returns of income in time. As far as the merits of the six appeals filed by the assessee are concerned, the question that needs to be determined by the Tribunal is as to whether there was reasonable cause on the part of the assessee for failure in filing the returns of income in time for the six assessment years in question. On an appreciation of the facts of the case, as brought out in paras 7.1 to 7.3 of this order, admittedly the assessee had shown / reflected its income for these six years as part of the financial statements / returns of income of ‘ KCCI ‘; of which it claimed to be a part. In our considered view, it is for this reason alone that the assessee did not file separate returns of income for these six years within the due date specified under Section 139(1) of the Act. Even though the ld. CIT
14 ITA Nos.891 to 902/Bang/2017 contended and held otherwise, the co-ordinate bench of this Tribunal in its order in the case of ‘ KCCI ‘ in ITA No.800/Bang/2000 dt.12.7.2001 held that the assessee was a unit of ‘ KCCI ‘ and also directed the ld. CIT to grant ‘ KCCI ‘ registration under Section 12AA of the Act. This decision of the Tribunal (supra) held the ground till the Hon'ble High Court of Karnataka vide order dt.31.7.2007 (supra) set aside the ITAT order.
7.5 The six assessment years before us, mostly pertain to the period in which the order of the co-ordinate bench dt.12.7.2001 (supra) held the ground till its reversal by the Hon'ble High Court vide order dt.31.7.2007 and also to the earlier year 1997-98, when the assessee's view in considering itself a part of ‘ KCCI ‘ was not questioned. Even now, the issue of whether or not the assessee is a part of ‘ KCCI ‘ has still not attained finality as admittedly the SLP in this regard is pending before the Hon'ble Apex Court. In the peculiar factual matrix of the case, as discussed above from paras 7.1 to 7.5 of this order, we are of the considered view that, in terms of the provisions of Section 273B r.w.s. 271F of the Act, the assessee had reasonable cause for not filing the returns of income for Assessment Years 1997-98, 2000-01 to 2002-03, 2004-05 and 2005-06 within the due date under Section 139(1) of the Act. In this view of the matter we cancel / delete the penalty of Rs.5,000 levied by the Assessing Officer under Section 271F of the Act for each of the six assessment years before us and consequently allow the grounds raised by the assessee in this regard.
15 ITA Nos.891 to 902/Bang/2017 8. In the result, the assessee's appeals for Assessment Years 1997-98, 2000-01 to 2002-03, 2004-05 and 2005-06 are allowed.
To sum up, the assessee's appeals in ITA Nos.891 to 902/Bang/2017 in challenging the levy of penalty under Section 271(1)(c) and 271F of the Act for Assessment Years 1997-98, 2000-01 to 2002-03, 2004-05 and 2005-06 are allowed as indicated above. Order pronounced in the open court on the 3rd day of Nov.,2017.
Sd/- Sd/- (GEORGE GEORGE K) (JASON P BOAZ) Accountant Member Judicial Member Bangalore, Dt.03.11.2017.
*Reddy gp
Copy to : 1 Appellant 4 CIT(A) 2 Respondent 5 DR. ITAT, Bangalore 3 CIT 6 Guard File
Senior Private Secretary Income Tax Appellate Tribunal Bangalore.