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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI RAVISH SOOD, JM & SHRI N.K. PRADHAN, AM
सुनवाई की तायीख / : 22.02.2018 Date of Hearing घोषणा की तायीख / : 04.04.2018 Date of Pronouncement आदेश / O R D E R
PER RAVISH SOOD, JUDICIAL MEMBER:
The present appeal filed by the assessee is directed against the order passed by the CIT(A)-25, Mumbai, dated. 21.02.2014, which in itself arises from the order passed by the A.O under Sec. 271(1)(c) of the Income Tax Act, 1961 (for short „Act‟), dated. 30.12.2010 for A.Y. 2004-05. The assessee had assailed the order of the CIT(A) before us by raising the following grounds of appeal:
P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2).
“1. On the facts and in the circumstances of the case, and in law, the learned CIT(A) erred in confirming the penalty of Rs. 14,90,241/- imposed u/s 271(1)(c) of the Act. Your appellant prays for deletion of the penalty imposed. 2. Your appellant craves leave to alter, modify, amend or delete any of the above grounds of appeal
, or to add one or more new ground(s), as may be necessary.” The assessee had further raised before us the following additional grounds of appeal : Additional Ground No.
1. (raised vide letter dated 03.10.2016) a) On the facts and in the circumstances of the case, and in law, the penalty proceedings initiated in terms of notice u/s 274 read with section 271(1)(c) of the Income-tax Act, 1961 dated 30.12.2010 and 4.12.2013 is bad in law inasmuch as neither of these two notices specify for which limb of section 271(1)(c) penalty proceedings had been initiated, and consequently, the impugned penalty order is also bad in law. The appellant, therefore, prays that the impugned penalty order be quashed. Additional Ground No.2 (raised vide letter dated 31.10.2016) b) On the facts and in the circumstances of the case, and in law, the impugned penalty order is bad in law inasmuch as the Ld. Assessing Officer finally imposed penalty for furnishing of inaccurate particulars of income whereas the charge stated in the assessment order as well as in the body of the impugned penalty order was concealment of income. The appellant, therefore, prays that the impugned penalty order be quashed.” The ld. Departmental representative (for short „D.R‟) strongly objected to the admission of the aforesaid additional grounds of appeal raised by the assessee. We however find that as the assessee by raising the aforesaid additional grounds of appeal had only sought an adjudication of a legal issue based on the facts already available on record, therefore, keeping in view the judgment of the Hon‟ble Supreme Court in the case of National Thermal Power Company ltd. Vs. CIT (1998) 229 ITR 383 (SC) we reject the objection raised by the revenue and admit the additional grounds of appeal raised by the assessee.
P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2).
Briefly stated, the facts of the case are that original assessment was framed in the case of the assessee under Sec. 143(3) on 21.11.2006. The A.O during the course of the assessment proceedings while deliberating on the veracity of the claim of the assessee as regards a gift of Rs. 45,15,884/- stated to have been received from Sh. Arun Jatia (nephew of the Karta), a resident of Singapore, being of the view that as the assessee could neither prove the credit worthiness of the said donor nor substantiate the genuineness of the transaction, therefore, held the same as an unexplained cash credit under Sec. 68 of the Act. That on appeal the addition made by the A.O was confirmed by the CIT(A). However, on further appeal the Tribunal vide its order dated 17.11.2009 restored the matter to the file of the A.O with a specific direction to verify the genuineness of the gift transaction, viz. credit worthiness of the donor on the basis of the additional evidence which was furnished by the assessee before the Tribunal. The Tribunal while restoring the matter had specifically directed that the A.O shall during the course of the set aside proceedings not insist on the balance sheet or capital account of the donor, but rather, arrive at a conclusion as regards his credit worthiness on the basis of other documents that would be produced by the assessee before the A.O. The assessee during the course of the set aside proceedings furnished with the A.O a copy of the annual report of M/s Pudumjee Pulp and Paper mills Ltd, M/s Pudumjee Industries Ltd. and M/s Thacker & Company Ltd., in which all companies the donor, viz. Arun Jatia was a director. However, as the assessee despite specific directions of the A.O neither placed on record any information with respect to the shareholding of the donor in the aforesaid companies, nor furnished any cogent and material evidence which could substantiate the capacity of the donor to the satisfaction of the A.O, therefore, the A.O once again added the amount of Rs. 45,15,884/- as the income of the P a g e | 4 AY: 2004-05 Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). assessee under Sec. 68 vide his order dated 30.12.2010 passed under Sec. 143(3) r.w.s. 254 of the act. The A.O while framing the set aside assessment also initiated penalty proceedings under Sec. 271(1)(c) for furnishing of inaccurate particulars of income, thereby concealing the income. The assessee carried the matter in further appeal before the CIT(A), who vide his order dated 26.08.2011 confirmed the addition made by the A.O.
The A.O after the order of the CIT(A) confirming the quantum addition made under Sec. 143(3) r.w.s. 254, issued a „Show cause‟ notice (for short „SCN‟) under Sec. 274 r.w.s 271(1)(c) to the assessee. After the change in incumbent A.O another SCN was issued on 04.02.2013 to the assessee. The explanation of the assessee that no penalty was called for in its case did not find favour with the A.O, who holding a conviction that the assessee had furnished inaccurate particulars of income imposed a penalty of Rs. 14,90,241/- under Sec. 271(1)(c). The appeal filed by the assessee against the penalty imposed by the A.O under Sec. 271(1)(c) was dismissed by the CIT(A) vide his order dated 21.02.2014.
The assessee being aggrieved with the order of the CIT(A) confirming the penalty imposed by the A.O under Sec. 271(1)(c) had carried the matter in appeal before us. The Learned Authorized Representative (for short „A.R.‟) for the assessee submitted that the assessee in order to substantiate the genuineness and veracity of the gift transaction and the credit worthiness of the donor, viz. Sh. Arun Jatia, had placed on record substantial documentary evidence as was available with it. It was submitted by the Ld. A.R. that though it remains as a matter of fact that the assessee despite his level best could not produce specific documents which were called for by the A.O P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). to prove the financial capacity of the donor, but however, the veracity of the documents which were filed by the assessee to substantiate the genuineness of the gift transaction and credit worthiness of the donor had neither been disproved nor dislodged by the revenue till date. The Ld. A.R. in order to drive home his contention that the donor, viz. Sh. Arun Jatia was a man of substantial financial means, submitted that material evidence available in public domain proving his creditworthiness was furnished with the A.O, which however was neither considered or controverted by him. It was further submitted by the Ld. A.R. that the identity of the donor was not in dispute. The Ld. A.R. in order to fortify his contention that the authenticity of the gift transaction could not be doubted, submitted that not only the gift was received by the assessee through normal banking channel, but rather, the complete income tax credentials of the donor, viz. Sh. Arun Jatia were also provided to the A.O. The ld. A.R averred that the assessee had suffered an addition in the course of the quantum proceedings only for the reason that it had failed to produce the specific documents which were called for by the A.O to prove the financial capacity of the donor, viz. Arun Jatia. The Ld. A.R. taking support of his aforesaid contentions submitted that now when the assessee had furnished a bonafide explanation about the receipt of gift from his nephew, viz. Sh. Arun Jatia, which had not been disproved or found to be false, therefore, though the same in the absence of specific documentary evidence called for by the A.O could have justified an addition of the same in the hands of the assessee, but however, as long as the claim of the assessee was not disproved and dislodged to the hilt by the revenue, no penalty under Sec. 271(1)(c) could have been validly imposed in its hands. The Ld. A.R. in support of his contention that where the explanation of the assessee that the amount was received as a gift is not found to be false by the revenue, no P a g e | 6 AY: 2004-05 Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). penalty under Sec. 271(1)(c) could justifiably be imposed, placed reliance on the following judicial pronouncements :-
(i) CIT Vs. Kokila Ben A. Shah (Tax Appeal No. 496/2010, dated 22.06.2011) (Guj) (ii) National Textiles Vs. CIT (249 ITR 125) (iii) Shri Chandrakant J. Shah Vs. The Income Tax Officer, 18(2)(4), Mumbai (ITA No. 1236/ Mum/ 2006, dated 16.03.2012) (iv) Addl. CIT Vs. Rawalpindi Flour Mills (125 ITR 243) (v) CIT Vs. Bhimji Bhanjee & Co. (146 ITR 145) (vi) CIT Vs. Balbir Singh (214 CTR 147)(P&H) (vii) Satish Babladi Vs. DCIT, Central Circle-36 (ITA No. 345 and 346/Mum/2015).
The Ld. A.R. further averred that though it remained as a matter of fact that the quantum addition of Rs. 45,15,884/- which was claimed by the assessee as a gift received from his nephew, viz. Sh. Arun Jatia was not accepted by the lower authorities for the reason that the assessee had failed to place on record the specific documentary evidence as was called for by the A.O to support the creditworthiness of the donor, but however, as the claim of the assessee had though remained unproved but had not been disproved, therefore, under no circumstances penalty under Sec. 271(1)(c) merely on the basis of the said unproved explanation could have been be imposed on the assessee. The Ld. A.R. in support of his aforesaid contention relied on the judgment of the Hon‟ble High Court of Bombay in the case of CIT Vs. Upendra V. Mithani [ITA(L) No. 1860 of 2009, dated 05.08.2009]. The Ld. A.R. further in support of his contention that the A.O had wrongly assumed jurisdiction under Sec. 271(1)(c), P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). submitted that though the A.O vide his notice issued under Sec. 274 r.w. Sec. 271(1)(c) of the Act, dated 30.12.2010 had directed the assessee to show cause as to why penalty under Sec. 271(1)(c) may not be imposed on it, but however, as the default for which the penalty was sought to be imposed was not pointed out in the said „Show cause‟ notice, therefore, the assessee remained oblivious of the charge for which he was being tried upon for. The ld. A.R vehemently submitted that as the assessee was not put to notice in clear terms about the default for which it was called upon to show cause as to why penalty under Sec. 271(1)(c) may not be imposed, therefore, there was no occasion for the assessee to defend its case and establish that no penalty under the aforesaid statutory provision was called for in its hands. The ld. A.R submitted that the A.O without putting the assessee to notice as regards the default for which penalty was sought to be imposed on it, had however vide his order dated 25.02.2013 imposed a penalty of Rs.14,90,241/- under Sec. 271(1)(c) for furnishing of inaccurate particulars of income. It was thus the contention of the ld. A.R that as the specific default for which the A.O sought to impose penalty in the hands of the assessee was not earmarked and pointed out by the A.O in the „Show cause‟ notice, therefore, the assessee had remained unaware of default for which it was called upon to explain as to why penalty may not be imposed in its case. The ld. A.R submitted that as the penalty had been imposed in the hands of the assessee for furnishing of inaccurate particulars of income, without clearly putting it to notice as regards the default for which it was called upon to put forth an explanation in its defence, therefore, the penalty could not be sustained and was liable to be vacated. The ld. A.R in support of his aforesaid contention relied on the judgment of the Hon‟ble Supreme Court in the case of CIT Vs. S.S.A. Emerald Meadows (2016) 242 Taxman 180 (SC). The ld. A.R P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). further took support of the judgments of the Hon‟ble High Court of Bombay in the case of (i) CIT Vs. Mrs. Piedade Perincherry (ITA No. 1310 of 2014; dt. 10.01.2017) and Commissioner of Income-tax-II Vs. Shri Samson Perinchery (ITA No. 1154 of 2014; dt. 05.01.2017). The ld. A.R further took support of the recent order of the coordinate bench of the Tribunal, viz. ITAT, Agra in the case of Sachin Arora Vs. ITO, (ITA No. 118/Agr/2015). The Ld. A.R. also placed reliance on the order passed by the coordinate bench of the Tribunal, viz. ITAT “G” Bench, Mumbai, in the case of ITO Vs. M/s Shangrila Sales Pvt. Ltd. (ITA No. 7525/Mum/2016, dated 07.02.2018). Per contra, the Ld. Departmental Representative (for short „D.R.‟) rebutting the claim of the assessee that no penalty in the absence of the striking off the irrelevant default by the A.O was liable to be imposed, submitted that as the same was merely a technical default which was curable by taking recourse to the provisions of Sec. 292B of the act, therefore, no cognizance of the same could be drawn, much the less for quashing the penalty proceedings and the consequential penalty which was validly imposed on the assessee. The Ld. D.R. in support of his aforesaid contention relied on the following judicial pronouncements : (i) Dhavan K. Jain Vs. ITO, Ward 16(3)(1) (ITA No. 996/Mum/2014) (Mum) (ii) Earthmoving Equipment Service Cooperation Vs. DCIT-22, Mumbai (ITA No. 6617/Mum/2014, dated 02.05.2017) (iii) CIT Vs. Smt. Kaushalya & Ors. (1995 216 ITR 660) (Bom)
The Ld. D.R further adverting to the merits of the case relied on the orders passed by the lower authorities and submitted that in the backdrop of the facts of the case the A.O had rightly imposed penalty under Sec. 271(1)(c) in respect of the bogus gift transaction claimed by P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). the assessee, which thereafter was rightly confirmed by the CIT(A). It was submitted by the Ld. D.R. that the appeal filed by the assessee being devoid of any force was thus liable to be dismissed.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present appeal has been sought to adjudicate upon the validity of the assumption of jurisdiction by the A.O in respect of the penalty imposed under Sec. 271(1)(c) in the case of the assessee, as well as the sustainability of the penalty on merits in the backdrop of the facts involved therein. We shall first advert to the challenge thrown by the assessee to the assumption of jurisdiction by the A.O for levying penalty under Sec. 271(1)(c) on the ground that as the irrelevant default in either of the „Show cause‟ notices dated 30.12.2010 and 04.02.2013 was not struck off by the A.O, therefore, the assessee on neither of the said occasion was put to notice as regards the default for which it was called upon to explain as to why penalty under Sec. 271(1)(c) may not be imposed on it. We have perused the „Show cause‟ notices, dated 30.12.2010 and 04.02.2013 issued by the A.O under Sec. 274 r.w.s. 271(1)(c). We find substantial force in the contention of the ld. A.R that as the aforesaid „Show cause‟ notices were issued by the A.O in the standard proforma, viz. „Form I.T.N.S-29‟ without clearly and specifically pointing out in either of the said notices the default for which the assessee was being called upon to explain as to why penalty under Sec. 271(1)(c) may not be imposed on it, therefore, it can safely be concluded that the assessee was never informed of the default as regards which it was called upon to show cause as to why penalty under Sec. 271(1)(c) may not be imposed on it. We are of the considered view that as both of the two defaults contemplated in Sec.
P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). 271(1)(c), viz. „concealment of income‟ and „furnishing of inaccurate particulars of income‟ are separate and distinct defaults which operate in their independent and exclusive fields and are neither overlapping in nature nor interchangeable, therefore, if the A.O sought to impose penalty on the assessee as regards either of the said defaults, he remained under a statutory obligation to have clearly intimated the assessee as regards the specific default for which it was being called upon to explain as to why penalty under Sec. 271(1)(c) of the Act may not be imposed on it. We however find that both the „Show cause‟ notices issued in the present case by the A.O under Sec. 274 r.w. Sec. 271(1)(c), dated 30.12.2010 and 04.02.2013 clearly reveals that there has been no application of mind on the part of the A.O while issuing the same to the assessee. We find that the A.O on both the occasions had merely issued the „Show cause‟ notices in the standard proforma without pointing out the default for which the assessee was being proceeded against, which we are of the considered view blatantly fails the statutory obligation cast upon the A.O of fairly putting the assessee to notice as regards the default for which penalty under Sec.271(1)(c) was sought to be imposed on the assessee. We are of the considered view that the very purpose of affording a reasonable opportunity of being heard to the assessee before imposing a penalty contemplated in Chapter XXI of the Act, as required per the mandate of Sec. 274(1), which reads as under:
“ 274(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.” , would not only be frustrated, but rather, as a matter of fact would be rendered nugatory or redundant if the assessee who is sought to be subject to the rigors of the quasi criminal proceedings contemplated under Sec. 271(1)(c) is not conveyed in clear terms the specific default P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). for which he is being called upon to explain as to why penalty under the said statutory provision may not be imposed on him. We may herein observe that the indispensable requirement on the part of the A.O to put the assessee to notice as regards the specific charge contemplated under the aforesaid statutory provision, i.e. „concealment of income‟ or „furnishing of inaccurate particulars of income‟ is not merely an idle formality, but rather, is a statutory obligation cast upon him, which we are afraid in the present case had not been discharged as required under the law. We find that though the A.O while framing the assessment had recorded his satisfaction that the penalty proceedings were separately being initiated for furnishing inaccurate particulars of income, thereby concealing the income, but however, by pointing out in the „Show cause‟ notice that the assessee appears to have concealed the particulars of his income or furnished inaccurate particulars of such income, had thus failed to come forth with a clear and a specific charge for which the assessee was being called upon to explain as to why penalty may not be imposed on it under Sec. 271(1)(c). We are of the considered view that the blatant failure on the part of the A.O to specifically and clearly put the assessee to notice as regards the default for which penalty was sought to be imposed clearly militates against the mandate of affording of a reasonable opportunity of being heard to the assessee as contemplated under Sec. 274(1) of the Act. We may herein observe that as held by the Hon‟ble Supreme Court in its landmark judgment in the case of Hindustan Steel Ltd. Vs. State of Orissa (1972) 83 ITR 26 (SC) that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, therefore, not loosing sight of the said material observation of the Hon‟ble Apex Court, it becomes all the more obligatory on the part of the A.O to fairly discharge his statutory duty of clearly putting the P a g e | 12 AY: 2004-05 Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). assessee to notice as regards the specific default for which penalty is sought to be imposed so that he may be able to come forth with an explanation in his defence that no such penalty for the said default was called for in its case.
We would now test the validity of the aforesaid notice and the jurisdiction emerging therefrom in the backdrop of the judicial pronouncements on the issue under consideration. We are not oblivious of the fact that the A.O is vested with the power to levy penalty under Sec. 271(1)(c) of the Act, if in the course of the proceedings he is satisfied that the assessee had either „concealed his income‟ or „furnished inaccurate particulars of his income‟. We are of a strong conviction that as penalty proceedings are in the nature of quasi criminal proceedings, therefore, the assessee as a matter of a statutory right is supposed to know the exact charge for which he is being put to notice for. The non specifying of the charge in the „Show cause‟ notice not only reflects the non application of mind by the A.O, but rather, the same seriously defeats the very purpose of giving a reasonable opportunity of being heard to the assessee as contemplated under Sec. 274(1) of the Act. We find that the fine distinction between the said two defaults contemplated in Sec. 271(1)(c), viz. „concealment of income‟ and „furnishing of inaccurate particulars of income‟ had been appreciated at length by the Hon‟ble Supreme Court in the case of Dilip & Shroff Vs. Jt. CIT (2007) 210 CTR (SC) 228 and T. Ashok Pai Vs. CIT (2007) 292 ITR 11 (SC), wherein the Hon‟ble Apex Court had concluded that the two expressions, namely „concealment of particulars of income‟ and „furnishing of inaccurate of particulars of income‟ have different connotation. The Hon‟ble Apex Court being of the view that the non-striking off the irrelevant limb in P a g e | 13 ITA No. 2063/Mum/2014 AY: 2004-05 Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). the notice clearly reveals a non-application of mind by the A.O, had observed as under:- “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 has furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing reliance on 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. Vs. CIT (2000) 2 SCC 718].
We are of the considered view that now when as per the settled position of law as observed by us hereinabove, the two defaults, viz. „concealment of income‟ and „furnishing of inaccurate particulars of income‟ are separate and distinct defaults, therefore, in case the A.O sought to have proceeded against the assessee for either of the said defaults, then it was obligatory on his part to have clearly specified his said intention in the „Show cause‟ notice, which we find he had failed to do in the case before us. The aforesaid failure on the part of the assessee cannot be characterised as merely a technical default as the same clearly divesting the assessee of the statutory right of an opportunity of being heard and defend his case, thus, has a material bearing on the validity of the jurisdiction assumed by the A.O for imposing penalty in the hands of the assessee.
We have given a thoughtful consideration to the issue before us, and are of the considered view that the Hon‟ble High Court of Karnataka in the case of CIT Vs. SSA‟s Emerald Meadows (73 taxmann.com 241)(Kar) following its earlier order in the case of CIT Vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar) has held that where the notice issued by the A.O under Sec. 274 P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). r.w Sec. 271(1)(c) does not specify the limb of Sec. 271(1)(c) for which the penalty proceedings had been initiated, i.e. whether for „concealment of particulars of income‟ or „furnishing of inaccurate particulars‟, the same has to be held as bad in law. The „Special Leave Petition‟ (for short „SLP‟) filed by the revenue against the aforesaid order of the Hon‟ble High Court of Karnataka had been dismissed by the Hon‟ble Supreme Court in CIT Vs. SSA‟s Emerald Meadows (2016) 73 taxmann.com 248 (SC). We further find that a similar view had been taken by the Hon‟ble High Court of Bombay in the case of CIT Vs. Samson Perinchery (ITA No. 1154 of 2014; Dt. 05.01.2017)(Bom).
We find that as averred by the ld. A.R. the indispensable obligation on the part of the A.O to clearly put the assessee to notice of the charge under the aforesaid statutory provisions, viz. Sec. 271(1)(c) had been deliberated upon by a coordinate bench of the Tribunal, i.e. ITAT “B” Bench, Mumbai in the case of Meherjee Cassinath Holdings Private Limited Vs. ACIT, Circle-4(2), Mumbai [ITA No. 2555/Mum/2012; dated. 28.04.2017 wherein the Tribunal in the backdrop of various judicial pronouncements had concluded that the failure to specify the charge in the „Show cause‟ notice clearly reflects the non application of mind by the A.O and would resultantly render the order passed under Sec. 271(1)(c) in the backdrop of the said serious infirmity as invalid and void ab initio. The Tribunal in its aforesaid order in the case of Meherjee Cassinath Holdings Pvt. Ltd.(supra) had observed as under:-
“ 8 . W e h a v e c a r e f u l l y c o n s i d e r e d th e r iv a l s u b m i s s i o n s . S e c . 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 P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). 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 f urnishing 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 Pal, 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 af ores aid inf ir mity in th e no tice h as be en s ough t to be demonstrated as a reflection of non-application of mind by the Assessing Officer, and in 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 some postulates that inappropriate words and paragraphs were to be deleted, but the some 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.
84. 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 P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). the Hon’ble Supreme Court in the case of 0/lip N. Shroff (supra), the notice in the instant case does suffer from the vice of non-application of mind by the Assessing Off icer. 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. 10. In fact, at the time of hearing, the Id. 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/s27)4(c) of the Act for furnishing of inaccurate particulars of income in our considered opinion, the attempt of the Id. 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 Id. CIT -DR based on the observations of the Assessing Officer in the assessment order. Further, it is also noticeable that such proposition has been considered by the Hon'ble Bombay High Court also in the case of Shri Samson Perinchery, 953, 1097& 1126 of 2014 dated 5.1.2017 (supra) and the decision of the Tribunal holding levy of penalty in such circumstance being bad, has been approved.
Apart from the aforesaid, the Id. 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 (Born.) 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 Id. CIT-DR and find that a similar issue had come up before our coordinate Bench in the case of Dr. Santa Milind Davare (supra). Our coordinate Bench, after considering the judgment of the Honble 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 Dharnendra 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. 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 AG at the time of issuing notice. In the case of Lakhdir Laiji (supra), the AO issued notice P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). 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 lyer 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 AG 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 AG, 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:- “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 AG 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 AG 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. Santa Milind Davare (supra), we hereby reject the aforesaid argument of the Id. CIT-DR.
Apart from the aforesaid discussion, we may also refer to the one more semin al f eature of this case wh ich would demonstr ate 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 P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). 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.
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 f rom 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. We hold so. Since the penalty has been deleted on the preliminary point, the other arguments raised by the appellant are not being dealt with”. We have given a thoughtful consideration to the issue before us and after deliberating on the facts are of the considered view that now when the A.O after putting the assessee to notice and calling upon it to explain as to why penalty may not be imposed on it under Sec. 271(1)(c) for concealment of income or furnishing of inaccurate particulars of income, had thereafter imposed penalty under Sec. 271(1)(c) in its hands for „furnishing of inaccurate particulars of income‟, the same can in no way be construed as having fairly put the assessee to notice as regards the default for which penalty was sought to be imposed in its hands. We are of the considered view that the A.O by not striking off the irrelevant default in the „Show cause‟ notice, had thus failed to clearly put the assessee to notice as regards the default for which penalty under Sec. 271(1)(c) was sought to be to be P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). imposed on it. We thus in the backdrop of our aforesaid observations are of a strong conviction that as the A.O had clearly failed to discharge his statutory obligation of fairly putting the assessee to notice as regards the default for which it was being proceeded against, therefore, the penalty of Rs. 14,90,241/- imposed by him under Sec. 271(1)(c) clearly being in violation of the mandate of Sec. 274(1), thus cannot be sustained. We thus for the aforesaid reasons not being able to persuade ourselves to subscribe to the imposition of penalty by the A.O, therefore, set aside the order of the CIT(A) upholding the same. The penalty of Rs.14,90,241/-imposed by the A.O under Sec.271(1)(c) is quashed in terms of our aforesaid observations.
Alternatively, we are of the considered view that even otherwise on merits of the case as had been canvassed by the Ld. A.R. before us, no penalty under Sec. 271(1)(c) could have validly been imposed in the hands of the assessee. We find that it remains as a matter of fact that the assessee had been visited with penalty under Sec. 271(1)(c) not for the reason that the revenue on the basis of concrete evidence had been able to disprove and dislodge the genuineness and veracity of the claim of the assessee of having received an amount of Rs. 45,15,884/- as gift from his nephew, viz. Sh. Arun Jatia, but rather, had been saddled with the said penalty for the reason that it had failed to substantiate the creditworthiness of the donor, viz. Sh. Arun Jatia by placing on record the specific information as was called for by the A.O. We find from a perusal of the orders of the lower authorities and the material placed before us that the assessee in order to substantiate the genuineness of the gift transaction had placed on record certain documentary evidence, viz. (i) affidavit of the donor, viz. Sh. Arun Jatia ; (ii) copy of annual reports of M/s Pudumjee Pulp and Paper Mills Ltd., M/s Pudumjee Industries Ltd. and M/s Thackar & Co. Ltd., in P a g e | Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). which companies the donor, viz. Sh. Arun Jatia was a director; and (iii) the income tax credentials of the donor, viz. Sh. Arun Jatia, the credentials of which all documentary evidence had not been controverted or even doubted by the lower authorities. We have perused the records and are of the considered view that as the assessee had failed to prove the creditworthiness of the donor, viz. Sh. Arun Jatia to the satisfaction of the A.O by failing to produce the specific documents which were called for by him during the course of set aside assessment proceedings, viz. (i) bank statement of the donor from which the funds were transferred to the assessee; and (ii) the proof of the source of income of the donor, viz. Sh. Arun Jatia, therefore, the A.O rejected the claim of the assessee and added the aforesaid amount as an unexplained cash credit in the hands of the assessee. We are of the considered view that the failure on the part of the assessee to adduce necessary documentary evidence as was called for by the A.O to prove the creditworthiness of the donor to his satisfaction, would though in the backdrop of such unproved claim of the assessee justify addition of the same as an unexplained cash credit under Sec. 68, but however, in the absence of any material having been placed on record by the A.O on the basis of which the aforesaid claim of the assessee could be disproved, no penalty under Sec. 271(1)(c) could have been validly imposed in the hands of the assessee. We find that our aforesaid view is fortified by the judgment of the Hon‟ble High Court of Bombay in the case of CIT Vs. Upendra V. Mithani [ITA (L) No. 1860 of 2009], dated 05.08.2009, wherein the Hon‟ble High Court being of the view that unless the claim of the assessee is disproved no penalty under Sec. 271(1)(c) could be imposed, had held as under: “The issue involved in the appeal revolves around deletion of penalty under Section 271(1)(c) of the I.T. Act. The Tribunal has concurred with P a g e | 21 AY: 2004-05 Shivkumar Devidutt Saraf HUF Vs. ITO-14(2)(2). the view taken by the Commissioner of Income Tax (A). The Commissioner of Income Tax (A) has rightly taken a view that no penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income as with the hypothesis that it does. If the assessee gives an explanation which is unproved but not disproved, i.e. it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee’s case is false. The view taken by the Tribunal is a reasonable and possible view. The appeal is without any substance. The same is dismissed in limine with no order as to costs.” We thus in the backdrop of our aforesaid observations are of the considered view that though the assessee by failing to place on record the specific documentary evidence as was called for by the A.O to prove the credit worthiness of the donor, viz. Sh. Arun Jatia, had thus failed to prove his claim to the satisfaction of the A.O, but however, in the absence of any material having been placed on record by the A.O which could disprove the genuineness of the said claim of the assessee to the hilt, no penalty under Sec. 271(1)(c) could have been validly imposed in the hands of the assessee. We thus after deliberating at length on the merits of the case, not being able to persuade ourselves to subscribe to the views of the lower authorities, therefore, are of the considered view that the penalty of Rs.14,90,241/- imposed by the A.O under Sec.271(1)(c), which thereafter had been upheld by the CIT(A) cannot be sustained on merits and on the said count too is liable to be vacated.