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Income Tax Appellate Tribunal, ‘ B’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER Assessee through these appeals challenges the penalty levied u/s.271(1) (c) of the Income Tax Act, 1961 (in short ‘’the Act’’) for the impugned assessment years.
ITA Nos.1925 to 1928/2017 :- 2 -:
Ld. Counsel for the assessee submitted that assessee was challenging the validity of notices issued u/s.274 r.w.s. 271 of the Act.
As per the ld. Authorised Representative, her grievance was covered by ground No.2 & 3, which was common for all the years. These grounds are reproduced hereunder:-
‘’2)The CIT (A) and the AO failed to note that there was no addition of income made during the assessment. The income returned by the appellant was accepted by the assessing officer, hence there is no concealment of particulars of income or furnishing of inaccurate particulars of income warranting penalty under section 271(1)(c). 3) The show cause notice issued by the assessing officer did not mention clearly whether the assessee was required to show cause for concealment of particulars of income or for furnishing inaccurate particulars of income. In the absence of clarity in the notice, the notice and consequently the order levying penalty is not valid’’.
Ld. Counsel for the assessee submitted that the notice issued 3. by the ld. Assessing Officer u/s.274 r.w.s.271 of the Income Tax Act, 1961 (in short ‘’the Act’’) was legally flawed. According to her, the notice did not specify the reason why penalty proceeding were being initiated. As per the ld. Authorised Representative, notice did not say whether assessee had concealed particulars of income or had furnished any inaccurate particulars of income. Contention of the ld. Authorised Representative, was that a notice which did not show the default which assessee was required to explain, was an invalid one.
ITA Nos.1925 to 1928/2017 :- 3 -:
Reliance was placed on the judgments of Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton and Ginning Factory, 359 ITR 565 and that of CIT vs. SSA’s Emerald Meadows (ITA No.380/2015, dated 23.11.2015). Ld. Authorised Representative, pointed out that the judgment of Hon’ble Karnataka High Court in the case of SSA’s Emerald Meadows (supra) stood affirmed by the Hon’ble Apex Court in CC No.11485 of 2017 dated 05.08.2016. As per the ld. Authorised Representative, ld. Commissioner of Income Tax (Appeals) while disposing of this ground raised by the assessee had erroneously taken a view that ld. Assessing Officer had correctly ticked that part of the notice which specified the offence committed by the assessee.
Contention of the ld. Authorised Representative was that the notices being bad in law, levy of penalty had to be quashed.
On the other hand, ld DR supporting the orders of the lower 4. authorities submitted that assessee was guilty of concealment of income and this was clear from the assessment order. As per the ld. Departmental Representative, assessee had not filed any returns for the impugned assessment years, prior to issue of notices under section 148 of the Act, despite having substantial salary income. According to him, the notices u/s.274 r.w.s. 271 of the Act did not suffer from any infirmity.
ITA Nos.1925 to 1928/2017 :- 4 -:
We have considered the rival contentions and perused the orders of the authorities below. Validity of a notices issued under Section 274 r.w.s. 271 of the Act goes to the root of the jurisdiction to levy a penalty under Section 271 (1) (c) of the Act and can therefore be considered at any stage of the appellate proceedings. Notices issued to the assessee under these Sections, for all the impugned assessment years are similar. That for assessment year 2008-09 is reproduced hereunder:-
NOTICE UNDER SECTION 274 R.W.S. 271 OF THE INCOME TAX ACT, 1961 PAN :AFZPK 2709 L O/o. the Deputy Commissioner of Income Tax Act, Company Circle 1(1) Chennai. Dated 31.03.2015 To Smt. Komalavalli R. No.56, SBI Colony Extn, Nanganallur, Chennai 600 061.
Whereas in the course of proceedings before me for the Assessment Year 2008-2009, it appears to me that you:- * have without reasonable cause failed to furnish me return of income which you were required to furnish by a notice given under section 22(1) / 22(2) / 34 of the Indian Income Tax Act, 1922 or which you were required to furnish under section 139(1) or by a notice given under section 139(2) I 148 of the Income Tax Act, 1961 No........... dated........................ or have without reasonable cause failed to furnish it within the time allowed and the manner required by the said section 139(1) or by such notice.
ITA Nos.1925 to 1928/2017 :- 5 -:
*have without reasonable cause failed to comply with a notice under section 22(4)/23(2) of the 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 15.07.2015 and show cause why an order imposing a penalty on you should not be made under section 271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorised representative you may 'show cause in writing on or before the said date which will be considered before any such orders is made under section 271.
(N. HEMALATHA) Deputy Commissioner of Income Tax-I, Corporate Circle 1(1) Chennai Contention of the ld. DR as well as the view taken by the ld. Commissioner of Income Tax (Appeals) were that assessee was guilty of both concealment of income. However, a reading of the above notice clearly show that the word used for linking the portion ‘’concealed particular of your income’’ and ‘’furnished inaccurate particulars of such income‘’ is ‘’or ‘’and not’’ and’’. An assessee in our opinion has every right to know which alleged default he has to explain. If it is both it is necessary to mention so, in the notice.
Without knowing what is default for which he is being charged, an assessee cannot give an explanation. In a similar situation Hon’ble Karnataka High Court in the case of SSA’s Emerald Meadows (supra),
ITA Nos.1925 to 1928/2017 :- 6 -: relying on its own judgment in the case of Manjunatha Cotton and Ginning Factory (supra) held as under at para 2 to 4 of its judgment.
‘’2. This appeal has been filed raising the following substantial questions of law: (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(1B) 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?
The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’) to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565.
ITA Nos.1925 to 1928/2017 :- 7 -:
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) , i.e., 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 stood 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.
ITA Nos.1925 to 1928/2017 :- 8 -:
Considering the above cited judgments, we hold that notices issued u/s.274 r.w.s. 271 of the Act, reproduced by us at para 5 were not valid. Ex-consequenti, the penalty orders for the impugned assessment years are set aside.
In the result, appeals of the assessee are allowed on legal 6. ground.
Order pronounced on Tuesday, the 12th day of June, 2018, at Chennai.