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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI G.S. PANNU, HONBLE & SHRI C.N. PRASAD, HONBLE
Date of Hearing : 07.12.2017 Date of Pronouncement : 06.03.2018 O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Ld.CIT(A)-8, Mumbai dated 30.01.2013 for the Assessment Year 2009-10 in sustaining the penalty levied u/s. 271(1)(c) of the Act.
Ld. Counsel for the assessee, at the outset submitted that initiation of penalty is bad in law as there is no specific charge mentioned in the notice issued u/s. 274 r.w.s. 271 of the Act. Ld. Counsel for the assessee referring to the copy of notice issued u/s. 274 r.w.s. 271, he submitted that it is not specified in the notice, whether the penalty is going to be levied 2 ITA.No.2158/MUM/2013 (A.Y: 2009-10) M/s Eleganza Furnishing Pvt. Ltd., for concealment of income or furnishing inaccurate particulars and the notice was issued in a mechanical manner without specifying the charge for which the penalty was proposed to be levied. Learned Counsel for the assessee submitted that in the absence of specific charge mentioned in the notice by striking off of irrelevant charge, the initiation of penalty proceedings and passing penalty order levying penalty is bad in law. Ld. Counsel for the assessee placed reliance on the following decisions: (i) CIT v. SSA’s Emerald Meadow [73 taxmann.com 248 (SC)] (ii) CIT v. SSA’s Emerald Meadows [73 taxmann.com 241 Karnataka High Court] (iii) Supreme Court of India v. Joint Commissioner of income Tax, - Special Range, Mumbai [161 Taxman 218 (SC)] (iv) Meherjee Cassinath Holdings Private Limited v. ACIT in ITA.No. 2555/Mum/2012.
Ld.DR vehemently supported the orders of the authorities below and placed reliance on the decision of the Hon'ble Delhi High Court in the case of CIT v. Zoom Communication Pvt. Ltd in ITA.No. 07/2010 order dated 24.05.2010 and decision of the Coordinate Bench in the case of Earthmoving Equipment Service Corporation v. DCIT in ITA.No.6617/Mum/2014 order dated 02.05.2017.
We have heard the rival submissions, perused the orders of the authorities below, the notice issued u/s. 274 r.w.s. 271 of the Act, Assessment Order and the penalty orders. On a perusal of the notice issued u/s. 271(1)(c) of the Act for initiation of proceedings, we find that 3 ITA.No.2158/MUM/2013 (A.Y: 2009-10) M/s Eleganza Furnishing Pvt. Ltd., the Assessing Officer did not strike off and specify the charge/limb for which he is proposing to initiate penalty proceedings. However, in the penalty Order, Assessing Officer records that the penalty was levied for furnishing inaccurate particulars of income.
An identical situation has been considered by the Coordinate Bench in Meherjee Cassinath Holdings v. ACIT (supra) as to whether the action of the Assessing Officer in initiating penalty proceedings u/s.271(1)(c) of the Act without striking off one of the limbs and without specifying the specific charge in the notice initiating penalty proceedings for inaccurate particulars of income in the Assessment Order and the Coordinate Bench considering the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Samson Perinchery [392 ITR 4] and also various decisions held that action of the Assessing Officer in non-striking off relevant clause in the notice shows that the charge being made against the assessee is not firm therefore proceedings suffer from non-compliance with principles of natural justice in as much as the Assessing Officer himself is not sure of the charge and the assessee is not made aware as to which of the two limbs of section u/s. 271(1)(c) of the Act he has to respond. While holding so the Coordinate Bench observed 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 4 ITA.No.2158/MUM/2013 (A.Y: 2009-10) M/s Eleganza Furnishing Pvt. Ltd., 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 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 5 ITA.No.2158/MUM/2013 (A.Y: 2009-10) M/s Eleganza Furnishing Pvt. Ltd., 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 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 6 ITA.No.2158/MUM/2013 (A.Y: 2009-10) M/s Eleganza Furnishing Pvt. Ltd., 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 7 ITA.No.2158/MUM/2013 (A.Y: 2009-10) M/s Eleganza Furnishing Pvt. Ltd., 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 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 8 ITA.No.2158/MUM/2013 (A.Y: 2009-10) M/s Eleganza Furnishing Pvt. Ltd., 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 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. 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. 6. Following the above decision, similar view has been taken by the Coordinate Bench in the case of Orbit Enterprises v. Income Tax Officer [60 ITR (trib.) 252].
We also find that the Hon'ble High Court of Telangana and Andhra Pradesh in the case of PCIT v. Smt Baisetty Revathi in ITTA.No.684 of 2016 dated 13.07.2017 considered a similar issue and held as under: - “Perusal of the order reflects that the assessee did not raise the issue of invalidity of the penalty notice before the Commissioner. In her second appeal before the Income-tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam, in the assessee, for the first time, raised the issue that the show-cause 9 ITA.No.2158/MUM/2013 (A.Y: 2009-10) M/s Eleganza Furnishing Pvt. Ltd., notice under Section 271(1)(c) did not specify as to whether it was prompted by concealment of particulars of income or furnishing of inaccurate particulars of income. Dealing with this contention, the Tribunal placed reliance on the judgment of the Karnataka High Court in THE COMMISSIONER OF INCOME TAX AND THE INCOME TAX OFFICER V/s. M/s.MANJUNATHA COTTON AND GINNING FACTORY and opined that unless the show-cause notice is clear as to whether the penalty proposed to be imposed is for concealment of particulars of income or for furnishing inaccurate particulars of income, no penalty could be imposed, as such a notice would be defective. The Tribunal took note of the fact that in the penalty order; the Assessing Officer had not given a conclusive finding as to whether the penalty imposed was for concealment of particulars of income or for furnishing inaccurate particulars of income and accordingly held imposition of the penalty to be invalid. Smt.M.Kiranmayee, learned counsel representing Sri J.V.Prasad, learned senior standing counsel for the revenue, would argue that the assessee never raised the issue as to ambiguity in the show-cause notice before any of the lower authorities and that this indicated she was fully aware as to what was the allegation leveled against her. Learned counsel would point out that in her reply to the show-cause notice, the assessee sought to explain the lapses on her part which evidenced her awareness as to the exact allegations made against her in the said show-cause notice. Learned counsel would therefore argue that raising the issue of lack of clarity in the showcause notice for the first time before the Tribunal was an afterthought and that the Tribunal ought not to have given the assessee the benefit of doubt in this regard. Per contra, Sri R.Raghunandan, learned senior counsel representing Sri T.Bala Mohan Reddy, learned counsel for the assessee, would rely upon the decisions of the Karnataka and Gujarat High Courts and assert that when penal proceedings are initiated under Section 271(1)(c) of the Act of 1961, an assessee must be made aware in no uncertain terms as to what is the specific allegation which forms the basis for the proposed penalty. A copy of the proforma notice under Section 271 read with Section 274 of the Act of 1961 addressed to the assessee on 22.03.2013 is produced. Perusal thereof reflects that the irrelevant contents therein, which had no application to the assessee, were struck out leaving only one clause which reads as under: ‘Whereas in the course of proceedings before me for the Assessment Year 2010-11 it appears to me that you have concealed the particulars of your income or furnished inaccurate particulars of such income.’ 10 ITA.No.2158/MUM/2013 (A.Y: 2009-10) M/s Eleganza Furnishing Pvt. Ltd., It would be apposite at this stage to consider the judgment of the Karnataka High Court in M/s.MANJUNATHA COTTON AND GINNING FACTORY. Therein, a Division Bench of the Karnataka High Court observed that Section 271 of the Act of 1961 is a specific provision providing for imposition of penalties and is a complete code in itself regulating the procedure for such imposition. The Bench therefore held that penalty proceedings have to be conducted in accordance therewith, subject always to the rules of natural justice. It was pointed out that Section 271 makes appropriate provision for levying penalties on an assessee in different eventualities and one such eventuality is for concealment of income or furnishing of inaccurate particulars of such income. It was held that for starting the penalty proceedings, the condition precedent is that the Assessing Officer must be satisfied that a person has either concealed particulars of his income or furnished inaccurate particulars of such income. The person who is accused of the conditions mentioned in Section 271 should be made aware of the grounds on which imposition of penalty is proposed as he has a right to contest such proceedings and should have a full opportunity to meet the case of the revenue so as to show that the conditions stipulated in Section 271(1)(c) do not exist and that he is not liable to pay the penalty. It was further held that the practice of the revenue in sending a printed form where all the grounds mentioned in Section 271 are mentioned would not satisfy the requirement of law when the consequence of the assessee not rebutting the initial presumption is serious in nature and he has to pay a penalty ranging from 100% to 300% of the tax liability. As the provisions of Section 271(1)(c) have to be strictly construed, the Bench mandated that the notice issued should set out the grounds which the assessee has to meet specifically, otherwise the principles of natural justice would be offended as the show-cause notice would be vague. Dealing with concealment of particulars of income or furnishing of inaccurate particulars of income, the Bench observed that some cases may attract both the offences and in some, there may be overlapping of both, but in such cases initiation of the penalty proceedings must be specifically for both the offences. Drawing up penalty proceedings for one offence and finding the assessee guilty of another or finding him guilty for either, the one or the other, was held to be unsustainable in law. In COMMISSIONER OF INCOME TAX, GUJARAT-III V/s. MANU ENGINEERING WORKS, a Division Bench of the Gujarat High Court observed that the Assessing Officer must give a positive finding as to whether there is concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee. In the event there was no such clear-cut finding, the penalty order was held liable to be struck down. Smt.Kiranmayee, learned counsel, placed reliance on the judgment of the Supreme Court in K.P.MADHUSUDHANAN V/s.
11 ITA.No.2158/MUM/2013 (A.Y: 2009-10) M/s Eleganza Furnishing Pvt. Ltd., COMMISSIONER OF INCOME TAX, COCHIN. Therein, the Supreme Court held that it is not necessary for the Assessing Officer, while issuing a notice under Section 271(1)(c), to expressly invoke Explanation 1(B) appended to the provision. It is however relevant to note that Explanation 1(B) merely adverts to a case of failure of an assessee to substantiate the explanation offered whereby the amount added or disallowed while computing the total income of such person for the purposes of the penalty provision shall be deemed to represent the income in respect of which particulars had been concealed. The Supreme Court observed that the statutory provision included the ‘Explanation’ and once the assessee was put on notice, no express invocation of the ‘Explanation’ is necessary. This judgment has no application to the case on hand as what we are concerned with presently is whether the assessee is required to be put on notice as to whether she is to be penalized for concealment of particulars of income or for furnishing inaccurate particulars of income. These are two different acts. Concealment of income is an act of omission while furnishing of inaccurate particulars of income is an act of commission. The consequences of such acts, being penal in nature, an assessee has to be informed as to what exactly is the charge against him so that he may respond thereto. No doubt, in the present case, the assessee seems to have submitted her explanation on merits without raising a doubt as to what was the precise allegation leveled against her. However, we are more concerned with the principle involved and not just the isolated case of its application against the assessee. Further, the penalty order demonstrates that the Assessing Officer was not even certain as to what was the finding on the strength of which he imposed the penalty. This is clear from the fact that the Assessing Officer recorded that he was satisfied that the assessee had concealed/furnished inaccurate particulars of income. In the absence of a clear finding by the Assessing Officer himself, the benefit of doubt cannot be given to the revenue merely because the assessee did not complain of vagueness in the show-cause notice earlier. Reliance placed by the revenue upon MAK DATA PRIVATE LIMITED V/s. COMMISSIONER OF INCOME TAX-II, is of no assistance as the Supreme Court merely observed therein that the Assessing Officer is not required to record his satisfaction in a particular manner while imposing the penalty or reduce it to writing. That is not the controversy in the case on hand. On principle, when penalty proceedings are sought to be initiated by the revenue under Section 271(1)(c) of the Act of 1961, the specific ground which forms the foundation therefore has to be spelt out in clear terms. Otherwise, an assessee would not have proper opportunity to put forth his defence. When the proceedings 12 ITA.No.2158/MUM/2013 (A.Y: 2009-10) M/s Eleganza Furnishing Pvt. Ltd., are penal in nature, resulting in imposition of penalty ranging from 100% to 300% of the tax liability, the charge must be unequivocal and unambiguous. When the charge is either concealment of particulars of income or furnishing of inaccurate particulars thereof, the revenue must specify as to which one of the two is sought to be pressed into service and cannot be permitted to club both by interjecting an ‘or’ between the two, as in the present case. This ambiguity in the show-cause notice is further compounded presently by the confused finding of the Assessing Officer that he was satisfied that the assessee was guilty of both. We are therefore of the opinion that the order under appeal does not brook interference on any ground. We find no question of law, much less a substantial one, arising for consideration warranting admission of this appeal.”
Respectfully following the above decisions, we hold that the notice issued by the Assessing Officer u/s. 274 r.w.s. 271(1)(c) of the Act is on account of non-application of mind and therefore on this account itself the penalty imposed u/s.271(1)(c) is liable to be deleted. Thus, we direct the Assessing Officer to delete the penalty levied u/s.271(1)(c) of the Act. As we have held that the penalty be deleted on the preliminary point the other arguments raised by the Ld. Counsel for the assessee are not being dealt with.
In the result, appeal filed by the assessee is allowed as indicated above. Order pronounced in the open court on the 06th March, 2018. Sd/- Sd/- (G.S. PANNU) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai / Dated 06/03/2018 Giridhar, SPS 13 ITA.No.2158/MUM/2013 (A.Y: 2009-10) M/s Eleganza Furnishing Pvt. Ltd., Copy of the Order forwarded to: