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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI G. MANJUNATHA
Per G. Manjunatha, Accountant Member:
This appeal filed by the assessee is directed against order of the Commissioner of Income Tax (Appeals)-14, Mumbai dated 23.02.2016 and it pertains to assessment year 2010-11. The assessee has raised the following grounds of appeal:
“Being aggrieved by the order dated 23 February, 2016 passed under section 250 of the Income- tax Act, 1961 (hereinafter referred to as the Act), by the Hon'ble Commissioner of Income Tax (Appeals)-14, Mumbai, [hereinafter referred to as the Hon'ble CIT(A)], the Appellant submits the following Grounds of Appeal for your sympathetic consideration which are independent of and without prejudice to one another: On the facts and circumstances of the case and in law, the Hon'ble CIT (A) has erred in: 1. dismissing the ground of appeal without giving any reasons that the penalty order under section 271 (1)( c) of the Act has been passed
2 M/s. Tata Communications Transformation Services Limited ex-parte by the learned AO i.e. without giving any opportunity of presenting its case and of being heard to the Appellant, which is in violation of the principles of natural justice.
upholding the penalty order on the premise that no appeal was filed against the addition made by the learned AO in the assessment order, thereby ignoring the fact that the issue of subjecting the same income to tax twice, was a fit case for rectification under section 154 of the Act and proceeding to uphold the levy of penalty even without waiting for the disposal of the rectification application filed by the Appellant. 3. upholding the penalty order passed by the learned AO levying penalty of Rs. 22,62,959/- u/s 271(1)(c) on the premise that the Appellant had furnished inaccurate particulars and concealed the income.
confirming the penalty levied under Section 271(1)(c) of the Act, without appreciating the fact that the additions made by the learned AO of Rs 66,57,721/- on the basis of which penalty is imposed were already made by the Appellant to the extent of Rs. 62,95,961/- in its return of income and the differential value being caused due to different method adopted for allocation / absorption of fixed overheads in case of a sales order executed by its Domestic Tariff Unit.
The Appellant sincerely prays that the levy of penalty being invalid and bad in law may kindly be directed to be deleted.
The Appellant craves leave to add, alter, omit or substitute any or all of the above grounds of appeal, at any time before or at the time of the appeal hearing.”
2. The assessee has filed a petition for admission of additional grounds on 11.12.2017. The additional grounds raised by the assessee are as follows:
“1: 0 Re.: Levy of penalty u/s. 271(1)(c): 1 : 1 The Commissioner of Income-tax (Appeals) has erred in upholding the penalty levied by the Assessing Officer u/s. 271(l)(c) of the Income-tax Act, 1961 on the Appellant. 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject it has neither concealed any income nor furnished inaccurate particulars of income and hence no penalty whatsoever can be levied on it u/s.271(1)(c) of the Income-tax Act, 1961 and the Commissioner of Income-tax (Appeals) ought to have held as such.
3 M/s. Tata Communications Transformation Services Limited 1 : 3 The Appellant submits that the impugned Order levying penalty u/s.271(1)(c) of the Income-tax Act, 1961 be struck down. 2: 0 Re : General: 2 : 1 The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal.”
3. The brief facts of the case are that in this case return of income was filed declaring total income of Rs.7,55,19,904/-. The assessment was completed under section 143(3) on 04.03.14 determining the total income at Rs.8,21,77,620/- inter-alia making additions towards disallowance of corporate revenue on which exemption under section 10A/10AA was claimed amounting to Rs.66,57,721/-. Subsequently, penalty proceedings under section 271(1)(c) has been initiated for furnishing of inaccurate particulars of income. Accordingly, notice under section 274 r.w.s. 271(1)(c) was issued on 12.03.14. The assessee neither appeared before the AO nor filed any explanation. Therefore, the AO held that the assessee has no explanation to offer and also has no objection for the proposed levy of penalty. Accordingly, considering the facts of the case and also by relying upon the decision of Hon’ble Supreme Court in the case of Union of India vs. Dharmendra Textile Processors & others (2008) 306 ITR 277 levied penalty of Rs.22,62,959/- under section 271(1)(c) of the Act.
4. Aggrieved by the penalty order, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has filed an elaborate written submissions. The assessee further contended that the AO was erred in levying penalty for disallowance of corporate revenue for computation of deduction claimed under section 10A/10AA on the ground that the assessee has furnished inaccurate particulars of income which attracts penalty under section 271(1)(c) of the Act, without appreciating the fact that though the assessee has filed revised computation working out correct disallowance of corporate revenue for computing deduction under section 10A/10AA this 4 M/s. Tata Communications Transformation Services Limited cannot be considered as furnishing of inaccurate particulars of income. The assessee has taken up a legal plea in as much as the notice issued by the AO under section 274 r.w.s. 271(1)(c) is invalid as the AO has not strike off inappropriate portion which is not applicable to the facts of the assessee’s case, therefore, it is a case of non application of mind by the AO and hence, penalty proceedings are bad in law and liable to be quashed. The Ld. CIT(A), after considering the relevant submissions of the assessee, observed that the assessee failed to bring on record any fault on the part of the AO while computing the disallowance except for the issue of double addition against which rectification application is already filed as contended, therefore, in my opinion the case falls under the provisions of section 271(1)(c) of the Act, as the claim of exemption under section 10A/10AA should have been less than that claimed and penalty imposed by the AO is therefore confirmed. In so far as issue of notice, the Ld. CIT(A) observed that it is noted from the assessment order that the AO has initiated penalty proceedings for furnishing of inaccurate particulars of income and concealment of income under section 271(1)(c) of the Act. Therefore, the argument of the assessee regarding the notice not specifying the details is not acceptable. With these observations the Ld. CIT(A) confirmed the penalty levied by the AO. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.
The Ld. A.R. for the assessee, at the outset, submitted that the issue is squarely covered in favour of the assessee by the decision of Hon’ble Bombay High Court in the case of Shri Samson Perinchery vs. ACIT, (2017) ACIT 392 ITR 4 and also the decision of Mumbai ITAT in the case of M/s. Cenzar Industries Ltd. vs. ITO in dated 29.12.17 wherein the issue of vague notice has been discussed in the light of various case laws including the decision of Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Karn.) wherein it was categorically held that satisfaction of the existence of the grounds mentioned in 5 M/s. Tata Communications Transformation Services Limited section 271(1)(c) when it is a sine qua non initiation of proceedings, the penalty proceedings should be confined only to those grounds and the said grounds should be specifically stated so that the assessee would have the opportunity to have made those grounds. The Ld. A.R. further referred to the copy of notice issued by the AO under section 274 r.w.s. 271(1)(c), submitted that the AO has issued printed form of notice without striking off irrelevant portion, therefore, it is a clear case of non application of mind from the AO whether penalty has been initiated for furnishing of inaccurate particulars of income or concealment of particulars of income. The Ld. A.R. further referred to the penalty order passed by the AO and submitted that though the AO has stated that penalty proceedings are initiated for furnishing of inaccurate particulars of income, in his order at paragraph No.1 in the concluding paragraphs he has not specifically mentioned whether penalty has been levied for concealment of particulars of income or furnishing of inaccurate particulars of income. Therefore, the penalty order passed by the AO consequent to invalid or vague notice cannot survive and hence the order passed by the AO should be quashed.
The Ld. D.R., on the other hand, strongly supported the order of the Ld. CIT(A). The Ld. D.R. further referring to the decision of Hon’ble Bombay High Court, Nagpur Bench in the case of M/s. Maharaj Garage & Company vs. CIT in Income Tax Reference No.21 of 2008 dated 22.08.17 submitted that the requirement of section 274 of the Income Tax Act for granting reasonable opportunity of being heard in the matter cannot be stretched to the extent of framing a specific charge or asking the assessee an explanation in respect of the quantum of penalty proposed to be imposed, as has been urged. The Hon’ble Bombay High Court has considered the issue of notice and held that there is no requirement of specific charge in the notice and if the assessee is aware of the quantum additions in the assessments proceedings, then it can be 6 M/s. Tata Communications Transformation Services Limited sufficient, even if the AO has not specifically mentioned the charge in the notice, still penalty can be levied under section 271(1)(c) of the Act.
We have heard both the parties, perused materials available on record and gone through the case laws cited by both the parties. The assessee has challenged penalty order passed by the AO under section 271(1)(c) on the ground that the AO has issued vague notice without striking off inappropriate portion in the notice whether the penalty has been levied for concealment of particulars of income or furnishing of inaccurate particulars of income, therefore, the penalty levied on such vague notice cannot survive. We find that the issue of notice under section 274 r.w.s 271(1)(c) has been dealt by this Tribunal in various cases including in the case of M/s. Cenzar Industries Ltd. vs. ITO in dated 29.12.17 wherein after considering the relevant facts and also relied upon various judicial precedents including the decision of Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory (supra) and also the decision of Hon’ble Bombay High Court in the case of Shri Samson Perinchery vs. ACIT (supra), has held that penalty proceedings initiated under section 271(1)(c) is void ab initio and liable to be quashed, if the AO issued vague notice under section 274 r.w.s 271(1)(c) without striking off irrelevant portion of notice and also if the AO has not made a specific charge whether penalty proceeding is initiated for concealment of particulars of income or furnishing of inaccurate particulars of income. The relevant portion of order is extracted below: “10. We have heard the rival submissions, perused the material available on record and also gone through the orders of authorities below. The AO has levied penalty u/s 271(1)(c) in respect of disallowance of reimbursement of selling and distribution expenses on the ground that the assessee has concealed particulars of income and also furnished inaccurate particulars of income. The AO has initiated penalty by issuing notice u/s 274 r.w.s. 271(1)(c) in a printed form without striking off of irrelevant portion which were not applicable to the facts of assessee's case. The AO has issued notice which states that penalty has been initiated for concealment of particulars of income or furnishing of inaccurate particulars of income. In the assessment order, the AO has initiated penalty proceedings on both charges, i.e. for concealing the particulars of income and furnishing inaccurate
7 M/s. Tata Communications Transformation Services Limited particulars of income. The AO levied the penalty on both the charges, i.e. for concealing the particulars of income and furnishing inaccurate particulars of income. Right from the assessment stages to levy of penalty, the AO has initiated penalty on both charges which is not the case as per the provisions of section 271(1)(c) as the two charges, i.e. concealment of particulars of income or furnishing of inaccurate particulars of income are two different connotations. The issue of notice u/s 274 r.w.s. 271(1)(c) goes to the root of the matter of assuming jurisdiction to levy penalty u/s 271(1)(c), therefore, before issuance of notice, the AO has to arrive at a satisfaction as to whether penalty proceedings are initiated for concealment of particulars of income or furnishing of inaccurate particulars of income. The AO cannot take both the charges for levying penalty by stating that the assessee has concealed particulars of income and also furnished inaccurate particulars of income.
The provisions of section 271(1)(c) are very clear and there is no ambiguity. On a plain reading of section 271(1)(c), it is very clear that clause (c) deals with two specific offences, that is to say, concealment of particulars of income or furnishing of 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 initiating penalty proceedings for one offence and finding the assessee guilty of another offence or holding him guilty for either one or the other cannot be sustained in law. This legal proposition is clearly reiterated by the Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory Ltd (supra) wherein it was categorically held that satisfaction of the existence of the grounds mentioned in section 271(1)(c) when it is a sine qua non initiation of proceedings, the penalty proceedings should be confined only to those grounds and the said ground should be specifically stated so that the assessee would have the opportunity to meet those grounds. Initiation of penalty on one ground and levying penalty on another ground would cause injustice to the assessee as the assessee was kept in blank to justify his case whether the AO sought to initiated penalty for concealment of particulars of income or furnishing of inaccurate particulars of income. If the proceedings are initiated on a specific charge, then, the assessee can justify its case by advancing arguments on the charge framed by the AO. Thus, once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. If penalty proceedings are initiated on one ground and levied penalty on different ground or penalty proceedings are initiated on two grounds, i.e. concealment of particulars of income and also furnishing of inaccurate particulars of income would definitely vitiate the entire penalty proceedings.
In this case, on perusal of the facts available on record it is abundantly clear that the AO has initiated penalty proceedings in the assessment order on both the grounds, i.e. concealment of particulars of income and also furnishing of inaccurate particulars of income. The AO also levied penalty on both the grounds of concealment of particulars of income and also furnishing of inaccurate particulars of income which is quite contrary to the provisions of section 271(1)(c) where it was categorically stated that both the charges are standing in a different footing and the AO has to initiate penalty proceedings for concealment of particulars of income
8 M/s. Tata Communications Transformation Services Limited or furnishing of inaccurate particulars of income. Initiation of penalty by injecting and in place of or would definitely go against the basic provisions of the Act. In this case, the AO has initiated penalty on both the grounds, which cannot be the case for initiation of penalty u/s 271(1)(c) of the Act. We further observe that it is not open to the authority, at the time of imposing penalty to impose penalty on the ground other than what assessee was called upon to meet otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would violate principles of natural justice and cannot be sustained. The validity of order of penalty must be determined with reference to the information, facts and materials in the possession of the authority imposing 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. The AO 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. As already stated, facts of some cases may attract both the offences. In case, the AO has made multiple additions, one may relates to concealment of particulars of income and another may relate to furnishing of inaccurate particulars of income, but single addition made cannot lead to an inference of concealment of particulars of income and furnishing of inaccurate particulars. Therefore, we are of the considered view that before initiation of penalty proceedings, the AO has to arrive at a correct satisfaction as to whether penalty is initiated for concealment of particulars of income or furnishing of inaccurate particulars of income. If the AO fails to initiate penalty proceedings by issuance of proper notice, then the whole penalty proceedings becomes vitiated and void ab initio.
Coming to the case laws relied upon by the assessee. The assessee has relied upon the decision of Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory vs CIT (supra), wherein the Hon'ble High Court has categorically observed that sending printed form of notice where all the grounds mentioned in section 271(1)(c) are mentioned would not satisfy requirement of law. Notice issued u/s 274 of the Act should specifically state the ground mentioned in section 271(1)(c), i.e. whether it is for concealment of income or for furnishing of inaccurate particulars of income. The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. Initiating the penalty proceedings on one limb and holding the assessee guilty of another limb is bad in law. The relevant portion of the order is extracted below:-
" 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 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 as case of furnishing of inaccurate particulars. The apex court in the case of Ashok Pai reported (2007) 292 ITR 11 (SC) at page 19 has held that concealnment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of Manu Engineering reported in 122 ITR 306 and the Delhi High Court in the case of Virgo Marketing P.Ltd., reported in 171 Taxman 156, has held that levy of 9 M/s. Tata Communications Transformation Services Limited penalty has to be clear as to the limb for which it is levied and the position 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 stand and proforma without striking of the relevant clauses will lead to an inference as to non-application of mind."
The assessee has relied upon decision of Hon'ble Bombay High Court in the case of CIT vs Samson Perinchery in Income Tax Appeal No.1154 of 2014 & Ors order dated 5th January, 2017. The Hon'ble Bombay High Court after considering the ratio laid down by the Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra) observed that the satisfaction of the AO with regard to only one of the two breaches mentioned in section 271(1)(c) of the Act for initiation of penalty proceedings will not warrant / permit penalty being imposed for the other breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated / notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground on which the penalty proceedings has been initiated and it cannot be on a fresh ground of which assessee has no notice. The relevant portion of the order is extracted below:-
"The above submission on the part of the Revenue is in the the decision of the Supreme Court in Ashok Pal v/s. CIT 292 ITR [relied upon in Manjunath Cotton & Ginning Factory (supra)] - wherein it is observed that concealment of income and furnishing of inaccurate particulars of income in Section 271(1)(c) of the Act, carry different meanings/ connotations. Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under Section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/ permit penalty being imposed for the other breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated / notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground on which the penalty proceedings has been initiated and it cannot be on a fresh ground of which assessee has no notice."
The assessee has also relied upon the decision of Hon'ble Supreme Court in the case of CIT vs SSA's Emerald Meadows (supra) wherein the Hon'ble Supreme Court dismissed SLP filed by the revenue by following the decision of the Karnataka High Court in the case of CIT vs Manjunatha Cotton & Ginning Factory (supra) by observing that notice issued u/s 274 r.w.s. 271(1)(c) was bad in law as it did not specify under which limb of section 271(1)(c), penalty proceedings had been initiated.
Coming to the case laws relied upon by the Ld. DR. The Ld. DR relied upon the decision of Hon'ble Bombay High Court in the case of CIT vs Smt.Kaushalya (supra). We have gone through the case law relied upon by the Ld. DR in the light of the facts of the present case and find that the ITAT, Mumbai in the case of DCIT vs Dr. Sarita Milind Davare in dated 21-12-2016 has considered the decision rendered by Hon'ble Bombay High Court in the light of Supreme Court judgement in the case of Dilip N Shroff 291 ITR 519 (SC) and observed that there 10 M/s. Tata Communications Transformation Services Limited should be application of mind on the part of the AO at the time of issuing notice. Since the co-ordinate bench has already considered the judgement of Hon'ble Bombay High Court, we are of the view that case law relied upon by the Ld.DR is not applicable to the facts of the present case.”
In so far as the judgment of the Hon’ble Judicial Bombay High Court in the case of M/s. Maharaj Garage & Company vs. CIT (supra) relied upon by the Ld. D.R., the co-ordinate bench of ITAT in the case of Indrani Sunil Pillai vs. ACIT in ITA No.1339/M/2016 dated 19.01.18 has considered the ratio of the Hon’ble Jurisdictional High Court in the case of M/s. Maharaj Garage & Company vs. CIT (supra) and held that the basic issue arising out of the reference application which tell for consideration of the Hon’ble Jurisdictional High Court was while granting previous approval by inspecting Assistant Commissioner as per provisions of section 271(1)(c)(iii) of the Act, whether the assessee was required to be given an opportunity of being heard. While considering the issue, the Hon'ble court observed that provisions of section 271(1)(c)(iii) does not attract rule of presumption of mensrea as the penalty imposed under the said provision is for the breach of civil obligation. The observations of the Hon’ble Court against issuance of show cause notice appear to be in the context of quantum of penalty proposed to be imposed and not with reference to the doing away with the issue of show cause notice as contemplated under section 274 of the Act.
In the view of the matter and consistent with the view taken by the co- ordinate bench in the case of M/s. Cenzar Industries Ltd. vs. ITO (supra), we are of the considered view that the penalty proceedings initiated by the AO by issue of notice under section 274 r.w.s 271(1)(c) without striking off the irrelevant portion of notice is a clear case of non application of mind by the AO, whether penalty has been initiated for concealment of particulars of income or furnishing of inaccurate particulars of income. We further noticed that the AO has issued printed form of notice without striking off irrelevant portion and also in the penalty order he does not specify under which charge
11 M/s. Tata Communications Transformation Services Limited penalty has been initiated. Therefore, we are of the considered view that the penalty proceeding initiated by the AO is bad in law and liable to be quashed. Hence, we quash the penalty proceedings and delete penalty levied by the AO under section 271(1)(c) of the Act.
In the result, appeal filed by the assessee is allowed.
Order pronounced in the open court on 21.02.2018.