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Income Tax Appellate Tribunal, A Bench, Mumbai
Before: Shri D.T. Garasia & Shri Rajesh Kumar
The only issue raised by the assessee in the grounds of appeal is against the confirmation of penalty by CIT(A) as levied by the AO under Section 271(1)(c) of the Income Tax Act, 2016 (hereinafter “the Act”). The assessee also filed additional ground on technical and legal issue challenging the validity of the order imposing penalty vide letter dated 26.09.2007 which is reproduced as under: -
“1. On the facts and circumstances of the Appellant’s case and in Law, the notice issued under Section 274 read with section 271(1)(c) by the Ld. Assessing Officer in a mechanical manner without recording any satisfaction is bad in law and the consequential penalty order passed under Section 271(1)(c) of the Act is bad in law and not sustainable in the eyes of law.”
2 & 1392/M/2015 Shri Anil V. Mehta 3. We shall first deal with the legal issue raised by the assessee in the additional ground of appeal. The learned A.R. pointed out that the additional ground of appeal raised by the assessee involves a point of law for which the necessary evidences are available on record and therefore the same be admitted for adjudication as the same do not require any further verification of record.
The learned D.R., on the other hand, submitted that the issue raised by the assessee was not raised before the lower Authorities.
We heard the rival submissions and perused the material on record. A perusal of the additional ground of appeal reveals that the issue involved is purely a legal and technical issue and it does not require any further verification of facts and therefore the same deserves to be admitted for adjudication as the same involves a point of law. The case of the assessee is duly supported by the ratio laid down by the Hon'ble Supreme Court in the cases of National Thermal Power Corporation Ltd. vs. CIT 229 ITR 283 and Jute Corporation of India Ltd. 187 ITR 688. It is clear that the issue raised by the assessee in the additional ground goes to the root of the jurisdiction of the AO to impose penalty under Section 271(1)(c) of the Act and therefore the same is relevant for determining the liability of the assessee to pay penalty under Section 271(1)(c) of the Act. In view of these facts the additional ground of the assessee is admitted for adjudication.
6. The legal issue raised by the assessee is that notice under Section 274 r.w.s, 271(1)(c) of the Act has been issued by the AO in a mechanical manner without recording any satisfaction and without striking off one of the two limbs, i.e. concealment of income or furnishing of inaccurate particulars of income, consequently the penalty order passed by the AO under Section 271(1)(c) is bad in law and the same should be quashed.
The learned A.R. vehemently submitted before us that the notice has been issued by the AO in a mechanical manner without striking off one of the two limbs under which penalty was proposed to be levied and therefore the assessee was deprived of the opportunity to be heard on specific charge
3 & 1392/M/2015 Shri Anil V. Mehta thereby causing miscarriage of principles of natural justice as the assessee was not knowing on which limb the penalty was being levied and therefore the penalty order is bad in law. He further submitted that the act of the AO clearly shows non application of mind in as much as the same has been issued in the standard format without striking off the irrelevant portion of the notes. The assessee relied on following decisions wherein similar issue has been raised and penalty was deleted due to non striking of irrelevant portion in the notice issues under Section 271(1)(c): - i. Meherjee Cassinath Holdings Pvt. Ltd., dated 28.04.2017 ii. Jehangir HC Jehangir, ITA No. 1261/Mum/2011 dated 17.05.2017 iii. M/s. Wadhwa Estate & Developers India Pvt. Ltd., ITA No. 2158/Mum/2016 dated 24.02.2017 iv. Shri Samson Perinchery, ITA Nos. 1154 of 2014, 953 of 2014, 1097 of 2014 & 1226 of 2014 dated 05.01.2017 (Hon'ble Bombay High Court) v. M/s. SSA's Emerald Meadows, CC No. 11485/2016 dated 05.08.2016 (Hon'ble Supreme Court) vi. M/s. SSA's Emerald Meadows, ITA No. 380 of 2015 dated 23.11.2015 (Hon'ble Karnataka High Court) vii. Mrs. Piedade Perinchery, ITA No. 1310 of 2014 dated 10.01.2017 (Hon'ble Bombay High Court) 8. The learned D.R., on the other hand, pointed out that the intention of the AO was already communicated to the assessee in the assessment order where the penalty proceedings has been initiated on both the limbs, i.e. concealment of income and furnishing of inaccurate particulars of income and similarly the notice was also issued without striking off any of the two limbs. However, finally was imposed for furnishing of inaccurate particulars of income. The learned D.R. submitted that the assessee was given full particulars before levying penalty and a very detailed discussion was made in the penalty order after considering the reply of the assessee. Therefore, non striking of the irrelevant portion in the penalty notice issued under Section 274 r.w.s. 271(1)(c) of the Act dated 27.12.2010 does not create any ambiguity as the assessee was aware that the penalty proceedings have been initiated for concealment of income as well as 4 & 1392/M/2015 Shri Anil V. Mehta furnishing of inaccurate particulars of income. Further the CIT-DR relied on the decision in the case of CIT vs. Smt. Kaushalya & Others 216 ITR 660 (Bom) and the decision of the ITAT Delhi Benches in the case of Shilpy Sharma vs Income Tax Officer in ITA No. 3728/Mum/2014 in support of his arguments and prayed before the Bench that the order of the CIT(A) be sustained on this issue considering the ratio laid down in the aforesaid decisions.
We heard the rival submissions and perused the material on record including the impugned order and decisions referred by both the parties. The undisputed facts are that the AO, while framing the assessment under Section 143(3) of the Act initiated penalty proceedings for concealment of income and filing of inaccurate particulars of income, thus thereby initiating penalty proceedings for both the limbs. Similarly, while issuing penalty notice under Section 274 r.w.s. 271(1)(c) of the Act dated 27.12.2010 did not strike off one of the two limbs which was relevant thus the assessee was not appraised of the exact charge on which penalty was proposed to be levied. Thus, we are of the view that it is mandatory on the part of the AO to specify specifically the charge on which penalty is proposed to be levied and non striking of the relevant portion would go to the root of the jurisdiction of the AO to pass penalty order. The case of the assessee is clearly covered by the judgements of the Hon'ble Karnataka High Court in the cases of Manjunatha Cotton and Ginning Factory 359 ITR 565 and M/s. SSA’s Emerald Meadows in of 2015 dated 23.11.2015 wherein the SLP filed before the Hon'ble Supreme Court was also dismissed. In the case of Shri Samson Perinchery in ITA Nos. 1154 of 2014, 953 of 2014, 1097 of 2014 and 1126 of 2014 dated 05.01.2017 the Hon'ble Bombay High Court has held that the order imposing penalty under Section 271(1)(c) of the Act has to be made only on the ground on which penalty proceedings has been initiated. In view of the ratio laid down in these decisions we are of the view that in the assessment order the penalty was initiated on both the limbs whereas it was finally imposed of orders passed by the AO under Section 274 r.w.s. 271(1)(c) imposing penalty suffer from serious jurisdictional
In the result, the appeals filed by the assessee are allowed.