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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Both these appeals preferred by the assessee are against the separate orders of Ld. CIT(A)-15, Kolkata dated 03.01.2018 for AY 2011-12 in respect of confirming the penalty imposed by the AO u/s. 271(1)(c) and 271E of the Income-tax Act, 1961 (hereinafter referred to as the “Act”). Since both the appeals have been heard together and facts are common, we dispose of both these appeals by this consolidated order for the sake of convenience.
First we take up the appeal filed against the order of Ld. CIT(A) in respect of penalty proceedings u/s. 271(1)(c) of the Act. In this appeal the assessee is aggrieved with the action of the Ld. CIT(A) in confirming the penalty imposed by the AO u/s. 271(1)(c) of the Act and also against the ex parte order passed by the Ld. CIT(A) without affording reasonable opportunity of being heard.
Briefly stated facts are that the AO initiated penalty proceedings u/s. 271(1)(c) of the Act on the following three counts: i) According to AO, as per cash book the receipts were shown as repayment of loan of Rs.l,70,000/- from Shyamal Biswas and Rs.19,000/- from Bishal Telecom but balance sheet for the A.Y. 2011-12 states that no such loan was given to the aforesaid persons. Further the AO found from tax audit report furnished by the assessee for A. Y. 2011-12 vide form 3CD that all the relevant columns of SI. No. 24 exhibits NIL which means that there was no opening balance of loan, maximum balance of loan during the year was NIL and the payment of loan during the year was also NIL. Hence, the sum of Rs.1,89,000/- (Rs.1,70,000/- Plus Rs. 19,000/-) was added back to the total income of the assessee under the head 'Income from. Other Sources' for the A. Y. 2011-12 and penalty proceedings u/s. 271(1)(c) of the Act was initiated for the A. Y. 2011-12 also. ii) According to AO as per purchase register, the assessee purchased post-paid easy by cash on different dates during financial year 2010-11 aggregating Rs.2,14,000/-, and payment made in cash for these purchase as per cash book on different dates during the F.Y. 2010-11 was Rs.1,65,000/-. Hence, excess purchase debited to the tune of Rs.49,000/- (Rs.2,14,000/- Minus Rs.1,65,000/-). The balance sheet for the A.Y. 2011-12 shows that there is no sundry creditors in this regards. Hence, Rs.49,000/- (Rs.2,14,000/- Minus Rs.1,65,000/-) was added back to the total income of the assessee. Penalty proceedings u/s. 271(l)(c) of the Act was initiated. iii) The AO found loan as per balance sheet as on 31-03-2011 was Rs.6,20,000/- but as per cash book, he found that assessee has given loan to Shyamal Biswas on various dates aggregating to Rs.6,78,354/-. Hence, Rs.58,354/- (Rs.6,78,354/- Minus Rs.6,20,000/-) was understated in the balance sheet for the A. Y. 2011-12. Keeping in view of the above inconsistency/irregularities/non-reconciliation, the said sum of Rs.58,354/- was added to taxable income under the head of "Income from undisclosed sources" and penalty proceedings u/s. 271(l)(c) of the was initiated and imposed penalty of Rs.49,740/- being 100% of tax sought to be evaded u/s. 271(1)(c) of the Act. Aggrieved, assessee preferred appeal before the Ld. CIT(A), who confirmed the action of the AO. Aggrieved, assessee is before us.
We have heard rival submissions and gone through the facts and circumstances of the case and perused the records. At the time of hearing the Ld. AR drew our attention to the penalty notice issued on 24.03.2014, wherein both the limbs of the default i.e. concealment of income and furnishing of inaccurate particulars of income are given together. So, according to Ld. AR, the penalty notice itself is defective because assessee has not been put to notice about which default the AO proposes to levy penalty and relied on the decision of Hon’ble Karnataka High Court in the case of CIT vs. SSA’s Emerald Meadows in of 2015 dated 23.11.2015 wherein the Hon’ble Karnataka High Court following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory (2013) 359 ITR 565 took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. The ld. Counsel further brought to our notice that as against the decision of the Hon’ble Karnataka High Court the revenue preferred an appeal in SLP in CC No.11485 of 2016 and the Hon’ble Supreme Court by its order dated 05.08.2016 dismissed the SLP preferred by the department. The ld. Counsel also brought to our notice the decision of the Hon’ble Bombay High Court in the case of CIT vs Shri Samson Perinchery in ITA No.1154 of 2014 dated 05.01.2017 wherein the Hon’ble Bombay High Court following the decision of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning factory (supra) came to the conclusion that imposition of penalty on defective show cause notice without specifying the charge against the assessee cannot be sustained. Our attention was also drawn to the decision of ITAT in the case of Suvaprasanna Bhattacharya vs ACIT in ITA No.1303/Kol/2010 dated 06.11.2015 wherein identical proposition has been followed by the Tribunal.
Ld. DR vehemently opposed the submission of the Ld. AR and has cited various case laws to oppose the case laws suggested by the Ld. AR. We note that all the case laws cited before us by the Ld. DR has been dealt with elaborately by the Coordinate Bench of this Tribunal in the case of Jeetmal Choraria Vs. ACIT, for AY 2010-11 dated 01.12.2017, wherein the Tribunal has noted as under:
“7. The learned DR submitted that the Hon’ble Calcutta High Court in the case of Dr.Syamal Baran Mondal Vs. CIT (2011) 244 CTR 631 (Cal) has taken a view that Sec.271 does not mandate that the recording of satisfaction about concealment of income must be in specific terms and words and that satisfaction of AO must reflect from the order either with expressed words recorded by the AO or by his overt act and action. In our view this decision is on the question of recording satisfaction and not in the context of specific charge in the mandatory show cause notice u/s.274 of the Act. Therefore reference to this decision, in our view is not of any help to the plea of the Revenue before us.
8. The learned DR relied on three decisions of Mumbai ITAT viz., (i) Dhanraj Mills Pvt. Ltd. Vs. ACIT & 3833/Mum/2009 dated 21.3.2017; (ii) Earthmoving Equipment Service Corporation Vs. DCIT 22(2), Mumbai, (2017) 84 taxmann.com 51 (iii) Mahesh M.Gandhi Vs. ACIT Vs. ACIT ITA No.2976/Mum/2016 dated 27.2.2017. Reliance was placed on two decisions of the Hon’ble Bombay High Court viz., (i) CIT Vs. Kaushalya 216 ITR 660(Bom) and (ii) M/S.Maharaj Garage & Co. Vs. CIT dated 22.8.2017. This decision was referred to in the written note given by the learned DR. This is an unreported decision and a copy of the same was not furnished. However a gist of the ratio laid down in the decision has been given in the written note filed before us.
In the case of CIT Vs. Kaushalya (supra), the Hon’ble Bombay High Court held that section 274 or any other provision in the Act or the Rules, does not either mandate the giving of notice or its issuance in a particular form. Penalty proceedings are quasi-criminal in nature. Section 274 contains the principle of natural justice of the assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining a complaint of failure of the Principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice is caused to the concerned person by the procedure followed. The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The ITAT Mumbai Bench in the case of Dhanraj Mills Pvt.Ltd. (supra) followed the decision rendered by the Jurisdictional Hon’ble Bombay High court in the case of Kaushalya (supra) and chose not to follow decision of Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra). Reliance was also placed by the ITAT Mumbai in this decision on the decision of Hon’ble Patna High court in the case of CIT v. Mithila Motor's (P.) Ltd. [1984] 149 ITR 751 (Patna) wherein it was held that under section 274 of the Income-tax Act, 1961, all that is required is that the assessee should be given an opportunity to show cause. No statutory notice has been prescribed in this behalf. Hence, it is sufficient if the assessee was aware of the charges he had to meet and was given an opportunity of being heard. A mistake in the notice would not invalidate penalty proceedings.
In the case of Earthmoving Equipment Service Corporation (supra), the ITAT Mumbai did not follow the decision rendered in the case of Manjunatha Cotton & Ginning Factory (supra) for the reason that penalty in that case was deleted for so many reasons and not solely on the basis of defect in show cause notice u/s.274 of the Act. This is not factually correct. One of the parties before the group of Assessees before the Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) was an Assessee by name M/s.Veerabhadrappa Sangappa & Co., in OF 2009 which was an appeal by the revenue. The Tribunal held that on perusal of the notice issued under Section 271(1)(c) of the Act, it is clear that it is a standard proforma used by the Assessing Authority. Before issuing the notice the inappropriate words and paragraphs were neither struck off nor deleted. The Assessing Authority was not sure as to whether she had proceeded on the basis that the assessee had either concealed its income or has furnished inaccurate details. The notice is not in compliance with the requirement of the particular section and therefore it is a vague notice, which is attributable to a patent non application of mind on the part of the Assessing authority. Further, it held that the Assessing Officer had made additions under Section 69 of the Act being undisclosed investment. In the appeal, the said finding was set-aside. But addition was sustained on a new ground, that is under valuation of closing stock. Since the Assessing Authority had initiated penalty proceedings based on the additions made under Section 69 of the Act, which was struck down by the Appellate Authority, the initiated penal proceedings, no longer exists. If the Appellate Authority had initiated penal proceedings on the basis of the addition sustained under a new ground it has a legal sanctum. This was not so in this case and therefore, on both the grounds the impugned order passed by the Appellate Authority as well as the Assessing Authority was set-aside by its order dated 9th April, 2009. Aggrieved by the said order, the revenue filed appeal before High Court. The Hon’ble High Court framed the following question of law in the said appeal viz., 1. Whether the notice issued under Section 271(1)(c) in the printed form without specifically mentioning whether the proceedings are initiated on the ground of concealment of income or on account of furnishing of inaccurate particulars is valid and legal? 2. Whether the proceedings initiated by the Assessing Authority was legal and valid? The Hon’ble Karnataka High Court held in the negative and against the revenue on both the questions. Therefore the decision rendered by the ITAT Mumbai in the case of Earthmoving Equipment Service Corporation (supra) is of no assistance to the plea of the revenue before us.
In the case of M/S.Maharaj Garage & Co. Vs. CIT dated 22.8.2017 referred to in the written note given by the learned DR, which is an unreported decision and a copy of the same was not furnished, the same proposition as was laid down by the Hon’ble Bombay High Court in the case of Smt.Kaushalya (supra) appears to have been reiterated, as is evident from the extracts furnished in the written note furnished by the learned DR before us.
In the case of Trishul Enterprises & 385/Mum/2014, the Mumbai Bench of ITAT followed the decision of the Hon’ble Bombay High Court in the case of Smt.Kaushalya (supra).
In the case of Mahesh M. Gandhi (supra) the Mumbai ITAT the ITAT held that the decision of the Hon’ble Karnataka High Court in the case Manjunatha Cotton & Ginning (supra) will not be applicable to the facts of that case because the AO in the assessment order while initiating penalty proceedings has held that the Assessee had concealed particulars of income and merely because in the show cause notice u/s.274 of the Act, there is no mention whether the proceedings are for furnishing inaccurate particulars or concealing particulars of income, that will not vitiate the penalty proceedings. In the present case there is no whisper in the order of assessment on this aspect. We have pointed out this aspect in the earlier part of this order. Hence, this decision will not be of any assistance to the plea of the revenue before
us. Even otherwise this decision does not follow the ratio laid down by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) in as much as the ratio laid down in the said case was only with reference to show cause notice u/s.274 of the Act. The Hon’ble Court did not lay down a proposition that the defect in the show cause notice will stand cured if the intention of the charge u/s.271(1) (c ) is discernible from a reading of the Assessment order in which the penalty was initiated.
From the aforesaid discussion it can be seen that the line of reasoning of the Hon’ble Bombay High Court and the Hon’ble Patna High Court is that issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The Tribunal Benches at Mumbai and Patna being subordinate to the Hon’ble Bombay High Court and Patna High Court are bound to follow the aforesaid view. The Tribunal Benchs at Bangalore have to follow the decision of the Hon’ble Karnataka High Court. As far as benches of Tribunal in other jurisdictions are concerned, there are two views on the issue, one in favour of the Assessee rendered by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) and other of the Hon’ble Bombay High Court in the case of Smt.Kaushalya. It is settled legal position that where two views are available on an issue, the view favourable to the Assessee has to be followed. We therefore prefer to follow the view expressed by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra).
We have already observed that the show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld. Counsel for the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present case cannot be sustained and the same is directed to be cancelled.”
Respectfully following the aforesaid order of the coordinate bench of this Tribunal, we, therefore, hold that imposition of penalty and subsequently confirmed by the Ld. CIT(A) in the present case cannot be sustained. Therefore, appeal of assessee is allowed.
Now coming to assessee’s appeal in respect of penalty imposed u/s. 271E of the Act. Briefly stated facts are that according to AO the assessee admitted to have made loan repayment in cash for Rs. 2,00,000/- violating the provision of sec. 269T of the Act. According to AO, the said payment of Rs.2,00,000/- is nothing but excess repayment of loan which was not depicted in the Balance Sheet. According to AO, the assessee also failed to reconcile the excess repayment not depicted in the assets side of the Balance Sheet for the AY 2011-12. Secondly, according to AO, in the cash book, it was clearly mentioned that all the relevant transactions were in the nature of repayment of unsecured loan, whereas the assessee in her reply to the show cause notice vide letter dated 5.3.2014 stated that those were purchased from Aparna Biswas, firm, for Rs.3,06,934/- without producing any bills/vouchers. According to AO, it is also seen from the books that the said amount of Rs.3,06,934/- was not shown as purchases. So the AO concluded that the assessee has concocted the story which is unreliable and not cogent in nature and thus the assessee has violated the provision of section 269T of the Act. Hence, both the amounts of Rs. 2,00,000/- and Rs.3,06,934/- was added back to the total income of the assessee under the head Income from other sources and Penalty proceedings u/s.271E of the Act was initiated separately for violation of sec. 269T of the Act. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who confirmed the action of AO. Aggrieved, assessee is before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the ITO, Wd-49(1), Kolkata has issued the show cause notice on 24.03.2014 which fact has been acknowledged by the Joint Commissioner of Income-tax at the first para of the impugned penalty order dated 29.09.2014. We note that the coordinate bench of this Tribunal has cancelled the penalty on the ground that the ITO initiated penalty proceeding u/s. 271D or 271E of the Act. That the coordinate bench of this Tribunal vide order dated 09.08.2012 in in the case of Bishwanath Dutta Vs. Addl. CIT, Range Bankura and the Special Bench Chandigrh ITAT in the case of Dewan Clutnd Amrit Lal Vs. DCIT (2006) 283 ITR (AT) 203 (Chd)(SB) have taken the view that the authority competent to impose penalty u/s. 271D or 271E of the Act is vested with Dy. CIT (now Jt. CIT) and AO does not have the power either to initiate the penalty proceeding or to impose the same. It was observed in that orders that there is no procedure for reference by the AO to the competent authority for imposition of penalty u/s. 271D or 271E of the Act. Therefore, if the JCIT imposes penalty without issuing show cause notice and initiating penalty proceedings u/s. 271D or 271E of the Act, then the imposition of such penalty is liable to be cancelled on the ground that there was no valid show cause notice issued and, therefore, initiation of penalty proceedings itself is invalid. Applying the ratio on the facts and circumstances of the case as discussed above, since the JCIT has not issued any show cause notice and admittedly the show cause notice was issued by the ITO, Wd-49(1), Kolkata the penalty levied u/s. 271E of the Act is vitiated and so cancelled.
In the result, both the appeals of assessee are allowed.