DCIT 14(1)(1), MUMBAI, MUMBAI vs. MICHAEL PAGE INTERNATIONAL RECRUITMENT PRIVATE LIMITED, MUMBAI
Facts
The revenue appealed against the CIT(A)'s order deleting a penalty of Rs. 51,70,708 levied under Section 271(1)(c) of the Income Tax Act for AY 2011-12. The assessee filed a cross-objection, primarily challenging the validity of the penalty initiation notice under Section 274, arguing it failed to specify the precise charge (concealment or inaccurate particulars).
Held
The Tribunal, following the Bombay High Court precedent in Mohd. Farhan A. Shaikh, held that the penalty notice was invalid due to its ambiguity and failure to specify the exact charge. Consequently, the penalty imposed was deleted, and the assessee's jurisdictional ground was allowed, rendering other grounds academic.
Key Issues
Whether a penalty levied under Section 271(1)(c) is sustainable if the initiation notice issued under Section 274 fails to specifically mention the limb (concealment or furnishing inaccurate particulars) under which the penalty proceedings are initiated.
Sections Cited
22(1), 22(2), 22(4), 23(2), 34, 139(1), 139(2), 142(1), 143(2), 148, 260A, 271(1)(c), 274, Rule 34 of The Income Tax (Appellate Tribunal) Rules, 1963
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, D BENCH MUMBAI
Before: SHRI SATBEER SINGH GODARA & SHRI GIRISH AGRAWAL
IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH MUMBAI BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER
ITA No. 3090/MUM/2023 Assessment Year: 2011-12
Deputy Commissioner of Income Michael Page International Tax- 14(1)(1), Recruitment Pvt. Ltd., Mumbai Vs. 5th Floor, 2 North Avenue Maker Maxity, Bandra (East), Mumbai – 400 051 (PAN : AAGCM8425N) (Appellant) (Respondent)
CO No. 40/MUM/2024 Assessment Year: 2011-12
Michael Page International Deputy Commissioner of Recruitment Pvt. Ltd., Income Tax- 14(1)(1), 5th Floor, 2 North Avenue Maker Vs. Mumbai Maxity, Bandra (East), Mumbai – 400 051 (PAN : AAGCM8425N) (Appellant) (Respondent) Present for: Assessee : Ms. Hirali Desai, CA and Ms. Tejal Saraf, CA
Revenue : Smt. Mahita Nair, Sr. DR
Date of Hearing : 11.07.2024 Date of Pronouncement : 27.09.2024
O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: The appeal filed by the revenue and the Cross Objection filed by the assessee are against the order of Ld. CIT(A), National Faceless
2 ITA No.3090/M/2023 CO No.40/M/2024 Michael Page International Recruitment Pvt. Ltd., AY 2011-12 Assessment Centre, New Delhi, vide No. ITBA/NFAC/S/250/2023- 24/1053355719(1),dated 31.05.2023 passed against the penalty order of Assistant Commissioner of Income Tax – 14(1), Mumbai, u/s. 271(1)(c) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) dated 31.03.2018 for AY 2011-12.
Grounds of appeal taken by the Revenue are reproduced as under: “1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting penalty levied u/s. 271(1)(c) by holding that penalty is not leviable when two views are possible without elaborating the views of CIT(A) was referring to
On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding the expenses incurred by the assessee towards improvement of leasehold as revenue expenses ignoring the fact that the said expense were incurred for setting up of new business by the assessee with the objective of bringing enduring benefit to its business and therefore claiming same expenditure as revenue expenditure in the current year amounts to filing of inaccurate particular and hence penalty has to be levied u/s. 271(1)(c).
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in ignoring the fact that assessee has suo moto offered leasehold improvement expenses as capital expenditure in subsequent years and therefore claiming same expenditure as revenue expenditure in the current year amounts to filing of inaccurate particular and hence penalty has to be levied u/s. 271(1)(c).
The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored.”
2.1. Grounds of cross-objection taken by the assessee are reproduced as under:
“1. On the facts and in the circumstances of the case and in law, the Learned Assessing Officer (Ld. AO) erred in levying penalty amounting to Rs 51,70,708 under Section 271(1)(c) of the Act.
The Assessee prays that the penalty levied under Section 271(1)(c) of the Act be deleted.
On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer (the AO) erred in initiating the penalty proceedings for furnishing of inaccurate particulars of income but ultimately levying penalty for concealment of income relying upon Explanation: Clause B to section 271(1)(e) of the Act.
3 ITA No.3090/M/2023 CO No.40/M/2024 Michael Page International Recruitment Pvt. Ltd., AY 2011-12 The Assessee prays that the penalty levied under Section 271(1)(c) of the Act be deleted. 3. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer (the AO') erred in initiating the penalty proceedings without specifying the reason for penalty initiation under section 274 r.w.s. 271(1)(c) of the Act. The Assessee prays that the notice initiating penalty is ambiguous in the absence of clear mention of the limb under which penalty is initiated, the notice is therefore invalid, and the penalty is unsustainable hence the penalty proceedings ought to be dropped. 4. On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying penalty amounting to Rs 51,70,708 under Section 271(1)(c) of the Act. While doing so, the Ld. AO failed to appreciate that: • the Cross-objector had made full and adequate disclosure of all the material facts at the time of filing its return of income. • no penalty under Section 271(1)(c) of the Act can be levied when there are two plausible views or opinions on the issue. The Assessee prays that the penalty levied under Section 271(1)(e) of the Act be deleted. 5. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the Ld. AO erred in not granting relief while computing the amount of penalty to the extent of depreciation allowed to the Assessee. The Assessee prays that the relevant excess penalty levied under Section 271(1)(c) of the Act be deleted.”
The moot point raised before the Tribunal is in respect of imposition of penalty of Rs.51,70,708/-, u/s. 271(1)(c) of the Act. In the cross objection filed by the assessee, jurisdictional issue has been raised vide ground no.3 of the said cross objection, whereby it is contested that the impugned penalty proceedings were initiated without specifying a specific charge in the notice issued u/s. 274 r.w.s. 271(1)(c), which renders the said notice as invalid and therefore the penalty is unsustainable.
Assessee invited the attention of the Bench to the notice issued u/s. 274 r.w.s. 271(1)(c) of the Act, dated 31.03.2014 placed in the
4 ITA No.3090/M/2023 CO No.40/M/2024 Michael Page International Recruitment Pvt. Ltd., AY 2011-12 paper book at page -1, to point out that the appropriate words and paragraphs have not been deleted so as to be specific on the charge for which the impugned penalty proceedings are initiated. Scanned copy of the said notice is as under:
5 ITA No.3090/M/2023 CO No.40/M/2024 Michael Page International Recruitment Pvt. Ltd., AY 2011-12 4.1. From the perusal of the above said notice, it is pointed out that what is not appropriate has not been struck off for the purpose of initiating the proceeding for imposing penalty, i.e., whether it is for concealment of particulars of income or for furnishing of inaccurate particulars of income. Assessee thus, referring to the said notice submitted that no specific charge has been made out by the Ld. AO for imposition of penalty. He placed reliance on several judicial precedents including that of the Hon’ble jurisdictional High Court of Bombay in the case of Mohd. Farhan A. Shaikh Vs. DCIT (2021)125 taxmann.com 253(Bom), wherein the Hon’ble Court had come to the conclusion that unless the charge against the assessee is specific, the same could not be maintained. Thus, on this sole technical defect in the notice issued u/s. 274 read with section 271(1)(c) of the Act, the penalty so imposed is ought to be deleted.
Per contra, Ld. Sr. DR placed reliance on another decision of Hon’ble Jurisdictional High Court of Bombay in the case of Veena Estate (P) Ltd. Vs. CIT (2024) 158 taxmann.com 341 (BOM) to counter the submissions made by the Ld. Counsel for the assessee. She submitted that according to this decision, it is not a case of any real prejudice or a case of breach of principles of natural justice. The plea of defect in the notice cannot be an empty plea. Such plea can be accepted only when a demonstrable prejudice was to be set out by the assessee which would go to the root of the adjudication. According to her, in the said decision, the test of prejudice is inapplicable in the facts of the case. Thus, according to her, there is no defect in the notice so issued and the penalty so imposed is rightfully done by the Ld. Assessing Officer.
In the rebuttal, Ld. Counsel for the assessee strongly asserted that the facts of the case in the decision of Veena Estates (P) Ltd. (Supra) are
6 ITA No.3090/M/2023 CO No.40/M/2024 Michael Page International Recruitment Pvt. Ltd., AY 2011-12 peculiar and cannot be applied in general to every other case. He referred to para 1 of the said order to point out the peculiarities of the facts involved in this case. For this, from the first para, he read out the following: “The question is as to whether an alleged defect in the notice issued to the appellant u/s.271(1)(c) r.w.s.274 of the Act, in regard to which the appellant had never raised an objection from the very inception, i.e., since last 30 years (from 19.08.1993) can now be permitted to be raised, in the absence of any prejudice being caused to the appellant assesse.”
6.1. He further pointed out from para 3 of the said order that the appeal was admitted by the Hon’ble Court by order dated 14.09.2004 on the substantial question of law raised therein. He further referred to para 4 to point out that during the pendency of the hearing, it was only by oral application that a technical plea of vagueness in the notice was raised before the Hon’ble Court, thereby the question was recorded by passing an order on 13.07.2023 which is almost 20 years after the admission of the appeal along with its substantial question of law.
6.2. Ld. Counsel then referred to para 34 on the observation made by the Hon’ble Court where the Court questioned itself as to- “Should the Court now after more than 20 years of the order being passed by the Tribunal accept the contention as urged on behalf of the assessee that in these circumstances, the Court should accept the notice as issued to the assessee u/s.274 of IT Act was defective, and hence the proceedings would stand covered by the decision of the Coordinate Bench in this Court in Ventura Textiles Ltd. (Supra)”.
6.3. On this above questions raised by the Hon’ble Court unto itself, it expressed its opinion in para 35 to point out that case of Ventura Textile Ltd. was a case wherein the Court was considering an appeal u/s.260A of the IT Act, whereby for the first time an issue was raised as to whether the order passed u/s.271(1)(c) of the IT Act was bad in view of the fact that both, at the time of initiation as well as at the time of imposition of the penalty, the Assessing Officer was not clear as to which limb of
7 ITA No.3090/M/2023 CO No.40/M/2024 Michael Page International Recruitment Pvt. Ltd., AY 2011-12 section 271(1)(c) was attracting. It is in this context, the Division Bench of this Court considered the decision in regard to the two ingredients of Section 271(1)(c) being attracted in a notice to be issued for invoking the provisions for levy of penalty.
6.4. Ld. Counsel, further pointed out from para 63, the observation made by the Hon’ble Court - “Certainly such grievance cannot be raised, i.e., after 23 years, to be new invention, after the Assessing Officer had decided the issue.”
6.5. Thus, by pointing out the above referred peculiarities of facts and circumstances in the case of Veena Estates (P) Ltd. (Supra), Ld. Counsel distinguished its applicability in the present case of the assessee, as contended by the Ld. Sr.DR. She further submitted that at the time of issuing the notice u/s.274 r.w.s. 271(1)(c), Assessing Officer is not aware of the fact as to whether assessee is going in appeal or not on the quantum additions made. Hence, the notice so issued for initiating penalty proceedings must contain a specific charge out of the two charges contained in section 271(1)(c) for imposing a penalty on the assessee.
We note that in the present case before us, the facts and circumstances are altogether different from the peculiar set of facts as contained in the case of Veena Estates (P) Ltd. pointed out by the Ld. Counsel, as narrated above. The observations and findings arrived at by the Hon’ble Court in that case are specific to those peculiar set of facts. In the case of Mohd. Farhan A. Shaikh (Supra), the Hon’ble Jurisdictional High Court of Bombay had held that – “a contravention of a mandatory condition or requirement for a communication to be valid communication is fatal, with no further proof. That said, even if the notice contains no caveat that the inapplicable portion be deleted, it is in the interest of fairness and
8 ITA No.3090/M/2023 CO No.40/M/2024 Michael Page International Recruitment Pvt. Ltd., AY 2011-12 justice that the notice must be precise. It should give no room for ambiguity.”
We therefore, respectfully following the judicial precedent in the case of Hon’ble Jurisdiction High Court of Bombay in the case of Mohd. Farhan A. Shaikh (Supra) delete the penalty imposed in the present case, since similar facts are present in this appeal. Accordingly, ground no. 3 taken by the assessee in this respect is allowed. As ground no.3 taken by the assessee is allowed on the jurisdictional issue, all other grounds taken by assessee are rendered as academic in nature, so also grounds taken by the Revenue are rendered infructuous.
In the result, cross objection of assessee is allowed and appeal of the Revenue is dismissed.
Order pronounced on day of 27 September, 2024 under Rule 34 of The Income Tax (Appellate Tribunal) Rules, 1963
Sd/- Sd/- (Satbeer Singh Godara) (Girish Agrawal) Judicial Member Accountant Member
Dated: 27 September, 2024 MP, Sr.P.S. Copy to : 1 The Appellant 2 The Respondent 3 DR, ITAT, Mumbai 4 Guard File 5 CIT BY ORDER,
(Dy./Asstt.Registrar) ITAT, Mumbai
