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Income Tax Appellate Tribunal, ‘A’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI ABRAHAM P. GEORGE]
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER These are appeal and cross objection of the Revenue and
assessee respectively directed against an order dated 23.1.2017 of ld. Commissioner of Income Tax (Appeals)-18, Chennai. Appeal of the
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Revenue has been filed with a delay of 2 days. Condonation petition is
on record. Delay is condoned and appeal admitted.
Cross Objection of the assessee assails levy of penalty for
the impugned assessment year for a reason that notice issued for levy
of penalty was ambiguous and was not valid due to this infirmity.
Since assessee had questioned the very validity of initiation of the
penalty, this is considered first.
Ld. Counsel for the assessee submitted that notice issued to
the assessee u/s.274 r.w.s. Section 271AAB of the Income Tax Act,
1961 (in short ‘’the Act’’) was vague. According to him, the reason for
initiating the penalty proceeding was not clear from such income. As
per the Ld. Authorised Representative, by virtue of judgments of
Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton
and Ginning Factory, 359 ITR 565 and that of CIT vs. SSA’s Emerald
Meadows (ITA No.380/2015, dated 23.11.2015. proceedings based on
a vague penalty notice were void. Ld. Authorised Representative,
pointed out that the judgment of Hon’ble Karnataka High Court in the
case of SSA’s Emerald Meadows (supra) stood affirmed by the Hon’ble
Apex Court in CC No.11485 of 2017 dated 05.08.2016. Ld. Authorised
Representative submitted that assessee had raised a ground before
the ld. Commissioner of Income Tax (Appeals)questioning the validity
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of the notice. As per the ld. Authorised Representative, though ld.
Commissioner of Income Tax (Appeals) reduced the levy of penalty
under section 271 AAB from 30% to 10%, he had not disposed off the
ground assailing the validity of the notice issued to the assessee.
Contention of the ld. Authorised Representative was that the notice
being bad in law, levy of penalty had to be quashed.
Per contra, ld. Departmental Representative submitted that
notice issued to the assessee was one under Section 274 r.w.s. 271
AAB of the Act and not under Section 274 r.w.s. 271(1) (c) of the Act.
As per the ld. Departmental Representative, ld. Assessing Officer had
in the such notice dated 13.08.2014, clearly mentioned the
proceedings to have been initiated for having undisclosed income
within the meaning of Section 271AAB of the Act. Thus, according to
him, notice was not at all vague and assessee could not take
advantage of the judgments of Hon’ble Karnataka High Court in the
case of Manjunatha Cotton and Ginning Factory (supra) SSA’s Emerald
Meadows (supra). Further, as per the ld. Departmental Representative,
ld. Commissioner of Income Tax (Appeals) had reduced the penalty
levied on the assessee from 30% to 10% and the Department was in
appeal against such reduction.
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We have considered the rival contentions and perused the
orders of the authorities below. Notice issued to the assessee u/s.274
r.w.s.271 AAB of the Act is reproduced hereunder:-
NOTICE UNDER SECTION 274 READ WITH SECTION 271AAB OF THE INCOME TAX ACT, 1961
PAN: AADPE1841Q Office of Deputy Commissioner of Income-tax, Central Circle-I, Coimbatore. Date: 13.08.2014 To Shri.R.Elangovan 821/2, Kallipalayam, Chikkarampalayam Post, Karamadai - 641104
Whereas in the course of the proceedings before me for the Assessment Year 2013 - 14. It appears to me that you:- *have without reasonable cause failed to furnish the return of income which you were required to furnish by a notice given under section 22( 1 )/22(2)/3 4 of the Indian Income tax Act 1922 or which you were required to furnish under section 139(1) or by a notice given under section 13 9(2)/148 of the Income tax l\ct, 1961, No. dated or have without reasonable cause failed to furnish it within the time allowed and in the manner required by the said section 139(1) or by such notice.
*have 'without reasonable cause failed to comply with a notice under section 22(4 )/23 (2) of the Indian Income tax Ad, 1922 or under section 142(1 )/143 (2) of the Income tax Act, 1961 No dated ___________________
*have concealed the particulars of your income or………………………._ furnished inaccurate particulars of such income. *have undisclosed income within the meaning of section 271AAB of the IT Act.
You are hereby requested to appear before me at 10.30 AM on
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12/09/2014and show cause why an order imposing a penalty on you should not be made under section 271 of the Income-tax Act 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative you may show cause in writing on or before the said date which will be considered before any such order is made under section 271.
(A. ANANDA KUMAR, IRS) Deputy Commissioner of Income Tax Central Circle –I, Coimbatore.
Ld. Assessing Officer had not scored out any one of the two limbs in
such notice, viz have concealed the particulars of income or furnished
inaccurate particulars of such income or have undisclosed income
within the meaning of Section 271AAB of the Act. Nor did he
specifically mention, on which clause assessee was answerable. No
doubt the caption of the notice do mentioned that it was being issued
u/s.274 r.w.s. 271AAB of the Act. Section 271AAB is reproduced
hereunder:-
‘’ (1) The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of July, 2012, the assessee shall pay by way of penalty, in addition to tax, if any, payable by him,— (a) a sum computed at the rate of ten per cent. of the undisclosed income of the specified previous year, if such assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, admits the undisclosed income and specifies the manner in which such income has been derived ; (ii) substantiates the manner in which the undisclosed income was derived ; and (iii) on or before the specified date— (A) pays the tax, together with interest, if any, in respect of the undisclosed income ; and
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(B) furnishes the return of income for the specified previous year declaring such undisclosed income therein ; (b) a sum computed at the rate of twenty per cent. of the undisclosed income of the specified previous year, if such assessee— (i) in the course of the search, in a statement under sub-section (4) of section 132, does not admit the undisclosed income ; and (ii) on or before the specified date— (A) declares such income in the return of income furnished for the specified previous year ; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income ; (c) a sum which shall not be less than thirty per cent. but which shall not exceed ninety per cent. of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (2) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). (3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation For the purposes of this section,— (a) “specified date” means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be ; (b) “specified previous year” means the previous year— (i) which has ended before the date of search, but the date of furnishing the return of income under sub-section (1) of section 139 for such year has not expired before the date of search and the assessee has not furnished the return of income for the previous year before the date of search ; or (ii) in which search was conducted ; (c) “undisclosed income” means— (i) any income of the specified previous year represented, either wholly or partly, by any money, bullion, jewellery or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132, which has—
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(A) not been recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous year ; or
(B) otherwise not been disclosed to the Chief Commissioner or Commissioner before the date of search ; or
(ii) any income of the specified previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the specified previous year which is found to be false and would not have been found to be so had the search not been conducted’’.
It is clear from the Sub Section (3) of Section 271 AAB that Sections
274 and Section 275 of the Act shall, so far as may be, apply. Sub
Section (1) of Section 274 of the Act mandates that order imposing
penalty has to be imposed only after hearing the assessee or giving a
assessee opportunity of hearing. Opportunity that is to be given to the
assessee should be a meaningful one and not a farce. Notice issued
to the assessee reproduced (supra), does not show whether penalty
proceedings were initiated for concealment of income or for furnishing
inaccurate particulars of income or for having undisclosed income
within the meaning of Section 271AAB of the Act. Notice in our
opinion was vague. Hon’ble Karnataka High Court in the case of SSA’s
Emerald Meadows (supra) relying in its own judgment in the case of
Manjunatha Cotton and Ginning Factory (supra) had held as under:-
‘’2. This appeal has been filed raising the following substantial questions of law: (1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate
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particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and invalid despite the amendment of Section 271(1B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same? (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income?
The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’) to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565. 4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed’’.
In the earlier case of Manjunatha Cotton and Ginning Factory (supra)
their lordship had observed as under:-
‘’Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c) ,
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i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law ; The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are offended. On the basis of such proceedings, no penalty could be imposed on the assessee ; ) taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law ; penalty proceedings are distinct from the assessment proceedings : though proceedings for imposition of penalty emanate from proceedings of assessment, they are independent and a separate aspect of the proceedings ; The findings recorded in the assessment proceedings in so far as “concealment of income” and “furnishing of incorrect particulars” would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the proceedings on the merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared invalid in the penalty proceedings’’. View taken by the Hon’ble Karnataka High Court in the above
judgment was indirectly affirmed by the Hon’ble Apex Court, when it
dismissed an SLP filed by the Revenue against the judgment in the
case of SSA’s Emerald Meadows (supra), specifically observing that
there was no merits in the petition filed by the Revenue. Considering
the above cited judgments, we hold that the notice issued u/s.274
r.w.s. 271AAB of the Act, reproduced by us at para 5 above was not
valid. Ex-consequenti, the penalty order is set aside.
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Since we have set aside the penalty order for the impugned
assessment year, the appeal filed by the Revenue has become infructuous.
In the result, Cross Objection of the assessee is allowed 7.
whereas appeal of the Revenue is dismissed as infructuous.
Order pronounced on Thursday, the 5th day of April, 2018, at Chennai.
Sd/- Sd/- (एन.आर.एस. गणेशन)) (अ�ाहम पी. जॉज�) (N.R.S. GANESAN) (ABRAHAM P. GEORGE) लेखा सद�य/ACCOUNTANT MEMBER �या�यक सद�य/JUDICIAL MEMBER चे�नई/Chennai �दनांक/Dated:5th April, 2018 KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF