THE THANE DISTRICT CENTRAL CO. OP. BANK LTD,THANE vs. ACIT CIR 3, THANE

The assessee has filed the present appeal against the order of the CIT(A) -2, Mumbai, dated 30.07.2015, pertaining to A.Y. 2009-10, confirming the penalty levied by the AO u/s. 271(1)(c) of the I.T.Act.

The assessee has raised the following grounds of appeal:

The learned CIT (A)-2 Thane failed to appreciate that the bank has claimed deduction u/s. 36(1) (vital in good faith and on the basis of then available data from the branches with the bank which is not amounts to concealment of income or furnishing inaccurate particulars of income as envisaged u/s. 271(1) (c) of Income tax Act, 1961. Further failed to appreciate that irrespective the deduction claimed u/s.36(l)(viia) is restricted to the bad & doubtful debt provision made in the profit & loss account Rs6,0000,000/- In place of claim of Rs31,49,58717/- which is considerably less than the claimed in the return of income.

The learned CIT A)-2 Thane failed to appreciate and understand that penalty is liable only on account of conscious concealment of income or for providing conscious inaccurate particulars and deliberate concealment is still necessary ingredient for imposing penalty u/s 271(l)c) for concealment of income which is not at all in your appellant case 6. Hence the penalty order confirmed by the CIT (A) 2-mane is completely overlooking the material facts, baseless, ignoring law, against principles and natural justice, bad in law since by no stretch of imagination making of an incorrect/excess claim in law and finding of claim is excess according to judicial pronouncement/ judgments not tantamount to furnishing inaccurate particulars or concealment of income. The Appellant, therefore, prays that the impugned penalty order of ACIT circle-3 Thane and confirmed by CIT (A)-2 mane deserved to be quashed in tore.

We have heard the arguments advanced by the Ld. Representative of the parties and perused the record. The Ld. Representative of the assessee has argued that in the similar circumstances for the A.Y.2008-09 the Hon’ble ITAT has deleted the penalty in the assessee’s own case in therefore in the said circumstances the penalty is liable to be deleted. It is also argued that the assessment order speaks about initiation of penalty but nowhere disclose about the particular limb to levy the penalty, therefore the penalty is not liable to be sustainable in view of the law settled in CIT Vs. Manjunath Cotton and Ginning Factory 359 ITR 565. It is also argued that the penalty notice nowhere depicted about the particular limb, therefore, no penalty is leviable in view of the law settled in CIT Vs. Manjunath Cotton and Ginning Factory 359 ITR 565 and CIT Vs. Samsung Perinchary 392 ITR page 4. It is also argued that declining of the claim of the CIT Vs. Reliance Petro Product 322 ITR 158 (SC). However, on the other hand, the Ld. Representative of the department has refuted the said contentions. In view f the argument advanced by the learned representative of the parties and perusing the record we noticed that the claim of the assessee for the A.Y.2008-09 in view of the provision u/s. 36(1)(viia) of the Act has been declined by the AO and accordingly, the penalty was levied. The assessee filed an appeal before the ITAT in ITA No.3043/Mum/2015 in which the penalty has been deleted vide order dated 17.06.2017. The relevant para of the decision of the above said ITA No.3043/Mum/2015 is hereby reproduced as under:-

We have considered the rival submission of the parties and have gone through the order of authorities below. We have perused the copy of show-cause notice u/s 274 r.w.s. 271(1)(c) of the Act dated 19.01.2011. The said notice does not contain the reference about the specific charge if it was issued for concealment of particulars of income or for furnishing inaccurate particulars. The ld. AR of the assessee, as we have referred earlier argued that notice was issued without specifying the charge. We find force in the submissions of ld. AR for the assessee, that the notice does not contain any reference about the specific charge, if the same was issued for concealment of income or furnishing inaccurate particulars. The ld. AR of the assessee besides the other relied upon the decision of Hon’ble jurisdictional High Court in CIT vs. Samson Perinchary (supra) and the decision of Meherjee Cassinath Holdings P. Ltd. (supra), ( in which one of us is coauthored) In the said decision, the Co- ordinate Bench of this Tribunal made the following observations:

The impugned order, therefore, suffers from non-application of mind. It was also bound to comply with the principles of natural justice. (See Malabar Industrial Co. Ltd. v. CIT [2000] 2 SCC 718]"

Factually speaking, the aforesaid plea of assessee is borne out of record and having regard to the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the notice in the instant case does suffer from the vice of non- application of mind by the Assessing Officer. In fact, a similar proposition was also enunciated by the Hon'ble Karnataka High Court in the case of M/s. SSA's Emerald Meadows (supra) and against such a judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Hon'ble Supreme Court vide order dated 5.8.2016, a copy of which is also placed on record.

In fact, at the time of hearing, the ld. CIT-DR has not disputed the factual matrix, but sought to point out that there is due application of mind by the Assessing Officer which can be demonstrated from the discussion in the assessment order, wherein after discussing the reasons for the disallowance, he has recorded a satisfaction that penalty proceedings are initiated u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income. In our considered opinion, the attempt of the ld. CIT-DR to demonstrate application of mind by the Assessing Officer is no defence inasmuch as the Hon'ble Supreme Court has approved the factum of non-striking off of the irrelevant clause in the notice as reflective of non-application of mind by the Assessing Officer. Since the factual matrix in the present case conforms to the proposition laid down by the Hon'ble Supreme Court, we proceed to reject the arguments advanced by the ld. CIT-DR based on the observations of the Assessing Officer in the assessment order. Further, it is also noticeable that such proposition has been considered by (supra) and the decision of the Tribunal holding levy of penalty in such circumstances being bad, has been approved.

Apart from the aforesaid, the ld. CIT-DR made an argument based on the decision of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Others, 216 ITR 660 (Bom.) to canvass support for his plea that non-striking off of the irrelevant portion of notice would not invalidate the imposition of penalty u/s 271(1)(c) of the Act. We have carefully considered the said argument set-up by the ld. CIT-DR and find that a similar issue had come up before our coordinate Bench in the case of Dr. Sarita Milind Davare (supra). Our coordinate Bench, after considering the judgment of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Ors., (supra) as also the judgments of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) and Dharmendra Textile Processors, 306 ITR 277 (SC) deduced as under :- "12. A combined reading of the decision rendered by Hon'ble Bombay High Court in the case of Smt. B Kaushalya and Others (supra) and the decision rendered by Hon'ble Supreme Court in the case of Dilip N Shroff (supra) would make it clear that there should be application of mind on the part of the AO at the time of issuing notice. In the case of Lakhdir Lalji (supra), the AO issued notice u/s 274 for concealment of particulars of income but levied penalty for furnishing inaccurate particulars of income. The Hon'ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon'ble Kerala High Court has struck down the penalty imposed in the case of N.N.Subramania Iyer Vs. Union of India (supra), when there is no indication in the notice for what contravention the petitioner was called upon to show cause why a penalty should not be imposed. In the instant case, the AO did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. The Hon'ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya (supra) and observed as under:- "....The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified." In the instant case also, we are of the view that the AO has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the AO has failed to apply his mind at the time of issuing penalty notice to the assessee."

The aforesaid discussion clearly brings out as to the reasons why the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) is to prevail. Following the decision of our coordinate Bench in the case of Dr. Sarita Milind Davare (supra), we hereby reject the aforesaid argument of the ld. CIT-DR.

Apart from the aforesaid discussion, we may also refer to the one more seminal feature of this case which would demonstrate the importance of non-striking off of irrelevant clause in the notice by the Assessing Officer. As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are to be initiated for furnishing of inaccurate particulars of income. However, in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act of even date, both the limbs of Sec. 271(1)(c) of the Act are reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of Assessing Officer and there is no clear and crystallised charge being conveyed to the assessee u/s 271(1)(c), which has to be met by him. As noted by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non- compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond.

Therefore, in view of the aforesaid discussion, in our view, the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 is untenable as it suffers from the vice of non- application of mind having regard to the ratio of the judgment of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) as well as the judgment of the Hon'ble Bombay High Court in the case of Shri Samson Perinchery (supra). Thus, on this count itself the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted.”

The ld. DR for the Revenue relied upon the decision of Co-ordinate Bench in Dhaval K. Jain (supra) and the decision of jurisdictional High Court in CIT v/s Smt. Kaushalya & Ors. (supra) may refer that the Hon’ble jurisdictional High Court in a recent decision of similar ground as raised by assessee in the present appeal in case of CIT vs. Samson Perinchary (supra) held that the failure on the part of AO to specify in the notice u/s 274 whether the penalty is being initiated for furnishing of inaccurate particulars of income or for concealment (is fatal). The Hon’ble Court further held that none-mentioning of charge reflects non-application of mind and renders the levy of penalty invalid. The Hon’ble jurisdictional High Court followed the decision of Karnataka High Court in CIT v/s. Manjunatha Cotton and Ginning Factory [(2013) 359 ITR 0565]. The Hon’ble Court delivered the said decision on 05.01.2017. The ld. DR for the Revenue further relied upon the decision of Co-ordinate Bench in case of Dhaval K. Jain (supra) (authored by one of us). We may refer that the said decision was passed on 30.09.2016 i.e. much prior to the decision of Hon’ble jurisdictional High Court in case of CIT vs. Samson Perinchery (supra). We may further observe that the decision of jurisdictional High Court is a binding precedent on us. Thus, considering the decision of Samson Perinchery (supra) and the latest decision of Co-ordinate Bench in Meherjee Cassinath Holdings P. Ltd. (supra), we find that AO failed to specify the specific charge in the notice u/s 274 r.w.s. 271(1)(c) of the Act.

Thus, respectfully following the latest decision of Hon’ble jurisdictional High Court in Samson Perinchery (supra), we allowed the additional ground of appeal raised by assessee. Since we have allowed the additional ground of appeal, thus, the discussion on other ground became academic.