DCIT CC 3(4) CEN RG 3, MUMBAI vs. DHANVINDER BINDRA, MUMBAI

Per P.K. Bansal, Vice President

All these appeals have been filed by the Revenue against the orders of the CIT(A)-51, Mumbai dated 09.09.2015 for assessment years 2002-03 to 2007-08. Both the parties agreed that these appeals be disposed off on the facts for A.Y. 2002-03

“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty without appreciating that the penalty proceedings where correctly intiated as per section 271(l)(c) of the Act. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty without appreciating the fact the receipt of money outside the recorded the book was admitted in the statement under oath during search and that the assessee was not maintaining any record for such sum and therefore has clearly concealed the particulars of income."

2 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra 3. The brief facts of the case are that a search and seizure operation was carried under section 132 of the Income Tax Act on 08.05.2007 at the residence and office premises of the Bindra-Rohira Group. The assessee was also covered in the search operation. The assessee is an individual and having income from business, rental and other sources. In response to the notice issued under section 153A, the assessee filed return of income declaring income of `11,44,380/- being income from business, rental income and income from other sources. The assessment was completed under section 143(3) r.w.s. 153A. The AO made an addition of `1,82,50,000/- assuming a daily income of `50,000/- )assessee’s share being 50%) from Shri Ram Social Club, the other 50% share of equal amount being added as income in the hands of Mr. Laxmichand Rohira, also covered in the said search on Bindra-Rohira Group. The AO thus taxed this amount of `1,82,50,000/- under the head ‘Income from Business’ there by finally assessing the total income at `1,93,94,380/-. The AO initiated penalty proceedings under section 271(1)(c) by observing that “penalty proceedings under section 271(1)(c) are initiated separately”.

3 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra Even on merits also he took the view that since the additions were made on estimate basis, therefore, no penalty can be levied and in this regard relied on the decisions of the Hon'ble Rajasthan High Court in the case of Krishi Tyre Retreading 360 ITR 580, CIT vs. Mahendra Singh Khedia 252 CTR 453 and Naresh Chand Agarwal vs. CIT (IT Appeal No. 79 of 2008). The learned D.R. contended that the CIT(A) was not correct in deleting the penalty on technical ground and in this regard he relied on the decision of the Hon'ble Allahabad High Court in the case of Sushil Kumar Sharad Kumar vs. CIT 232 ITR 588 for the proposition of law that the assessee having shown low household expenses whereas there is evidence of higher expenditure. This proves that initial burden to prove concealment has been discharged by the Department as the assessee has not laid any fresh evidence in penalty proceedings. Reliance was also placed on the decision of the “I” Bench of this Tribunal in the case of Shri Mahesh M. Gandhi vs. ACIT, ITA No. 2976/Mum/2016 in which the Tribunal has confirmed the order of the CIT(A) levying penalty. Our attention was drawn to para 8 of this order in which the Tribunal has observed as under: -

In the case laws cited by the assessee in the case of Dr. Sarita Milind Davare v. ACIT (supra), the notice issued u/s 271(1)(c) of the Act was primarily meant to ask the tax-payer to furnish a return of income and merely AO modified the last paragraph by show causing the tax- payer to explain as to why an order imposing a penalty should not be made u/s 271(1)(c) of the Act . In the case of Chandra Prakash Bubna(supra) relied upon by the assessee , it was the case where penalty notice simply stated as under: “I am satisfied that this is a fit case where provisions of Section 271(1)(c) of the Income Tax Act are clearly attract”. While in the instant appeal the AO has issued notice u/s. 274 read with Section 271(1)(c) of the Act dated 20-02-2014 wherein the AO recorded as under: “Whereas in the course of proceedings before me for the assessment year 2011-12, it appears that you have concealed the particulars of your income or furnished inaccurate particulars of such income.” In the instant appeal, the AO has recorded satisfaction in detail in the assessment order dated 20-02-2014 before invoking penalty provisions u/s 271(1)(c) of the Act by recording as under:-

4 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra “5…. *** *** The assessee has vide letter dated 18.02.2014 filed revised computation of income offering Rs. 4,00,000/- as director’s sitting fees. The explanation submitted by the assessee is considered. It is noted that the assessee has made disclosure of income of Rs. 4,00,000/- only after the assessee was asked to explain the same. The assessee did not pointed out voluntarily after receipt of statutory notice u/s 143(3) which was issued after one year of filing of return of income. Even after that when the case was under hearing, the assessee did not offer the income of Rs.4,00,000/- being director’s sitting fees unless he was specifically asked to explain the same. It is, therefore evident from the conduct of the assessee that he was trying to evade the income to the extent of Rs.4,00,000/-. Considering these facts, income of Rs.4,00,000/- is assessed under the head income from business. Considering these facts, I am satisfied that the assessee has concealed his income by furnishing inaccurate particulars of income to the extent of Rs.4,00,000/- and thus penalty proceedings u/s 271(1)(c) of the I T Act, 1961 is initiated separately on this point. 6….. *** *** The assessee has vide letter dated 18.02.2014 filed revised computation of income offering Rs.12,23,642/- under the head ‘Short Term Capital Gains’. The explanation submitted by the assessee is considered. It is noted that the assessee has made disclosure of income of Rs.12,23,642/- only after the assessee was asked to explain the same. The assessee did not pointed out voluntarily after receipt of statutory notice u/s 143(2) which was issued after one year of filing of return of income. Even after that when the case was under hearing, the assessee did not offer the income of Rs.12,23,642/- being redemption of HDFC Mutual Fund unless he was specifically asked to explain the same. It is, therefore evident from the conduct of the assessee that he was trying to evade the income to the extent of Rs.12,23,642/- . Considering these facts, income of Rs.12,23,642/- is assessed under the head income from capital gain. In view of the above facts, I am satisfied that the assessee has concealed his income by furnishing inaccurate particulars of income to the extent of Rs.12,23,642/- and thus penalty proceedings u/s 271(1)(c) if the I T Act, 1961 is initiated separately on this point.” Merely because AO has mentioned alternate charges at the stage of issue of notice u/s 274 r.w.s. 271(1)(c) of the Act which is a

5 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra preliminary stage of initiating penalty proceedings, the proceedings cannot be held to be vitiated, as in the instant case, the AO has clearly recorded detailed satisfaction after application of mind in the assessment order dated 20-02-2014 as in the instant appeal the assessee was confronted and cornered by the Revenue to have not disclosed the income earned by way of Director Sitting Fee of Rs.4,00,000/- and short term capital gains on redemption of HDFC Mutual Funds to the tune of Rs. 12,23,642/- in the return of income filed by the assessee with the Revenue, to which the assessee admitted and immediately after being confronted by Revenue filed revised computation of income and paid due taxes to the Revenue. By no stretch of imagination it can be held that the assessee was not aware of the charge as framed by the AO in the assessment order dated 20-02-2014 framed u/s 143(3) of the Act with which he was burdened for initiating penalty proceedings u/s 271(1)(c) of the Act. We have also observed that in the order dated 26-08-2014 passed by the AO u/s 271(1)(c) of the Act levying penalty on the assessee , the AO after considering the explanation of the assessee has clearly recorded the charge on which penalty had been levied on the assessee u/s 271(1)(c) of the Act, by holding as under : “5. The assessee’s submission has been considered, but the same is not found acceptable. The assessee has not furnished any concrete evidence either during assessment proceedings or penalty proceedings, which establish that there was reasonable cause for not furnishing the above income in his return of income. Merely because the assessee is not maintaining books of accounts, he cannot get rid of offering the income earned by him during the year. Further, the incomes involved are also not meager that due to oversight, left to be offered. Had the above incomes left by oversight, the assessee would have offered the same any time after filing of return by filing revised return. The assessee’s act clearly shows his intention of evading tax by not disclosing his above incomes either in return of income or by filing revised return later on. Even during assessment proceedings, the assessee has not voluntarily offered the same for taxation. It was only when queried by the AO that the assessee offered the incomes and filed revised computation of income. From the above facts and by the conduct of the assessee, mens-rea of the assessee is very well established. In view of the facts of the case and elaborate discussion in assessment order, it is held that the assessee has concealed income by furnishing inaccurate particulars of income. Thus, the assessee has committed default u/s. 271(1)(c) of the I.T. Act and the case of the assessee is a fit case for levy of penalty.” Under these circumstances and as per detailed reasoning as set out above by us , we do not find any infirmity in the order of the A.O. as was confirmed by learned CIT(A), we confirm/uphold the appellate

6 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra order of learned CIT(A) by confirming/sustaining the penalty of Rs.3,13,000/- u/s 271(1)(c) of the Act.” 6. The learned D.R. has also referred to pages 11 & 13 as well as page 19 of the said order and on that basis he submitted that no doubt clause (c) of Section 271(1)(c) deals with two specific offences, i.e. concealment of particulars of income and furnishing of inaccurate particulars of income. The facts of some cases may attract both the offences and in some cases there is overlapping of two offences but in such cases the initiation of penalty proceedings also must be for both the offences. The learned D.R. also relied on the order of the “B” Bench of this Tribunal in the case of Chempure vs. ITO dated 7th May, 2010 in which this Tribunal, while interpreting Explanation 1 under para 13 observed as under: -

“13. A conspectus of the explanation makes it clear that the statue visualised the assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. In essence, the explanation is a rule of evidence. Presumptions which are rebuttable in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessee. The rationale behind this view is that the basic facts are within the special knowledge of the assessee. Sec. 106 of the Indian Evidence Act, 1872, gives statutory recognition to this universally accepted rule of evidence. There is no discretion conferred on the AO as to whether he can invoke the explanation or not.” On that basis it was contended that the CIT(A) was not correct in deleting the penalty.

7 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra been initiated for any particular or specific charge. Attention was also drawn towards the penalty order and on that basis it was contended that penalty has been levied by the AO for both the charges, i.e. furnishing inaccurate particulars of income as well as concealment of income. It is not a case where penalty has been initiated for both the charges. Had it been that the AO would have been initiated penalty for both the charges. Therefore the observation made by the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (supra) with respect to initiation of penalty for both the charges will not arise. Rather he contended that this decision support the case of the assessee. He also referred to the decision of the “I” Bench of this Tribunal on which the learned D.R. has vehemently relied and he has drawn our attention towards pages 11 & 13. Referring to page 11 it was contended that from the so called show cause notice it was apparent that the show cause notice was specifically issued by the AO. Even from page 13 of the order it is apparent that the AO has mentioned that he has satisfied that the assessee has concealed income by furnishing inaccurate particulars of income. The learned Counsel for the assessee stated that the issue is squarely covered in favour of assessee and against Revenue by the decision of Hon’ble Bombay High Court in the case of CIT v. Samson Perinchery [2017] 392 ITR 4 (Bom.).

Income (`) A.Y. 2002-03 2,40,638/- 2003-04 17,83,423/- 2004-05 9,25,135/- 2005-06 7,09,592/-

8 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra 2006-07 8,65,115/- 2007-08 16,63,833/- 2008-09 77,91,704/- Against these incomes the AO computed the addition at `1,82,50,000/- assuming a daily income `50,000/- from Shri Ram Social Club, 50% share of which was added in the case of Mr. Laxmichand Rohira and balance in the hands of the assessee but in A.Y. 2008-09 the addition was made 50% of `19,43,050/- . When the matter went before the CIT(A), the CIT(A) has reduced the daily income from `50,000/- to `13,750/- in A.Y. 2002-03 and in the subsequent assessment year also and ultimately gave partial relief in each of the assessment year. When the matter travelled to the Tribunal, the Tribunal further deleted the additions: -

Addition deleted (`) A.Y. 2002-03 26,93,350/- 2003-04 24,35,050/- 2004-05 21,48,050/- 2005-06 18,29,200/- 2006-07 14,75,000/- 2007-08 10,81,250/- 2008-09 1,94,300/- 10. Thus it is not denied that ultimately the addition sustained in the hands of the assessee are based on estimate. We noted further that in each of the cases, the AO initiated penalty proceedings under Section 271(1)(c) during the course of assessment by observing in the assessment order “penalty proceedings under Section 271(1)(c) are initiated separately”. Subsequently notice under section 271(1)(c) was issued 23.12.2009 by observing as under: -

“Whereas in the course of proceedings before me for the assessment Year 2002-03 it appears to me that You:- * Have without reasonable cause failed to furnish me return of income which you were required to furnish by a notice given under Section 139 (2)/148 of the Income Tax Act, 1961 No. ...... dated ................ or have without reasonable cause failed to furnish it within the time

9 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra allowed and 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 Act, 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. You are hereby requested to appear before me within 7 days from receipt of this notice and 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(1)(C). Sd/- (PRASOON KABRA) ACIT CC 24 & 26” 11. After considering the reply of the assessee the AO levied penalty under Section 271(1)(c) of the Act by observing as under: -

“8. In view of the fact and circumstances mention here-in-above, it is being concluded that assessee has knowingly furnished inaccurate particulars and concealed its income within the meaning of Sec.271(1)(c) of the I.T. Act to the tune of Rs.50,18,750/- (addition is partly allowed by the Ld.CIT(A) in respect of club income) and hence it is a fit case where penalty under section 271(1) (c) is required to be imposed. Accordingly, the undersigned is proposed to levy penalty under section 271(1) (c) in this case which is worked out as under: Tax sought to be evaded Rs.15,37,173/- Minimum penalty leviable u/s. 271(1)(c) of Rs.5,37,173/- the I T Act @ 100% of the tax sought to be evaded comes to Maximum penalty leviable u/s. 271(1)(c) of Rs.46,11,519/- the I T Act @ 300% of the tax sought to be evaded comes to

10 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra each of the assessment years on the basis that the AO has not brought out any specific charge while levying penalty.

11 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra particulars of income have been concealed by the assessee. Explanation 1, no doubt, is rebuttable and the assessee can always adduce the evidence or put the explanation to come out of the applicability of Explanation 1. In view of this deeming provision the onus is on the assessee to prove that he has not concealed the particulars of income. So far the other default of furnishing of inaccurate particulars of income is concerned, there is no deeming provision and the onus, in our view, lies on the Revenue to prove that the assessee has furnished inaccurate particulars of income and for that the Revenue is bound to bring necessary evidence on record and put this evidence before the assessee so that the assessee can counter them and rule of natural justice is not violated. Since both the defaults are different, therefore, the Legislature, in our opinion, has used the word between both the defaults ‘or’ instead of ‘and’. We cannot take the view that the assessee has committed both the defaults together although the nature of consequence of both the defaults is one, i.e. concealment of income. The only common attribute between both the defaults is the particulars.

“We do not find any infirmity in the notice dated 20-02-2014 issued by the A.O. u/s 271(1)(c) r.w.s. 274 of the Act wherein the AO has clearly framed an alternate charges for levying penalty u/s 271(1)(c) of the Act at the stage of issue of notice u/s 274 r.w.s. 271(1)(c) of the Act. More-so it is not a standard printed format which is sent to the

12 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra assessee rather the same is specifically drafted by the AO before sending to the assessee which showed application of mind by the AO. It is also not the case that the AO has framed charge under one limb of Section 271(1)(c) of the Act and levied the penalty under the second limb of Section 271(1)(c) of the Act. The assessment order dated 20- 02-2014 also clearly showed application of mind by the AO before initiating penalty proceedings u/s 271(1)(c) of the Act.” 16. In that case, we noted, the Tribunal also found that the AO before initiating penalty proceedings during the course of assessment recorded his satisfaction in detail and that was not the case where no satisfaction has been recorded with reference to the charge to be levied on the assessee. Even we noted that the Tribunal in that decision did not appreciate the notice issued by the AO even though it was specifically been drafted by the AO. The AO has not brought out any specific charge but confirmed the penalty levied on the assessee. We noted that in that case the Tribunal mainly referred to the decision of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory 359 ITR 565. In that decision, we noted, the Hon'ble High Court under para 50 has clearly mentioned as under: -

13 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra be described as a direction. A direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the option and discretion of the ITO whether or not take action, it cannot be described as a direction. 51. Therefore, it is settled law that in the absence of the existence of these conditions in the assessment order penalty proceedings could not be proceeded with. The proceedings which are initiated contrary to the said legal position are liable to be set aside.” 17. If the finding given by the Hon'ble High Court which has been referred to by the Bench in that case heavily relied by the learned D.R., are applicable to the impugned case of the assessee. We find that in the case of the impugned assessee the AO while initiating penalty has simply observed “penalty proceedings under Section 271(1)(c) are initiated separately”. The Hon'ble Karnataka High Court, as has been relied upon by the “I” Bench, while confirming the penalty in the case of Manjunatha Cotton and Ginning Factory (supra) has clearly held that merely saying the penalty proceedings are initiated will not satisfy the requirement with regard to the direction for initiation of penalty proceedings. Not only this, we noted, in the decision the Hon'ble Member has not appreciated the findings given by the Hon'ble Bombay High Court in the case of CIT vs. Samson Perinchery (supra) . In that case the question before the Hon'ble High Court was “Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the penalty levied under section 271(1)(c) of the Income Tax Act, 1961?” While deciding this issue the Hon'ble High Court observed as under: -

“3 The impugned order of the Tribunal deleted the penalty imposed upon the Respondent Assessee. This by holding that the initiation of penalty under Section 271 (1)(c) of the Act by Assessing Officer was for furnishing inaccurate particulars of income while the order imposing penalty is for concealment of income. The impugned order holds that the concealment of income and furnishing inaccurate particulars of income carry different connotations. Therefore, the Assessing Officer should be clear as to which of the two limbs under which penalty is imposable, has been contravened or indicate that both have been contravened while initiating penalty proceedings. It cannot be that the initiation would be only on one limb i.e. for furnishing inaccurate particulars of income while imposition of penalty on the other limb i.e. concealment of income. Further, the Tribunal also

14 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra noted that notice issued under Section 274 of the Act is in a standard proforma, without having striked out irrelevant clauses therein. This indicates non-application of mind on the part of the Assessing Officer while issuing the penalty notice. 4 The impugned order relied upon the following extract of Karnataka High Court's decision in CIT v/s. Manjunath Cotton and Ginning Factory 359 ITR 565 to delete the penalty: “The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus, the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it as case of furnishing of inaccurate particulars. The apex court in the case of Ashok Pai reported in [2007] 292 ITR 11 (SC) at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of Manu Engineering reported in 122 ITR 306 and the Delhi High Court in the case of Virgo Marketing P. Ltd., reported in 171 Taxmn 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to nonapplication of mind.” 5. The grievance of the Revenue before us is that there is no difference between furnishing of inaccurate particulars of income and concealment of income. Thus, distinction drawn by the impugned order is between Tweedledum and Tweedledee. In the above view, the deletion of the penalty, is unjustified. 6. The above submission on the part of the Revenue is in the face of the decision of the Supreme Court in Ashok Pai v/s. CIT 292 ITR 11 [relied upon in Manjunath Cotton & Ginning Factory (supra)] – wherein it is observed that concealment of income and furnishing of inaccurate particulars of income in Section 271(1)(c) of the Act, carry different meanings/ connotations. Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under Section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/ permit penalty being imposed for the other breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated/notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground of

15 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the Assessee has no notice. 7 Therefore, the issue herein stands concluded in favour of the Respondent Assessee by the decision of the Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra). Nothing has been shown to us in the present facts which would warrant our taking a view different from the Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra). Ultimately it was held that the question as framed do not give rise to any substantial question of law. Therefore the finding given by the Tribunal that penalty must be initiated for specific charge has been confirmed. Even the finding of the Tribunal that the notice issued under Section 274 of the Act is in a standard proforma, without having striked out irrelevant clauses therein represent non-application of mind on the part of the AO while issuing penalty notice has not been disturbed.

16 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra of the principles of natural justice inasmuch as the assessee would not be in a position to put up his defence appropriately. It is in this manner one has to appreciate the point being canvassed by the assessee before us, which is based on the tone and tenor of the notice issued u/s 274 r.w.s. 271(1)(c) of the Act dated 22.12.2008, a copy of which has been placed on record. Notably, the relevant discussion made by the Mumbai Bench of the Tribunal in the case of Meherjee Cassinath Holdings Pvt. Ltd. (supra) is as under :- “8. .............. It is also a well accepted proposition that ‘concealment of the particulars of income’ and ‘furnishing of inaccurate particulars of income’ referred to in Sec. 271(1)(c) of the Act denote different connotations. In fact, this distinction has been appreciated even at the level of Hon'ble Supreme Court not only in the case of Dilip N. Shroff (supra) but also in the case of T.Ashok Pai, 292 ITR 11 (SC). Therefore, if the two expressions, namely ‘concealment of the particulars of income’ and ‘furnishing of inaccurate particulars of income’ have different connotations, it is imperative for the assessee to be made aware as to which of the two is being put against him for the purpose of levy of penalty u/s 271(1)(c) of the Act, so that the assessee can defend accordingly. It is in this background that one has to appreciate the preliminary plea of assessee, which is based on the manner in which the notice u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 has been issued to the assessee-company. A copy of the said notice has been placed on record and the learned representative canvassed that the same has been issued by the Assessing Officer in a standard proforma, without striking out the irrelevant clause. In other words, the notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealment of the particulars of income as well as furnishing of inaccurate particulars of income. Quite clearly, non-striking-off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges it has to respond. The aforesaid infirmity in the notice has been sought to be demonstrated as a reflection of non-application of mind by the Assessing Officer, and in support, reference has been made to the following specific discussion in the order of Hon'ble Supreme Court in the case of Dilip N. Shroff (supra):- “83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional Solicitor

17 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra General while placing the order of assessment laid emphasis that he had dealt with both the situations. 84. 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]” 9. 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. 10. 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 the Hon'ble Bombay High Court also in the case of Shri Samson Perinchery, ITA Nos. 1154, 953, 1097 & 1126 of 2014 dated 5.1.2017 (supra) and the decision of the Tribunal holding levy of penalty in such circumstances being bad, has been approved. 11. 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

18 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra 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

19 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra failed to apply his mind at the time of issuing penalty notice to the assessee.” 12. 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. 13. 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. 14. 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. We hold so. Since the

20 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra penalty has been deleted on the preliminary point, the other arguments raised by the appellant are not being dealt with.” 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 22.12.2008 is untenable and suffers from the infirmity of non- application of mind by the Assessing Officer. On this count itself, in our view, the penalty imposed u/s 271(1)(c) of the Act deserves to be deleted. 13. At this point, we may also make a reference to the judgment of the Hon'ble Patna High Court relied by the ld. CIT-DR before us. The issue before the Hon'ble Patna High Court was relating to levy of penalty for shortfall in the payment of advance tax paid as compared with the tax finally assessed as payable, but in the notice issued u/s 274 r.w.s. 273(b) of the Act it was incorrectly mentioned that assessee had failed to file its estimate of advance tax. The Hon'ble Patna High Court held that mention of such incorrect charge would not render the penalty proceedings void-ab-initio. The aforesaid parity of reasoning has been relied upon by the ld. CIT-DR before us to state that non-striking off of the irrelevant portion of the notice u/s 274 r.w.s. 271(1)(c) of the Act does not render the proceedings invalid. In our view, the said decision does not help the case of the Revenue qua the issue before us. Firstly, the Hon'ble Patna High Court itself noted that it was a case of mere “wrong labelling of the section or some mistake in the charge framed against the assessee” which does not prejudice the assessee. Secondly, non-striking off of the irrelevant clause in the notice u/s 274 r.w.s. 271(1)(c) of the Act has been completely differently understood by the various High Courts, including that by the Hon'ble Jurisdictional High Court of Bombay. In the case of Shri Samson Perinchery (supra), the Hon’ble Bombay High Court noted that the order imposing penalty u/s 271(1)(c) of the Act has to be made only on the ground on which the penalty proceedings have been initiated. In the case of Shri Samson Perinchery (supra), the Revenue had put up an argument to the effect that there is no difference between furnishing of inaccurate particulars of income and concealment of income. The aforesaid argument has been specifically rejected by the Hon'ble High Court by referring to the judgment of the Hon'ble Supreme Court in the case of T. Ashok Pai, 292 ITR 11 (SC). It was further noted that the judgment in the case of T. Ashok Pai (supra) has been relied upon by the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory & Ors., 359 ITR 565 (Karn.). The Hon'ble High Court approved the proposition that once the two limbs contained in the notice u/s 274 r.w.s. 271(1)(c) of the Act, namely concealment of income and furnishing of inaccurate particulars of income are understood to be carrying different meanings/connotations, non-striking off of the irrelevant clause or striking off one of the limbs and imposing penalty on the other limb is not as per law. Thirdly, it may be noted that the issue before the

21 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra Hon'ble High Court was incorrect mentioning of charge in the show cause notice, but the case before us is of non-mentioning of the charge at all. Therefore, for all the above reasons, non-striking off of the irrelevant clause in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act cannot be said to be a mere wrong labelling of the section or some mistake of the nature that was before the Hon'ble Patna High Court in the case of Mithila Motors (P.) Limited (supra). Therefore, the judgment of the Hon'ble Patna High Court does not help the case of the Revenue before us. 14. The other plea of the ld. CIT-DR before us was that there was no ambiguity inasmuch as the Assessing Officer had made aware the assessee about the charge being made against him, namely concealment of income, by referring to the assessment order and also the reply of the assessee filed at the time of penalty proceedings. In our considered opinion, if one were to examine the entire conspectus of fact-situation starting from the assessment order upto the passing of penalty order, the error in the argument set-up by the ld. CIT-DR would be clear. In the assessment order dated 22.12.2008, the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are initiated for concealment of income while 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 left intact in the standard printed notice, as the irrelevant clause has not been struck-off. This contradiction in the assessment order vis-a-vis the penalty notice issued u/s 274 r.w.s. 271(1)(c) of the Act on the same date clearly brings out a confusion on the part of the Assessing Officer, and apparently it is a situation where assessee is not aware about the clear and crystallised charge being made against him, thus violating the principles of natural justice. The penalty proceedings being quasi- criminal in nature, as noted by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the same are necessarily required to be in compliance with the principles of natural justice. In this view of the matter, in our view, the ld. CIT-DR is not correct in contending that non-striking off of the irrelevant clause in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act is not material, and that the assessee had understood that the proceedings were initiated for concealment of income based on the observations in the assessment order itself. Before parting, we may also refer to a recent judgment of the Hon'ble Karnataka High Court in the case of S. Chandrashekar, 396 ITR 538 (Karn.) wherein a notice issued u/s 274 r.w.s. 271(1)(c) of the Act in printed form without specifying the grounds of initiation of penalty proceedings was held to be invalid and untenable in law. As per the Hon'ble High Court, in the absence of any specific ground in the notice so issued, there is a breach of principles of natural justice and accordingly, the order imposing penalty cannot be sustained.” 19. The said decision of the “C” Bench as well as the judgement of the Hon'ble Bombay High Court in the case of Samson Perinchery (supra) are

22 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra equally applicable in the case of the assessee, as in the case of the assessee we noted that the AO while initiating penalty proceedings during the course of assessment does not specify any particular ground for initiating penalty proceedings. Even while issuing notice also he did not specify for which charge the assessee is to be penalised as both the charges, concealment of particulars of income or furnishing of inaccurate particulars of income are different although the consequence of both the charges may be concealed income. Even the Hon'ble Supreme Court in the cases of Dillip N. Shrof vs. JCIT 291 ITR 519 and T. Ashok Pai 292 ITR 11 has also appreciated that these two expressions convey two different connotations. When the Hon'ble Supreme Court has categorically stated in these decisions that both the connotations has different meanings. Perhaps the “I” Bench in the case of Mahesh M. Gandhi vs. ACIT while confirming the penalty, on which the learned D.R. has vehemently relied, has not appreciated these decisions of the Hon'ble Supreme Court. Even we noted that in the case of Manjunatha Cotton and Ginning Factory (supra) the Hon'ble Karnataka High Court has also refereed to both these decisions of the Hon'ble Supreme Court under para 61 as well as the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Manu Engineers (supra) and that of the Hon'ble Delhi High Court in the case of vs. Virgo Marketing Pvt. Ltd. 171 Taxman 156 has clearly held that levy of penalty has to be clear as to the limb for which it is levied and if the position is unclear the penalty cannot be sustained. In view of the decisions of various High Courts and of the Hon'ble Supreme Court in our view the decision of the “I” Bench in the case of Mahesh M. Gandhi in ITA No. 2976/Mum/2016 does not have any leg to apply in the case of the assessee. It is also not a case where both the Mumbai Benches have taken different view so that the matter may be referred to Special Bench but it is a case where the issue involved is duly covered, in our opinion, by the decisions of the Hon'ble Supreme Court, Hon'ble Jurisdictional High Court, Hon'ble Karnataka High Court and Hon'ble Gujarat High Court. Therefore the order passed by the “I” Bench in the case of Mahesh M. Gandhi (supra) will not have any binding precedence on us. We, therefore,

23 ITA No. 5694 to 5699/Mum/2015 Shri Dhanvinder Bindra confirm the order of the CIT(A) deleting the penalty imposed on the assessee in each of the case.

Order pronounced in the open court on 1st November, 2017. Sd/- Sd/- (R.L. Negi) (P.K. Bansal) Judicial Member Vice President

Mumbai, Dated: 1st November, 2017

Copy to:

//True Copy// Assistant Registrar ITAT, Mumbai Benches, Mumbai n.p.