MAHAVIR ENTERPRISES,MUMBAI vs. ITO, WARD 41(3)(1), MUMBAI

4.1. For commission received by the assessee from Aircel, it is contended that for the difference of Rs.1,79,766/- arising out of the amount as per Book of Accounts and as taken by the ld. Assessing Officer, the correct increase in income is Rs. 56,431/- only. Out of the total stated difference, Rs.1,23,335/- has not been received by the 5 & 134 /MUM/2024 Mahavir Enterprises, AY 2011-12 assessee therefore cannot be added as its income. Similarly, for the difference of Rs.1,10,187/- relating to commission from Videocon Telecommunication, it is submitted that Rs.86,640/- has been offered as income in Assessment Year 2012-13 and the balance difference of Rs.23,547/- is to be taken as correct increase in the income. To substantiate these claims of the assessee, ld. Counsel referred to the letter of full and final settlement from Vodafone SR Ltd. along with its computation and ledger extracts, all placed in the paper book.

4.2. Considering these facts as submitted before us and the documents placed in the paper book, we find it appropriate that this issue be remitted back to the file of ld. Jurisdictional Assessing Officer (JAO) for the limited purpose of verification of the contentions made by the assessee about part of the additions offered as income in AY 2012- 13, part of it not received by the assessee and the balance to be considered as correct increase in income. We direct the ld. JAO to verify the details furnished by the assessee in the chart submitted by it and allow the claim of the assessee after being satisfied thereon in accordance with the provisions of law. Accordingly, ground no. 4 taken by the assessee is allowed for statistical purposes.

Assessee has not produced the loan parties for verification. In view of the facts, it is seen that the assessee has failed to offer any explanation about the source of unsecured loans in his books, Accordingly, the sum of Rs 26,77,172/-

6 & 134 /MUM/2024 Mahavir Enterprises, AY 2011-12 credited to the books as unsecured loans is added to the total income of the assessee as unexplained cash credits u/s 68 of the I t act. penalty proceedings u/s 271(1)(c) of the IT Act is initiated for concealment of income and furnishing inaccurate particulars of income.” 5.1. From the above quoted observations and findings of ld. Assessing Officer, it is indiscernible as to how this figure of Rs.26,77,172/- has been arrived at from the balance sheet since ld. Counsel has taken us through the balance sheet of the assessee, where the amount of unsecured loan reported is Rs.39,07,173/-. This balance sheet is placed at page 26 of the paper book. Furthermore, ld. Assessing Officer has nowhere noted about as to whom these amounts belong to, i.e., who are the parties from whom the assessee has received these unsecured loans for which the addition has been made. He has mentioned that assessee has failed to offer any explanation about the source of unsecured loans. Contrary to this, assessee has furnished a detailed chart which is reproduced below:

5.2. Assessee demonstrated that it had received Rs.42,00,000/- during the year as unsecured loans which included loan from father, mother and friends of partner of the assessee firm. Assessee had also demonstrated that these loans had been repaid during the year itself or in subsequent years. It has also placed on record loan confirmation

7 & 134 /MUM/2024 Mahavir Enterprises, AY 2011-12 letters along with bank statements and ITR acknowledgements for the returns filed by the lender parties to demonstrate their identity and credit worthiness as well as to establish the genuineness of the transactions. Taking into consideration the details furnished by the assessee along with the documentary evidences, it is indiscernible as to how and from where ld. AO has taken note of the figure of Rs.26,77,172/- towards unsecured loans received by the assessee during the year or the amount reported in the balance sheet for which addition has been made. Under these given set of facts, we are compelled to delete the addition so made by the ld. AO which demonstrates nothing but his non-application of mind and casual approach adopted in this respect. The addition of Rs.26,77,172/- is thus deleted. Ground No.5 taken by the assessee is allowed.

7. Now, we take up which is in respect of penalty of Rs.9,24,814/- imposed u/s. 271(1)(c) of the Act. In this respect, assessee has challenged the imposition of said penalty on the ground that notice dated 26.03.2014 issued u/s.274 r.w.s. 271(1)(c) is bad in law which does not specify the charge for which penalty proceedings were taken up. Copy of the said notice is placed on record and was referred before us to demonstrate that the charge has not been specified for the penalty proceeding as to whether it is for concealment of particulars of income or for furnishing of inaccurate particulars of income.

8. We heard both the parties and perused the material on record. The issue raised before us is no longer res integra and has been dealt in plethora of cases. In a recent order by the Coordinate Bench of ITAT Mumbai in the case of Ritu Multitrade Service Pvt. Ltd. in dated 28.06.2024 (where the undersigned

8 & 134 /MUM/2024 Mahavir Enterprises, AY 2011-12 Accountant Member is the author) identical issue was dealt with by considering the decisions of Hon’ble Jurisdictional High Court of Bombay in the case of Mohd. Farhan A. Shaikh Vs. DCIT (2021)125 taxmann.com 253 (Bom) and Veena Estate (P) Ltd. Vs. CIT (2024) 158 taxmann.com 341 (Bom).

8.1. The relevant observations and findings from the said decision of the Coordinate Bench are extracted below:

“2.1 Assessee has also raised an additional ground by application dated 19.06.2024 which is purely legal in nature and does not require examination of additional facts. The said additional ground is reproduced as under:

“1. In the facts and circumstances of the case and in law, the Learned Assessing Officer had erred in initiating the penalty proceeding by issuing the impugned show cause notice dated 30.11.2017 under section 274 read with section 271(1)(c)- without striking off the irrelevant/in-applicable limb; thereby issuing a defective notice which is bad in the eyes of law as held by Hon'ble Jurisdictional High Court in the case of Mohd. Farhan A. Shaikh vs. DCIT [2021] 125 taxmann.com 253 (Bombay) and several other binding judicial precedents.”

3. The additional ground raised by the assessee is purely legal in nature and therefore is admitted for adjudication. We first take up this additional ground which is in respect of challenging the imposition of penalty of Rs.10,46,312/- u/s.271(1)(c) of the Act, which liable to be quashed since Ld. Assessing Officer has failed to specify the charge in the notice issued u/s.274 r.w.s. 271(1)(c) as held by Hon’ble Jurisdictional High Court of Bombay in the case of Mohd. Farhan A. Shaikh Vs. DCIT (2021)125 taxmann.com 253(Bom).......

5. The said notice is dated 30.11.2017. He 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 (Supra), 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.

6. 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,

“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.”

7.1. 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.

7.2. 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)”.

7.3. 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 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.

7.4. 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.”

7.5. 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 10 & 134 /MUM/2024 Mahavir Enterprises, AY 2011-12 by the Ld. Sr.DR. He 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.

9. Considering the identical set of facts in the present case and by adopting judicial consistency in terms of the above decision of the Coordinate Bench, the penalty so imposed is deleted.

Order is pronounced in the open court on 24 July, 2024