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Assessee by : Shri J.P. Bairagra (AR ) Revenue by : Shri V. Justin (DR) Date of hearing : 22.08.2017 Date of Pronouncement : 29.09.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by assessee under section 253 of the Income-tax Act (the Act) is directed against the different order of ld. CIT(A)-50, Mumbai dated 26.10.2016 for the Assessment Year (AY) 2009-10. The assessee has raised the following grounds of appeal:
The learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer in levying penalty under section 271(1)(c) of the Income tax Act, 1961 on the addition made of unexplained investment of Rs 33,00,000/ - under section 69 of the Act.
The learned Commissioner of Income Tax (Appeals) further erred in not appreciating the fact that the order passed under section 271(1)(c) of the Income tax Act, 1961 is bad in law as the notice under section 274 read with section 271 was issued in standard proforma without striking the relevant clause and without specifically stating whether the penalty was initiated for concealment of particulars of income or for furnishing inaccurate particulars thereof.
- Shri Viren Vini Ahuja
3. The learned Commissioner of Income Tax (Appeals) further erred in not following the order of the Hon'ble Supreme Court in the case of Veerbhadrappa Sangappa & Co (TS- 381-SC-2016) arising out of judgement passed by the High Court of Karnataka in the case of CIT vs Manjunatha Cotton & Ginning Factory & Others (359 ITR 565). 2. Brief facts of the case are that a search and seizure action under section 132 was carried out at the residence and business premises of M/s Flemingo/Bermaco Group on 30.10.2009 by the DDIT(Inv), Unit-II(3), Mumbai. The assessee is one of the Directors of the said group companies.
Consequently, notice under section 153A was issued to the assessee. The assessment was completed under section 153A r.w.s. 143(3) on 08.06.2012.
The Assessing Officer while passing assessment order made the addition of Rs. 33,00,000/- on account of unexplained investment. On appeal before the ld. CIT(A), the addition was enhanced from Rs. 33,00,000 to Rs. 3,00,97,000/-. Thus, the ld. CIT(A) made the enhancement of Rs.2,67,97,000/-. Initially the AO initiated penalty vide notice issued under section 274 r.w.s 271(1)(c) dated 08.06.2012. After the order of ld. CIT(A) in quantum assessment a further show-cause notice dated 03.02.2015 for levying the penalty was issued. The assessee filed his reply. In the reply, assessee contended that AO merely referred the entry recorded in the paper found during the search but no finding has been given that paper belongs to the assessee. It was further contended that no incriminating material was fund against the assessee. The contention of the assessee was not accepted the by AO. The AO levied the penalty on the total enhanced addition of Shri Viren Vini Ahuja Rs.3,00,97,000/- . The assessing officer levied penalty @ 100% of tax sought to be evaded. The AO worked out the penalty of Rs. 1,01,22,335/-.
On appeal before the ld. CIT(A), the penalty was sustained only on the addition of Rs. 33,00,000/-. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
We have heard the ld. AR of the assessee and ld. DR for the Revenue and perused the material available on record. In support of legal ground the ld. AR of the assessee argued that the order passed by the AO under section 271(1)( c) is bad in law as the notice issued under section 274 r.w.s.
271(1)(c) was invalid. The AO in the notice has not specified whether the penalty is initiated for concealment of particular of income or for furnishing inaccurate particular. The ld. AR of the assessee would submit that the copy of noticed date 08.06.2012 is placed on record at page no.40 of paper book.
In the notice the AO has not strike out irrelevant portion. The notice was issued on standard printed proforma and does not spelt out under which limb of section 271(1)(c) penalty was initiated. In support of his submission, the ld. AR of the assessee relied upon the following decisions:
Sr No. Particulars 1 CIT vs. M/s SSA'S Emerald Meadows. [SLP No. 11485/2016 (Arising out of decision of High Court Karnataka [ITA 380/2015) Supreme Court of India)] 2 CIT vs. M/s SSA'S Emerald Meadows. [ITA 380/2015 (High Court Karnataka.) 3 Meherjee Cassinath Holdings Private Limite Limited vs. ACIT [ITA 2555/Mum/2012] - Shri Viren Vini Ahuja
4 CIT vs. Samson Perinchery (ITA No. 1154, 953, 1097/M/2014) 5 Dalip N. Shroff vs. JCIT (291 ITR 519) (SC) 6 Sarita Milind Davare vs. ACIT (ITA No. 2187 & 1789/M/2014).
On the other hand, the ld. DR for the Revenue supported the order of authorities below. It was argued that various Courts have held that penalty can be levied on the additions on estimate basis. The ld. DR for the Revenue relied on the decision of Hon’ble Bombay High Court in Kaushalya & Ors.
(216 ITR 660), the decisions of Tribunal in Dhaval K. Jain vs. ITO in and in Earthmoving Equipment Services Corporation vs. DCIT (ITA No. 6617/M/2014).
We have considered the rival submission of the parties and have gone through the order of authorities below. We have perused the copy of notice dated 10.12.2011 issued by AO under section 274 r.w.s. 271(1)(c). The perusal of the notice reveals that the AO has not strike out the irrelevant portion of the notice. Further, we have also perused the Assessment Order passed under section 153A rws 143(3) dated 08.06.2012. The perusal of Assessment Order reveals that the AO has not specified under which limb of section 271(1((c), the penalty is initiated. The AO simply noted “therefor penalty proceeding under section 271(1)(c) is hereby initiated.” We have seen that this bench while considering with almost similar contention in case of Meherjee Cassinath Holding Pvt. Ltd.(supra) held as under:
“8. We have carefully considered the rival submissions. Sec. 271(1)(c) of the Act empowers the Assessing Officer to impose penalty to the extent specified if, in the - Shri Viren Vini Ahuja course of any proceedings under the Act, he is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In other words, what Sec. 271(1)(c) of the Act postulates is that the penalty can be levied on the existence of any of the two situations, namely, for concealing the particulars of income or for furnishing inaccurate particulars of income. Therefore, it is obvious from the phraseology of Sec. 271(1)(c) of the Act that the imposition of penalty is invited only when the conditions prescribed u/s 271(1)(c) of the Act exist. 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 General while placing the order of assessment laid emphasis that he had dealt with both the situations.
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]"
- Shri Viren Vini Ahuja
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 - Shri Viren Vini Ahuja 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 - Shri Viren Vini Ahuja 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.”
Further, Hon’ble Gujarat High Court in Manu Engineering (122 ITR 306)