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Income Tax Appellate Tribunal, “B” BENCH : KOLKATA
Before: Hon’ble Sri.N.V.Vasudevan, JM & Sri.Waseem Ahmed AM]
For the Appellant : Shri Rajeeva Kumar, Advocate For the Respondent :Ms. Usman, CIT(DR) Date of Hearing : 14.02.2018. Date of Pronouncement : 01.03.2018. ORDER
Per N.V.VASUDEVAN, JM
This is an appeal by the Assessee against the order dated 17.05.2016 of Principal CIT, Kolkata-3, Kolkata, relating to A.Y.2011-12.
In this appeal the assessee has challenged the order of Principal CIT whereby the CIT imposed penalty on the assessee u/s 271(1)(c) of the Income Tax Act, 1961 (Act).
The facts and circumstances under which penalty u/s 271(1)(c) of the Act was imposed on the assessee by the Principal CIT are as follows :- The Assessee is a company. An order of Assessment u/s.143(3) of the Act dated 22.1.2014 in which the AO allowed long term loss on redemption/sale of mutual funds of Rs.2,22,763/- while computing income from business. The Principal CIT in exercise of his powers u/s.263 of the Act issued show cause notice in respect of the long term loss of Rs.2,22,763: “The assessment order u/s 143(3) was passed on 22.01.2014 which was found to contain errors as under :-
On perusal of the Assessment records, it was noticed that the assessee company debited an amount of Rs.2,22,763/- in P/L account as long term loss on mutual fund. As it was exempted income/loss u/s 10(38) of I.T.Act, it was not required to be taken in consideration in computation of taxable income. Moreover, Long AMS Fashions Pvt.Ltd. A.Y.2011-12 2
Term Capital Loss was not eligible to be adjusted against business income as per provisions of section 71 of the I.T.Act. As the amount was not added back to the income of the assessee company, it resulted in underassessment of income of Rs;.2,22,763/- which was prejudicial to the interest of revenue.”
In reply to the show cause notice as above, the Assessee sent a reply admitting that the aforesaid claim of the Assessee was not in accordance with law and that it was made inadvertently. The Principal CIT revised the order of assessment of the AO dated 22.1.2014 by his order dated 18.11.2015 passed u/s.263 of the Act as follows: “Regarding the capital loss of Rs.2,22,763/- the assessee has itself submitted that it was inadvertently adjusted against business income. Considering this, the income of the assessee for the A.Y.2011-12 is enhanced by Rs.2,22,763/-. The A.O. is directed to pass consequential order. Penalty proceeding u/s 271(1)(c) for the enhanced income of Rs.2.,22,763/- being concealed income being excessive claim of deduction is initiated separately.”
In respect of the addition as made above, the Principal CIT initiated penalty proceedings u/s 271(1)(c) of the Act. In the penalty proceedings the assessee tried to explain that the claim for deduction of long term loss on sale of mutul funds was made inadvertently. When the mistake was pointed out it was accepted by the Assessee. The Assessee thus pleaded that there was no intention to conceal or furnish particulars of income. This explanation was not accepted in the penalty proceedings and penalty u/.s 271(1)(c) of the Act was imposed on the assessee by the Principal CIT.
Aggrieved by the order of Principal CIT, the assessee has filed the present appeal before the Tribunal.
The ld. Counsel for the assessee submitted before us that the show cause notice issued u/s 274 of the Act before imposing penalty does not contain the specific charge against the assessee namely as to whether the assessee was guilty of having concealed particulars of income or having furnished inaccurate particulars of income. A copy of the show cause notice u/s 274 of the Act was filed before us and perusal of the same reveals that Principal CIT has not struck out the irrelevant portion in the show cause notice and therefore the show cause notice does not specify the charge against the AMS Fashions Pvt.Ltd. A.Y.2011-12 3 assessee as to whether the charge is of concealment of particulars of income or furnishing of inaccurate particulars of income. The same is reproduced for the purpose of ready reference: “Have concealed the particulars of your income or …… furnished inaccurate particulars of such income.”
8. The ld. Counsel for the assessee drew our attention to the decision of the Hon’ble Karnataka High Court in the case of CIT vs. SSA’s Emerald Meadows in of 2015 dated 23.11.2015 wherein the Hon’ble Karnataka High Court following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory (2013) 359 ITR 565 took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. The ld. Counsel further brought to our notice that as against the decision of the Hon’ble Karnataka High Court the revenue preferred an appeal in SLP in CC No.11485 of 2016 and the Hon’ble Supreme Court by its order dated 05.08.2016 dismissed the SLP preferred by the department. The ld. Counsel also brought to our notice the decision of the Hon’ble Bombay High Court in the case of CIT vs Shri Samson Perinchery in ITA No.1154 of 2014 dated 05.01.2017 wherein the Hon’ble Bombay High Court following the decision of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning factory (supra) came to the conclusion that imposition of penalty on defective show cause notice without specifying the charge against the assessee cannot be sustained. Our attention was also drawn to the decision of ITAT in the case of Suvaprasanna Bhattacharya vs ACIT in ITA No.1303/Kol/2010 dated 06.11.2015 wherein identical proposition has been followed by the Tribunal.
The learned DR made submissions which were similar to the submissions that were made by the Revenue in the case of Jeetmal Choraria Vs. ACIT ITA No.956/Kol/2016.
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We have considered the rival contentions. Similar contentions put forth by the Assessee and the revenue was considered by ITAT Kolkata “D”Bench in the case of Jeetmal Choraria Vs. ACIT order dated 1.12.2017 and the Tribunal held as follows:
“7. The learned DR submitted that the Hon’ble Calcutta High Court in the case of Dr.Syamal Baran Mondal Vs. CIT (2011) 244 CTR 631 (Cal) taken a view that Sec.271 does not mandate recording of satisfaction about concealment of income must be in specific terms and words, satisfaction of AO must reflect from the order either with expressed words recorded by the AO or by his overt act and action. In our view this decision is on the question of recording satisfaction and not in the context of specific charge in the mandatory show cause notice u/s.274 of the Act. Therefore reference to this decision, in our view is not of any help to the plea of the Revenue before us.
The learned DR relied on three decisions of Mumbai ITAT viz., (i) Dhanraj Mills Pvt. Ltd. Vs. ACIT & 3833/Mum/2009 dated 21.3.2017; (ii) Earthmoving Equipment Service Corporation Vs. DCIT 22(2), Mumbai, (2017) 84 taxmann.com 51 (iii) Mahesh M.Gandhi Vs. ACIT Vs. ACIT ITA No.2976/Mum/2016 dated 27.2.2017. Reliance was placed on two decisions of the Hon’ble Bombay High Court viz., (i) CIT Vs. Kaushalya 216 ITR 660(Bom) and (ii) M/S.Maharaj Garage & Co. Vs. CIT dated 22.8.2017. This decision was referred to in the written note given by the learned DR. This is an unreported decision and a copy of the same was not furnished.
9. In the case of CIT Vs. Kaushalya (supra), the Hon’ble Bombay High Court held that section 274 or any other provision in the Act or the Rules, does not either mandate the giving of notice or its issuance in a particular form. Penalty proceedings are quasi-criminal in nature. Section 274 contains the principle of natural justice of the assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining a complaint of failure of the Principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice is caused to the concerned person by the procedure followed. The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The ITAT Mumbai Bench in the case of Dhanraj Mills Pvt.Ltd. followed the decision rendered by the Jurisdictional Hon’ble Bombay High court in the case of Kaushalya (supra) and chose not to follow decision of Hon’ble Karnataka High AMS Fashions Pvt.Ltd. A.Y.2011-12 5
Court in the case of Manjunatha Cotton & Ginning Factory (supra). Reliance was also placed by the ITAT Mumbai in this decision on the decision of Hon’ble Patna High court in the case of CIT v. Mithila Motor's (P.) Ltd. [1984] 149 ITR 751 (Patna) wherein it was held that under section 274 of the Income-tax Act, 1961, all that is required is that the assessee should be given an opportunity to show cause. No statutory notice has been prescribed in this behalf. Hence, it is sufficient if the assessee was aware of the charges he had to meet and was given an opportunity of being heard. A mistake in the notice would not invalidate penalty proceedings.
10. In the case of Earthmoving Equipment Service Corporation (supra), the ITAT Mumbai did not follow the decision rendered in the case of Manjunatha Cotton & Ginning Factory (supra) for the reason that penalty in that case was deleted for so many reasons and not solely on the basis of defect in show cause notice u/s.274 of the Act. This is not factually correct. One of the parties before the group of Assessees before the Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) was an Assessee by name M/s.Veerabhadrappa Sangappa & Co., in OF 2009 which was an appeal by the revenue. The Tribunal held that on perusal of the notice issued under Section 271(1)(c) of the Act, it is clear that it is a standard proforma used by the Assessing Authority. Before issuing the notice the inappropriate words and paragraphs were neither struck off nor deleted. The Assessing Authority was not sure as to whether she had proceeded on the basis that the assessee had either concealed its income or has furnished inaccurate details. The notice is not in compliance with the requirement of the particular section and therefore it is a vague notice, which is attributable to a patent non application of mind on the part of the Assessing authority. Further, it held that the Assessing Officer had made additions under Section 69 of the Act being undisclosed investment. In the appeal, the said finding was set-aside. But addition was sustained on a new ground, that is under valuation of closing stock. Since the Assessing Authority had initiated penalty proceedings based on the additions made under Section 69 of the Act, which was struck down by the Appellate Authority, the initiated penal proceedings, nolonger exists. If the Appellate Authority had initiated penal proceedings on the basis of the addition sustained under a new ground it has a legal sanctum. This was not so in this case and therefore, on both the grounds the impugned order passed by the Appellate Authority as well as the Assessing Authority was set-aside by its order dated 9th April, 2009. Aggrieved by the said order, the revenue filed appeal before High Court. The Hon’ble High Court framed the following question of law in this appeal viz., 1. Whether the notice issued under Section 271(1)(c) in the printed form without specifically mentioning whether the proceedings are initiated on the ground of concealment of income or on account of furnishing of inaccurate particulars is valid and legal? 2. Whether the proceedings initiated by the Assessing Authority was AMS Fashions Pvt.Ltd. A.Y.2011-12 6
legal and valid? Therefore the decision rendered by the ITAT Mumbai in the case of Earthmoving Equipment Service Corporation (supra) is of no assistance to the plea of the revenue before us.
In the case of M/S.Maharaj Garage & Co. Vs. CIT dated 22.8.2017 referred to in the written note given by the learned DR, which is an unreported decision and a copy of the same was not furnished, the same proposition as was laid down in the case of Smt.Kaushalya appears to have been reiterated, as is evident from the extracts furnished in the written note furnished by the learned DR before us.
12. In the case of Trishul Enterprises & 385/Mum/2014, the Mumbai Bench of ITAT followed the decision of the Hon’ble Bombay High Court in the case of Smt.Kaushalya (supra).
In the case of Mahesh M.Gandhi (supra) the Mumbai ITAT the ITAT held that the decision of the Hon’ble Karnataka High Court in the case Manjunatha Cotton & Ginning (supra) will not be applicable to the facts of that case because the AO in the assessment order while initiating penalty proceedings has held that the Assessee had concealed particulars of income and merely because in the show cause notice u/s.274 of the Act, there is no mention whether the proceedings are for furnishing inaccurate particulars or concealing particulars of income, that will not vitiate the penalty proceedings. In the present case there is no whispher in the order of assessment on this aspect. We have pointed out this aspect in the earlier part of this order. Hence, this decision will not be of any assistance to the plea of the revenue before us.
From the aforesaid discussion it can be seen that the line of reasoning of the Hon’ble Bombay High Court and the Hon’ble Patna High Court is that issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The Tribunal at Mumbai being subordinate to the Hon’ble Bombay High Court are bound to follow the aforesaid view. As far as benches of Tribunal in other jurisdictions are concerned, there are two views on the issue one in favour of the Assessee rendered by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) and other of the Hon’ble Bombay High Court in the case of Smt.Kaushalya. It is settled legal position that where two views are available on an issue, the view favourable to the Assessee has to be followed. We therefore prefer to follow the view expressed by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra).”
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11. We have already observed that the show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld. Counsel for the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present case cannot be sustained and the same is directed to be cancelled.
In the result the appeal of the assessee is accordingly allowed.
Order pronounced in the Court on 01 .03.2018