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Income Tax Appellate Tribunal, KOLKATA ‘D’ BENCH, KOLKATA
Before: Sri J. Sudhakar Reddy & Sri S. S. Viswanethra Ravi]
Pradip Bardhan…..……..……….…...……….……………………………………………….…….……...Appellant 40, Rajani Gupta Row Kolkata – 700 009 [PAN : ADXPB 4496 K] Income Tax Officer, Ward-33(3), Kolkata………………………..……………………..…. Respondent Income Tax Office 10, Middleton Row Kolkata Appearances by: Shri B.K. Singh, appeared on behalf of the assessee. Shri Arindam Bhattacharjee, Addl. CIT, DR appearing on behalf of the Revenue. Date of concluding the hearing : December 20th, 2017 Date of pronouncing the order : January 19th, 2018 O R D E R Per J. Sudhakar Reddy :-
Both these appeals are filed by the assessee directed against the order of the ld. Commissioner of Income Tax (Appeals)-9, Kolkata, (hereinafter the ‘ld. CIT (A)’), passed u/s 250 of the Income Tax Act, 1961 (the ‘Act’), dt. 27/11/2015, for the Assessment Year 2006-07.
ITA No. 1307/Kol/2016 2.1. The assessee submits that, he runs a proprietary concern in the name of M/s. Bardhan Enterprise, which is in the business of supplies of food to Government Hospitals. He obtained a contract for supply of food to SSKM Hospital and for execution of the same he constituted a partnership firm under the same name with 5 other persons. It was submitted that the assessee partnership firm supplied food items for SSKM Hospital but the PAN Number of the assessee was 2 Assessment Year: 2006- Assessment Year: 2006-07 Pradip Bardhan used. The partnership firm did not file its return of income for the Assessment Year 2006-07. It started filing return for the Assessment Year 2007-08. As the assessee’s PAN Number was used, the Assessing Officer added the turnover declared by the assessee and estimated a percentage of such turnover as income. On consequent appeals to the ld. CIT(A) and the ITAT, the profit was determined at 10 per cent of the turnover as determined by the Assessing Officer. Consequently, penalty u/s 271B of the Act, was levied for violation of Section 44B of the Act, as the turnover of the assessee exceeded Rs.40 Lakhs.
2.2. The ld. Counsel for the assessee, relied on the decision of the ITAT Delhi Bench in the case of Brij Lal Goyal v. Assistant Commissioner of Income-tax [2004] 88 ITD 413 (Delhi), and submitted that he was under the impression that the partnership firm would have disclosed his turnover and hence he did not disclose the same and it is a reasonable cause for not getting the books of account audited.
We are unable to accept the contention of the assessee. He being a partner of the partnership firms, should be aware of the fact whether the partnership firm has disclosed his turnover or not in the return of income filed. Having not done so, he cannot plead ignorance. Thus, we confirm the order of the ld. CIT(A) and dismiss this appeal of the assessee.
This appeal of the assessee is against the order of the ld. CIT(A), cancelling the penalty levied u/s 271(1)(c) of the Act.
In this case, the irrelevant portions of the notice have not been struck off. In the case of CIT Vs. Kaushalya 216 ITR 660(Bom), 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 3 Assessment Year: 2006- Assessment Year: 2006-07 Pradip Bardhan 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. Vs. ACIT ITA No.3830 & 3833/Mum/2009 dated 21.3.2017, 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 Court in the case of CIT vs Manjunatha Cotton and Ginning factory (2013) 359 ITR 565. 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.
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 ITA No.5020 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 4 Assessment Year: 2006- Assessment Year: 2006-07 Pradip Bardhan 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, no longer 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 the said 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 legal and valid? The Hon’ble Karnataka High Court held in the negative and against the revenue on both the questions. 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 by the Hon’ble Bombay High Court in the case of Smt.Kaushalya (supra) appears to have been reiterated, as is evident from the extracts furnished in the written note furnished by the learned DR before us.
In the case of Trishul Enterprises ITA No.384 & 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).
5 Assessment Year: 2006- Assessment Year: 2006-07 Pradip Bardhan 13. In the case of Mahesh M.Gandhi Vs. ACIT Vs. ACIT ITA No.2976/Mum/2016 dated 27.2.2017, 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 whisper 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. Even otherwise this decision does not follow the ratio laid down by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) in as much as the ratio laid down in the said case was only with reference to show cause notice u/s.274 of the Act. The Hon’ble Court did not lay down a proposition that the defect in the show cause notice will stand cured if the intention of the charge u/s.271(1) (c ) is discernible from a reading of the Assessment order in which the penalty was initiated.
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 Benches at Mumbai and Patna being subordinate to the Hon’ble Bombay High Court and Patna High Court are bound to follow the aforesaid view. The Tribunal Benches at Bangalore have to follow the decision of the Hon’ble Karnataka High Court. 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 6 Assessment Year: 2006- Assessment Year: 2006-07 Pradip Bardhan followed. We therefore prefer to follow the view expressed by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra).
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. Accordingly, we allow this appeal of the assessee.
In the result, ITA No. 1307/Kol/2016, dismissed & ITA No. 1308/Kol/2016 is allowed. Kolkata, the 19th day of January, 2018. Sd/- Sd/- [S.S. Viswanethra Ravi] [J. Sudhakar Reddy] Judicial Member Accountant Member Dated : 19.01.2018 {SC SPS} Copy of the order forwarded to: 1. Pradip Bardhan 40, Rajani Gupta Row Kolkata – 700 009 2. Income Tax Officer, Ward-33(3), Kolkata Income Tax Office 10, Middleton Row Kolkata 3. CIT(A)- 4. CIT- , 5. CIT(DR), Kolkata Benches, Kolkata.