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Income Tax Appellate Tribunal, “D”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A) – 45, Mumbai dated 25/01/2016 for the A.Y.2006-07 in the matter of imposition of penalty u/s.271(1)(c) of the IT Act of Rs.1,93,602/-. 2. Rival contentions have been heard and record perused. 3. Facts in brief are that the Assessee is mainly deriving commission income. The return of income was filed u/s 139(1) declaring a total income of Rs.1,94,655/- on 22nd March 2007. The return was picked up for assessment u/s 148 on the basis of information available with the AO on 25th March 2013. The Assessee has filed return of income u/s 148 declaring the income of Rs 7,88,270/- by including the income from other Mrs. Archana D Talati sources of Rs 5,93,622/- and paid tax accordingly to buy peace and avoid litigation. The assessing officer has passed the order u/s u/s.143(3) r.w.s 147 by accepting the income offered by the Assessee as income from other sources of Rs 5,93,622/-.
With respect to the income so offered and accepted by the AO, AO also levied penalty u/s.271(1)(c) which was confirmed by the CIT(A) and assessee is in further appeal before us.
It was argued by learned AR that during the course of assessment proceeding itself, assessee has voluntarily offered the income of Rs.5,93,622/- for which assessee’s claim of long term claim was declined. Our attention was also invited to the letter furnished to the AO for not initiating penalty proceedings and surrender of sale proceeds was in order buy piece of mind and to avoid hazards of litigation and also to save himself from any penal action.
Learned AR placed on record the decision of Punjab and Haryana High Court in case of Rajiv Garg, wherein under similar facts and circumstances, Hon’ble High Court has upheld deletion of penalty so imposed u/s.271(1)(c) of the IT Act. The precise observation of High Court was as under:- 6.We have heard the learned counsel for the appellant and gone through the impugned order. Learned counsel for the appellant submitted that in the present case the assessee filed its revised return, including the entire amount of share proceeds, after issuance of the notice under section 148 of the Act. By filing the revised return, the assessee owned the amount in question as his income and he had earlier filed the original return, concealing the said income by deliberately furnishing inaccurate particulars of that income in the original return. This amounts to admission of the assessee itself that it has earlier furnished inaccurate particulars of income and on its detection by the Department, the assessee offered the concealed income for tax after issuance of the notice under section 148 of the Mrs. Archana D Talati Act. Learned counsel submitted that this fact itself proves that the assessee had deliberately furnished inaccurate particulars of his income with intention to avoid higher rate of tax. Learned counsel further submitted that the assessee had accepted the order of assessment passed by the Assessing Officer under section 143(3) of the Act and no further appeal has been filed by it against the said order. Learned counsel submitted that the explanation submitted by the assessee that he surrendered the entire amount of sale proceeds of shares to buy peace of mind and to avoid hazards of litigation and also to save nimself from any penal action, cannot be said to be bona fide. The assessee has not discharged its onus in this regard. Therefore, the Commissioner of Income-tax (Appeals) as well as the Tribunal were not justified in deleting the penalty in the present case. 7.After hearing the learned counsel for the appellant, we do not find any merit in this appeal. Undisputedly, the assessee filed the return of income declaring its total income at Rs. 47,05,230, which Inter alia included long-term capital gain on sale of shares amounting to Rs. 29,74,951. The return was processed in terms of section 143(l)(a) of the Act on 15-3-1999. Subsequently, on the basis of some information with regard to sale proceeds of the shares amounting to Rs. 32,40,385 on which the capital gain was declared at Rs. 29,74,951 by the assessee in the original return, a notice under section 148 of the Act was issued. Pursuant to the said notice, the assessee filed the revised return of income showing higher income. The said return of income was accompanied by a note in which the assessee submitted that he surrendered the entire amount of sale proceeds of shares to buy peace of mind and to avoid hazards of litigation and also to save himself from any penal action. Later on, on the basis of revised return, the assessment was framed and the return submitted by the assessee was regularized as it is. During the course of assessment, the aforesaid explanation given by the assessee was neither rejected nor it was held to be mala fide. The Tribunal has recorded a pure finding of fact to the effect that the revenue has not placed on record any material or evidence to discharge its burden of proving concealment. In the assessment order no such finding was recorded. The Department has simply rested its conclusion on the act of assessee of having offered additional income in the return filed in response to the notice issued under section 148 of the Act. The Tribunal has further held that the additional income so offered by the assessee was done in good faith and to buy peace. The Tribunal has relied upon the decision of the Apex Court in case of CIT v. Suresh Chandra Mittal ROOD 251 ITR 9, wherein the Supreme Court has upheld the decision of the Madhya Pradesh High Court CITSuresh Chandra Mittal r2QOOj 241 ITR 124 , where in similar circumstances it was held that the initial burden lies on the revenue to establish that the assessee had concealed the income or had furnished inaccurate particulars of such income. The burden shifts to the assessee only if he fails to offer any explanation for the undisclosed income or offers an explanation which is found to be false by the assessing authority. In the present case, in pursuance of the notice under section 148 of the Act, the revised return of income was filed in which the entire income was surrendered with an explanation. The revised assessment was regularized by the revenue. The assessing authority had failed to take any objection that the declaration of income made by the assessee in his revised return and in his explanation were not bona fide. Therefore, in view of the aforesaid finding, the Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals), whereby the penalty imposed under section 271 (1 )(c) of the Act by the Assessing Officer was ordered to be deleted.
Mrs. Archana D Talati 8. In view of the aforesaid discussion, we are of the opinion that no substantial question of law is arising in this appeal. Hence, finding no merits in the appeals, the same are hereby dismissed.
Learned AR has also taken a legal ground to the effect that notice issued u/s. 274 r.w.s. 271 (1) (c) of a standard proforma without cutting inappropriate words and paragraphs as to whether penalty was for furnishing inaccurate particulars of income or for concealment of income, as vitiates entire penalty proceedings.
Our attention was also invited to the notice dated 08/08/2013 issued u/s.274 r.w.S. 271 (1)(c) wherein AO has not strike of inappropriate words. Our attention was also invited to the quantum order wherein no satisfaction was found to be recorded by the AO as to whether he wants to initiate penalty proceedings for concealment of income or furnishing inaccurate particulars of income. In the quantum order, the AO has just mentioned that penalty proceedings u/s.271(1)(c) of the Act are initiated separately. As per learned AR Mr. Tarun Ghai, there is no allegation as to whether penalty was to be levied for furnishing inaccurate particulars or for concealment of income. Reliance was placed on the decision of Hon’ble Bombay High Court in the case of Samson Perinchery and the series of the decision of the Tribunal wherein penalty was deleted on the plea that in the notice issued u/s.274 r.w.s.271 (1)(C), AO has not deleted the inappropriate words. 9. On the other hand, learned DR relied on the order of the lower authorities and contended that since the capital gain offered by the Mrs. Archana D Talati assessee was found to be non-genuine, AO was justified in levying the penalty. As per learned DR, merely non-striking of inappropriate words in the notice will not invalidate the proceedings in so far as assessee has participated in the penalty proceedings.
We have considered rival contentions and carefully gone through the orders of the authorities below, We found that decision of the Punjab and Haryana High Court in case of Raj Rani Mittal as relied on by the learned AR squarely applies to the facts of the assessee’s case. Accordingly, penalty so imposed was not justified.
Even on the legal issue, we found that the two charges for initiating the penalty operate on two different footing and under the penal provision the charge has to be very specific and not vague. These charges are not to be reckoned as any casual remark, which can be interchanged by the AO at any stage on his whims and fancies. It is not an error which is rectifiable or to be ignored, albeit it is a fatal error which vitiates the entire initiation itself. If charge itself is vague and not clear, then the onus cast upon the assessee under Explanation itself gets vitiated as assessee is precluded from a chance to give a specific rebuttal on that charge. It is a trite law that circumstances and facts for levy of penalty under both the grounds operate in a different fields. The courts have held that in the notice under section 274 r.w.s. 271, the AO has to specify the charge on which he intends to levy penalty. This aspect of the matter has been consistently reiterated by the Hon'ble High Courts from time to time.
Mrs. Archana D Talati 12. We found that Notice dated 08/08/2013 issued by AO u/s.274 r.w.s. 271(1)(c) was on standard performa in which inappropriate words and paragraphs were neither struck off nor deleted. We also found that no satisfaction was recorded in the quantum order as to whether AO intends to initiate penalty proceedings for furnishing of inaccurate particulars of income or concealment of income. Thus, the assessing authority was not sure as to whether he had proceeded on the basis that the assessee had either concealed its income or had furnished inaccurate particulars. Thus, the notices so issued are 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.
There can be no doubt that penalty u/s. 271(1)(c) of the Act is levied for concealing particulars of income or for furnishing inaccurate particulars of such Income, which are the two limbs of this provision. In other words, it is only when the authority invested with the requisite power is satisfied that either of the two events existed in a particular case that proceedings u/s. 271(1)(c) of the Act are initiated. This pre-requisite should invariably be evident from the notice issued u/s. 274 r.w.s. 271 of the Act, which is the jurisdictional notice, for visiting an assessee with the penal provision. The intent and purpose of this notice is to inform the assessee as to the specific charge for which he has been show caused so that he could furnish his reply without any confusion and to the point. In the present case, neither the assessee nor anyone else could make out as to whether Mrs. Archana D Talati the notice u/s. 274 r.w.S. 271 of the Act was issued for concealing the particulars of income or for furnishing inaccurate particulars of such income disabling it to meet with the case of the Assessing Officer. There are a catena of judgments highlighting the necessity for identifying the charge for which the assessee is being visited and in all those decisions, Hon'ble Courts have repeatedly held that where the jurisdictional notice is vague, similar to the one in the present case, the consequent levy cannot be sustained.
In this connection, reliance is first placed upon the judgment of the Hon'ble Karnataka High Court In the case of CIT v. Manjunatha Cotton and Ginning Factory & Ors. and Veerabhadrappa Sangappa and Co. (359 ITR 565, 577, 601, 603-604) in which the facts are similar. In those bunch of tax appeals, several assessee and several issues were involved. In so far as of 2009 was concerned, one of the substantial questions on which the appeal was filed by the revenue was: "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?"
While answering the above in favour of the assessee, the following findings were recorded by the Hon'ble Court: "61. 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 Mrs. Archana D Talati 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 a 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 Works reported in [1980] 122 ITR 306 (GUJ) and the Delhi High Court in the case of CIT v. Virgo Marketing P Ltd reported in [2008 171 Taxman 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. "(p) Notice under section 274 of the Act should specifically state the grounds mentioned in section 271(1)(c) i.e. whether it is for concealment of income or for furnishing of incorrect particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind.
Thereafter, in so far as the manner in which the statutory notice was required to be issued, the Hon'ble Court concluded thus: (p) Notice u/s 274 of the Act should be specifically state the grounds mentioned in section 271(1)(c), i.e. whether it is for concealment of income or for furnishing of incorrect particulars of income.
Finally, in concurring with the findings recorded in the order of the Tribunal, it was held thus: 66. In view of the aforesaid law, we are of the view that the Tribunal was justified in holding that the entire proceedings are vitiated as the notice issued is not in accordance with law Mrs. Archana D Talati and accordingly justified in interfering with the order passed by the appellate authority as well as the assessing authority and in setting aside the same. Hence, we answer the substantial questions of law framed in this case in favour of the assessee and against the Revenue. "
The aforesaid judgment was unsuccessfully challenged by the revenue before the Supreme Court, as it was rejected vide Petition for Special Leave to Appeal (C) No. 13898/2014 dated 11.07.2016. Reliance was next placed upon another judgment of the Hon'ble Karnataka High Court in the case CIT v. SSA'S Emerald Meadows (Income Tax Appeal No. 380 of 2015 decided on 23.11.2016). In this case also s similar situation arose in as much as the Hon’ble Court was required to adjudicate on the following substantial question: (1) Whether, omission of assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?"
The aforesaid question was dealt with by the Honble Court in favour of the assessee in the following words: “3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with section 271(1)(c) of the Income-tax Act 1961 (for short 'the Act; to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act the penalty proceedings had been initiated le. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunel while allowing the appeal of the Mrs. Archana D Talati assessee, has relied on the decision of the Division Bench of this Court rendered in the case of Commissioner of Income- tax vs. Manjunatha Cotton And Ginning Factory (2013) 359 ITR 565. 4. In our view since the matter is covered by judgment of the Division Bench of this Court we are of the opinion no substantial question of law arises in this appeal for determination by this Court. The appeal is accordingly dismissed.”
The SLP filed by the department in the aforesaid case also was dismissed by the Hon'ble Supreme Court vide Petition for Special Leave to Appeal (C) No .... ./2016 (CC No. 11485/2016) dated 05.08.2016.
The Honble jurisdictional High Court in the case of CIT v. Shri Samson Perinchery [Income Tax Appeal No. 1154 of 2014 and others dated 05.01.2017] had also occasion to consider a similar issue. In this case, though proceedings u/s. 271(1)(c) of the Act were initiated for furnishing of inaccurate particulars of income, in the notice issued u/s. 274 r.w.s. 271 of the Act in the standard form, the charge for which it was issued was also not identified, as in the present case. In deleting the levy, so far as non-specification of the default in the jurisdictional notice, the following findings were recorded by the Hon'ble Bombay High Court: "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 Menjuneth Cotton and Ginning Factory (supra). 8. In view of the above, the question as framed do not give rise to any substantial question of law Thus, not entertained"
The Hon'ble Supreme Court in Dilip N. Shroff v/s JCIT, [2007] 291 ITR 519 (SC), has observed that while issuing the notice under section 274 r/w section 271, in the standard format, the Assessing Officer should delete the inappropriate words or paragraphs, otherwise, it may indicate that the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or had furnished inaccurate particulars of income. This, according to the Hon'ble Supreme Court, deprives the assessee of a fair opportunity to explain its stand, thereby, violates the principles of natural justice. As held by the Hon'ble Supreme Court in CIT v/s Reliance Petroproducts Pvt. Ltd. [2010] 322 ITR 158 (SC), the aforesaid principle laid in Dilip N. Shroff (supra) still holds good in spite of the decision of the Hon'ble Supreme Court in UOI v/s Dharmendra Textile Processors (2008) 306 ITR 277 (SC). The Hon'ble Jurisdictional High Court in CIT v/s Smt. Kaushalya & Ors., [1995] 216 ITR 660 (Bom), observed that notice issued under section 274 must reveal application of mind by the Assessing Officer and the assessee must be made aware of the exact charge on which he had to file his explanation. The Court observed, vagueness and ambiguity in the notice deprives the assessee of reasonable opportunity as he is unaware of the exact charge he has to face. The Hon'ble Jurisdictional High Court in Samson Perinchery (supra), following the decision of Hon'ble Karnataka High Court in CIT v/s Manjunatha Cotton & Ginning Factory, [2013] 359 ITR 565 (Kar.), held, order imposing penalty has to be Mrs. Archana D Talati made only on the ground on which the penalty proceedings has been initiated.
In addition to the aforesaid binding judgments, there are several orders passed by co-ordinate Benches of the Tribunal on this very point. In all those orders also penalty levied u s. 271(l)(c) of the Act on the basis of similar vague notice was cancelled. 24. In view of the above discussions, we do not find any merit for the penalty so imposed., accordingly, AO is directed to delete the penalty of Rs.1,93,602/- so imposed u/s. 271(1)(c) of the IT Act. 25. In the result, appeal of the assessee is allowed.