M/S. KORADA FURNITURE COMPANY PVT LTD.,,HUBLI vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1(1) &TPS, HUBLI

Aggrieved by the order of the CIT(A), the assessee has filed the present appeal before the Tribunal. The learned AR submitted that the penalty notice issued is vague as it does not strike down relevant portion of the notice. In this context, the learned AR relied on the judgments of the Hon’ble jurisdictional High Court in the case of CIT v. Manjunatha Cotton and Ginning Factory reported in (2013) 359 ITR 565 (Kar.) and CIT v. SSA’S Emerald Meadows reported in (2016) 73 taxmann.com 241 (Karnataka). Further, it was contended that initiation of penalty in the assessment was under the limb “furnishing inaccurate particulars”. However, as per the M/s.Korada Furniture Company Pvt. Ltd. impugned penalty order, the penalty has been imposed for “concealment of income”. Therefore, it was submitted that there has been total non-application of mind by rendering the imposition of penalty as bad in law. In this context, the learned AR relied on the judgment of the Hon’ble jurisdictional High Court in the case of Kshema Geo Holdings (P.) Ltd. v. ITO reported in (2024) 460 ITR 203 (Kar.) (judgment dated 20.03.2023).

The learned Departmental Representative supported the orders of the A.O. and the CIT(A).

We have heard the rival submissions and perused the material on record. The assessment proceedings relevant ot the assessment year, namely, A.Y. 2014-2015 has been concluded on 19.12.2016 vide order passed u/s.143(3) of the Act. The same is followed by a notice issued u/s.274 r.w.s. 271 of the Act, issued on the same date for imposition of penalty. It is relevant to note therefrom that the notice is vague, inasmuch as no specific limb referred to in section 271(1)(c) of the Act has been mentioned in the notice. A copy of the notice is reproduced below:-

Penalty notice is not legally tenable as it is contrary to the judgment of the Hon’ble jurisdictional High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory (supra). The notice of the penalty is bad in law and without application of mind as grounds for proposed initiation of a penalty notice is not specifically mentioned in the impugned notice. The said notice is standard notice listing out all the grounds on which the assessee can be penalized under the provisions of the Act. In this regard, a reference may be made to the relevant extract of the aforesaid judgment wherein it has been observed and held as under:-

Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out the satisfaction of the existence of the grounds mentioned in section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what the assessee was called upon to meet. Otherwise, though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend the principles of natural justice and cannot be sustained. Thus, once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.

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 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. The standard proforma without striking of the relevant clauses will lead to an inference as to non- application of mind. CONCLUSION 63. In the light of what is stated above, what emerges is as under : ………… (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 (q) Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law. (r) The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. In I. T. A. No. 5020 of 2009 M/s.Korada Furniture Company Pvt. Ltd.

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 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.”

Further, reliance is placed on the judgment of the Hon’ble jurisdictional High Court in the case of CIT v. SSA’S Emerland Meadows (supra). The SLP against the aforesaid judgment was dismissed by the Hon’ble Supreme Court. The Hon’ble Supreme Court held as under:-

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.”

Reliance is placed on the following judicial pronouncements:- (i) Muninaga Reddy v. ACIT (2017) 396 ITR 398 (Kar.) (ii) Safina Hotels (P.) Ltd. v. CIT (2016) 237 Taxman 702 (Kar.) (iii) S.Chandrashekar v. ACIT (2017) 396 ITR 538 (Kar.) (iv) Prince Consultancy (P.) Ltd. v. DCIT (2017) 54 ITR(T) 334 (Mumbai – Trib.)

The aforesaid defect is not curable u/s.292B/BB of the Act. Reliance is placed on the following ruling which is specifically covered in favour of the assessee on the aforesaid issue:- (i) K.Prakash Shetty v. ACIT (ITA Nos.265 to 267/ Bang/2014 (order dated 05.06.2014) (ii) Kanhaiyalal D.Jain v. ACIT (2017) 88 taxmann.com 830 (Pune – Trib.) (iii) Dr.Sarita Milind Davare v. ACIT (2017) 88 taxmann.com 902 (Mumbai – Trib.).

Further, it is relevant to note from the assessment order that the penalty has been initiated for `furnishing inaccurate particulars’. However, as per the impugned penalty order, the penalty is imposed for `concealment of income’. These

In the light of the aforesaid reasoning and judicial pronouncements, cited supra, we delete the penalty imposed u/s.271(1)(c) of the Act.

In the result, the appeal filed by the assessee is allowed.