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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI C.N. PRASAD, JM & SHRI RAJESH KUMAR, AM
आदेश / O R D E R PER BENCH: These are the four appeals filed by the assessee against the separate orders dated 3.11.2014 passed by the ld.CIT(A)-37, Mumbai for the assessment years 2005-06, 2009-10 and 2010-11. Since these appeals pertain to same assessee and grounds raised therein more or less are identical these appeal are clubbed together, heard together and are being decided by this consolidated order for the sake of convenience.
2 332 to 73 3 5/ Mum/ 20 14 ITA NO.7332 and 7333/Mum/2014 2. The grounds of appeal taken by the assessee are as under : “1. On the facts and circumstance of the case and in law, the Hon'ble CIT(A)-37, Mumbai erred in confirming the penalty u/s. 271(1)(c) of the Income Tax Act, 1961.
2. On the facts and circumstance of the case and in law, the Hon'ble CIT(A)-37, Mumbai erred in confirming the penalty u/s 271(1)(c) of the Income Tax Act, 1961, on the disallowance of depreciation of Rs.25,45,459/- in respect of purchase of software from a related party.
3. On the facts and circumstance of the case and in law, the Hon'ble CIT(A)-37, Mumbai erred in confirming the penalty u/s 271(1) of the Income Tax Act, 1961, on the disallowance of depreciation Rs 37,850/- .
4. On the facts and circumstance of the case and in law, the Ho’ble CIT(A)-37, Mumbai erred in confirming the penaly u/s 271(1)( c ) of the Income Tax Act, 1961, on the disallowance u/s 40(a)(ia) for Rs.7,77,886/-
5. On the facts and circumstance of the case and in law, the Hon'ble CIT(A)-37, Mumbai erred in confirming the penalty u/s 271(1)(c) of the Income Tax Act, 1961, on the addition of Rs 1,53,55,000/- as unexplained cash credit.
6. On the facts and circumstance of the case and in law, the Hon’ble CIT(A)-37, Mumbai erred in not accepting that penalty u/s 271(1)(c) is not leviable on merit on the disallowance/additions made by Assessing Officer.”
3. The assessee also vide letter dated 9.8.2016 take following Additional Grounds without prejudice to ground no.1 to 6 Additional Ground No.1 “1. On the facts & circumstances of the case and in law, the Ld. Assessing officer erred in initiating penalty on the order passed u/s 143(3) r.w.s. 153C in absence of any any incriminating material and in 3 ITA NO.7 332 to 73 3 5/ Mum/ 20 14 respect of the additions that were already made in the assessment concluded u/s 143(3) of the Act Additional Ground No. 2:
1. On the facts & circumstances of the case, the penalty has been initiated notice u/s 274 without any specific charge and hence the notice and the passed u/s 271(1)(c) is illegal, bad in law and without jurisdiction
2. The Appellant humbly prays that the Assessing Officer be directed to delete penalty levied u/s 271(1)(c) . Without prejudice to Ground Nos.l to 6 and Additional ground no.l & 2 Additional Ground No. 3:
1. On the facts & circumstances of the case, and in law ,the Ld AO erred in levying penalty twice on the same additions made by him/her in the order u/s 143(3) as well as the order passed u/s 143(3) r.w.s 153C leading to duplicity of penalty proceedings in respect of the same impugned items of additions.
2. The Appellant humbly prays that the Assessing Officer be directed to delete penalty levied u/s 271(1)(c)”
4. After hearing both the sides on the admission of additional ground we find that the issue raised by means of additional grounds are arising or emanating from the assessment records before the authorities below and purely of legal nature and therefore we are inclined to admit the same for adjudication. The ld counsel for the assessee argued the locus standi of imposing penalty when the AO did not mention the charge whether the penalty is proposed to be levy for inaccurate particulars of income or for concealment of income. So without going into the merit of levying the 4 332 to 73 3 5/ Mum/ 20 14 penalty, we are first deciding the issue of validity of imposition of penalty u/s 271(1)( c) of the Act.
Only issue raised in the various grounds of appeal is in respect of confirmation of the penalty u/s 271(1)( c) of the Income Tax Act, 1961 as imposed by the AO qua the various disallowances and additions viz. Depreciation of Rs.25,45,459/-, disallowance u/s 40(a)(ia) of the Act for Rs.7,77,886/- addition of Rs.1,53,55,000/- as unexplained cash credit.By means of additional ground no 2 the ld AR proposed to raise the legal and technical issue that the penalty was imposed by the AO without specifically mentioning under which charge the penalty was proposed to be levied.
Brief facts of the case are that the assessee filed return of income on 28.10.2005 declaring total loss of Rs.2,11,43,869/-. The assessment was completed under section 143(3) of the Income Tax Act on 24.12.2007 determining the income at NIL by allowing certain business loss to the extent of Rs.49,22,379/-. The AO while framing assessment under section 143(3) made certain additions/disallowances as under : I Addition u/s 68 1,53,55,000 Ii Disallowance u/s 36(1)(va) 10,15,007 iii Disallwnce u/s 40A(2)(b) 25,45,459 iv Disllwance of deprecition 37,850 V Disllwnce u/s 40(a)(ia) 7,77,886 vi Disalwnce of travelling expenses 62,89,119 vii Disallwne of claim of bad debts 45,930 5 332 to 73 3 5/ Mum/ 20 14 7 During the appellate proceedings, the FAA also upheld the additions as made by the AO vide order dated 14.2.2011. Thereafter, the AO issued show cause notice dated 26.3.2013 calling upon the assessee to show cause as to why the penalty u/s 271 of the Act should not be imposed. At the time of framing the assessment the AO did not record any satisfaction as the initiation of penalty proceedings as he simply stated that penalty proceedings u/s 271(1)(c) is being initiated separately on the issue. The extract of penalty show notice are as under : “NOTICE U/S 274 R.W.S.271 OFTHE INCOME TAX ACT, 1961. 271(1)(c) Office of the Deputy Commissioner of Income Tax, Central Circle-09 Room No. 806, 8th Floor, Old CGO Annexe Building, M.K. Road, Marine Lines, Mumbai-400020. Date: 26.03.2013 To, M/s Global Proserve Pvt ltd, Global Vision, Electronic Sadan-II, MIDC, TTC Industrial Area Mahape, Mumbai-400710. PAN:AAAC15902J Whereas in the course of proceedings before me for the Assessment Year 2005-06 it appears to me that you:- *have without reasonable cause failed to furnish me return of income which you were required to furnish by a notice given under section 22(1)/22(2)/34 of the Indian Income Tax Act, 1922 or which you were required to furnish under section 139(1) or by a notice given under section 139(2)/148 of the Income Tax Act, 1961, No.------------------- 6 332 to 73 3 5/ Mum/ 20 14 dated ---------------or have without reasonable cause failed to furnish it within the time allowed and the manner required to by the said section 139(1) or by such notice. *have without reasonable cause failed to comply with a notice under section 22(4)/23(2) of the Indian Income Tax Act, 1922 or under section 142(1 )/143(2) of the Income Tax Act, 1961. *have concealed the particulars of your Income- or ----------------------furnished inaccurate particulars of such income. You are hereby requested to appear before me at A.M. IP.M. on *****20____ and show cause why an order imposing a penalty on you should not be made under-section-271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of b eing heard in person or through authorized representative, you may snow cause in writing on or before the said date which will be considered before any such order is made under section 271(1)(c) **** Within 15 days from the receipt of this notice. ( RAM KRISHN KEDIA ) Deputy Commissioner of Income Tax Central Circle - 9 Mumbai. Finally , the AO imposed the penalty after rejecting the contentions and submissions as raised by the assessee at the rate of 100% of the tax sought to be evaded of Rs.72,36,947/- without pointing out the specific limb under which the penalty was levied as is apparent from the highlighted portion of notice issued u/s 274 r.w.s. 271 of the Act. In the appellate proceeding, the FAA partly allowed the appeal of the assessee by deleting the penalty imposed in respect of disallowance of Rs. 10,15,007/- u/s 36(1)(va) of the Act and disallowance of Bad debts Rs.45,930/- and sustained penalty in respect of remaining disallowance made by the AO while rejecting the technical ground in toto. Now, the assessee is in appeal before us. Now first 7 332 to 73 3 5/ Mum/ 20 14 we will decide the technical ground no 2 raised in the additional grounds of appeal
as taken by the assessee.
8. The ld counsel for the assessee vehemently argued before us that the AO, while passing the assessment order did not record any satisfaction and initiated penalty proceedings under section 271(1)(c) of the Act by simply stating in the assessment order that the penalty proceedings are being initiated separately without recording any satisfaction and therefore the penalty proceedings consequent and penalty imposed by the AO is bad in law ab-initio. The ld.AR while taking us through the notice issued under section 274 R.W.S.271(1)(c) dated 26.3.2013 drew our attention to the standard language/proforma for issuing notice without specifying the charge on which the penalty has been proposed to be levied against the assessee i.e whether the penalty is being initiated for filing inaccurate particulars of income or for concealment of income. The ld AR contended that according to the provisions of the Act it is mandatory for the AO to point out specifically that under which limb the penalty is being levied which has now been settled in the decision of the Jurisdictional High Court and in the various other decisions of the Tribunal wherein it has been held that it is mandatory for the AO to record satisfaction with specific charge under which the penalty proceedings is being initiated and failing which, it would be construed that the notice was issued by the AO is without application of mind which is bad in law and so is the consequential order passed u/s 271(1)( c ) of the Act which is bad in law.
8 332 to 73 3 5/ Mum/ 20 14 In support of his contention, the ld. AR relied upon the number of decision as under : i) CIT vs. Manjunath Cotton & Ginning Factory (359 ITR 565 ) (Kar HC) ii) CIT vs. V.S. Lad & Sons (SLP) (SC) iii) CIT vs. Veerabhadrappa Sangappa& Co. (SLP) (SC) iv) CIT vs. SSA's Emerald Meadows (SLP) (SC) Above SLPs have affirmed the High Court decisions the case of CIT vs. Manjunath Cotton & Ginning Factory v) Dr. Sarita Milind Davare vs ACIT (Mumbai Tribunal) I.T.A. No. 2187/Mum/2014(AY-2009-10) 21.12.2016 vi) CIT vs Manu Engg. (122 ITR 306) (Guj. HC) vii) Dilip N. Shroof vs. JCIT (291 ITR 519) (SC) viii) UOl vs. Dharamendra Textile Processors (295 ITR 244) (SC) ix) CIT V/s Reliance Petrophoducts (P) Ltd (322 ITR 159) (SC) Finally, the ld.AR prayed before the Bench that in view of the defective notice which was incurable in view of the ratio laid down by the various decisions of the Hon’ble High Courts and the decisions of the Tribunal, the penalty proceedings initiated by the AO was non-est and void abinitio and therefore the appeal of the assessee should be allowed on legal issue by quashing the penalty proceedings and consequential order.
On the other hand, the ld. DR while controverting the arguments of the ld.AR defended the initiation of penalty proceedings and penalty imposed by the AO and confirmed by the FAA u/s 271(1)(c) read with section 274 of the Act. The ld. DR submitted that u/s 274 of the Act the mandatory conditions are that the assessee should be given an opportunity to reply the show cause. No specific format has been prescribed under the Act of the 9 332 to 73 3 5/ Mum/ 20 14 said notice. Hence it is sufficient if the assessee was aware of the charges, he had to meet on an opportunity of being heard and if the mistake in the notice would not invalidate the penalty proceedings. The ld. DR specifically contended that the AO has applied his mind while initiating penalty proceedings as various additions have been made after discussing the case in length with reasoning for making such additions and also clearly mentioned in the assessment order penalty proceedings will be initiated separately u/s 271(1)(c) of the Act. Under these circumstances, the arguments of the ld.AR that the limb of the penalty notice under which the penalty was initiated was not struck-off was wrong and without substance. The ld. DR heavily relied on the decision in the case of CIT V/s Smt. Kaushalya And Athers(1995) 216 ITR 660 (Bom) in which it has been held that “Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice.” . The ld.DR further submitted that the under section 274 or in any other section of the Income Tax Act, there is no particular format of notice since statutory notices have been prescribed in the Income Tax Act. The ld. DR submitted that for issuing notice under section 274 read with section 271(1)( c ) the reasons were recorded in the assessment order and the assessee was fully aware of the details and charge leveled by the AO against it and therefore, it would be wrong and contrary to the facts on record to allege that the AO did not apply his mind while issuing show cause notice u/s 274 r.w.s.271(1)( c ).
10 332 to 73 3 5/ Mum/ 20 14 The ld. DR also argued that issuance of the notice was administrative procedure for initiating the proposal in order to impose penalty. A mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The ld. DR on the basis of factual background prayed for confirmation of the penalty order. The ld. DR relied upon the decision of the Mumbai Bench of the Tribunal in the case of DHAVAL K JAIN V/s ITO in ITA No.996/Mum/2014 (AY-2003-04) order dated 30.9.2016 which was passed after considering the decision of jurisdictional High Court in the case of Smt. Kaushalya And others(supra) the Karnataka High Court in the case of Manjunath Cotton & Ginning Factory(supra). The ld.DR finally prayed that in view of the ratio laid down in the afore said decisions, the order of the AO levying the penalty and confirming by the ld.FAA passed under section 274 r.w.s271(1)(c) should be upheld by dismissing the appeal of the assessee.
We have carefully considered the rival contentions, perused the material placed before us including the orders of authorities below and case law relied upon by the parties. The perusal of the assessment order reveals that the AO has only stated that the penalty proceedings under section 271(1)(c ) of the Act are initiated separated separately without specifying or mentioning any specific charge under which the assessee is being proposed to be penalized i.e. whether the assessee has concealed a particulars of income or furnished inaccurate particulars of income. We also find from the 11 332 to 73 3 5/ Mum/ 20 14 notice dated 26.3.2013 issued under section 271(1) (c) r.w.s.274 of the Act extracted hereinbefore that the notice has been issued in standard format without striking off any of the two limbs i.e. for concealing the particulars of income or furnishing inaccurate particulars of income of such income under which the penalty was initiated against the assessee. In view of these facts we are of the view that the AO lacked application of mind in initiating penalty proceedings while framing assessment and also while issuing the notice initiating penalty proceedings u/s 274 r.w.s271(1)(c) of the Act. In the case of Manjunath Cotton & Ginning Factory(supra), the Hon’ble Karnataka High Court has held as under : “Notice under section 274 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. Sending printed form, where all the grounds mentioned in section 271 are mentioned, would not satisfy requirement of law. The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. [Para 63]”
In the case of CIT vs. SSA's Emerald Meadows ITA 380 of 2015, the Honble Karnatka High Court has also decided the identical issue in favour of the assessee by holding that no substantial question of law arose for determination in this appeal which was filed against the order of the tribunal wherein the tribunal allowed the appeal of the assessee by quashing the penalty proceedings and consequent order where the AO did not specify the 12 332 to 73 3 5/ Mum/ 20 14 under which limb the penalty had been initiated by following and relying on the decision in the case of CIT Vs Manjunatha Cotton and Ginning Factory (2013)359ITR 565.
The revenue filed SLP against the declslon of Karnatka High Court in the above decision which has also been dismissed by the Honble Supreme Court 05.08.2016. In the case of CIT V/s Samson Perinchery in INCOME TAX APPEAL NO. 1154 OF 2014(Bom) order dated 5.1.2017 the Hon’ble Bombay High Court has been held as under: “6 The above submission on the part of the Revenue is in the face of the decision of the Supreme Court in Ashok Pai v/s. CIT 292 ITR 11 [relied upon in Manjunath Cotton & Ginning Factory (supra)] – wherein it is observed that concealment of income and furnishing of inaccurate particulars of income in Section 271(1)(c) of the Act, carry different meanings/ connotations. Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under Section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/ permit penalty being imposed for the other breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated/notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground of which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the Assessee has no notice. 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 Manjunath Cotton and Ginning Factory (supra).”
13 332 to 73 3 5/ Mum/ 20 14 11. We are therefore respectfully following the ratio laid down by the Hon’ble High Courts including the jurisdictional High Court and Supreme Court hold that the order of the CT(A) upholding the imposition of penalty u/s 271(1)(c) of the Act where the AO had not specified or mentioned the charge on which the penalty has been imposed is not correct and cannot be sustained. In view of the foregoing discussion we set aside the order of CIT(A) and direct the AO to delete the penalty levied u/s 271(1)( c ) of the Act.
In the remaining appeals the legal issue taken by the assessee are identical and hence the decision taken in ITA No.7332/Mum/2014 us would , mutatis mutandi, to appeal bearing ITA Nos.7333 to 7335/Mum/2014, therefore all these appeals are allowed.
In the result, the appeals of the assessee stand allowed. Order pronounced in the open court on 14th March, 2017.
(C.N. Prasad) (Rajesh Kumar) न्याययक सदस्य / Judicial Member ऱेखा सदस्य / Accountant Member भुंफई Mumbai; ददनधंक Dated : 14.3.2017 SRL,Sr.PS आदेश की प्रनतलरपऩ अग्रेपषत/Copy of the Order forwarded to : अऩीरधथी / The Appellant 1. प्रत्मथी / The Respondent 2. 3. आमकय आमुक्त(अऩीर) / The CIT(A) 4. आमकय आमुक्त / CIT – concerned