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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI SUNIL KUMAR YADAV & SHRI A.K. GARODIA
Date of hearing : 01.06.2016 Date of Pronouncement : 29.07.2016 O R D E R Per Sunil Kumar Yadav, Judicial Member
These appeals are preferred by the assessees against the separate orders dated 24.09.2013 of the CIT(Appeals)-VI, Bangalore for the A.Y.
2006-07 confirming the penalty levied u/s. 271(1)(c) of the Income-tax Act, 1961 [“the Act”].
During the course of hearing of the appeals, the ld. counsel for the assessee has raised an additional ground challenging the validity of initiation of penalty proceedings. The additional ground raised in these appeals is extracted hereunder:-
“ The order of the learned lower authorities u/s. 271(1)(c) is liable to be cancelled for the reason that the notice u/s. 274 does not strike off the portion relating to levy of penalty for delay in filing Return of Income and also does not indicate whether it is a case of “Concealment of income” or “furnishing of inaccurate particulars of income” and also for the further reason that even the satisfaction recorded by Learned AO does not indicate whether it is a case of concealment of income or furnishing of inaccurate particulars of income. It is prayed that this Hon’ble ITAT may pleased to cancel the penalty levied u/s. 271(1)(c) in the interests of equity and justice.”
Since the additional ground raised by the assessee goes to the root of the case, we admit the same and prefer to adjudicate it at the threshold, before going into the merits of the penalty levied u/s. 271(1)(c) of the Act. We have therefore heard the parties on the additional ground.
During the course of hearing, the ld. counsel for the assessee has invited our attention to the notice issued u/s. 274 r.w.s. 271(1)(c) of the Act dated 31.12.2009 which is appearing along with the application for admission of additional ground in and at pages 23 & 24 of the compilation filed in with the submission that the Assessing Officer did not specifically mention in the notice as to whether it is for concealment of income or furnishing of inaccurate particulars of such income. Sending printed form where all the grounds in section 271(1)(c) are specified would not satisfy the requirements of law.
Therefore, in the light of these facts, initiation of penalty proceedings is not in accordance with law and deserves to be annulled. In support of his contention, the ld. counsel for the assessee placed reliance upon the judgments of the Hon'ble jurisdictional High Court in the case of CIT & Anr.
V. Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Karn); the Hon’ble High Court of Gujarat in the cases of National Textiles v. CIT, 249 ITR 125 (Guj) & CIT v. Manu Engineering Works, 122 ITR 306 (Guj); and the decision of this Tribunal in the case of Shri E. Krishnappa v. ITO in to 315/Bang/2014 dated 14.08.2015.
Per contra, the ld. DR has submitted that mere non-striking a particular column in the notice would not be that much to fatal the validity of penalty proceedings.
Having carefully examined the notices issues u/s. 274 r.w.s.
271(1)(c) of the Act, we find that notices were issued on a printed proforma in which the AO did not identify, whether the assessee has concealed particulars of income or furnished inaccurate particulars of such income.
Now the question arises whether, it is necessary to identify in the notice itself that the proceedings u/s. 271(1)(c) are initiated either for concealment of income or furnishing of inaccurate particulars of income. This aspect has been examined by the Hon'ble jurisdictional High Court in the case of CIT & Anr. V. Manjunatha Cotton & Ginning Factory (supra) and Their Lordships have laid down the parameters under which penalty u/s. 271(1)(c) of the Act has to be levied. Under clauses (p) & (q) of para 63 of the judgment, Their Lordships have held that notice u/s. 274 should specifically state the grounds mentioned in. 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 the requirement of law. Before laying down the parameters, Their Lordships have analysed the provisions of section 274 for sending notices and for initiating proceedings u/s. 271(1)(c). The relevant observations of Their Lordships are extracted hereunder for reference:- “59. As the provision stands, the penalty proceedings can be initiated on various grounds set out therein. If the order passed by the authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation 1 or in Explanation 1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in section 271 should be made known about the grounds on which they intend imposing penalty on him as section 274 makes it clear that the assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100 per cent to 300 per cent of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under section 274 should satisfy the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended if the show-cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
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.”
This aspect was also examined by the Hon’ble High Court of Gujarat in the case of National Textiles v. CIT (supra) and CIT v. Manu Engineering Works (supra). Following the aforesaid judgments, this Bench of the Tribunal in the case of E. Krishnappa v. ITO (supra) and in the case of M/s. SLN Traders (in & CO NO.210/Bang/2015 dated 30.6.2016) has also taken a view that where the Assessing Officer has not specified under which limb, penalty u/s. 271(1)(c) of the Act is to be levied, i.e., whether penalty proceedings are being initiated for concealment of income or furnishing of inaccurate particulars of income; such initiation of penalty proceedings has to be held to be illegal. The relevant observations of the Tribunal in E. Krishnappa v. ITO (supra) are extracted hereunder:-
“4.4.3 In the case on hand, we find from a careful perusal of the notices, issued under Section 274 rws 271 of the Act dt.29.12.2011 for Assessment Years 2007-08 and placed before the Bench in the course of hearing that the Assessing Officer has not specified under which limb of the penalty u/s.271(1)(c) of the Act is to be levied; i.e. whether the penalty proceedings are being initiated for concealment of particulars of income or for furnishing of inaccurate particulars of income. Such initiation of penalty proceedings has been held to be illegal by the Hon’ble High Court of Karnataka in the case of Manjunatha Cotton & Ginning Factory (supra). Following the aforesaid decision of the Hon'ble High Court of Karnataka in the case of Raveendhiraa L & Others (supra), we hold that the notices issued under Section 274 rws 271 of the Act dt.29.12.2011 for Assessment Years 2007-08 to 2009-10 are bad in law for the reasons mentioned in the aforesaid orders and consequently hold the penalty orders passed in consequence of these defective, invalid notices also to be invalid and cancel them.”
Turning to the facts of the instant case, we find that undisputedly the AO has not identified in the notices as to whether the penalty proceedings are initiated for concealment of income or furnishing of inaccurate particulars of such income. Therefore, following the aforesaid judgment of Hon'ble jurisdictional High Court, we are of the considered view that on account of defective notice issued for initiation of penalty proceedings, the penalty order passed by the AO is not sustainable in the eyes of law. We accordingly set aside the order of the CIT(Appeals) as well as the Assessing Officer and delete the penalty on account of wrong initiation of penalty proceedings.
Since the penalty proceedings are quashed, we find no justification to deal with the appeals on merits, as it becomes academic.
In the result, the appeals of the assessee are allowed.
Pronounced in the open court on this 29th day of July, 2016.