DAKSHINAMOORTHY KUMARESAN,THIRUVARUR vs. INCOME TAX OFFICER, THIRUVARUR

Brief facts of the case are that assessee had not filed his return of income for the AY 2016-17 despite receipt of salary amounting to Rs.16,65,727/- earned during the relevant year as per the available information. Accordingly, the case of the assessee was re-opened by issuance of notice u/s 148 of the Act. In response to notice u/s 148 of the Act, the assessee filed ITR on 26.07.2022 declaring Total income of Rs.12,89,580/. The assessment was completed by the AO u/s 147 of the Act on 25.05.2023 accepting the returned income declared. However, as the assessee had offered income for tax only after issuance of notice u/s 148, penalty proceedings vide notice dated 25.05.2023 u/s 271(1)(c) were initiated by the AO for concealment of income. The assessee filed his response during the penalty proceedings, citing his ignorance of law as he was stately not aware that his residential status was turned to "Resident but nor ordinarily Resident" which includes salary income earned from abroad for taxation in India, as the primary reason for non filing of ITR. However, the Assessing Officer (AO) did not accept the explanation of the assessee. Thus, considered the case as fit for levy of penalty u/s 271(1)(c) of the Act, a penalty of Rs.2,18,230/-, which is the minimum amount of tax which is sought to be evaded, was levied upon the assessee. Aggrieved against the levy of penalty, the assessee filed an appeal before the ld. Commissioner of Income (Appeals).

The ld. CIT(A) confirmed the action of the ld. Assessing Officer. Aggrieved by the order, the assessee preferred an appeal before the Tribunal.

We heard the rival contentions and perused the material available on record. The Ld. Assessing Officer had issued notice u/s.274 r.w.s.271 (1) (c) of the Act dated 25.05.2023 which reads as under:- ‘’Sir/Madam Whereas in the course of proceedings before me for the Assessment year 2016-17, it appears to me that you have furnished inaccurate particulars of income’’.

Penalty is imposed if there is concealment or furnishing of inaccurate particulars by the assessee. It would be apposite here to refer to relevant portion of Section 271 (1)(c), which is reproduced as under:- “―271. Failure to furnish returns, comply with notices, concealment of income, etc.— (1) If the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person— Xxxxxxxxxxx (c) has concealed the particulars of his income or furnished inaccurate particulars of such income.”

The Hon’ble Bombay High Court while interpreting section 271(1)(c) of the Act in the case of Samson Perinchery (supra) had held as under:- 3. The impugned order of the Tribunal deleted the penalty imposed upon the Respondent- Assessee. This by holding that the initiation of penalty under Section 271 (1)(c) of the Act by Assessing Officer was for furnishing inaccurate particulars of income while the order imposing penalty is for concealment of income. The impugned order holds that the concealment of income and furnishing inaccurate particulars of income carry different connotations. Therefore, the Assessing Officer should be clear as to which of the two limbs under which penalty is imposable, has been contravened or indicate that both have been contravened while initiating penalty proceedings. It cannot be that the initiation would be only on one limb i.e. for furnishing inaccurate particulars of income while imposition of penalty on the other limb i.e. concealment of income. Further, the Tribunal also noted that notice issued under Section 274 of the Act is in a standard proforma, without having striked out irrelevant clauses therein. This indicates non-application of mind on the part of the Assessing Officer while issuing the penalty notice.

The impugned order relied upon the following extract of Karnataka High Court's decision in CIT v. Manjunatha Cotton & Ginning Factory[2013] 359 ITR 565/218 Taxman 423/35 taxmann.com 250 to delete the penalty:— "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 as case of furnishing of inaccurate particulars. The apex court in the case of Ashok Pai [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 reported in 122 ITR 306 and the Delhi High Court in the case of Virgo Marketing P. Ltd., reported in 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."

The grievance of the Revenue before us is that there is no difference between furnishing of inaccurate particulars of income and concealment of income. Thus, distinction drawn by the impugned order is between Tweedledum and Tweedledee. In the above view, the deletion of the penalty, is unjustified.

The Hon’ble High Court of Delhi in the case of M/s. Gragerious Projects Pvt Ltd (supra) had held as under:- 17. While dealing with the difference between the two phrases. In the case of NEW HOLLAND TRACTORS (INDIA) PRIVATE LIMITED v. THE COMMISSIONER OF INCOME TAX, DELHIV, 2014 SCC OnLine Del 4927, the Predecessor Coordinate Bench of this Court observed as under:- “The word “conceal” inherently and per-se refers to an element of mens rea, albeit the expression “furnishing of inaccurate particulars” is much wider in scope. The word “conceal” implies intention to hide an item of income or a portion thereof. It amounts to suppression of truth or a factum so as to cause injury to the other (See CIT vs. A. Subramania Pillai [1997] 226 ITR 403 (Mad). The word “conceal” means to hide or to keep secret. As held in Law Lexicon, the said word is derived from the latin word “concelare” which implies “con” & “celare” to hide. It means to hide or withdraw from observation; to cover or keep from sight; to prevent discovery of; to withhold knowledge of. The word “inaccurate” in Webster's Dictionary has been defined as “not accurate; not exact or correct; not according to truth; erroneous; as inaccurate statement, copy or transcript”. The word “particular” means detail or details of a claim or separate items of an account (see CIT v. Reliance Petroproducts P. Ltd. [2010] 322 ITR 158(SC). Thus, the words “furnished inaccurate particulars” is broader and would refer to inaccuracy which would cause under declaration or escapement of income. It may refer to particulars which should have been furnished or were required to be furnished or recorded in the books of account etc. (See CIT v. Raj Trading Co. [1996] 217 ITR 208 (Raj.)). Inaccuracy or wrong furnishing of income would be covered by the said expression, though there are decisions that ad hoc addition per se without other or corroborating circumstances may not reflect “furnished inaccurate particulars”. Lastly, at times and it is fairly common, the charge of concealment and “furnishing of inaccurate particulars” may overlap. 18. It is thus apparent that ordinarily the two phrases i.e. “conceal” and “furnishing of inaccurate particulars” are separate and distinct. Concealment of income and furnishing of inaccurate particulars of income in Section 271(1) (c) of the Act carry different meanings and connotation.

On principle where the penalty proceedings are said to be initiated by the Revenue under Section 271(1) (c) of the Act, the specific ground which forms the foundation thereof needs to be spelt out in clear terms. Otherwise, the assessee would not have proper opportunity to put forth his defence. The proceedings for initiating the penalty are penal in nature, which may result in imposition of penalty ranging from 100 to 300% of the taxability and therefore the charge must be unequivocal and unambiguous. Where the charges are either of concealment of particulars of income or furnishing of inaccurate particulars thereof, revenue must specify as to which one of the two is sought to be pressed into service and cannot be permitted to club both.

The decision of the ITAT that in the penalty notice there is no specific charge, on the basis of which penalty was sought to be levied, is covered by the following decisions which includes the decision rendered by the Coordinate Bench of this Court. “(i) CIT and Anr. v. M/s. SSA’s Emerald Meadows, passed in dated 23.11.2015. (ii) Commissioner of Income Tax v. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar.) (iii) PCIT vs. M/s Sahara India Life Insurance Company Ltd., passed in dated 02.08.2019. 7.1. To be noted, the Special Leave Petition filed against the Judgment in SSA’s Emerald (mentioned above) was dismissed via order dated 05.08.2016.”

The High Court in the case of Principal Commissioner of Income Tax vs. Sahara India Life Insurance Co. Ltd., (2021) 432 ITR 84 Delhi, followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar.) and held as under:- “The Respondent had challenged the upholding of the penalty imposed under Section 271(1) (c) of the Act, which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar) and observed that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(1) (c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgment in the subsequent order in Commissioner of Income Tax v. SSA’s Emerald Meadows (2016) 73 Taxman.com 241 (Kar), the appeal against which was dismissed by the Supreme Court of India in SLP No. 11485 of 2016 by order date 5th August, 2016.”

An identical issue came up for consideration before the Bombay High Court (Full Bench at Goa) in Mr. Mohd. Farhan A. Shaikh v. 2021 SCC OnLine Bom 345, wherein, the Court while dealing with the aspect of prejudice ruled as under:- "Question No. l: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(l)(c), does a mere defect in the notice—not striking off the irrelevant matter—vitiate the penalty proceedings? 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(l)(c), read with section 274 of Income-tax Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.

More particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee's favour.

Therefore, we answer the first question to the effect that Goa Dourado Promotions and other cases have adopted an approach more in consonance with the statutory scheme. That means we must hold that Kaushalya does not lay down the correct proposition of law. Question No.2: Has Kaushalya failed to discuss the aspect of “prejudice”? 184. Indeed, Kaushalya did discuss the aspect of prejudice. As we have already noted, Kaushaiya noted that the assessment orders already contained the reasons why penalty should be initiated. So, the assessee, stresses Kaushalya, "fully knew in detail the exact charge of the Revenue against him". For Kaushalya, the statutory notice suffered from neither non-application of mind nor any prejudice. According to it, "the so-called ambiguous wording in the notice [has not] impaired or prejudiced the right of the assessee to a reasonable opportunity of being heard". It went onto observe that for sustaining the plea of natural justice on the ground of absence of opportunity, "it has to be established that prejudice is caused to the concerned person by the procedure followed". Kaushalya closes the discussion by observing that the notice issuing "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.”

No doubt, there can exist a case where vagueness and ambiguity in the notice can demonstrate non-application of mind by the authority and/or ultimate prejudice to the right of opportunity of hearing contemplated under section 274. So asserts Kaushalya. In fact, for one assessment year, it set aside the penalty proceedings on the grounds of non-application of mind and prejudice.

That said, regarding the other assessment year, it reasons that the assessment order, containing the reasons or justification, avoids prejudice to the assessee. That is where, we reckon, the reasoning suffers. Kaushalya's insistence that the previous proceedings supply justification and cure the defect in penalty proceedings has not met our acceptance. Question No. 3: What is the effect of the Supreme Court's decision in Dilip N. Shroff on the issue of non-application of mind when the irrelevant portions of the printed notices are not struck off? 187. In Dilip N. Shroff, for the Supreme Court, it is of "some significance that in the standard Pro-forma used by the assessing officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done". Then, Dilip N. Shroff, on the facts, has felt that the assessing officer himself was not sure whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars.

We may, in this context, respectfully observe that a contravention of a mandatory condition or requirement for a communication to be valid communication is fatal, with no further proof. That said, even if the notice contains no caveat that the inapplicable portion be deleted, it is in the interest of fairness and justice that the notice must be precise. It should give no room for ambiguity. Therefore, Dilip N. Shroff disapproves of the routine, ritualistic practice of issuing omnibus show- cause notices. That practice certainly betrays non-application of mind. And, therefore, the infraction of a mandatory procedure leading to penal consequences assumes or implies prejudice.

In Sudhir Kumar Singh, the Supreme Court has encapsulated the principles of prejudice. One of the principles is that "where procedural and/or substantive provisions of law embody the principles of natural justice, their infraction per se does not lead to invalidity of the orders passed. Here again, prejudice must be caused to the litigant, "except in the case of a mandatory provision of law which is conceived not only in individual interest but also in the public interest".

Here, section 271(l)(c) is one such provision. With calamitous, albeit commercial, consequences, the provision is mandatory and brooks no trifling with or dilution. For a further precedential prop, we may refer to Rajesh Kumar v. CIT [2006] 287 ITR 91 (SC); (2007) 2 SCC 181, in which the Apex Court has quoted with approval its earlier judgment in State of Orissa v. Dr. Binapani Dei, AIR 1967 SC 1269. According to it, when by reason of action on the part of a statutory authority, civil or evil consequences ensue, the principles of natural justice must be followed. In such an event, although no express provision is laid down on this behalf, compliance with principles of natural justice would be implicit. If a statue contravenes the principles of natural justice, it may also be held ultra vires Article 14 of the Constitution.

As a result, we hold that Dilip N. Shroff treats omnibus show cause notices as betraying non-application of mind and disapproves of the practice, to be particular, of issuing notices in printed form without deleting or striking off the inapplicable parts of that generic notice. Conclusion: We have, thus, answered the reference as required by us; so we direct the Registry to place these two tax appeals before the Division Bench concerned for further adjudication."

Following the decision of the Karnataka High Court in the case of CIT v. Manjunath Cotton and Ginning Factory (supra) and the other decisions of different High Courts, the ITAT rightly held that the levy of penalty under Section 271(1)(c) of the Act in the case of the assessee was not valid.

The co-ordinate bench in the case of Sri Maharani Finance Corporation Vs DCIT dated 03-06-2024 in for AY 2016-17 has followed the judgment of the Hon’ble jurisdictional High Court in Babuji Jacob Vs. lTO (430 lTR 259) and held as under: 7. In our considered opinion, ‘concealment of income’ and ‘furnishing of inaccurate particulars of income’ are two different charges. These two expressions, in terms of ratio of various binding judicial precedents, carry different connotation / charges and non-framing of specific charge against the assessee would vitiate the penalty proceedings. The penalty could be levied only for a specific charge. Furnishing of inaccurate particulars of income would arise in a situation where the assessee has not disclosed the particulars correctly or the particulars disclosed by the assessee are found to be incorrect whereas concealment of particulars of income would mean that the assessee has concealed the income and has not reflected certain income, at all, in its return of income. Therefore, for each of the addition, Ld. AO has to specify as to which limb was applicable to the facts of the case and it could not be left to mere presumption or guess-work of the assessee. Framing of specific charges is sine-qua-non for levy of penalty since the assessee must be put to allegations for which the penalty was being levied. In the absence of such a specific charge, the penalty would be bad-in-law and the same is not a curable defect u/s 292BB. This position has been settled in numerous binding judicial precedents. Considering the same, we would have no hesitation in holding that these two charges are quite different charges and carry different connotation / meaning. The non-framing of specific charge would make the notice defective. It did not specify the ground under which the penalty was proposed. The notice does not press specific charge against the assessee and both limbs have been pressed against the assessee. Therefore, we would hold that the notice was issued in a mechanical manner and hence, not sustainable in the eye of law. Our view is duly supported by the cited decision of Tribunal in Shri D. Senthil Kumar vs. ACIT (supra). In this decision, co-ordinate bench relied on another decision of Tribunal in M/s PVP Ventures Ltd. vs. DCIT (ITA No.778/Chny/2019) which in turn, drew strength from the decision of larger bench of Hon’ble Bombay High Court in the case of Mohd. Farhan A. Shhaikh (125 Taxmann.com 253) as well as the decision of Hon’ble High Court of Madras in Babuji Jacob Vs. lTO (430 lTR 259; 08.12.2020) to take the same view. The Hon’ble High Court of Madras in the case of Babuji Jacob Vs. lTO (supra), considering various decisions holding the field, held that since the notice under Section 271(1)(c) did not specifically state as to whether assessee was guilty of concealing particulars of his income or had furnished inaccurate particulars of income, the impugned penalty was invalid and same was to be set aside. The Ld. Sr. DR has referred to a decision of Hon’ble High Court of Madras in the case of Amtex Software Solutions Pvt. Ltd. (W.P.No.16140 of 2019 dated 12.06.2019). In the litigation, the assessee filed writ petition assailing show-cause notice issued by Ld. AO u/s 274 r.w.s. 271 proposing penalty against the assessee. The assessee assailed the notice on the ground that specific charge was not framed against the assessee. The Hon’ble Court, in para 16 & 17 of the order, concurred with assessee’s submissions that the distinction between the two expressions viz. ‘concealed particulars of income’ and ‘furnished inaccurate particulars of income’ was beyond any pale of doubt. There could not be two opinions or disputes about the fact the aforesaid two expressions are distinct and that they fall under different realms. The Hon’ble Court finally directed revenue to keep the show cause notice in abeyance and issue a corrigendum / addendum / errata to the assessee clearly stating the grounds on which the notice was issued. In the present case, that stage is already over since the assessee is in second appeal before us. Therefore, in our considered opinion, this case, in fact, supports the case of the assessee that non-framing of specific charges would be fatal to penalty proceedings.

Taking guidance from the judgments referred supra, we observe as under:- The satisfaction of the AO in the assessment order dated 25.05.203 u/s 147 is as under: “Hence, penalty proceedings u/s 271(1)(c) of the Act is initiated separately as it is evidenced that the assessee has concealed his particulars of income by not filing his return of income voluntarily for AY 2016-17 as required u/s 139(1) of the Act.” Whereas notice u/s.274 r.w.s.271 (1) (c) of the Act dated 25.05.2023 which reads as under:-

After going through the entire conspectus of matter, we are of the considered view that the AO is in confused state of mind and he is not clear about the nature of penalty which is to be levied. We find that the notice u/s.274 r.w.s.271 (1) (c) of the Act dated 25.05.2023 was issued for furnishing inaccurate particulars of income where as the penalty u/s 271(1)(c) dated 15.03.2024 was imposed for the concealment of income which is not permissible in the light of above referred judgments of the Hon’ble High Courts. Hence, we are following the jurisdictional High Court order in the case of Babuji Jacob Vs. lTO (430 lTR 259) and quash the penalty order dated 25.05.2023. We also find that the decision of the Hon’ble Calcutta High Court in the case of PCIT Vs Thakur Prasad Sao & Sons (P.) Ltd dated 02.05.2024 [2024] 163 taxmann.com 449 (Calcutta) has not considered the judgment of the Hon’ble jurisdictional High Court of Madras in Babuji Jacob Vs. lTO [430 lTR 259 (Mad)]/ (2021) 124 taxmann.com 363 (Madras) which was delivered prior in time on 08.12.2020. Hence, penalty is deleted.

In result, appeal of the assessee is allowed. Order pronounced in the open court on 17th day of December, 2024 at Chennai.