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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24TH DAY OF APRIL, 2018 PRESENT THE HON’BLE MR. JUSTICE B.S. PATIL AND THE HON’BLE MR. JUSTICE S. SUNIL DUTT YADAV ITA No.640/2015
BETWEEN:
M/s. Gayathri Exports, Attur North, Karkala – 576 117, Represented by Partner, Sri. B. Prabhakar Kamath, Aged about 76 years, Son of Sri.B.Thimmappa. ... Appellant
(By Smt. Sheetal Borkar for Sri. S. Parthasarathi, Advocates)
AND:
The Assistant Commissioner of Income-tax, Circle 2(1), C.R. Building, Nandi Gudda Road, Attavara, Mangalore -575 001.
... Respondent
(By Sri. K.V. Aravind, Advocate)
This ITA has filed under Section 260-A of Income Tax Act 1961, arising out of Order dated:12/09/2014 passed in ITA No.83/Bang/2013, for the Assessment Year 2009-2010
2 praying to (a) Formulate the substantial questions of law stated above. (b) Allow the appeal and set-aside the order of the ITAT bearing ITA No.83/Bang/2013 dated:12/09/2014 (Annexure-A).
This ITA coming on for preliminary hearing, this day B.S. Patil, J., delivered the following:
J U D G M E N T
Appellant is a partnership firm engaged in the business of manufacture and export of cashew kernels. The appellant undertakes sale of products inside the Country. It filed its return of income for the assessment year 2009-2010 declaring total income of Rs.1,82,62,755/-. Subsequently, notices were issued under Section 142(1) and 143(2) of the Income Tax Act by the Assessing Officer. It is urged by the petitioner that pursuant to the notice issued, all the requisite details were furnished based on which assessment was completed. However, while concluding the assessment, the respondent initiated penalty proceedings under 271(1)(c) of the Act. A notice in this regard was issued
3 in the prescribed pro-forma on 19.12.2011. In the notice it was stated as under: “*have concealed the particulars of your income or furnished inaccurate particulars of such income.
You are hereby requested to appear before me at 10-30 A.M. on 09.01.2012 and show cause why an order imposing a penalty on you should not be made u/s 271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through an authorized representative, you may show cause in writing on or before the said date which will be considered before any such order is made under section 271.”
Appellant contested the proceedings. The Assistant Commissioner of Income Tax, Circle - 2(1), Bengaluru passed an order dated 28.6.2012 levying penalty of Rs.35,09,034/-. This order was confirmed by Commissioner of Income Tax, Mysuru vide his order dated 19.10.2012. Aggrieved by the same, appellant preferred an appeal to the Income Tax Appellate Tribunal, Bengaluru in ITA.Nos. 82 & 83 (Bang) of 2013. By order dated 12.9.2014 Tribunal while partly allowing
4 the appeal, rejected the contention of the appellant that entire proceedings were vitiated, in view of the defect in the notice issued on 19.12.2011.
Learned counsel appearing for the appellant placing strong reliance on the judgment of this Court in the case of Commissioner Of Income Tax & another Vs. Manjunatha Cotton & Ginning Factory reported in
(2013) 359 ITR 0565 (Kar) contends that the matter is fully covered inasmuch as in similar circumstance notice issued was found to be defective holding that when the assessing officer proposes to invoke concealment of particulars of income by the assessee as a ground to initiate proceedings, the same cannot include by furnishing of inaccurate particulars of income tax as another ground because both are separate and distinct. To the same effect reliance is also placed on the judgment in the case of S.Chandrashekar Vs. Assistant
5 Commissioner of Income Tax reported in (2017) 396 ITR 0538 (Karn).
We have heard the learned counsel for the appellant, Ms.Sheetal and learned counsel for the revenue Mr.Aravind.
This Court has admitted the appeal to consider the following substantial questions of law:
(1) Whether Tribunal is justified in confirming penalty when there is neither concealment or inaccurate particulars of income to justify levy of penalty under Section 271(1)(c) of the Act?
(2) Whether notice issued under Section 271(1)(c) in the printed form without proceedings 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 to justify levy of penalty under Section 271 (1)(c) of the Act?
6 (3) Whether the variation on closing stock which covered the addition was only on presumption and surmise, the levy of penalty under Section 271(1)(c) of the Act was justifiable?”
It cannot be disputed and indeed it is not disputed that Annexure-E notice dated 19.12.2011 has been
issued by the assessing officer alleging ‘concealment of particulars of income or furnishing inaccurate particulars of income’ as ground for initiating proceedings for which purpose the appellant was called upon to appear and defend the proceedings under Section 271 of the Income Tax Act.
In the case of similar facts involved in the case of Commissioner Of Income Tax & another Vs. Manjunatha Cotton & Ginning Factory referred to herein above in paragraphs 61 a co-ordinate Bench of this Court has observed as under:
7 “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 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 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujrat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxmn 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.
8 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.”
Again in the concluding part of the judgment, at paragraph 63 in sub para (p) it is further held that notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c) i.e., it was for concealment of income or for furnishing of incorrect particulars of income. Thus the Division Bench has laid down that notice of the type which is issued in this case cannot be sustained in law and consequently penalty proceedings would stand vitiated that were based on such notice.
9 10. Facts involved in the present case are similar and law laid down by the co-ordinate Bench of this Court is aptly applicable. Hence, we are of the view that appellant is entitled to succeed. The Tribunal and the authorities below were not right and justified in passing the impugned orders ignoring this very important aspect of the matter.
Hence, this appeal is allowed. Substantial question of law at No.2, is answered in favour of the assessee. As we have answered the substantial question of law at No.2, we find it unnecessary to consider the other questions raised.
Sd/- JUDGE
Sd/-
JUDGE
RS/* Ct-am