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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R
PER ABY T. VARKEY, JM: These are appeals preferred by the assessee against the order of
the Learned Commissioner of Income Tax (Appeals)-18, Chennai, dated
19.06.2023 for the Assessment Year (hereinafter ‘AY’) 2006-07, 2007-08
& 2008-09 confirming the penalty confirmed u/s.271(1)(c) of the Income
Tax Act, 1961 (hereinafter ‘the Act’).
ITA Nos.957 to 959/Chny/2023 (AY 2006-07 to 2008-09) Shri Raghav Reddy :: 2 ::
First of all, we will consider the appeals of the assessee for all three
(3) captioned assessment years AY 2006-07, 2007-08 & 2008-09.
Coming to these appeals, the main grievance of assessee is against
the action of the Ld.CIT(A) not appreciating that the penalty imposed by
the AO is bad in law, since the notice dated 26.02.2014 (for AY 2006-07)
and dated 23.12.2011 (for AY 2007-08 & 2008-09) issued u/s.271
r.w.s.274 were invalid in law. Drawing our attention to the notice issued
by the AO which is placed at Page No.17, 21 & 25 of the appeal-sets, he
submitted that the AO has not struck down the limbs/faults which are not
applicable in the facts of the assessee’s case for levy of penalty. In other
words, according to the assessee, in the facts and circumstances of the
case, the AO erred in imposing penalty u/s.271(1)(c) of the Act, without
specifically mentioning in the notice u/s.274 r.w.s. 271(1)(c) of the Act,
whether the assessee furnished inaccurate particulars of his income or
concealed the particulars of his income. In order to buttress his
arguments, he has cited the case-law/decision of the Hon’ble jurisdictional
Madras High Court in the case of Babuji Jacob reported in 430 ITR 259
(Madras), wherein, in an identical case, penalty was levied u/s.271(1)(c)
of the Act; and the assessee challenged the imposition of penalty, inter
alia, on the ground that the notice issued by AO u/s.271(1)(c) of the Act,
in the printed form without specifically mentioning whether the proposed
penalty was initiated for concealment of particulars of income or on
ITA Nos.957 to 959/Chny/2023 (AY 2006-07 to 2008-09) Shri Raghav Reddy :: 3 ::
account of furnishing of inaccurate particulars of income, was bad in law;
and the Hon’ble Madras High Court answered the question in favor of
assessee and held that such an omission/failure on the part of AO, to
specify the fault in the notice is legally untenable and such notice is
defective and invalid. Therefore, Ld AR, urged that since AO had issued
the impugned notice for both AY’s without striking down the inapplicable
portion in the printed notice, the same was vague, and assessee was not
aware of which charge/fault, the AO had in mind, to levy penalty u/s
271(1)(c) of the Act, therefore the impugned notices are bad in law and
therefore the penalty levied need to be deleted. Further according to Ld
AR, the quantum addition were made by AO by estimating the Gross
Profit in all the captioned assessment years, therefore, no penalty may be
levied u/s 271(1) (c) of the Act, which was the result of estimation of
income.
Per contra, the Ld.DR supported the action of the Ld.CIT(A) and
cited the decision of the Hon’ble Madras High Court in the case of
Sundaram Finance Ltd. v. DCIT reported in [2018] 403 ITR 107 (Madras)
wherein, the assessee had raised similar grounds (defective notice) was
dismissed. Therefore, he doesn’t want us to interfere with the order of
the Ld.CIT(A).
ITA Nos.957 to 959/Chny/2023 (AY 2006-07 to 2008-09) Shri Raghav Reddy :: 4 ::
We have heard both the parties and perused the material available
on record. Since the assessee has raised legal issue regarding invalid
notice issued u/s.271(1)(c) r.w.s.274 of the Act, we will
examine/adjudicate the legal issue. For doing that, first of all we have to
peruse the show cause notice (SCN) issued by the AO u/s 271(1)(c) r.w.s.
274 of the Act dated 26.02.2014 (for AY 2006-07) and dated 23.12.2011
(for both the years i.e. AY 2007-08 & 2008-09) by which the AO gave
notices to the assessee as to why the penalty should not be levied u/s
271(1)(c) of the Act or not ? On perusal of the SCN dated 26.02.2014 &
23.12.2011, we note that both the faults specified in Section 271(1)(c) of
the Act are given therein i.e. “the assessee have concealed the particulars
of his income” or “furnished inaccurate particulars of such income”. In
other words, the AO has put to notice the assessee on both the faults
without striking down the inapplicable fault which could have specified
which fault AO has found assessee at default i.e. whether he is proposing
penalty for the fault of “concealment of particulars of income” or “for
furnishing of inaccurate particulars of income”. We note that by not
striking down one of fault, the assessee was not in a position to defend
properly the charge/fault against which the AO was proposing to levy
penalty because both faults are different and distinct. Therefore, the
notice was confusing and vague; and infirm for non-application of mind
of the AO before issuing notice u/s.274 r.w.s.271(1)(1)(c) of the Act, as
ITA Nos.957 to 959/Chny/2023 (AY 2006-07 to 2008-09) Shri Raghav Reddy :: 5 ::
well as exposes the whimsical/arbitrary attitude of the AO who has scant
regard for Rule of Law and therefore, bad in law; and such notice was
held to be invalid and legally untenable; and we note that in such factual
background, this Tribunal has consistently held such notices to be bad in
law for not specifying the specific fault for which the assessee was being
proceeded against for levy of penalty. And this action of the Tribunal has
been upheld by several judgments of the various High Courts. We note
that the Full bench of the Hon’ble Bombay High Court in the case of Mohd.
Farhan A. Shaikh Vs. DCIT (2021) 434 ITR 1 (Bombay) dated 11.03.2021
held that the show cause notice issued prior to levy of penalty without
specifying the fault/charge against which the assessee is being
proceeded, would vitiate the penalty itself. And thus the Hon’ble High
Court upheld the view of the division bench order in the case of PCIT Vs.
Goa Dourado Promotions (P.) Ltd. (Tax Appeal No.18 of 2019, dated
26.11.2019) and held that the contrary view taken by another division
bench in the case of CIT Vs. Smt. Kaushalya (1995) 216 ITR 660 (Bom)
does not lay down the correct proposition of law.
As noted earlier, we find that the penalty notice dated 26.02.2014 &
23.12.2011 didn’t explicitly convey to the assessee the specific
fault/charge the assessee was being proceeded against for levy of
penalty. Resultantly, the show cause notice is found to be
defective/invalid, and therefore it is held to be bad in law. For doing that
ITA Nos.957 to 959/Chny/2023 (AY 2006-07 to 2008-09) Shri Raghav Reddy :: 6 ::
we also rely on the decision of the Hon’ble Karnataka High Court in the
case of CIT vs Manjunatha Cotton and Ginning Factory reported in (2013)
359 ITR 565 (Kar) and the Department’s SLP against it has been
dismissed by the Hon’ble Supreme Court. We also find that Hon’ble
Karnataka High Court in the case of CIT Vs. SSA’s Emerald Meadows,
reported in (2016) 73 taxmann.com 241 (Kar) endorsed the same view in
Manjunatha Cotton and Ginning Factory (supra) and held as under:-
“3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’), to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565/218 Taxman 423/35 taxmann.com 250(Kar). 4. 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.”
And as noted, the Hon’ble Madras High Court had an occasion to
deal with similar question in the case of Babuji Jacob (supra) wherein, the
Hon’ble High Court (DB) had framed substantial question of law, inter-
alia, as under:
“i. Whether the notice issued under Section 271(1)(c) of the Act dated 30.3.2016 in the printed form without 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 ?
ii. Whether the proceedings initiated by the respondent/the Assessing Officer is legal and valid?
ITA Nos.957 to 959/Chny/2023 (AY 2006-07 to 2008-09) Shri Raghav Reddy :: 7 ::
iii. Whether the Appellate Tribunal is justified otherwise in rejecting the said technical ground of wrong initiation of the penalty proceedings under Section 271(1)(c) of the Act in misreading the show cause notice dated 30.3.2016 proving perversity in the findings of facts at para 6.5 of the impugned http://www.judis.nic.in order? “
The Hon’ble Madras High Court’s observation regarding defective
show cause notice in that case as under:-
A show cause notice was issued to the assessee proposing to initiate proceedings under Section 271(1)(c) of the Act vide notice dated 30.3.2016. A copy of the said notice dated 30.3.2016 has been furnished in the typed set of papers and we find that the said notice does not specifically state as to whether the assessee is guilty of concealing particulars of his income or has furnished inaccurate particulars of income.
And the Hon’ble Madras High Court observed further as under:
The first aspect to be considered is as to whether the notice issued under Section 271(1)(c) of the Act dated 30.3.2016 is legally valid and proper. Admittedly, the notice did not specifically mention as to whether the assessee concealed particulars of his income or furnished inaccurate particulars or both.
Such notices, which did not specify as to which limb of Section 271(1)(c) of the Act would get attracted, were held to be bad in law in the decision of the Karnataka High Court in the case of CIT Vs. Manjunatha Cotton and Ginning Factory [reported in (2013) 359 ITR 565], which was followed in the decision of the Karnataka High Court in the case of CIT, Bangalore Vs. SSA Emerald Meadows [reported in (2016) 73 Taxmann.com 241] and in the decision of this Court, to which, one of us (TSSJ) was a party, in the case of CIT Vs. Original Kerala Jewellers [TCA.No.717 of 2018 dated 18.12.2018].
Thus, by applying the law laid down in the above decisions, we can safely hold that such notices are bad in law. Consequently, the penalty proceedings initiated are to be held to be wholly invalid.
Thereafter, the Hon’ble High Court even noted the decision in the
case of Sundaram Finance Ltd., which was cited by the Ld.DR before us
and observed in this regard as under:
ITA Nos.957 to 959/Chny/2023 (AY 2006-07 to 2008-09) Shri Raghav Reddy :: 8 ::
The decision of this Court in the case of Sundaram Finance Ltd., was couched on a different factual position wherein the Court rejected the plea of the assessee, which was a limited company, when they raised an argument with regard to the validity of the notice for the first time before the High Court and considering the administrative set up of the said assessee and the fact that the assessee was never prejudiced on account of the alleged defect, the Court rejected the argument of the assessee.
In the case on hand, we find that at the first instance, while replying to the penalty show cause notice dated 30.3.2016, the assessee raised a specific plea that there was no concealment of income, that he had not furnished inaccurate particulars of income and that the notice was not proper. Therefore, the phraseology, which was adopted by the assessee, if read as a whole, would clearly show that he had objected to the issuance of the notice and as there was no basis for issuance of the notice under Section 271(1)(c) of the Act, both limbs in the said provision do not get attracted. Hence, the decision of this Court in the case of Sundaram Finance Ltd., cannot be applied.
And thereafter, the Hon’ble Madras High Court held that the notice
initiating penalty proceedings was defective and invalid and allowed the
appeal of the assessee and answered the question of law in favour of the
assessee.
In the light of the discussion (supra) we find that the notices issued
u/s 274 r.w.s 271(1)(c) by the AO for AY 2006-07, AY 2007-08 & AY
2008-09 were infirm/invalid in the eyes of law. Therefore, in light of the
aforesaid decision of the Hon’ble Madras High Court in the case of Babuji
Jacob (supra), and other case laws discussed, we direct the deletion of
the penalty levied in these cases. And since the penalty notices issued by
AO itself are invalid & legally untenable, consequent penalty itself are null
in eyes of law. Therefore, assessee succeeds and the penalty levied are
directed to be deleted. And in addition to the aforesaid legal issue, we
ITA Nos.957 to 959/Chny/2023 (AY 2006-07 to 2008-09) Shri Raghav Reddy :: 9 :: note that quantum addition was purely on estimated basis with inherent subjectivity involved, therefore, penalty cannot be sustained on this count also, and therefore, in any case, it deserves to be deleted.
In the result, appeals filed by the assessee are allowed.
Order pronounced on the 05th day of July, 2024, in Chennai.
Sd/- Sd/- (एस. आर. रघुनाथा) (एबी टी. वक�) (S.R.RAGHUNATHA) (ABY T. VARKEY) लेखा सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER चे�ई/Chennai, �दनांक/Dated: 05th July, 2024. TLN, Sr.PS आदेश क� �ितिलिप अ�ेिषत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु� (अपील)/CIT(A) 4. आयकरआयु�/CIT 5. िवभागीय�ितिनिध/DR 6. गाड�फाईल/GF