M/S ATMARAM & CO,KOLKATA vs. DCIT, CIRCLE-34, KOLKATA, KOLKATA

In all these appeals, the Assessee has challenged the validity of the order of the CIT(A) whereby the CIT(A) confirmed the order of the AO imposing penalty on the Assessee u/s.271(1) ( c) of the Income Tax Act, 1961 (Act).

The facts and circumstances under which penalty u/s.271(1) ( c) of the Act was imposed on the Assessee by the AO, are as follows: The Assessee is a partnership firm engaged in the business of growing and manufacturing of tea. In terms of Rule 8(1) of Income Tax Rules, 1962 (Rules) income from growing and manufacturing of tea has to be computed as if it was derived from business and 40% of such income alone is liable to tax under the Income Tax Act, 1961 (Act.). If the tea is manufactured with tea leaves not grown by the assessee then that income will not be the subject matter of Rule 8(1) of the Rules as tea is not grown and manufactured by the assessee but manufactured from tea leaves purchased from the 2 to 135/Kol/2017 M/s. Atmaram & Co. A.Yr..2008-09 to 2014-15 third parties. The assessee in the previous years relevant to AY 2008-09 to 2014-15 had purchased green leaves as raw material from the market for the purpose of manufacturing and therefore in respect of receipts from manufacture and sale of tea from green leaves purchased from the market, the assessee ought not to have included the same in the receipts on which Rule 8(1) of the Rules were to be applied.

In all these assessment years, the assessee included within the ambit of Rule 8(1) of the Rules even profits derived from green leaves purchased from the market which were manufactured and sold by the assessee. In the assessments completed by the AO, income from manufacture and sale of green leaves purchased from the market was considered as business income on which Rule 8(1) of the Rules does not apply. Consequently the total income was determined by the AO was at a much higher sum than what was declared by the assessee. In respect of the addition made by the AO as above the AO initiated proceedings against the assessee u/s 271(1)(c) of the Act and imposed penalty on the assessee. The CIT(A) confirmed the orders of AO. Aggrieved by the order of the CIT(A), the Assessee has preferred the present appeals before the Tribunal.

The ld. Counsel for the assessee submitted before us that the show cause notices issued u/s 274 of the Act before imposing penalty does not contain the specific charges against the assessee namely as to whether the assessee was guilty of having concealed particulars of income or having furnished inaccurate particulars of income. Copies of the show cause notices u/s 274 of the Act are placed at page-1 to 7 of the assessee’s paper book and perusal of the same reveal that AO has not struck out the irrelevant portion in the show cause notices and therefore the show cause notices do not specify the charge against the assessee as to whether the charge is of “concealment of particulars of income” or “furnishing of inaccurate particulars of income”.

3 to 135/Kol/2017 M/s. Atmaram & Co. A.Yr..2008-09 to 2014-15 6. The ld. Counsel for the assessee drew our attention to the decision of the Hon’ble Karnataka High Court in the case of CIT vs. SSA’s Emerald Meadows in ITA No.380 of 2015 dated 23.11.2015 wherein the Hon’ble Karnataka High Court following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory (2013) 359 ITR 565 took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notices u/s 274 of the Act do not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. The ld. Counsel further brought to our notice that as against the decision of the Hon’ble Karnataka High Court the revenue preferred an appeal in SLP in CC No.11485 of 2016 and the Hon’ble Supreme Court by its order dated 05.08.2016 dismissed the SLP preferred by the department. The ld. Counsel also brought to our notice the decision of the Hon’ble Bombay High Court in the case of CIT vs Shri Samson Perinchery in ITA No.1154 of 2014 dated 05.01.2017 wherein the Hon’ble Bombay High Court following the decision of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning factory (supra) came to the conclusion that imposition of penalty on defective show cause notice without specifying the charge against the assessee cannot be sustained. Our attention was also drawn to the decision of ITAT in the case of Suvaprasanna Bhattacharya vs ACIT in ITA No.1303/Kol/2010 dated 06.11.2015 wherein identical proposition has been followed by the Tribunal.

We have already observed that the show cause notices issued in the present cases u/s 274 of the Act do not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notices u/s 274 of the Act do not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld. Counsel for the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of 3

In the result the appeals of the assessee are accordingly allowed.