SREE NAVALADIYAN FINANCE,NAMAKKAL vs. DCIT, CENT CIRCLE, SALEM

आदेश /O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: 1. These appeals by the assessee are arising out of different orders of the Commissioner of Income Tax (Appeals)-20, Chennai in 140, 141 & 142/CIT(A)/2023-24 of even date 25.09.2023. The assessments were framed by the Assistant Commissioner of Income Tax, Company Circle V(4), Chennai for the

- 3 - to 1157/Chny/2023 4. Brief facts of the case are that the assessee is engaged in the business of money lending. A survey u/s.133A of the Act was conducted on the business premises of the assessee on 19.02.2020. During the course of survey, the AO found that the assessee has introduced new deposits / unsecured loans to the extent of Rs.37,12,500/- during financial year 2012-13 relevant to this assessment year 2013-14. Accordingly, notice u/s.148 of the Act was issued and assessment was reopened within the meaning of section 147 of the Act. Finally, the AO in the reassessment proceedings assessed the returned income filed in response to notice u/s.148 of the Act at Rs.40,55,440/-. This addition was accepted by assessee as it is because it was returned income. The AO vide this assessment order initiated penalty proceedings u/s.271(1)© of the Act and recorded the initiation as under:- “Penalty proceedings u/s 271(1)(c) is initiated separately for under reporting of income.” The AO issued penalty notice u/s.274 r.w.s. 271(1)(c) of the Act dated 24.03.2022. Further, final show cause notice dated 13.09.2022 was issued and in response to the same, the assessee filed reply dated 22.04.2022 for dropping of penalty proceedings but the AO levied penalty vide para 6 & 7 as under:-

- 4 - to 1157/Chny/2023 Aggrieved against the action of AO, assessee preferred appeal before the CIT(A).

5. Before CIT(A), the assessee challenged vide ground 4, for charge of penalty levied whether it is for concealment of particulars of income or for furnishing inaccurate particulars of income or for under reporting of income. The assessee before CIT(A) raised the following ground No.4:-

4. In the show cause notice dated 24.03.2022 Issued for initiating of penalty proceedings u/s 274 r.w.s.271(1)(C) of the Act, the AO has not indicated under which limb the penalty proceedings are being initiated, whether it is for concealment of particulars of income or for furnishing inaccurate particulars of such income. The relevant portions have not been struck off by the AO in the penalty notice. IT has been judicially settled by the jurisdictional Madras High Court in the case of Babuji Jacob Vs.ITO reported in 430 ITR page 259 that the penalty notice u/s 271(1)(C) is not legally valid when there is no specific mention in the notice whether the notice is issued for concealment of income or for furnishing of inaccurate particulars of income. In view of the above jurisdictional High Court decision the penalty levied has to be cancelled.”

The CIT(A) rejected the assessee’s ground by stating that various High Courts has dealt with this issue and non-striking of the limbs in the penalty notice would not invalidate the notice, where both limbs are attracted. The CIT(A) also distinguished the case law relied on by the assessee of Hon’ble Madras High Court in the case of Babuji Jacob vs. ITO reported in 430 ITR 259 and finally, the CIT(A) held as under:

- 5 - to 1157/Chny/2023 7.4.4 Hon 'ble courts have held in following cases that where both limbs are attracted, non-striking of one of the limbs in the penalty notice would not invalidate penalty and that minor defect in the notice issued cannot be the basis of deletion of penalty levied or declaring the penalty proceedings as null and void.

7.4.5 The Appellant has heavily relied on Hon'ble Madras High court decision in Babuji Jacob Vs ITO (2021) in support of claim that defective penalty notice vitiates penalty u/s 271(1)(c). Hon'ble madras High court in above case has given a finding that facts of that case do not attract either 'concealment of Income' or inaccurate particulars of income' to levy penalty u/s 271(1)(c). The assessee has offered Explanation with regard to transaction on which penalty levied and during penalty proceedings itself, the assessee has raised objection wrt defective notice. But in the present case, both limbs i.e Concealment of Income, Furnishing of Inaccurate particulars' are attracted and the Appellant has failed to offer any Explanation with regard to concealment and furnishing of inaccurate particulars noticed by the AO during survey. Hence decision of Hon'ble Madras High court which was rendered on different set of facts can't be made applicable to facts of case. Therefore, on this part, I do not find any reason to allow these grounds of the appellant. Ground of Appeal No 4 is Dismissed.

Aggrieved, now assessee is in appeal before the Tribunal.

- 6 - to 1157/Chny/2023 6. Before us, the ld.counsel for the assessee filed copies of notices issued in all these four years i.e., notices u/s.274 r.w.s. 271(1)(c) of the Act dated 24.03.2022, wherein the AO has mentioned as under:- “Whereas in the course of proceedings before me for the Assessment year 2013-14, it appears to me that you have concealed the particulars of income or furnished inaccurate particulars of such income.”

Further, we noted from the very assessment order that the AO has initiated penalty proceedings u/s.270A of the Act for under reporting of income. The ld.counsel for the assessee stated that the decision of Hon’ble Madras High Court in the case of Babuji Jacob, supra fully covers this issue.

- 7 - to 1157/Chny/2023 reproduced and for the sake of clarity, it is once again reproduced as under:- “Penalty proceedings u/s 271(1)(c) is initiated separately for under reporting of income.”

The ld.Senior DR argued that as the AO has clearly recorded the reason as ‘under reporting’ in the body of the assessment order for initiation of penalty proceeding, the ground raised by the appellant has no merit and needs to be dismissed. He argued that the assessee in support of his plea has produced certain communication obtained from the Department, which the assessee considers as a statutory notice u/s.274, wherein the AO has failed to identify whether the proceeding was initiated for ‘concealment or for furnishing inaccurate particulars of income’. The ld.DR has submitted his comments as follows:- a) By just mention of the word ‘notice’ in a communication addressed, such communication would not amount to a ‘statutory notice’ Section 274 of the Act does not mandate an Assessing Officer to issue any notice leave alone a statutory notice.. The language use of Section 274(1) is reproduced as under: "No order imposing penalty under this chapter shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard...". b) From the above language use, it is clear that the legislation did not mandate issuance of a notice for Penalty proceeding hearing. The logic being, u/s 271 of the Income tax Act, penalty proceedings are initiated or have to be initiated during the pendency of assessment and not subsequent to an assessment. Though the assessment proceeding and penalty proceeding are two independent proceeding in the act, penalty proceedings are initiated during the course of assessment and could be concluded under - 8 - to 1157/Chny/2023 the law during the course of assessment or subsequent to passing the assessment order and before an appeal could be filed or subsequent to an order passed by the appellate authorities. c) Now coming to the issue of, as to how the requirement of assessee to be heard and the reasonable opportunity of being heard can be met u/s 274 by without an issuance of the notice, it can be answered as under: i) Since the law does not mandate specific requirement to issue a notice, the opportunity of being heard can be communicated orally across the table or through a telephonic call or through a letter and all these means adopted duly recorded through an order sheet entry for having given such opportunity. The reliance on issue of a notice under the law as a pre-requisite requirement for initiation and levy of penalty has not been legally warranted by the law itself. The only requirement under the law is the Department has to demonstrate that the assessee been heard and reasonable opportunity of being heard has been provided. Such demonstration could be through order sheet noting, or through other circumstantial evidences or could even be through issuance of letter/notice in a pre-printed format. ii) Even if the Assessing Officers had issued some notice in a pre- printed format, such notice cannot be, under any stretch be treated as a statutory notice mandated to be issued under the Law. Wherever the law has mandated issuance of notice, even there, in many instances, the law itself has given liberty for the officers of the Department to frame the language of such notices in whatsoever manner in which they may deem fit. The examples for these are when notices are mentioned to be issued u/s 142(1) or u/s 143(2) or u/s 148 etc. However, the same law has been stringent when it comes to some other provisions such as section I56 of the Income Tax Act. It had specifically mandated issuance of only a Statutory prescribed notices. All such statutory prescribed notices are prescribed under the Income tax Rules, 1962 and published. As can be seen from these rules, the only statutorily prescribed notice for any Assessment or Penalty proceeding is service of Demand notice in Form No.7 of IT Rules-1 962. iii) The practice of issuance of a pre-printed communication with the word 'notice u/s 274....’ or 'show-cause notice u/s 274...' etc. cannot be contrary to the laid out law. In the absence of legislation, the accepted practices can become a law. However, as demonstrated in - 9 - to 1157/Chny/2023 Para.2(c)(i) above, in the Income Tax Act, the legislation has been clear in usage of the language at various places as far as the types of communications are concerned. However, till this date to the knowledge of the undersigned, no courts in this country had carried out a genuine analysis of the language use across the sections of the Act with respect to various forms of communication between the Department and the Taxpayers.

7.1 The ld. Senior DR further stated that the assessee has relied upon a Jurisdictional High Court decision in the case of Babuji Jacob, supra. The facts are altogether different. In this case, the honorable High Court observed that the assessee had not concealed any particulars. The assessee had declared certain transaction of land as exempt under taxation in its return claiming it to be agriculture. The Assessing officer concluded that it was a capital asset and assessed the capital gain. However, neither in the body of the Assessment order or in the so called penalty show-cause notice, the Assessing Officer recorded whether the penalty proceeding u/s 271(1)(c) was initiated for concealment or furnishing the inaccurate particulars. Hence, declared that before initiation of penalty proceeding, proper satisfaction was not recorded. In the present case, the facts are totally different. The Assessing Officer has rightly recorded the satisfaction that the penalty proceedings are initiated on account of 'under reporting'. Under reporting is another terminology to denote concealment as is an accepted terminology under the Act.

- 10 - to 1157/Chny/2023 7.2 The ld.Senior DR further submitted that decision of the jurisdictional High Court in the case of Sundaram Finance Ltd Vs. ACIT, reported in 403 ITR 407 clearly applies to the case of the assessee. As in this reported case, the appellant was fully aware of its deed and concealed its real income for nearly six years, as a loan transaction, till it was revealed by means of physical survey conducted by the Department in the year 2020. On Department exposing such concealment and consequent to reopening of the relevant AY's assessment, the appellant was compelled by circumstances to offer the same as its income in the return forced to be submitted in response to the notice issued u/s 148. Thus, all the while, i.e. during the during the course of its business activity from AY 2013-14, survey conducted on 19/02/2020, while furnishing the return in response to notice received u/s 148, during the course of re-opened assessment, and on receipt and reading of the assessment order, the appellant was in full knowledge that the penalty proceeding has been initiated only for the concealment of income or in another words under reporting of the true income.

- 11 - to 1157/Chny/2023 initiated penalty proceedings in the relevant assessment orders as “penalty proceedings u/s.271(1)(c) is initiated separately for under reporting”. It means that the charge framed by AO to reach at a satisfaction that there is under reporting but not for, either concealment of income or furnishing of inaccurate particulars of income. The argument made by the ld. Senior DR that this is only a terminology to denote concealment, cannot be accepted because the legislature in its wisdom has made amendment in the provisions and instead of provisions of section 271(1)(c) of the Act, now brought in the statute book the provision of section 270A of the Act as introduced by the Finance Act, 2016 w.e.f. 01.04.2017 and applicable for and from 2017-18 i.e., penalty for underreporting or misreporting of income. It means that the AO has not at all applied his mind while initiating penalty and the specific charge is not framed for initiating penalty and hence, the argument of Senior DR that the notice issued u/s.274 or show-cause notice u/s.274 of the Act is not a statutory notice but it is a printed format. We cannot agree with the argument of the ld. Senior DR because this position has been settled by the decision of Hon’ble High Court of Madras in the case of Babuji Jacob vs. ITO, [2021] 430 ITR 259, wherein Hon’ble High Court has considered the decision of almost all High Courts particularly of Hon’ble High Court of Karnataka in the case of - 12 - to 1157/Chny/2023 CIT vs. Manjunatha Cotton and Ginning Factory, [2013] 359 ITR 565 and Hon’ble High Court of Madrs in the case of Sundaram Finance Ltd., vs. Asst. CIT, [2018] 403 ITR 407 and finally held as under:- 32. 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.

8.1 In the present case also, the AO has not at all applied his mind or he is in a confused state of mind for that the penalty u/s.271(1)(c) of the Act for concealment of income or may be furnishing of inaccurate particulars of income because no case is - 13 - to 1157/Chny/2023 made out for that. Hence, we delete the penalty in all these assessment years.

8.2 Since we have deleted the penalty on jurisdictional issue, we need not go into the matter on merits. All these appeals of the assessee are allowed on jurisdictional issue.

Order pronounced in the open court on 23rd February, 2024 at Chennai.