PRAKASH H SAVLA,MUMBAI vs. ASST CIT CEN CIR 33, MUMBAI

We begin with ground of appeal number 2.2 raised by the assessee which reads as under: “The ld. CIT(A) failed to appreciate the fact that the notice for initiation of penalty as to whether it is concealment of income or furnishing of inaccurate particulars of income is not discernible from the notice issued and consequently the ld. CIT(A) ought to have cancelled the order of penalty under the facts and circumstances of the case.”

The ld. Counsel of the assessee referred to the notice u/s 274 r.w.s. 271(1)(c) issued by the AO. He relied on the decision of the Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton and Ginning Factory [2013] 359 ITR 565 (Kar.) and the order of the ITAT “H” Bench, Mumbai in the case of Sanghavi Savla Commodity Brokers (P) Ltd. vs. ACIT in for the AY 2007-08.

The ld. DR supported the order passed by the ld. CIT(A). 5. We have considered the rival submissions and perused the relevant material on record. We have gone through the notice u/s 274 r.w.s. 271(1)(c) of the Act issued on 30.12.2009 by the AO (p.40-41 of the Paper Book). At the end of the notice, it has been mentioned that inappropriate words and paragraph should be deleted. The AO has not done so. In fact in the said notice, “have concealed the particulars of your income or furnished inaccurate particulars of such income” are appearing. There is no denial above fact by the ld. DR. 5.1 In CIT vs. Manjunatha Cotton and Ginning Factory (supra), the Hon’ble Karnataka High Court held that ‘Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(l)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income.’ The ITAT “H” Bench Mumbai in the case of Sanghavi Savla Commodity Brokers (P) Ltd. (supra) followed the above judgement and held the penalty notice u/s 274 r.w.s. 271 and the penalty proceedings as invalid. 5.2 In the case of CIT v. Manu Engg. Works [1980] 122 ITR 306, the Hon’ble Gujarat High has held : "...We find from the order of the Inspecting Assistant Commissioner, in the penalty proceedings, that is, the final conclusion as expressed in para 4 of the order : ‘I am of the opinion that it will have to be said that the assessee had concealed its income and/or that it had furnished inaccurate particulars of such income’. Now, the language of ‘and/or’ may be proper in issuing a notice as to penalty order or framing of charge in a criminal case or a quasi-criminal case, but it was incumbent upon the Inspecting Assistant Commissioner to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee. No such clear-cut finding was reached by the Inspecting Assistant Commissioner and, on that ground alone, the order of penalty passed by the Inspecting Assistant Commissioner was liable to be struck down." (p. 310) 5.3 In New Sorathia Engg. Co vs. CIT [2006] 155 TAXMAN 513 (Guj.), it has been held by the Hon’ble Gujarat High Court that ‘where penalty order and order of Commissioner (Appeals) showed that no clear-cut finding had been reached as to whether penalty under section 271(1)(c) was being levied for concealment of particulars of income by assessee or whether any inaccurate particulars of income had been furnished, order of penalty could not be sustained.’ 5.4 In CIT vs. Smt. Kaushalya [1994] 75 Taxman 549 (Bom.), the Hon’ble Bombay High Court has held that ‘The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charges he had to face. In this background, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified.’ 6. Respectfully following the above decisions, we hold that the notice dated 30.12.2009 issued by the AO u/s 274 r.w.s. 271 of the Act for the AY 2003-04 for initiating penalty proceeding u/s 271(1)(c) of the Act in the present case is invalid. In view of the above, the other grounds of appeal