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Income Tax Appellate Tribunal, BENCH “C”, MUMBAI
Before: SHRI R.C.SHARMA & SHRI PAWAN SINGH
Revenue by : Sh. Samuel Derse (CIT-DR) Assessee by Sh. Y.P. Trivedi Sr Advocate : with Ms. Usha Dalal (AR) Date of hearing : 04.08.2016 Date of Pronouncement : 28.10.2016 O R D E R PER PAWAN SINGH, JM: 1. These two cross appeal are directed against the order of CIT(A)-41, Mumbai dated 04.09.2012 for Assessment Year (AY) 2008-09.
Brief facts of the case are that the assessee-company is engaged in the business of Infrastructure Development and Civil Construction, filed its return of income on 29.09.2008 declaring total income at Rs. 61,44,707/-. A search and seizure action was carried out u/s 132 in PBA group cases including of assessee on 06.09.2007. During the search action, the statement of Shri Balkrishan P. Wadhawan, Vice Chairman and Joint Managing Director of the company was recorded u/s 132(4) on 29.10.2007. The assessment was completed on 31.12.2009 u/s 143(3) determining the total income of Rs. 17,31,15,020/-. While framing the assessment, the AO made number of additions in view of the statement of Director. The AO made addition/ disallowance of Rs. 98,02,688/- being 20% of casual labour expenses, amount of Rs. 2,23,098/- on account of non-genuine expenditure in respect of salary paid to two persons who were not rendering any services to the company, disallowed Rs. 2,79,222/- u/s 69C on account of unexplained expenditure, disallowed Rs. 30,00,000/- as unexplained expenditure u/s 11,73,318/- on account of purchase of Cement in cash u/s 69C and disallowance of deduction u/s 80IA of Rs. 15,82,86,609/-. As business of assessee was not eligible as referred in section 80IA of the Act. In first appeal before Commissioner (Appeals) the additions of Rs.5151638/- and disallowance of claim u/s80IA was sustained. The AO issued notice u/s 274 r.w.s. 271(1)(c) on 31.12.2009. The assessee contested the notice and contended that the disallowance is negligible considering the enormous size of business and operation of the company. There was no concealment or malafide intention or if any that may be due to some inadvertent interpretation of law. It was further contended that the turnover during the year was of Rs. 37019.47 Lakhs and the disallowance is negligible in quantum, the assessee during the assessment proceeding submitted all relevant information as required and prayed lenient view be taken and proceeding may be dropped. After considering the contention of the assessee, the AO concluded that except the addition/disallowance of labour charges of Rs. 98,02,968/- which has been deleted by ld. CIT(A), the assessee reply is not acceptable in respect of other addition of Rs. 51,51,638/- and disallowance of deduction u/s 80IA of Rs. 15,52,86,609/-. The AO levied the minimum penalty @ 18% of the tax sought to be evaded at Rs. 5,45,39,960/-. Aggrieved by the order of AO, the assessee filed appeal before the ld. CIT(A). Before the ld. CIT(A), the assessee raised the additional grounds of appeal
that AO erred in levying the penalty u/s 271(1)(c) instead of levying penalty u/s 271AA of the Act. The additional ground of appeal of assessee was allowed by AO by invoking the provisions of section 292B. The ld. CIT(A) further observed that search action was carried out on 07.09.2007, The penalty u/s 271AAA is applicable in this case as section 271AAA was introduced by Finance Act, 2007 w.e.f. 01.07.2007 i.e. relevant for AY 2008-09. The ld. CIT(A) directed the AO to re-compute the penalty of undisclosed income on account of wrong claim of deduction u/s 80IA as well as on the additions of Rs. 51,51,638/-. Further, aggrieved by the order of ld. CIT(A), the revenue filed the appeal before us challenging the validity of order passed u/s 271AA ,that AO has rightly levied the penalty u/s 271(1)(c) and that ld. CIT(A) erred in directing the AO to re-compute the penalty u/s 271AAA @ 10% on undisclosed income. And the assessee has filed the Cross Appeal ITA No.6587/M/2012.
3. We have seen that the assessee vide application dated 21.03.2006 raised following additional ground of appeal:
1. Ld. AO/CIT(A)’s ought to have held that the Notice dated 31.12.2009 issued u/s 271(1)(c) was defective since in that there was no mention whether the assessee was guilty of concealment of income or filling of inaccurate particular of Income.
2. Without prejudice to the above, the CIT(A)’s has erred in levying penalty u/s 271AAA when there no notice for levying such penalty was issued to the assessee.
3. The CIT(A)s action is in violation of principles of natural justice.
4. The CIT(A)’s ought to have held that he had no power to change the basis of levying penalty under a new section not even contemplated by the AO by invoking the provisions of Section 292B of the Income Tax Act, 1961.
We have heard the Ld. Authorized Representative (AR) of the assessee and the Ld. Departmental Representative (DR) for the Revenue on the application on the application for raising additional Ground of appeal
and the additional Ground and perused the material available on record. The Ld. AR of the assessee in support of his application for additional ground of appeal submitted that as per the decision of Hon’ble Supreme Court in case of NTPC vs. CIT reported in 229 ITR 383, the assessee can raise additional ground of appeal if no further additional fact is required to be brought on record. It was submitted that additional grounds of appeal are purely legal in nature. On the other hand, ld. DR for the Revenue argued that the additional ground of appeal raised by assessee are misconceived and have no force under the law.
5. We have considered the rival contention of the parties and are of the considered view that the additional Grounds of appeal are purely legal in nature thus the same are admitted and taken on record.
6. In support of additional ground of appeal it was argued by Ld. AR for the assessee that while issuing the notice of penalty u/s 274 rws 271(1) (c ) the AO has not strike the portion of notice specifying under which limb of charge the penalty is proposed. As the specific charge was not disclosed in the notice thus the all the proceeding has become invalid. The ld AR for the assessee relied on the decision of CIT Vs Manjunath Cotton and Ginning Factory (2015) 35 taxman.com 250. On the hand the ld DR for the Revenue argued that assessee was given opportunity by AO before levying the penalty. The Ld. DR for the Revenue argued that as per mandate of section 274 of the Act, the assessee was given opportunity; the opportunity of hearing is larger than the service of notice. Mere non- striking out the portion that penalty is proposed for the concealment of income or for filing of inaccurate particular of income, is not fatal. Moreover, the consequence of both the limbs of charges of penalty is the similar. There is no different in the degree of penalty either for concealment or for filing inaccurate particulars. The assessee never objected either before the AO or before the CIT(A) about the defect in notice. The Ld. DR for Revenue relied upon the decision of jurisdictional High Court in case of CIT vs. Smt. Kaushalya reported vide 216 ITR 660 (Bom). We have considered the contention of both the parties on the additional 7. ground No.1 raised by assessee. The Hon’ble jurisdictional High Court in CIT vs. Smt. Kaushalya (supra) held:- “Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining a complaint for failure of principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice is caused to the concerned person by the procedure followed. The issuance of notice is an administrative device for informing the assessee about proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking off of inaccurate portion cannot by itself invalidate the notice. Entire factual background would fall for consideration in the matter and no one aspect would be decisive. In this context useful reference may be made to the following observation in the case of CIT v. Mithila Motors (P.) Ltd. [1984] 149 ITR 751 (Pat.).”
8. After considering the contention of both the parties, we are respectfully following the decision of Bombay High Court in CIT Vs Kaushalya (supra) which as binding precedent upon this Tribunal. Hence, we are inclined to dismiss the additional Ground No.1 raised in the present appeal.
The second additional Ground of appeal
is that ld CIT(A) erred in levying the penalty u/s 271AAA, when no notice for levying such penalty was served.
10. The ld AR for the assessee argued that that ld CIT (A) committed error while directing the AO to re-compute the penalty at the rate of 10% of undisclosed income on account of wrong claim under section 80IA of the Act and on the addition of undisclosed income. It was further argued that that CIT(A) have no power to change the basis of levying the penalty. On the other hand, the ld departmental representative for revenue supported the order of AO. It was argued that during the first appellate proceeding it was the submission of the assessee that that assessing officer order levied penalty under section 271(1)( c) instead of levying under section 271AAA and the assessee is now estopped to raise the same before the Tribunal.
We have considered the rival contention of ld AR of the parties and gone through the Assessment Order dated 30 December 2009, Penalty Orders dated 27th March 2012 and the order of ld CIT(A) challenged before us in both the appeals. We have noticed that while framing assessment order the AO initiated penalty for furnishing inaccurate of income under section 271(1) (c) of the Act for each and every addition and disallowance of claim u/s 80IA. The AO levied penalty under section 271(1) (c) of the Act. The action of the AO was basically wrong. The ld CIT(A) while hearing the appeal and on the basis of grounds of appeal
raised before him noticed that the provisions of section 271AAA were applicable as the assessment was based on the search u/s132. The ld CIT(A) by invoking the provision of section 292B rectified the penalty proceeding and treated the same under section 271AAA in place of 271(1) (c) and directed the AO accordingly.
12. The section 271 AAA was brought on the statute book by Finance Act 2007 with effect from 01.04.2007. Sub section (3) of Section 271AAA clearly specified that no penalty under the provisions of clause (c ) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). The provisions of penalty under section 271AAA was inserted only in respect of cases where search has been initiated after 1st day of June 2007. Admittedly in the present case the search was carried out on 7 September 2007; and thus no action under section 271(1) ( c ) of the Act was liable to be taken against the assessee.
The ld CIT(A) tried to rectify the mistake during the first appellate stage by invoking section 292B of the Act. The Hon’ble Punjab and Haryana High Court in CIT vs Norton Motors (2005) 275 ITR 595 (Pun) held: “That there is nothing in the plain language of that section (292B) from which it can be inferred that the same can be relied upon for curing the jurisdictional defect in the assessment notice, summons or other proceeding taken by an authority suffer from an inherent lacuna affecting his/ it’s jurisdiction, the same cannot be cured by having resort to section 292B of the Act. Further the Hon’ble Calcutta High Court in Gajendra Kumar Banthia vs Union of India (1996) 222 ITR 632 held: “That it is well settled position that an illegal or invalid notice cannot be cured. Section 292B does not cover a case of non-service on when the notice is not in substance and effect in conformity with or according to the intent and purpose of the Act”.
We have further notice that as per sub-sections to section 271AAA no penalty is leviable against the assessee if the assessee in the course of search made a statement under subsection (4) of section 132, and admits the undisclosed income and specifies the manner in which such income has been derived. Admittedly no such notice or show cause notice to substantiate the undisclosed income, disclosed during the search operation was given to the assessee. Thus the action initiated by the assessing officer under section 271(1) (c) was wrong. Further the ld CIT(A) committed jurisdictional error to rectify the proceeding u/s 292B, which is not permissible as per the decision of Punjab and Haryana High Court in CIT Vs Norton Motors (supra) and in Gajendra Kumar Banthia Vs Union of India(supra).
Thus considering the above discussed legal position the penalty proceedings initiated by assessing officer while framing assessment and serving subsequent notice under section 274 read with section 271(1) (c )was