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Income Tax Appellate Tribunal, MUMBAI BENCH “F”, MUMBAI
Before: SHRI JASON P.BOAZ & SHRI SANDEEP GOSAIN
ORDER PER JASON P. BOAZ,A.M:
This appeal by the assessee is directed against the order of CIT(Appeals)-13, Mumbai dated 4/09/2014 confirming the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 ( in short ‘ the Act’) for the assessment year 2010-11.
The facts of the case as emanate from the record, briefly, are as under:-
(Assessment Year : 2010-11 2.1 The assessee, a company engaged in the business of producing, acquiring, marketing and distribution of music in India, filed its return of income for assessment year 2010-11 on 24/4/2011 declaring Nil income. The return was processed u/s.143(1) of the Act. A revised return declaring Nil income was filed on 26/3/2012. The case was subsequently taken up for scrutiny and the assessment was completed u/s. 143(3) of the Act vide order dated 1/8/2012, wherein an amount of Rs.71,76,623/- was disallowed resulting in reduction of carry forward losses to this extent and in respect of which penalty proceedings under section 271(1)(c) of the Act was initiated by simultaneous issue of notice u/s. 274 r.w. 271(1)(c) of the Act dated 8/3/2013. Subsequently, the Assessing Officer (‘A.O’) vide order dated 20/9/2013, proceeded to levy penalty of Rs.22,17,577/- under section 271(1)(c) of the Act for concealment of income on the aforesaid amount of Rs.71,76,623/-.
2.2 On appeal, the Ld. CIT(Appeal)-13, Mumbai dismissed the assessee’s appeal vide order dated 4/9/2014 and confirmed the levy of penalty under section 271(1)(c) of the Act for assessment year 2010-11.
3.1 Aggrieved by the order of the CIT(Appeals)-13, Mumbai dated 4/9/2014, confirming the levy of penalty under section 271(1)(c) of the Act for assessment year 2010-11, the assessee has preferred this appeal raising the following grounds:-
“1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in confirming the concealment of penalty levied under section 271(1)(c) of the Income Tax Act amounting to Rs.22,17,577/-. The concealment penalty of levied under section. 271(1)(c) of the Income tax Act should be cancelled. 2. The appellant reserves its right to add to, alter, amend, modify or delete any of the grounds taken in this appeal.
4.1 Subsequently, by letter dated 3/2006, the assessee field additional grounds of appeal which read as under:-
"On facts and circumstances of the case, the order of penalty u/s 271 (1)(c) of the Act is bad in law and void ab initio, as the notice issued u/s 274 r. w.s. 271 is not in accordance with law. From the notice, it is not discernible as to why penalty is initiated, whether the penalty is initiated for furnishing of inaccurate particulars of income or for concealment of income, etc. Consequently, the penalty proceedings are wholly unsustainable in law and void ab initio, and the penalty deserves to be cancelled". 4.2 The additional ground raised (supra), challenges the validity of the notice issued u/s. 274 r.w.s. 271(1)(c) of the Act dated 8/3/2013, which is without proper indication of the exact default of the assessee for which penalty proceedings under section 271(1)(c) of the Act are initiated (copy of the notice dated 8/3/2013 has been filed on record). The Ld. Representative for the assessee also placed before us copies of the decision of the Bangalore Bench of the Tribunal in the case of Roadlinks India Pvt. Ltd. vs. ACIT in dated 27/2/2015 and of the Co-ordinate Bench of this Tribunal in the case of Sanghvi Savla Commodity Brokers Pvt. Ltd. vs. ACIT in ITA No.1746/Mum/2011 dated 22/12/2015, wherein in similar circumstances the Bench admitted the additional ground and disposed off the assessee’s appeals on the legal grounds so raised.
4.3 We have heard the rival contentions on the issue of admission of the additional grounds of appeal raised by the assessee(supra) and considered the material on record. We find that the additional ground raised by the assessee is a purely legal ground and since the same goes to very root of the matter regarding the levy of the said penalty under (Assessment Year : 2010-11 section 271(1)(c) of the Act, we, therefore, admit the same for consideration and adjudication in this appeal.
4.4 Along with the application for admission of additional grounds, the assessee has also field a copy of the notice issued u/s. 274 of the Act dated 8/3/2013 for initiating penalty under section 271(1)(c) of the Act for assessment year 2010-11. A perusal of the said notice reveals that the Assessing Officer has not deleted the inappropriate words and parts of the notice, whereby it is not clear as to the default committed by the assessee; i.e., whether it is concealment of particulars of income or furnishing of inaccurate particulars of income that the penalty under section 271(1)(c) of the Act is sought to be levied. In this regard, we find that the Hon’ble High Court of Karnataka in its order in the case of M/s.Manjunatha Cotton & Ginning Factory, (2013) 359 ITR 565(Kar), relied on by the assessee, has held that such a notice, as has also been issued to the assessee in the case on hand(supra), is invalid and consequential penalty proceedings are also invalid. The relevant portion their Lordships judgment at paras 59 to 62, thereof are as under:-
“59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings
(Assessment Year : 2010-11 and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.
The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing
(Assessment Year : 2010-11 of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujrat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind.
The conclusion drawn therein by their Lordships at para 63 thereof and particularly at p) to s) thereof are as under:-
“63. ......................................................... a)........................................................... p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law”
4.5 It may be mentioned that in this regard no contrary decision of the Hon’ble Apex Court or the Hon’ble Bombay High Court has brought to our notice or placed before us for consideration. Therefore, respectfully following the decision of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (supra), we hold
(Assessment Year : 2010-11 that the notice issued u/s. 274 r.w.s. 271(1)(c) of the Act dated 8/3/2013 for assessment year 2010-11 for initiating penalty proceedings under section 271(1)(c) of the Act in the case on hand is invalid and consequently, the penalty proceedings and levy of penalty thereunder are also invalid. In this view of the matter, the additional ground raised by the assessee is allowed. Since the very basis of the levy of penalty under section 271(1)(c) of the Act has been held to be invalid, we are of the view that since the assessee’s grievance has been addressed by disposal of the additional ground raised, the other grounds of appeal at s.No.1 and 2 raised by the assessee (supra) on the merits of the levy of penalty under section 271(1)(c) of the Act require no adjudication at this stage.
In the result, the assessee’s appeal for assessment year 2010-11 is allowed.
Order pronounced in the open court on 19/08/2016