ALLWYN D VAZ,MUMBAI vs. ITO WD 26(2)(1), MUMBAI

I have considered rival contentions and found that assessee is a technical person not aware of income tax laws. During the year under consideration, he had changed employment from Reliance Communication Ltd. to Tikona Digital Networks Pvt.Ltd. and had submitted details of earlier salary to the new employer, who failed to consider it in Form-16 issued to him. The return was filed based on the TDS certificate issued by the second employer, based on the advice of his Chartered Accountant, who did not inform him about these mistakes. During assessment proceedings, revised computation of income was filed 2 before the Assessing officer. It was also claimed that the assessee is an honest income tax payer for the last 15 years and full TDS has been deducted on the salary income received. The assessee was under a bonafide impression since TDS has been deducted, no additional tax was payable and assessee’s Chartered Accountant also did not advice him correctly. Based on certain case laws cited, it was claimed that the penalty levied should be deleted.

It is clear from the above that all the facts were available before the AO and assessee himself has accepted during the course of assessment proceedings regarding salary income so received. For the addition of salary so made, no appeal was filed. Under these circumstances, I do not find any merit for the imposition of penalty.

I also found that the assessee had intimated the salary received from earlier employer to the new employer and the new employer failed to incorporate that in the TDS Form-16.

It was also argued by ld. AR that Hon’ble Delhi High Court in the case of Virgo Marketing (P) Ltd., 171 Taxman 156, held that where from a reading of assessment order, which was not clear as to why the Assessing Officer chose to initiate penalty proceedings against the assessee and under which part of the section 271(1)(c), penalty was imposed, under such circumstances, penalty so imposed was not sustainable.

The Hon’ble High Court of Karnataka in its order in the case of M/s Manjunatah Cotton & Ginning Factory in of 2005 dated 13.12.2012, relied on by the assessee, has held that such a notice, as has also been issued in the case on hand, is invalid and the consequential penalty proceedings are also not valid. The relevant portion of their Lordships judgement at paras 59 to 62 thereof are extracted hereunder for reference: - "59. As the provision stands, the penalty proceedings can be initiated on various ground set 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 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 4 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 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.