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Income Tax Appellate Tribunal, BANGALORE BENCH C, BANGALORE
Before: SHRI. N. V. VASUDEVAN
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :
In this appeal filed by assessee, its grievance is that the notice u/s.274 r.w.s.271 of the Income-tax Act, 1961 (‘the Act’ in short), issued for levy of penalty was vague and therefore, penalty order u/s.271(1)(c) of the Act, was invalid. Though this ground as such does not appear as such in the very many grounds raised by the assessee, we find that ground no.3 is more or less on the very same issue.
ITA.654/Bang/2015 Pag e - 2
Ld. Counsel for the assessee, submitted that this ground, though it did not appear in the grounds filed before the CIT (A) was a part of its submissions made before the CIT (A) during the course of hearing before him. Relying on the submissions made by him before the CIT (A), he stated that this was brought up before the CIT (A), but he had failed to consider it. Reliance was placed on para 4.8 of the submissions filed before the CIT (A).
Per contra, Ld. DR supported the order of CIT (A).
We have perused the orders and heard the rival contentions. Notice issued to the assessee u/s.274 read with section 271 of the Act, is reproduced hereunder :
“Whereas in the course of proceedings before me for the assessment year 2008-09 it appears to me that you :-
*have without reasonable cause failed to furnish me return of income which you were required to furnish by a notice given under section 22(1)/22(2)/34 of the Indian Income-tax Act, 1922 or which you were required to furnish under section 139(1) or by a notice given under Section 139(2) / 148 of the Income-tax Act, 1961, No........... dated........ or have without reasonable cause failed to furnish it within the time allowed and the manner required by the said section 139(1) or by such notice.
*have without reasonable cause failed to comply with a notice given under section 22(4)/23(2) of the Indian Income-tax Act, 1922 or under Section 142(1) / 143(2) of the Income-tax Act, 1961, No........... dated........
*have concealed the particulars of your income or............ furnished inaccurate particulars of such income.
You are hereby requested to appear before me at 11.00 AM on 01/10/10 and show cause why an order imposing a penalty on you should not be made under section 271 of the Income –tax Act 1961. If ITA.654/Bang/2015 Pag e - 3 you do not wish to avail yourself of this opportunity of being heard in person or through authorised representative, you may show cause in writing on or before the said date which will be considered before any such order is made under section 271.”
We find that the notice reproduced by us above, has not specified as to whether assessee was at fault for concealment or for furnishing inaccurate particulars of income. In the case of Smt. Madhu Solanki v. ITO (ITA No.528/Bang/2011, dt 20.09.2013), this Tribunal had, relying on the judgment of Hon’ble jurisdictional High Court in the case of CIT v. M/s. Manjunatha Cotton & Ginning Factory (359 ITR 565) held as under at paras 15 to 17 :
“15. The first legal question is whether the notice u/s 274 r.w.s.271 is valid. The learned DR’s objection is that the assessee has not raised any specific ground of appeal on this issue. However, we find in the ground of appeal no.2, the assesssee has raised an objection that the order of penalty passed by the ld.AO u/s271(1) of the IT Act, is without jurisdiction as the mandatory condition for invoking provision of sec.271(1)(c ) of the Act has not been compiled with. Therefore, we have to examine whether mandatory conditions for initiating the proceedings u/s 271(1)(c ) were complied with or not. What are the mandatory conditions for invoking the provision of sec.271(1)(c ) of the Act? One of the mandatory conditions is that he notice u/s 274 r.w.s. 271 must be valid notice. In view of the same, we proceed to adjudicate this ground of appeal.
16. As seen from the notice issued u/s 271(1)(c) of the IT Act, it is dated 29-03-2002 addressed to the assessee for the assessment year 1998-99. It is in the prescribed form with the blanks to be filled up by the relevant information. At the bottom of the notice on page-2, it is mentioned that inappropriate words and paragraphs are to be deleted. However, we find that the AO except from the assessment year and striking off para 2 of the notice has not filled up any other blanks nor has he struck off any other inappropriate words or paragraphs. Para-4 mention both the concealment of particulars of income as well as furnishing of inaccurate particulars of such income. The AO has not specified as to which of the conditions for initiating penalty is fulfilled. The Hon’ble jurisdictional High Court in the case of CIT v. M/s Manjunatha Cotton ITA.654/Bang/2015 Pag e - 4 & Ginning Factory (2013) page 93 para 59 to 61 has considered this issue at length and has held that clause(c ) of the printed form of notice u/s 274 deals with two satisfactions i.e. concealment of particulars of income or furnishing of inaccurate particulars of income. The Hon’ble High Court has held that both the conditions are different and distinct though at times they may overlap with each other. It was held that AO while issuing notice u/s 274 has to come to the conclusion as to whether it is case of concealment of income or it is a case of furnishing of inaccurate particulars of income and if the standard proforma without deleting the relevant clause is issued, it leads to an inference as to non- application of mind by the AO. The relevant portion of the Honble High Court’s order is reproduced hereunder: “59. As the provision stands, the penalty proceedings can be initiated on various grounds 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 u/s 274, the 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(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 insec.271 should be made known about the grounds on which they intend imposing penalty on him as the sec.274 makes ft c/ear 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 sec.271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where as the ground mentioned in sec.27! are mentioned would not satisfy requirement of law when the consequence 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 u/s 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended/f the shown cause notice is vogue. On the basis of such proceedings no penalty could be imposed on the assessee.
60. 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 f the some cases may ITA.654/Bang/2015 Pag e - 5 attract both the offences and is 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 of finding him guilty for either the one or the other cannot be sustained in law. It is needless to pint satisfaction of the existence of the grounds mentioned in sec.271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confirmed only to those grounds and the said grounds have to be specifically stated to that the assessee would have the opportunity to met 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 the penalty must be determined with the reference to information, facts and materials in the hands of the authority imposing penalty at the time the order was passed and further disco very of facts subsequent to the imposition of penalty cannot violate the order of penalty which, when passed, was not sustainable.
61. The AO is empowered under the Act to initiate penalty proceedings once he is satisfied in the cause 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 difference. Thus, the A 0 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 pages 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat Court in the case of Manu Engineering reported in 122 ITR 306 and the be Delhi High Court in the case of Virgo Marketing reported in 171 ITA.654/Bang/2015 Pag e - 6 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 AO proposes to invoke the first limb 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’ 17. We find that in the case before us also, the AO has not specified the relevant portion of the clause (c) for initiating penalty proceedings u/s 271(1)(c) of the IT Act and therefore, as held by the Hon’ble High Court, the assessee could not have rebutted the initial presumptions for initiation of penalty which is serious in nature. Respectfully following the decision of the Hon’ble jurisdictional High Court in the case of M/s Manjunatha Cotton & Ginning Factory (cited supra) we hold that the notice u/s 274 r.w.s.271(1)(c) is invalid. The contention of the learned DR that it is only a defect which is curable u/s 292B of the IT Act, is also not acceptable because the AO gets the jurisdiction to levy the penalty only by issuance of a valid notice and, therefore, when the jurisdiction is not validly invoked, then the consequent proceedings are also not valid. Hence, it is not a procedural irregularity as contended by the DR.
6. In view of the above, we are of the opinion that the notice u/s.274 r.w.s.271 for the impugned assessment year was invalid. Ex-consequenti the penalty order is set aside.
In the result, appeal of the assessee stands allowed.