K. RAMACHANDRA REDDY vs. DCIT,

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :

3. We find that the question regarding the validity of the notice issued to the assessee prior to levy of penalty u/s.271(1)(c) of the Act, is a legal issue which can be adjudicated at any point since it goes to the root of the matter.

Additional ground is therefore admitted.

4. Ld. Counsel for assessee submitted that the notice issued to the assessee u/s.274 r.w.s. 271(1)(c) of the Act was vague and did not point out what was the failure on the part of assessee. Whether the assessee had concealed the particulars of income or furnished inaccurate particulars of income was not mentioned and therefore there was no clarity as to how the assessee should address the points raised by the AO. According to him, in view of the judgment of the Hon’ble jurisdictional High Court in the case of CIT v. M/s. Manjunatha Cotton & Ginning Factory [(2013) ( 92 DTR 0111), the penalty order would not stand. Reliance was also placed on the decision of the coordinate bench in the case of Smt. Madhu Solanki v. ITO (ITA No.528/Bang/2011, dt 20.09.2013).

5. Per contra, Ld. DR submitted that though the notice as such did not exactly specify the nature of failure of the assessee, the AO had clearly specified in the assessment order that he was initiating the penalty proceedings ITA.73/Bang/2014 Page - 3 for concealment. This would, according to Ld. DR, suffice the requirement of law.

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. N. V. VASUDEVAN, JUDICIAL MEMBER AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER (Assessment Year : 2006-07) Smt. Latha Devi Propx : Babulal Roopaji & Co., 1st Cross, Bazaar Street, Mandya ..Appellant PAN : ADYPD0879M v.

Income-tax Officer, Ward – 1, Mandya ..Respondent Assessee by : Shri. H. N. Khincha, CA Revenue by : Dr. Shankar Prasad K, JCIT Heard on : 16.06.2015 Pronounced on : .06.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER :

In this appeal filed by assessee, it assails the levy of penalty of Rs.89,752/-, u/s.271(1)(c) of the Income-tax Act, 1961 (‘the Act’in short), which was confirmed by the CIT (A), Mysuru, vide order dt.14.11.2014.

ITA.73/Bang/2014 Page - 4

2. Assessee in one of its grounds states that initiation of penalty was not in accordance with law and therefore, levy of penalty was void-ab-initio.

Reliance was also placed on the decision of the coordinate bench in the case of Smt. Madhu Solanki v. ITO (ITA No.528/Bang/2011, dt 20.09.2013).

ITA.73/Bang/2014 Page - 5

“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 & 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 ITA.73/Bang/2014 Page - 6 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 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 ITA.73/Bang/2014 Page - 7 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 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 ITA.73/Bang/2014 Page - 8 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. Since we have decided the appeal on legal grounds, grounds raised on merits are not adjudicated.

Order pronounced in the open court on 22nd day of June, 2015.