DHANRAJ SETHIA,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX , CIRCLE-1

ORDER PER: SANDEEP GOSAIN, JM This appeal filed by the assessee is directed against order of the ld. CIT(A) dated 31-01-2023, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2012-13 wherein the assessee has raised the following ground of appeal. ‘’1. That the ld. CIT(A) has erred in confirming the penalty levied u/s 271(1)(c) by ignoring the fact that the penalty notice dated 04-03-2014 is bad in law as it did not specify the limb of Section 271(1)(c) of the Act for which the penalty proceedings have been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income.

2. That the ld. CIT(A) has erred in confirming the penalty levied u/s 271(1)(c) for furnishing inaccurate particulars of income. Merely submitting an incorrect claim of a genuine expenditure which assessee may not have been utilized in view of the provisions of Section 40(a)(ia) cannot tantamount to furnishing inaccurate particulars of income. Appellant relies upon the Hon’ble Apex Court in the case of Reliance Petroproducts (P) Ltd 322 ITR 158 for supporting his views.

3. That the ld. CIT(A) erred in levying the penalty ignoring the fact that assessee was under bona fide belief that the TDS provisions are not attracted on the Finance Charges payment to Banks and NBFC companies u/s 194A of the I.T. Act, Section 194A(3)(iii) exempts from deduction of ITDS on income credited or paid to any Banking Company to which the Banking Regulation Act, 1949 applies. 2.1 Apropos Ground No. 1 & 3 of the assessee, the facts as emerges from the order of the ld. CIT(A) are as under:-

‘’5. Findings:- The grounds of appeal, the submissions made by the appellant, the case laws adduced by the appellant and the facts and circumstances of the case have been duly considered. The facts are that in assessment the AO disallowed an amount of Rs.5,37,396/- which constituted interest payment to M/s. Barclay’s Investment and Loans India Ltd. without TDS u/s 40(a)(ia). This addition was sustained in appeal proceedings. Further, an amount of Rs.21,904/- constituting interest payment to M/s. Religare Finvest Ltd. without TDS was also disallowed u/s 40(a)(ia) by the AO and sustained in appeal proceedings.

3 DHANRAJ SETHIA VS ACIT, CIRCLE-1, JAIPUR Penalty for furnishing inaccurate particulars of income was imposed by the AO in respect of disallowance. Aggrieved thereby, assessee is in appeal. In the facts of the case, it is clear that asssessee was fully aware that the claims of deduction made were inadmissible because he has not deducted TDS on the payments. Despite that he took a chance because had the case not selected for scrutiny, he would have reduced tax liability. It cannot be the case of the assessee that there was any doubt about the inadmissibility of the claim. In view of the facts that out rightly inadmissible claims were made by the appellant in his return of income, the imposition of penalty for furnishing inaccurate particulars of income is hereby upheld. The ground of appeal are accordingly dismissed. ‘’ 2.2 During the course of hearing the Bench noted through the present appeal that the assessee has challenged the levy of penalty of Rs.1,72,823/- u/s 271(1)(c) of the Act.

2.3 At the outset, the ld. AR appearing on behalf of the assessee has drawn the attention of the Bench to the grounds wherein specific grounds have been raised by the ld. AR with regard to challenging the imposition of penalty on the basis of vague notice. In this respect, attention of the Bench was drawn by the ld. AR towards impugned notice issued u/s 274 read with Section 271(1) of the Act dated 04-03-2014 and the same is reproduced as under:-

‘’Penalty Notice Under Section 274 read with Section 271 of the Income Tax Act, 1961 Office of the Assistant Commissioner of Income – Tax, Circle-1, Jaipur PAN:ABUPS0573B Date: 04-03-2014

Shri Dhanraj Sethia 1013, Mishra Rajaji Ka Rasta Chandpole Bazar, Jaipur Whereas in the course of proceedings before me for the A.Y. 2012-13, it appears to me that you have :-– Read with Section:

Section 271(1) read with Section 274 271(1)(b) : Failed to comply with a notice under section 142(1) or Section 143(2) or failed to comply with a direction, under section 142(2A).  271(1)© : Concealed particulars of income or furnished inaccurate particulars of income. 271A : Failed to keep, maintain, or retain books of accounts, documents etc. as required u/s 44AA. 271B : Failed to get the accounts audited or obtain audit report as required under section 44AB or furnish such report alongwith return under section 139(1) or in response to notice under section 142(1)(i). 271C : Failed to deduct tax at source, wholly or partly, under section 192 to 195 of Chapter XVII-2. 271D : Taken or accepted certain loans and deposited in contravention of provisions of Section 269SS. 271E Repaid any deposit specified in section 269T in contravention to its provisions.

5 DHANRAJ SETHIA VS ACIT, CIRCLE-1, JAIPUR 271F Failed to furnish return of income as required by section139 before the end of the relevant assessment year. 272A(1) Refused or failed to: (a) Answer questions. (b) Sig. Statements. (c) Attene to give evidence or produce books of accounts etc. in compliance with summons under section 131(1). (d) Apply for allotment of permanent account number in term sof Section 139A. You are hereby requested to appear before me on 21-03-2014 at Room No. 11, N.C.R.B., Statute Circle, C-Scheme, Jaipur and show cause why the orders imposing aforesaid penalty / penalties on you should not be made of the Income Tax Act, 1961. If you do not avail yourself of this opportunity of being heard in person or through authorized representative, you may show cause in writing on or before the said date which will be considered before any such orders are made. Sd/- (Dr. Praveen Kumar Mittal) Assistant . Commissioner of Income Tax (Assessing Officer) Circle-1, Jaipur It was further submitted that said notice issued by the Department is vague and defective and thus no proceedings for levy of penalty could have been initiated on the basis of said defective notice and in this regard he relied on series of decisions of the Coordinate Benches of ITAT as under:-

6 DHANRAJ SETHIA VS ACIT, CIRCLE-1, JAIPUR 3. Tanushree Basu, Mumbai vs ACIT 11(1), Mumbai , ITA No. 2922/M/2012 , A.Y. 2007-08 pronounced on 22-05-2013 2.4 On the other hand, the ld. DR appearing on behalf of the Department relied upon the order of the lower authorities and submitted that the notice issued by the Department is not vague and it was in accordance with provisions of law.

2.5 The Bench has heard both the parties and perused the materials available on record. Brief facts of the case as arises from the penalty order dated 20-01-2022 are that the assessee during the year under consideration had derived income from salary, manufacturing and export of manufacturing garments and other sources. During the course of assessment proceedings, the assessee was requested to submit the details of TDS deduction on interest payment made to non-Banking Financial Organization. It was noticed that the assessee debited a sum of Rs. 11,51,362/- towards interest paid to NBFC namely (Religare Finvest Ltd. Rs.3,40,550/-, Barclays Investment and Loans India Ltd. Rs.5,37,396/-, Tata Capital Ltd. Rs.2,73,416/-) in the P&L account. On perusal of details submitted by the assessee, it was noticed by the AO that the assessee had not deducted TDS while making payment of interest to these NBFCs and assessee had admitted this fact that he did not make TDS on payment of interest to the NBFCs during assessment proceedings. Since the assessee had made interest payment , however, no TDS was deducted, therefore the amount of Rs.11,51,362/- was disallowed u/s 7 DHANRAJ SETHIA VS ACIT, CIRCLE-1, JAIPUR 40(a)(ia) of the Act and added to the total income of the assessee and thus penalty proceedings u/s 271(1)(c) of the Act was initiated for furnishing inaccurate particulars of income. In this case, it is also noted that the AO conclusively imposed the penalty of Rs.1,72,823/- u/s 271(1)(c) of the Act by observing as under:-

‘’9. In view of above facts and circumstances, the assessee has failed to rebut the findings made in order of ld. CIT(A) dated 14- 06-2016 wherein Rs. 21,904/- was sustained and the ld. CIT(A) dated 28-09-2018 , wherein disallowance of Rs.5,37,396/- made by the AO in respect of interest payment to M/s. Barclays Investment and Loan India Ltd. without TDS was sustained and when a specific query was issued to the assessee during the penalty proceedings as well. It is also a fact that had the case not been selected for scrutiny assessment, these facts would not have come to light and the assessee would have escaped the said addition. Thus, on analysis of the above facts of the case, It becomes clear that the assessee has willfully and deliberately furnished inaccurate particulars of income to the tune of Rs.5.59,300/- within the meaning of Section 271(1)(c) of the I.T. Act. Therefore, I am satisfied that the assessee has furnished inaccurate particulars of income to the extent of Rs.5,59,300/- and this is a fit case for levy of penalty as per the provisions of Section 271(1)(c) of the Income Tax Act, 1961 on the amount of Rs.5,59,300/-. The quantum of penalty works out as under at minimum slab rate. Minimum penalty @ 100% of tax sought to be evaded Rs.1,72,823/- Maximum penalty @ 300$ of tax sought to be evaded Rs.5,18,489/-

8 DHANRAJ SETHIA VS ACIT, CIRCLE-1, JAIPUR It is further noted that the ld. CIT (A) has confirmed the action of the AO as to levy of penalty of Rs.1,72,823/- u/s 271(1)(c) of the Act with following observations.

‘’5………In the facts of the case, it is clear that asssessee was fully aware that the claims of deduction made were inadmissible because he has not deducted TDS on the payments. Despite that he took a chance because had the case not selected for scrutiny, he would have reduced tax liability. It cannot be the case of the assessee that there was any doubt about the inadmissibility of the claim. In view of the facts that out rightly inadmissible claims were made by the appellant in his return of income, the imposition of penalty for furnishing inaccurate particulars of income is hereby upheld.’’ It is noticed that during the penalty proceedings the notice u/s 274 read with Section 271 of the Act was issued which is mentioned above. On perusal of the same, it is noted that neither the applicable clause has been ticked off nor the applicable link i.e. have concealed the particulars of your income and/ or furnished inaccurate particulars of such income have been specified/ mentioned. In other words, prima facie, there was failure on the part of the AO to frame a specific charge against the assessee for which the assessee was being penalized. It is apparent from the order of the assessment that penalty was initiated against the assessee in the quantum assessment on both the charges i.e. concealment of income

9 DHANRAJ SETHIA VS ACIT, CIRCLE-1, JAIPUR as well furnishing the inaccurate particulars of income which shows that the AO was not clear as to specific limb which was applicable to give factual matrix. This is further fortified by the fact that exact charge has not been framed even while issuing notice u/s 274 r.w.s. 271 of Act which has been issued in plain printed form without ticking / marking the applicable clause as well as without striking-off the irrelevant limb which reveals that the penalty was initiated as well as levied for both the charges. It is apparent that if AO, in the course of assessment proceedings, was satisfied that the assessee has concealed the particulars of income or furnished inaccurate particulars of such income, then he may levy penalty on the assessee. However, in the considered opinion of the Bench, concealment of particulars of income or furnishing of inaccurate particulars of income, are two different charges. These two expressions i.e. furnishing of inaccurate particulars and concealment of income, in terms of ratio of binding judicial precedents, carry different connotation / meaning and non-framing of specific charge against the assessee would vitiate the penalty proceedings. The penalty could be levied only for a specific charge. Furnishing of inaccurate particulars of income means, when the assessee has not disclosed the particulars correctly or the particulars disclosed by the assessee are found to be incorrect whereas, concealment of particulars of income would mean that the assessee has concealed the income and has not reflected certain income in its return of income. For the said proposition, we

10 DHANRAJ SETHIA VS ACIT, CIRCLE-1, JAIPUR straightway rely upon the decision rendered by Hon’ble Bombay High Court rendered in CIT Vs. Samson Perinchery [2017 88 taxmann.com 413] wherein Hon’ble Court has held as under: -

11 DHANRAJ SETHIA VS ACIT, CIRCLE-1, JAIPUR Ltd., 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."

8. In view of the above, the question as framed do not give rise to any substantial question of law. Thus, not entertained.

It is evident that Hon’ble Court, in the above decisions, has confirmed the ratio laid down by Hon’ble Karnataka High Court in CIT V/s Manjunatha Cotton & Ginning Factory (359 ITR 565). This decision of Hon’ble Karnataka High Court was subsequently followed by the same court in the case of CIT V/s SSA’s Emerald Meadows (2016 73 Taxmann.com 241) which was agitated by the revenue before Hon’ble Supreme Court. However, Special Leave Petition, against the same, was dismissed by the Hon’ble Court on 05/08/2016 reported at 73 Taxmann.com 248. This decision of Hon’ble Karnataka High Court rendered in Manjunatha Cotton & Ginning Factory has subsequently been followed extensively in catena of judicial pronouncements rendered by various Hon’ble High Courts as well as different benches of Tribunal. Following the same decision, Hon’ble Karnataka High Court, in its later decision titled as Muninaga Reddy V/s ACIT (88 Taxmann.Com 545 21/09/2016) observed as under: -

7. We may record that during the course of hearing the learned counsel for the appellant has tendered the copy of notice issued to the assessee under Section 271(1)(c) of the Act dated 15.12.2008 for imposition of penalty, which as per the learned counsel for appellant was a part of record in the proceedings before the Tribunal. Learned counsel for the respondent - revenue is unable to dispute that notice dated 15.12.2008 was issued by the Department for imposition of penalty under Section 271(1)(c) of the Act. Hence, said notice for the purpose of consideration is taken on record. Said notice disclose that it is a printed notice and further no specific

13 DHANRAJ SETHIA VS ACIT, CIRCLE-1, JAIPUR ground is mentioned, which may show that the penalty could be imposed on the particular ground for which said notice was issued. If the decision of this Court in case of Manjunatha Cotton & Ginning Factory (supra) is considered, this Court in the said decision had observed at paragraph 63 as under: "63. In the light of what is stated above, what emerges is as under:

(a) Penalty under Section 271(1)(c) is a civil liability. (b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. (c) Willful concealment is not an essential ingredient for attracting civil liability. (d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. (e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. (f) Ever if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & 1(B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision (g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B).

14 DHANRAJ SETHIA VS ACIT, CIRCLE-1, JAIPUR (h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. (i) The imposition of penalty is not automatic. (j) Imposition of penalty even if the tax liability is admitted is not automatic. (k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order. (l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed. (m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. (n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. (o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority. (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. (t) The penalty proceedings are distinct from the assessment proceedings. The 15 DHANRAJ SETHIA VS ACIT, CIRCLE-1, JAIPUR proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. (u) The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.”

16 DHANRAJ SETHIA VS ACIT, CIRCLE-1, JAIPUR effect would be that the notice in question issued under Section 271(1)(c) for levy of penalty and consequently the penalty imposed, both would be unsustainable and cannot stand in the eye of law.

It has been held by Hon’ble Court that the notice would have to specifically state the ground mentioned in Section 271 (1)(c) of the Act namely as to whether the penalty was for concealment of income or furnishing of incorrect particulars of the income. Further, issuing printed form would not satisfy the requirement of law since the assessee should know the ground which he has to meet specifically otherwise the principles of natural justice would be violated and consequently, no penalty could be imposed on the assessee if there is no specific ground mentioned in the notice. The Bench finds that similar is the case here since appropriate limb has not been specified in the subject notice and therefore, the principles of natural justice could be said to be have been violated. More or less, similar proposition has been laid in other binding judicial precedents as tabulated by us. In other words, failure to frame specific charge against the assessee during penalty proceedings would be fatal to penalty proceedings itself and the same could not be sustained in the eyes of law. The revenue is unable to demonstrate that specific charge was ever framed and confronted to the assessee during penalty proceedings. Therefore, respectfully following the binding judicial precedents favoring the assessee, on the issue, we find substantial force in legal grounds raised by Ld. AR, in this regard. In 17 DHANRAJ SETHIA VS ACIT, CIRCLE-1, JAIPUR view of the above aforesaid discussion, the Bench holds that impugned penalty was unsustainable in the eyes of law and therefore, the Bench directs for deletion of the same. Since the penalty has been deleted on legal grounds, the other arguments of the assessee including arguments on merits assailing impugned penalty are not being dealt with as the same have been rendered in academic in nature. In view of the above deliberations, the Bench does not concur with the findings of the ld. CIT(A) and the appeal of the assessee is allowed.

3.0 In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 28 /06/2023.

Sd/- ¼lanhi xkslkbZ½ (Sandeep Gosain) U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 28 /06/2023 *Mishra आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Shri Dhanraj Sethia, Jaipur 2. izR;FkhZ@ The Respondent- The ACIT, Circle-1, Jaipur 3. vk;dj vk;qDr@ The ld CIT 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 169/JP/2023) vkns'kkuqlkj@ By order,