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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM
O R D E R
PER DR. A. L. SAINI, ACCOUNTANT MEMBER:
Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2013-14, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-3, Surat [in short “the ld. CIT(A)”] in Appeal No. CIT(A) Surat-3/10420/2016-17 dated 22.10.2019, which in turn arise out of a penalty order passed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 [hereinafter referred to as the “Act”].
Grounds of appeal raised by the assessee are as follows: “(1) On the facts and circumstances of the case, the learned CIT(A) was not justified in confirming penalty u/s. 271(1)(c). (2) The assessee craves leave to add, alter or vary any of the grounds of appeal.”
3. Succinct facts are that during the course of the assessment proceedings, assessing officer, observed that assessee has taken unsecured loans from one Assessment Year. 2013-14 Saritaben Rahul Kakadia person namely, Shri Mahesh Goradia. The assessing officer issued notices u/s 133(6) to the Lenders. In case of Mahesh B. Goradia, the notice u/s 133(6) was return unserved as the lender was not found traceable. The inspector was deputed who reported that the lender, Shri Mahesh Goradia, does not reside at the above address and some other person by the name of Popat Badhani was residing at the given address. The assessing officer also found that the lender, Shri Mahesh Goradia was not filing the return of income also. Therefore, assessing officer made the addition of Rs.18,95,000/- u/s 68 of the Act. During the penalty proceedings the notices was issued to the assessee and after considering the reply of the assessee, the assessing officer levied the penalty u/s 271(1)(c) of the Act to the tune of Rs.4,81,890/-.
4. On appeal, ld CIT(A) confirmed the action of the assessing officer. Aggrieved, the assessee is in further appeal before us.
5. Shri Hiren Vepari, Learned Counsel for the assessee, pleads that penalty proceedings was erroneous as the assessing officer has not mentioned as to whether the penalty proceedings are initiating for furnishing the inaccurate particulars and concealment of income. Thus, ld Counsel by relying on the decision of the Karnataka high Court in the case of Manjunath Cotton & Ginning Factory 359 ITR 565 (Karnataka HC), submitted before the Bench that penalty so imposed was bad in law. The ld Counsel further argues that Section 68 is deeming provision and if the explanation provided by the assessee is not proper then it does not mean that there is a concealment of income. The Learned Counsel also submits that during the penalty proceedings, the Assessing Officer issued notice under section 271(1)(C) of the Act, which is defective and there is no fixed charge on the assessee, as per notice under section 271(1)(C) of the Act, therefore, the penalty may be deleted only on this technical issue.
On merits, it was submitted by ld Counsel that Mahens B. Goradia, the lender has not provided loan to the assessee and was proprietor of concern, namely Sidhhi Vinayaka Textile Trading. It was submitted that she had received the sum of Rs.18,95,000/- against sales made from Sidhhi Vinayaka Textile Trading Assessment Year. 2013-14 Saritaben Rahul Kakadia through the banking transactions which the assessee had shown as unsecured loans instead of adjusting the receivable of Rs.30,00,560/-. The assessee submitted that transaction against sales was reflected in the ledger account which shows that it was payments received against the sales made to Shree Siddhi Vinayak Textile Trading. The assessee submitted an affidavit in support of her contention.
On the other hand, the Learned Departmental Representative (ld. DR) for the Revenue submits that assessee was intimated during the assessment proceedings and the notice of penalty was served on the assessee along with the assessment order. Therefore, assessee was aware about the penalty. Besides, the Assessing Officer has recorded the satisfaction and then initiated the penalty under section 271(1)(C) of the Act, thus, mere defect in the notice under section 271(1)(C) of the Act, does not vitiate the penalty proceedings.
On merits, Ld. DR submits that assessee has not been able to explain the three ingredients of Section 68 of the Act, namely identity, creditworthiness, and genuineness of the transactions, therefore penalty imposed by the Assessing Officer should be upheld.
We have heard both the parties and perused the material available on record. The ground raised by the assessee pertains to levying of penalty to the tune of Rs.4,81,890/-, under section 271(1)( c) of the Act. We note that notice issued by the Assessing Officer under section 274 r.w.s. 271(1) (c ) of the Act, does not specify whether penalty was imposed for concealment of income or for furnishing inaccurate particulars of income. The relevant portion of the notice is reproduced:
Assessment Year. 2013-14 Saritaben Rahul Kakadia
From the above penalty notice, it is vivid that assessing officer has initiated penalty proceedings u/s 271(1)(c) of the Act, for furnishing inaccurate particulars of income and concealment of income, by issuing notice u/s 271(1)(c) of the Act dated 15/2/2016.
Assessment Year. 2013-14 Saritaben Rahul Kakadia 11. Further, in assessment order, vide para 10, the assessing officer dealt with initiation of penalty proceedings, as follows: "Penalty proceedings u/s.271(1)(c) initiated for furnishing inaccurate particulars of income and thereby concealment of income."
From the above, it is abundantly clear that there is no fix and definite charge on the assessee. While passing the order of penalty it is incumbent upon the Assessing Officer to state whether penalty was being levied for concealment of particulars of income by the assessee or whether any inaccurate particulars of income had been furnished by the assessee. That is, no clear-cut finding had been reached by the assessing officer as to whether penalty under section 271(1)(c) of the Act was being levied for concealment of particulars of income by assessee or whether any inaccurate particulars of income had been furnished. Therefore, the order of penalty should not be sustained in the eye of law. For that reliance can be placed on the judgment of the Hon`ble Jurisdictional High Court of Gujarat in the case of New Sorathia Engg. Co.[2006] 155 TAXMAN 513 (GUJ.), wherein the Hon`ble Court held as follows: “10. In the facts of the present case the subtle difference between the two stages would not matter. It is nobody’s case and it is not possible to contend, that the Tribunal was not bound by a decision of the jurisdictional High Court, especially when its attention was invited to the said decision. Therefore, whether the Tribunal has recorded any finding or not becomes immaterial. In the facts as are available on the record it is apparent that the ratio of a decision of this court in the case of CIT v. Manu Engg. Works [1980] 122 ITR 306 , applies on all fours.
In the case of CIT v. Manu Engg. Works [1980] 122 ITR 306, this is what is laid down by this court:
"...We find from the order of the Inspecting Assistant Commissioner, in the penalty proceedings, that is, the final conclusion as expressed in para 4 of the order : ‘I am of the opinion that it will have to be said that the assessee had concealed its income and/or that it had furnished inaccurate particulars of such income’. Now, the language of ‘and/or’ may be proper in issuing a notice as to penalty order or framing of charge in a criminal case or a quasi-criminal case, but it was incumbent upon the Inspecting Assistant Commissioner to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee. No such clear-cut finding was reached by the Inspecting Assistant Commissioner and, on that ground alone, the order of penalty passed by the Inspecting Assistant Commissioner was liable to be struck down." (p. 310)
Assessment Year. 2013-14 Saritaben Rahul Kakadia 12. The penalty order and the order of the Commissioner (Appeals) show that no clear-cut finding has been reached. The Tribunal has failed to appreciate this legal issue. Applying the ratio to the facts of the case it is apparent that the order of penalty cannot be sustained and the Tribunal could not have sustained the same. The Tribunal having failed to take into consideration and deal with the decision of the jurisdictional High Court it would constitute an error in law which goes to the very basis of the controversy involved and hence, the impugned order of the Tribunal cannot be upheld.
13. In the view that the court has taken it is not necessary to reproduce and deal with the other contentions raised by learned counsel on the facts and merits of the matter in the fact situation.
In the result, the question is answered in the negative, i.e., in favour of the assessee and against the Revenue. The Tribunal was not right in upholding the penalty under section 271(1)(c) of the Act, for the reasons stated hereinbefore.”
We find that the penalty notices under section 274 read with section 271(1)(c) were issued in the typed format without the striking off either of the two charges i.e. “have concealed the particulars of your income ……..or furnished inaccurate particulars of income”. Thus, the penalty proceedings were initiated without specifying any particular or specific charge against the assessee in either the assessment order or even the penalty notice. It is important to point out that no charge either of “concealment of income” or “furnishing of inaccurate particulars” was made in the assessment order in assessee`s case. Thus, we find that the charge against which the penalty is to be levied was not specific. It is now a settled proposition that when the charge itself is not a specific and is vague, penalty cannot be levied. We further find that the notice issued u/s 271(1)(c) of the Act by the assessing officer is untenable as it suffers from the vice of non-application of mind. In the notice under section 271(1)(c) of the Act both the limbs of section 271(1)(c) were reproduced in the proforma notice and the relevant clauses were not struck off. Therefore, no specific charge was levied in the penalty show cause notice. Hence, respectfully following the binding precedent of Hon`ble Jurisdictional High Court of Gujarat in the case of New Sorathia Engg. Co. (supra), the penalty initiated against the assessee under section 271(1) (c ) of the Act, is hereby quashed.
Assessment Year. 2013-14 Saritaben Rahul Kakadia 14. Before parting, we would like to state that since we have deleted the penalty imposed by the assessing officer under section 271(1) (c ) of the Act, based on the technical issue ( notice being defective/charge is not certain), therefore we do not deal with the other contentions, raised by learned Counsel, on merits.
In the result, appeal of the assessee is allowed.
Order is pronounced in the open court on 10/05/2022 by placing the result on the Notice Board as per Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963.