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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: SHRI. RAVISH SOOD & DR. M. L. MEENA
O R D E R PER RAVISH SOOD, JM The present appeal filed by the assessee is directed against the order passed by the Commissioner of Income-Tax(Appeals)-1, Jalandhar dated 13.03.2017, which in turn arises from the order passed by the AO u/s 271(1)(c) of the Income-Tax Act, 1961 (for short “Act”), dated
M/s Chaudhary Enterprises vs. The ITO, Nawanshahar 2 ITA No. 460./Asr/2017 – A.Y 2001-02 28.12.2012 for Assessment Year 2001-02. The assessee has assailed the impugned order on the following grounds before us:
That the Ld. CIT(A) has grossly misdirected herself in facts and on law, to hold that the order under appeal was not barred by time, in terms of proviso to section 275(1)(a) of the Income-tax Act, 1961.
That when the ld. A.O had not specified the charge and vaguely initiated penalty for concealment of income or for furnishing inaccurate particulars of income, the ld. CIT(A) ought to have knocked down the levy of penalty on this very ground.
3. The Ld. CIT(A) was not justified in sustaining the levy of penalty on wholly erroneous and insufficient grounds, without appreciating the assessee’s detailed explanation and arguments advanced on each of the additions subjected to penalty, in correct perspective.
That the impugned order is against law and facts of the case and hence not sustainable.” 2. Shorn of unnecessary details, the assessee firm had filed its return of income for A.Y 2001-02 on 31.10.2001, declaring an income of Rs. 1,62,910/-. Original assessment was framed by the A.O vide his order passed u/s 143(3) of the Act, dated 19.02.2004 and the income of the assessee firm was determined at Rs. 18,26,350/-. The A.O while culminating the assessment initiated penalty proceedings u/s 271(1)(c) of the Act. Also, a ‘Show Cause’ notice (“SCN”) u/s. 274 r.w.s 271 of the Act, dated 19.02.2004 was issued to the assessee.
After culmination of the assessment proceedings, the A.O imposed penalty u/s 271(1)(c) of Rs. 6,00,284/- for furnishing of inaccurate
M/s Chaudhary Enterprises vs. The ITO, Nawanshahar 3 ITA No. 460./Asr/2017 – A.Y 2001-02 particulars of income by the assessee firm qua the additions/disallowance that were made while framing the assessment in its case.
4. Aggrieved, the assessee assailed the penalty imposed u/s 271(1)(c) in appeal before the CIT(A). However, the CIT(A) not finding favour with the contentions advanced by the assessee dismissed the appeal.
The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The Ld. Authorized Representative (for short ‘A.R’) for the assessee, at the very outset assailed the validity of the jurisdiction that was assumed by the A.O for imposing penalty u/s 271(1)(c) of the Act. Elaborating on his aforesaid contention, it was submitted by the ld. A.R that that the A.O had failed to put the assessee to notice as regards the impugned default for which penalty u/s 271(1)(c) was sought to be imposed on it. Our attention was drawn by the ld. A.R to the assessment order, wherein the A.O had initiated the penalty proceedings u/s 271(1)(c) for concealment or furnishing of inaccurate particulars of income by the assessee. It was, thus, averred by the Ld. AR that no mention of the specific default for which penalty proceedings were initiated by the Assessing Officer was discernible from the body of the assessment order. In order to buttress his claim that the assessee was not M/s Chaudhary Enterprises vs. The ITO, Nawanshahar 4 ITA No. 460./Asr/2017 – A.Y 2001-02 put to notice by the A.O as regards the specific default for which the impugned penalty u/s 271(1)(c) was sought to be imposed on it, the Ld. AR took us through the copy of the ‘Show Cause’ notice (for short ‘SCN’)’ issued u/s 274 r.w.s 271 of the Act, dated 19.02.2004. It was submitted by the Ld. AR, that a perusal of the aforesaid “SCN”, dated 19.02.2004 did not reveal the default for which the assessee firm was called upon to explain as to why penalty may not be imposed on it us 271(1)(c) of the Act. It was the claim of the Ld. AR, that as the Assessing Officer in the “SCN”, dated 19.02.2014 had ticked both the defaults, viz “concealment of particulars of income” or “furnishing of inaccurate particulars of such income”, thus, it was not discernible as to for what default the penalty was sought to be imposed by him under Sec. 271(1)(c) of the Act. Backed by the aforesaid facts, it was submitted by the ld. A.R, that as the A.O had failed to put the assessee to notice as regards the default for which penalty was sought to be imposed on it, therefore, he had wrongly assumed jurisdiction and saddled the assessee with penalty u/s 271(1)(c) of the Act.
Per contra, the ld. Departmental Representative (for short ‘D.R’) relied upon the orders of the lower authorities.
M/s Chaudhary Enterprises vs. The ITO, Nawanshahar 5 ITA No. 460./Asr/2017 – A.Y 2001-02
We have heard the ld. authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. A.R in support of his aforesaid contention. Admittedly, on a perusal of the ‘SCN’, dated 19.02.2004, it stands revealed that the A.O had failed to strike-off the irrelevant default while calling upon the assessee to explain as to why penalty u/s 271(1)(c) of the Act may not be imposed on it. Apart from that, we find that the A.O had while culminating the assessment initiated the penalty proceedings in the body of the assessment order by stating as under :
“Hence, the assessee has concealed or furnished inaccurate particulars of his income for which penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961 have been initiated.” In the backdrop of the aforesaid facts, we concur with the ld. A.R, that the A.O had both in the body of the assessment order, as well as vide his “SCN”, dated 19.02.2004 failed to put the assessee firm to notice as regards the specific default for which penalty u/s 271(1)(c) was sought to be imposed on it. It is the failure on the part of the A.O to validly put the assessee to notice as regards the specific default for which penalty u/s 271(1)(c) was sought to imposed that forms the very basis on which the ld.
M/s Chaudhary Enterprises vs. The ITO, Nawanshahar 6 ITA No. 460./Asr/2017 – A.Y 2001-02 A.R has assailed the validity of the penalty imposed by the A.O u/s 271(1)(c) of the Act.
We have given a thoughtful consideration to the facts of the case, and are persuaded to subscribe to the claim of the ld. A.R that the A.O had both in the body of the assessment order, as well as in the aforesaid ‘SCN’, dated 19.02.2004 failed to point out the specific default for which penalty was sought to be imposed on the assessee. In our considered view, as both of the two defaults envisaged in Sec. 271(1)(c), i.e, ‘concealment of income’ and ‘furnishing of inaccurate particulars of income’ are separate and distinct defaults which operate in their independent and exclusive fields, therefore, it was obligatory on the part of the A.O to have clearly put the assessee to notice, as regards the specific default, for which it was being called upon to explain that as to why penalty under Sec. 271(1)(c) may not be imposed on it. As observed by us hereinabove, a perusal of both the assessment order, as well as the ‘SCN’ issued under Sec. 274 r.w.
Sec. 271(1)(c), dated 19.02.2004 clearly reveals that there was no application of mind on the part of the A.O while initiating the penalty proceedings. In our considered view, the very purpose of affording a reasonable opportunity of being heard to the assessee as per the mandate
M/s Chaudhary Enterprises vs. The ITO, Nawanshahar 7 ITA No. 460./Asr/2017 – A.Y 2001-02 of Sec. 274(1) of the Act, would not only be frustrated, but would be rendered as redundant if an assessee is not conveyed in clear terms the specific default for which penalty under the said statutory provision was sought to be imposed on him. In fact, the indispensable obligation cast upon the A.O to put the assessee to notice as regards the specific charge contemplated under the aforesaid statutory provision, viz. ‘concealment of income’ or ‘furnishing of inaccurate particulars of income’ is not merely an idle formality, but a statutory obligation, which we find had not been discharged by the A.O in the present case as per the mandate of law.
We would now test the validity of the aforesaid ‘Show Cause’ notice, dated 19.02.2014, and the jurisdiction emerging there from in the backdrop of the judicial pronouncements on the issue under consideration.
Admittedly, the A.O is vested with the powers to levy penalty under Sec.
271(1)(c) of the Act, if in the course of the proceedings he is satisfied that the assessee had either ‘concealed his income’ or ‘furnished inaccurate particulars of his income’. In our considered view, as penalty proceedings are in the nature of quasi criminal proceedings, therefore, the assessee as a matter of a statutory right is supposed to know the exact charge for which he is being called upon to explain that as to why the same may not M/s Chaudhary Enterprises vs. The ITO, Nawanshahar 8 ITA No. 460./Asr/2017 – A.Y 2001-02 be imposed on him. The non-specifying of the charge in the ‘Show cause’ notice, in our considered view, not only reflects the non-application of mind by the A.O, but in fact defeats the very purpose of giving a reasonable opportunity of being heard to the assessee as envisaged under Sec. 274(1) of the Act. We find that the fine distinction between the two defaults contemplated in Sec. 271(1)(c), viz. ‘concealment of income’ and ‘furnishing of inaccurate particulars of income’ had been appreciated at length by the Hon’ble Supreme Court in its judgments passed in the case of Dilip & Shroff Vs. Jt. CIT (2007) 210 CTR (SC) 228 and T.
Ashok Pai Vs. CIT (2007) 292 ITR 11 (SC). The Hon’ble Apex Court in its aforesaid judgments, had observed, that the two expressions, viz.
‘concealment of particulars of income’ and ‘furnishing of inaccurate particulars of income’ have different connotation. The Hon’ble Apex Court, being of the view that the non-striking off the irrelevant limb in the ‘SCN’ clearly reveals a non-application of mind by the A.O, had observed as under:-
“83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he has furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while
M/s Chaudhary Enterprises vs. The ITO, Nawanshahar 9 ITA No. 460./Asr/2017 – A.Y 2001-02 placing reliance on the order of assessment laid emphasis that he had dealt with both the situations. 84. The impugned order, therefore, suffers from non-application of mind. It was also bound to comply with the principles of natural justice [See Malabar Industrial Co. Ltd. Vs. CIT (2000) 2 SCC 718]. We are of the considered view, that now when, as per the settled position of law, the two defaults, viz. ‘concealment of income’ and ‘furnishing of inaccurate particulars of income’ are separate and distinct defaults, therefore, it was incumbent on the part of the A.O to have clearly specified the default for which the assessee was sought to be proceeded against in the ‘SCN’, which we find he had failed to do in the case before us. In fact, as observed by us hereinabove, the specific default for which the impugned penalty proceedings u/s 271(1)(c) had been initiated in the case of the assessee is also not discernible from the assessment order wherein the impugned penalty proceedings had allegedly been initiated. The aforesaid failure on the part of the A.O, in our considered view, cannot be dubbed as merely a technical default, as the same had clearly divested the assessee firm of its statutory right of an opportunity of being heard and defend its case.
We find that the Hon’ble High Court of Karnataka in the case of CIT Vs. SSA’s Emerald Meadows (73 taxmann.com 241)(Kar)
M/s Chaudhary Enterprises vs. The ITO, Nawanshahar 10 ITA No. 460./Asr/2017 – A.Y 2001-02 following its earlier order in the case of CIT Vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar), had held, that where the notice issued by the A.O under Sec. 274 r.w Sec. 271(1)(c) does not specify the limb of Sec. 271(1)(c) for which the penalty proceedings were initiated, i.e., whether for ‘concealment of particulars of income’ or ‘furnishing of inaccurate particulars’, the same has to be held as bad in law.
The ‘Special Leave Petition’ (for short ‘SLP’) filed by the revenue against the aforesaid order of the Hon’ble High Court of Karnataka had thereafter been dismissed by the Hon’ble Supreme Court in CIT Vs. SSA’s Emerald Meadows (2016) 73 taxmann.com 248 (SC). Apart from that, we find that a similar view had been taken by the Hon’ble High Court of Bombay in the case of CIT Vs. Samson Perinchery (ITA No. 1154 of 2014; Dt. 05.01.2017)(Bom).
We find that as averred by the Ld. A.R, the indispensable obligation on the part of the A.O to clearly put the assessee to notice about the specific charge under the aforesaid statutory provision, viz. Sec. 271(1)(c), had been deliberated upon at length by a ‘Third member’ decision of the ITAT, Amritsar in the case of HPCL Mittal Energy Ltd. Vs. The Addl. CIT, Bathinda, 554 & 555/Asr/2014, dated 07.05.2018. Also, a similar
M/s Chaudhary Enterprises vs. The ITO, Nawanshahar 11 ITA No. 460./Asr/2017 – A.Y 2001-02 view had been taken by this tribunal in the case of Gaurav Mehra Vs. ACIT, Circle 3, Amritsar, to 268/Asr/2014, dated 27.05.2016 and Shr. Harvinder Singh vs. ITO, Ward 1(1), Jammu, ITA No. 165 to 167/asr/2015, dated 26.03.2019. In the aforementioned cases, the tribunal had concluded, that the failure to specify the charge in the ‘Show cause’ notice clearly reflects the non-application of mind by the A.O, and the same would render the order passed by him under Sec. 271(1)(c) in the backdrop of the said serious infirmity as invalid and void ab initio.
We have given a thoughtful consideration to the issue before us and, after deliberating at length on the facts therein involved, are of the considered view, that the failure on the part of the A.O to clearly put the assessee to notice as regards the default for which penalty under Sec.
271(1)(c) was sought to be imposed on it, i.e, neither by making a specific mention of the same at the time of initiating the penalty proceedings in the body of the assessment order, nor by striking off the irrelevant default in the ‘SCN’, dated 19.02.2014, had undoubtedly left the assessee guessing of the default for which it was being proceeded against. Accordingly, in the backdrop of our aforesaid observations, we are of a strong conviction that as the A.O had clearly failed to discharge his statutory obligation of fairly
M/s Chaudhary Enterprises vs. The ITO, Nawanshahar 12 ITA No. 460./Asr/2017 – A.Y 2001-02 putting the assessee to notice as regards the default for which it was being proceeded against, therefore, the penalty under Sec. 271(1)(c) of Rs. 6,00,284/- imposed by him in clear violation of the mandate of Sec. 274(1) of the Act cannot be sustained. We, thus, for the aforesaid reasons not being able to persuade ourselves to subscribe to the imposition of penalty by the A.O, therefore, set-aside the order of the CIT(A) who had upheld the same. Resultantly, the penalty of Rs. 6,00,284/- imposed by the A.O under Sec.271(1)(c) is quashed in terms of our aforesaid observations.
As the penalty imposed on the assessee firm under Sec. 271(1)(c) of the Act had been quashed by us for want of jurisdiction on the part of the A.O, therefore, we refrain from adverting to and adjudicating the other issues on the basis of which the levy of penalty u/s 271(1)(c) has been assailed before us, which, thus, are left open.
The appeal of the assessee is allowed in terms of our aforesaid observations.