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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI JAMLAPPA D BATTULL
आदेश / ORDER PER RAVISH SOOD, JM : The present appeal filed by the assessee is directed against the order passed by the CIT(Appeals), Bilaspur, dated 21.03.2016, which in turn arises from the order passed by the A.O under Sec.271(1)(c) of the Income-tax Act, 1961 (in short ‘the Act’) dated 30.03.2013 for assessment year 2010-11. Before us the assessee has assailed the impugned order on the following grounds of appeal: “1. That under the facts and the law, the learned Commissioner of Income Tax (Appeals) erred in confirming the penalty levied by the learned Assessing Officer u/s.271(1)(c) at Rs.6,92,757/-. Prayed that the provisions of section 271(1)(c) are not applicable as the appellant has neither concealed the particulars of his income nor filed inaccurate particulars of income. Prayed to delete the penalty at Rs.6,92,757/- 2. That under facts and law, the learned CIT(Appeals) erred in confirming the penalty levied by the learned AO on following additions/disallowances, rejecting the explanation filed. 1. Bank Interest- Rs.25,019/- 2. Disallowance u/s.14A- Rs.15,05,000/- 3. Travelling Expenses- Rs.3,15,150/- 4. Addition-Rs.2,00,000/- 3. The learned CIT(Appeals) further erred in confirming the penalty levied by the learned AO u/s. 271(1)(c) rejecting the explanation that the appellant did not accept the addition/disallowance made in
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assessment order and that appeal in quantum was not filed to avoid litigation. Prayed to cancel the penalty levied at Rs.6,92,757/-.”
Succinctly stated, the assessee company which is engaged in the business of manufacturing and trading of steel had filed its return of income for the assessment year 2010-11 on 10.01.2011, disclosing a total income of Rs.2,26,21,900/-. Return of income filed by the assessee company was initially processed as such u/s. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act. Original assessment was framed by the Assessing Officer u/s.143(3) of the Act, dated 30.03.2013, wherein the income of the assessee was determined at Rs.2,53,06,240/- after, inter alia, making following additions/disallowances: Sr. No. Particulars Amount 1 Disallowance u/s.14A of the Act Rs.15,05,000/- 2 Disallowance of Traveling expenses Rs. 3,15,150/- 3 Addition of shortfall of interest income Rs. 25,019/- reflected by the assessee 4 Addition of TDS claimed by the assessee Rs. 2,00,000/- as reduction from its gross total income
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The Assessing Officer while completing the assessment proceedings also initiated penalty proceedings u/s.271(1)(c) of the Act. After culmination of the assessment the Assessing Officer vide his order passed u/s.271(1)(c) of the Act, dated 30.09.2013 imposed penalty of Rs.6,92,757/- on the assessee.
Aggrieved, the assessee assailed the order of the Assessing Officer passed u/s.271(1)(c) of the Act before the CIT(Appeals). However, the CIT(Appeals) not finding favor with the contentions advanced by the assessee upheld the penalty imposed by the Assessing Officer and dismissed the appeal.
The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
At the very outset of the hearing of appeal, it was submitted by the Ld. Authorized Representative (for short ‘AR’) for the assessee that the Assessing Officer had wrongly assumed jurisdiction and saddled the assessee with the impugned penalty u/s 271(1)(c) of the Act. Elaborating on his aforesaid contention, it was submitted by the Ld. AR
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that as the Assessing Officer had failed to strike off the irrelevant default in the body of the ‘Show Cause’ Notice (SCN), dated 30.03.2013, therefore, the assessee had remained divested of an opportunity of putting forth his case that no penalty was liable to be imposed on it. In order to support his aforesaid claim the Ld. AR had drawn our attention to the ‘SCN’, dated 30.03.2013 (Page 5 of APB). Backed by the aforesaid facts, it was submitted by the Ld. AR that as the Assessing Officer had wrongly assumed jurisdiction and imposed penalty on the assessee u/s.271(1)(c) of the Act, therefore, the same could not be sustained and was liable to be struck down. In order to support his aforesaid contention the Ld. AR had relied on the following judicial pronouncements: A. CIT Vs. Manjunath Cotton & Ginning Factory (2013) 359 ITR 565 ( Karnataka) B. Sushil S. Jhunjhunwala HUF Vs. ITO, Mumbai, ITA Nos. 3001 to 3007/Mum/2015- order dated 21.03.2018 C. ITO, Mumbai Vs. Pravin Dayaldas Gandhi, ITA Nos. 1547 & 1548/Mum/2020 order dated 20.09.2021. Apart from that, the Ld. AR had placed his submissions to impress upon us that even otherwise no penalty u/s 271(1)(c) qua the
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additions/disallowances made in the hands of the assessee was called for in the hands of the assessee.
Per contra, the Ld. Departmental Representative (for short ‘DR’) had placed reliance on the orders of the lower authorities.
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 them to drive home their respective contentions. Admittedly, on a perusal of the ‘SCN’, dated 30.03.2013, it transpires that the Assessing Officer had failed to point out the default qua which the assessee was called upon to explain as to why it may not be saddled with penalty u/s 271(1)© of the Act.
After having given a thoughtful consideration to the facts of the case, we are persuaded to subscribe to the claim of the Ld. AR that the A.O had in the aforesaid ‘SCN’, dated 30.03.2013 failed to point out the default for which penalty was sought to be imposed by him on the assessee company. In our considered view, as both of the two defaults
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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 default for which it was called upon to explain as to why penalty under Sec. 271(1)(c) may not be imposed on it. As observed by us hereinabove, a perusal of the ‘Show cause’ notice issued in the present case by the A.O under Sec. 274 r.w. Sec. 271(1)(c), dated 30.03.2013 clearly reveals that there was no application of mind on the part of the A.O while issuing the same. We are of a strong conviction that the very purpose of affording a reasonable opportunity of being heard to the assessee as per the mandate of Sec. 274(1) 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 was sought to be imposed. In our considered view, the indispensable requirement on the part of the A.O to put the assessee to notice as regards the specific charge contemplated under the aforesaid statutory provision, viz.
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‘concealment of income’ or ‘furnishing of inaccurate particulars of income’ is not merely an idle formality but is a statutory obligation cast upon him, which we find had not been discharged in the present case as per the mandate of law.
We would now test the validity of the aforesaid ‘Show Cause’ notice and the jurisdiction emerging therefrom 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 be imposed on him. The failure to specify the charge in the ‘Show cause’ notice 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
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under Sec. 274(1) of the I.T Act. We find that the fine distinction between the said 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 Courtin 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 failure to clearly specify the default in the ‘Show Cause’ notice 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 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
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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, in case the A.O sought to have proceeded against the assessee for either of the said defaults, then, it was incumbent on his part to have clearly specified his said intention in the ‘Show cause’ notice, which we find he had failed to do in the case before us. The aforesaid failure on the part of the assessee cannot be dubbed as merely a technical default, because the same had clearly divested the assessee of its statutory right 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) 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
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which the penalty proceedings had been initiated, i.e, whether for ‘concealment of particulars of income’ or ‘furnishing of inaccurate particulars’, then, 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 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 of the charge under the aforesaid statutory provision, viz. Sec. 271(1)(c) had been deliberated upon by a coordinate bench of the Tribunal, i.e. ITAT “C” Bench, Mumbai in the case of M/s Orbit Enterprises Vs. ITO-15(2)(2), Mumbai (ITA No. 1596 & 1597/Mum/2014, dated 01.09.2017). The Tribunal in the aforementioned case had in the backdrop of various judicial
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pronouncements 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 would render the order passed 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 on the facts, 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 by specifying the default in the ‘SCN’, dated 30.03.2013, had left the assessee guessing of the default for which it was being proceeded against. 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 putting the assessee company to notice as regards the default for which it was being proceeded against, therefore, the penalty under Sec. 271(1)(c) of Rs.6,92,757/- imposed by him being 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
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the imposition of penalty by the A.O, therefore, set-aside the order of the CIT(A) who had upheld the same. The penalty of Rs.6,92,757/- 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 under Sec. 271(1)(c) of the Act has been quashed by us for want of jurisdiction on the part of the A.O, therefore, we refrain from adverting to and adjudicating the merits of the case.
The appeal of the assessee is allowed in terms of our aforesaid observations. Order pronounced in open court on 30th day of March 2022.
Sd/- Sd/- JAMLAPPA D BATTULL RAVISH SOOD (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) रायपुर/ RAIPUR ; �दनांक / Dated : 30th March, 2022 SB
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आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The CIT(Appeals), Bilaspur (C.G) 4. The CIT, Bilaspur (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुरब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. 6. गाड� फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकरअपील�यअ�धकरण, रायपुर / ITAT, Raipur.
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Date 1 Draft dictated on 07.03.2022 Sr.PS/PS 2 Draft placed before author 09.03.2022 Sr.PS/PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order