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TMI Blog2017 (4) TMI 468X X X X Extracts X X X X X X X X Extracts X X X X ..... the year, the same are separately shown as speculation (jobbing). However, where even one share of a scrip is delivered, then all transactions in that scrip in the year are reported under trading in the Profit & Loss account. This explanation/ position put forth by the assessee was not accepted by the AO; who held that the loss incurred by assessee from non-delivery based transactions constituted speculation loss under section 43(5) of the Act and could not be set off against normal business income from trading of shares. The assessment was accordingly completed under section 143(3) of the Act vide order dated 27.12.2010 wherein the income of the assessee was determined at Rs. 52,29,550/-. Penalty proceedings under section 271(1)(c) of the Act was simultaneously initiated by issue of notice under section 274 r.w.s. 271 of the Act of even date for furnishing of inaccurate particulars of income. On appeal, the learned CIT(A) vide order dated 19.04.2012 dismissed the assessee's appeal and upheld the AO's addition holding that whatever loss arose on account of non-delivery of shares has to be classified as speculative loss and such loss is to be allowed set off only against speculatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the circumstances of the case, the learned assessing officer erred in levying penalty without issuing correct and proper notice uls.274 and without recording any reasons for levy of penalty the penalty order being bad in law it be cancelled. 4. On the facts and in the circumstances of the case, the learned CIT(A) erred in issuing notice of enhancement which is contrary to the facts and hence the same should be cancelled. 5. The appellant prays that, the penalty levied uls.271(1)(c) be cancelled. Without prejudice the penalty levying be excessive it be reduced. 6. The appellant craves leave to add amend or alter any or all of the ground of appeal." 4. Ground No. 3 - Validity of penalty proceedings initiated by issue of defective notice under section 274 r.w.s. 271 dated 27.12.2010 and consequent penalty order dated 26.03.2014 4.1 At the outset, the Bench heard both parties on ground No. 3 in which the assessee contends that the learned AO erred in levying penalty under section 271(1)(c) of the Act by initiating penalty proceedings by issuing a defective notice under section 274 r.w.s. 271 of the Act dated 27.12.2010; which rendered both the said notice and the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 271(1)(c) of the Act is exigible in the facts and circumstances of the case as laid out above. In our considered view, penalty proceedings for levy of penalty under section 271(1)(c) of the Act can be initiated only if the AO is satisfied that any person has 'concealed particulars of income' or has 'furnished inaccurate particulars of income'; only then can he hold that such person shall pay by way of penalty the sum mentioned in section 271(1)(c)(iii) of the Act. 4.3.2 We find that the Coordinate Bench of this Tribunal in the case of Dr. Sarita Milind Davere in ITA No. 2187/Mum/2014 dated 21.12.2016 has in similar circumstances, where the notice issued under section 274 r.w.s. 271 of the Act did not mention or specify the charge for which the penalty notice was issued, i.e. whether the initiation of penalty proceedings was for concealment of income or for furnishing of inaccurate particulars of income, considered the issue and after taking into account the ratio of the decisions of the Hon'ble Apex Court in the cases of Dilip N. Shroff (2007) 291 ITR 519 (SC), Dharmendra Textile Processers & Others (2008) 306 ITR 277 and DCIT vs. Reliance Petroproducts Pvt. Ltd. (2010) 322 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribes two types of charge viz., (a) concealment of particulars of income and (b) furnishing of inaccurate particulars of income. However, in the above said notice the AO did not specify the type of charge for which the penalty proceedings have been initiated. 10. In this regard, it is pertinent to refer to the following observations made by Hon'ble Supreme Court in the case of Dilip N Shroff (291 ITR 519)(SC). "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 had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing 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. v. Commissioner of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies and came to the conclusion that there should be application of mind on the part of assessing officer. For the sake of convenience, we extract below the relevant observations made by Hon'ble Bombay High Court. "11. The case of CIT v. Lakhdhir Lalji [1972] 85 ITR 77 (Guj) is the other decision upon which the Tribunal has placed reliance. In that case a notice under section 274 was issued on the footing of concealment of income by suppression of sales whereas the penalty was levied on the footing that there was furnishing of inaccurate particulars of income since the stock at the closing of the year was undervalued. The penalty was quashed upon a view that the very basis for the penalty proceedings had disappeared when it was held that there was no suppression of income by the assessee. Thus, it would be seen that the ratio of that decision cannot be applied to this case. 12. The last decision relied upon is the case of N. N. Subramania Iyer v. Union of India [1974] 97 ITR 228 (Ker). The following passage from the said decision would demonstrate how entirely different the background of that case was and, therefore, the ratio of that decision also could not be applied (at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te particulars of income. The Hon'ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon'ble Kerala High Court has struck down the penalty imposed in the case of N.N.Subramania Iyer Vs. Union of India (supra), when there is no indication in the notice for what contravention the petitioner was called upon to show cause why a penalty should not be imposed. In the instant case, the AO did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. The Hon'ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya (supra) and observed as under:- "....The notice clearly demonstrated non-applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its order in Dr. Sarita Milind Devare (supra) has been brought to our notice or was cited or referred to. Therefore, taking into consideration the facts and circumstances of the case on hand and applying the ratio and deriving support from the decisions of the Hon'ble Apex Court and Hon'ble High Courts relied upon by the Coordinate Bench and its order (supra), we hold that the notice dated 27.12.2010 issued under section 274 r.w.s. 271 of the Act dated 27.12.2010 for initiating penalty proceedings under section 271(1)(c) of the Act for A.Y. 2008-09 is defective and issued without application of mind and is therefore invalid and bad in law. Consequently, the order dated 26.03.2014 levying penalty under section 271(1)(c) of the Act for A.Y. 2008- 09 is also invalid, bad in law and liable to be cancelled. In this view of the matter, the impugned order of the learned CIT(A) is reversed and the assessee's appeal is allowed in terms of ground 3 raised in appeal 5. Since the penalty levied under section 271(1)(c) of the Act for A.Y. 2008-09 has been held to be invalid and cancelled and the assessee's grievance has been addressed by allowing ground No. 3 raised in this regard, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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