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TMI Blog2018 (1) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... s for levying penalty by stating that the assessee has concealed particulars of income and also furnished inaccurate particulars of income. We are of the considered view that penalty proceedings initiated u/s 271(1)(c) is void ab initio and liable to be quashed as the AO has issued vague notice u/s 274 r.w.s. 271(1)(c) without striking off of irrelevant portion of notice which is a clear case of non application of mind by the AO before initiation of penalty proceedings. We further notice that from the assessment stage to levy of penalty, the AO has initiated penalty on both charges, i.e. concealment of particulars of income and also furnishing of inaccurate particulars of income which is not so in the case of penalty u/s 271(1)(c) of the Act. Therefore, we are of the considered view that the penalty proceedings initiated by the AO is bad in law and hence, we quash the penalty proceedings and delete the penalty levied u/s 271(1)(c) of the Act. - Decided in favour of assessee - I.T.A No.1970/Mum/2015 - - - Dated:- 29-12-2017 - Shri Mahavir Singh (JUDICIAL MEMBER) And Shri G Manjunatha (ACCOUNTANT MEMBER) For The Appellant : Shri Rajiv Khandelwal For The Respondent : S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be furnished for claiming deduction. 5. On the facts and in the circumstances of the case and in law the learned CIT (A) erred in not agreeing with your appellant's submission that order of penalty is barred by limitation and same is passed after the end of time by which it ought to have been passed and hence deserves to be cancelled. 2. The assessee filed a petition for admission of additional ground o 14-11- 2017 challenging the validity of penalty proceedings on the ground that penalty order passed by the AO u/s 271(1)(c) of the Act is bad in law and void ab initio as the notice issued u/s 274 r.w.s. 271(1)(c) is not in accordance with law. The Ld.AR for the assessee submitted that from the notice it is not discernible as to why penalty is initiated, whether it is for furnishing inaccurate particulars of income or for concealment of income as the AO has issued printed form of notice without striking off irrelevant portion in the notice. The Ld.AR further submitted that right from the assessment proceedings to penalty proceedings, the AO has initiated penalty for concealment of particulars of income and furnishing of inaccurate particulars of income which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lars of income in respect of disallowance of selling and distribution expenses as rejection of claim is neither concealment nor furnishing of inaccurate particulars of income. The assessee further submitted that the AO has taken only a different view in the absence of supporting evidences like vouchers and bills. Therefore, disallowance of expenditure claimed cannot be considered as concealment of particulars of income so as to levy penalty u/s 271(1)(c) of the Act. The AO, after considering the relevant submissions of the assessee and also relying upon the decision of Hon ble Bombay High Court in the case of Sanghvi Swiss Refills Pvt Ltd vs ACIT 255 CTR 251 (Bom) observed that the assessee has furnished inaccurate particulars of income in respect of reimbursement of selling and distribution expenses, which warrants levy of penalty u/s 271(1)(c) of the Act. Accordingly, the AO levied penalty of ₹ 1.70 crore u/s 271(1)(c) for concealment of particulars of income and also furnishing of inaccurate particulars of income. 7. Aggrieved by the penalty order, assessee preferred an appeal before CIT(A). Before the CIT(A), the assessee has reiterated its submissions made before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he penalty order, he has levied the penalty for both the charges. Thus, he submitted that such a levy of penalty is not tenable in view of the law laid down in catena of decisions including that of Hon ble Karnataka High Court in CIT vs Manjunatha Cotton Ginning Factory 359 ITR 565 (Karn). The Ld.AR further submitted that the AO has to arrive at a satisfaction as to whether the penalty proceedings are initiated for concealment of particulars of income or furnishing of inaccurate particulars of income which should be specified in the notice as issuance of notice u/s 274 r.w.s 271(1)(c) goes to the root of the matter. Once the AO has not arrived at a correct satisfaction, then the whole proceedings are void ab initio and liable to be quashed. In this regard, he relied upon plethora of judgements including the decision of Hon ble Supreme Court in the case of T Ashok Pai vs CIT (2007) 292 ITR 11 (SC). The Ld.AR further relied upon the following case laws:- 1. Maherji Kashinath Holdings Pvt Ltd - ITA No.2555/Mum/2012 2. Rekha Bhupendra Dalal - ITA No.3363/Mum/2016 3. Dr Sarita Milind Davare - ITA 2187 and 1789Mum/2014 4. Universal Music India Pvt Ltd ITA No.675 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment stages to levy of penalty, the AO has initiated penalty on both charges which is not the case as per the provisions of section 271(1)(c) as the two charges, i.e. concealment of particulars of income or furnishing of inaccurate particulars of income are two different connotations. The issue of notice u/s 274 r.w.s. 271(1)(c) goes to the root of the matter of assuming jurisdiction to levy penalty u/s 271(1)(c), therefore, before issuance of notice, the AO has to arrive at a satisfaction as to whether penalty proceedings are initiated for concealment of particulars of income or furnishing of inaccurate particulars of income. The AO cannot take both the charges for levying penalty by stating that the assessee has concealed particulars of income and also furnished inaccurate particulars of income. 11. The provisions of section 271(1)(c) are very clear and there is no ambiguity. On a plain reading of section 271(1)(c), it is very clear that clause (c) deals with two specific offences, that is to say, concealment of particulars of income or furnishing of inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases, there may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f penalty by injecting and in place of or would definitely go against the basic provisions of the Act. In this case, the AO has initiated penalty on both the grounds, which cannot be the case for initiation of penalty u/s 271(1)(c) of the Act. We further observe that it is not open to the authority, at the time of imposing penalty to impose penalty on the ground other than what assessee was called upon to meet otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would violate principles of natural justice and cannot be sustained. The validity of order of penalty must be determined with reference to the information, facts and materials in the possession of the authority imposing penalty at the time, the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty. The AO is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income. As already stated, facts of some cases may attract both the offences. In case, the AO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 paticulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind. 14. The assessee has relied upon decision of Hon ble Bombay High Court in the case of CIT vs Samson Perinchery in Income Tax Appeal No.1154 of 2014 Ors order dated 5th January, 2017. The Hon ble Bombay High Court after considering the ratio laid down by the Hon ble Karnataka High Court in the case of Manjunatha Cotton Ginning Factory (supra) observed that the satisfaction of the AO with regard to only one of the two breaches mentioned in section 271(1)(c) of the Act for initiation of penalty proceedings will not warrant / permit penalty being imposed for the other breach. This is more so, as an Assessee would respond to the ground on which the penalty has been initiated / notice issued. It must, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Hon ble Bombay High Court, we are of the view that case law relied upon by the Ld.DR is not applicable to the facts of the present case. 17. In this view of the matter and considering the ratios of the case laws discussed above, we are of the considered view that penalty proceedings initiated u/s 271(1)(c) is void ab initio and liable to be quashed as the AO has issued vague notice u/s 274 r.w.s. 271(1)(c) without striking off of irrelevant portion of notice which is a clear case of non application of mind by the AO before initiation of penalty proceedings. We further notice that from the assessment stage to levy of penalty, the AO has initiated penalty on both charges, i.e. concealment of particulars of income and also furnishing of inaccurate particulars of income which is not so in the case of penalty u/s 271(1)(c) of the Act. Therefore, we are of the considered view that the penalty proceedings initiated by the AO is bad in law and hence, we quash the penalty proceedings and delete the penalty levied u/s 271(1)(c) of the Act. 18. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 29th December, 2017. - - TaxTMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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