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TMI Blog2018 (12) TMI 1625X X X X Extracts X X X X X X X X Extracts X X X X ..... ions entered into by the appellant. The reasons given by him in this regard are incorrect, unjustified and unwarranted. 2. Without prejudice to the Ground NO.1 above, the learned CIT(Appeals) was not justified in mixing up the leasing transactions entered into with Duckfin International Ltd., and those with Lloyd Steel Industries Ltd. He has failed to appreciate the clear differences and distinction between the leasing transactions entered into by the appellant with these 2 parties." 4. Assessee also raised additional grounds of appeal on technical issue contending that the proceedings initiated u/s. 271(1)(c) of the Act are illegal and bad in law, the additional grounds are as under: - "The levy of penalty u/s. 271(1)(c) of the Act is illegal and invalid. The show-cause notice did not strike off the irrelevant portion and even the Assessment Order did not specify the limb of section 271(1)(c) for which the penalty was initiated. Thus, there is non-application of mind rendering the penalty illegal and invalid." 5. The Learned Counsel for the assessee submitted that, the additional ground filed is purely a legal issue and does not require any fresh investigations into facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Transformation Services Ltd. v. DCIT (vi) ITA.No. 7370/Mum/2014 Gupta Gemhouse Pvt Ltd. v. ITO (vii) ITA.No. 6149/Mum/2017 M/s. Jalan Capitals Pvt Ltd. v. DCIT 9. Ld. DR placing reliance on the decision of the Hon'ble Bombay High Court in the case of CIT v. Smt. Kaushalya [75 taxman 549] and M/s. Maharaj Garage & Company v. CIT submitted that assessee was aware of the charge and therefore there is no infirmity in the order passed by the Assessing Officer in initiating the penalty proceedings. 10. In reply the Ld. Counsel for the assessee submitted that the decisions of the Bombay High Court in CIT v. Smt. Kaushalya (supra) and M/s. Maharaj Garage & Company v. CIT have been considered by the Coordinate Bench in the following cases: - (i) Trans Conduct (India) v. ACIT in ITA.No. 3198/Mum/2016 dated 10.11.2017 (ii) Bermaco Industries Limited v. ACIT in ITA.No. 2825/Mum/2016 dated 10.11.2017. (iii) P.K. Joshua Mararatha Tower v. Income Tax Officer in ITA.No. 4487 to 4491/Mum/2014 dated 07.06.2017. (iv) Mrs. Indrani Sunil Pillai v. ACIT in ITA.No. 1339/MUM/2016 dated 19.01.2018. (v) M/s. Tata Communication Transformation Services Ltd. v. DCIT in ITA.No. 3108/Mum/20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /M/2015 dated 29.12.17 wherein after considering the relevant facts and also relied upon various judicial precedents including the decision of Hon'ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton & Ginning Factory (supra) and also the decision of Hon'ble Bombay High Court in the case of Shri Samson Perinchery vs. ACIT (supra), has held that penalty proceedings initiated under section 271(1)(c) is void ab initio and liable to be quashed, if the AO issued vague notice under section 274 r.w.s 271(1)(c) without striking off irrelevant portion of notice and also if the AO has not made a specific charge whether penalty proceeding is initiated for concealment of particulars of income or furnishing of inaccurate particulars of income. The relevant portion of order is extracted below: "10. We have heard the rival submissions, perused the material available on record and also gone through the orders of authorities below. The AO has levied penalty u/s 271(1)(c) in respect of disallowance of reimbursement of selling and distribution expenses on the ground that the assessee has concealed particulars of income and also furnished inaccurate particulars of income. The AO has in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the existence of the grounds mentioned in section 271(1)(c) when it is a sine qua non initiation of proceedings, the penalty proceedings should be confined only to those grounds and the said ground should be specifically stated so that the assessee would have the opportunity to meet those grounds. Initiation of penalty on one ground and levying penalty on another ground would cause injustice to the assessee as the assessee was kept in blank to justify his case whether the AO sought to initiated penalty for concealment of particulars of income or furnishing of inaccurate particulars of income. If the proceedings are initiated on a specific charge, then, the assessee can justify its case by advancing arguments on the charge framed by the AO. Thus, once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. If penalty proceedings are initiated on one ground and levied penalty on different ground or penalty proceedings are initiated on two grounds, i.e. concealment of particulars of income and also furnishing of inaccurate particulars of income would definitely vitiate the entire penalty proceedings. 12. In this case, on perusal of the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of inaccurate particulars of income. If the AO fails to initiate penalty proceedings by issuance of proper notice, then the whole penalty proceedings becomes vitiated and void ab initio. 13. Coming to the case laws relied upon by the assessee. The assessee has relied upon the decision of Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory vs CIT (supra), wherein the Hon'ble High Court has categorically observed that sending printed form of notice where all the grounds mentioned in section 271(1)(c) are mentioned would not satisfy requirement of law. Notice issued u/s 274 of the Act should specifically state the ground mentioned in section 271(1)(c), i.e. whether it is for concealment of income or for furnishing of inaccurate particulars of income. The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. Initiating the penalty proceedings on one limb and holding the assessee guilty of another limb is bad in law. The relevant portion of the order is extracted below:- " The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of inaccurate particulars of income in Section 271(1)(c) of the Act, carry different meanings/ connotations. Therefore, the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under 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, follow that the order imposing penalty has to be made only on the ground on which the penalty proceedings has been initiated and it cannot be on a fresh ground of which assessee has no notice." 15. The assessee has also relied upon the decision of Hon'ble Supreme Court in the case of CIT vs SSA's Emerald Meadows (supra) wherein the Hon'ble Supreme Court dismissed SLP filed by the revenue by following the decision of the Karnataka High Court in the case of CIT vs Manjunatha Cotton & Ginning Factory (supra) by observing that notice issued u/s 274 r.w.s. 271(1)(c) was bad in law as it did not specify under which limb of section 271(1)(c), penalty proceedings had been initiated. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 271(1)(c) without striking off the irrelevant portion of notice is a clear case of non application of mind by the AO, whether penalty has been initiated for concealment of particulars of income or furnishing of inaccurate particulars of income. We further noticed that the AO has issued printed form of notice without striking off irrelevant portion and also in the penalty order he does not specify under which charge penalty has been initiated. Therefore, we are of the considered view that the penalty proceeding initiated by the AO is bad in law and liable to be quashed. Hence, we quash the penalty proceedings and delete penalty levied by the AO under section 271(1)(c) of the Act." 13. The Coordinate Bench in the case of Suresh Seth v. ITO in ITA.Nos. 6914 & 6915/MUM/2012 dated 20.12.2017 held as under: - "8. We have heard the rival submissions, perused the orders of the authorities below. In this case as could be seen from the assessment orders as well as the penalty orders that the Assessing Officer has not specified the charge on which he has imposed the penalty u/s. 271(1)(c) of the Act. The Assessment Order as well as the penalty order only show that the Income Tax Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his point, we may also make a reference to the judgment of the Hon'ble Patna High Court relied by the ld. CIT-DR before us. The issue before the Hon'ble Patna High Court was relating to levy of penalty for shortfall in the payment of advance tax paid as compared with the tax finally assessed as payable, but in the notice issued u/s 274 r.w.s. 273(b) of the Act it was incorrectly mentioned that assessee had failed to file its estimate of advance tax. The Hon'ble Patna High Court held that mention of such incorrect charge would not render the penalty proceedings void-ab-initio. The aforesaid parity of reasoning has been relied upon by the ld. CIT-DR before us to state that non-striking off of the irrelevant portion of the notice u/s 274 r.w.s. 271(1)(c) of the Act does not render the proceedings invalid. In our view, the said decision does not help the case of the Revenue qua the issue before us. Firstly, the Hon'ble Patna High Court itself noted that it was a case of mere "wrong labelling of the section or some mistake in the charge framed against the assessee" which does not prejudice the assessee. Secondly, non-striking off of the irrelevant clause in the notice u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond appeal before the Income-tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam, in ITA No.599/Vizag/2014, the assessee, for the first time, raised the issue that the show-cause notice under Section 271(1)(c) did not specify as to whether it was prompted by concealment of particulars of income or furnishing of inaccurate particulars of income. Dealing with this contention, the Tribunal placed reliance on the judgment of the Karnataka High Court in THE COMMISSIONER OF INCOME TAX AND THE INCOME TAX OFFICER V/s. M/s.MANJUNATHA COTTON AND GINNING FACTORY and opined that unless the show-cause notice is clear as to whether the penalty proposed to be imposed is for concealment of particulars of income or for furnishing inaccurate particulars of income, no penalty could be imposed, as such a notice would be defective. The Tribunal took note of the fact that in the penalty order; the Assessing Officer had not given a conclusive finding as to whether the penalty imposed was for concealment of particulars of income or for furnishing inaccurate particulars of income and accordingly held imposition of the penalty to be invalid. Smt. M.Kiranmayee, learned counsel representing Sri J.V. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ality is for concealment of income or furnishing of inaccurate particulars of such income. It was held that for starting the penalty proceedings, the condition precedent is that the Assessing Officer must be satisfied that a person has either concealed particulars of his income or furnished inaccurate particulars of such income. The person who is accused of the conditions mentioned in Section 271 should be made aware of the grounds on which imposition of penalty is proposed as he has a right to contest such proceedings and should have a full opportunity to meet the case of the revenue so as to show that the conditions stipulated in Section 271(1)(c) do not exist and that he is not liable to pay the penalty. It was further held that the practice of the revenue in sending a printed form where all the grounds mentioned in Section 271 are mentioned would not satisfy the requirement of law when the consequence of the assessee not rebutting the initial presumption is serious in nature and he has to pay a penalty ranging from 100% to 300% of the tax liability. As the provisions of Section 271(1)(c) have to be strictly construed, the Bench mandated that the notice issued should set out the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of commission. The consequences of such acts, being penal in nature, an assessee has to be informed as to what exactly is the charge against him so that he may respond thereto. No doubt, in the present case, the assessee seems to have submitted her explanation on merits without raising a doubt as to what was the precise allegation leveled against her. However, we are more concerned with the principle involved and not just the isolated case of its application against the assessee. Further, the penalty order demonstrates that the Assessing Officer was not even certain as to what was the finding on the strength of which he imposed the penalty. This is clear from the fact that the Assessing Officer recorded that he was satisfied that the assessee had concealed/furnished inaccurate particulars of income. In the absence of a clear finding by the Assessing Officer himself, the benefit of doubt cannot be given to the revenue merely because the assessee did not complain of vagueness in the show-cause notice earlier. Reliance placed by the revenue upon MAK DATA PRIVATE LIMITED V/s. COMMISSIONER OF INCOME TAX-II, is of no assistance as the Supreme Court merely observed therein that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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