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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 ..... ied that the assessee was guilty of both. See THE PRINCIPAL COMMISSIONER OF INCOME-TAX-I, VISAKHAPATNAM VERSUS SMT. BAISETTY REVATHI [2017 (7) TMI 776 - ANDHRA PRADESH HIGH COURT] The penalty proceedings initiated by the Assessing Officer are bad in law and liable to be quashed. Hence we quash the penalty proceedings/order and delete the penalty levied by the Assessing Officer u/s. 271(1)(c) of the Act. - Decided in favour of assessee - ITA NO.1969/MUM/2015 And ITA NO.2059/MUM/2015 - - - Dated:- 21-12-2018 - SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR, HON'BLE ACCOUNTANT MEMBER For The Assessee : Shri Hiro Rai For The Department : Shri Rajesh Damor And Shri Chaudhary Arun Kumar Singh ORDER PER C.N. PRASAD (JM) 1. These two appeals are filed by the assessee and Revenue against the order of the Ld. Commissioner of Income tax (Appeals) 3, Mumbai [hereinafter in short Ld.CIT(A) ] dated 30.01.2015 in partly sustaining the penalty levied u/s. 271(1)(c) of the Act. 2. The Assessing Officer levied penalty at 200% which was restricted to 100% by the Ld. CIT(A), against this order Revenue and assessee are in appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for concealment of income or for inaccurate particulars. It is submitted that the charge for which the penalty was invoked is not specified. Referring to notice issued u/s. 274 r.w.s. 271 of the Act, Ld. Counsel for the assessee submitted that the irrelevant portion of the charge was not stricken off and therefore, the initiation of penalty proceedings is bad in law. It is submitted that, there is no application of mind by the Assessing Officer and the penalty was initiated without application of mind in a mechanical manner. Referring to Assessment Order, Ld. Counsel for the assessee submitted that the Assessing Officer stated in the Assessment Order that the penalty proceedings u/s. 271 are initiated and while passing the Penalty Order Assessing Officer stated that assessee had furnished inaccurate particulars and devised an elaborate documentation procedure to claim excessive depreciation and therefore, it is a fit case for levy of penalty. Ld. Counsel for the assessee submitted that the charge for levying the penalty is vague and there is complete non application of mind by the Assessing Officer. In support of his submissions Ld. Counsel for the assessee relied on the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are initiated i.e. either for concealment of income or for furnishing inaccurate particulars of income. In the case of Orbit Enterprises v. Income Tax Officer [60 ITR (Trib.) 252] the Mumbai Bench of the Tribunal considered identical situation, and considering the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. Samson Perinchery [392 ITR 4] held that, if the Assessing Officer failed to specify the charge for which the penalty proceedings are initiated the proceedings are bad in law. 12. In the case of M/s. Tata Communication Transformation Services Ltd. v. DCIT (supra) the Coordinate Bench considering the decision of the Hon ble Bombay High Court in the case of M/s. Maharaj Garage Company v. CIT (supra) and the decision of the Coordinate Bench in the case of Mrs. Indrani Sunil Pillai v. ACIT (supra) and held as under: - 7. We have heard both the parties, perused materials available on record and gone through the case laws cited by both the parties. The assessee has challenged penalty order passed by the AO under section 271(1)(c) on the ground that the AO has issued vague notice without striking off inappropriate portion in the notice whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 71(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 be overlapping of the two offences but in such cases, the initiation of the penalty proceedings also must be for both the offences. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 made multiple additions, one may relates to concealment of particulars of income and another may relate to furnishing of inaccu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 particulars of income. The stand and 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, follow that the order imposing penalty has to be made only on the ground on which the penalty proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon by the Ld.DR is not applicable to the facts of the present case. 8. In so far as the judgment of the Hon ble Judicial Bombay High Court in the case of M/s. Maharaj Garage Company vs. CIT (supra) relied upon by the Ld. D.R., the co-ordinate bench of ITAT in the case of Indrani Sunil Pillai vs. ACIT in ITA No.1339/M/2016 dated 19.01.18 has considered the ratio of the Hon ble Jurisdictional High Court in the case of M/s. Maharaj Garage Company vs. CIT (supra) and held that the basic issue arising out of the reference application which tell for consideration of the Hon ble Jurisdictional High Court was while granting previous approval by inspecting Assistant Commissioner as per provisions of section 271(1)(c)(iii) of the Act, whether the assessee was required to be given an opportunity of being heard. While considering the issue, the Hon'ble court observed that provisions of section 271(1)(c)(iii) does not attract rule of presumption of mensrea as the penalty imposed under the said provision is for the breach of civil obligation. The observations of the Hon ble Court against issuance of show cause notice appear to be in the context of quantum of penalty proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing inaccurate particulars of such income. Concealment of particulars of income and furnishing of inaccurate particulars of income referred to in Section 271(1)(c) denote two different connotations. Therefore, it is imperative for the Assessing Officer to make the assessee aware in the notice issued under section 274 read with section 271(1)(c) as to which of the two limbs are being put up against him for the purposes of levy of penalty under section 271(1)(c). Unless the assessee is made aware of the specific charge against him, it would be violative of the principles of natural justice inasmuch as the assessee would not be in a position to put up his defense appropriately. The Assessing Officer recorded that the penalty proceedings under section 271(1)(c) were initiated for concealment of income while in the notice issued under section 274 read with section 271(1)(c), both the limbs of section 271(1)(c) were left intact in the standard printed notice, as the irrelevant clause had not been struck off. This contradiction in the Assessment Order vis- -vis the penalty notice issued under section 274 read with section 271(1)(c) on the same date clearly brought out a confusion on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 ITR 11 (SC). It was further noted that the judgment in the case of T. Ashok Pai (supra) has been relied upon by the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory Ors., 359 ITR 565 (Karn.). The Hon'ble High Court approved the proposition that once the two limbs contained in the notice u/s 274 r.w.s. 271(1)(c) of the Act, namely concealment of income and furnishing of inaccurate particulars of income are understood to be carrying different meanings/connotations, non-striking off of the irrelevant clause or striking off one of the limbs and imposing penalty on the other limb is not as per law. Thirdly, it may be noted that the issue before the Hon'ble High Court was incorrect mentioning of charge in the show cause notice, but the case before us is of non-mentioning of the charge at all. Therefore, for all the above reasons, non-striking off of the irrelevant clause in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act cannot be said to be a mere wrong labelling of the section or some mistake of the nature that was before the Hon'ble Patna High Court in the case of Mithila Motors (P.) Limited (supra). Therefore, the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Per contra, Sri R.Raghunandan, learned senior counsel representing Sri T.Bala Mohan Reddy, learned counsel for the assessee, would rely upon the decisions of the Karnataka and Gujarat High Courts and assert that when penal proceedings are initiated under Section 271(1)(c) of the Act of 1961, an assessee must be made aware in no uncertain terms as to what is the specific allegation which forms the basis for the proposed penalty. A copy of the proforma notice under Section 271 read with Section 274 of the Act of 1961 addressed to the assessee on 22.03.2013 is produced. Perusal thereof reflects that the irrelevant contents therein, which had no application to the assessee, were struck out leaving only one clause which reads as under: Whereas in the course of proceedings before me for the Assessment Year 2010-11 it appears to me that you have concealed the particulars of your income or furnished inaccurate particulars of such income. It would be apposite at this stage to consider the judgment of the Karnataka High Court in M/s.MANJUNATHA COTTON AND GINNING FACTORY. Therein, a Division Bench of the Karnataka High Court observed that Section 271 of the Act of 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court observed that the Assessing Officer must give a positive finding as to whether there is concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee. In the event there was no such clear-cut finding, the penalty order was held liable to be struck down. Smt. Kiranmayee, learned counsel, placed reliance on the judgment of the Supreme Court in K.P.MADHUSUDHANAN V/s. COMMISSIONER OF INCOME TAX, COCHIN. Therein, the Supreme Court held that it is not necessary for the Assessing Officer, while issuing a notice under Section 271(1)(c), to expressly invoke Explanation 1(B) appended to the provision. It is however relevant to note that Explanation 1(B) merely adverts to a case of failure of an assessee to substantiate the explanation offered whereby the amount added or disallowed while computing the total income of such person for the purposes of the penalty provision shall be deemed to represent the income in respect of which particulars had been concealed. The Supreme Court observed that the statutory provision included the Explanation and once the assessee was put on notice, no express invocation of the Expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urate particulars thereof, the revenue must specify as to which one of the two is sought to be pressed into service and cannot be permitted to club both by interjecting an or between the two, as in the present case. This ambiguity in the show-cause notice is further compounded presently by the confused finding of the Assessing Officer that he was satisfied that the assessee was guilty of both. We are therefore of the opinion that the order under appeal does not brook interference on any ground. We find no question of law, much less a substantial one, arising for consideration warranting admission of this appeal. 10. Thus, respectfully following the said decisions we hold that the penalty orders passed by the Assessing Officer for the Assessment Years 2005-06 2006-07 are not sustainable in the absence of specific charge mentioned by the Assessing Officer for which the said penalty is imposed. 14. Respectfully following the said decisions, we hold that the penalty proceedings initiated by the Assessing Officer are bad in law and liable to be quashed. Hence we quash the penalty proceedings/order and delete the penalty levied by the Assessing Officer u/s. 271(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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