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TMI Blog2022 (6) TMI 1008X X X X Extracts X X X X X X X X Extracts X X X X ..... eals)-3, Chennai dated 04.01.2019 which has confirmed the penalty u/s 271(1)(c) for Rs.1276.57 Lacs as levied by learned Assessing Officer (AO) vide penalty order dated 15.04.2016. The assessment for the year was framed by Ld. AO u/s. 143(3) of the Act on 31.12.2010 wherein the returned loss of Rs.17.47 Lacs was determined at income of Rs.41520.26 Lacs after certain additions / disallowances. Consequently, penalty proceedings were initiated by Ld. AO in the assessment order as under: Penalty proceedings u/s 271(1)(c) is initiated separately. 2. The Ld. AR, drawing attention to ground no.2 of the appeal, submitted that the penalty stood vitiated for want of requisite satisfaction as required under law. The ground read as under: - 2. The Learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact that the Penalty order is bad in law for the reason that the Show cause notice for levy of penalty did not specify whether the said notice is for concealment of income or furnishing of inaccurate particulars and consequently, the order of penalty passed u/s 271(1)(c) of the Act on an invalid notice does not have any legal existence. The Ld. AR submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) should not be levied in your case. Reply should reach this office by 22.02.2016, failing which penalty u/s 271(1)(c) will be levied without providing any further opportunity. The notice issued on 05.04.2016 read as under: - You are hereby required to appear before me a!: rny office at Room NO, 415, IV Floor, Main Building, Aayakar Bhavan', 121, Uthamar Gandhi Saiai, Chennai - 600 034 at 11.00 A.M. on 11.04.2016 and show cause why an order imposing a penalty on you should not be made under section 271(1)(c) of the Income tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative, you may show cause in writing on or before the said date which will be considered before any such order is made under section 271(1)(c) of the Act. 3.3 The assessee, vide letter dated 22.02.2016, submitted that notice was defective since it failed to specify the ground under which the penalty was proposed to be levied. The notice does not delete the appropriate words and paragraphs and therefore, the notice was issued in a mechanical manner and hence, not sustainable in the eyes of law. However, this plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of notice. It was held that there was no infirmity in the show cause notice. The Ld. AO had placed a tick mark at the appropriate place on the notice which indicates that the assessee had concealed the particulars of income as well as furnished inaccurate particulars of income. Accordingly, the legal grounds were rejected. The imposition of penalty, on merits, was sustained, in view of the decision of Tribunal wherein quantum additions were confirmed. Finally, penalty was upheld against which the assessee is in further appeal before us. Our findings and Adjudication 5. Upon careful consideration of factual matrix, it could be gathered that certain additions were made in the hands of the assessee during the course of assessment proceedings, few of which are sub-judice before Hon ble High Court of Madras. However, in the present appeal, we are only concerned with the fact whether the penalty is justified or not. Upon perusal of assessment order initiating the penalty, it could be gathered that though various additions have been made, however, separate penalty has not been initiated for each head of addition. The Ld. AO has merely initiated the penalty proceedings in a bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to allegations for which the penalty was being levied. In the absence of such a specific charge, the penalty would be bad in law and the same is not a curable defect u/s 292BB. This position has been settled in numerous binding judicial precedents. 7. It could be seen that the show-cause notice issued u/s 274 r.w.s 271 on 31.12.2010 is a vague notice in a printed form without striking-off irrelevant portion and do not specify the exact charge for each head of addition for which the assessee was being penalized and therefore, it was a clear case of non-application of mind while initiating penalty against the assessee. Even in the body of penalty order, no specific charge has been framed for each head of addition and Ld. AO merely stated that both the limbs were applicable to the case of the assessee which was clear from the nature of additions itself. 8. On the given factual matrix, the decision of Hon ble High Court of Madras in Babuji Jacob Vs. lTO (430 lTR 259; 08.12.2020) would apply. The Hon ble Court, inter-alia, held that since the notice under section 271(1)(c) did not specifically state as to whether assessee was guilty of concealing particulars of his income or had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o whether the penalty proceedings have to be initiated or not during the course of assessment proceedings and he is not required to record his satisfaction in a particular manner or reduce it into writing. 29. Reliance is also placed on the decision of the Hon'ble Supreme Court in the case of K.P.Madhusudhanan Vs. CIT [reported in (2001) 118 Taxman 324]. The decision of the Hon'ble Supreme Court in the case of Mak Data (P) Ltd., was taken note of by the Division Bench of this Court, to which, one of us (TSSJ) was a party, in the case of CIT, Chennai-IV Vs. Gem Granites (Karnataka) [reported in (2014) 42 Taxmann.com 493] and the aspect as to how onus/burden of proof shifts from the assessee to the Revenue when penalty proceedings are initiated, is held in the following terms : 11. In a recent decision of the Hon'ble Supreme Court in Civil Appeal No.9772 of 2013, dated 30.10.2013 (Mak Data P. Ltd., vs. Commissioner of Income Tax-II), the Hon'ble Supreme Court while considering theExplanation to Section 271(1), held that the question would be whether the assessee had offered an explanation for concealment of particulars of income or furnishing inaccurate p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the reply to the penalty notice, in the appeal before the CIT(A) and before the Tribunal. This is evident on a reading of the grounds of appeal filed before the CIT(A) as well as the notes of arguments filed by the assessee before the CIT(A) dated30.6.2017. Therefore, to that extent, the CIT(A) and the Tribunal have committed an error. 32. The decision of this Court in the case of Sundaram Finance Ltd., was couched on a different factual position wherein the Court rejected the plea of the assessee, which was a limited company, when they raised an argument with regard to the validity of the notice for the first time before the High Court and considering the administrative set up of the said assessee and the fact that the assessee was neverprejudiced on account of the alleged defect, the Court rejected the argument of the assessee. 33. In the case on hand, we find that at the first instance, while replying to the penalty show cause notice dated 30.3.2016, the assessee raised a specific plea that there was no concealment of income, that he had not furnished inaccurate particulars of income and that the notice was not proper. Therefore, the phraseology, which was adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .....A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word particular is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word particulars used in Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Learned Counsel argued that submitting an incorrect claim in law for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ince the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w are answered in favour of the assessee. No costs. 9. Similar is the decision of Hon ble Bombay High Court in PCIT V/s Goa Coastal Resorts and Recreation (P.) Ltd (272 Taxman 157) which has refused to admit question of law as raised by the revenue by observing as under: - 5. We have carefully examined the record as well as duly considered the rival contentions. Both the Commissioner (Appeals) as well as the ITAT have categorically held that in the present case, there is no record of satisfaction by the Assessing Officer that there was any concealment of income or that any inaccurate particulars were furnished by the assessee. This being a sine qua non for initiation of penalty proceedings, in the absence of such petition, the two authorities have quite correctly ordered the dropping of penalty proceedings against the petitioner. 6. Besides, we note that the Division Bench of this Court in Samson Preinchery (supra) as well as in New Era Sova Mine (supra) has held that the notice which is issued to the assessee must indicate whether the Assessing Officer is satisfied that the case of the assessee involves concealment of particulars of income or furnishing of inaccurat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on 05/08/2016 which reported at 73 Taxmann.com 248. This decision of Hon ble Karnataka High Court rendered in Manjunatha Cotton Ginning Factory has subsequently been followed extensively in catena of judicial pronouncements rendered by various Hon ble High Courts as well as different benches of Tribunal and taken a view that non-framing of specific charge in the show-cause notice would vitiate the penalty proceedings. The failure to frame specific charge against the assessee during penalty proceedings would be fatal to penalty proceedings itself and the same could not be sustained in the eyes of law. 11. Recently, the issue of defect in notice has been dealt at length by larger bench of Hon'ble Bombay High Court in Mohd. Farhan A.Shaikh V/s DCIT (125 taxmann.com 253) wherein the Hon'ble Court has answered the issue of reference as follows: - Answers: Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(1)(c), does amere defect in the notice-not striking off the irrelevant matter-vitiatethe penalty proceedings? 181. It does. The primary burden lies on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re can exist a case where vagueness and ambiguity in the notice can demonstrate non-application of mind by the authority and/or ultimate prejudice to the right of opportunity of hearing contemplated under section 274. So asserts Kaushalya. In fact, for one assessment year, it set aside the penalty proceedings on the grounds of non-application of mind and prejudice. 186. That said, regarding the other assessment year, it reasons that the assessment order, containing the reasons or justification, avoids prejudice to the assessee. That is where, we reckon, the reasoning suffers. Kaushalya's insistence that the previous proceedings supply justification and cure the defect in penalty proceedings has not met our acceptance. Question No. 3: What is the effect of the Supreme Court's decision in Dilip N. Shroff on the issue of non-application of mind when the irrelevant portions of the printed notices are not struck off ? 187 In Dilip N. Shroff, for the Supreme Court, it is of some significance that in the standard Pro-forma used by the assessing officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the practice, to be particular, of issuing notices in printed form without deleting or striking off the inapplicable parts of that generic notice. 12. The revenue has relied on the decision of Hon ble High Court of Madras in the case of Gangotri Textiles Ltd. V/s DCIT (121 Taxmann.com 171) which is distinguishable on facts. In this case, it is the findings that the assessee had understood the notices well and filed replies contesting the levy of penalty. The legal ground assailing defect in notice was raised for the first time before Hon ble High Court and therefore, Hon ble Court declined to entertain the same However, the same is not the case here. 13. Another decision as cited by Ld. Sr. DR is the decision of Hon ble High Court of Madras in Sundaram Finance Ltd. Vs ACIT (93 Taxmann.com 250) against which the assessee s SLP has already been dismissed by Hon ble Supreme Court which is reported at 99 Taxmann.com 152. We find that this decision has already been distinguished by Hon ble Court in Babuji Jacob Vs. lTO (supra) as under:- 32. The decision of this Court in the case of Sundaram Finance Ltd., was couched on a different factual position wherein the Court reje ..... X X X X Extracts X X X X X X X X Extracts X X X X
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