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TMI Blog2023 (5) TMI 913X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings was invalid and passed without jurisdiction and hence, not sustainable in law. The said ground read as under: - 3. The CIT (Appeals) failed to appreciate that the order imposing penalty under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 2.2 The Ld. AR submitted that a specific charge was not framed against the assessee in the show-cause notice issued u/s 274 r.w.s. 271(1)(c) and the same would vitiate the penalty proceedings as per settled legal position. The Ld. AR also submitted that assessee furnished bona-fide explanation which has been rejected by revenue. However, the same would not lead to imposition of penalty in a mechanical manner. 2.3 The Ld. Sr. DR, on the other hand, vehemently contested the legal grounds urged by the assessee at this stage. The Ld. AR. DR submitted that none of the judicial decisions have ever considered the fact that Sec.274 merely postulates opportunity of hearing to the assessee. There is no requirement of issuance of notice and even the notice is a nonstatutory notice. The said opportunity could be given orally or by way of order sheet entries. The penalty is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessment order, which may or may not contain reasons for the penalty proceedings. The other course of action is the prevention of defect in the notice-and that prevention takes just a tick mark. Prudence demands prevention is better than cure. 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 a mere defect in the notice-not striking off the irrelevant matter-vitiate the penalty proceedings? 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of IT Act True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139". From the above, it is clear that the legislation did not mandate issuance of a notice for Penalty proceeding hearing whereas for all other proceeding hearing, the legislation mandated issuance of a notice. The logic being, u/s 271 of the Income tax Act, penalty proceedings are initiated or have to be initiated during the pendency of assessment and not subsequent to an assessment. Though the assessment proceeding and penalty proceeding are two independent proceeding in the act, penalty proceedings are initiated during the course of assessment and could be concluded under the law during the course of assessment or subsequent to passing the assessment order and before an appeal could be filed or subsequent to an order passed by the appellate authorities. Now coming to the issue of as to how the requirement of assessee to be heard and the reasonable opportunity of being heard can be met u/s 274 by without an issuance of the notice, it can be answered as under: Since the law does not mandate specific requirement to issue a not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irement be adjudicated by the Honourable Tribunal without relying on any of the existing judicial pronouncements as in none of such judicial pronouncements, these facts were brought before such Judicial forum. The notice, which the assessee is relying on, even if it is in the pre-printed format cannot, under no such imagination can be considered as a statutorily prescribed notice under the Act. It may be mentioned that since the Penalty proceedings are initiated during the course of assessment proceedings and such recordings are made and initiations are communicated in the assessment order in line with the provisions of Section 271(1B) the tax payer cannot take a shelter that he was not aware why the Penalty proceedings have been initiated. In the instant case, the assessee was found to have concealed its real income consequent to survey conducted based on an original return filed u/s 139, wherein he had admitted only Rs.1,00,920/- as his income. Consequent to such finding when the case was reopened u/s 148, the assessee filed the return admitting the concealed income wherein the assessee admitted an income of Rs.31,41,390/- by offering additional income Rs.30,40,470/-. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any decision in this matter could be taken." 2.5 Countering the same, Ld. AR has also filed gist of submissions which read as under: - The penalty u/s 271(1)(c) of the Act is challenged on various facets in the captioned appeal and according to the appellant the revised return of income filed on 02.11.2012 would negate the presumption of concealment of income or furnishing inaccurate particulars of income. The show cause notice issued on 08.03.2014 is vague and hence the consequential penalty order passed on 26.09.2014 would get vitiated in the absence of precise charge. Moreover, the income offered in the revised return of income comprised of NRI receipts was bonafidely presumed to be non-taxable and hence the said bonafide belief would constitute reasonable cause for deleting the penalty imposed in relation thereto. The findings in the Para 4.1 of the impugned order are incorrect and completely opposed to the decisions of the Supreme Court in the case 322 ITR 158 and 25 taxmann.com 400. Rejection of explanation would not automatically attract penal provisions u/s. 271(1)(c) of the Act. The legal ground raised by the Appellant captured in Ground No. 3 on the validity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 271(1)c) of the Act by the Revenue and the assessment order passed in the present case are placed on record to establish the lack of precise charge with a prayer to quash the penalty order passed. 2.6 Having heard rival submissions, oral as well as written and after considering the ratio of various judicial decisions, our adjudication would be as under. Our findings and Adjudication 3. From the fact, it emerges that the assessee was assessed u/s 143(3) r.w.s. 147 of the Act on 08.03.2014 wherein returned income filed by the assessee was substantially accepted barring minor addition of Rs.7,818/-. In the body of assessment order, Ld. AO initiated penalty proceedings against the assessee since the assessee admitted additional income of Rs.31.41 Lacs in the return of income vis-à-vis income declared in the original return. In the concluding part of the assessment order, Ld. AO observed as under: - 'The assessee has concealed / filed inaccurate particulars of income and therefore penalty proceedings u/s 271 (1)(c) is initiated.' It could be seen that Ld. AO has invoked both the limbs against the assessee in the assessment order. 4. Subsequently, notice u/s 274 r. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith explanation (1). If no explanation is offered or explanation is found to be false the penalty will be exigible. 6. In view of the above, I deem it fit to impose penalty u/s 271(1)(c) of the Act, as there is a concealment of income to the extent of..........." Apparently, the two limbs i.e. 'furnished inaccurate particulars of income' and 'concealment of income' has been used inter-changeably while initiating the penalty proceedings in the assessment order as well as in the penalty order. The appropriate limb was also not marked in the show-cause notice. On the basis of the same, we would conclude that no specific charge has been framed against the assessee and Ld. AO remained unsure as to which limb was actually applicable to the case of the assessee. 6. Since the legal issue raised by the assessee goes to the root of the matter, we take up the same first. The Ld. Sr. DR has argued that this is a factual issue and therefore, the same should be remitted back to the file of lower authorities so as to enable them to take a view in the matter. However, we are not convinced with this argument. It is undisputed position that the assessee has been issued only one show-cause notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticulars of income would arise in a situation where the assessee has not disclosed the particulars correctly or the particulars disclosed by the assessee are found to be incorrect whereas concealment of particulars of income would mean that the assessee has concealed the income and has not reflected certain income, at all, in its return of income. Therefore, for each of the addition, Ld. AO has to specify as to which limb was applicable to the facts of the case and it could not be left to mere presumption or guess work of the assessee. Framing of specific charges is sine-qua-non for levy of penalty since the assessee must be put 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. Considering the same, we would have no hesitation in holding that these two charges are quite different charges and carry different connotation / meaning. The non-framing of specific charge would make the notice defective. It did not specify the ground under which the penalty is proposed. The notice does not dele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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 furnished inaccurate particulars of income, the impugned penalty was invalid and same was to be set aside. The relevant adjudication of Hon'ble Court in this case was as under: - 25. This finding of the Assessing Officer is incorrect because while completing the assessment under Section 143(3) of the Act, there was no allegation against the assessee as to furnishing of inaccurate particulars. But, the Assessing Officer did not accept the explanation offered by the assessee and made certain additions, which will not automatically result in interpreting the same as furnishing of inaccurate particulars. Further, we find that there is no specific finding as regards the concealment against the assessee because, on facts, it has been established before the Assessing Officer while completing the assessment under Section 143(3) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 particulars of income and the Explanation to Section 271(1) raises a presumption of concealment, when a difference is noticed by the Assessing Officer between the reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence and when the initial onus placed by the explanation, has been discharged by the assessee, the onus shifts on the Revenue to show that the amount in question constituted their income and not otherwise. Factually, we find that the onus cast upon the assessee has been discharged by giving a cogent and reliable explanation. Therefore, if the department did not agree with the explanation, then the onus was on the department to prove that there was concealment of particulars of income or furnishing inaccurate particulars of income. In the instant case, such onus which shifted on the depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 adopted by the assessee, if read as a whole, would clearly show that he had objected to the issuance of the notice and as there was no basis for issuance of the notice under Section 271(1)(c) of the Act, both limbs in the said provision do not get attracted. Hence, the decision of this Court in the case of Sundaram Finance Ltd., cannot be applied. 34. The decision of the Hon'ble Supreme Court in the case of K.P.Madhusudhanan is factually different wherein the assessee was unable to furnish evidence for loans and that he offered the amount of transaction as additional income and this explanation was not acceptable to the Assessing Officer and he applied Explanation (1B) to Section 271(1)(c) of the Act and imposed penalty. 35. In the instant case, the assessee has been able to explain the transaction even at the first instance i.e. while submitting the reply dated 15.3.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct 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 the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income Tax, Delhi Vs. Atul Mohan Bindal [2009(9) SCC 589], where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such income...." 9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature." 37. On this issue, a useful reference can be to the decision of the Gujarat High Court in the case of National Textiles Vs. CIT [reported in (2001) 249 ITR 125], which related to the assessment year 1974-75 wherein it was held that in order to justify the levy of penalty, two factors must co-exist namely (i) there must be some material or circumstance leading to a reasonable conclusion that the amount does not represent the assessee's income and it is not enough for the purpose of penalty that the amount has been assessed as income and (ii) the circumstances must show that there was animus i.e. conscious concealment or act of furnishing inaccurate particulars on the part of the assessee. 38. Further, the decision of the Hon'ble Division Bench of this Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 inaccurate particulars of income or both, with clarity. If the notice is issued in the printed form, then, the necessary portions which are not applicable are required to be struck off, so as to indicate with clarity the nature of the satisfaction recorded. In both Samson Perinchery and New Era Sova Mine (supra), the notices issued had not struck of the portion which were inapplicable. From this, the Division Bench concluded that there was no proper record of satisfaction or proper application of mind in matter of initiation of penalty proceedings. 7. In the present case, as well if the notice dated 30/09/16 (at page 33) is perused, it is apparent that the relevant portions have not been struck off. This coupled with the fact adverted to in paragraph (5) of this order, leaves no ground for interference with the impugned order. The impugned order are quite consistent by the law laid down in the case of Samson Perinchery and New Er ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty 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 Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings, Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness. 182. More particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome 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 be deleted, but the same had not been done". Then, Dilip N. Shroff, on facts, has felt that the assessing officer himself was not sure whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. 188. We may, in this context, respectfully observe that a contravention of a mandatory condition or requirement for a communication to be valid communication is fatal, with no further proof. That said, even if the notice contains no caveat that the inapplicable portion be deleted, it is in the interest of fairness and justice that the notice must be precise. It should give no room for ambiguity. Therefore, Dilip N. Shroff disapproves of the routine, ritualistic practice of issuing omnibus show-cause notices. That practice certainly betrays non- application of mind. And, therefore, the infraction of a mandatory procedure leading to penal consequences assumes or implies prejudice. 189. In Sudhir Kumar Singh, the Supreme Court has encapsulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ob 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 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 never prejudiced 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 adopted by the assessee, if read as a whole, would clearly show that he had objected to the issuance of the notice and as there was no basis for issuance of the notice under section 271(1)(c) of the Act, both limbs in the said provision do not get attracted. Hence, the decision of this Court in the case of Sundaram Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the revenue in the cited decision of larger bench of Hon'ble Bombay High Curt which is evident from para 20 & 21 of the decision which read as under: - 20. The mandate of law, Ms. Razaq points out, is that no penalty shall be imposed unless the assessee has been heard or has been given a reasonable opportunity of being heard. She agrees that the principles of natural justice stand ingrained in the section. According to her, the penalty proceedings have their foundation in the assessment proceedings. In other words, when the stage for imposition of penalty is reached, the assessee already comes to know the charge against him: whether he is being penalised for concealing the particulars of his income or for furnishing inaccurate particulars of the income. 21. According to Ms. Razaq, the authority concerned applies his mind when he passes the assessment order. So, the form in which the notice is issued for imposing penalty looses its significance. As an example of an 'extreme case', she would submit that if a notice is perfect but it fails to disclose the mind of the assessing authority, the otherwise perfect notice serves no purpose. In this context, Ms. Razaq submit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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