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TMI Blog2024 (3) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order that offence of both under reporting and mis reporting is committed by the assessee and accordingly the penalty would be levied on the assessee for both in terms of section 270A(9) of the Act? It is well settled that penalty proceedings and assessment proceedings are separate and distinct. Hon ble Supreme Court in the case of Anantharam Veera Singhaiah Co. [ 1980 (4) TMI 2 - SUPREME COURT] wherein it was held that findings recorded in assessment proceedings cannot be taken as conclusive for penalty proceedings. Even the provisions of section 270A(6) of the Act provides for granting immunity from penalty if the case falls in under reporting of income . Moreover different rates of penalty are prescribed for under reporting of income alone and for under reporting in consequence of misreporting of income . Hence it is all the more essential to mention in the show cause notice itself as to which of the offence is committed by the assessee for which explanations are being sought for by the Id. AO. There is no whisper at all in the notice issued u/s 270A read with section 274 of the Act about misreporting of income . In-fact two notices were issued by the Id. AO and in both the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n order. 3. The Grounds of Appeal of the Respective Appeals are as under: ITA No. 224/Del/2023 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) {CIT(A)} is bad both in the eyes of law and on facts. 2. On the facts and circumstances of the case, the Learned CIT(A) has erred both on facts and in laws in confirming the action of the AO levying penalty of Rs. 2,10,90,362/- invoking the provision of section 270A read with section 274 of the Income Tax Act. 3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied on the addition of Rs. 3,51,50,603/- made by AO estimating profit on undisclosed sales on the basis of documents seized during the course of search. 4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied by the AO rejecting the contention of the assessee that no penalty can be levied on the addition made on the basis of estimation. 5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied on the addition of Rs. 1,10,00,000/- made by AO on account of advertisement expenditure claimed by the assessee treating the same as bogus. 5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied by the AO rejecting the contention of the assessee that no penalty can be levied on the addition made on the basis of estimation. 6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied by the AO u/s 271AAB despite the fact that case of the assessee does not fall in the definition of Undisclosed income and no penalty under section 271AAB is leviable. 7. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in confirming penalty levied by AO ignoring the contention of the assessee that the addition on which penalty has been levied by the AO is itself untenable in law. 8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the assessee does not fall in the definition of Undisclosed income and no penalty under section 271/AAB is leviable. 8. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in confirming penalty levied by AO ignoring the contention of the assessee that the addition on which penalty has been levied by the AO is itself untenable in law. 9. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied despite the fact that the notice issued by AO under section 271AAB of the Act does not specify the charge against the assessee. 10. On the facts and circumstances of the case the learned CIT (A) has erred both on facts and in law in confirming the penalty levied by the AO ignoring the contention of the assessee that the penalty proceedings are independent proceedings, the penalty u/s 271AAB is not automatic and hence, not mandatory in nature. 4. First we take up the Appeal in ITA No. 224/Del/2023 for A.Y 2017-18. The Ld. Counsel for the assessee submitted after passing the assessment order and consequence to the same, a penalty proceedings has been initiated by issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereby requested to appear before me either personally or through a duly authorized representative at 11:15 AM on 02/07/2021 and show cause why an order imposing a penalty on you should not be made under section 270A of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorised 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 270A of the Income Tax Act, 1961. Ganesh Prasad Central Circle 18, Delhi 7. As could be seen from the above penalty notice, the Ld. A.O. has mentioned the provision of Section 270A of the Act, the A.O. has not specified as to how the Assessee s case falls within the instances given in Clauses (a) to (g) of the sub-Section (2) or Clauses (a) to (f) of Sub-Section (9) of Section 270 of the Act, as per the said notice, apparently the penalty was intended for under reported income . But the order of the penalty passed u/s 270A of the Act by the A.O. levying penalty for mis-reporting of income . The various High Courts and Benches of the Tribunal repeatedly held that the defective penalty notice issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all the details of the transactions relating to disallowance made under section 14A of the Act and the AO as well as assessee has used the same details to arrive at different conclusions ie. differing quantum of disallowances under section 14A of the Act. This by no stretch of imagination can be held to be 'misreporting'. 8. This Court also finds that there is not even a whisper as to which limb of section 270A of the Act is attracted and how the ingredient of sub- section (9) of section 270A is satisfied. In the absence of such particulars, the mere reference to the word misreporting by the Respondents in the penalty order to deny immunity from imposition of penalty and prosecution makes the impugned order manifestly arbitrary. 9. Consequently, the impugned penalty order dated 28th March, 2022 passed by Respondent No. 1 under section 270A of the Act is quashed and Respondent No. 1 is directed to grant immunity under section 270AA of the Act to the Petitioner. 10. The Mumbai Bench of the Tribunal in ITA No. 13/Mum/2023 in the case of Saltwater Studio LLP v. NFAC, Delhi vide order dated 22.5.2023 held as under:- 11. It has to be examined as to whether the action of the AO t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case, we find that the levy of penalty by the AO u/s 270A of the Act suffers from the vice of non-application of mind as well as violates principles of natural justice. And therefore, the penalty levied on addition of sustained quantum addition of Rs. 67,970/- cannot survive. And therefore, it is directed to be deleted. 11. The Pune Bench of the Tribunal in ITA No. 54 55/Pune/2023 Kishore Digambar Patil v. ITO dated 23.6.2023 held as under:- 4. Both the learned representatives vehemently reiterated their respective stands against and in support of the impugned penalties. The assessee more particularly argued that both the learned lower authorities have erred in law and on facts in imposing sec.270A penalties in issue without even specifying the relevant limb under sub-section (9) thereof pertaining to misreporting of income . Learned counsel quoted the erstwhile earlier penalty mechanism provided u/sec.271(1)(c) of the Act wherein the law stood duly settled in light of Mohd. Farhan A Shaikh vs. ACIT [2021] 434 ITR 1 (Bom.) (FB); CIT vs. M/s. SSA's Emerald Meadows [2016] 386 ITR (St.) 13 (SC) and CIT vs. Manjunatha Cotton Ginning Factory (2013) 359 ITR 565 (Kar) 5. Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub- section- (9) deserve to be read as an extension of sub-section (8) to section 270A only. This indeed seems to be the only possible view as the legislature has incorporated the non-obstante clause Notwithstanding anything contained in sub-sec. (6) or sub-sec. (7) thereby not including the sub-section (9) envisaging the six instances defining misreporting of income in section 270A of the Act. 6.1. Mr. Murkunde could further not dispute the fact that right from the Assessing Officer's twin assessments to his impugned penalty orders as well the NFAC's detailed discussion, the learned lower authorities have nowhere specified the corresponding sub-limbs (a to f) in sub-sec.(9) of sec.270A of the Act. That being the case, I wish to quote para 62.10 in the CBDT's circular no.3/2017 (supra) making it explicitly clear that these six clauses (a to f) would indeed form part of sub-section (8) to sec.270A as under: 6.2. Faced with the situation and in light of overwhelming material strongly supporting the assessee's case and going by stricter interpretation as per Commissioner of Customs (Imports), Mumbai vs. Dilipkumar And Co. Ors. 2018 (9) SCC 1 (SC) (FB), I am of the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of income. The Karnataka High Court had followed the above judgment in the subsequent order in CIT v. SSA's Emerald Meadows [2016] 73 taxmann.com 241, the appeal against which was dismissed by the Supreme Court of India in SLP No. 11485 of 2016 by order dated 5th August, 2016. 22. On this issue again this Court is unable to find any error having been committed by the ITAT. No substantial question of law arises. 23. The appeals are accordingly dismissed. 14. Further all the other decisions relied upon by the Id. DR were duly considered by the Full Bench Decision of Hon ble Bombay High Court in the case of Mohd. Farhan A Shaikh vs DCIT reported in 434 ITR 1 (Bom) (FB) wherein it was held as under:- 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring contemplated under section 274. So asserts Smt. Kaushalya case (supra) 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 Case (supra) 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 case (supra), 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 be deleted, but the same had not been done . Then, Dilip N. Shroff case (supra), on facts, has felt that the assessing officer himself was not sure whether he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice. Conclusion: We have, thus, answered the reference as required by us, so we direct the Registry to place these two Tax Appeals before the Division Bench concerned for further adjudication. 15. In the instant case, on perusal of the penalty notice placed on record dated 02/06/2021, it is evident that the Ld. AO had show caused the assessee as to why the assessee should not be imposed with penalty for under reporting of income . The assessee had filed its submissions stating that he had not under reported its income . We are unable to comprehend ourselves to accept to the argument of the Ld. DR that assessee did not make any submissions with regard to mis reporting of income . The assessee could be expected to give reply only in respect of show cause notice that is put to him. Why at all the assessee should infer/ assume/presume that the Ld. AO having recorded satisfaction in the quantum assessment order that offence of both under reporting and mis reporting is committed by the assessee and accordingly the penalty would be levied on the assessee for both in terms of section 270A(9) of the Act? 16. It is well settled that penalty proceedings and assessment proceedings are separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the notice initiating the penalty u/s 271AAB of the Act is a vague notice and therefore, illegal consequently, the order of penalty and the order of the Ld. CIT(A) thereon deserves to be set aside. The Ld. Counsel for the assessee relied on various judicial precedents in support of the said submission. 18. The Ld. Departmental Representative has also produced various Judgments relying on the orders of the Lower Authorities submitted that the order of the Lower Authorities, are well reasoned, the assessee has been heard before passing the order of penalty and the assessee is not prejudiced in any manner in issuing the penalty notice in the manner which it has been issued, therefore, sought for dismissal of the Appeals filed by the assessee. 19. We have heard both the parties and perused the material available on record. In both the Assessment Years i.e. A.Y 2018-19 and 2019-20, the identical penalty notice u/s 271AAB has been issued. For the sake of convenience, the penalty notice for Assessment Year 2018-19 reproduced reads as under: Whereas in the course of proceedings before me for the Assessment Year 2018-19. it appears to me that a search was conducted in your case an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the charge which is to be levied against him/her/it for levying penalty for the contravention of the related provisions of the Act. 22. An Identical question came for consideration before the Jaipur bench of the Tribunal in the case of Sri. Mahaveer Prasad Agarwal Vs.The DCIT in ITA No.1218/JP/2019 vide order dated 02-06-2022, wherein the similar notice has been issued to the Assessee therein and the Tribunal held as under: 5.1 In case of Shri Padam Chand Pungliya vs. ACIT (supra), the Coordinate Bench has held at para 5 page 7 of its order as under :- It is pertinent to note that the disclosure of additional income in the statement recorded under section 132(4) Itself is not sufficient to levy the penalty under section 271AAB of the Act until and unless the income so disclosed by the assessee falls in the definition of undisclosed income defined in the explanation to section 271AAB(1) of the Act. Therefore, the question whether the income disclosed by the assessee is undisclosed income in terms of the definition under section 271AAB of the Act has to be considered and decided in the penalty Since the assessee has offered the said income in the return of income filed under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 271AAB of the Act talks about issuing the notice u/s 274 of the Act. So for initiating the penalty proceedings u/s 271AAB of the Act the first step to be taken by 1.d. A.O is to issue a valid notice u/s 274 of the Act. Sub- section (1) to Section 274 of the Act provides a procedure that No order imposing a penalty under this Chapter shall he made unless the assessee has been heard, or has been given a reasonable opportunity of being heard . To comply with this requirement the notice u/s 274 should be clear enough to convey the assessee about the charge which is to be leveled against him/her/it for levying the penalty for the contravention of the related provisions of the Act which in the instant case relates to not surrendering of undisclosed amount during the course of search which is subsequently admitted during the course of assessment and not challenged before the Ld. CIT(A). So it was incumbent for Ld. A.O that in the notice issued u/s 274 of the Act he should have mentioned that penalty u/s 271AAB of the Act may be levied na 10/20/30% since the assessee falls in Clauses (a)/(b)/(c) of section 271AAB of the Act. He should have further mentioned that as the assessees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hallenging the validity of notice issued u/s 274 r.w.s. 271AAB of the Act. 23. The Kolkata Bench of the ITAT in the case of Sushil Kumar Paul vs. ACIT in ITA No. 2274/Ko1/2019 vide order dated 15.12.2022, held as under:- From the perusal of the above proposition, we observe that sub section 3 of section 271AAB of the Act talks about issuing the notice u/s 274 of the Act. So for initiating the penalty proceedings u/s 271 AAB of the Act, the first step to be taken by Id. Assessing Officer issue a valid notice u/s 274 of the Act provides a procedure that No order imposing a penalty under this Chapter shall be made unless the assessee has been heard. or has been given a reasonable opportunity of being heard. To comply with this requirement the notice u/s 274 should be clear enough to convey the assessee about charge which is to be leveled against him/her it for levying penalty for contravention of the related provisions of the Act. So it was incumbent for Id. AO that in the notice issued u/s 274 of the Act should have mentioned that penalty u/s 271AAB of the Act may be levied @ 10/20/30% since the assessee falls in Clauses (a)/(b)/(c) of section 271AAB of the Act. He should have furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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