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TMI Blog2024 (12) TMI 1419X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent : Ms. R. Anita (Addl.CIT) -Ld. Sr. DR ORDER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. Aggrieved by confirmation of penalty u/s 270A for Rs. 54.10 Lacs for Assessment Year (AY) 2017-18, the assessee is in further appeal before us. The impugned order has been passed by learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A)] on 22-05-2024 in the matter of impugned penalty levied by Ld. Assessing Officer [AO] in its order dated 26-07- 2021. 2. The Ld. AR advanced legal arguments and submitted that in the absence of any specific charge in the show-cause notice, the penalty is bad-in-law. Reliance has been placed on certain judicial decisions to support the same. The same include the decision of Chennai Tribunal in the case of M/s Enrica Enterprises Pvt. Ltd. (ITA Nos. 1166 1167/Chny/2023 dated 06-03-2024). A copy of the same has been placed on record. The Ld. Sr. DR, drawing attention to the facts of the case, supported levy of penalty. Having heard rival submissions and upon perusal of case records, our adjudication would be as under. 3. Upon perusal of assessment order dated 18-12-2019, it could be seen that the assessee sold certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coordinate bench of Tribunal in the cited case of Enrica Enterprises Pvt. Ltd. (supra) adjudicated similar legal ground as raised by the assessee, as under: - 12. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The AO levied penalty u/s.270A of the Act, for both the assessment years on the ground that the assessee has under reporting of income and under reporting as a consequence of misreporting of income . The AO invoked provisions of clauses (c) (d) of Sec. 270A(9) of the Act, which deals with claim of expenditure not substantiated by any evidence and recording of any false entry in the books of accounts. The AO has arrived at the above conclusion on the basis of findings in the assessment order, where income admitted by the assessee in the return of income filed in response to notice u/s.153A of the Act, has been accepted. In the revised return filed u/s.153A of the Act, the assessee has admitted taxable income of Rs. 2,55,35,485/- which is higher than the last return filed u/s.139(1) of the Act. According to the AO, the assessee has under reporting of income and under reporting as a consequence of misr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.270A(9) of the Act, it is necessary to refer to provisions of Sec.270A of the Act, and the reasons given by the AO to impose penalty u/s.270A(9) of the Act. The provisions of Sec.270A of the Act, deals with penalty for under reporting of income and under reporting as a consequence of misreporting of income . Sub-section 1 to 6 of Sec.270A of the Act, deals with under reporting of income and under reporting as a consequence of misreporting of income , has been specified in sub-section 7 of Sec.270A of the Act. Sub-section 8 9 deals with under reporting of income and under reporting as a consequence of misreporting of income thereof by any person and such cases of misreporting of income referred to in sub-sec.8 has been specified in sub sec.9 of Sec.270A of the Act. From the above, it is manifestly clear that provisions of Sec.270A of the Act, has two limbs or two charges for which penalty can be levied. The first limb or first charge is under reporting of income and such under reporting of income has been specifically referred to in subsection 2 to 6 of Sec.270A of the Act. In the present case, these provisions are not relevant, because, the AO has not invoked under reporting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easonable opportunity and the assessee is being heard. Once, the AO is bound to act to hear the assessee and give reasonable opportunity to explain its case, then, there is no mandatory requirement of imposing penalty, because the opportunity of hearing is not a mere formality, but it is to adhere to the principle of natural justice. Therefore, in our considered view, the penalty u/s.270A of the Act, is not mandatory and it is based on the facts and merits placed before the AO. 16. Having said so, let us come back to notice issued u/s.274 r.w.s.270A of the Act. We have gone through notice u/s 274 r.w.s. 270A of the Act dated 26.07.2021, wherein, the AO has stated that under reporting of income and under reporting as a consequence of misreporting of income . From the notice, it is not discernable whether penalty has been initiated for under reporting of income as per section 270A (1) to (6) or misreporting of income as per section 8 9 of Sec.270A of the Act. The AO issued a notice in a routine manner without specifying under which clause of Sec.270A of the Act, the assessee is liable for penalty. Though, the AO while passing the impugned order has imposed penalty u/s.270A(9) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome , without specifying for which charge the assessee is directed to pay penalty u/s.270A of the Act. There is no whisper as to which limb of Sec.270A of the Act, is attracted and how the ingredients of sub-sec.9 of Sec.270A of the Act are specified. In absence of such particulars, the mere reference to the word misreporting of income in the assessment order or in the show cause notice makes the impugned order manifestly arbitrarily. Therefore, we are of the considered view that show cause notice issued by the AO u/s.274 r.w.s.270A of the Act, without specifying the charge under which penalty is proposed u/s.270A of the Act, is a clear case of non-application of mind at the time of issuing show cause notice and thus, in absence of specific charge against the assessee, the assessee is not in a position to counter the show cause notice issued by the AO as well as cogent reply to the show cause notice. In view of vague notice without any whisper as to which limb of section 270A of the Act is attracted and how ingredients of sub-section 9 is specified, initiation of penalty u/s.270A of the Act for misreporting of income is not only erroneous, but also arbitrary and thus, penalty proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative intent of Section 270AA of the Act to encourage/incentivize a taxpayer to (i) fast-track settlement of issue, (ii) recover tax demand; and (iii) reduce protracted litigation. 10. Consequently, the impugned order dated 09th W.P.(C) 7092/2022 passed by Respondent No.1 under Section 270AA (4) of the Act is set aside and Respondent No.1 is directed to grant immunity under Section 270AA of the Act to the Petitioner. 7. This Court is of the opinion that the only addition in the assessment order framed by Respondent No.1 is in respect of disallowance under section 14A of the Act. The Petitioner has made a disallowance of Rs. 3,20,14,010/- which was recomputed by the Assessing Officer at Rs. 6,82,45,759/-. Thus, this is a case where the amount of underreporting of income is consequent to increase in the disallowance voluntarily estimated by the assessee. This court is conscious of the fact that there can be cases where underreporting of income may result in misreporting of income, however, in peculiar facts of the present case, the underreporting allegedly done by the assessee cannot amount to misreporting as the assessee had furnished all the details of the transactions relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty u/s 270A of the Act, entire penalty proceedings becomes invalid and liable to be quashed. 19. In this view of the matter and by following the ratio laid down by the Hon ble Supreme Court and various High Courts referred to hereinabove, we are of the considered view that show cause notice issued by the AO u/s.274 r.w.s.270A of the Act, is vogue, non specific to charge and thus, is illegal and liable to be quashed. Thus, we quashed the order passed by the AO imposing penalty u/s.270A(9) of the Act. 20. Coming back to merits of penalty levied u/s 270A of the Act. The assessment proceedings and penalty proceedings are two separate proceedings. The findings in the assessment proceedings cannot be considered as conclusive and final for the purpose of imposing penalty. The Hon ble Supreme Court in the case of CIT v. Anwar Ali, reported in [1970] 76 ITR 696 (SC) observed that the findings in assessment proceedings may constitute evidence in the penalty proceedings, but it does not follow that penalty is mandatory whenever addition or disallowance is made. Further, the jurisdictional High Court in the case of CIT v. Gem Granites reported in [2013] 86 CCH 160 (Madras), observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground was specified in the show-cause notice dated 26.07.2021. Therefore, notice u/s 274 r.w.s.270A of the Act was not a valid notice for the reason that the AO did not specify the satisfaction as to whether assessee had either under reported the income or misreported the income . In the absence of proper notice, AO could not impose penalty since it was clear violation of principles of natural justice. Issuing a vague notice without specifying the exact charge under which limb the proposed penalty proceedings was being initiated, would vitiate the entire proceedings because the assessee was not given an opportunity to explain its case on specific charge. Therefore, the penalty levied on the basis of invalid or vague notice was held to be void-ab-initio. Reliance was placed on various judicial decisions to support the conclusion. 9. We find that the appeal before us has similar facts. In the assessment order, Ld. AO has not specified the exact charge against the assessee but initiated penalty proceedings simplicitor. In the show-cause notice issued to the assessee u/s 274 r.w.s. 270A on 18-12-2019, Ld. AO initiated penalty on both the limbs i.e., under-reporting as well as misrepor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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