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TMI Blog2024 (3) TMI 1423X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.271(1)(c) is invalid and would be liable to be quashed." 2. "On the facts and circumstances of the case and in law, ld. CIT(A) has erred in sustaining penalty u/s.271(1)(c) of Rs. 15,19,710, when order u/s.147 dt.26-3-22 is invalid in the eyes of law as per first proviso to sec. 147; on the basis of such invalid order u/s.147, penalty cannot be imposed and would liable to be quashed." 3. "On the facts and circumstances of the case and in law, ld. CIT(A) has erred in sustaining penalty u/s.271(1)(c) of Rs. 15,19,710, as making of incorrect claim of depreciation/expenses would not amount to concealment of particulars of income; in absence of any concealment of income/furnishing of inaccurate particulars of income while making such claim of depreciation/expenses, no penalty proceedings u/s.271(1)(e) could be initiated; penalty levied is unjustified and is liable to be deleted. 4. "The appellant craves leave, to add, urge, alter, modify or withdraw any grounds before or at the time of hearing." 2. Brief facts in this case are that the assessee is an individual who had filed his return of income for the A.Y.2014-15 on 29.11.2014 declaring total income of Rs. 3,10,21,200/-. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribunal, which seeks to lay down as a broad principle that the case of disallowance of the claim of depreciation cannot give rise to any question of concealment of income since a lot would depend on the facts and circumstances on even case at the best, it can be said that in the given set of facts in the present matter, the tribunal was right in so holding." Before concluding the order, the observations of the Hon'ble Court qua concealment of income or furnishing of particulars are culled out as under: 10. We could notice that the CIT(A) and Tribunal have considered the disallowance of the claim of depreciation on the part of the authority to hold that the same is not a ground to hold that it is a concealment of income. While so holding, it noticed that the respondent had made a claim of depreciation on the strength of Tax Audit Report, and furthermore, there was a complete disclosure about its claim under s. 80HHC supported by the certification issued by chartered accountant. Therefore, it reached to the conclusion that merely because the claim on merit was not granted, the penalty could not be levied. 11. Its quite clear from the detailed discussion on the issue that assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the language of s. 271 (l)(c) had to be strictly construed, this being a taxing statute and more particularly the one providing for penalty. It was pointed out that unless the wording directly covered the assessee and the fact situation herein, there could not be any penalty under the Act. It was pointed out that there was no concealment or any inaccurate particulars regarding the income were submitted in the Return. Sec. 271(1)(c) is as under:- "271(1) If the AO or the CIT(A) or the CIT in the course of any proceedings under this Act, is satisfied that any person- (c) has concealed the particulars of his income or furnished inaccurate particulars of such income. " 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s according to the Court, the word "inaccurate" signified a deliberate act or omission on behalf of the assessee. It went on to hold that cl. (iii) of s. 271 (1) provided for a discretionary jurisdiction upon the Assessing Authority, inasmuch as the amount of penalty could not be less than the amount of tax sought to be evaded by reason of such concealment of particulars of income, but it may not exceed three times thereof. It was pointed out that the term "inaccurate particulars" was not defined anywhere in the Act and, therefore, it was held that furnishing of an assessment of the value of the property may not by itself be furnishing inaccurate particulars. It was further held that the assessee must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The Court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccurate particulars on the part of the assessee or any concealment on his part while making a claim, no proceedings could be initiated of penalty u/s 271(1)(c). 6. As is discernible from the record, though the A.O. while framing the assessment vide his order passed u/s. 147 r.w.s. 144B of the Act dated 26.03.2022 had initiated penalty proceedings u/s.271(1)(c) of the Act in the case of the assessee for "concealment of income", but in the penalty order passed u/s.271(1)(c) of the Act dated 20.09.2022, at Para 9, he had mentioned that the assessee has "furnished inaccurate particulars of income". Apart from that, a perusal of the copy of the "Show Cause Notice" (SCN) issued u/s. 274 r.w.s. 271(1)(c) of the Act dated 26.03.2022 reveals that the assessee was called upon to explain why penalty u/s. 271(1)(c) of the Act may not be imposed upon his for having "concealed the particulars of income". 7. We would now test the validity of the aforesaid "Show Cause" notice dated 26.03.2022, and the jurisdiction emerging therefrom in the backdrop of the judicial pronouncements on the issue under consideration. Admittedly, the A.O. is vested with the power to levy penalty under Sec. 271(1)(c) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present case, we find that though the A.O. in the penalty order passed u/s. 271(1)(c) of the Act dated 20.09.2022 had mentioned both the limbs by stating that the assessee had "furnished inaccurate particulars of income" as well as "concealed the particulars of income", but the penalty notice issued u/s. 274 r.w.s. 271(1)(c) of the Act dated 26.03.2022 reveals that the assessee was called upon to explain why penalty u/s. 271(1)(c) of the Act may not be imposed upon him for having "concealed the particulars of income". We are of the considered view that now when as per the settled position of law the two defaults, viz. 'concealment of income' and 'furnishing of inaccurate particulars of income' are separate and distinct defaults, and not overlapping, therefore, the AO had grossly erred, wherein he vide the SCN, dated 26.03.2022 had on one hand called upon the assessee to explain as to why penalty u/s 271(1)(c) may not be imposed on his for having "concealed the particulars of income", but thereafter had vide his penalty order u/s. 271(1)(c) of the Act, dated 20.09.2022 visited the assessee for a penalty for both the defaults, viz. "furnished inaccurate particulars of income" a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No. 1154 of 2014; Dt. 05.01.2017)(Bom). The Hon'ble High Court relying on the judgment of the Hon'ble High Court of Karnataka in the case of Manjunathja Cotton and Ginning Factory (supra), which in turn had relied on the judgment of the Hon'ble Apex Court in T. Ashok Pai Vs. CIT, 292 ITR 1 (SC) had approved the order of the Tribunal that had deleted the penalty u/s 271(1)(c) imposed by the A.O and had, inter alia, observed, that the failure of the AO to strike- off the irrelevant default in the notice issued under Sec. 274 of the Act which is in a standard proforma clearly indicates a non-application of mind by the A.O while issuing the notice. Further, we find that the Hon'ble High Court of Bombay in the case of Pr. CIT (Central), Bengaluru Vs. Golden Peace Hotels & Resorts (P) Ltd. (2021) 124 tamnn.com 249 (SC), by drawing support from its earlier order in the case of CIT Vs. Shri Samson Perinchery (2017) 392 ITR 4 (Bom) and PCIT Vs. New Era Sova Mine (2020) 420 ITR 376 (Bom), had observed that AO while issuing show-cause should clearly indicate that as per him the case of the assessee involves concealment of particulars of income; or there is furnishing of inaccurate particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the law laid down in the case of Samson Perinchery and New Era Soya Mine (supra) and therefore, warrants no interference." The Special Leave Petition (SLP) filed by the revenue against the aforesaid order had thereafter been dismissed by the Hon'ble Apex Court in Pr. CIT (Central) Vs. Golden Peace Hotels and Resorts (P) Ltd. (2021) 124 taxmann.com 249 (SC). Also, the "Full bench" of the Hon'ble High Court of Bombay in the case of Mohd. Farhan A. Shaikh V. DCIT, Central Circle-1, Bengaluru (2021) 280 Taxman 334 (Bombay), had observed that where the assessment order clearly records a satisfaction for imposing penalty on one or other; or both grounds mentioned in Sec. 271(1)(c), but there is a defect in the SCN, wherein the AO had failed to strike-off the irrelevant default, then, the same would vitiate the penalty proceedings. The Hon'ble High Court while concluding as hereinabove had held as under: "173. We, however, accept that the Revenue, often, adopts a pernicious practice of sending an omnibus, catch-all, printed notice. It contains both relevant and irrelevant information. It assumes, perhaps unjustifiably, that whoever pays tax is or must be well-versed in the nuances of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... every other source of information, such as the assessment proceedings. That said, first, penalty proceedings may originate from the assessment proceedings, but they are independent; they do not depend on the assessment proceeding for their outcome. Assessment proceedings hardly influence the penalty proceedings, for assessment does not automatically lead to a penalty 176. Second, not always do we find the assessment proceedings revealing the grounds of penalty proceedings. Assessment order need not contain a specific, explicit finding of whether the conditions mentioned in section 271(1)(c) exist in the case. It is because Explanations 1(A) and 1(B), as the deeming provisions, create a legal fiction as to the grounds for penalty proceedings. Indeed, the Apex Court in CIT v. Atul Mohan Bindal [ 73], has explained the scope of section 271(1)(c) thus: "[Explanation 1, appended to section 27(1) provides that if that person fails to offer an explanation or the explanation offered by such person is found to be false, or the explanation offered by him is not substantiated, and he fails to prove that such explanation is bona fide and that all the facts relating to the same and material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(l)(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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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, 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 nonapplication 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resorts & Recreation P. Ltd. (supra); (ii). Samson Perinchery (supra); and (iii). New Era Sova Mine (supra), had observed that recording of satisfaction by AO in relation to any concealment of income or furnishing of inaccurate particulars by the assessee in notice issued u/s 271(1)(c) is the sine qua non for initiation of such proceedings. Further, we find that the ITAT, Pune in Ashok Sahahakari Sakhar Karkhana Ltd. Vs. ACIT (2018) 99 taxman.com 374 (Pune), had held that where in a notice issued u/s 274 of the Act the AO had used conjunction "or" to mention both limbs, i.e, concealment of income or furnishing inaccurate particulars of income and charge for levy of penalty was not explicitly clear from notice, then, the same was to be held as bad in law and penalty was liable to be set-aside. On a similar footing was the view taken by the ITAT, Mumbai "B" Bench in ACIT Vs. Bhushan Kamanayan Vora (2018) 99 taxmann.com 373 (Mum). It was observed by the Tribunal that where the AO was not sure about the charge, i.e whether it was for concealment of income or furnishing of inaccurate particulars of income, the penalty imposed by him u/s 271(1)(c) could not be sustained. 11. We have giv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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