Case Law Details
M/s. Swarn Ganga Gold Traders (P) Ltd. Vs. I.T.O. (ITAT Kolkata)
Issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The Tribunal Benches at Mumbai and Patna being subordinate to the Honorable Bombay High Court and Patna High Court are bound to follow the aforesaid view. The Tribunal Benches at Bangalore have to follow the decision of the Honorable Karnataka High Court. As far as benches of Tribunal in other jurisdictions are concerned, there are two views on the issue, one in favor of the Assessee rendered by the Honorable Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) and other of the Honorable Bombay High Court in the case of Smt. Kaushalya. It is settled legal position that where two views are available on an issue, the view favorable to the Assessee has to be followed. We therefore prefer to follow the view expressed by the Honorable Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra). “
We have already observed that the show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the assessee for cancelling imposition of penalty which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present case cannot be sustained and the same is directed to be cancelled.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
These are appeals by the Assessee against three orders all dated 13.06.2016 of C.I.T.(A)-I, Kolkata relating to A.Y. 2006-07 to 2008-09.
2. In all these appeals the assessee has challenged the order of CIT(A) whereby the CIT(A) confirmed the order of the AO imposing penalty on the assessee u/s 271 (1)(c) of the Income Tax Act, 1961 (Act).
3. The facts and circumstances under which penalty u/s 271(1)(c) of the Act was imposed on the assessee by the AO are identical in all the three appeals of the assessee.
The Assessee is a company. It carries on the business of investment and finance. In the course of assessment proceedings for assessment years 2006-07 to 2008-09 the AO noticed that in the current account No.116918 maintained by the assessee with ABN Amro Bank there were huge deposits of money and credit entries. The assessee explained the receipts in the bank account as towards share application money and the withdrawals were explained as investments or refund of share application money. The AO came to the conclusion that the assessee was mainly engaged in providing accommodation entries and deserve income in the form of commission from the beneficiaries of the accommodation entries. The AO estimated the income in the form of commission amount earned by the assessee at 0.20% of the cheques issued from the bank account in each of the aforesaid three assessment years and brought to tax commission income of the assessee not disclosed by the assessee which resulted in an addition of Rs. 2,30,350/- in A.Y. 2006-07 a sum of Rs. 1,45,113/-, in A.Y.2007-08 a sum of Rs. 2,04,798/- in A.Y. 2008-09. In respect of the addition made as above the AO initiated penalty proceedings u/s 271(1)(c) of the Act.
4. Apart from the above another addition of Rs. 2,02,000/- was made in A.Y. 2007-08 on account of unexplained cash deposits in the bank account. In A.Y. 2008-09 an addition of Rs. 1,57,400/- was made on account of unexplained cash deposits in the bank account. Penalty proceedings u/s 271(1)(c) of the Act was initiated for the aforesaid addition made in A.Y. 2007-08 and 2008-09 also.
5. The assessee explained in the penalty proceedings that the addition on account of commission income not disclosed has been made by the AO purely on assumptions and suspicion. In so far as addition on account of unexplained cash deposits is concerned, the assessee submitted that the cash deposits can be explained from the withdrawals made from the very same bank account. The plea of the assessee was rejected by the AO and the AO imposed penalty which was equal to 100% of the tax sought to be evaded.
6. On appeal by the assessee the CIT(A) confirmed the order of the AO. Hence these appeals by the assessee before the tribunal.
7. None appeared on behalf of the assessee. We notice that the show cause notice issued u/s 274 of the Act before imposing penalty does not specify the charge as to whether the penalty is proposed to be levied for furnishing inaccurate particulars or for concealing particulars of income. The Honorable Karnataka High Court in the case of CIT vs. SSA’s Emerald Meadows in ITA No. 380 of 2015 dated 23.11.2015 following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory (2013) 359 ITR 565 took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. It is also seen that as against the decision of the Honorable Karnataka High Court the revenue preferred an appeal in SLP in CC No. 11485 of 2016 and the Honorable Supreme Court by its order dated 05.08.2016 dismissed the SLP preferred by the department. The Honorable Bombay High Court in the case of CIT vs Shri Samson Perinchery in ITA No. 1154 of 2014 dated 05.01.2017 wherein the Honorable Bombay High Court following the decision of the Honorable Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning factory (supra) came to the conclusion that imposition of penalty on defective show cause notice without specifying the charge against the assessee cannot be sustained. ITAT, Kolkata in the case of Suvaprasanna Bhattacharya vs ACIT in ITA No. 1303/Kol/2010 dated 06.11.2015 wherein identical proposition has been followed by the Tribunal.
8. The ld. DR submitted that it is not mandatory to specify the charge in the show cause notice u/s 274 of the Act. In this regard he placed reliance on certain judicial pronouncements.
9. We have considered the submission of the ld. DR, who also filed a written note on this aspect. Similar submissions made by the ld. DR in the case of Shri Jeetmal Choraria vs ACIT in ITA No. 956/Kol/2016 order dated 01.12.2017 and this tribunal dealt with similar arguments of the ld. DR in the following paragraphs :
“7. The learned DR submitted that the Honorable Calcutta High Court in the case of Dr.Syamal Baran Mondal Vs. CIT (2011) 244 CTR 631 (Cal) has taken a view that Sec.271 does not mandate that the recording of satisfaction about concealment of income must be in specific terms and words and that satisfaction of AO must reflect from the order either with expressed words recorded by the AO or by his overt act and action. In our view this decision is on the question of recording satisfaction and not in the context of specific charge in the mandatory show cause notice u/s.274 of the Act. Therefore reference to this decision, in our view is not of any help to the plea of the Revenue before us.
8. The learned DR relied on three decisions of Mumbai ITAT viz., (i) Dhanraj Mills Pvt. Ltd. Vs. ACIT ITA No.3830 & 3833/Mum/2009 dated 21.3.2017; (ii) Earth moving Equipment Service Corporation Vs. DCIT 22(2), Mumbai, (2017) 84 txmann.com51 (iii) Mahesh M.Gandhi Vs. ACIT Vs. ACIT ITA No.2976/Mum/2016 dated 27.2.2017. Reliance was placed on two decisions of the Honorable Bombay High Court viz., (i) CIT Vs. Kaushalya 216 ITR 660(Bom) and (ii) M/S.Maharaj Garage & Co. Vs. CIT dated 22.8.2017. This decision was referred to in the written note given by the learned DR. This is an unreported decision and a copy of the same was not furnished. However a gist of the ratio laid down in the decision has been given in the written note filed before us.
9. In the case of CIT Vs. Kaushalya (supra), the Honorable Bombay High Court held that section 274 or any other provision in the Act or the Rules, does not either mandate the giving of notice or its issuance in a particular form. Penalty proceedings are quasi-criminal in nature. Section 274 contains the principle of natural justice of the assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining a complaint of failure of the Principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice is caused to the concerned person by the procedure followed. The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The ITAT Mumbai Bench in the case of Dhanraj Mills Pvt.Ltd. (supra) followed the decision rendered by the Jurisdictional Honorable Bombay High court in the case of Kaushalya (supra) and chose not to follow decision of Honorable Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra). Reliance was also placed by the ITAT Mumbai in this decision on the decision of Honorable Patna High court in the case of CIT v. Mithila Motor‘s (P.) Ltd. [1984] 149 ITR 751 (Patna) wherein it was held that under section 274 of the Income-tax Act, 1961, all that is required is that the assessee should be given an opportunity to show cause. No statutory notice has been prescribed in this behalf. Hence, it is sufficient if the assessee was aware of the charges he had to meet and was given an opportunity of being heard. A mistake in the notice would not invalidate penalty proceedings.
10. In the case of Earth moving Equipment Service Corporation (supra), the ITAT Mumbai did not follow the decision rendered in the case of Manjunatha Cotton & Ginning Factory (supra) for the reason that penalty in that case was deleted for so many reasons and not solely on the basis of defect in show cause notice u/s.274 of the Act. This is not factually correct. One of the parties before the group of Assessees before the Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) was an Assessee by name M/s. Veerabhadrappa Sangappa & Co., in ITA NO. 5020 OF 2009 which was an appeal by the revenue. The Tribunal held that on perusal of the notice issued under Section 271(1)(c) of the Act, it is clear that it is a standard proforma used by the Assessing Authority. Before issuing the notice the inappropriate words and paragraphs were neither struck off nor deleted. The Assessing Authority was not sure as to whether she had proceeded on the basis that the assessee had either concealed its income or has furnished inaccurate details. The notice is not in compliance with the requirement of the particular section and therefore it is a vague notice, which is attributable to a patent non application of mind on the part of the Assessing authority. Further, it held that the Assessing Officer had made additions under Section 69 of the Act being undisclosed investment. In the appeal, the said finding was set-aside. But addition was sustained on a new ground, that is under valuation of closing stock. Since the Assessing Authority had initiated penalty proceedings based on the additions made under Section 69 of the Act, which was struck down by the Appellate Authority, the initiated penal proceedings, no longer exists. If the Appellate Authority had initiated penal proceedings on the basis of the addition sustained under a new ground it has a legal sanctum. This was not so in this case and therefore, on both the grounds the impugned order passed by the Appellate Authority as well as the Assessing Authority was set-aside by its order dated 9th April, 2009. Aggrieved by the said order, the revenue filed appeal before High Court. The Honorable High Court framed the following question of law in the said appeal viz., 1. Whether the notice issued under Section 271(1)(c) in the printed form without specifically mentioning whether the proceedings are initiated on the ground of concealment of income or on account of furnishing of inaccurate particulars is valid and legal? 2. Whether the proceedings initiated by the Assessing Authority was legal and valid? The Honorable Karnataka High Court held in the negative and against the revenue on both the questions. Therefore the decision rendered by the ITAT Mumbai in the case of Earth moving Equipment Service Corporation (supra) is of no assistance to the plea of the revenue before us.
11. In the case of M/S. Maharaj Garage & Co. Vs. CIT dated 22.8.2017 referred to in the written note given by the learned DR, which is an unreported decision and a copy of the same was not furnished, the same proposition as was laid down by the Honorable Bombay High Court in the case of Smt. Kaushalya (supra) appears to have been reiterated, as is evident from the extracts furnished in the written note furnished by the learned DR before us.
12. In the case of Trishul Enterprises ITA No. 384 & 385/Mum/2014, the Mumbai Bench of ITAT followed the decision of the Honorable Bombay High Court in the case of Smt.Kaushalya (supra).
13. In the case of Mahesh M.Gandhi (supra) the Mumbai ITAT the ITAT held that the decision of the Honorable Karnataka High Court in the case Manjunatha Cotton & Ginning (supra) will not be applicable to the facts of that case because the AO in the assessment order while initiating penalty proceedings has held that the Assessee had concealed particulars of income and merely because in the show cause notice u/s.274 of the Act, there is no mention whether the proceedings are for furnishing inaccurate particulars or concealing particulars of income, that will not vitiate the penalty proceedings. In the present case there is no whisper in the order of assessment on this aspect. We have pointed out this aspect in the earlier part of this order. Hence, this decision will not be of any assistance to the plea of the revenue before us. Even otherwise this decision does not follow the ratio laid down by the Honorable Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) in as much as the ratio laid down in the said case was only with reference to show cause notice u/s.274 of the Act. The Honorable Court did not lay down a proposition that the defect in the show cause notice will stand cured if the intention of the charge u/s.271(1) (c ) is discernible from a reading of the Assessment order in which the penalty was initiated.
14. From the aforesaid discussion it can be seen that the line of reasoning of the Honorable Bombay High Court and the Honorable Patna High Court is that issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The Tribunal Benches at Mumbai and Patna being subordinate to the Honorable Bombay High Court and Patna High Court are bound to follow the aforesaid view. The Tribunal Benches at Bangalore have to follow the decision of the Honorable Karnataka High Court. As far as benches of Tribunal in other jurisdictions are concerned, there are two views on the issue, one in favor of the Assessee rendered by the Honorable Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) and other of the Honorable Bombay High Court in the case of Smt. Kaushalya. It is settled legal position that where two views are available on an issue, the view favorable to the Assessee has to be followed. We therefore prefer to follow the view expressed by the Honorable Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra). “
10. We have already observed that the show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the assessee for cancelling imposition of penalty which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present case cannot be sustained and the same is directed to be cancelled.
11. In the result the appeals of the assessee are allowed.
Order pronounced in the Court on 12.01.2018.
