Case Law Details
Ashok Sahakari Sakhar Karkhana Ltd. Vs. Asst. CIT (ITAT Pune)
A perusal of the satisfaction recorded for initiating penalty proceedings, the reasons for the levy of penalty mentioned in the notice and the reason given in the order levying penalty under section 271(1) (c) are not coherent. While recording reasons for initiating penalty proceedings and thereafter at the time of issuance of notice for levy of penalty vagueness and ambiguity in the mind of the assessing officer with respect to charge for the levy of penalty appears writ large. The assessing officer is not consistent in specifying the limb under which penalty is to be levied. While recording satisfaction the assessing officer has used conjunction “and” to mention both the limbs for initiating penalty proceedings, whereas, in the notice issued under section 274 the assessing officer has used conjunction “or” to mention both the limbs i.e., concealment of income or furnishing inaccurate particulars of income.
Hon’ble Supreme Court of India in the case of T. Ashok Pai v. CIT (2007) 292 ITR 11 (SC) has held that the expression “concealment of income” and furnishing of inaccurate particulars of income connote different meanings and cannot be used as substitute to each other.
It is apparent from the documents on record that there is inconsistency with respect to charge for levy of penalty at all the three stages i.e.,
(i) recording of satisfaction ;
(ii) issuance of notice ; and
(iii) levy of penalty.
There is ambiguity in recording of satisfaction and notice issued for the levy of penalty under section 274 read with section 271(1) (c) of the Act. Since the charge for levy of penalty is not explicitly clear from the notice, the same is held to be bad in law and hence, the penalty proceedings are liable to be set aside on this ground alone.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
This appeal by the assessee is directed against the order of the Commissioner (Appeals)-2, Pune dated 30-1-2015 for the assessment year 1998-99 confirming the levy of penalty under section 271(l)(c) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).
2. The assessee in the present appeal is in second round of litigation before the Tribunal. Earlier, the assessee had filed appeal in I.T.A. No. 886/Pun/2006 assailing the levy of penalty under section 271(l)(c) of the Act on the addition of Rs. 3,90,51,618. The Tribunal vide order dated 22-6-2011 set aside the impugned order and remitted the matter back to the file of the assessing officer for fresh adjudication. The assessing officer in proceedings giving effect to the order of the Tribunal again levied penalty of Rs. 1.40 crores on concealed income of Rs. 3,90,51,618.
Aggrieved by the order dated 28-3-2013 passed under section 271(l)(c) read with section 254, the assessee filed an appeal before the Commissioner (Appeals). The first appellate authority rejected the contentions of the assessee and confirmed the levy of penalty. Now, the assessee is in second appeal before the Tribunal assailing the levy of penalty Rs. 1.40 crores under section 271(l)(c) read with Explanation 1 of the Act. The assessee apart from challenging the levy of penalty on the merits has raised the additional ground of appeal challenging the validity of notice issued under section 274 read with section 271(l)(c) of the Act. The additional ground raised by the assessee reads as under :–
“On the facts and in the circumstances of the case, referring to the satisfaction recorded in the assessment order and the charge on which penalty is levied and further referring to the notice under section 274 read with section 271(1) (c) there exists vagueness, ambiguity and non-application of mind by the assessing officer that vitiates the validity of the penalty order.”
3. Shri S. N. Doshi appearing on behalf of the assessee submitted that during the course of scrutiny assessment proceedings, the assessing officer made additions/dis allowances on eight counts. However, the penalty has been levied in respect of the addition on account of excess expenditure debited to the profit and loss account Rs. 3,90,51,618. While recording satisfaction for the levy of penalty, the assessing officer held that penalty proceedings under section 271(l)(c) of the Act are initiated for concealment of income and filing of inaccurate particulars of income. Thereafter, notice under section 274 read with section 271(l)(c) was issued on 23-1-2001 wherein it has been mentioned that the assessee has concealed particulars of income or furnished inaccurate particulars of income. The irrelevant limb or the charge has not been deleted by the assessing officer while issuing notice. The learned Authorized Representative pointed that while recording satisfaction the assessing officer has used the word “and” to mention both the charges for the levy of penalty as envisaged under section 271(l)(c) of the Act. Whereas in the notice, both the charges for levy of penalty under section 271(l)(c) are mentioned with the word “or”. Thereafter, while levying penalty the assessing officer has not specifically mentioned the charge for levy of penalty. The assessing officer while levying penalty has concluded that “the assessee has defaulted within the meaning of section 271(l)(c) read with Explanation 1 of the Act without any reasonable cause”. Thus, the assessing officer was not clear in his mind while recording satisfaction and thereafter, while issuing notice whether the penalty is to be levied for concealment of income and/or furnishing of inaccurate particulars of income. The learned Authorized Representative submitted that where specific charge for the levy of penalty is not mentioned in the notice issued under section 274 read with section 271(1) (c) and there is vagueness in the recording of satisfaction, the penalty proceedings are liable to be quashed. In support of his submissions the learned Authorized Representative placed reliance on the following decisions :–
(i) CIT v. Samson Perinchery (2017) 392 ITR 4 (Bom);
(ii) Kanhaiyalal D. Jain v. Asst. CIT (I.T.A. Nos. 1201 to 1205/PN/2014 for the assessment years 2003-04 to 2007-08 decided on 30-11-2016 (Pune-Trib.);
(iii) Nandkishor Tulsidas Katore v. Asst. CIT (I.T.A. Nos. 2174 to 2180/PN/2014 for the assessment years 2002-03 to 2008-09 decided on 14-12-2016 (Pune-Trib.) ;
(iv) Zikrullah Abbasali Chaudhary v. Dy. CIT (I.T.A. No. 490/PUN/2015 for the assessment year 2005-06 decided on 3-3-2017 (Pune-Trib.).
4. On the other hand Shri Ajay Modi representing the Department vehemently defended the impugned order. The learned Departmental Representative submitted that the assessing officer while recording satisfaction has invoked both the limbs for the levy of penalty as the assessee intentionally filed inaccurate particulars of income resulting into concealment of income within the meaning of section 271(l)(c) of the Act. The learned Departmental Representative prayed for rejecting the additional ground raised by the assessee challenging the validity of notice.
5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. The assessee in grounds of appeal has assailed the levy of penalty under section 271(l)(c) on the merits. The assessee has filed additional ground of appeal challenging the validity of notice issued under section 274 read with section 271(l)(c) of the Act. As per the contentions of the learned Authorized Representative of the assessee, there is no consistency with regard to charge for the levy of penalty at the time of recording satisfaction and at the time of issuance of notice under section 274 read with section 271(l)(c) of the Act.
6. A perusal of the assessment order show that while recording satisfaction for the levy of penalty under section 271(l)(c), the assessing officer has held as under :–
“In view of the facts given above, I am satisfied that the assessee has intentionally filed the inaccurate particulars of income resulting into concealment of income within the meaning of section 271(l)(c) read with section 274 of the Income Tax Act, 1961. Therefore, an amount of Rs. 3,90,51,618 has been added to the total income of the assessee society with initiation of penalty proceedings under section 271(1) (c) of the Income Tax Act for concealment of income and filing of inaccurate particulars of income, as discussed above.” In the notice issued under section 274 read with section 271(l)(c) of the Act it has been mentioned :–
“Have concealed the particulars of your income or furnished inaccurate particulars of such income.”
7. However, while levying penalty the assessing officer has held :–
“I am therefore convinced that the assessee has defaulted within the meaning of section 271(l)(c) read with Explanation 1 of the Income Tax Act, 1961 without any reasonable cause. The penalty of Rs. 1,40,00,000 is levied as against the maximum penalty of Rs. 4,09,92,196.”
8. A perusal of the satisfaction recorded for initiating penalty proceedings, the reasons for the levy of penalty mentioned in the notice and the reason given in the order levying penalty under section 271(1) (c) are not coherent. While recording reasons for initiating penalty proceedings and thereafter at the time of issuance of notice for levy of penalty vagueness and ambiguity in the mind of the assessing officer with respect to charge for the levy of penalty appears writ large. The assessing officer is not consistent in specifying the limb under which penalty is to be levied. While recording satisfaction the assessing officer has used conjunction “and” to mention both the limbs for initiating penalty proceedings, whereas, in the notice issued under section 274 the assessing officer has used conjunction “or” to mention both the limbs i.e., concealment of income or furnishing inaccurate particulars of income.
9. The Hon’ble Supreme Court of India in the case of T. Ashok Pai v. CIT (2007) 292 ITR 11 (SC) has held that the expression “concealment of income” and furnishing of inaccurate particulars of income connote different meanings and cannot be used as substitute to each other.
10. The Hon’ble Karnataka High Court in the case of CIT v. Manjunatha Cotton and Ginning Factory (2013) 359 LTR 565 (Karn) has held (page 600) :–
“Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in section 271(l)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what the assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.”
11. The Hon’ble jurisdictional High Court in the case of CIT v. Samson Perinchery (supra) has approved the principle laid down in the case of CIT v. Manjunatha Cotton and Ginning Factory (supra) and deleted the levy of penalty where there was inconsistency in recording of satisfaction and levy of penalty.
12. It is apparent from the documents on record that there is inconsistency with respect to charge for levy of penalty at all the three stages i.e.,
(i) recording of satisfaction ;
(ii) issuance of notice ; and
(iii) levy of penalty.
13. We find merit in the additional ground raised by the assessee. There is ambiguity in recording of satisfaction and notice issued for the levy of penalty under section 274 read with section 271(1) (c) of the Act. Since the charge for levy of penalty is not explicitly clear from the notice, the same is held to be bad in law and hence, the penalty proceedings are liable to be set aside on this ground alone. Since the additional ground raised by the assessee has been allowed, the grounds raised by the assessee challenging the levy of penalty on the merits have become academic and thus, are not dealt with.
Levy of penalty by the assessing officer in a mechanical manner without proper application of mind is fatal. Ambiguity in the notice issued under section 274 read with section 271(l)(c) would itself vitiate the entire penalty proceedings.
14. In the result, the appeal of the assessee is allowed in the aforesaid terms.
15. The order pronounced on Wednesday, the 16-8-2017.
