As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are to be initiated for furnishing of inaccurate particulars of income. However, in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act of even date, both the limbs of Sec. 271(1)(c) of the Act are reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of Assessing Officer and there is no clear and crystallised charge being conveyed to the assessee u/s 271(1)(c), which has to be met by him. As noted by the Hon’ble Supreme Court in the case of Dilip N. Shroff (supra), the quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non-compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond.
Therefore, in view of the aforesaid discussion, in our view, the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 is untenable as it suffers from the vice of non-application of mind having regard to the ratio of the judgment of the Hon’ble Supreme Court in the case of Dilip N. Shroff (supra) as well as the judgment of the Hon’ble Bombay High Court in the case of Shri Samson Perinchery (supra). Thus, on this count itself the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted. We hold so. Since the penalty has been deleted on the preliminary point, the other arguments raised by the appellant are not being dealt with.
O R D E R
PER G.S. PANNU, AM :
The captioned appeal by the assessee is directed against the order of the CIT(A)-8, Mumbai dated 24.1.2012, pertaining to the Assessment Year 2008-09, which in turn has arisen from the order passed by the Assessing Officer dated 29.6.2011 under section 271(1)(c) of the Income Tax Act, 1961 (in short ‘the Act’).
2. In this appeal, the solitary grievance of the assessee is with regard to imposition of penalty u/s 271(1)(c) of the Act.
3. In brief, the relevant facts are that the appellant is a company incorporated under the provisions of Companies Act, 1956 and for the assessment year under consideration it declared a total income of Rs.86,94,668/- in a return filed on 29.9.2008, which was subject to a scrutiny assessment u/s 143(3) of the Act and vide order dated 10.12.2010 the final income has been assessed at Rs.1,11,84,640/-. The relevant issue for our purpose is Long Term Capital Loss of Rs. 18, 19,34,011/- reported by the assessee in its return of income. The said loss was incurred by the assessee on account of redemption of Preference shares of a concern, namely Shri Santram Finance Ltd. In the assessment finalized u/s 143(3) of the Act, the Assessing Officer disallowed the entire Long Term Capital Loss on the ground that the transaction of redemption of Preference shares was a bogus transaction and further the Assessing Officer also denied the carry forward of said loss. Subsequently, the Assessing Officer vide order passed u/s 271(1)(c) of the Act dated 29.6.2011 held the assessee guilty of furnishing of inaccurate particulars of income qua the aforesaid issue within the meaning of Sec. 271(1)(c) of the Act. The Assessing Officer levied penalty u/s 271(1)(c) of the Act @ 100% of the tax sought to be evaded, which was computed at Rs.5,45,80,203/-. The CIT(A) has sustained the levy of penalty, but has allowed partial relief by correcting the computation of penalty and accordingly, the CIT(A) has scaled down the penalty to Rs.4,12,26,247/-. In this background, the rival counsels have made their submissions and the relevant material has been perused. Before we proceed to refer to the rival contentions, it would be appropriate to bring out the background in which the penalty u/s 271(1)(c) of the Act has been levied by the Assessing Officer. In the course of assessment proceedings, the Assessing Officer noted that assessee had reported Long Term Capital Loss of Rs.18,19,34,011/- on redemption of Preference shares of Shri Santram Finance Ltd., detailed as under :-
