Case Law Details
Orient Clothing Company Private Limited Vs ACIT (ITAT Delhi)
Introduction: The Orient Clothing Company Private Limited contested against the penalty imposed under section 271(1)(c) of the Income Tax Act. The issue revolved around the vagueness in the notices issued by the Assessing Officer (AO) without specifying the particular limb of the penalty.
Detailed Analysis: The AO initiated penalty proceedings based on the disallowance of sundry balances written off. However, the notices issued lacked specificity, and the Assessee argued that this rendered the penalty invalid. The legal argument focused on the necessity for the AO to specify the relevant limb (concealment or inaccurate particulars) while issuing notices.
The Assessee cited legal precedents, including the Hon’ble Apex Court and various High Courts, emphasizing that a generic notice without specifying the charge is bad in law. The argument centered on the importance of providing the Assessee with clarity regarding the nature of the alleged offense.
The ITAT Delhi’s decision leaned on previous judgments, such as the M/s. SSA’s Emerald Meadows case, where the Supreme Court dismissed the Revenue’s Special Leave Petition. The court upheld that the notice should explicitly mention the nature of the penalty proceedings.
Conclusion: In line with legal precedents and the argument presented by the Assessee, the ITAT Delhi concluded that the penalty notices were issued in a stereotyped manner without proper application of mind. Consequently, the penalty under section 271(1)(c) was deemed not leviable, and the appeal filed by the Assessee was allowed.
This case highlights the significance of clear and specific notices in penalty proceedings under the Income Tax Act, ensuring fair and transparent communication between the tax authorities and taxpayers.
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FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal has been preferred by the Assessee against the order dated 30.08.2019, impugned herein, passed by the learned Commissioner of Income-tax (Appeals)-22, New Delhi (in short “Ld. Commissioner”), u/s. 250 of the Income-tax Act, 1961 (in short ‘the Act’) for the assessment year 2013-14.
2. In the instant case, the Assessing Officer initiated the penalty proceedings against the Assessee u/s. 271(1)(c) of the Act on the basis of addition of 1,60,17,297/- on account of disallowance of sundry balances written off, made by the Assessing Officer vide assessment order dated 07.03.2016 u/s. 143(3) of the Act.
2.1 The Assessing Officer, therefore, after giving show cause notices 07-03-2006, 16-08-2016, 09-09-2016 and 18-03-2019 (Pages no 87-90 of PB) and resorting to the provisions of section 271(1)(c) of the Act, imposed a penalty of 52,22,411/- vide order dated 30.03.2019.
2.2 The Assessee being aggrieved, preferred first appeal before the ld. Commissioner, who vide impugned order affirmed the levy of penalty by dismissing the appeal of the Assessee. Being aggrieved, the Assessee is in appeal before us.
3. We have heard the parties and perused the material available on record. The Ld. AR emphasized that in the instant case, the notices referred to above, issued u/s 274 read with 271(1)(c) of the Act by the AO are vague, having not specified any particular limb of the penalty and, therefore, the penalty is not The Assessee in support of its contention also relied upon various judgments of the Hon’ble Apex Court and High Courts.
4. On the contrary the Ld. DR supported the orders passed by the authorities below and submitted that order under challenge does not suffer from any perversity, impropriety and/or illegality and hence needs no interference .
5. Heard the parties and perused the material available on record. In the instant case, the AO initiated the penalty under section 271(1)(c) of the Act for furnishing inaccurate particulars of Income and thereafter issued the notices u/s 274 r.w.s. 271(1)(c) of Act referred to above, for concealment of the particulars of income or filling of inaccurate particulars of income but without specifying any particular limb and finally vide penalty order dated 30.03.2019 imposed the penalty on furnishing of inaccurate particulars of income.
5.1 The Assessee by way of raising the plea which is legal in nature, challenged the Imposition of penalty mainly on the basis of notice itself, therefore we deem it appropriate to decide the legal issue involved in the instant case first, before dwelling into the merits of the case.
6. The Hon’ble Apex Court in case of M/s. SSA’s Emerald Meadows, (2016) 73 com 248(SC) dismissed the Special Leave Petition filed by the Revenue against the judgment rendered by Hon’ble High Court of Karnataka whereby identical issue was decided in favour of the Assessee. Operative part of the judgment in case of M/s. SSA’s Emerald Meadows (supra) decided by Hon’ble High Court of Karnataka is reproduced below:-
“2. This appeal has been filed raising the following substantial questions of law:
(1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case?
(2 Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in. holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and. invalid inspite the amendment of Section 271(1 B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same?
(3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued, under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income?
3. The Tribunal has allowed the appeal filed by the Assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short ‘the Act’) to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income .The Tribunal, while allowing the appeal of the Assessee, has relied upon the decision of the Division Bench of this Court rendered In the case of COMMISSIONER or INCOME TAX –VS- MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565.
4. In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court, the appeal is accordingly “
6.1 The Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar) observed where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked. The Hon’ble High Court also held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clause would lead to an inference of non-application of mind by the Assessing Officer and levy of penalty would suffers from non-application of mind.
6.2 Even the Hon’ble High Court of Delhi in the case of M/s. Sahara India Life Insurance Company 432 ITR 84 (Del.) while following the cases referred above, held as under:
“21. The Respondent had challenged the upholding of the penalty imposed under Section 271(1)(c) of the Act, which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory 359 ITR 565 (Kar) and observed that the notice issued by the AO would be bad in law if it did not specify which limb of Section 271(l)(c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgment in the subsequent order in Commissioner of Income Tax v. SSA’s Emerald Meadows (2016) 73 Taxman.com 241(Kar), the appeal against which was dismissed by the Supreme Court of India in SLP No: 11485 of 2016 by order dated 5th August, 2016.
22. On this issue again this Court is unable to find any error having been committed by the ITAT. No substantial question of law arises. Thus, notice under Section 271(1)(c) r.w.s. 274 of the Act itself is bad in law. We, therefore, set-aside the order of the CIT(A) and direct the Assessing Officer to cancel the penalty so levied.”
6.3 The penalty provisions of section 271(1)(c) of the Act are attracted, where the Assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it is imperative for the Assessing Officer to specify the relevant limb so as to make the Assessee aware as to what is the charge made against him, so that he can respond accordingly.
6.4 In the background of the aforesaid legal position and, having regard to the manner in which the Assessing Officer has issued the notices referred to above, under section 274 r.w.s. 271(1)(c) of the Act without specifying the limb, under which the penalty proceeding has been initiated and proceeded with, apparently goes to prove that notices in this case have been issued in a stereotyped manner without applying mind which is bad in law, hence cannot be considered valid notices sufficient to impose penalty u/s 271(1)(c) of the Act and therefore we are of the considered view that under these circumstances, the penalty is not leviable as held by the various Courts including the Hon’ble Apex Court and hence, we have no hesitation to delete the penalty under consideration, levied by the AO and affirmed by the Ld. Commissioner
7. In the result, the appeal filed by the Assessee stands allowed.
Order pronounced in the open court on 05/01/2023.
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