Case Law Details

Case Name : Associated Trading Vs. ITO ( ITAT Kolkata)
Appeal Number : I.T.A. No. 778/Kol/2015
Date of Judgement/Order : 26/04/2018
Related Assessment Year :

Associated Trading Vs. ITO ( ITAT Kolkata)

show cause notices issued under section 274 of the Act read with section 271 of the Act dated 30-10-2012 before imposing penalty does not contain the specific charge against the assessee namely as to whether the assessee was guilty of having concealed particulars of income or having furnished inaccurate particulars of income. A copy of the show cause notice under section 274 of the Act was filed before us and perusal of the same reveals that assessing officer has not struck out the irrelevant portion in the show cause notice and, therefore, the show cause notice does not specify the charge against the assessee as to whether the charge is of concealment of particulars of income or furnishing of inaccurate particulars of income.

High Court following its own decision in the case of CIT v. Manjunatha Cotton and Ginning factory (2013) 359 ITR 565 took a view that imposing of penalty under section 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice under section 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.

In these circumstances, we are of the view that imposition of penalty cannot be sustained.

FULL TEXT OF THE ITAT JUDGMENT

The appeal filed by the assessee is against the order of learned Commissioner (Appeals), Durgapur dated 31-3-2015 for assessment year 2010-11 in respect of upholding the penalty of Rs. 3,01,031 imposed by the assessing officer under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the “Act”).

2. In this appeal the assessee has challenged the order of Commissioner (Appeals) in confirming the penalty under section 271(1)(c) of the Act. The facts and circumstances under which penalty under section 271(1)(c) of the Act was imposed on the assessee by the assessing officer are that in this case the assessment under section 143(3) of the Act was made on 30-10-2012 determining total income at Rs. 15,25,801 against assessee’s returned income of Rs. 2,55,775. In the said order an amount of Rs. 12,70,039 was added under the various heads as envisaged in assessment order. On considering the same as suppressed as well as undisclosed portion of income, the penal proceedings under section 271(1)(c) of the Act was initiated on 30-10-2012 by invoking notice under section 274 read with section 271 of the Act. On considering the reply of the assessee the assessing officer imposed a penalty of Rs. 3,92,440. Aggrieved, assessee preferred appeal before learned Commissioner (Appeals), who while partly allowing the assessee’s appeal confirmed the levy of penalty on the addition made in aggregate of Rs. 11,03,666 and consequently the penalty imposed of Rs. 3,01,031 under section 271(1)(c) of the Act. Aggrieved, assessee is before us.

3. At the outset, learned Counsel for the assessee submitted before us that the show cause notices issued under section 274 of the Act read with section 271 of the Act dated 30-10-2012 before imposing penalty does not contain the specific charge against the assessee namely as to whether the assessee was guilty of having concealed particulars of income or having furnished inaccurate particulars of income. A copy of the show cause notice under section 274 of the Act was filed before us and perusal of the same reveals that assessing officer has not struck out the irrelevant portion in the show cause notice and, therefore, the show cause notice does not specify the charge against the assessee as to whether the charge is of concealment of particulars of income or furnishing of inaccurate particulars of income. The same is reproduced for the purpose of ready reference :–

“Whereas in the course of proceedings before me for the assessment year 2010-11 it appears that you have concealed the particulars or furnished inaccurate particulars of such income.”

4. The learned Counsel for the assessee drew our attention to the decision of the Hon’ble Karnataka High Court in the case ofCIT v. SSA’s Emerald Meadows [ITA No.380 of 2015, dt. 23-11-2015] wherein the Hon’ble Karnataka High Court following its own decision in the case of CIT v. Manjunatha Cotton and Ginning factory (2013) 359 ITR 565 took a view that imposing of penalty under section 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice under section 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. The learned Counsel further brought to our notice that as against the decision of the Hon’ble Karnataka High Court the revenue preferred an appeal in SLP in CC No.11485 of 2016 and the Hon’ble Supreme Court by its order dated 5-8-2016 dismissed the SLP preferred by the department. The learned Counsel also brought to our notice the decision of the Hon’ble Bombay High Court in the case of CIT v. Shri Samson Perinchery [ITA No.1154 of 2014, dt. 5-1-2017] wherein the Hon’ble Bombay High Court following the decision of the Hon’ble Karnataka High Court in the case of CIT v. 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. Our attention was also drawn to the decision of ITAT in the case of Suvaprasanna Bhattacharya v. ACIT [ITA No.1303/Kol/2010, dt. 6-11-2015] wherein identical proposition has been followed by the Tribunal.

5. Learned. DR vehemently opposed the submission of the learned. AR and has cited various case laws to oppose the case laws suggested by the learned. AR. We note that all the case laws cited before us by the learned. DR has been dealt with elaborately by the Coordinate Bench of this Tribunal in the case ofJeetmal Choraria v. ACIT [ITA No. 956/Kol/2016 for assessment year 2010-11 dated 1-12-2017, wherein the Tribunal has noted as under :–

“7. The learned. DR submitted that the Hon’ble Calcutta High Court in the case of Dr. Syamal Baran Mondal v. CIT (2011) 244 CTR 631 (Cal) has taken a view that section 271 does not mandate that the recording of satisfaction about concealment of income must be in specific terms and words and that satisfaction of assessing officer must reflect from the order either with expressed words recorded by the assessing officer 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 under section 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 (P) Ltd. v. ACIT [ITA No. 3830 & 3833/Mum/2009, dt. 21-3-2017]; (ii)Earthmoving Equipment Service Corporation v. DCIT 22(2), Mumbai, [I.T.A. No.6617/Mum/2014, dt. 2-5-2017] (iii) Mahesh M.Gandhi v. ACIT v. ACIT [ITA No. 2976/Mum/2016, dt. 27-2-2017]. Reliance was placed on two decisions of the Hon’ble Bombay High Court viz., (i) CIT v. Kaushalya (1995) 216 ITR 660 and (ii) M/s. Maharaj Garage & Co. v. CIT [Income Tax Reference No. 21 of 2008, dt. 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 ofCIT v. Kaushalya(supra), the Hon’ble 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 (P) Ltd. (supra) followed the decision rendered by the Jurisdictional Hon’ble Bombay High court in the case of Kaushalya (supra) and chose not to follow decision of Hon’ble 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 Hon’ble 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 Earthmoving 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 under section 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 9-4-2009. Aggrieved by the said order, the revenue filed appeal before High Court. The Hon’ble 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 Hon’ble 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 Earthmoving Equipment Service Corporation (supra) is of no assistance to the plea of the revenue before us.

11. In the case ofM/S. Maharaj Garage & Co. v. CIT [Income Tax Reference No. 21 of 2008, dt. 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 Hon’ble 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 ofTrishul Enterprises[ITA No.384/Mum/2014, 385/Mum/2014, dt. 10-2-2017], the Mumbai Bench of ITAT followed the decision of the Hon’ble 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 Hon’ble Karnataka High Court in the case Manjunatha Cotton & Ginning (supra) will not be applicable to the facts of that case because the assessing officer 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 under section 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 whispher 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 Hon’ble 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 under section 274 of the Act. The Hon’ble Court did not lay down a proposition that the defect in the show cause notice will stand cured if the intention of the charge under section 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 Hon’ble Bombay High Court and the Hon’ble 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 Hon’ble Bombay High Court and Patna High Court are bound to follow the aforesaid view. The Tribunal Benchs at Bangalore have to follow the decision of the Hon’ble Karnataka High Court. As far as benches of Tribunal in other jurisdictions are concerned, there are two views on the issue, one in favour of the assessee rendered by the Hon’ble Karnataka High Court in the case ofManjunatha Cotton & Ginning(supra) and other of the Hon’ble 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 favourable to the assessee has to be followed. We therefore prefer to follow the view expressed by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra).

15. We have already observed that the show cause notice issued in the present case under section 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 under section 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 learned Counsel for the assessee 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.”

Respectfully following the aforesaid order of the coordinate bench of this Tribunal, we, therefore, hold that imposition of penalty and subsequently confirmed by the learned Commissioner (Appeals) in the present case cannot be sustained and the same is hereby deleted. Appeal of assessee is allowed.

6. In the result, appeal of assessee is allowed.

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