Case Law Details
Prajatantra Prachar Samity Vs DCIT (ITAT Cuttack)
It is noticed that the Co-ordinate Bench of this Tribunal has already deleted the additions made in the quantum assessments on the basis of which penalty has been levied u/s.271(1)(c) of the Act for all the three assessment years, we are of the view that the penalty has no more legs to stand. Consequently, we cancel the penalty levied u/s.271(1)(c) of the Act by the AO and confirmed by the ld CIT (A) for the impugned assessment years.
FULL TEXT OF THE ORDER OF ITAT CUTTACK
These are appeals filed by the assessee against the consolidated order of the CIT(A), Cuttack dated 28.11.2008 in Appeal No.0025,0026, 2227/08-09 for the assessment years 1989-90, 1985 -86 and 1993-94, respectively.
2. Shri S.K.Hota and Shri S.K.Agarwal, ld ARs appeared for the assessee and Shri S.C.Mohanty, ld Sr DR appeared for the revenue.
3. It was submitted by ld AR that the additions in the quantum assessment have been deleted by the Co-ordinate Bench of this Tribunal in ITA Nos.38 to 40/CTK/2007 dated 27.5.2022. It was the submission that as the quantum additions itself have been deleted by the Tribunal, the penalty is liable to be cancelled.
4. In reply, ld Sr DR vehemently supported the orders of the Assessing Officer as well as ld CIT(A). He has filed an uptodate written submission, as follows:
“1. Besides relying on the assessment order and the first appellate order following submissions are made.
2. The order of the Hon’ble ITAT, Cuttack bench in ITA no. 88 & 89/CTK/2019 relied on by the learned AR is per incurium as it has been passed ignoring the provision of the statute in the form of 292B of Income Tax Act. A decision treated per incurium is not a binding precedent and is not to be followed. CIT V. B. R. Constructions (AP) 202 ITR 222.
3. The order relied on by the learned AR is per incurium also because it is passed ignoring the binding precedent in the form of the decision in the case of Shanmugaveal Nadar 263 ITR 658 (SC) holding that a rejection of SLP through a non-speaking order is not a binding precedent and following the decision in the case of SSA’s Emerald Meadows (2016) 73 com 248 (SC) rejecting the Revenue SLP by a non-speaking order. This submission of the DR mentioned in paragraph 3 of the order has been ignored.
4. Rejection of SLP does not mean that decision of HC has been approved. CIT v. Shree Manjunatheswara Packing Products & Camphor Works 231 ITR 53 (SC). CIT v. Quality 224 ITR 77 (Pat). J. K. Charitable Trust v. WTO & Ors. 222 ITR 523 (All).
5. The order relied on by the learned AR follows the decision in the case of SSA’s Emerald Meadows (SC, supra) rejecting the Revenue SLP, by a non-speaking order, against the Karnataka HC order holding no substantial question of law arising for determination following the same HC decision in the case of Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565. The original decision in the case of Manjunatha Cotton & Ginning Factory (Kar, supra) is also per incurium for the same reason of ignoring the provision of the statute in the form of s. 292B of Income Tax Act. Hence the Tribunal is not precluded from deciding the issue. ACIT v. Goldmine Shares and Finance P. Ltd. 113 ITD 209 (ITAT, SB-Ahd).
6. Kind attention of the hon’ble bench is drawn to subsections (3) and (4) of s. 268A of Income Tax Act.
7. Sundaram Finance Ltd. [2018] 259 Taxman 220 (SC): SLP dismissed.[2018] 403 ITR 407 (Madras):
‘4. … the following additional substantial question of law is also framed for consideration:
“Whether a notice issued under Section 27(l)(c) of the Act which does not show the default which assessee was required to explain is a valid notice for levy of penalty? “
14. … firstly we wish to point out that such a contention was never raised by the assessee at any point of time.
16. …the assessee had at no earlier point of time raised the plea that on account of a defect in the notice, they were put to prejudice. All violations will not result in nullifying the orders passed by statutory authorities. If the case of the assessee is that they have been put to prejudice and principles of natural justice were violated on account of not being able to submit an effective reply, it would be a different matter. This was never the plea of the assessee either before the Assessing Officer or before the first Appellate Authority or before the Tribunal or before this Court when the Tax Case Appeals were filed and it was only after 10 years, when the appeals were listed for final hearing, this issue is sought to be raised. Thus on facts, we could safely conclude that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice issued under Section 274 r/w, Section 271 of the Act. Therefore, principles of natural justice cannot be read in abstract and the assessee, being a limited company, having wide network in various financial services, should definitely be precluded from raising such a plea at this belated stage. ‘
Cases considered: Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 (Kar.); SSA’s Emerald Meadows [2016] 73 taxmann.com 248 (SC)
8. Ventura Textiles Ltd. [2020] 426 ITR 478 (Bombay)
3….substantial questions of law:-
D. Whether on the facts and in the circumstances of the case the Tribunal ought to have held that the order passed under section 271(1) (c) is bad in view of the fact that both at the time of initiation as well as at the time of imposition of the penalty the Assessing Officer was not clear as to which limb of section 271(1) (c) was attracted? “
23. The statutory show-cause notice under section 274 read with section 271 of the Act proposing to impose penalty was issued on the same day when the assessment order was passed i.e., on 28.02.2006. The said notice was in printed form. Though at the bottom of the notice it was mentioned ‘delete inappropriate words and paragraphs’, unfortunately, the Assessing Officer omitted to strike off the inapplicable portion in the notice i.e., whether the penalty was sought to be imposed for concealment of particulars o f income or for furnishing inaccurate particulars of such income. Such omission certainly reflects a mechanical approach and non-application of mind on the part of the Assessing Officer.
24. However, the moot question is whether the assessee had notice as to why penalty was sought to be imposed on it?
25. This brings us to the basic question as to what is a notice or what do we mean by notice. Concise Oxford English Dictionary, Indian Edition, explains notice to mean the fact of observing or paying attention to something; advanced notification or warning; a displayed sheet or placard giving news or information.
It means to become aware of. In other words, to put someone on notice would mean warn someone of something about or likely to occur. Black’s Law Dictionary, Eighth Edition, defines the expression ‘notice’ to mean having actual knowledge of a fact; has received information about it; has reason to know it; knows about the related fact. In CST v. Subhash & Co., [2003] 3 SCC 454, Supreme Court deliberated upon the concept of notice and observed that the term ‘notice’ has originated from the Latin word “notifia” which means “being known” or “a knowing”. Thereafter, Supreme Court referred to the definition of the word ‘notice’ in various general and judicia l dictionaries. Without adverting to the large number of definitions, suffice it to say notice would mean information, warning or announcement of something impending; notice in its legal sense maybe defined as information concerning a fact communicated to a party by an authorised person or actually derived by him from a proper source; the term “notice” in its full legal sense embraces a knowledge of circumstances that ought to induce suspicion or belie f as well as direct information of that fact.
26. Reverting back to the facts of the present case, if the assessment order and the show cause notice, both issued on the same date i.e., on 28.02.2006, are read in conjunction, a view can reasonably be taken that notwithstanding the defective notice, assessee was fully aware of the reason as to why the Assessing Officer sought to impose penalty. It was quite clear that for breach of the second limb of section 271 (I)(c) of the Act i.e., for furnishing inaccurate particulars of income that the penalty proceedings were initiated. The purpose of a notice is to make the noticee aware of the ground(s) o f notice. In the present case, it would be too technical and pedantic to take the view that because in the printed notice the inapplicable portion was not struck off the order of penalty should be set aside even though in the assessment order it was clearly mentioned that penalty proceedings under section 271(l)(c) of the Act had been initiated separately for furnishing inaccurate particulars of income. Therefore, this contention urged by the appellant/assessee does not appeal to us and on this ground we are not inclined to interfere with the imposition of penalty.‘
9. Smt. Kaushalya [1995] 216 ITR 660 (Bombay). HELD
‘Section 274 or any other provision in the Act or the Rules, does not either mandate the giving of the notice or its issuance in a particular form Penalty proceedings are quasi-criminal in nature. Section 274 contains a 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 for failure of principles of natural justice on the ground of absence o f opportunity, it has to be established that prejudice was caused to the concerned person by procedure followed. The issuance of notice is an administrative device for informing the assessee about 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 f of inaccurate portion could not by itself invalidate the notice. Entire factual background would fall for consideration in the matter and no one aspect would be decisive. No doubt, there can exist a case where vagueness and ambiguity in the notice could demonstrate non-application of mind by the authority and/or ultimate prejudice to the right of opportunity of hearing contemplated under section 274.
In the instant case, vis-a-vis the penalty notices pertaining to the assessment years 1968-69 and 1969-70 the assessment orders were already made and reasons for issuing the notice under section 274 read with section 271(1)(c) were recorded by the ITO. The assessee fully knew in detail the exact charge of the department against him. In this background, it could not be said that either there was non-application of mind by the ITO or the so-called ambiguous wordings in the notice impaired or prejudiced the right of the assessee o f reasonable opportunity of being heard.‘
10. The principle that, in case of conflicting decisions of non-jurisdictional courts, the one favourable to the assessee should be adopted is not the ratio decidendi in the case of Vegetable Products Ltd. 88 ITR 192 (SC) but an obiter dictum. Obiter dicta are not binding. Vol v. Dhanwanti Devi (1996) 6SCC 44 p. 96. CIT v. Sun Engineering Works P. Ltd. (SC) 198 ITR 297.
11. Tribunal need not blindly follow earlier decision of it if it did not reflect the correct position of law. CIT v.Hi-Tech Arai Ltd. (Mad) 321 ITR 477.
12. As submitted by the same DR to the hon’ble bench hearing the appeal against the assessment in these cases (ITA no. 38, 39, 40/CTK/2007), consisting of the same hon’ble AM, the case of the assessee is not an innocuous one of ‘hybrid’ system of accounting in the sense in which the concept is generally understood in accountancy, as it is made out to be. It is one where all ledger accounts are maintained in mercantile basis but financial statements are on mixed basis with expenses on mercantile basis and revenue on cash basis. ‘Hybrid’ system of accounting is where either revenue or expenses or certain class of transactions or ledger accounts of certain class of parties are maintained either in cash or mercantile system with the other aspect of accounts (expenses or revenue) or class of transactions or accounts of the other class of parties maintained in the other (mercantile or cash) basis. Profit-&-Loss (or Income-&-Expenditure) account and balance sheet are only derivative accounts from ledger accounts with closing balances of certain accounts carried forward to P/L (or I/E) a/c and those of the rest to B/S. When all ledger a/cs are maintained in mercantile basis method of accounting becomes mercantile and forcible exclusion of receivable revenue of Rs 30,91,093/- from these financial statements only, while posting these in relevant revenue ledger a/cs does not make method of accounting ‘hybrid’ but fraudulent and amounts to furnishing inaccurate particulars of income.
13. It was also submitted that the argument by the assessee that receivables cannot be applied to charitable activities was misconceived. Expenditure to the extent of 15% of Rs 30,91,093/- of receivable excluded, amounting to Rs 4,63,664/-, could have been incurred on credit for the charitable purpose of the assessee, posted in relevant expenses a/c on mercantile basis and exemption could have been claimed instead of making the credit side of the P/L (or I/E) a/c and sundry debtors from the asset side of the B/S short forcibly to that extent. Mercantile system of accounting applies not only to revenue but also to expenses which could have been accounted for on accrual basis without the necessity for actual receipt.
14. The argument of non-availability of actual receipt for charitable application and consequent exemption is busted by the fact of cash in hand more (Rs6,20,000/-) at the end of the ‘previous year’ as per the B/S than the required amount (4,63,664) (assessment order, page 2, top paragraph).
15. There is also finding which has again been not rebutted so far that the fact that the sale proceeds were actually unrealizable remains unsubstantiated….Besides, despite maintaining books o f accounts on mercantile basis all along and by implication, not facing collection problems in those years, it was for the appellant to produce material and evidence regarding the problems involved in collection of those receipts and the alleged cash flow problem. ‘
[Order of CIT(A), page 8, paragraph 13.]
16. ‘In case the appellant was of the view that some item is actually not received in a subsequent year or has become totally irrecoverable, nothing stopped the appellant from claiming the same as bad debt.‘
[Order of CIT(A), page 10, last lines.]”
5. We have considered the rival submissions. As it is noticed that the Co-ordinate Bench of this Tribunal has already deleted the additions made in the quantum assessments on the basis of which penalty has been levied u/s.271(1)(c) of the Act for all the three assessment years, we are of the view that the penalty has no more legs to stand. Consequently, we cancel the penalty levied u/s.271(1)(c) of the Act by the AO and confirmed by the ld CIT (A) for the impugned assessment years.
6. In the result, appeals filed by the assessee stand allowed.
Order dictated and pronounced in the open court on 2 /6/2022.
