Section 271(1)(c) Penalty not leviable if No specific charge framed against assessee

Mahaveerchand Jain Vs DCIT (ITAT Chennai)

Facts- The assessee being resident individual was assessed u/s 143(3) r.w.s. 147 of the Act wherein the income was assessed at Rs.20.47 Lacs after certain additions of unexplained cash deposits in the bank account of the assessee. The assessee was engaged in the business of auctioneering under the name ‘Kankaria Auctioneers’. Pursuant to search action on Shri Jaswant Chand Bhandari on 12.08.2004, it was found that the said group sold jewellery and diamonds through ‘Kankaria Auctioneers’. Accordingly, the assessee’s case was reopened wherein it was found that cash was deposited by the assessee in his account with Vijaya Bank. The assessee could not explain the source of cash deposit but submitted that the income portion is only the margin / commission earned out of such auction sales. However, rejecting the same, Ld. AO added cash deposits in the hands of the assessee. The additions were confirmed in first appellate order.

Consequently, penalty proceedings were initiated against the assessee and notice u/s 274 r.w.s. 271(1)(c) was issued on 30.03.2006. Though the assessee opposed penalty, however, Ld. AO found it fit case for levy of penalty u/s 271(1)(c) and accordingly, a penalty of Rs.5.50 Lacs was proposed in penalty order dated 25.03.2014. Aggrieved, the assessee agitated the penalty before Ld. CIT(A).

Conclusion- Held that since no specific charge was framed either in the show-cause notice or in the body of penalty order and there was failure on the part of Ld. AO to frame specific charge against the assessee, the penalty would not be sustainable in the eyes of law. By deleting the impugned penalty, we allow the appeal.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

1. Aforesaid appeals by assessee for Assessment Years (AY) 1998­99 to 2005-06 arises out of the common order passed by the learned Commissioner of Income Tax (Appeals)-18, Chennai [CIT(A)] on 21.09.2020 confirming penalty u/s. 271(1)(c) of the Act as levied by the Ld. AO vide separate orders.

2. The facts leading to penalty are pari-materia the same in all the years and therefore, adjudication in any one year shall be equally applicable to the other years also. For the purpose of adjudication, facts from AY 1998-99 have been considered in the appeal. The grounds raised by the assessee read as under:

1. The order of the learned Commissioner of Income (Appeals)-18, is wrong, illegal and is opposed to law. The learned Commissioner (Appeals) erred in law and on facts in confirming the action of learned assessing officer in levying penalty under section 271(1)(c).

2. The learned Commissioner Of Income (Appeals)-18 ought to have seen that the appellant has neither furnished inaccurate particulars of income nor has concealed the particulars of income warranting levy of penalty under section 271 (1)(C) .

3. The learned CIT(A)-18 ought to have seen that the penalty proceedings is deemed to have been initiated only with the issue of notice under section 274 r.w.s 271(1)(C) and that the said notice should specifically state the reasons for levy of penalty. Failure on the part of the AO to specifically state the reasons under which limb the penalty is levied would tantamount to failure to record satisfaction as well as nonapplication of mind thereby making the said levy illegal and opposed to law. In in the instant case the penalty notice suffers from aforesaid infirmity

4. The learned Commissioner (Appeals) erred in law and on facts in confirming the action of learned assessing officer in levying penalty under section 271(1)(c) solely on the basis that additions made in assessment order stands confirmed. The learned 1^st appellate authority failed to see that the penalty proceedings are independent of assessment proceedings and therefore penalty is not leviable merely on the ground that the additions made in the assessment proceedings are sustained.

5. The leaned Commissioner ought to have seen that penalty cannot be levied merely because an amount is not allowed or taxed as income as held by Hon’ble Supreme Court in the case of M/s Hindustan Steel Ltd. vs State of Orissa (1972) 83 ITR 26(SC) and decision of Hon’ble High Court of Delhi in Escorts Financc Ltd. (2009) 226 CTR (Del) 105. In the instant case the additions was confirmed in the assessment only due to non-production of certain details. However this alone cannot lead to levy of penalty.

6. The learned CIT(A) ought to have seen that the discretion to impose a penalty must be exercised judicially and that penalty should be imposed only in cases where the party acts deliberately in defiance of law, or is guilty of contumacious or dishonest conduct, or acts in conscious disregard of its obligation. In the instant case the quantum assessment is completed on the basis of disallowance of a certain claim made by the assessee which would neither mean that the assessee has concealed any income or furnished inaccurate particulars warranting levy of penalty.

7. The learned Commissioner (Appeals) ought to have seen that for sustaining penalty, the bona fide explanation of the assessee has to be considered and that merely because the assessment proceedings have been confirmed does not automatically mean that penalty u/s 271(1)(c) is justified, unless the case is strictly covered by s. 271(1)(c).

3.1 Drawing our attention to Ground No.3, the Ld. AR placed on record notices issued by Ld. AO u/s. 274 r.w.s. 271(1)(c) of the Act and submitted that no specific charge was made against the assessee which would vitiate the penalty proceedings as per settled legal position. Reliance has been placed on the decision of Hon’ble Madras High Court in Babuji Jacob vs ITO (430 ITR 259) as well as the decision of Hon’ble Bombay High Court in PCIT V/s Goa Coastal Resorts and Recreation (P.) Ltd (272 Taxman 157) against which revenue’s Special Leave petition (SLP) has already been dismissed by Hon’ble Supreme Court which is reported at 130 Taxmann.com 379.

3.2 The Ld. Sr. DR, on the other hand, relied on the decision of the Hon’ble High Court of Madras in M/s. Gangotri Textiles Ltd vs DCIT (121 Taxmann.com 171) as well as another decision in Sundaram Finance Ltd. Vs. ACIT (93 Taxmann.com 250) against which the assessee’s SLP has already been dismissed by Hon’ble Supreme Court which is reported at 99 Taxmann.com 152.

3.3 Having heard the rival submissions and after due consideration of relevant material on record, our adjudication would be as under. The assessment for AY 1998-99 has been framed u/s 143(3) r.w.s. 147 of the Act whereas the assessment for AYs 1999-2000 to 2004-05 has been framed u/s 153C r.w.s. 143(3) of the Act whereas the assessment for AY 2005-06 has been framed u/s 153C r.w.s. 144 of the Act

Proceedings before Ld. AO

4.1 The assessee being resident individual was assessed u/s 143(3) r.w.s. 147 of the Act wherein the income was assessed at Rs.20.47 Lacs after certain additions of unexplained cash deposits in the bank account of the assessee. The assessee was engaged in the business of auctioneering under the name ‘Kankaria Auctioneers’. Pursuant to search action on Shri Jaswant Chand Bhandari on 12.08.2004, it was found that the said group sold jewellery and diamonds through ‘Kankaria Auctioneers’. Accordingly, the assessee’s case was reopened wherein it was found that cash was deposited by the assessee in his account with Vijaya Bank. The assessee could not explain the source of cash deposit but submitted that the income portion is only the margin / commission earned out of such auction sales. However, rejecting the same, Ld. AO added cash deposits in the hands of the assessee. The additions were confirmed in first appellate order.

4.2 Consequently, penalty proceedings were initiated against the assessee and notice u/s 274 r.w.s. 271(1)(c) was issued on 30.03.2006 which read as under: –

ITNS-29

NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE
INCOME TAX ACT, 1961
OFFICE OF THE DEPUTY COMMISSIONER OF INCOME TAX
CENTRAL CIRCLE –II-(2), 46, NEW BUILDING, I FLOOR,
M.G. ROAD, CHENNAI – 34.
* * * * *

PAN NO: AALPK-3243-Q

Date: 30.03.2006

To

MAHAVEER CHAND JAIN
PROP M/S. KANKARIA AUCTIONEERS,
40 SACHIDANATHAM STREET,
KOSAPET, CHENNAI – 600 012.

Whereas in the course of proceedings before me for the assessment year 1998-99. It appears to me that you:-

* have without reasonable cause failed to comply with a notice under sub-section (1) of section 142 No. _________________  date ____  or sub-section (2) of section 143 No. _____________  dated  or failed to comply with a direction issued under sub-section (2A) of section 142 no.____________ date____________ ü * have concealed the particulars of your Income or furnished inaccurate particulars of such income.

You are hereby requested to appear before me at 46, M.G. Road, Chennai -34 at 3 AM/PM on 04.05.2006 and show cause why an order imposing a penalty on you should not be made under section 271 of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative your may show cause in writing on or before the said date which will be considered before any such order is made under section 271.

(M. RAJASEKHAR IRS)
Deputy Commissioner of Income Tax,
Central Circle II(2), Chennai – 34.

4.3 Though the assessee opposed penalty, however, Ld. AO found it fit case for levy of penalty u/s 271(1)(c) and accordingly, a penalty of Rs.5.50 Lacs was proposed in penalty order dated 25.03.2014 by observing as under: –

“ The request of the assessee cannot be considered and is rejected as it is a fit case of levy penalty u/s 271(1)(c) of the Income Tax Act, 1961. I therefore propose to levy penalty u/s 271(1)(c) as per law I therefore levy a penalty of
Rs.5,50,000/- u/s 271(1)(c) of the Income Tax Act, 1961.”

Aggrieved, the assessee agitated the penalty before Ld. CIT(A).

Appellate proceedings

5.1 During appellate proceedings, it transpired that the assessee’s quantum appeals were dismissed by the Tribunal vide order dated 09.04.2014. The assessee challenged the correctness of impugned penalty on various grounds. The assessee, inter-alia, submitted that none of the cash deposits were his moneys but the money of others routed through his bank account against commission. It was also submitted that the aforesaid facts were not properly considered in the Tribunal’s order. The assessee also submitted that findings in the assessment proceedings do not by itself lead to the inference that there is concealment of income. Assessment and penalty proceedings are independent of each other and imposition of penalty does not automatically flow from quantum additions.

5.2 The status of returned income and assessed income was tabulated as follows: –

5.3 The Ld. CIT(A) noted that though the assessee canvassed placing reliance on the business model, however, it failed to establish the nature of source of deposits. It was the primary responsibility of the assessee to furnish the documentary evidences as to nature and inflow of deposits while furnishing name, address of the persons and other relevant documents to support his claim. The assessee failed to discharge this onus which led to dismissal of appeals before Tribunal.

5.4 Another argument that levy of penalty was not automatic, Ld. CIT(A) held that penalty u/s 271(1)(c) was a civil liability and mens-rea need not be proved. From the facts, it was clear that the assessee concealed its particulars of income. The particulars filed in the return of income were not accurate or exact. Therefore, since the assessee could not substantiate his claim that the private parties gave jewellery and cash for equivalent amount of cheques. The assessee could not provide the list of such parties and did not maintain any books of accounts on the commission received in this regard. In the absence of satisfactory explanation, the penalty was to be upheld.

5.5 Aggrieved as aforesaid, the assessee is in further appeal before us.

Our findings and adjudication

6. Upon careful consideration of factual matrix, it could be gathered that the assessee made large cash deposits in his bank account and attributed the same to the fact that cash was received out of auctions as well as from private parties against equivalent amount of cheque. However, in the absence of any satisfactory explanation / evidences forthcoming from the assessee, the same has been added u/s 68 in the hands of the assessee. The additions have been confirmed up-to the level of Tribunal.

7. Before us, Ld. AR raised a pertinent legal issue and submitted that specific charge i.e., furnishing of inaccurate particulars of income or concealment of income, has not been framed against the assessee in the show-cause notice as well as in penalty order. Therefore, considering the ratio of various binding judicial precedents, the penalty stood vitiated for want of framing of specific charge. The copies of these decisions have been placed on record which include the decision of Hon’ble Madras High Court in Babuji Jacob vs ITO (430 ITR 259) as well as the decision of Hon’ble Bombay High Court in PCIT V/s Goa Coastal Resorts and Recreation (P.) Ltd (272 Taxman 157) against which revenue’s Special Leave petition (SLP) has already been dismissed by Hon’ble Supreme Court which is reported at 130 com 379. The Ld. Sr. DR, has similarly relied on decision of High Court of Madras in M/s. Gangotri Textiles Ltd vs DCIT (121 Taxmann.com 171) as well as another decision in Sundaram Finance Ltd. Vs ACIT (93 Taxmann.com 250) against which the assessee’s SLP has already been dismissed by Hon’ble Supreme Court which is reported at 99 Taxmann.com 152.

8. Upon perusal of notice issued u/s 274 r.w.s. 271(1)(c) as extracted above, we find that though the applicable clause has been ticked by Ld. AO, however, the applicable limb i.e., whether the penalty was being initiated for furnishing of inaccurate particulars of income or for concealment of income has not been specified. Even in the body of penalty order, penalty has mechanically been levied without framing specific charge against the assessee. As per settled legal position, the failure to frame specific charge against the assessee would vitiate the penalty proceedings and the penalty would be bad in law. The two limbs of Sec.271(1)(c) are concealment of income and furnishing of inaccurate particulars of income which carry different connotation / meaning. Non-framing of specific charge against the assessee would vitiate the penalty proceedings since the penalty could be levied only for a specific charge. Furnishing of inaccurate particulars of income means, when the assessee has not disclosed the particulars correctly or the particulars disclosed by the assessee are found to be incorrect whereas, concealment of particulars of income would mean that the assessee has concealed the income and has not reflected certain income in its return of income. It could be seen that the show-cause notice issued u/s 274 r.w.s 271 was a vague notice in a printed form without specifying the exact charge for which the assessee was being penalized and therefore, it was a clear case of non-application of mind while initiating penalty against the assessee. The Ld. AO, while initiating the penalty was not clear as to specific limb which was applicable to given factual matrix. This is further fortified by the fact that no such exact charge has not been framed in the penalty order.

9. At this juncture, it would be useful to take note of the decision of Hon’ble High Court of Madras in the case of Babuji Jacob Vs. lTO (430 lTR 259; 08.12.2020). Upon perusal of the same, we find that the ratio of this decision is squarely applicable to the legal grounds raised by the assessee. The Hon’ble Court, inter-alia, held that the impugned notice under section 271(1)(c) did not specifically state as to whether assessee was guilty of concealing particulars of his income or had furnished inaccurate particulars of income. Hence, the impugned penalty was invalid and same was to be set aside. The adjudication of Hon’ble Court was as under: –

18. The first aspect is as to whether there is any concealment of particulars of the assessee’s income. At the first instance i.e. during the scrutiny assessment, the assessee sent a letter dated 15.3.2016 explaining the entire transaction wherein he had stated that while filing the return of income, he was under the impression that both the properties were agricultural lands and that there was no tax liability. Consequently, since one of the properties namely the property at Egattur Village was treated to be a capital asset, the long term capital gains were computed and the assessee requested for deduction under Section 54F of the Act, as the sale consideration received was utilized for purchase of a new flat, in which, the name of the assessee’s wife was also included as a purchaser. The assessee further stated about the sale of livestock and standing crops. The assessee also stated that he is a senior citizen carrying on agricultural operations for 27 years and that his income was based upon the interest received from bank deposits and offered that a sum of Rs.50 lakhs may be treated as revenue in nature and taxed as income though there was no positive fact or finding had been found so as to avoid protracted litigation.

19. Further, with regard to deposits, the assessee explained that he had received the amount of Rs.21,56,250/- towards development cost of the agricultural land and a copy of the letter acknowledging payment made by the party was produced. This amount was received by RTGS to his bank account and the buyer had confirmed in writing that this was paid as development cost. Hence, this amount related to sale consideration of the land.

20. This explanation, which was offered by the assessee, did not find favour with the Assessing Officer, who rejected the same and completed the assessment vide order dated 30.3.2016 under Section143(3) of the Act and made additions as mentioned above. Thus, there was no allegation in the assessment under Section 143(3) of the Act that there had been concealment of particulars of income.

21. Admittedly, all the amounts were received by the assessee through banking channels and he had mentioned about the same in his return of income. The only mistake done by the assessee was to treat both the lands as agricultural lands. Once the notice under Section 143(3) of the Act was issued, the assessee was able to convince the Assessing Officer that the lands in Pudhupakkam Village were to be treated as agricultural lands. But, he was unable to convince the Assessing Officer that the lands in Egattur Village were agricultural lands, which were treated to be a capital asset. Therefore, there wasno material available with the Assessing Officer to allege concealment of particulars of income.

22 With regard to furnishing of inaccurate particulars, the stand taken by the assessee was that both lands were agricultural lands, that he had been carrying on agricultural operations for 27 years, that he had been filing return of income regularly and that the source of income was from agricultural income and interest income from bank deposits. These facts were never disputed by the Assessing Officer.

23. After receipt of the penalty notice, the assessee submitted a reply dated 11.4.2016 wherein the assessee reiterated the stand taken in his letter dated 15.3.2016. However, the same was not accepted by the Assessing Officer while completing the assessment under Section 143(3) of the Act. The assessee further stated that he had produced all the facts of the transactions namely sale documents, materials, etc., before the Assessing Officer and therefore, it cannot be construed as furnishing of inaccurate particulars. The assessee also pointed out that while allowing exemption under Section 54F of the Act, the Assessing Officer considered 50% of the investments whereas 100% investments were done through banking channels. Therefore, the assessee stated that it cannot be said that correct particulars of income were not furnished. The assessee further pointed out that he was in need of funds for purchase of a new flat, that he sold trees with roots, coconut seedling and other miscellaneous items, that the farming sector was an unorganized sector, that all were sold to agriculturists and that he cannot be compelled to furnish details in this regard. The assessee furthermore pointed out that full particulars such as bank statements,cash deposit out of accumulated income were fully disclosed and furnished to the Assessing Officer, that there was no non disclosure, that the explanation offered was bona fide and that therefore, penalty could not be imposed.

24. The Assessing Officer, while imposing penalty vide order dated 28.9.2016, held that but for the scrutiny assessment under Section 143(3) of the Act, the cash deposits would not have come to light and therefore, rendered a finding that the assessee furnished inaccurate particulars.

25. This finding of the Assessing Officer is incorrect because while completing the assessment under Section 143(3) of the Act, there was no allegation against the assessee as to furnishing of inaccurate particulars. But, the Assessing Officer did not accept the explanation offered by the assessee and made certain additions, which will not automatically result in interpreting the same as furnishing of inaccurate particulars. Further, we find that there is no specific finding as regards the concealment against the assessee because, on facts, it has been established before the Assessing Officer while completing the assessment under Section 143(3) of the Act that all transactions were through banking channels. Hence, the argument of Mrs.R.Hemalatha, learned Senior Standing Counsel appearing for the Revenue that both limbs of Section 271(1)(c) of the Act are attracted has to necessarily fall. Hence, we hold that there is inherent defect in the notice dated 30.3.2016 issued under Section 271(1)(c) of the Act, as it will vitiate the entire proceedings.

26. Since we have heard the learned counsel on the correctness of the orders passed by the Assessing Officer, the CIT(A) and the Tribunal on the merits of the matter, we proceed to discuss the otherissues as well.

27. The CIT(A), while confirming the order of penalty, took note of the order passed by the Assessing Officer wherein the Assessing Officer rejected the explanation offered by the assessee, which ultimately resulted in an addition and the assessment was completed vide order dated 30.3.2016. The question would be as to whether rejection of the explanation and the consequential addition would automatically result in an order of penalty.

28. Mrs. R.Hemalatha, learned Senior Standing Counsel appearing for the Revenue seeks to substantiate her case by relying upon the decision of the Hon’ble Supreme Court in the case of Mak Data (P) Ltd. Vs. CIT, II [reported in (2013) 38 Taxmann.com 448] wherein it was held that voluntary disclosure does not release the assessee from mischief of penalty proceedings under Section 271(1)(c) of the Act and in terms of the said provision, the Assessing Officer has to satisfy as to whether the penalty proceedings have to be initiated or not during the course of assessment proceedings and he is not required to record his satisfaction in a particular manner or reduceit into writing. Reliance is also placed on the decision of the Hon’ble Supreme Court in the case of K.P.Madhusudhanan Vs. CIT [reported in (2001) 118 Taxman 324]. The decision of the Hon’ble Supreme Court in the case of Mak Data (P) Ltd., was taken note of by the Division Bench of this Court, to which, one of us (TSSJ) was a party, in the case of CIT, Chennai-IV Vs. Gem Granites (Karnataka) [reported in (2014) 42 com 493] and the aspect as to how onus/burden of proof shifts from the assessee to the Revenue when penalty proceedings are initiated, is held in thefollowing terms :

“11. In a recent decision of the Hon’ble Supreme Court in Civil Appeal No.9772 of 2013, dated 30.10.2013 (Mak Data P. Ltd., vs. Commissioner of Income Tax-II), the Hon’ble Supreme Court while considering theExplanation to Section 271(1), held that the question would be whether the assessee had offered an explanation for concealment of particulars of income or furnishing inaccurate particulars of income and the Explanation to Section 271(1) raises a presumption of concealment, when a difference is noticed by the Assessing Officer between the reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence and when the initial onus placed by the explanation, has been discharged by the assessee, the onus shifts on the Revenue to show that the amount in question constituted their income and not otherwise. Factually, we find that the onus cast upon the assessee has been discharged by giving a cogent and reliable explanation. Therefore, if the department did not agree with the explanation, then the onus was on the department to prove that there was concealment of particulars of income or furnishing inaccurate particulars of income. In the instant case, such onus which shifted on the department has not been discharged. In the circumstances, we do not find that there is any ground for this Court to substitute our interfere with the finding of the Tribunal on the aspect of the bonafides of the conduct of the assessee.”

30. In the instant case, the assessee offered an explanation and we find the explanation to be cogent because all deposits were made through banking channels and out of two properties sold, the Assessing Officer accepted the assessee’s stand that one of the properties was an agricultural land. Hence, we find that the burden cast upon the assessee to offer an explanation stands fulfilled. Consequently, the burden now shifts to the Revenue to establish the concealment of income or furnishing of inaccurate particulars of income or both. If the Revenue does not agree with the explanation offered by the assessee as in the instant case, then the onus is on the Revenue to prove that there was concealment of particulars of income or furnishing of inaccurate particulars of income. We find this aspect to be completely absent in the instant case. Therefore, we also find the imposition of penalty to be unjustified.

31. The assessee filed an appeal before the Tribunal, which confirmed the order passed by the CIT(A) that the assessee raised a new stand before the CIT(A). No such new stand has been raised. The stand taken by the assessee after receipt of the notice under Section 143(2) of the Act dated 02.9.2014 has been consistent i.e. before the Assessing Officer while submitting the reply to the penalty notice, in the appeal before the CIT(A) and before the Tribunal. This is evident on a reading of the grounds of appeal filed before the CIT(A) as well as the notes of arguments filed by the assessee before the CIT(A) dated30.6.2017. Therefore, to that extent, the CIT(A) and the Tribunal have committed an error.

32. The decision of this Court in the case of Sundaram Finance Ltd., was couched on a different factual position wherein the Court rejected the plea of the assessee, which was a limited company, when they raised an argument with regard to the validity of the notice for the first time before the High Court and considering the administrative set up of the said assessee and the fact that the assessee was neverprejudiced on account of the alleged defect, the Court rejected the argument of the assessee.

33. In the case on hand, we find that at the first instance, while replying to the penalty show cause notice dated 30.3.2016, the assessee raised a specific plea that there was no concealment of income, that he had not furnished inaccurate particulars of income and that the notice was not proper. Therefore, the phraseology, which was adopted by the assessee, if read as a whole, would clearly show that he had objected to the issuance of the notice and as there was no basis for issuance of the notice under Section 271(1)(c) of the Act, both limbs in the said provision do not get attracted. Hence, the decision of this Court in the case of Sundaram Finance Ltd., cannot be applied.

34. The decision of the Hon’ble Supreme Court in the case of K.P.Madhusudhanan is factually different wherein the assessee was unable to furnish evidence for loans and that he offered the amount of transaction as additional income and this explanation was not acceptable to the Assessing Officer and he applied Explanation (1B) to Section 271(1)(c) of the Act and imposed penalty.

35. In the instant case, the assessee has been able to explain the transaction even at the first instance i.e. while submitting the reply dated 15.3.2016 in response to the notice under Section 143(2) of the Act, which explanation he maintained till he filed an appeal before the Tribunal. Therefore, on facts, the decision of the Hon’ble Supreme Court in the case of K.P.Madhusudhanan is distinguishable.

36. Further, the CIT(A) found fault with the assessee in not challenging the assessment order and for having accepted the same. However, this cannot be a ground to enable the Assessing Officer to automatically levy penalty. In this regard, it is beneficial to refer to the decision of the Hon’ble Division Bench of this Court in the case of CIT Vs. Smt.Anitha Kumaran [reported in (2017) 79 Taxmann.com304] wherein the decision of the Hon’ble Supreme Court in the case of CIT Vs. Reliance Petro Products (P) Limited [reported in (2010) 322 ITR 158] was followed wherein the Hon’ble Supreme Court examined the issue threadbare and discussed at length as to what was meant by the expression ‘concealment of particulars of income and/or furnishing of inaccurate particulars of income’ and after applying the decision in the case of Reliance Petro Products (P) Ltd., the Hon’ble Division Bench of this Court dismissed the appeal filed by the Revenue in the following terms :

“13.3. The Supreme Court examined the issue threadbare and discussed at length as to what was meant by the expression concealment of particulars of income and/or furnishing inaccurate particulars of income and went on to observe as follows:

” A glance at this provision would suggest that in order to be covered, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. Present is not the case of concealment of the income. That is not the case of the Revenue either. However, the Learned Counsel for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word “particular” is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word “particulars” used in Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Learned Counsel argued that “submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income”. We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imagination, making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. In Commissioner of Income Tax, Delhi Vs. Atul Mohan Bindal [2009(9) SCC 589], where this Court was considering the same provision, the Court observed that the Assessing Officer has to be satisfied that a person has concealed the particulars of his income or furnished inaccurate particulars of such        income….”

9. We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster’s Dictionary, the word “inaccurate” has been defined as:- “not accurate, not exact or correct; not according to truth; erroneous; as an inaccurate statement, copy or transcript”. We have already seen the meaning of the word “particulars” in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the Return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case,there is no finding that any details supplied by the assessee in its Return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under Section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will notamount to furnishing inaccurate particulars regarding the income of the assessee. Such claim made in the Return cannot amount to the inaccurate particulars.

10. It was tried to be suggested that Section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they areincorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one’s income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason,the assessee will invite penalty under Section 271(1)(c). That is clearly  not the intendment
of the Legislature.”

37. On this issue, a useful reference can be to the decision of the Gujarat High Court in the case of National Textiles Vs. CIT [reported in (2001) 249 ITR 125], which related to the assessment year 1974-75 wherein it was held that in order to justify the levy of penalty, two factors must co-exist namely (i) there must be some material or circumstance leading to a reasonable conclusion that the amount does not represent the assessee’s income and it is not enough for the purpose of penalty that the amount has been assessed as income and (ii) the circumstances must show that there was animus i.e. conscious concealment or act of furnishing inaccurate particulars on the part of the assessee.

38. Further, the decision of the Hon’ble Division Bench of this Court in the case of CIT Vs. S.I.Paripushpam [reported in (2001) 118 Taxman 844] would support the case of the assessee. In the said case, the Appellate Assistant Commissioner, in the penalty proceedings, held that the amount, the addition of which was agreed to by the assessee was an amount, which had been set out in an enclosure filed along with the return. While testing the correctness of the order, the Tribunal held that the levy of penalty under Section 271(1)(c) of the Act was wholly unwarranted as there had been no fraud or wilful neglect and that the assessee had only, with a view to cooperate with the Department, agreed to the addition. We observe that the above position will help the assessee, as there is not even a remote allegation that there was any fraudulent act by the assessee or the assessee was guilty of wilfully or negligently concealing the income and that his agreement to the addition of the amount, by itself, will not establish fraud or wilful neglect without something more.

39. For the above reasons, the assessee has to succeed on all grounds and consequently, it has to be held that the notice initiating the penalty proceedings is defective and invalid and the other findings rendered by the Assessing Officer, the CIT(A) and the Tribunal do not warrant imposition of penalty on the assessee.

40. In the result, the above tax case appeal is allowed, the impugned order passed by the Tribunal is set aside and the substantial questions of law are answered in favour of the assessee. No costs.

10. Similar is the decision of Hon’ble Bombay High Court in PCIT V/s Goa Coastal Resorts and Recreation (P.) Ltd (272 Taxman 157) which has not admitted question of law raised by the revenue by observing as under: –

5. We have carefully examined the record as well as duly considered the rival contentions. Both the Commissioner (Appeals) as well as the ITAT have categorically held that in the present case, there is no record of satisfaction by the Assessing Officer that there was any concealment of income or that any inaccurate particulars were furnished by the assessee. This being a sine qua non for initiation of penalty proceedings, in the absence of such petition, the two authorities have quite correctly ordered the dropping of penalty proceedings against the petitioner.

6. Besides, we note that the Division Bench of this Court in Samson Preinchery (supra) as well as in New Era Sova Mine (supra) has held that the notice which is issued to the assessee must indicate whether the Assessing Officer is satisfied that the case of the assessee involves concealment of particulars of income or furnishing of inaccurate particulars of income or both, with clarity. If the notice is issued in the printed form, then, the necessary portions which are not applicable are required to be struck off, so as to indicate with clarity the nature of the satisfaction recorded. In both Samson Perinchery and New Era Sova Mine (supra), the notices issued had not struck of the portion which were inapplicable. From this, the Division Bench concluded that there was no proper record of satisfaction or proper application of mind in matter of initiation of penalty proceedings.

7. In the present case, as well if the notice dated 30/09/16 (at page 33) is perused, it is apparent that the relevant portions have not been struck off. This coupled with the fact adverted to in paragraph (5) of this order, leaves no ground for interference with the impugned order. The impugned order are quite consistent by the law laid down in the case of Samson Perinchery and New Era Sova Mine(supra) and therefore, warrant no interference.

8. The contention based upon MAK Data (P.) Ltd.(supra) also does not appeal to us in the peculiar facts of the present case. The notice in the present case is itself is defective and further, there is no finding or satisfaction recorded in relation to concealment or furnishing of inaccurate particulars.

9. For the aforesaid reasons, we hold that no substantial questions of law arises in this appeal. Consequently, this appeal is dismissed.

The revenue’s SLP against this decision has already been dismissed by Hon’ble Supreme Court on 31.08.2021 (130 Taxmann.com 379) by observing as under: –

1. Delay condoned.

2. We are not inclined to interfere with the impugned order.

3. The special leave petition is, accordingly, dismissed.

4. Pending application stands disposed of.

11. Similar is the decision of Hon’ble Bombay High Court rendered in CIT Vs. Samson Perinchery [2017 88 com 413] wherein Hon’ble Court has confirmed the ratio laid down by Hon’ble Karnataka High Court in CIT V/s Manjunatha Cotton & Ginning Factory (359 ITR 565). This decision of Hon’ble Karnataka High Court has subsequently been followed by the same court in the case of CIT V/s SSA’s Emerald Meadows (2016 73 Taxmann.com 241) which was agitated by the revenue before Hon’ble Supreme Court. However, Special Leave Petition, against the same, was dismissed by the Hon’ble Court on 05/08/2016 which is reported at 73 Taxmann.com 248. This decision of Hon’ble Karnataka High Court rendered in Manjunatha Cotton & Ginning Factory has subsequently been followed extensively in catena of judicial pronouncements rendered by various Hon’ble High Courts as well as different benches of Tribunal and taken a view that non-framing of specific charge in the show-cause notice would vitiate the penalty proceedings. The failure to frame specific charge against the assessee during penalty proceedings would be fatal to penalty proceedings itself and the same could not be sustained in the eyes of law.

12. Recently, the issue of defect in notice has been dealt at length by larger bench of Hon’ble Bombay High Court in Farhan A.Shaikh V/s DCIT (125 taxmann.com 253) wherein the Hon’ble Court has answered the issue of reference as follows: –

Answers:

Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(1)(c), does a mere defect in the notice—not striking off the irrelevant matter—vitiate the penalty proceedings?

181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other’s defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings, Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness.

182. More particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee’s favour.

183. Therefore, we answer the first question to the effect that Goa Dourado Promotions and other cases have adopted an approach more in consonance with the statutory scheme. That means we must hold that Kaushalya does not lay down the correct proposition of law.

Question No. 2: Has Kaushalya failed to discuss the aspect of ‘prejudice’?

184. Indeed, Kaushalya did discuss the aspect of prejudice. As we have already noted, Kaushalya noted that the assessment orders already contained the reasons why penalty should be initiated. So, the assessee, stresses Kaushalya, “fully knew in detail the exact charge of the Revenue against him”. For Kaushalya, the statutory notice suffered from neither non-application of mind nor any prejudice. According to

it, “the so-called ambiguous wording in the notice [has not] impaired or prejudiced the right of the assessee to a reasonable opportunity of being heard”. It went onto observe that for sustaining the plea 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”. Kaushalya closes the discussion by observing that the notice issuing “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”.

185 No doubt, there can exist a case where vagueness and ambiguity in the notice can demonstrate non-application of mind by the authority and/or ultimate prejudice to the right of opportunity of hearing contemplated under section 274. So asserts Kaushalya. In fact, for one assessment year, it set aside the penalty proceedings on the grounds of non-application of mind and prejudice.

186. That said, regarding the other assessment year, it reasons that the assessment order, containing the reasons or justification, avoids prejudice to the assessee. That is where, we reckon, the reasoning suffers. Kaushalya’s insistence that the previous proceedings supply justification and cure the defect in penalty proceedings has not met our acceptance.

Question No. 3: What is the effect of the Supreme Court’s decision in Dilip N. Shroff on the issue of non-application of mind when the irrelevant portions of the printed notices are not struck off ?

187 In Dilip N. Shroff, for the Supreme Court, it is of “some significance that in the standard Pro-forma used by the assessing officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done”. Then, Dilip N. Shroff, on facts, has felt that the assessing officer himself was not sure whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars.

188. We may, in this context, respectfully observe that a contravention of a mandatory condition or requirement for a communication to be valid communication is fatal, with no further proof. That said, even if the notice contains no caveat that the inapplicable portion be deleted, it is in the interest of fairness and justice that the notice must be precise. It should give no room for ambiguity. Therefore, Dilip N. Shroff disapproves of the routine, ritualistic practice of issuing omnibus show-cause notices. That practice certainly betrays non-application of mind. And, therefore, the infraction of a mandatory procedure leading to penal consequences assumes or implies prejudice.

189. In Sudhir Kumar Singh, the Supreme Court has encapsulated the principles of prejudice. One of the principles is that “where procedural and/or substantive provisions of law embody the principles of natural justice, their infraction per se does not lead to invalidity of the orders passed. Here again, prejudice must be caused to the litigant, “except in the case of a mandatory provision of law which is conceived not only in individual interest but also in the public interest”.

190. Here, section 271(1)(c) is one such provision. With calamitous, albeit commercial, consequences, the provision is mandatory and brooks no trifling with or dilution. For a further precedential prop, we may refer to Rajesh Kumar CIT [(2007) 2 SCC 181], in which the Apex Court has quoted with approval its earlier judgment in State ofOrissav. Dr. Binapani Dei [AIR 1967 SC 1269]. According to it, when by reason of action on the part of a statutory authority, civil or evil consequences ensue, principles of natural justice must be followed. In such anevent, although no express provision is laid down on this behalf, compliance with principles of natural justice would be implicit. If a statue contravenes the principles of natural justice, it may also be held ultra vires Article 14 of the Constitution.

191. As a result, we hold that Dilip N. Shroff treats omnibus show-cause notices as betraying non-application of mind and disapproves of the practice, to be particular, of issuing notices in printed form without deleting or striking off the inapplicable parts of that generic notice.

13. The Ld. CIT-DR has relied on the decision of Hon’ble High Court of Madras in the case of Gangotri Textiles Ltd. V/s DCIT (121 Taxmann.com 171) which is distinguishable on facts. In this case, it was the findings that the assessee had understood the notices well and filed replies contesting the levy of penalty. The legal ground assailing defect in notice was raised for the first time before Hon’ble High Court and therefore, Hon’ble Court declined to entertain the same However, the same is not the case here.

14. Another decision as cited by Ld. CIT-DR is the decision of Hon’ble High Court of Madras in Sundaram Finance Ltd. Vs ACIT (93 Taxmann.com 250) against which the assessee’s SLP has already been dismissed by Hon’ble Supreme Court which is reported at 99 Taxmann.com 152. We find that this decision has already been distinguished by Hon’ble High Court of Madras in Babuji Jacob Vs. lTO (supra) as under:-

32. The decision of this Court in the case of Sundaram Finance Ltd., was couched on a different factual position wherein the Court rejected the plea of the assessee, which was a limited company, when they raised an argument with regard to the validity of the notice for the first time before the High Court and considering the administrative set up of the said assessee and the fact that the assessee was never prejudiced on account of the alleged defect, the Court rejected the argument of the assessee.

33. In the case on hand, we find that at the first instance, while replying to the penalty show cause notice dated 30-3-2016, the assessee raised a specific plea that there was no concealment of income, that he had not furnished inaccurate particulars of income and that the notice was not proper. Therefore, the phraseology, which was adopted by the assessee, if read as a whole, would clearly show that he had objected to the issuance of the notice and as there was no basis for issuance of the notice under section 271(1)(c) of the Act, both limbs in the said provision do not get attracted. Hence, the decision of this Court in the case of Sundaram Finance Ltd., cannot be applied.

Therefore, the ratio of this decision could not be applied in the present case.

15. In the light of aforesaid legal position, since no specific charge was framed either in the show-cause notice or in the body of penalty order and there was failure on the part of Ld. AO to frame specific charge against the assessee, the penalty would not be sustainable in the eyes of law. By deleting the impugned penalty, we allow the appeal. Consequently, going into the merits of the penalty has been rendered academic in nature.

16. Similar are the facts in all the other years and impugned order is common order for all the years. The show-cause notices as well as penalty orders are substantially on the same line except for change in figures. The penalty, upon confirmation by Ld. CIT(A), is in further appeal before us. Facts being pari-materia the same as in AY 1998-99, the penalty for all these years stand deleted on legal grounds. All the appeals stand allowed on similar lines.

Conclusion  

17. All the appeals stand allowed in terms of our above order.

Order pronounced on 13^th May, 2022.