Case Law Details
Ganga Iron & Steel Trading Co. Vs CIT (Bombay High Court)
Specification of Charge of penalty under section 271(1)(c) is an important factor while deciding the matters in litigation- Ganga Iron and Steel Trading Co. v Commissioner of Income Tax dated 22.12.2021 , 447 ITR 743 (Bom.)
It is the experience of the author that penalty proceedings are initiated as a ritual and in a routine manner. Whenever any type of addition is made upto the AY 201617 penalty proceedings were mainly governed by section 271(1)(c). After that section 270A replacing section 271(1)(c). Under section 271(1)(c), penalty is leviable for concealment of income or for furnishing inaccurate particulars or both. Over a good period of time when law was or more or less settled on section 271(1)(c) this section was replaced by section 270A. Section 270A says about levy of penalty in the case of under reporting of income or misreporting of income or both. The Jurisprudence on this point is very clear that assessment proceedings and penalty proceedings are separate. The Law is also clear that before imposing penalty the assessee should be made clear that under which offence the penalty is going be levied on him, meaning thereby that the notice should specify the charge whether it is case of concealment of income or furnishing inaccurate particulars or both under the old regime. In the new regime also the notice should specify whether it is for under reporting or misreporting and further subdivision of under reporting or misreporting.
The Charge levied should be specific
The assessing officer should be clear in his findings that whether the penalty is levied for concealment or for furnishing inaccurate particulars of income. The assessing officer should be satisfied about the nature of default for which he has initiated penalty. It should not be the case that the penalty has been initiated for a default and levied for another one. Initiation of penalty proceedings in the assessment order is a sine qua non for initiation of penalty proceedings.
The Prima facie opinion formed in the assessment for initiating penalty proceedings must contain satisfaction and clarity regarding the offence of the assessee for which penalty is being levied. The assessment proceeding is the fundamental for initiating penalty proceedings. But the assessment and penalty proceedings are not compound. They do not draw solidity from each other. Penalty proceedings stand independent from assessment proceedings. Since penalty proceedings form an altogether different proceedings, the basis of initiating the penalty should be clearly mentioned in the notice. The assessee should be provided with clear grounds on which penalty has been initiated. These Grounds should not be vague and ambiguous.
The order imposing penalty is quasi-criminal in nature and, thus, the burden lies on the Department to establish that the assessee had concealed his income. Since the burden of proof in penalty proceedings varies from that in the assessment proceeding, a finding in an assessment proceeding that a particular receipt is income cannot automatically be adopted, though a finding in the assessment proceeding constitutes good evidence in the penalty proceeding. In the penalty proceedings, thus, the authorities must consider the matter afresh as the question has to be considered from a different angle.
If the grounds of initiating the penalty are blurry then the same would debase such a notice. A Vague notice stating that the penalty is being issued for “concealment of particulars of income or furnishing inaccurate particulars of such income” or penalty for under reporting or misreporting would state non application of mind of the assessing officer. Such a notice will be considered as defective. Levy of penalty is though discretionary, but such discretion should be taken by the assessing officer keeping all relevant factors in mind. The approach of the authority issuing the notice should not be one which would harass the assessee, but it should be the one which is just and objective.
Various Courts have considered specification of Charge as an important factor while deciding the matters in litigation. Now let us look into few judgments which elaborate the fact that initiation of penalty should be on a specific charge and initiation should not be a consequence of non-application of mind of the assessing officer.
In Mohd. Farhan A. Shaikh v. Deputy Commissioner of Income-Tax ([2021] 434 ITR 1 (Bom [FB]) and another it was held as under:
In the assessment proceedings, only prima facie opinion or otherwise, is mentioned 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 Income-Tax 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.
In Pr. CIT v. New Era Sova Mine [2021] 433 ITR 249 (Bom) it was held as under:
The subject matter of appeals concerns penalty levied by the Assessing Officer on the ground that the assessees had not filed returns within the due date. The assessees were claimed to have filed returns after a search was conducted in their premises under section 132 of the Income-tax Act, 1961. The Department’s case was that but for such search, the income now offered to tax by the assessees would not have been so offered. The Tribunal has correctly observed in its impugned order that the penalty notices in these cases were not issued for any specific charge, that is to say, for concealment of particulars of income or furnishing of inaccurate particulars. When the matter was before the Commissioner of Income-tax (Appeals), he referred to the decision of the Karnataka High Court in the case of CIT v. SSA’s Emerald Meadows (I. T. A. No. 380 of 2015 dated November 23, 2015). The court had held that no notice could be issued under section 274, read with section 271(1)(c) of the Income-tax Act, without indicating which particular limb of section 271(1)(c) was invoked for initiating the penalty proceedings. The court took the view that the matter was covered by an earlier decision of a Division Bench of that court and did not involve any substantial question of law. The matter, thereafter, went in a special leave petition before the Supreme Court (CIT v. SSA’s Emerald Meadows [2016] 386 ITR (St.) 13 (SC)), who did not find any merit in the petition. The Tribunal also noticed that the jurisdictional High Court in the case of CIT v. Samson Perinchery [2017] 392 ITR 4 (Bom) had also taken the same view. The appeals, accordingly, do not involve any substantial question of law and do not merit admission. The appeals are, accordingly, dismissed.
In CIT v. SSA’s Emerald Meadows [2016] 386 ITR (St.) 13 ( SC); [2016] 73 taxmann.com 248 (SC), the hon’ble apex court looked into the facts before them that Tribunal relying on the decision of the Division Bench of the hon’ble Karnataka High Court in the case of CIT v. Manjunatha Cotton and Ginning Factory [2013] 359 ITR 565 (Karn), allowed the appeal of the assessee, holding that notice issued by the Assessing Officer under section 274 read with section 271(1)(c) of the Act was bad in law, as it did not specify under which limb of section 271(1)(c) of the Act, penalty proceedings has been initiated, i. e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. When the matter travelled up to the High Court, it supported the judgment of the hon’ble Karnataka High Court in the case of CIT v. Manjunatha Cotton and Ginning Factory (supra) and decided that there was, therefore, no substantial question of law to be decided. Thereafter, a special leave petition was filed before the hon’ble apex court and the apex court dismissed the special leave petition of the Revenue finding no merit therein and confirming the issue in favour of the assessee.
Conclusion
It is clear that the assessing officer while initiating the penalty proceedings needs to be crystal clear and satisfied about the default on the basis of which he has initiated penalty. As mentioned above penalty proceeding is separate from assessment proceedings hence the notice for penalty should specify the grounds on which penalty has been initiated. Issuance of such show-cause notice without specifying as to whether the assessee had concealed particulars of his income or had furnished inaccurate particulars of the same results vitiating the show-cause notice. It may happen that the assessment order mentions concealment or furnishing of inaccurate particulars or under reporting or misreporting specifically. It may also be the case that notice for initiating the penalty specifies the charge but from the summary and conclusions of the decided cases it appears that the final show cause notice which becomes the basis for imposing penalty must specify the specific charge for imposing the penalty. If the assessment order or the initial notice does not specify the specific charge but the final show cause notice specifies the specific charge then it will not be a defective notice. The main purpose is that the assessing officer should convey the assessee the grounds for levying the penalty. The assessee should not be in a doubt while replying the show cause notice of the penalty. It is trite law that until and unless the assessee is informed about his fault how he will explain his position. The assessee cannot be left to read the mind of the officer who is going to impose the penalty. There may be cases when tax has been levied on the assessee due to some technical defaults of the assessee or because of some disallowances on adhoc basis or estimate basis. In all these cases it is not justifiable to impose the penalties. Sometimes the department levies the penalty just on the basis of that assessee has not gone into the appeals for the quantum additions. This also cannot be the sole basis for levying penalties. Similarly in some cases the penalties are levied on the legal heirs of the assessee after the death of the assessee. In these circumstances also courts have deleted the penalties levied simply because of the reasons that legal heirs cannot be penalized for the wrong doing of the assessee after his death. But if the penalty has been confirmed before the death of the assessee then these penalties can be recovered from the legal heirs out of the estate inherited by them. In the recent past some penalties have been introduced which are disproportionate to the income and the net worth of the assessee. These penalties are very harsh because in India the concept of proportionality of penalty has not gained momentum. In nut shell it can be said that the department should be a little bit slow and rational in imposing the penalties. Generally penalties are confirmed after the CIT(Appeals) order which is a very early stage of litigation. So it will be better if the Government comes with some legislation that penalties are confirmed only after the additions are confirmed by the ITAT.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
When this Income Tax Appeal was admitted the following substantial questions of law were framed :
(I) Whether the Income Tax Appellate Tribunal, Nag-pur was justified in law in upholding the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 by holding that the assessee has concealed the income of Rs.96 Lakhs ?
(II) Whether the Income Tax Appellate Tribunal, Nag-pur was justified in law in upholding the levy of penalty under Section 271 (1) (c) of the Income Tax Act, 1961 when the assessee had offered income of Rs.96 Lakhs in order to buy peace and avoid litigation even though no such income is assessable at the hands of assessee ?
2. After hearing the learned counsel for the parties for some time an additional substantial question of law was framed on 23.11.2021 which reads as under:
(III) “Whether the show cause notice dated 12.02.2008 issued to the appellant without indicating that there was concealment of particulars of income or furnishing of incorrect particulars of such income would vitiate the penalty proceedings or whether such notice as issued can be held to be valid ?”
3. The learned counsel for the parties have been heard on all the three substantial questions of law as framed.
4. Shri K.P.Dewani, learned counsel for the appellant – Assessee inter-alia submits that the Assessing Officer on 31.12.2007 in proceedings under Section 143 (3) of the Income Tax Act, 1961 (for short, ‘the said Act’) observed that an amount of Rs.96,00,000/- towards unexplained cash was taken into consideration by the Assessing Officer and on the premise that the Assessee had concealed income, proposed imposition of penalty under Section 271(1)(c) of the said Act. Pursuant thereto a show cause notice dated 12.02.2008 was issued by the Assistant Commissioner of Income Tax as to why penalty under Section 271(1)(c) of the said Act should not be imposed. It is submitted by the learned counsel in the context of substantial question of law no. III that since the show cause notice refers to concealment of particulars of income or furnishing inaccurate particulars of such income, the said show cause notice being vague in nature indicates non-application of mind on the part of the Authority issuing the same. Placing reliance on the judgment of the Full Bench in Mohd. Farhan A. Shaikh vs. Deputy Commissioner of Income Tax, Central Circle 1, Belgaum 2021 (434) ITR 1 (Bombay), it was submitted that such defect in the show cause notice of not mentioning the basis for imposition of penalty resulted in vitiating the penalty proceedings. It was his submission that under Section 271(1)(c) of the said Act penalty was contemplated either for concealment of income or for furnishing incorrect particulars of the same or both. It was necessary for the Authority issuing the show cause notice to specifically indicate as to whether there was any concealment of particulars or furnishing of incorrect details on the part of the Assessee or both. In that regard the learned counsel referred to the decisions in Income Tax Appeal No.796 of 2016 with connected appeal (The Pr. Commissioner of Income Tax-17 Vs. Hafeez S. Contractor) decided on 11.12.2018, Commissioner of Income Tax vs. (2017) 98 CCH 0039 (Mum.), Principal Commissioner of Income Tax (Central) vs. Goa Coastal Resorts and Recreation Pvt. Ltd. (2019) 106 CCH 0183 (Mum.) and in Tax Appeal Nos.70/2018 with connected appeals (The Principal Commissioner of Income Tax, Panji vs New Era Sova Mine) decided on 18.06.2019. It was his contention that the law as laid down by the Hon’ble Supreme Court in Dilip N.Shroff Vs. Joint Commissioner of Income-Tax and anr. (2007) 291 ITR 519 (SC) as clarified by the Hon’ble Supreme Court in the decision in Commissioner of Income Tax vs. Reliance Petroproducts (P) Ltd. (2010) 322 ITR 0158, it was necessary for the show cause notice to be specific and clear as to whether there was any concealment of income or furnishing of inaccurate particulars. It was submitted that though the aforesaid contention was not raised before the statutory authorities since it was a pure question of law based on undisputed facts, it was permissible to raise the same even in appeal under Section 260A of the said Act. In that regard the learned counsel placed reliance on the decision of this Court in Ventura Textiles Ltd.vs. Commissioner of Income Tax, Mumbai City-II (2020) 426 ITR 478 (Bombay). On substantial questions at Serial Nos. I and II it was submitted that there being no concealment of income by the Assessee and the amount of Rs.96 lakhs having been offered to buy peace, the impugned order was liable to be set aside.
5. Shri S.N.Bhattad, learned counsel for the Revenue opposed the aforesaid submissions. He submitted that while issuing the show cause notice the Assistant Commissioner of Income Tax had recorded his satisfaction as regards the necessity of initiating the penalty proceedings against the Assessee. Such a conclusion having been recorded by the Assistant Commissioner of Income Tax, the show cause notice could not be faulted on a technical ground that a specific assertion as regards concealment of particular income/furnishing of incorrect income had not been specified therein. Referring to the order passed by the Assistant Commissioner of Income Tax dated 31.12.2007 he submitted that the satisfaction recorded was with regard to both the aforesaid aspects as could also be gathered from the order dated 10.03.2010 passed under Section 271(1)(c) of the said Act. Referring to the judgment of the Full Bench in Mohd. Farhan (supra) he invited attention to the contentions of paragraph 160 (e), (f) and (s) to urge that the show cause notice could not be faulted on the basis of the contents urged by the learned counsel for the Assessee. He then referred to the judgment of the Hon’ble Supreme Court in MAK Data Private Limited vs. Commissioner of Income Tax-II (2014) 1 SCC 674, Commissioner of Income Tax, Delhi vs Atul Mohan Bindal (2009) 9 SCC 589 and Union of India and others vs. Dharmendra Textile Processors and Others (2008) 13 SCC 369 to substantiate his contentions. According to him, since the decision in Dilip Shroff (supra) had been held as not laying down the correct law in Dharmendra Textile Processors and others (supra) no reliance could be placed on the decision in Dilip Shroff (supra). It was thus submitted that since it was found that the Assessee had concealed income on account of which penalty proceedings had been initiated, there was no reason to interfere with the order passed by the Tribunal.
6. We have heard the learned counsel for the parties at length and we have given due consideration to their respective submissions. At the outset, we may refer the judgment of this Court in Ventura Textiles Ltd. (supra) that was relied upon by the learned counsel for the Assessee while urging that even if the question as regards validity of the show cause notice was not raised before the Tribunal, the same could be raised in the present appeal under Section 260A of the said Act. This Court in the aforesaid decision after referring to earlier precedents has held that an appeal under Section 260A of the said Act can be entertained by the High Court on the issue of jurisdiction even if that issue was not raised before the Tribunal. The facts of the case indicate that the question with regard to validity of the show cause notice issued under Section 271(1)(c) of the said Act was permitted to be raised in appeal under Section 260A of the said Act for the first time since the same was a jurisdictional issue going to the root of the lis. In view of aforesaid decision we do not find any reason not to consider a similar jurisdictional issue as raised by the Assessee in the present appeal.
7. Since substantial question of law no. III raises a jurisdictional issue going to the root of the proceedings initiated under Section 271(1)(c) of the said Act we propose to answer that question first for the reason that if it is found that the show cause notice was vitiated on account of failure to expressly indicate as to whether there was any concealment of particulars of income of the Assessee or failure to furnish inaccurate particulars of income or both, answer to the other two substantial questions would be rendered academic.
In the present case show cause notice dated 12.02.2008 issued to the Assessee under Section 271(1) (c) of the said act reads as under:
“Whereas in the course of proceedings before me for the AY 2006-07 it appears that you have concealed the particulars of your income or furnished inaccurate particulars of such income.”
(other contents of the notice are not relevant for the present purpose) The aforesaid notice thus indicates that according to the Assistant Commissioner of Income Tax the Assessee was called upon to show cause why penalty under Section 271 of the said Act should not be imposed as “the Assessee had concealed the particulars of his income or furnished inaccurate particulars of such income”.
8. We may at the outset refer to the judgment of the Full Bench of this Court in Farhan (supra) wherein this precise question was considered and answered. The said question reads as under:
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?
9. After considering various decisions of the Hon’ble Supreme Court and of this Court including the decision in Dilip Shroff (supra) the Full Bench answered the aforesaid question as under:
“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 the 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.”
It is thus clear from the law as laid down that even if there was an order recording satisfaction for imposing penalty on one or the other, or on both grounds as mentioned in Section 271(1)(c) of the said Act, if the show cause notice suffers from the vice of vagueness the same would vitiate such notice.
10. We find that the law as laid down by the Full Bench applies on all fours to the facts of the present case as in the show cause notice dated 12.02.2008, the Assistant Commissioner of Income Tax is not clear as to whether there was concealment of particulars of income or that the Assessee had furnished inaccurate particulars of income. We therefore find that issuance of such show cause notice without specifying as to whether the Assessee had concealed particulars of his income or had furnished inaccurate particulars of the same has resulted in vitiating the show cause notice.
Heavy reliance was placed by the learned counsel for the Revenue on the decision in Mak Data Private Limited (supra) to urge that the penalty contemplated by Section 271 (1) (c) of the said Act was in the nature of civil liability and mens rea was not essential therein. The decision in Dilip Shroff (supra) having been held as not laying down good law in Dharmendra Textile Processors Ltd. (supra), it was submitted that the show cause notice issued in the present proceedings was liable to be upheld. It may be noted that all the decisions relied upon by the learned counsel for the Revenue were considered by the Full Bench while answering the issues referred to it on reference. The Full Bench having considered these decisions and having answered the question as regards defect in the notice under Section 271(1)(c) of the said Act resulting in vitiating the penalty proceedings, we find ourselves bound by the answers given by the Full Bench. It would not be permissible for us to disregard this aspect and take a different view of the matter.
Accordingly substantial question of law no. III is answered by holding that since the show cause notice dated 12.02.2008 does not indicate whether there was concealment of particulars of income or furnishing of incorrect particulars of such income, the same would vitiate the penalty proceedings.
11. Since it has been found that the show cause notice dated 12.02.2008 that was issued to the Assessee was vague and the penalty proceedings initiated on that basis were vitiated, it would not be necessary to answer substantial questions of law as framed at serial nos. I and II. This is for the reason that the said substantial questions pertain to the merits of the adjudication of the proceedings under Section 271(1)(c) of the said Act. Once it is found that the show cause notice dated 12.02.2008 issued to the Assessee was not in accordance with law, the orders passed thereon would automatic cease to operate.
12. In view of the answer given to the substantial question of law no. III, the impugned order passed by the Tribunal in I.T.(SS)A.No.05/Nag/ 2011 dated 10.07.2015 is set aside. Income Tax Appeal No.5/2016 is allowed with no order as to costs.
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