Case Law Details
Sh. Prem Pal Gandhi Vs ACIT (ITAT Amritsar)
The appellant objected to the levy of penalty as bad in law. He challenged that the AO has not mentioned under which limbs of section 27 1(1)(c) of the Act, whether for concealment of income or furnishing of inaccurate particulars, the penalty was initiated. Thus, He has not recorded required satisfaction as per law. Similarly, he further challenged that notice issued under section 274 read with section 271 of the Act, dated 17/08/2012 (page 7 of paper book) does not mention about the limb for which it is initiated.
A.O. forms opinion that it is fit case for levy penalty under section 271(l)(c) of the Act by holding the assessee is being guilty of furnishing inaccurate particulars of income. The AO further stated that the total income with respect to which inaccurate/concealed particulars of income have been furnished is Rs. 5,20,000/- and accordingly, he was satisfied that income assessed as mentioned above was not bonafide but with the malafide intention of evading the tax by furnishing an inaccurate/concealed particular of income.
In the case on hand, we find that at the first instance, while replying to the penalty show cause notice dated 17/08/2012, 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.
In the case of “Mohd. Farhan A. Shaikh Vs. DCIT”, [2021] 125 taxmann.com 253 (Bombay) held that where assessment order clearly records satisfaction for imposing penalty on one or other, or both grounds mentioned in section 271(1)(c), a mere defect in notice, not striking off irrelevant matter would vitiate penalty proceedings vide Para 188 by observing as under:
“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 Case (supra) 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.”
Following Hon’ble Bombay High Court, in the case of “Mohd. Farhan A. Shaikh Vs. DCIT”, (Supra) we delete the penalty levied by the AO and confirmed by CIT(A).
FULL TEXT OF THE ORDER OF ITAT AMRITSAR
This appeal has been filed by the assessee against the impugned order dated 21.04.2017 passed by the Ld. Commissioner of Income Tax (Appeals)-5, Ludhiana in respect of the Assessment Year 2005-06.
2. The assessee has raised the following grounds of appeal:
“1. That the learned CIT(A) erred in confirming penalty of Rs.1,74,933/- on addition of Rs. 5,20,000/- treated as deemed dividend u/s 2(22)(e) of the Income Tax Act, 1961, by rejecting explanation that appellant had received imprest amount to make payment to persons from whom the company had or was to purchase material for under construction building. It is prayed that penalty may be deleted.
2. The appellant craves leave to add or amend ground of appeal.”
3. During the assessment proceedings the AO observed that Sh. Prem Pal Gandhi, who is the managing director of M/s. Walia Trades Limited who has substantial interest in the company with more than ten percent shareholding had a debit balance of Rs.520000/- as at the year end. When asked about for applicability of provisions of Sec 2(22)(e), the company stated that the advance was given for the personal needs of the director and also the payment had been made to a third party. Accordingly, this advance to the assessee by M/s. Walia Traders Limited was treated as deemed dividend and taxed in his hands.
3.1 In the penalty proceeding, the AO stated that the assessee quantum addition is confirmed by the CIT(A). Accordingly, the AO rejected the explanation of the assessee as found to be false, as the assessee could not provide any authentic proof in support of his contention and held that the assessee was guilty of furnishing inaccurate particulars of income. He further held that the total income with respect- to which inaccurate/ concealed particulars of income have been furnished is Rs. 5,20,000/-. And levied penalty of under section 271(l)(c) of the Act amounting to Rs. 1,74,933/- which is confirmed by the CIT(A).
4. None appeared for the assessee, however, the appellant requested to decide its appeal by considering the written submission filed on record. The relevant part is reproduced here under:
The assessee filed written reply in compliance to the show cause notice dated 11.03.2015, issued u/s 274 r.w.s. 271(l)(c) before the AO, as under:
“In inviting reference to your No. DCIT/CC-II/Jai/2014-15/2031, it is submitted that the assessee Prem Pal Gandhi Mg. Director of Walia Traders Private Limited was having imprest account out of which expenses were incurred for and on behalf of company. Moreover M/s. Walia Traders were constructing hotel building and the advance amount was meant to make payment to the persons from whom raw material had been purchased or to whom wages etc were to be paid. The addition was made on account of difference in opinion. The CIT(A) also confirmed the addition on account of difference in opinion. It is submitted that no penalty is leviable in cases where addition is made on account of difference in opinion. Reliance is placed on the ratio of judgment CIT V Rabel Singh & Co. (2002) 254 TTR 191 (P&H). As penalty proceedings and assessment proceedings are two independent so it is prayed that the penalty proceeding may be dropped”
Assessee Written submissions, before us:
“It is hereby submitted that Assessee has filed written submissions along with paper book on 28/02/2022, you are requested to decide the appeal on the merit of the case considering the submissions. However, for brief synopsis of case are once again reproduced herewith below:
1. As per requirement of section 271(l)(c) of the Income Tax Act, 1961
(herein after referred to as ‘the Act’), the A.O. is to record satisfaction whether the Assessee has concealed the income or furnished inaccurate particulars. In the assessment order page 6 para 5 (page 1 to 6 of paper book), the A.O. has simply mentioned the word, “ Initiate Penalty proceedings under section 271(l)(c) of the Act in view of the para 3(b), deemed dividend under section 2(22)(e) Rs. 5,20,000/- He has not mentioned under which limbs of section 27 l(l)(c) of the Act, satisfaction is recorded, whether for concealment of income or furnishing of inaccurate particulars.
2. Similarly notice issued under section 274 read with section 271 of the Act, dated 17/08/2012 (page 7 of paper book) does not mention about the limb for which it is issued.
3. In penalty order dated 20/03/2015 para 5 (paper book page 23) A.O. is of the opinion that it is fit case for levy penalty under section 271(l)(c) of the Act. The Assessee is guilty of furnishing inaccurate particulars of income. The total income with respect to which inaccurate/concealed particulars of income have been furnished is Rs. 5,20,000/- in view of the discussion above, I am satisfied that income assessed as mentioned above was not bonafide but with the malafide intention of evading the tax by furnishing an inaccurate/concealed particulars of income.
4. The appellant is Managing Director of the Company M/s Walia Traders Limited, which was constructing hotel building. He was having opening credit balance of Rs. 32,50,000/- as on 01/04/2004 and during the year the advances which were for purchasing construction material of hotel, the debit balance of Rs. 5,20,000/- at the end of the year 31/03/2005, the A.O. treated the amount as deemed dividend without bringing on record any evidence that Appellant was not making payments for purchases on behalf of the Company.
As the Company M/s Walia Traders Limited is also assessed with the same Jurisdictional A.O. where the A.O. has accepted Company’s return along with audited accounts in which advances were shown. (The balance sheet along with annexure is already with the A.O. in the seized material, as it was a search year.)
Since it is a difference of opinion, the penalty cannot be imposed (for detail please consider the Assessee reply filed before Hon’ble Bench on 28/02/2022 along with paper book).
Please drop the penalty imposed under section 271(l)(c) of the Act amounting to Rs. 1,74,933/-.”
5. The defendant Ld. DR explained the facts of the case from the record. He stands by the impugned order, and justified the CIT(A)’ findings.
6. Having heard the Ld. DR, perusal of record and written submission of the assessee, it is noted that admitted the amount disputed as the debit balance of Rs. 5,20,000/- at the end of the year 31/03/2005, was paid to the assessee as to make further payment to the parties against the construction material procured by M/s Walia Traders Limited, in which the appellant was Managing Director of the Company which was engaged in constructing hotel building. It is seen that the A.O. treated the said amount as deemed dividend without bringing on record any evidence that Appellant was not making payments for purchases of construction material on behalf of the Company.
7. The appellant objected to the levy of penalty as bad in law. He challenged that the AO has not mentioned under which limbs of section 27 1(1)(c) of the Act, whether for concealment of income or furnishing of inaccurate particulars, the penalty was initiated. Thus, He has not recorded required satisfaction as per law. Similarly, he further challenged that notice issued under section 274 read with section 271 of the Act, dated 17/08/2012 (page 7 of paper book) does not mention about the limb for which it is initiated.
8. It is evident from para 5 of the penalty order dated 20/03/2015 (paper book page 23) that A.O. forms opinion that it is fit case for levy penalty under section 271(l)(c) of the Act by holding the assessee is being guilty of furnishing inaccurate particulars of income. The AO further stated that the total income with respect to which inaccurate/concealed particulars of income have been furnished is Rs. 5,20,000/- and accordingly, he was satisfied that income assessed as mentioned above was not bonafide but with the malafide intention of evading the tax by furnishing an inaccurate/concealed particular of income.
9. That the Company M/s Walia Traders Limited is also assessed with the same Jurisdictional A.O. where the A.O. has accepted Company’s return along with audited accounts in which advances were shown wherein the balance sheet along with annexure were available with the A.O. in the seized material.
10. The issue of recording specific satisfaction and striking of one limb is settled by higher Judicial forums. In the latest Judgement the Hon’ble Madras High Court in the case of ‘Babuji Jacob vs. ITO’, [2021] 430 ITR 259 has distinguished Sundaram Finance Ltd., vs. ACIT, [2018] 93 taxmann.com 250 and observed in para 32 and 33 as under:-
11. 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.
12. In the case on hand, we find that at the first instance, while replying to the penalty show cause notice dated 17/08/2012, 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.
12. In the case of “Mohd. Farhan A. Shaikh Vs. DCIT”, [2021] 125 taxmann.com 253 (Bombay) held that where assessment order clearly records satisfaction for imposing penalty on one or other, or both grounds mentioned in section 271(1)(c), a mere defect in notice, not striking off irrelevant matter would vitiate penalty proceedings vide Para 188 by observing as under:
“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 Case (supra) 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.”
13. Following Hon’ble Bombay High Court, in the case of “Mohd. Farhan A. Shaikh Vs. DCIT”, (Supra) we delete the penalty levied by the AO and confirmed by CIT(A). We direct the AO accordingly.
14. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 13.05.2022.
