2017 (3) TMI 804

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.... Mumbai erred in confirming the penalty u/s 271(1)(c) of the Income Tax Act, 1961, on the disallowance of depreciation of Rs. 25,45,459/- in respect of purchase of software from a related party. 3. On the facts and circumstance of the case and in law, the Hon'ble CIT(A)-37, Mumbai erred in confirming the penalty u/s 271(1) of the Income Tax Act, 1961, on the disallowance of depreciation Rs. 37,850/-. 4. On the facts and circumstance of the case and in law, the Ho'ble CIT(A)-37, Mumbai erred in confirming the penaly u/s 271(1)( c ) of the Income Tax Act, 1961, on the disallowance u/s 40(a)(ia) for Rs. 7,77,886/- 5. On the facts and circumstance of the case and in law, the Hon'ble CIT(A)-37, Mumbai erred in confirming the penalty u/s 271(1)(c) of the Income Tax Act, 1961, on the addition of Rs. 1,53,55,000/as unexplained cash credit. 6. On the facts and circumstance of the case and in law, the Hon'ble CIT(A)-37, Mumbai erred in not accepting that penalty u/s 271(1)(c) is not leviable on merit on the disallowance/additions made by Assessing Officer." 3. The assessee also vide letter dated 9.8.2016 take following Additional Grounds without prejudice to ground no.....

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....osed by the AO without specifically mentioning under which charge the penalty was proposed to be levied. 6. Brief facts of the case are that the assessee filed return of income on 28.10.2005 declaring total loss of Rs. 2,11,43,869/-. The assessment was completed under section 143(3) of the Income Tax Act on 24.12.2007 determining the income at NIL by allowing certain business loss to the extent of Rs. 49,22,379/-. The AO while framing assessment under section 143(3) made certain additions/disallowances as under : i Addition u/s 68 1,53,55,000 ii Disallowance u/s 36(1)(va) 10,15,007 iii Disallwnce u/s 40A(2)(b) 25,45,459 iv Disllwance of deprecition 37,850 v Disllwnce u/s 40(a)(ia) 7,77,886 vi Disalwnce of travelling expenses 62,89,119 vii Disallwne of claim of bad debts 45,930   7 During the appellate proceedings, the FAA also upheld the additions as made by the AO vide order dated 14.2.2011. Thereafter, the AO issued show cause notice dated 26.3.2013 calling upon the assessee to show cause as to why the penalty u/s 271 of the Act should not be imposed. At the time of framing the assessment the AO did not ....

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....under which the penalty was levied as is apparent from the highlighted portion of notice issued u/s 274 r.w.s. 271 of the Act. In the appellate proceeding, the FAA partly allowed the appeal of the assessee by deleting the penalty imposed in respect of disallowance of Rs. 10,15,007/- u/s 36(1)(va) of the Act and disallowance of Bad debts Rs. 45,930/- and sustained penalty in respect of remaining disallowance made by the AO while rejecting the technical ground in toto. Now, the assessee is in appeal before us. Now first we will decide the technical ground no 2 raised in the additional grounds of appeal as taken by the assessee. 8. The ld counsel for the assessee vehemently argued before us that the AO, while passing the assessment order did not record any satisfaction and initiated penalty proceedings under section 271(1)(c) of the Act by simply stating in the assessment order that the penalty proceedings are being initiated separately without recording any satisfaction and therefore the penalty proceedings consequent and penalty imposed by the AO is bad in law ab-initio. The ld.AR while taking us through the notice issued under section 274 R.W.S.271(1)(c) dated 26.3.2013 drew our....

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....u/s 274 of the Act the mandatory conditions are that the assessee should be given an opportunity to reply the show cause. No specific format has been prescribed under the Act of the said notice. Hence it is sufficient if the assessee was aware of the charges, he had to meet on an opportunity of being heard and if the mistake in the notice would not invalidate the penalty proceedings. The ld. DR specifically contended that the AO has applied his mind while initiating penalty proceedings as various additions have been made after discussing the case in length with reasoning for making such additions and also clearly mentioned in the assessment order penalty proceedings will be initiated separately u/s 271(1)(c) of the Act. Under these circumstances, the arguments of the ld.AR that the limb of the penalty notice under which the penalty was initiated was not struck-off was wrong and without substance. The ld. DR heavily relied on the decision in the case of CIT V/s Smt. Kaushalya And Athers(1995) 216 ITR 660 (Bom) in which it has been held that "Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice." . The ld.DR further s....

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....ars of income or furnishing inaccurate particulars of income of such income under which the penalty was initiated against the assessee. In view of these facts we are of the view that the AO lacked application of mind in initiating penalty proceedings while framing assessment and also while issuing the notice initiating penalty proceedings u/s 274 r.w.s271(1)(c) of the Act. In the case of Manjunath Cotton & Ginning Factory(supra), the Hon'ble Karnataka High Court has held as under : "Notice under section 274 should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form, where all the grounds mentioned in section 271 are mentioned, would not satisfy requirement of law. The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. [Para 63]" In the case of CIT vs. SSA's Emerald Meadows ITA 380 of 20....