TaxTMI 
TaxTMI 
2018 (4) TMI 15
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....hat where penalty under section 271(1)(c) of the Income Tax Act, 1961 has been initiated on charge of furnishing inaccurate particulars of income and imposed on concealment of income, the provisions of section 292B are applicable. 2. (i) Because the learned authorities below have erred both on facts and in law in imposing penalty on disallowance of long term capital loss of Rs. 59,12,322/- without appreciating that same was on account of incorrect working of the cost inflation index on the cost of acquisition and duly corrected by the assessee in the course of assessment proceedings by furnishing Revised Return of Income. (ii) Because the learned CIT(A)-1, Agra has erred both on facts and in law in not appreciating that no penalty in respect of disallowance on account of long term capital loss should have been imposed as the same was barred by limitation under section 275(1 )(c) of the Income Tax Act, 1961. 3. Because the learned authorities below have erred both on facts and in law in not appreciating that disallowance under section 94(7) and working of speculation loss was only on the basis of the computation of income and working declared by the assessee during the cour....
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....nformity with the law. His arguments in this regard shall be presently discussed. 4. As per the ld. DR, however, the notice is entirely as per law. His arguments will also be considered in due course. 5. The aforesaid notice (APB page 7) reads as follows: "Sub: Penalty notice u/s 274 read with section 271(1)(c) of the I.T. Act, 1961 - A.Y. 2008 -09 - Reg:- Whereas in the course of the proceedings before me for the assessment year 2008-09 it appears to me that you;- ** have concealed the particulars of your income or have furnished inaccurate particulars of such income. You are hereby requested to appear before me at 11.00 AM on 14.09.2010 and show cause why an order imposing a penalty on you should not be made under section 271(1)(c) of the income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through an authorized representative, you may show cause in writing on or before the said date which will be considered before any such order Is made under section 271(l)(c). Sd/- (Yuvraj Malik) Income Tax Officer-3(4) Mathura." 6. So, as per the notice, the assessee had concealed the particulars of his incom....
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....is not applicable to the facts of the case. In the referred case, the issue under consideration pertained to a firm which had got dissolved. The contention of the assessee was that the ITO could not, in exercise of the power under section 28(1), impose penalty. The Hon'ble High Court accepted the plea of the assessee. However, the Hon'ble Supreme Court reversed the Judgment of the Hon'ble High Court by holding that assessment proceedings are liable to be continued against the firm as if it has not been dissolved. The Hon'ble Supreme Court found error in the High Court Judgment and concluded by holding that "in our view, the High Court was in error in holding that penalty could not be imposed under section 28 (1) (c) upon the firm M/s S.V. Veerappan Chettiar & Co. after its dissolution". In the present case, however, the assessee is an individual and has raised no such plea as was raised therein. 11. Regarding 'Sanjay Kumar' & 'Ajay Kumar' (supra), as per the assessee, in both the referred cases, the ITAT, Agra Bench had quashed the penalty orders in ITA Nos. 53 & 54/Agra/2015 vide consolidated order dated 19.05.2017, following the judgment of 'Manjunatha Cotton' (sup....
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....ating to Administrative and other Expenses. The assessee claimed that due to oversight, this amount was not added back in the Computation of Income. Hence, the Assessing Officer added this amount also to the Income of the assessee. Penalty Proceedings were also initiated against the assessee. In appeal, it was held by the Hon'ble High Court that the assessee did not explain, either to the Income Tax Authorities, or to the Income Tax Appellate Tribunal, as to in what circumstances and on account of whose mistake, the amounts claimed as deductions in this case were not added, while computing the income of the assessee company. The Hon'ble High Court further held that it could not lose sight of the fact that the assessee was a Company, which must be having professional assistance in computation of its income, and its accounts were compulsorily subjected to audit. It was observed that in the absence of any details from the assessee, such deductions could not have been left out while computing the income of the assessee Company and it could also not have escaped the attention of the auditors of the Company. Thus, this case pertains to the explanation tendered by the assessee and....
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....g the additions is either found to be false and remained unsubstantiated, the additions so made are deemed to be concealed income, and therefore, the penalty provisions are attracted. The case has no application to the points and controversy under question. 21. In the case of "Balasubramaniam" (supra), no issue of validity of penalty notice was under consideration. 22. In the case of Earthmoving Equipment Service Corporation (supra) penalty order was sustained by the ITAT on the ground that the AO therein has levied penalty after due application of mind, in as much as in the assessment order it was mentioned that penalty proceedings are initiated for furnishing of inaccurate particular of income and the penalty was finally levied on the same ground. 23. Further the ITAT found, that mere non marking of the relevant clause in the Notice is a curable defect, and the action of the revenue is rescued by the provisions of section 292BB of the Act, which cures minor defects in the various notices issued provided such notice in substance and effect was in conformity with the intent and purpose of the Act. Thus, the Bench in Para-6 concluded that penalty cannot be deleted on this g....
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....e Supreme Court Judgment in the case of Dilip N. Shroff approving that factum of non striking off of the irrelevant clause in the notice as reflective of non-application of mind by the Assessing Officer. The Bench further held that such proposition has been considered by the Hon'ble Bombay High Court in the case of Shri Samson Perinchery (supra). In Para-13 of the Judgment the Hon'ble Bench again dealt with this argument of the DR has held that the observation of the AO in the assessment order and non-striking off the irrelevant clause in the notice clearly brings out the diffidence on part of the AO and there is no clear and crystallized charge being conveyed to the assessee u/s 271(1)(c) which has to be met by him. Therefore, considering the observation of the AO in the assessment order alongside his action of non striking off the irrelevant clause in the notice renders the notice non complying with the principles of natural justice and thus deleted the penalty. 27. Again similar issue came up for consideration before the Mumbai Bench in the case of 'Dr. Sarita Milind Davare Vs ACIT' in ITA No. 2187/Mum/2014 wherein the DR vide Para-7, submitted before the Bench that in the as....
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.... is submitted that such an argument, on the face of the Judgment of the Hon'ble Karnataka High Court and Jurisdictional High Court cannot be sustained. 33. In "CIT vs. Manjunath Cotton and Ginning Factory", 359 ITR 565 (Kar). "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, principle 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]. 34. In "CIT vs. M/s Veerabhadrappa Sangappa & Co", ITA No. 5020/2009 (SC). 35. In "CIT vs. SSA Emerrald Meadows", in ITA No. 380/2015 (Kar) has held that: "It is to be kept in mind that section 271(1)(c) is a penal provision and such a provision has to be strictly constructed. Unless the case falls within the four corners ....
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.... was an essential ingredient for the penalty under section 271(1) (c) that the decision in 'Dilip N. Shroff v. Joint CIT' was overruled." (emphasis nine) 39. In "Uma Shankar Agarwal vs. DCIT", ITA No. 1831 to 1835/Kol/2015. wherein assessee therein challenged the legality of Penalty Order on the ground of "No satisfaction" and "Show cause Notice without specific charge", the Bench vide Order dated 20.01.2016 and after due consideration of MAK Data (P) Ltd which was relied upon by the Departmental Representative as discussed in Para-7, held penalty unsustainable in law for the reasons as elaborately discussed in Para-9 to 10 of the said Order. Xerox copy of the Hon'ble ITAT order is enclosed. (APB-79-92) 40. In "Suvaprasanan Bhatacharya vs. ACIT", ITA No. 1303/Kol/2010. (Kol) vide Order dated 06-11-2015 deleted penalty levied under section 271(1)(c) on the ground of "No Satisfaction" recorded in the assessment order and Notice being issued on both the charges without specifying the exact charge. Submission raised by the assessee is duly noted in Para- 4, Revenue's submission refereeing and relying on MAK Data is noted in Para 4.2, rebuttal of the assessee is noted in Para 4.3 ....
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....e assessment order penalty proceedings could not be proceeded with. The proceedings which are initiated contrary to the said legal position are liable to be set aside. Therefore, the appellate Authority was justified in setting aside the order imposing penalty. Accordingly, the substantial question of law is answered in favour of the assessee and against the revenue. We do not find any merit in this appeal. Accordingly, the appeal is dismissed. 44. In "Sarita Milind Davare vs. ACIT", ITA No. 2187/Mum/2014 the Bench had the occasion to deal with identical objection of the Revenue as noted in Para-7 of the Hon'ble ITAT order that, assessee was given an opportunity as required u/s 274; she has availed that opportunity by participating; deficiency if any is made good relying on section 292B/292BB; AO has specified in the assessment order that he is initiating penalty for concealing the income and placed reliance to Hon'ble Mumbai High Court in the case of CIT Vs. Smt. Kaushalya and others (216 ITR 660) and submitted that the Hon'ble Bombay High Court has held that mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice.....
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....ion he issued it. It is not that it would have saved his action. Apparently, Exhibit P-2 is a whimsical notice issued to an assessee without intending anything" 50. Therefore, in view of the above, particularly following 'Manjunatha' (supra), we hold that the notice under challenge is not in confirmity with the law and it is void ab initio. Accordingly, the said notice and all proceedings based thereon, culminating in impugned order, are quashed." 4. As evident, the above case is squarely covered by the Division Bench decision of the ITAT, Agra, in 'Sachin Arora vs. ITO' in ITA No. 118/Agra/2015 for A.Y. 2008-09 and other connected cases. Therefore, the said observations, of the Division Bench, Agra are, mutatis mutandis, applicable squarely to this case also. 5. The ld. Sr. DR filed a synopsis, containing that satisfaction of the AO is the jurisdictional fact of penalty, which cannot be obliterated by any defect in a notice u/s 274 and that so, 'Sachin Arora' (supra) be not followed, this aspect having not been considered therein. Various decisions as dealt with in 'Sachin Arora' (supra) have been cited in his rejoinder, the assessee has stated as under: "The decisions rel....
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....oncluded in favour of the Respondent-Assessee by the decision of the Kamataka High Court in the case of Manjunath Cotton and Ginning Factory (supra). Nothing has been shown to us in the present facts which would warrant our taking a view different from the Karnataka High Court in the case of Manjunath Cotton and Ginning Gactory (supra). Further, the order of the Hon'ble ITAT, Mumbai Bench in respect of the above decision of Samson Perinchery in ITA Nos. 4625 to 2630/M/2013 is also enclosed along with these submissions and the facts are comparable with the facts of the assessee are as under - Samson Perinchery Case Assessee's Case Recording of satisfaction in the assessment order 10. On the facts relating to the recording of the satisfaction for levy of penalty u/s 271(1)(c) of the Act, we have perused the relevant orders of the revenue and examined the last para of the assessment order which reads as under: "Assessed u/s 143(3) of the income Tax Act. 1961 at a total income of Rs. 31,98,460/-. Charge interest u/s 234B & 234C as applicable. Give credit for taxes paid after due verification. Issue demand noticed and challan accordingly issue show cause notice for init....
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....tion of penalty under section 271(l)(c) of the Act by Assessing Officer was for furnishing inaccurate particulars of income while the order imposing penalty is for concealment of income. The impugned order holds that the concealment of income and furnishing inaccurate particulars of income carry different connotations. Therefore, the Assessing Officer should be clear as to which of the two limbs under which penalty is imposable, has been contravened or indicate that both have been contravened while initiating penalty proceedings. It cannot be that the initiation would be only on one limb i.e., for furnishing inaccurate particulars of income while imposition of penalty on the other limb i.e., concealment of income. Further, the Tribunal also noted that notice issued under section 274 of the Act is in a standard proforma, without having striked out irrelevant clauses therein. This indicates non-application of mind on the part of the Assessing Officer while issuing penalty notice. 4, The impugned order relied upon the following extract of Karnataka High Court's decision in CIT vs. Manjunath Cotton and Ginning Factory 359ITR 565 to delete the penalty: - "The Assessing Officer....