AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (3) TMI 1597
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....ppellant craves leave to add amend, alter or modify the ground or grounds of appeal before the hearing." The assessee had further assailed before us the validity of the penalty imposed under Sec. 271(1)(c) by raising the following additional grounds of appeal: "II. INITIATION OF PENALTY U/S 271(1)(c) IS BAD IN LAW: 1. The initiation of penalty u/s 271(1)(c) under both the limb for 'furnishing of inaccurate particulars of income' and 'concealment of income' is bad in law. 2. The penalty order u/s 271(1)(c) is bad in law in so far as it levied under both the limb i.e. for 'furnishing of inaccurate particulars of income' and 'concealment of income' 3. The levy of penalty u/s 271(1)(c) is bad in law and requires to be cancelled." The ld. Departmental representative (for short 'D.R') strongly objected to the admission of the aforesaid additional grounds of appeal raised by the assessee. We however find that as the assessee by raising the aforesaid additional grounds of appeal had only sought an adjudication of a legal issue based on the facts already available on record, therefore, keeping in view the judgment of the Hon'ble Supreme Court in the case of National Thermal Power....
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.... bearing loan from M/s Laxmi Corporation on which interest of Rs. 76,84,062/- was paid. The assessee claimed that the aforesaid interest bearing borrowed funds were utilized by him for giving loans to certain parties from whom interest of Rs. 45,94,819/- was received. It was thus the claim of the assessee that as there was a clear nexus between the loan taken from M/s Laxmi Corporation and the interest bearing loans given to the parties, therefore, the interest paid to M/s Laxmi Corporation was allowable as an expense under Sec. 57(iii) of the Act. However, the assessee neither furnished with the A.O the details as regards the amount of loan taken from M/s Laxmi Corporation nor the aggregate of the amounts which were advanced to the parties. The A.O after deliberating on the aforesaid claim of deduction raised by the assessee observed that as the interest paid by him was found to be more than the interest received on the amounts advanced, therefore, his contention that there was a direct nexus of the borrowed funds and the interest income received on the amounts advanced to the parties was not fully tenable. The A.O in the backdrop of the aforesaid state of affairs held a strong co....
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....of Rs. 2.75 crores for earning of income from other sources. It was observed by the CIT(A) that though only part of the borrowed funds were utilized by the assessee for earning of the interest income, but however, the deduction was wrongly claimed in respect of the interest expenditure on the entire amount of the borrowed funds of Rs. 11 crores. The CIT(A) observed that as the assessee could neither establish a nexus between the loan of Rs. 11 crores taken from M/s Laxmi Corporation and the amounts advanced to the parties, nor substantiate his entitlement towards claim of deduction of the entire amount of interest expenditure of Rs. 76,84,062/- paid to M/s Laxmi Corporation, therefore, his claim of deduction of the entire interest expenditure on the funds borrowed from M/s Laxmi Corporation as an expense under Sec.57(iii) was rightly declined by the A.O. The CIT(A) further observed that as the assessee had utilized only an amount of Rs. 2.75 crore out of the borrowed funds of Rs. 11 crore, therefore, the raising of claim of deduction under Sec. 57(iii) of the entire amount of interest of Rs. 76,84,062/- paid to M/s Laxmi Corporation clearly lacked bonafide on his part. The CIT(A) h....
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....marked and pointed out by the A.O in the 'Show cause' notice, therefore, the assessee had remained unaware of the default/defaults for which he was called upon to explain as to why penalty may not be imposed in his hands. The ld. A.R submitted that as the penalty had been imposed in the hands of the assessee for furnishing of inaccurate particulars of income, without clearly putting him to notice as regards the default/defaults for which he was called upon to put forth an explanation in his defence, therefore, the penalty could not be sustained and was liable to be vacated. The ld. A.R in support of his contention relied on the judgment of the Hon'ble Supreme Court in the case of CIT Vs. S.S. A. Emerald Meadows (2016) 242 Taxman 180 (SC). The ld. A.R further took support of the judgments of the Hon'ble High Court of Bombay in the case of (i) CIT Vs. Mrs. Piedade Perincherry (ITA No. 1310 of 2014; dt. 10.01.2017) and Commissioner of Income-tax-II Vs. Shri Samson Perinchery (ITA No. 1154 of 2014; dt. 05.01.2017). The ld. A.R further took support of a recent order of the coordinate bench of the Tribunal, viz. ITAT, Agra in the case of Sachin Arora Vs. ITO-3(4), Mathura (ITA No. 118/Ag....
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....egards which he was called upon to put forth an explanation as to why penalty under Sec. 271(1)(c) may not be imposed on him. We are of the considered view that as both of the two defaults contemplated in Sec. 271(1)(c), viz. 'concealment of income' and 'furnishing of inaccurate particulars of income' are separate and distinct defaults which operate in their independent and exclusive fields and are neither overlapping in nature nor interchangeable, therefore, if the A.O sought to impose penalty on the assessee as regards either or both of the said defaults, he remained under a statutory obligation to have intimated to the assessee as regards the specific default/defaults for which he was being called upon to show cause as to why penalty under Sec. 271(1)(c) of the Act may not be imposed in his hands. We however find that the 'Show cause' notice issued in the present case by the A.O under Sec. 274 r.w. Sec. 271(1)(c), dated 05.03.2014, which had purposively been reproduced by us hereinabove in order to fortify our observation that the same does not reveal any application of mind on the part of the A.O, clearly fails to satisfy the aforesaid statutory requirement. We find that the A.....
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....ally and clearly put the assessee to notice as regards the default/defaults for which penalty was sought to be imposed clearly militates against the mandate of affording of a reasonable opportunity of being heard to the assessee as contemplated under Sec. 274(1) of the Act. We may herein observe that as held by the Hon'ble Supreme Court in its landmark judgment in the case of Hindustan Steel Ltd. Vs. State of Orissa (1972) 83 ITR 26 (SC) that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, therefore, not loosing sight of the said material observation of the Hon'ble Apex Court, it becomes all the more obligatory on the part of the A.O to fairly discharge his statutory duty of clearly putting the assessee to notice as regards the specific default/defaults for which penalty is sought to be imposed, so that he may be able to come forth with an explanation in his defense that no such penalty for the said default/defaults was called for in his case. 10. We would now test the validity of the aforesaid notice and the jurisdiction emerging therefrom in the backdrop of the judicial pronouncements on the issue under cons....
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....at now when as per the settled position of law as observed by us hereinabove, the two defaults, viz. 'concealment of income' and 'furnishing of inaccurate particulars of income' are separate and distinct defaults, therefore, in case the A.O sought to have proceeded against the assessee for both of the said defaults, then it was obligatory on his part to have clearly specified his said intention in the 'Show cause' notice, which we find he had failed to do. The aforesaid failure on the part of the assessee cannot be characterised as merely a technical default as the same clearly divesting the assessee of the statutory right of an opportunity of being heard and defend his case, thus, has a material bearing on the validity of the jurisdiction assumed by the A.O for imposing penalty in the hands of the assessee. 11. We have given a thoughtful consideration to the issue before us, and are of the considered view that the Hon'ble High Court of Karnataka in the case of CIT Vs. SSA's Emerald Meadows (73 taxmann.com 241)(Kar) following its earlier order in the case of CIT Vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar) has held that where the notice issued by the A.O unde....
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.... 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income' referred to in Sec. 271(1)(c) of the Act denote different connotations. In fact, this distinction has been appreciated even at the level of Hon'ble Supreme Court not only in the case of Dilip N. Shroff (supra) but also in the case of T. Ashok Pal, 292 ITR 11 (SC). Theref ore, if the two expressions namely 'concealment of the particulars of income and furnishing of inaccurate particulars of income' have different connotations, it is imperative for the assessee to be made aware as to which of the two is being put against him for the purpose of levy of penalty u/s 271(1)(c) of the Act, so that the assessee can defend accordingly. It is in this background that one has to appreciate the preliminary plea of assessee which is based on the manner in which the notice u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 has been issued to the assessee company. A copy of the said notice has been placed on record and the learned representative canvassed that the same has been issued by the Assessing Of f icer in a standard proforma, without striking out the irrelevant clause....
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....ce, he has recorded a satisfaction that penalty proceedings are initiated u/s27)4(c) of the Act for furnishing of inaccurate particulars of income in our considered opinion, the attempt of the Id. CIT-DR to demonstrate application of mind by the Assessing Officer is no defence inasmuch as the Hon'ble Supreme Court has approved the factum of non-striking off of the irrelevant clause in th e no tic e as r ef le c tiv e of non-application of mind by the Assessing Officer. Since the factual matrix in the present case conforms to the proposition laid down by the Hon'ble Supreme Court, we proceed to reject the arguments advanced by the Id. CIT-DR based on the observations of the Assessing Officer in the assessment order. Further, it is also noticeable that such proposition has been considered by the Hon'ble Bombay High Court also in the case of Shri Samson Perinchery, ITA Nos. 1154, 953, 1097& 1126 of 2014 dated 5.1.2017 (supra) and the decision of the Tribunal holding levy of penalty in such circumstance being bad, has been approved. 11. Apart from the aforesaid, the Id. CIT-DR made an argument based on the decision of the Hon'ble Bombay High Court in the case of Smt. ....
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....he Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified." In the instant case also, we are of the view that the AG has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the AG has failed to apply his mind at the time of issuing penalty notice to the assessee." 12. The aforesaid discussion clearly brings out as to the reasons why the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) is to prevail. Following the decision of our coordinate Bench in the case of Dr. Santa Milind Davare (supra), we hereby reject the aforesaid argument of the Id. CIT-DR. 13. Apart from the aforesaid discussion, we may also refer to the one more seminal feature of this case which would demonstrate the importance of non-striking off of irrelevant clause in the notice by....