TaxTMI 
TaxTMI 
2019 (1) TMI 1797
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....ification and liable to be deleted. 2. The Ld. CIT(A) failed to appreciate that proper explanation and disclosure was given during the course of search action in the statement recorded u/s. 132(4) of the Act and the disclosure so made was offered to tax in the return of income filed and hence, the case of the appellant falls within the scope of clause (a) to section 271 AAB of the Act and accordingly, the levy of penalty u/s.271AAB of the Act may be directed to be restricted to 10% of the undisclosed income. 3. The Ld. CIT(A) failed to appreciate that the return of income filed u/s. 13 9(4) of the Act is to be treated as filed within the extended due date u/s. 13 9(1) of the Act and that the manner of deriving the undisclosed income was duly explained and thus, the penalty u/s.271AAB of the Act ought to be levied at 10% of undisclosed income under clause (a) thereof and the excess penalty thus levied is unjustified and may be deleted. 4. The Ld. CIT(A) further failed to appreciate that additions of Rs. 7,75,407/- to the returned income were made on estimation / presumption basis and not on the basis of any material found and seized in the course of search....
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....ad Electricity Ltd. Vrs. CIT 199 ITR 351 (Bom) (FB), we allow the application dated 14.09.18 and admit the additional grounds mentioned above for adjudicating on merits. 5. The brief facts of the case are that a search and seizure operation u/s.132(l) of the Act was conducted in the case of Associated Stone Industries (ASI) Group and its associated concerns on 13.18.2013. The main company of this group is M/s Associated Stone Industries (Kota) Ltd. which is engaged in mining and trading of Kota Stone. Simultaneously, search action was carried out in case of the assessee being Chairman and Managing Director of ASI. The assessee in the course of search action made total disclosure of Rs. 35.13 crores in the statement recorded u/s 132(4) of the Act on 14.08.13 and 15.08.13. The total disclosure of the assessee was made to the tune of Rs. 36.26 crores, which was later on enhanced of Rs. 42.89 crores by filing detailed letter dated 07.11.13. Since the assessee had admitted disclosure income in the course of statement recorded u/s 132(4) of the Act during the search, therefore the penalty u/s 271AAB was initiated against the assessee. The grand total of undisclosed income offered by t....
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....the same in paper book no 2 filed. In case of SSA Emrald before the Hon'ble Karnataka High Court, question of law 3 read as follows: "(3) Whether on facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when Assessing Officer was specified that the Assessee has concealed particulars of income?" 7. As per learned AR, in the case of Baisetty Revathi before the Hon'ble Andhra Pradesh High Court, the department had relied on judgment of Hon'ble Supreme Court in case of K P Madhusudhan, 251 ITR 99 and the same was distinguished and penalty was deleted following ratio laid down in case of Manjunatha. Copy of the judgment is at page 46 to 56 of the paper book and relevant part is at page 54. It reads as follows: "Smt. Kiranmayee, learned counsel, placed reliance on the judgment of the Supreme Court in K.P. MADHUSUDHAN'AN V/s. COMMISSIONER OF INCOME TAX, COCHIN . Therein, ? the Supreme Court held that it is not necessary for the Assessing Officer, while issuing a notice under Section 271(1 )(....
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.... Court observed that provisions of section 271(l)(c)(iii) does not attract rule of presumption of mens rea as the penalty imposable under the said provision is for the breach of civil obligation. The observations of the Hon'ble Court against issuance of show cause notice appears to be in the context of quantum of penalty proposed to be imposed and not with reference to the doing away with the issuance of show cause notice as contemplated under section 274 of the Act. Therefore, the judgment of the Hon'ble Court cannot be read out of context or in a manner to mean that there is no need for mentioning the specific limb of section 271(l)(c) of the Act for which the penalty was intended to be imposed, as such issue never came up for consideration before the \Hon'ble High Court. That being the case, the aforesaid decision cannot be applied for rebutting the proposition that in the absence of recording of satisfaction regarding the exact nature of offence, no penalty under section 271(l)(c) can be imposed. In view of the aforesaid, we delete the penalty imposed." 9. Apart from above, Ld. AR also submitted that the identical ground has already been decided by the Coordinate....
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....al contentions and perused the orders of the authorities below. Notice issued to the assessee u/s.274 r.w.s.271 AAB of the Act is reproduced hereunder:- NOTICE UNDER SECTION 274 READ WITH SECTION 271AAB OF THE INCOME TAX ACT, 1961 PAN: AADPE1841Q Office of Deputy Commissioner of Income-tax, Central Circle-I, Coimbatore. Date: 13.08.2014 To Shri.R.Elangovan 821/2, Kallipalayam, Chikkarampalayam Post, Karamadai - 641104 Whereas in the course of the proceedings before me for the Assessment Year 2013 - 14. It appears to me that you:- *have without reasonable cause failed to furnish the return of income which you were required to furnish by a notice given under section 22( 1 )/22(2)/3 4 of the Indian Income tax Act 1922 or which you were required to furnish under section 139(1) or by a notice given under section 13 9(2)/148 of the Income tax l\ct, 1961, No. dated or have without reasonable cause failed to furnish it within the time allowed and in the manner required by the said section 139(1) or by such notice. *have 'without reasonable cause failed to comply with a n....
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.... (b) a sum computed at the rate of twenty per cent. of the undisclosed income of the specified previous year, if such assessee- (i) in the course of the search, in a statement under sub-section (4) of section 132, does not admit the undisclosed income ; and (ii) on or before the specified date- (A) declares such income in the return of income furnished for the specified previous year ; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income ; (c) a sum which shall not be less than thirty per cent. but which shall not exceed ninety per cent. of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (2) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). (3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation For the purposes of this section,- (a) "specified date" means the due date of furnishing of return of income ....
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....junatha Cotton and Ginning Factory (supra) had held as under:- "'2. This appeal has been filed raising the following substantial questions of law: (1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and invalid despite the amendment of Section 271(1B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same? (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when the assessin....
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....ty proceedings. The assessment or reassessment cannot be declared invalid in the penalty proceedings''. View taken by the Hon'ble Karnataka High Court in the above judgment was indirectly affirmed by the Hon'ble Apex Court, when it dismissed an SLP filed by the Revenue against the judgment in the case of SSA's Emerald Meadows (supra), specifically observing that there was no merits in the petition filed by the Revenue. Considering the above cited judgments, we hold that the notice issued u/s.274 r.w.s. 271AAB of the Act, reproduced by us at para 5 above was not valid. Exconsequenti, the penalty order is set aside. 10. In the case of Gillco Developers and Builders Vrs. DCIT in ITA No. 168/Chd/2017 for AY 2012-13, the Coordinate Bench had held as under:- 19. Now coming to the legal issues raised by the assessee, the Ld. Counsel for the assessee has contended that even the notice served upon the assessee u/s 274 of the Act is also invalid. We have gone through the show cause notice issued to the assessee. The Ld. Counsel for the assessee has invited our attention to the letter / notice issued u/s 274 read with section 271AAA of the Act dated 13.1.2014, which for t....
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.... levied against the assessee is thus not sustainable on this score also. 21. The assessee has also raised another legal issue regarding the limitation point. Now at this stage, we do not deem it necessary to resort to lengthy deliberation on this issue as we have not only decided the issue of levy of penalty on merits but also the legal issue in favour of the assessee. The limitation issue, however, is left open to be adjudicated in an appropriate case. 22. In view of our observations and findings given above, the penalty levied by the lower authorities u/s 271AAA of the Act in this case is held not sustainable and the same is accordingly ordered to be deleted. 28 23. In the result, the appeal of the assessee is hereby allowed. 11. In the case of Orbit Enterprises Vrs. ITO in ITA No. 1596 & 1597/Mum/2014 for AY 2005-06 & 2006-07, the Coordinate Bench had held as under:- 7. At the time of hearing, the learned representative pointed out that the additional Grounds of appeal raised by the assessee involve a point of law for which the necessary facts are on record and, therefore, the same be admitted for adjudication. Insofar as the admission of the additi....
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....that the intention of the Assessing Officer to levy penalty was already communicated through the discussion in the assessment order wherein the penalty has been initiated for concealment of income. Further, he has made a reference to para 4 of the penalty order passed by the Assessing Officer to point out the reply filed by the assessee which, inter-alia, shows that the assessee had understood that the penalty proceedings were initiated for concealment of income. It was, therefore, contended that non-striking off of the irrelevant portion in the notice u/s 274 r.w.s. 271(1)(c) of the Act dated 22.12.2008 does not create any ambiguity as the assessee was aware that the proceedings have been initiated for concealment of income and not for furnishing of inaccurate particulars of income. Apart therefrom, it is contended that Sec. 292BB of the Act saves the error, if any, in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act and, therefore, the plea of the assessee is not justified. Further, the ld. CIT-DR relied upon the decision of the Hon'ble Patna High Court in the case of Mithila Motors (P.) Limited, 149 ITR 751 (Patna) for the proposition that mention of an incorrect charge....
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.... based on the tone and tenor of the notice issued u/s 274 r.w.s. 271(1)(c) of the Act dated 22.12.2008, a copy of which has been placed on record. Notably, the relevant discussion made by the Mumbai Bench of the Tribunal in the case of Meherjee Cassinath Holdings Pvt. Ltd. (supra) is as under :- "8. .............. It is also a well accepted proposition that "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 Pai, 292 ITR 11 (SC). Therefore, 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 ....
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....r dated 5.8.2016, a copy of which is also placed on record. 10. In fact, at the time of hearing, the ld. CIT-DR has not disputed the factual matrix, but sought to point out that there is due application of mind by the Assessing Officer which can be demonstrated from the discussion in the assessment order, wherein after discussing the reasons for the disallowance, he has recorded a satisfaction that penalty proceedings are initiated u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income. In our considered opinion, the attempt of the ld. 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 nonstriking off of the irrelevant clause in the notice as reflective of nonapplication 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 ld. 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 Hig....
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....ts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. The Hon'ble Bombay High Court has discussed about nonapplication of mind in the case of Kaushalya (supra) and observed as under:- ".... The notice clearly demonstrated non-application of mind on the part of the 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 AO 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 AO 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 Sup....
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....n this count itself the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted. We hold so. Since the penalty has been deleted on the preliminary point, the other arguments raised by the appellant are not being dealt with." Therefore, in view of the aforesaid discussion, in our view, the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act dated 22.12.2008 is untenable and suffers from the infirmity of nonapplication of mind by the Assessing Officer. On this count itself, in our view, the penalty imposed u/s 271(1)(c) of the Act deserves to be deleted. 13. At this point, we may also make a reference to the judgment of the Hon'ble Patna High Court relied by the ld. CIT-DR before us. The issue before the Hon'ble Patna High Court was relating to levy of penalty for shortfall in the payment of advance tax paid as compared with the tax finally assessed as payable, but in the notice issued u/s 274 r.w.s. 273(b) of the Act it was incorrectly mentioned that assessee had failed to file its estimate of advance tax. The Hon'ble Patna High Court held that mention of such incorrect charge would not render the penalty proceedings void....
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....to be a mere wrong labelling of the section or some mistake of the nature that was before the Hon'ble Patna High Court in the case of Mithila Motors (P.) Limited (supra). Therefore, the judgment of the Hon'ble Patna High Court does not help the case of the Revenue before us. 14. The other plea of the ld. CIT-DR before us was that there was no ambiguity inasmuch as the Assessing Officer had made aware the assessee about the charge being made against him, namely concealment of income, by referring to the assessment order and also the reply of the assessee filed at the time of penalty proceedings. In our considered opinion, if one were to examine the entire conspectus of fact-situation starting from the assessment order upto the passing of penalty order, the error in the argument set-up by the ld. CITDR would be clear. In the assessment order dated 22.12.2008, the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are initiated for concealment of income while in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act of even date, both the limbs of Sec. 271(1)(c) of the Act are left intact in the standard printed notice, as the irrelevant cl....
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.... the provisions of Sec. 292BB of the Act have no relevance in the context of the impugned examination of the efficacy of the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act. Notably, the issue before us is not about the service of notice but as to whether the contents of the notice issued meets with the requirements of law. Therefore, the said argument of the ld. CIT-DR is also rejected. 16. In view of the aforesaid discussion, in our view, having regard to the fact that in the instant case the notice issued u/s 274 r.w.s. 271(1)(c) of the Act dated 29.03.2012 does not specify the grounds of initiation of penalty proceedings, the same is invalid and untenable in the eyes of law. Accordingly, the penalty imposed u/s 271(1)(c) of the Act is directed to be deleted on this count itself. 17. Since the penalty has been deleted on the preliminary point, the other arguments of the assessee dealing with the merits of the levy of penalty are not being dealt with as the same are rendered academic in nature. 12. On the other hand learned DR relied on the order of Ld. CIT(A) and submitted that since in the present case, the assessee in the course ....
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....operate in a different fields. The courts have held that in the notice under section 274 r.w.s. 271, the AO has to specify the charge on which he intends to levy penalty. This aspect of the matter has been consistently reiterated by the Hon'ble High Courts from time to time. 16. We found that Notice dated 31.03.15 issued by AO u/s.274 r.w.s. 271 also incorporated 271AAB (in hand) was on standard performa in which inappropriate words and paragraphs were neither struck off nor deleted. Thus, the assessing authority was not sure as to whether he had proceeded on the basis that the assessee had either concealed its income or had furnished inaccurate particulars. Thus, the notices so issued are not in compliance with the requirement of the particular section and therefore it is a vague notice, which is attributable to a patent non-application of mind on the part of the assessing authority. 17. We are of the view that for visiting the assessee with the panel provisions, it is pre-requisite that it should be evident from the notice, the intend and purpose for levying penalty as the purpose of the notice is to inform the assessee as to the specific charge for which he has been sh....
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.... and the Delhi High Court in the case of CIT v. Virgo Marketing P Ltd reported in [2008 171 Taxman 156 has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment then the notice has to be appropriately marked Similar is the case for furnishing inaccurate particulars of income. "(p) Notice under section 274 of the Act 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. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind. 20. Thereafter, in so far as the manner in which the statutory notice was required to be issued, the Hon'ble Court concluded thus: (p) Notice u/s 274 of the Act should be 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. 21. Finally, in concurring with the findings recorded in the order ....
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....or determination by this Court. The appeal is accordingly dismissed." 25. The SLP filed by the department in the aforesaid case also was dismissed by the Hon'ble Supreme Court vide Petition for Special Leave to Appeal (C) No .... ./2016 (CC No. 11485/2016) dated 05.08.2016. 26. The Hon'ble jurisdictional High Court in the case of CIT v. Samson Perinchery [Income Tax Appeal No. 1154 of 2014 and others dated 05.01.2017] had also occasion to consider a similar issue. In this case, though proceedings u/s. 271(1)(c) of the Act were initiated for furnishing of inaccurate particulars of income, in the notice issued u/s. 274 r.w.s. 271 of the Act in the standard form, the charge for which it was issued was also not identified, as in the present case. In deleting the levy, so far as non-specification of the default in the jurisdictional notice, the following findings were recorded by the Hon'ble Bombay High Court: "7 Therefore, the issue herein stands concluded in favour of the Respondent-Assessee by the decision of the Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra). Nothing has been shown to us in the present facts which would warran....