TaxTMI 
TaxTMI 
2021 (12) TMI 763
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of assessment proceedings, on perusal of the details available on record, it was noticed that during the year under consideration, the assessee firm has entered into purchase agreement of immovable properties with its associated firm i.e. M/s. Govardhan Developer for purchase consideration of Rs. 7,18,00,000/-. Further AO observed that it can be seen that during the year under consideration Shri Nishit Bechar Patel, one of the partners was having more than 20% share in both the firms and also having substantial interest in profit of 'the firms. That thus, the transactions exceeding Rs. 5 crore held between the aforesaid firms must be treated as specified domestic transaction as per the provisions of section 92BA(i) and 40A(2)(b) of the Income Tax Act, 1961, Hence, AO opined that, it is established that the assessee firm has entered into specified domestic transactions and hence the assessee was liable to keep and maintain such information and document as per the provisions of subsection (3) of section 92 D of the Income-tax Act, 1961. That however, the assessee failed to keep and maintain any information as per the provisions of section 92D of IT Act. That thus, the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessment proceedings. That in this regard, it is to mention here that the assessee firm failed to furnish any details in accordance with the provisions of section 92D(3) r.w.r. 10D(3) of IT Rule. That thus, the contention of the assessee is not correct and liable to be penalized as per provisions of section 271G of the Income Tax Act, 1961. 6. Accordingly penalty of Rs. 14,37,000/- was levied u/s. 271G. 7. Upon assessee's appeal Ld.CIT(A) confirmed the penalty on the basis of his following observation:- "The appellant should have kept and maintained such information and documents as per the provision of section 92D(3) of the IT. Act, 1961 but the appellant failed to do so. Therefore, the AO levied the penalty u/s 271G of the IT Act, 1961. During the appellate proceedings, the appellant has produced 3CEB report mandate as per provisions of section 92D and section 92E but failed to submit the same report during the assessment proceedings, therefore, the contention of the appellant cannot be accepted as the appellant should have disclosed the specified transaction in its return of income, but it failed to do so. It is also pertinent to mentioned here tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce of the case, Ld.CIT(A)-3, Thane erred in confirming the penalty levied by Assessing officer under section 271AA of Income Tax Act, 1961. 13. Brief facts of the case are that in this case, the return of income for AY 2015-16 was e-filed on 31.08.2015, declaring total income at Rs. 92,940/-. During the course of assessment proceedings, on perusal of the details available on record, it was noticed that during the year under consideration, the assessee firm has entered into purchase agreement of immovable properties with its associated firm i.e. M/s. Govardhan Developer for purchase consideration of Rs. 7,18,00,000/-. Further AO observed that, it can be seen that during the year under consideration Shri Nishit Bechar Patel, one of the partners was having more than 20% share in both the firms and also having substantial interest in profit of 'the firms. Thus, the transactions exceeding Rs. 5 crore held between the aforesaid firms must be treated as specified domestic transaction as per the provisions of section 92BA(i) and 40A(2)(b) of the Income Tax Act, 1961, Hence AO opined that, it is established that the assessee firm has entered into specified domestic transaction....
X X X X Extracts X X X X
X X X X Extracts X X X X
....associated concerns and reported in the income tax return as purchase price during the assessment proceedings, therefore, the AO has erred in levying penalty u/s 271AA, is found to be wrong. The point of conflict related to the levying of penalty is not that the purchase price of the two plots of Rs. 7.18 Cr. were below the fair market value or higher than that, but the penalty is levied on the ground that, the appellant had made transaction of Rs. 7.18 Cr, and it was a specified domestic transaction as it had exceeds the limit of Rs. 5 Cr as per the provisions of section 92BA(i) and 40A(2)(b) of the income tax act, 1961 therefore, the appellant should have kept and maintained such information and documents as per the provision of section 92D(1) and (2) of the IT. Act, 1961, but the appellant failed to do so. Therefore, the AO levied the penalty u/s 271AA of the IT Act, 1961. During the appellate proceedings, the appellant has produced 3CEB report mandate as per provisions of section 92D and section 92E but failed to submit the same report during the assessment proceedings, therefore, the contention of the appellant cannot be accepted as the appellant should have disclosed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y of penalty under section 92AA is not justified. For sake of completeness, it is further submitted that the learned AO issued a notice under section 274 read with section 271AA of the Act (page 41 of the paper book) without striking off the irrelevant parts of the notice. The Appellant submits that the said notice is invalid since it does not specify the charge for which the proceedings are initiated. It is submitted that merely because the assessment order specifies the charge is of no consequence, as the Hon'ble Bombay High Court in Mohd. Farhan A. Shaikh vs. DCIT 434 1TR 1 (Bom)(FB) has held that even if the assessment order clearly records satisfaction for imposing penalty on one or the other grounds, not striking off irrelevant matter in notice vitiates penalty proceedings." 18. Upon careful consideration, I note that as regards, the issue of non striking off the relevant limb of the penalty note the issue was considered by Hon'ble Bombay High court in Farhan A. Shaikh Vs. PCIT (125 taxamnn.com 253) vide order dt. 11.3.2021. 19. Now we refer to Hon'ble Bombay High Court exposition in Mohammed Farhan A. Shaikh (supra) as under :- We have already....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dicted by the majority: According to the well-settled theory of precedents every decision contains three basic ingredients: (i) findings of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of (i) and (ii) above." For the purposes of the parties themselves and their privies, ingredient (Hi} is the material element in the decision for it determines finally their rights and liabilities in relation to the subject-matter of the action. It is the judgment that estops the parties from reopening the dispute. However, for the purpose of the doctrine of precedents, ingredient (ii) is the vital element in the decision. This indeed is the ratio decidendi. 167. Then, Mavilayi applied the above principle and held that the ratio decidendi in Citizen Cooperative would not depend upon the conclusion arrived at on facts in that case. For the case is an authority for whaf it actually decides in law and not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....conflict between Kaushalya and Manjunatha if we take comity, rather than stare decisis, as the reckoning factor. 171. That said, as Mavilayi found distinguishing features in Citizen Cooperative; here, too, the fact situation as obtained in Kaushalya has been seen in none of these decisions: Goa Dourado Promotions, Goa Coastal Resorts and Recreation, Samson Perinchery, New Era Sova Mine-not even in Manjunatha pointed, in both sets of cases, the proposition is this: To an assessee facing penalty proceedings, the Revenue must supply complete, unambiguous information so that he may defend himself effectually. This proposition has given rise to this question: Where should the assessee gather the required information from? 172. Goa Dourado Promotions and other cases have held that the information must be-gathered from the notice under section 271(l)(c) read with section 274 of the IT Act. No other source was_in_the_Court's contemplation. In Kaushalya, both the proposition and the question were the same. But it has one extra input: the order in assessment proceedings. So it has held that the notice alone is not the sole source of information the assessment proceedings, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the issue resolution; Goa Dourado Promotions, an ex-ante approach. Kaushafya saves one single case from further litigation. It asks the assessee to look back and gather answers from whatever source he may find, say, the assessment order. On the other hand, Goa Dourado Promotions saves every other case from litigation. It compels the Revenue to be clear and certain. To be more specific, we may note that if we adopt Kaushalya's approach to the issue, it requires the assessee to look for the precise charge in the penalty proceedings not only from the statutory note but from every other source of information, such as the assessment proceedings. That said, first, penalty proceedings may originate from the assessment proceedings, but they are independent; they do not depend on the assessment proceeding for their outcome. Assessment proceedings hardly influence the penalty proceedings, for assessment does not automatically lead to a penalty. 176. Second, not always do we find the assessment proceedings revealing the grounds of penalty proceedings. Assessment order need not contain a specific, explicit of whether the conditions mentioned in section 271(l)(c) exist in the case.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m the assessee about the precise charge for the penalty is a matter of inference and, thus, a matter of litigation and adjudication. The solution, again, is a tick mark; it avoids litigation arising out of uncertainty. 180. One course of action before us is curing a defect in the notice by referring to the assessment order, which may or may not contain reasons for the penalty proceedings. The other course of action is the prevention of defect in the notice-and that prevention takes just a tick mark. Prudence demands prevention is better than cure. Answers: Question No. 1: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(l)(c), does a mere defect in the notice-not striking off the irrelevant matter-vitiate the penalty proceedings? 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(l)(c), read with section 274 of IT Act. True the assessment proceedin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de the penalty proceedings on the grounds of non-application of mind and prejudice. 186. That said, regarding the other assessment year, it reasons that the assessment order, containing the reasons or justification, avoids prejudice to the assessee. That is where, we reckon, the reasoning suffers. Kaushalya's insistence that the previous proceedings supply justification and cure the defect in penalty proceedings has not met our acceptance. Question No. 3: What is the effect of the Supreme Court's decision in Dilip N. Shroff on the issue of non-application of mind when the irrelevant portions of the printed notices are not struck off? 187 In Dilip N. Shroff, for the Supreme Court, it is of "some significance that in the standard Pro-forma used by the assessing officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done". Then, Dilip N. Shroff, on facts, has felt that the assessing officer himself was not sure whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. 188. We ....