TaxTMI 
TaxTMI 
2022 (1) TMI 77
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...., in the case of Prakasah F Singh' have been taken into consideration for deciding these two appeals en masse. 3.The grounds of appeal raised by assessee in "lead case" in ITA No.618/SRT/2018, for A.Y 2011-12, are as follows: "01. The order imposing penalty U/s 271(1)(c)of the Act is contrary to the facts of the case and prejudicial to the Law. The assessee has neither concealed its income nor submitted any inaccurate particulars of income and the action of the Learned Commissioner of Income Tax (Appeals) is contrary to the facts of the case and law and deserves to be deleted. 02. On appreciation of the facts and circumstances of the case,the Learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Learned Assessing Officer imposing penalty U/s 271(1)(c) on the addition made on account of sundry creditors to the tune of Rs. 15,91,100/-. 03. On appreciation of the facts and circumstances of the case,the Learned Commissioner of Income Tax (Appeals) has erred in confirming the action of the Learned Assessing Officer imposing penalty U/s 271(1)(c) for both concealment as well as furnishing of inaccurate particulars of income. ....
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....bserving as follows: "On merits of penalty levied by the AO, I find that the penalty u/s 271(1)(c)for the estimated addition of Rs. 1,43,622/- is not sustainable as there is no case of concealment of income made out and it is based on mere disallowance of certain purchase expenses. The decision of Hon'ble Supreme Court in the case of Reliance Petroproducts Ltd. As referred by the AR will apply to penalty pertaining to addition of Rs. 1,43,622/-. The penalty levied on other additions of Rs. 15,91,100/- is related to unexplained sundry creditors. On the addition of unexplained sundry creditors, I find that the AO has noted in the assessment order, following facts: (1) The assessee has shown outstanding credit liability of Rs. 15,91,100/- for which books of account or bills were not furnished for verification. In response to the show cause notice for treating the sundry creditors bogus and unexplained, the assessee state that the nature of business of the waste paper purchase from rag pickers made it difficult for them to maintain details regarding these sundry creditors. The assessee clearly admitted that it is not possible for them to produce any details pertai....
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....reditors' totaling to Rs. 15,91,100/-. Thus, the AO has rightly held that the sundry creditors balance of Rs. 15,91,100/- was bogus liability and hence as concealed income. To this extent of addition on account of bogus liability, the assessee has certainly concealed particulars of its income and penalty u/s 271(1)(c) is attracted. The facts of the case on this issue, in no way, is no explanation at all by the assessee for Sr. creditors of Rs. 15,91,100/-. In view of these facts and discussions, the penalty u/s 271(1)(c)is confirmed for the addition of Rs. 15,91,100/- whereas penalty u/s 271(1)(c)of the Act for addition of Rs. 1,43,622/- is deleted. Thus, the assessee's gets partial relief." 7.Aggrieved by the order of Ld. CIT(A), the assessee is in appeal before us. 8.Shri A. Gopalakrishnan, Learned Counsel for the assessee, pleads that having once rejected the books of account and estimating the profits, the assessing officer could not have made further addition on account of sundry creditors for goods supplied u/s 68 of the Act by relying upon the same books of account. Learned Counsel also argues that assessing officer has issued defective notice to levy penalty, that is,....
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....High Court by impugned order held that recording of satisfaction by Assessing Officer that there was concealment of income or that any inaccurate particulars were furnished by assessee was sine qua non for initiation of penalty proceedings and in absence of such satisfaction, both Commissioner (Appeals) as well as Tribunal had correctly ordered to drop penalty proceedings against assessee - Whether Special Leave petition against said impugned order was to be dismissed - Held, yes [Para 1] [In favour of assessee]" 12. Thus, the primary burden lies on the revenue to inform the assessee that on what account the penalty proceedings are being initiated against the assessee. 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(1)(c), read with section 274 . It is true, that assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own....
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....ng regarding the existence of the conditions mentioned in section 271(1)(c), at least the facts set out in Explanation 1(A) and 1(B) it should be discernible from the said order which would be a legal fiction constitute concealment because of deeming provision. (g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under section 271(1)(c) is a sine qua non for the Assessing Officer to initiate the proceedings because of the deeming provision in sub-section (IB). (h) The imposition of penalty is not automatic. (i) The imposition of penalty even if the tax liability is admitted is not automatic. (j) Even if the assessee has not challenged the order of assessment levying tax and has even paid tax, that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty. (k) If the explanation offered, even though not substantiated by the assessee, but is found bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. (l) The direct....
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....nches, though. 163. We have already discussed what constitutes the ratio decidendi or case holding and what it takes to be a precedent. Now, we will see what makes a precedent conflict with another. The Precedential Conflict: 164. To cut the discussion short, we will take aid of the latest Supreme Court judgment on this point. In Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 123 taxmann.com 161 ("Mavilayi"), the question concerns the deductions a primary agricultural credit society can claim under section 80P(2)(a) (i) of the IT Act, after the introduction of section 80P(4) of that Act. Two Division Benches of Kerala High Court have taken conflicting views-the latter decision being unaware of the former one. Finally, that precedential conflict stood resolved through a Full Bench decision in Mavilayi Service Co-operative Bank Ltd. v. CIT[2019 (2) KHC 287]. This Full Bench decision was taken to Supreme Court. That is how, on 12 January 2021, a three-Judge Bench of the Supreme Court has decided Mavilayi. 165. Mavilayi has noted that the Full Bench of Kerala High Court has reached its conclusion based on the Supreme Court's judgment Citiz....
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....at case. For the case is an authority for what it actually decides in law and not for what may seem to logically follow from it. Do Goa Dourado Promotions case (supra) and Kaushalya case (supra) conflict? 168. As we have seen Goa Dourado Promotions case (supra) concludes the case based on the reasoning given in Samson Perincherry, and New Era Sova Mine (supra). 169. The relates to Goa Coastal Resorts and Recreation (P.) Ltd. (supra) In that one, the learned Division Bench has held: 6. Besides, we note that the Division Bench of this Court in Samson(supra) as well as in New Era Sova Mine(supra) has held that the notice which is issued to the assessee must indicate whether the Assessing Officer is satisfied that the case of the assessee involves concealment of particulars of income or furnishing of inaccurate particulars of income or both, with clarity. If the notice is issued in the printed form, then the necessary portions which are not applicable are required to be struck off, so as to indicate with clarity the nature of the satisfaction recorded. In both Samson Perinchery and New Era Sova Mine, the notices issued had not struck of the portion w....
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....rce of information; the assessment proceedings, too, may shed light on the issue and inform the assessee on the scope of penalty proceedings. Whether assessment proceedings can be a source of information and whether it can complement the notice have not been considered in Goa Dourado Promotions Case (supra) and other cases. 173. We, however, accept that the Revenue, often, adopts a pernicious practice of sending an omnibus, catch-all, printed notice. It contains both relevant and irrelevant information. It assumes, perhaps unjustifiably, that whoever pays tax is or must be wellversed in the nuances of tax law. So it sends a notice without specifying what the assessee, facing penalty proceedings, must meet. In justification of what it omits to do, it will ask, rather expect, the assessee to look into previous proceedings for justification of its action in the later proceedings, which are, undeniably, independent. It forgets that a stitch in time saves nine. Its one cross or tick mark clears the cloud, enables the assessee to mount an effective defence, and, in the end, its diligence avoids a load of litigation. Is not prejudice writ large on the face of the mechanical metho....
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....plicit finding of whether the conditions mentioned in section 271(1)(c) exist in the case. It is because Explanations 1(A) and 1(B), as the deeming provisions, create a legal fiction as to the grounds for penalty proceedings. Indeed, the Apex Court in CIT v. Atul Mohan Bindal [2009] 183 Taxman 444/317 ITR 1, has explained the scope of section 271(1)(c) thus: "[E]xplanation 1, appended to section 27(1) provides that if that person fails to offer an explanation or the explanation offered by such person is found to be false, or the explanation offered by him is not substantiated, and he fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, for the purposes of section 271(1)(c), the amount added or disallowed in computing the total income is deemed to represent the concealed income." 177. That is, even if the assessment order does not contain a specific finding that the assessee has concealed income or he is deemed to have concealed income because of the existence of facts which are set out in Explanation 1, if a mere direction to initiate penalty pr....
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....the statutory notice under section 271(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness. 182. More particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee's favour. 183. Therefore, we answer the first question to the effect that Goa Dourado Promotions and other cases have adopted an approach more in consonance with the statutory scheme. That means we must hold that Kaushalya does not lay down the correct proposition of law. Question No. 2: Has Kaushalya failed to discuss the aspect of 'prejudice'? 184.....
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.... 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 may, in this context, respectfully observe that a contravention of a mandatory condition or requirement for a communication to be valid communication is fatal, with no further proof. That said, even if the notice contains no caveat that the inapplicable portion be deleted, it is in the interest of fairness and justice that the notice must be precise. It should give no room for ambiguity. Therefore, Dilip N. Shroff Case (supra) disapproves of the routine, ritualistic practice of issuing omnibus show-cause notices. That practice certainly betrays non- application of mind. And, therefore, the infraction of a mandatory procedure leading to penal consequences assumes or implies prejudice. 189. In Sudhir Kumar Singh, the Supreme Court has encapsulated the principles of prejudice. One of the principles is that "where procedural and/or substantive provisions of law embody the principles of natural justice, their infraction per se does not lead to invalidity of the orders passed....
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.... a clear finding regarding penalty being imposed on concealment of income or on furnishing inaccurate particulars of income, Tribunal was justified in setting aside impugned penalty order. Thus, respectfully following the judgment of the Hon`ble Bombay High Court and Hon`ble Gujarat High Court, we delete the penalty. 16.We have adjudicated the issue by taking lead case in ITA No.618/SRT/2018 for assessment year 2011-12. Since the facts are similar and identical therefore our observations made in ITA No.618/SRT/2018, shall apply mutatis mutandis to the aforesaid other appeal of Assessee, namely, ITA No.623/SRT/2018 for assessment year 2011-12. 17. In the result, appeals of the Assessees (in ITA No.618/& 623/SRT/2018 AY.2011-12) are allowed. A copy of the instant common order be placed in the respective case file(s). Order pronounced on 30/11/2021 in the open court by placing the result on the notice board. ============= Document 1 NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE INCOME TAX ACT, 1961 U/s. 271(1) (c) PAN NO: ASNPS4835N TO SHRI PRAKASH FAUJDAR SINGH RBL-63/751 CHANOD COLONY, GIDC, VAPI office of the Income-tax offi....