TaxTMI 
TaxTMI 
2023 (5) TMI 913
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....how-cause notice as issued during penalty proceedings was invalid and passed without jurisdiction and hence, not sustainable in law. The said ground read as under: - 3. The CIT (Appeals) failed to appreciate that the order imposing penalty under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 2.2 The Ld. AR submitted that a specific charge was not framed against the assessee in the show-cause notice issued u/s 274 r.w.s. 271(1)(c) and the same would vitiate the penalty proceedings as per settled legal position. The Ld. AR also submitted that assessee furnished bona-fide explanation which has been rejected by revenue. However, the same would not lead to imposition of penalty in a mechanical manner. 2.3 The Ld. Sr. DR, on the other hand, vehemently contested the legal grounds urged by the assessee at this stage. The Ld. AR. DR submitted that none of the judicial decisions have ever considered the fact that Sec.274 merely postulates opportunity of hearing to the assessee. There is no requirement of issuance of notice and even the notice is a nonstatutory notice. The said opportunity could be given ....
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....nder: "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 (1)(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(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....
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....rresponding to the relevant assessment year. in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139". From the above, it is clear that the legislation did not mandate issuance of a notice for Penalty proceeding hearing whereas for all other proceeding hearing, the legislation mandated issuance of a notice. The logic being, u/s 271 of the Income tax Act, penalty proceedings are initiated or have to be initiated during the pendency of assessment and not subsequent to an assessment. Though the assessment proceeding and penalty proceeding are two independent proceeding in the act, penalty proceedings are initiated during the course of assessment and could be concluded under the law during the course of assessment or subsequent to passing the assessment order and before an appeal could be filed or subsequent to an order passed by the appellate authorities. Now coming to the issue of as to how the requirement of assessee to be heard and the reasonable oppor....
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....anner when these sets of facts were to have been brought to their notice. For this specific reason, it is submitted that a fresh look on the Penalty proceeding initiated in line with the law requirement be adjudicated by the Honourable Tribunal without relying on any of the existing judicial pronouncements as in none of such judicial pronouncements, these facts were brought before such Judicial forum. The notice, which the assessee is relying on, even if it is in the pre-printed format cannot, under no such imagination can be considered as a statutorily prescribed notice under the Act. It may be mentioned that since the Penalty proceedings are initiated during the course of assessment proceedings and such recordings are made and initiations are communicated in the assessment order in line with the provisions of Section 271(1B) the tax payer cannot take a shelter that he was not aware why the Penalty proceedings have been initiated. In the instant case, the assessee was found to have concealed its real income consequent to survey conducted based on an original return filed u/s 139, wherein he had admitted only Rs.1,00,920/- as his income. Conseque....
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....ought to the notice of the bench that how different would have been the submission if such a notice had clearly informed the actual reason for which the penalty proceedings have been initiated. This should be the correct test before any decision in this matter could be taken." 2.5 Countering the same, Ld. AR has also filed gist of submissions which read as under: - The penalty u/s 271(1)(c) of the Act is challenged on various facets in the captioned appeal and according to the appellant the revised return of income filed on 02.11.2012 would negate the presumption of concealment of income or furnishing inaccurate particulars of income. The show cause notice issued on 08.03.2014 is vague and hence the consequential penalty order passed on 26.09.2014 would get vitiated in the absence of precise charge. Moreover, the income offered in the revised return of income comprised of NRI receipts was bonafidely presumed to be non-taxable and hence the said bonafide belief would constitute reasonable cause for deleting the penalty imposed in relation thereto. The findings in the Para 4.1 of the impugned order are incorrect and completely opposed to the dec....
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....bunal in the case of M/s Original Kerala Jewellers is affirmed by the Madras High Court in TCA No. 717/2018 by dismissing the appeal filed by the Revenue. As a consequence, the technical issue raised by the Department has no sanctity and accordingly the said technical ground is liable to be rejected. The notice issued u/s 271(1)c) of the Act by the Revenue and the assessment order passed in the present case are placed on record to establish the lack of precise charge with a prayer to quash the penalty order passed. 2.6 Having heard rival submissions, oral as well as written and after considering the ratio of various judicial decisions, our adjudication would be as under. Our findings and Adjudication 3. From the fact, it emerges that the assessee was assessed u/s 143(3) r.w.s. 147 of the Act on 08.03.2014 wherein returned income filed by the assessee was substantially accepted barring minor addition of Rs.7,818/-. In the body of assessment order, Ld. AO initiated penalty proceedings against the assessee since the assessee admitted additional income of Rs.31.41 Lacs in the return of income vis-à-vis income declared in the original return. In the concluding p....
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....of income. However, in paras-5 & 6, Ld. AO held as under: - 5. Failure of the assessee to give credible explanation regarding the suppression of income while filing original return of income would clearly lead us to the inference that he had furnished inaccurate particulars of income and concealed his income while filing return of income within the meaning of section 271(1)(C) read with explanation (1). If no explanation is offered or explanation is found to be false the penalty will be exigible. 6. In view of the above, I deem it fit to impose penalty u/s 271(1)(c) of the Act, as there is a concealment of income to the extent of..........." Apparently, the two limbs i.e. 'furnished inaccurate particulars of income' and 'concealment of income' has been used inter-changeably while initiating the penalty proceedings in the assessment order as well as in the penalty order. The appropriate limb was also not marked in the show-cause notice. On the basis of the same, we would conclude that no specific charge has been framed against the assessee and Ld. AO remained unsure as to which limb was actually applicable to the case of the assessee. 6. Since the legal issue....
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....ed opinion, concealment of income and furnishing of inaccurate particulars of income are two different charges. These two expressions, in terms of ratio of various binding judicial precedents, carry different connotation / charges and non-framing of specific charge against the assessee would vitiate the penalty proceedings. The penalty could be levied only for a specific charge. Furnishing of inaccurate particulars of income would arise in a situation where the assessee has not disclosed the particulars correctly or the particulars disclosed by the assessee are found to be incorrect whereas concealment of particulars of income would mean that the assessee has concealed the income and has not reflected certain income, at all, in its return of income. Therefore, for each of the addition, Ld. AO has to specify as to which limb was applicable to the facts of the case and it could not be left to mere presumption or guess work of the assessee. Framing of specific charges is sine-qua-non for levy of penalty since the assessee must be put to allegations for which the penalty was being levied. In the absence of such a specific charge, the penalty would be bad in law and the same is not a cu....
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....d do not specify the exact charge for each head of addition for which the assessee was being penalized and therefore, it was a clear case of non-application of mind while initiating penalty against the assessee. Even in the body of penalty order, no specific charge has been framed for each head of addition and Ld. AO merely stated that both the limbs were applicable to the case of the assessee which was clear from the nature of additions itself. 8. On the given factual matrix, the decision of Hon'ble High Court of Madras in Babuji Jacob Vs. lTO (430 lTR 259; 08.12.2020) would apply. The Hon'ble Court, inter-alia, held that since the notice under section 271(1)(c) did not specifically state as to whether assessee was guilty of concealing particulars of his income or had furnished inaccurate particulars of income, the impugned penalty was invalid and same was to be set aside. The relevant adjudication of Hon'ble Court in this case was as under: - 25. This finding of the Assessing Officer is incorrect because while completing the assessment under Section 143(3) of the Act, there was no allegation against the assessee as to furnishing of inaccurate particulars. But, t....
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....;ble Supreme Court in the case of Mak Data (P) Ltd., was taken note of by the Division Bench of this Court, to which, one of us (TSSJ) was a party, in the case of CIT, Chennai-IV Vs. Gem Granites (Karnataka) [reported in (2014) 42 Taxmann.com 493] and the aspect as to how onus/burden of proof shifts from the assessee to the Revenue when penalty proceedings are initiated, is held in thefollowing terms : "11. In a recent decision of the Hon'ble Supreme Court in Civil Appeal No.9772 of 2013, dated 30.10.2013 (Mak Data P. Ltd., vs. Commissioner of Income Tax-II), the Hon'ble Supreme Court while considering theExplanation to Section 271(1), held that the question would be whether the assessee had offered an explanation for concealment of particulars of income or furnishing inaccurate particulars of income and the Explanation to Section 271(1) raises a presumption of concealment, when a difference is noticed by the Assessing Officer between the reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence and when the initial onus placed by the explanation, has been discharged by the assessee, the onus shifts on the R....
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....he case of Sundaram Finance Ltd., was couched on a different factual position wherein the Court rejected the plea of the assessee, which was a limited company, when they raised an argument with regard to the validity of the notice for the first time before the High Court and considering the administrative set up of the said assessee and the fact that the assessee was neverprejudiced on account of the alleged defect, the Court rejected the argument of the assessee. 33. In the case on hand, we find that at the first instance, while replying to the penalty show cause notice dated 30.3.2016, the assessee raised a specific plea that there was no concealment of income, that he had not furnished inaccurate particulars of income and that the notice was not proper. Therefore, the phraseology, which was adopted by the assessee, if read as a whole, would clearly show that he had objected to the issuance of the notice and as there was no basis for issuance of the notice under Section 271(1)(c) of the Act, both limbs in the said provision do not get attracted. Hence, the decision of this Court in the case of Sundaram Finance Ltd., cannot be applied. 34. The decision of the Hon....
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....l for Revenue suggested that by making incorrect claim for the expenditure on interest, the assessee has furnished inaccurate particulars of the income. As per Law Lexicon, the meaning of the word "particular" is a detail or details (in plural sense); the details of a claim, or the separate items of an account. Therefore, the word "particulars" used in Section 271(1)(c) would embrace the meaning of the details of the claim made. It is an admitted position in the present case that no information given in the Return was found to be incorrect or inaccurate. It is not as if any statement made or any detail supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee cannot be held guilty of furnishing inaccurate particulars. The Learned Counsel argued that "submitting an incorrect claim in law for the expenditure on interest would amount to giving inaccurate particulars of such income". We do not think that such can be the interpretation of the concerned words. The words are plain and simple. In order to expose the assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By any stretch of imaginat....
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....types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of one's income as well as furnishing of inaccurate particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its Return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the Return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under Section 271(1)(c). If we accept the contention of the Revenue then in case of every Return where the claim made is not accepted by Assessing Officer for any reason, the assessee will invite penalty under Section 271(1)(c). That is clearly not the intendment of the Legislature." 37. On this issue, a useful reference can be to the decision of the Gujarat High Court in the case of National Textiles Vs. CIT [reported in (2001) 249 ITR 125], which related to the assessment year 1974-75 wherein it was he....
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....y considered the rival contentions. Both the Commissioner (Appeals) as well as the ITAT have categorically held that in the present case, there is no record of satisfaction by the Assessing Officer that there was any concealment of income or that any inaccurate particulars were furnished by the assessee. This being a sine qua non for initiation of penalty proceedings, in the absence of such petition, the two authorities have quite correctly ordered the dropping of penalty proceedings against the petitioner. 6. Besides, we note that the Division Bench of this Court in Samson Preinchery (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 (supra), the notices issued had not st....
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....unal and taken a view that non-framing of specific charge in the show-cause notice would vitiate the penalty proceedings. The failure to frame specific charge against the assessee during penalty proceedings would be fatal to penalty proceedings itself and the same could not be sustained in the eyes of law. 11. Recently, the issue of defect in notice has been dealt at length by larger bench of Hon'ble Bombay High Court in Mohd. Farhan A.Shaikh V/s DCIT (125 taxmann.com 253) wherein the Hon'ble Court has answered the issue of reference as follows: - 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(1)(c), does amere defect in the notice-not striking off the irrelevant matter-vitiatethe 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(1)(c), read with section 274 of IT Act. True, the assessment pr....
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...., it set aside 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. ....
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....angotri Textiles Ltd. V/s DCIT (121 Taxmann.com 171) which is distinguishable on facts. In this case, it is the findings that the assessee had understood the notices well and filed replies contesting the levy of penalty. The legal ground assailing defect in notice was raised for the first time before Hon'ble High Court and therefore, Hon'ble Court declined to entertain the same However, the same is not the case here. 13. Another decision as cited by Ld. Sr. DR is the decision of Hon'ble High Court of Madras in Sundaram Finance Ltd. Vs ACIT (93 Taxmann.com 250) against which the assessee's SLP has already been dismissed by Hon'ble Supreme Court which is reported at 99 Taxmann.com 152. We find that this decision has already been distinguished by Hon'ble Court in Babuji Jacob Vs. lTO (supra) as under:- 32. The decision of this Court in the case of Sundaram Finance Ltd., was couched on a different factual position wherein the Court rejected the plea of the assessee, which was a limited company, when they raised an argument with regard to the validity of the notice for the first time before the High Court and considering the administrative set up of the said assessee a....
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....ect in the notice vitiates the penalty. The primary burden lies on the Revenue. The penalty proceedings translates into action only through notice issued u/s 271(1)(c) read with section 274 of Income Tax Act. The penalty proceedings must stand on its own. Therefore, the assessee must be informed of the grounds of the penalty proceedings. An omnibus notice suffers from the vice of vagueness. Further, penal provisions must be construed strictly and ambiguity, if any, must be resolved in assessee's favour. 10. The Ld. Sr. DR has argued that none of the judicial decisions consider the aspect that Sec.274 does not postulate issuance of any notice to the assessee and only an opportunity of hearing is required to be given to the assessee. However, the same is also not correct. Similar arguments were made on behalf of the revenue in the cited decision of larger bench of Hon'ble Bombay High Curt which is evident from para 20 & 21 of the decision which read as under: - 20. The mandate of law, Ms. Razaq points out, is that no penalty shall be imposed unless the assessee has been heard or has been given a reasonable opportunity of being heard. She agrees that the principles of ....