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2024 (3) TMI 1007
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....nce of the above search, assessment orders have been passed u/s 153A/143(3) of the Act by making various additions in Assessment Year 2017-18 to 2019-20. Pursuant to the assessment orders three penalty orders u/s 271(1)(c)/271A and 271AAB of the Act have been passed on 12/10/2021 for the years under consideration. Aggrieved by the penalty orders the assessee preferred the Appeals before the CIT(A). The Ld. CIT(A) vide orders dated 29/12/2022 and 26/12/2022 dismissed the Appeals filed by the assessee. As against the orders of the Ld. CIT(A), the assessee preferred the above appeals on the grounds mentioned above. Since the appeals are pertaining to single assessee and issues involved in the Appeals are being identical which were heard together and dispose off in this common order. 3. The Grounds of Appeal of the Respective Appeals are as under: ITA No. 224/Del/2023 "1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) {CIT(A)} is bad both in the eyes of law and on facts. 2. On the facts and circumstances of the case, the Learned CIT(A) has erred both on facts and in laws in confirming the action o....
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....rreporting of income in the order passed by the AO. 11. The appellant craves leave to add, amend or alter any of the grounds of appeal." ITA NO. 225/Del/2023 "1. On the facts and circumstances of the case, the order passed by the Learned Commissioner of Income Tax (Appeals) (CIT(A)) is bad both in the eyes of law and on facts. 2. On the facts and circumstance of the case, the Learned CIT(A) has erred both on facts and in laws in confirming the action of the AO levying penalty of Rs. 2.51,96,355/- invoking the provision of section 271AAB read with section 274 of the Income-tax Act. 3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied by the AO on the addition of Rs. 3,09,93,925/- made by AO estimating profit on undisclosed sales on the basis of documents seized during the course of search. 4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied on the addition of Rs. 1,10,00,000/- made by AO on account of advertisement expenditure claimed by the assessee treating the same as bogu....
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....T(A) has erred both on facts and in law in confirming the penalty levied by the AO on the addition of Rs. 27,90,952/-made by AO estimating profit on undisclosed sales on the basis of documents seized during the course of search. 5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied on the addition of Rs. 1,00,00,000/- made by AO on account of cash found during the course of search proceedings treating the same as unexplained invoking the provision of section 69A read with section 115BBE of the Act. 6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied by the AO rejecting the contention of the assessee that no penalty can be levied on the addition made on the basis of estimation. 7. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied by the AO u/s 271AAB despite the fact that case of the assessee does not fall in the definition of "Undisclosed income" and no penalty under section 271/AAB is leviable. 8. On the fa....
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.... The Ld. Departmental Representative referring to the provision of Section 270A(9) of the Act submitted that the word 'mis-reporting of the income' includes 'misrepresentation or suppression of facts' and 'under reporting income' therefore, the notice issued by the A.O. cannot be termed as vague or defective. The Departmental Representative by relying on the findings and the conclusion of the Ld. CIT(A) sought for dismissal of the appeal filed by the assessee. 6. We have heard both the parties and perused the material available on record. The notice of penalty u/s 274 of the Act dated 02/06/2021 refers to the word 'under-reported income'. The allegation of the A.O. in the penalty notice was only regarding "under reporting of income". For the sake of convenience, the penalty notice dated 02/06/2021 issued for the Assessment Year 2017-18 is reproduced as under:- "Notice under section 274 read with section 270A of the Income Tax Act, 1961 Sir/Madam, Whereas in the course of proceedings before me for the Assessment Year 2017-18, it appears to me that you have under-reported income. You are hereby requested to appear before me either personally or ....
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..... 8 This Court is of the opinion that the entire edifice of the assessment order framed by Respondent No. 1 was actually voluntary computation of income filed by the Petitioner to buy peace and avoid litigation, which fact has been duly noted and accepted in assessment order as well and consequently, there is no question of any misreporting. 9. The Hon'ble Jurisdictional High Court in the case of Prem Brothers Infrastructure LLP v. NFAC reported in 288 Taxmam 768 (Del) "7. This Court is of the opinion that the only addition in the assessment order framed by Respondent No. 1 is in respect of disallowance under section 14A of the Act. The Petitioner has made a disallowance of Rs. 3.20,14,010- which was recomputed by the Assessing Officer at Rs. 6,82,45.759/-. Thus, this is a case where the amount of underreporting of income is consequent to increase in the disallowance voluntarily estimated by the assessee. This court is conscious of the fact that there can be cases where underreporting of income may result in misreporting of income, however, in peculiar facts of the present case, the underreporting allegedly done by the assessee cannot amount to misreporting as ....
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....en confirmed by the Ld. CIT(A) on the same reasoning. The question is whether the AO's action to levy penalty u/s 270A(9) of the Act is sustainable in the given facts of the case. In order to examine that let us have a look at relevant provisions of Section 270(8) & (9) of the Act which reads as under: - 13. The AO has levied the higher penalty of 200% of tax payable of misreporting income. Then in such a scenario, the AO has to bring the action/omission on the part of the assessee in the ken of sub-section (9) of section 270A of the Act which are given (supra), viz (a) to (f) of section 270A(9) of the Act. However, a reading of the reasons given by the AO to levy penalty for misreporting (supra) it is discerned that he has failed to spell out as to how the assessee's case/additions falls within the ken of instances given in clause (a) to (f) of sub-section (9) of section 270A of the Act. Since AO failed to bring the addition/disallowance he made in quantum assessment, under the ken of (a) to (f) of the sub-section(9) of section 270A of the Act, the penalty levied for misreporting @ 200% cannot be sustained because it is trite law that penalty provisions have to be....
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....ehement rival stands and find no merit in the Revenue's arguments. It is made clear that the assessee's case law indeed relates to the earlier penalty provision i.e., sec.271(1)(c) of the Act only wherein various hon'ble higher judicial forums had settled the law that the Assessing Officer ought to specify as to whether the concerned taxpayer had concealed or furnished inaccurate particulars of his taxable income during the course of assessment. I am of the view that the very line of judicial precedents would squarely apply even for the amended penalty provision i.e., sec.270A of the Act as well wherein the legislature has not only prescribed twin limbs of "under reporting of income as well as misreporting of income", but also, unlike the earlier provision u/sec.271, this time it has stipulated specific deeming illustrations under both the twin foregoing heads of the "under reported income" and "misreporting of income" in sub-sections (2) and (9) (a to f) respectively. In my considered opinion, once the instant twin appeals involve levy of penalty @ 200% of the taxes sought to be evaded and the learned lower authorities have held the assessee to have "under- reported hi....
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....eported in 317 ITR 107 (Del). The said Judgment of Delhi High Court Decision in the case of Madhushree Gupta (supra) is for the proposition that the addition made in the quantum assessment together with issuance of show cause notice is sufficient. In-fact in the said case the question that went before the Delhi High Court was only with regard to constitutional validity of newly inserted provisions of section 271(1B) of the Act. Madhushree Gupta (supra) was never on the proposition with regard to non-mentioning of specific limb of offence in the penalty show cause notice. 13. The issue of not mentioning specific limb in the penalty notice is fully covered by the decision of the Hon'ble Delhi High Court in the case of Sahara India Life Insurance Ltd reported in 432 ITR 84 (Del) wherein it was held that:- "21. The Respondent had challenged the upholding of the penalty imposed under section 271(1) (c) of the Act, which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250/218 Taxman 423/359 ITR 565 and observed that the notice issued by the AO would be bad in law if it did not s....
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....nsonance 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. Indeed. Smt. Kaushalya case (supra) did discuss the aspect of prejudice. As we have already noted, Kaushalya noted that the assessment orders already contained the reasons why penalty should be initiated. So, the assessee, stresses Kaushalya, "fully knew in detail the exact charge of the Revenue against him". For Kaushalya, the statutory notice suffered from neither non-application of mind nor any prejudice. According to it, "the so-called ambiguous wording in the notice [has not] impaired or prejudiced the right of the assessee to a reasonable opportunity of being heard". It went onto observe that for sustaining the plea of natural justice on the ground of absence of opportunity, "it has to be established that prejudice is caused to the concerned person by the procedure followed". Smt. Kaushalya case (supra) closes the discussion by observing that the notice issuing "is an administrative device for informing the assessee about the proposal to levy penalty in....
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....principles of prejudice. One of the principle Supreme Court has procedural and/or substantive provisions of law embody the principle thahatwhat justice, their infraction per se does not lead to invalidity of the orders passed. Here again, prejudice must be caused to the litigant, "except in the case of a mandatory provision of law which is conceived not only in individual interest but also in the public interest". 190. Here, section 271(1)(c) is one such provision. With calamitous, albeit commercial, consequences, the provision is mandatory and brooks no trifling with or dilution. For a further precedential prop. we may refer to Rajesh Kumar v. CIT [2007] 27 SCC 181, in which the Apex Court has quoted with approval its earlier judgment in State of Orissav. Dr. Binapani Dei AIR 1967 SC 1269 According to it, when by reason of action on the part of a statutory authority, civil or evil consequences ensue, principles of natural justice must be followed. In such an event, although no express provision is laid down on this behalf, compliance with principles of natural justice would be implicit. If a statue contravenes the principles of natural justice, it may also be held ultra v....
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....tice issued u/s 270A read with section 274 of the Act about "misreporting of income". In-fact two notices were issued by the Id. AO and in both the notices, the A.O. had only directed the assessee to reply with regard to 'under reporting of income'. But we find that the penalty had been levied ultimately for both 'under reporting' and 'misreporting of income' @ 200% in terms of section 270A(9) of the Act for which show cause notice was never issued to the assessee. The ratio laid down in the aforesaid Full Bench decision of Hon'ble Bombay High Court, the decision of Hon'ble Jurisdictional High Court in the case of Sahara India Life Insurance reported in 432 ITR 84 (Del) and other decision reffered supra squarely applies to the facts of the instant case before us. Hence we direct the Ld. AO to delete the penalty levied u/s 270A of the Act for the Assessment Year 2017-18. Accordingly, we allow the Appeal of the Assessee on this technical ground and leave the grounds raised on levy of penalty on merits left open as adjudication of the same becomes academic in nature. 17. Now, we take up the appeals are pertaining for A.Y 2018-19 & 2019-20. The impugned orders of penalty hav....
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....s as under:- "During the course of proceedings before me for the assessment year 2019-20, it was found that consequent upon search proceeding you were found to have undisclosed income. You were show caused vide letter ITBA/PNL/S/271AAB/2021-22/1033245356(1) dated 02.06.2021 as to why an order imposing a penalty on you should not be made u/s 271AAB of Income Tax Act, 1961. You were requested to submit your reply by 02.07.2021 but no reply has been submitted by you till date. You are, hereby, given further opportunity to explain as to why an order imposing a penalty u/s 271AAB of the IT Act, on you should not be made. You are requested to submit your explanation in writing on or before 14.09.2021 which will be considered before any such order is made under section 271AAB of the Income Tax Act, 1961. Please note that in case of non- compliance, it will be assumed that you have nothing to explain in your support and penalty shall be imposed on the basis of material available on record." 21. As could be seen from the above the notice issued u/s 271AAB of the Act, it does not depict the charge against the assessee as to under which Clause (a), (b) or (c) or Section 2....
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....he explanation to the said section. Therefore we do not agree with the contention of the Id. D/R that the levy of penalty under section 271AAB is mandatory simply because the AO has to first issue a show cause notice to the assessee and then has to make a decision for levy of penalty after considering the fact that all the conditions provided under section 271AAB are satisfied." It is evident from the show cause notice issued under section 274 read with section 271AAB (APB Page 1) that the AO was not clear as to on what precise charge the appellant was asked to show cause, whether the assessee shall pay by way of penalty under clause (a), (b) or (c) of section 271AAB. The AO has just mentioned "deliberately concealed the true income". Thus the AO without mentioning specific default of the assessee in terms of clause (a), (b) or (c) of section 271AAB of the Act, the, show cause notice issued in routine manner cannot be considered a valid notice in the eyes of law and accordingly the levy of penalty against the assessee is held to be void ab initio. Further, the assessee has substantiated the undisclosed cash available, as to the extent of surrendered income of Rs. ....
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....tice it does not talk anything about the provision of section 271AAB. Certainly such notice has a fatal error and technically is not a correct notice in the eyes of law because it intends to penalize an assessee without spelling about the charge against the assessee. Hon'ble Jurisdictional High Court in the case of PCIT V/s Kulwant Singh Bhatia (supra) dealt the issue of defective notice issued u/s 274 r.w.s. 271(1)(c) of the Act and Hon'ble court after relying judgment of Hon'ble Supreme Court in the case of CIT V/s Manjunatha Cotton Ginning Factory and CIT v/s SSA'S Emerald Meadows (supra) held that such show cause notices would not satisfy the requirement of law as notice was not specific. Merely issuing notice in general proforma will negate the very purpose of natural justice. Hon'ble Apex Court in the case of Dilip N Shraf 161 Taxmann 218 held that "the quasi criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice". 15. We, therefore respectfully following the judgment of jurisdictional High Court in the case of PCIT V/s Kulwant Singh Bhatia (supra), decision of Coordinate Bench of Chennai in the case o....