TMI Blog2017 (1) TMI 1048X X X X Extracts X X X X X X X X Extracts X X X X ..... Act for levy of penalty under section 271(1)(c) of the Act for A.Y. 2012-13 is defective and issued without application of mind and is therefore invalid and consequently the orders levying penalty under section 271(1)(c) of the Act for A.Y. 2012-13 is also invalid and liable to be cancelled. In this view of the matter, the additional ground raised by the assessee for A.Y. 2012-13 is allowed. - Decided in favour of assessee - ITA No.6068 /Mum/2016 - - - Dated:- 13-1-2017 - Shri Jason P. Boaz, Accountant Member and Shri Ramlal Negi , Judicial Member For The Appellant : Shri Ashwin S. Chhag For The Respondent : Shri Rajat Mittal ORDER Per Jason P. Boaz, A.M. This appeal by the assessee is directed against the order of the CIT(A)- 21, Mumbai dated 12.08.2016 confirming the levy of penalty of ₹ 16,20,000/- under section 271(1)(c) of the Income Tax Act, 1961 (in short 'the Act') for A.Y. 2012-13. 2. The facts of the case, briefly, are as under: - 2.1 The assessee, a company engaged in the business of providing consultancy services, filed its return of income for A.Y. 2012-13 on 27.10.2012 declaring income of ₹ 2,89,22,458/-/ The ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Both the lower authorities i.e.AO and ld.CIT(A) have respectively erred to levy and confirm the penalty as it is without taking cognizance of facts on record and submission made to the show cause issued during the penalty proceeding. It is urged that both the authorities have failed to interpret s.54EC as well as 271(1)(c) in the true spirit of the law and hence, levy of penalty is without application of mind and hence, may be ordered to delete the same. (3) It is urged that the penalty levied/confirmed is without ascertaining the charge of levy, despite the submission was made thereto to the AO, hence, the proceeding is without authority of the law. (4) Both the authorities have failed to appreciate that the levy and confirmation of penalty is merely a technical breach of the provision, thus, the case is truly covered by the doctrine of substantial compliance , under the circumstances the levy of penalty and confirming the same is case of non application of mind, and hence, it is urged to quash the penalty order. (5) Without prejudice to the aforesaid, it is urged that under the facts and examining the deductions provision under the head capital gains vis-a-vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice would evidence total non-application of mind on the part of the AO, since he has neither deleted the inappropriate words/portions of the notice, whereby it is not clear whether penalty is sought to be levied under section 271(1)(c) or the Act; for concealment of particulars of income or furnishing of inaccurate particulars of income. It is contended that the said penalty proceedings seem to have been initiated and levied on all possible grounds. He submitted that various courts have held that non specification of the specific charge will vitiate the penalty proceedings, i.e. the assessee should be appraised of the specific reason/ charge for which penalty under section 271(1)(c) of the Act is to be levied. In this regard, the learned A.R. of the assessee placed reliance on the decision of the Coordinate Bench of the Tribunal in the case of Dr. Sarita Milind Davare in ITA No. 2187/Mum/2014 dated 21.12.2016 wherein after, inter alia, considering the decisions of the Hon'ble Bombay High Court in the case of Smt. B. Kaushalya and Others (216 ITR 660) and the decisions of the Hon'ble Apex Court in Dilip N. Shroff (291 ITR 519) (SC), Dharmendra Textile Processors (306 ITR 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case on hand. In our considered view, penalty proceedings under section 271(1)(c) of the Act can be initiated only if the AO in the course of proceedings under the Act is satisfied that any person has concealed particulars of income or has furnished inaccurate particulars of income. 4.5.2 In this regard, for the sake of convenience, a scanned copy of the said notice dated 11.03.2015 issued under section 274 r.w.s. 271 of the Act is extracted below: - NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE INCOME-TAX ACT, 1961. Penalty u/s. 271(1)(c) PEN/32/PG.31 2014-05 Office of the Dy.Commissioner of Income Tax- i 3(1)(2) Room No. 218, 2'' floor, Aayakar Bhavan, Mumbai - 20. PAN: AAFCP8573K Date: 11-03-2015 To, The Principal Officer, M/S PRINCE CONSULTANCY PVT. LTD., 1203, EMP 48, EVERSHINE HALLEY, THAKUR VILLAGE, KANDIVALI (EAST), MUMBAI - 400 101. Whereas in the course of proceeding before me for the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined, but refer to different acts on the part of the assessee. The Hon'ble Apex Court in the case of Dilip N. Shroff vs. JCIT (291 ITR 519 (SC) on the issue of imposition of penalty under section 271(1)(c) of the Act at paragraphs 95 to 97 thereof has held/observed as under: - It is of some significance that in the standard proforma used by the AO in issuing a notice despite the fact that the same postulates that inappropriate words and paras were to be deleted, but the same had not been done. Thus, the AO himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing the order of assessment laid emphasis that he had dealt with both the situations. The impugned order, therefore, suffers from non-application of mind. It was also bound to comply with the principles of natural justice. [See Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 2 SCC 718]. On a perusal of the notice issued under section 274 r.w.s. 271 of the Act for initiation of penalty proceedings under section 271(1)(c) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. It was further held that the Assessing Officer must be found to have failed to prove that his explanation is not only not bona fide but all the facts relating to the same and material to the computation of his income were not disclosed by him. It was then held that the explanation must be preceded by a finding as to how and in what manner, the assessee had furnished the particulars of his income. The court ultimately went on to hold that the element of mens rea was essential. It was only on the point of mens rea that the judgment in Dilip N. Shroff Vs. Joint CIT was upset. In Union of India Vs. Dharamendra Textile Processors, after quoting from section 271 extensively and also considering section 271(1)(c), the court came to the conclusion that since section 271(1)(c) indicated the element of strict liability on the assessee for the concealment or for giving inaccurate particulars while filing return, there was no necessity of mens rea. The court went on to hold that the objective behind the enactment of section 271(1)(c) read with Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for initiation of penalty proceedings under section 271(1)(c) of the Act. In its order the Coordinate Bench at paras 11 12 have held as under: - 11. Hence, we are of the view that the application of mind on the part of the assessing officer at the time of issuing notice for initiation of penalty is a mandatory requirement and the non-application of mind would vitiate the penalty proceedings. We notice that the Hon ble Bombay High Court has also expressed identical view in the case of Smt. Kaushalya and Others (supra), on which the revenue has placed heavy reliance. In that case also, it was contended that the AO has not indicated the appropriate charge for which the penalty proceedings were initiated. The Hon ble Bombay High Court has expressed the following view:- The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking inaccurate portion cannot by itself invalidate the notice. The entire factual background would fall for consideration in the matter and non one aspect would be decisive. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would have saved his action. Apparently, exhibit P-2 is a whimsical notice issued to an assessee without intending anything. 13. No doubt, there can exist a case where vagueness and ambiguity in the notice can demonstrate non-application of mind by the authority and/or ultimate prejudice to the right of opportunity of hearing contemplated under section 274. Take for example; the notice dated March 28, 1972, for the assessment year 1967-68. This show-cause notice was issued even before the assessment order was made. The assessee had no knowledge of the exact charge of the Department against him. In the notice, not only there is use of the word or between the two groups of charges but there is use of the word deliberately . The word deliberately did not exist in section 271(1)(c) when the notice was issued. It is worthwhile recalling that the said word was omitted by the Finance Act, 1964, with effect from April 1, 1964, and the Explanation was added. 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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. 4.5.7 One of the contentions of the learned D.R. for Revenue was that since the assessee had participated in the penalty proceedings, the error on the part of the AO is said notice dated 11.03.2015 would be cured in view of the provisions of sections 291B/292BB of the Act. The Coordinate Bench in the case of Dr, Sarita Milind Davare (supra) at para 13 of its order held that: - 13. ..... the provisions of sec. 292BB would not come to the rescue of the revenue, when the notice was not in substance and effect in conformity with or according to the intent and purpose of the Act. In our view, the notice issued by the AO, which is extracted above, was not in substance and effect in conformity with or according to the intent and purpose of the Act, since the AO did not specify the charge for which penalty proceedings were initiated and further there was non-application of mind on the part of the AO. 4.5.8 In view of the facts and circumstances of the case as discussed from para 4.2 to 4.5.7 of this order (supra), we are of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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