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Panther Fincap & Management Services Ltd. Versus ACIT CC-40, M.K. Road, Mumbai

Penalty u/s. 271(1)(c) - non application of individual mind by AO - Held that:- Assessing Officer did not apply his mind at the time of initiation of penalty proceedings and hence impugned penalty proceeding is liable to be quashed. We order accordingly. In this view of the matter, we set aside the order passed by the tax authorities. - Decided in favour of assessee. - I.T.A. No. 7570/Mum/2013 - Dated:- 2-6-2017 - Shri B.R. Baskaran (AM), And Sandeep Gosain (JM) For The Assessee : Shri Neelkanth .....

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trading activities and it was barred from carrying on that business by the order passed by SEBI in April 2001. The assessee challenged the said order before the Securities Appellate Tribunal and later on before Hon'ble Supreme Court but could not win the case. Hon'ble Supreme Court finally passed the order in May 2007 i.e. during the financial year relevant to assessment year under consideration, wherein it confirmed the order passed by SEBI. The assessee claimed following expenses as d .....

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to the extent of ₹ 56,79,753/- and accordingly levied penalty of ₹ 19,11,800/- u/s. 271(1)(c) of the Act. The learned CIT(A) also confirmed the same and hence the assessee has filed this appeal before us. 5. Learned AR submitted that the assessee has incurred expenditure only to defend its case before various forums and further it has incurred expenditure to explore new business activities. He further submitted that the assessee has been prohibited from carrying on share trading acti .....

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ng about the penalty proceedings u/s. 271(1)(c) of the Act and it mentions about only filing of return of income and compliance of notices issued u/s. 142(1)/143(2) of the Act. He submitted that there is non-application of mind on the part of the Assessing Officer and in that case, impugned penalty is liable to be quashed. For the sake of convenience, we extract below the notice issued by the assessing officer for initiating penalty proceedings u/s 271(1)(c) of the Act:- 7. On the contrary, lear .....

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enal proceedings were initiated and hence legal claim urged by the assessee should be dismissed. 8. We heard the rival contentions and perused the record. We shall first deal with the legal contention of the assessee. We noticed that an identical issue was considered by the Coordinate Bench of the Tribunal in the case of Dr. Sarita Mill (ITA No. 2187/Mum/2014 dated 21.12.2016). For the sake of convenience, we extract below the relevant observations made and the decision taken by the Coordinate B .....

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22(1)/22(2)/34 of the Indian Income-tax Act, 1922 or which you were required to furnish under Section 139( 1) or by a notice under Section 139(2)/148 of the Incometax Act, 1961, No._____ dated_____ or have without reasonable cause failed to furnish it within the time allowed and the manner required by the said Section 139( 1)or by such notice. have without reasonable cause failed to comply with a notice under Section 22(4)/23(2) of the Indian Income tax Act. 1922 or under Section 142(1)/143(2) o .....

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ction 271(1)(c ). A careful perusal of the notice would show that the contents of the notice are primarily meant to ask the assessee to furnish a return of income. However, the assessing officer appears to have modified the last paragraph by show causing the assessee to explain as to why an order imposing a penalty should not be made u/s 271(1)(c) of the Act. There should not be any doubt that the provisions of section 271(1)(c) prescribes two types of charge viz., (a) concealment of particulars .....

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ates that inappropriate words and paragraphs were to be deleted, but the same had not been done. Thus, the Assessing Officer 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. 84. The impugned order, therefore, suffers from non-application of min .....

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cts (322 ITR 158) has clarified that the observations made by it in the case of Dilip N Shroff with regard to mens rea alone have been overruled in Dharmendra Textile processors (306 ITR 277), meaning thereby that the above said observations made by the Hon ble Supreme Court in the case of Dilip N Shroff shall continue to prevail. 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 .....

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rative 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 this context, useful reference may be made to the following observation in the case of CIT Vs. Mithila Motors (P) Ltd (1984)(149 .....

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e parties and came to the conclusion that there should be application of mind on the part of assessing officer. For the sake of convenience, we extract below the relevant observations made by Hon ble Bombay High Court. 11. The case of CIT v. Lakhdhir Lalji [1972] 85 ITR 77(Guj) is the other decision upon which the Tribunal has placed reliance. In that case a notice under section 274 was issued on the footing of concealment of income by suppression of sales whereas the penalty was levied on the f .....

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ely different the background of that case was and, therefore, the ratio of that decision also could not be applied (at page 231) : The penalty notice, exhibit P-2, is illegal on the face of it. It is in a printed form, which comprehends all possible grounds on which a penalty can be imposed under section 18(1) of the Wealth-tax Act. The notice has not struck off any one of those grounds; and there is no indication for what contravention the petitioner was called upon to show cause why a penalty .....

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ed 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 reca .....

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to be fully justified. 12. A combined reading of the decision rendered by Hon ble Bombay High Court in the case of Smt. B Kaushalya and Others (supra) and the decision rendered by Hon ble Supreme Court in the case of Dilip N Shroff (supra) would make it clear that there should be application of mind on the part of the AO at the time of issuing notice. In the case of Lakhdir Lalji (supra), the AO issued notice u/s 274 for concealment of particulars of income but levied penalty for furnishing inac .....

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id not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the .....

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the assessment year 1967-68 seems to be fully justified. In the instant case also, we are of the view that the AO has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which 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. 13. The Ld D.R submitted that the assessee has participated in the penalty proceedings and hence the error, if any, that h .....

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