TMI Blog2017 (8) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Development. The effective Ground of appeal deals with levy of penalty u/s. 271(1)(c) of the Act. Brief Facts:- 2. During search and seizure operation carried in the case of Kanakia Group on 29/03/2011, the assessee was subjected to search.The Assessing Officer (AO)completed assessment u/s. 143(3) r.w.s.153C of the Act on 28/03/2013 determining income of the assessee at ₹ 1.97 lakhs. During the course of search Rasesh Kanakia the Director of the assessee company and Chairman of Kanakia Group admitted that it had purchased bogus bills amounting to ₹ 85. 49 lakhs,in his statement recorded u/s.132(4) of the Act on 24/05/2011 for the year under consideration.It was observed by AO that bogus bills were debited in the books of the assessee,that material whatsoever was received by it against accommodation bills, that it had inflated cost of construction of the project by debiting bogus bills in its accounts, that the cost of construction was carried forward as work-in-progress(WIP) since the project was under development .As the books of account of the assessee for the year were closed at the time of search so it could not give effect to such bogus purchases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty of ₹ 27.32 lakhs(Rs.26.41 lakhs and ₹ 81,541/-)was levied by the AO. 3. Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA)and made elaborate submissions.After considering available material,the FAA held that Kanakia Group had surrendered total bogus purchases of ₹ 38 crores as per statement of the MD of the assessee company in his statement,recorded on 30/03/2011 u/s. 132(4) of the Act.Later on, the figure of bogus purchases was enhanced to ₹ 39.42 crores,when the MD apportioned the bogus purchases in different group entities, that out of the total bogus purchases an amount of ₹ 5.99 crores related to the assessee company,that out of the said amount a sum of ₹ 85.49 lakhs related to the year under appeal, that no purchases had taken place, that the assessee had obtained accommodation entries with a view to jack up expenses to reduce taxable profits and the closing WIP, that the purchases were debited to books of account i.e. P L account, that subsequent to the search the assessee had reduced the same from the closing WIP,that it was a clear case of falsification of books of account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting material was found during the search,that the AO had not struck off the portion in the penalty notice to indicate as to which of the omissions the assessee had committed i.e. furnishing of inaccurate particulars or concealing the income.He referred to the cases of Nalwa Sons Investment Ltd. (327ITR543); Meherjee Kasinath Holding Pvt.Ltd. (ITA/2555/Mum/2012,AY.2008-09, Dt.28/4/2017);Suresh P. Dedhia (IT(SS)A/ 16/Mum/2009 dated 03/12/2010 and Deepika Dev Todia(ITA/189/Mum/2008-AY.2004-05,dated 29/7/2011).He also produced the notice issued by the AO and demonstrated that the AO had in fact no struck off the portion in the penalty notice to indicate as to which omission the assessee had commited. The Departmental Representative (DR)contended that the penalty was levied in the year when expenses were claimed, that the assessee had booked bogus purchases,that it was following percentage completion method, that by booking bogus purchases the assessee had impliedly evaded the tax,that it had committed an offence u/s.271(1)(c)of the Act.He referred to the case of K.P. Madhusudan,delivered by the Hon ble Apex Court.In his rejoinder, the AR referred to the case of K.C. Builder (265 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted at ₹ 5,45,80,203/-. The CIT(A) has sustained the levy of penalty, but has allowed partial relief by correcting the computation of penalty and accordingly, the CIT(A) has scaled down the penalty to ₹ 4,12,26,247/-. In this background, the rival counsels have made their submissions and the relevant material has been perused. Before we proceed to refer to the rival contentions, it would be appropriate to bring out the background in which the penalty u/s 3 271(1)(c) of the Act has been levied by the Assessing Officer. In the course of assessment proceedings, the Assessing Officer noted that assessee had reported Long Term Capital Loss of ₹ 18,19,34,011/- on redemption of Preference shares of Shri Santram Finance Ltd., detailed as under :- XXXX 5. At the time of hearing, the learned representative for the assessee pointed out that the quantum assessment proceedings have become final inasmuch as assessee has not gone in appeal against the action of the Assessing Officer. Another pertinent point raised by the assessee was that the penalty notice issued u/s 274 r.w.s. 271 of the Act dated 10.12.2010, a copy of which has been placed on record, reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c) of the Act denote different connotations. In fact, this distinction has been appreciated even at the level of Hon'ble Supreme Court not only in the case of Dilip N. Shroff (supra) but also in the case 9 of T.Ashok Pai, 292 ITR 11 (SC). Therefore, if the two expressions, namely concealment of the particulars of income and furnishing of inaccurate particulars of income have different connotations, it is imperative for the assessee to be made aware as to which of the two is being put against him for the purpose of levy of penalty u/s 271(1)(c) of the Act, so that the assessee can defend accordingly. It is in this background that one has to appreciate the preliminary plea of assessee, which is based on the manner in which the notice u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 has been issued to the assessee company. A copy of the said notice has been placed on record and the learned representative canvassed that the same has been issued by the Assessing Officer in a standard proforma,without striking out the irrelevant clause. In other words, the notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealment of the particulars of income as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulars of income. In our considered opinion, the attempt of the ld. CIT-DR to demonstrate application of mind by the Assessing Officer is no defence inasmuch as the Hon'ble Supreme Court has approved the factum of non-striking off of the irrelevant clause in the notice as reflective of non-application of mind by the Assessing Officer. Since the factual matrix in the present case conforms to the proposition laid down by the Hon'ble Supreme Court, we proceed to reject the arguments advanced by the ld. CIT-DR based on the observations of the Assessing Officer in the assessment order. Further, it is also noticeable that such proposition has been considered by the Hon'ble Bombay High Court also in the case of Shri Samson Perinchery, ITA Nos. 1154, 953, 1097 1126 of 2014 dated 5.1.2017 (supra) and the decision of the Tribunal holding levy of penalty in such circumstances being bad, has been approved. 11. Apart from the aforesaid, the ld. CIT-DR made an argument based on the decision of the Hon'ble Bombay High Court in the case of Smt. Kaushalya Others, 216 ITR 660 (Bom.) to canvass support for his plea that non-striking off of the irrelevant portion of notice wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for 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. 12. The aforesaid discussion clearly brings out as to the reasons why the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) is to prevail. Following the decision of our coordinate Bench in the case of Dr. Sarita Milind Davare (supra), we hereby reject the aforesaid argument of the ld. CIT-DR. 13. Apart from the aforesaid discussion, we may also refer to the one more seminal feature of this case which would demonstrate the importance of non-striking off of irrelevant clause in the notice by the Assessing Officer. As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that ..... 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