TMI Blog2017 (8) TMI 722X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the orders dated,13/02/2015, of the CIT(A)-52, Mumbai, the assessee has filed the appeals for the above-mentioned two assessment years(AY.s). Assessee-company is engaged in the business of Real Estate Development. As the issue involved in both the appeals is almost identical i.e.levy of penalty u/s.271(1)(c) of the Act. So, we are adjudicating both the appeals together. Brief Facts:- 2. During search and seizure operation carried in the case of Kanakia Group on 29/03/2011, the assessee was also 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 Rs. NIL During the course of search Rasesh Kanakia Chairman of Kanakia Group admitted that it had purchased bogus bills amounting to ₹ 1.85 crores, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total bogus purchases an amount of ₹ 4.41 crores related to the assessee company, that out of the said amount a sum of ₹ 1.85 crores 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 and jacking of expenditure. The FAA referred to Explanation 5A to Section 271(1) (c)and observed that no addition was made by the AO while computing assessment, that the returned income and assessed income remained same, that the assessee was found to be debiting bogus expenditure in his books of account, that closing WIP was akin to the loss incurred by assessee during the year as envisaged under Explanation 4 to section 271(1)(c), that the AO had rightly levied penalty u/s.271(1)(c) of the Act. 4. During the course of hearing before us, the Authorised Representative(AR)argued that there was no change in income, that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order of Meharjee Cassinath Holdings Private Ltd.(supra)wherein the issue of non striking off relevant portion of the penalty notice has been deliberated upon extensively. We are reproducing the portion dealing with the issue and the facts of the case and same read as under: 2. In this appeal, the solitary grievance of the assessee is with regard to imposition of penalty u/s 271(1)(c) of the Act. 3. In brief, the relevant facts are that the appellant is a company incorporated under the provisions of Companies Act, 1956 and for the assessment year under consideration it declared a total income of ₹ 86,94,668/- in a return filed on 29.9.2008, which was subject to a scrutiny assessment u/s 143(3) of the Act and vide order dated 10.12.2010 the final income has been assessed at ₹ 1,11,84,640/-. The relevant issue for our purpose is Long Term Capital Loss of ₹ 18,19,34,011/- reported by the assessee in its return of income. The said loss was incurred by the assessee on account of redemption of Preference shares of a concern, namely Shri Santram Finance Ltd. In the assessment finalized u/s 143(3) of the Act, the Assessing Officer disallowed the entire Long Ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 4630/Mum/2013 dated 11.10.2013 XXXX 7. .. With regard to the plea of assessee that notice issued u/s 274 r.w.s 271(1)(c) of the Act was legally untenable, the ld. CIT-DR pointed out that in the assessment order itself the Assessing Officer in para 4 has recorded that the penalty u/s 271(1)(c) of the Act was initiated for furnishing of inaccurate particulars of income. It was, therefore, contended that the assessment order itself shows due application of 8 mind by the Assessing Officer for initiation of proceedings u/s 271(1)(c) of the Act and that the notice issued u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 cannot be solely examined to see whether the Assessing Officer has duly applied his mind to the initiation of proceedings u/s 271(1)(c) of the Act. 8. We have carefully considered the rival submissions. Sec. 271(1)(c) of the Act empowers the Assessing Officer to impose penalty to the extent specified if, in the course of any proceedings under the Act, he is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In other words, what Sec. 271(1)(c) of the Act postulates is that the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 mind. It was also bound to comply with the principles of natural justice. (See Malabar Industrial Co. Ltd. v. CIT [2000] 2 SCC 718] 9. Factually speaking, the aforesaid plea of assessee is borne out of record and having regard to the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the notice in the instant case does suffer from the vice of non-application of mind by the Assessing Officer. In fact, a similar proposition was also enunciated by the Hon'ble Karnataka High Court in the case of M/s. SSA s Emerald Meadows (supra) and against such a judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Hon'ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 inaccurate particulars of income. The Hon ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon ble Kerala High Court has struck down the penalty imposed in the case of N. N. Subramania Iyer Vs. Union of India (supra), when there is no indication in the notice for what contravention the petitioner was called upon to show cause why a penalty should not be imposed. In the instant case, the AO did 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court in the case of Dilip N. Shroff (supra), the quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non-compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond. 14. Therefore, in view of the aforesaid discussion, in our view, the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act dated 10.12.2010 is untenable as it suffers from the vice of nonapplication of mind having regard to the ratio of the judgment of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) as well as the judgment of the Hon'ble Bombay High Court in the case of Shri Samson Perinchery (supra). Thus, on this count itself the penalty imposed u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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