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DCIT, Central Circle-3 (4) , Mumbai Versus Shri Dhanvinder Bindra

2017 (12) TMI 258 - ITAT MUMBAI

Penalty u/s 271(1)(c) - assessee awareness of the charge as framed by the AO in the assessment order dated 20-02-2014 framed u/s 143(3) - Held that:- Penalty must be initiated for specific charge has been confirmed. - AO while initiating penalty proceedings during the course of assessment does not specify any particular ground for initiating penalty proceedings. Even while issuing notice also he did not specify for which charge the assessee is to be penalised as both the charges, concealmen .....

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e orders of the CIT(A)-51, Mumbai dated 09.09.2015 for assessment years 2002-03 to 2007-08. Both the parties agreed that these appeals be disposed off on the facts for A.Y. 2002-03 2. In all the assessment years the Revenue has taken the following common grounds of appeal: - 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the penalty without appreciating that the penalty proceedings where correctly intiated as per section 271(l)(c) of the Act. 2. .....

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8.05.2007 at the residence and office premises of the Bindra-Rohira Group. The assessee was also covered in the search operation. The assessee is an individual and having income from business, rental and other sources. In response to the notice issued under section 153A, the assessee filed return of income declaring income of ₹ 11,44,380/- being income from business, rental income and income from other sources. The assessment was completed under section 143(3) r.w.s. 153A. The AO made an a .....

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1(1)(c) by observing that penalty proceedings under section 271(1)(c) are initiated separately . 4. So far as the assessment is concerned the assessee went in appeal before the CIT(A) challenging the addition of ₹ 1,82,50,000/-. The CIT(A) vide his order dated 09.11.2012 gave partial relief on the impugned addition by reducing it to a daily income of ₹ 13,750/- from ₹ 50,000/- per day as taken by the AO. The CIT(A) thus effectively reduced the addition to ₹ 50,18,750/- ag .....

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565 as well as the Hon'ble Gujarat High Court in the case of Manu Engineering 122 ITR 306 that penalty has not been initiated and levied for specific charge, therefore he deleted the penalty. Even on merits also he took the view that since the additions were made on estimate basis, therefore, no penalty can be levied and in this regard relied on the decisions of the Hon'ble Rajasthan High Court in the case of Krishi Tyre Retreading 360 ITR 580, CIT vs. Mahendra Singh Khedia 252 CTR 453 a .....

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discharged by the Department as the assessee has not laid any fresh evidence in penalty proceedings. Reliance was also placed on the decision of the I Bench of this Tribunal in the case of Shri Mahesh M. Gandhi vs. ACIT, ITA No. 2976/Mum/2016 in which the Tribunal has confirmed the order of the CIT(A) levying penalty. Our attention was drawn to para 8 of this order in which the Tribunal has observed as under: - In the case laws cited by the assessee in the case of Dr. Sarita Milind Davare v. AC .....

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(c) of the Income Tax Act are clearly attract . While in the instant appeal the AO has issued notice u/s. 274 read with Section 271(1)(c) of the Act dated 20-02-2014 wherein the AO recorded as under: Whereas in the course of proceedings before me for the assessment year 2011-12, it appears that you have concealed the particulars of your income or furnished inaccurate particulars of such income. In the instant appeal, the AO has recorded satisfaction in detail in the assessment order dated 20-02- .....

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f statutory notice u/s 143(3) which was issued after one year of filing of return of income. Even after that when the case was under hearing, the assessee did not offer the income of ₹ 4,00,000/- being director s sitting fees unless he was specifically asked to explain the same. It is, therefore evident from the conduct of the assessee that he was trying to evade the income to the extent of ₹ 4,00,000/-. Considering these facts, income of ₹ 4,00,000/- is assessed under the head .....

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sessee is considered. It is noted that the assessee has made disclosure of income of ₹ 12,23,642/- only after the assessee was asked to explain the same. The assessee did not pointed out voluntarily after receipt of statutory notice u/s 143(2) which was issued after one year of filing of return of income. Even after that when the case was under hearing, the assessee did not offer the income of ₹ 12,23,642/- being redemption of HDFC Mutual Fund unless he was specifically asked to expl .....

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ated separately on this point. Merely because AO has mentioned alternate charges at the stage of issue of notice u/s 274 r.w.s. 271(1)(c) of the Act which is a preliminary stage of initiating penalty proceedings, the proceedings cannot be held to be vitiated, as in the instant case, the AO has clearly recorded detailed satisfaction after application of mind in the assessment order dated 20-02-2014 as in the instant appeal the assessee was confronted and cornered by the Revenue to have not disclo .....

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in the assessment order dated 20-02-2014 framed u/s 143(3) of the Act with which he was burdened for initiating penalty proceedings u/s 271(1)(c) of the Act. We have also observed that in the order dated 26-08-2014 passed by the AO u/s 271(1)(c) of the Act levying penalty on the assessee , the AO after considering the explanation of the assessee has clearly recorded the charge on which penalty had been levied on the assessee u/s 271(1)(c) of the Act, by holding as under : 5. The assessee s submi .....

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eft to be offered. Had the above incomes left by oversight, the assessee would have offered the same any time after filing of return by filing revised return. The assessee s act clearly shows his intention of evading tax by not disclosing his above incomes either in return of income or by filing revised return later on. Even during assessment proceedings, the assessee has not voluntarily offered the same for taxation. It was only when queried by the AO that the assessee offered the incomes and f .....

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ed reasoning as set out above by us , we do not find any infirmity in the order of the A.O. as was confirmed by learned CIT(A), we confirm/uphold the appellate order of learned CIT(A) by confirming/sustaining the penalty of ₹ 3,13,000/- u/s 271(1)(c) of the Act. 6. The learned D.R. has also referred to pages 11 & 13 as well as page 19 of the said order and on that basis he submitted that no doubt clause (c) of Section 271(1)(c) deals with two specific offences, i.e. concealment of part .....

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ectus of the explanation makes it clear that the statue visualised the assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. In essence, the explanation is a rule of evidence. Presumptions which are rebuttable in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessee. The rationale behind this view is that the basic facts are within the special knowledge of the assessee. Sec. 106 of the Indian Evid .....

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s also of the same and, therefore, the penalty cannot be deleted on technical grounds. 8. The learned A.R., on the other hand, submitted before us in the assessment order it has been mentioned that penalty proceedings under Section 271(1)(c) will be initiated separately. He has also placed before us a copy of the notice issued under Section 271(1)(c) in respect of each of the assessment year and on that basis it was contended that penalty has not been initiated for any particular or specific cha .....

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ng Factory (supra) with respect to initiation of penalty for both the charges will not arise. Rather he contended that this decision support the case of the assessee. He also referred to the decision of the I Bench of this Tribunal on which the learned D.R. has vehemently relied and he has drawn our attention towards pages 11 & 13. Referring to page 11 it was contended that from the so called show cause notice it was apparent that the show cause notice was specifically issued by the AO. Even .....

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the Tax Authorities below. The facts involved in all these appeals are undisputed. In all these cases this is a fact that in each of the assessment years, the return of income in pursuant to notice under Section 133A was filed by the assessee on 15.10.2008 disclosing following income: - A.Y. Income (Rs. ) 2002-03 2,40,638/- 2003-04 17,83,423/- 2004-05 9,25,135/- 2005-06 7,09,592/- 2006-07 8,65,115/- 2007-08 16,63,833/- 2008-09 77,91,704/- Against these incomes the AO computed the addition at &# .....

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essment year. When the matter travelled to the Tribunal, the Tribunal further deleted the additions: - A.Y. Addition deleted (Rs. ) 2002-03 26,93,350/- 2003-04 24,35,050/- 2004-05 21,48,050/- 2005-06 18,29,200/- 2006-07 14,75,000/- 2007-08 10,81,250/- 2008-09 1,94,300/- 10. Thus it is not denied that ultimately the addition sustained in the hands of the assessee are based on estimate. We noted further that in each of the cases, the AO initiated penalty proceedings under Section 271(1)(c) during .....

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t, 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) of the Income-Tax Act, 1961. No .................. dated ................................... * have Concealed the particulars of your income or ....... .....

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Section 271(1)(C). Sd/- (PRASOON KABRA) ACIT CC 24 & 26 11. After considering the reply of the assessee the AO levied penalty under Section 271(1)(c) of the Act by observing as under: - 8. In view of the fact and circumstances mention here-in-above, it is being concluded that assessee has knowingly furnished inaccurate particulars and concealed its income within the meaning of Sec.271(1)(c) of the I.T. Act to the tune of ₹ 50,18,750/- (addition is partly allowed by the Ld.CIT(A) in res .....

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6,11,519/- 9. Taking a balanced view on a well settled principle, I levy minimum penalty @100% which works out to ₹ 15,37,173/- u/s.271(1)(c) of the Income Tax Act, 1961. 12. Similarly penalty has been levied in each of the assessment years. When the matter went before the CIT(A), the CIT(A) deleted the penalty in each of the assessment years on the basis that the AO has not brought out any specific charge while levying penalty. 13. The learned D.R. before us vehemently contended by referr .....

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d not lead any evidence to prove that the expenditure incurred by him for household were low. Therefore under these facts the Hon'ble High Court confirmed the penalty. This decision, in our opinion, is not applicable to the facts of the case before us. In the case of the assessee, we noted, the AO had not levied penalty for concealment of particulars of income. 14. In this regard we may refer to the provisions of Section 271(1)(c). This section empowers the AO to levy penalty under these pro .....

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ate particulars of such income is or not and . This denotes if the assessee has committed any of these two defaults penalty under Section 271(1)(c) has to be imposed by the AO. Both these defaults, as the provision of 271(1)(c) denotes, are different from each other although the consequence of both the defaults may be that the assessee has concealed income. However, we noted that there is Explanation 1 given under Section 271(1)(c) which is applicable in the case of concealment of particulars of .....

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of income is concerned, there is no deeming provision and the onus, in our view, lies on the Revenue to prove that the assessee has furnished inaccurate particulars of income and for that the Revenue is bound to bring necessary evidence on record and put this evidence before the assessee so that the assessee can counter them and rule of natural justice is not violated. Since both the defaults are different, therefore, the Legislature, in our opinion, has used the word between both the defaults o .....

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een issued in standard printed format, rather the same has been specifically been drafted by the AO before sending notice to the assessee and therefore the Tribunal was of the view that before initiating the penalty the AO has applied his mind. The Tribunal was also aware that in the case where the AO has framed charge under one limb of section 271(1)(c) but levied penalty under the other limb of section 271(1)(c). This fact is clear from the findings of the Tribunal which are reproduced as unde .....

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ot the case that the AO has framed charge under one limb of Section 271(1)(c) of the Act and levied the penalty under the second limb of Section 271(1)(c) of the Act. The assessment order dated 20- 02-2014 also clearly showed application of mind by the AO before initiating penalty proceedings u/s 271(1)(c) of the Act. 16. In that case, we noted, the Tribunal also found that the AO before initiating penalty proceedings during the course of assessment recorded his satisfaction in detail and that w .....

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a Cotton and Ginning Factory 359 ITR 565. In that decision, we noted, the Hon'ble High Court under para 50 has clearly mentioned as under: - 50. A reading of Section clearly indicates that the assessment order should contain a direction for initiation of penalty proceedings. The meaning of the word direction is of importance. Merely saying that penalty proceedings are being initiated will not satisfy the requirement. The direction to initiate proceedings should be clear and not be ambiguous. .....

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ins a direction. Use of the phrases like (a) penalty proceedings are being initiated separately and (b) penalty proceedings under Section 271(l)(c) are initiated separately, do not comply with the meaning of the word direction as contemplated even in the amended provisions of law. The direction should be clear and without any ambiguity. The word 'direction' has been interpreted by the decision of the Apex Court in the case of Rajendranath 120 ITR pg.14, where it has been held that in any .....

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tions in the assessment order penalty proceedings could not be proceeded with. The proceedings which are initiated contrary to the said legal position are liable to be set aside. 17. If the finding given by the Hon'ble High Court which has been referred to by the Bench in that case heavily relied by the learned D.R., are applicable to the impugned case of the assessee. We find that in the case of the impugned assessee the AO while initiating penalty has simply observed penalty proceedings un .....

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e Hon'ble Bombay High Court in the case of CIT vs. Samson Perinchery (supra) . In that case the question before the Hon'ble High Court was Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the penalty levied under section 271(1)(c) of the Income Tax Act, 1961? While deciding this issue the Hon'ble High Court observed as under: - 3 The impugned order of the Tribunal deleted the penalty imposed upon the Respondent Assessee. Thi .....

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both have been contravened while initiating penalty proceedings. It cannot be that the initiation would be only on one limb i.e. for furnishing inaccurate particulars of income while imposition of penalty on the other limb i.e. concealment of income. Further, the Tribunal also noted that notice issued under Section 274 of the Act is in a standard proforma, without having striked out irrelevant clauses therein. This indicates non-application of mind on the part of the Assessing Officer while issu .....

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ome are different. Thus, the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it as case of furnishing of inaccurate particulars. The apex court in the case of Ashok Pai reported in [2007] 292 ITR 11 (SC) at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of Manu Engineering reported in 122 ITR 306 and the Delhi .....

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d to an inference as to nonapplication of mind. 5. The grievance of the Revenue before us is that there is no difference between furnishing of inaccurate particulars of income and concealment of income. Thus, distinction drawn by the impugned order is between Tweedledum and Tweedledee. In the above view, the deletion of the penalty, is unjustified. 6. The above submission on the part of the Revenue is in the face of the decision of the Supreme Court in Ashok Pai v/s. CIT 292 ITR 11 [relied upon .....

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Assessee would respond to the ground on which the penalty has been initiated/notice issued. It must, therefore, follow that the order imposing penalty has to be made only on the ground of which the penalty proceedings has been initiated, and it cannot be on a fresh ground of which the Assessee has no notice. 7 Therefore, the issue herein stands concluded in favour of the Respondent Assessee by the decision of the Karnataka High Court in the case of Manjunath Cotton and Ginning Factory (supra). N .....

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standard proforma, without having striked out irrelevant clauses therein represent non-application of mind on the part of the AO while issuing penalty notice has not been disturbed. 18. We noted that Hon'ble C Bench in ITA Nos. 1597 & 1597/Mum/ 2014 in the case of M/s. Orbit Enterprises vs. Income Tax Officer 15(2)(2), Mumbai had a chance to decide whether penalty can be levied when penalty has not been initiated for a specific charge. The Coordinate Bench vide its order dated 01.09.2017 .....

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denote two different connotations. As a ready reference for the aforesaid proposition, we may look upon the judgments of the Hon'ble Supreme Court in the case of Dilip N. Shroff, 161 Taxman 218 (SC) and also T. Ashok Pai, 292 ITR 11 (SC) to appreciate that the aforesaid two expressions convey different connotations. Having understood that the two expressions have different connotations, the Mumbai Bench of the Tribunal in the case of Meherjee Cassinath Holdings Pvt. Ltd. (supra), wherein one .....

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ately. It is in this manner one has to appreciate the point being canvassed by the assessee before us, which is based on the tone and tenor of the notice issued u/s 274 r.w.s. 271(1)(c) of the Act dated 22.12.2008, a copy of which has been placed on record. Notably, the relevant discussion made by the Mumbai Bench of the Tribunal in the case of Meherjee Cassinath Holdings Pvt. Ltd. (supra) is as under :- 8. .............. It is also a well accepted proposition that concealment of the particulars .....

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mperative 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 repre .....

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d infirmity in the notice has been sought to be demonstrated as a reflection of non-application of mind by the Assessing Officer, and in support, reference has been made to the following specific discussion in the order of Hon'ble Supreme Court in the case of Dilip N. Shroff (supra):- 83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be delete .....

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ustice. (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 Em .....

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e reasons for the disallowance, he has recorded a satisfaction that penalty proceedings are initiated u/s 271(1)(c) of the Act for furnishing of inaccurate particulars 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 nonapplication of mind by the Assessing Officer. .....

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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 would not invalidate the imposition of penalty u/s 271(1)(c) of the Act. We have carefully Shri Dhanvinder Bindra considered the said argume .....

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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 inaccurate particulars of income. The Hon ble Gujarat High Court quashed t .....

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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 notice was issued. The Hon ble Bombay High Court has discussed about n .....

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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. Followi .....

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(c) of the Act are to be initiated for furnishing of inaccurate particulars of income. However, in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act of even date, both the limbs of Sec. 271(1)(c) of the Act are reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of Assessing O .....

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ce 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 dat .....

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d by the appellant are not being dealt with. 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 22.12.2008 is untenable and suffers from the infirmity of nonapplication of mind by the Assessing Officer. On this count itself, in our view, the penalty imposed u/s 271(1)(c) of the Act deserves to be deleted. 13. At this point, we may also make a reference to the judgment of the Hon'ble Patna High Cour .....

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tio. The aforesaid parity of reasoning has been relied upon by the ld. CIT-DR before us to state that non-striking off of the irrelevant portion of the notice u/s 274 r.w.s. 271(1)(c) of the Act does not render the proceedings invalid. In our view, the said decision does not help the case of the Revenue qua the issue before us. Firstly, the Hon'ble Patna High Court itself noted that it was a case of mere wrong labelling of the section or some mistake in the charge framed against the assessee .....

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initiated. In the case of Shri Samson Perinchery (supra), the Revenue had put up an argument to the effect that there is no difference between furnishing of inaccurate particulars of income and concealment of income. The aforesaid argument has been specifically rejected by the Hon'ble High Court by referring to the judgment of the Hon'ble Supreme Court in the case of T. Ashok Pai, 292 ITR 11 (SC). It was further noted that the judgment in the case of T. Ashok Pai (supra) has been relied .....

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penalty on the other limb is not as per law. Thirdly, it may be noted that the issue before the Hon'ble High Court was incorrect mentioning of charge in the show cause notice, but the case before us is of non-mentioning of the charge at all. Therefore, for all the above reasons, non-striking off of the irrelevant clause in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act cannot be said to be a mere wrong labelling of the section or some mistake of the nature that was before the Hon' .....

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edings. In our considered opinion, if one were to examine the entire conspectus of fact-situation starting from the assessment order upto the passing of penalty order, the error in the argument set-up by the ld. CIT-DR would be clear. In the assessment order dated 22.12.2008, the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are initiated for concealment of income while in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act of even date, both the limbs of Sec. .....

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penalty proceedings being quasicriminal in nature, as noted by the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra), the same are necessarily required to be in compliance with the principles of natural justice. In this view of the matter, in our view, the ld. CIT-DR is not correct in contending that non-striking off of the irrelevant clause in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act is not material, and that the assessee had understood that the proceedings were init .....

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in the notice so issued, there is a breach of principles of natural justice and accordingly, the order imposing penalty cannot be sustained. 19. The said decision of the C Bench as well as the judgement of the Hon'ble Bombay High Court in the case of Samson Perinchery (supra) are equally applicable in the case of the assessee, as in the case of the assessee we noted that the AO while initiating penalty proceedings during the course of assessment does not specify any particular ground for ini .....

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