TMI Blog2019 (12) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... d to hold that the penalty proceedings initiated by the AO is void ab initio and allow the appeal of the assessee. - ITA No.513/Coch/2019 - - - Dated:- 8-11-2019 - S/SHRI CHANDRA POOJARI, AM AND GEORGE GEORGE K., JM For the Appellant : Smt. A.S. Bindhu, Sr. DR For the Respondent : Shri M.R. Ranjith Karthikeyan, FCA ORDER Per CHANDRA POOJARI, AM: This appeal filed by the Revenue is directed against the order of the CIT(A), Trivandrum dated 14/11/2018 and pertains to assessment year 2014-15. 2. The Revenue has raised the following grounds of appeal: The Learned Commissioner of Income tax (Appeals), Trivandrum erred in concluding that the notice issued u/s 274 r w s 271(1)(c) of the Act without, striking off the irrelevant limb is invalid and consequently, penalty order passed by the Assessing Officer is also invalid. 2. While relying on the decision in the case of Babu Mathew Vs ACIT in ITA No. 95 96/Coch/2016, the CIT(A) ought to have noticed that in the said case, penalty was cancelled observing that notice issued by the AO was not in conformity with or according to the intent and pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case are that the Assessing Officer levied penalty of ₹ 2,20,48,706/- under section 271(1)(c) of the Act for furnishing inaccurate particulars of income and concealing its true and correct taxable income. However, during the appeal proceedings, the learned AR raised additional legal ground that the order under section 271(1)(c) of the Act was not valid as the notice issued under section 274 r.w.s. 271(1)(c) of the Act did not specify the limb under which the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or for furnishing inaccurate particulars of income. The learned AR furnished a copy of the notice issued under section 274 of the Act and the contents of the same are as under: NOTICE U/S 274 READ WITH SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 No. AACCR7529L/C-1(1)/TVM/2016-17 Dated: 27.12.2016 To M/s. R R Holiday Homes Pvt Ltd, T T.C. 34/495, Karthikeyam, Sanghumugham Beach P.O. Trivandrum-695024 Where as in the course of proceedings before me for the assessment year 2014-15, it appears that you have concealed the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was submitted that in the present case, the aforesaid decision will squarely apply and the orders imposing penalty have to be held as bad in law and liable to be quashed. 12. The Hon'ble Karnataka High Court in the case of CIT Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down the following principles to be followed in the matter of imposing penalty u/s.271(1)(c) of the Act. NOTICE UNDER SECTION 274 59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income 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 a case of fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order. l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. n) The direction referred to in Explanation IB to Section 271 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion in return of income, assessment, notice or the proceeding is in substance and effect in conformity with or according to intent and purpose of the Act. As we have already seen that the Hon'ble Karnataka High Court in the decision referred to earlier view the show cause notice and the reasons mentioned in the show cause notice are part of the process of the natural justice and the defect in such notice cannot be overlooked. In view of the aforesaid decision we do not find any infirmity in the arguments advanced by the learned AR before us. 15. The contention of the Ld. DR is that the assessee has participated in the penalty proceedings and hence the error, if any that has occurred would be cured in view of the provisions of sec. 292B/292BB of the Act. Opposing the said contention, reliance was placed on the decision rendered by the Bangalore Bench of the Tribunal in the case of Shri K. Prakash Shetty vs. ACIT (ITA Nos. 265 to 267/Bang/2014 dt. 05/06/2014) wherein it was held that 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 Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate particulars of income and concealment of income. When the penalty is levied for one of the offence, it is incumbent upon the Assessing Officer to struck down the irrelevant portion of the notice issued u/s 274 of the Act. We have gone through the contents of the notice issued u/s. 274 of the Act. As held by the Karnataka High Court in the case of CIT Anr. vs. M/s. SSA s Emerald Meadows (2015) (11) TMI 1620 that the notice issued by the Assessing Officer u/s. 274 r.w.s 271(1)(c) is to be bad in law as it did not specify which limb of section 271(1)(c) of the Act, the penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. This view was confirmed by the Supreme Court in the same case, i.e., CIT Anr. vs. M/s. SSA s Emerald Meadows reported in (2016) (8) TMI 1145. 6.3 In view of the above discussion, we are inclined to hold that the penalty proceedings initiated by the AO is void ab initio and allow the appeal of the assessee. Hence, we do not find any infirmity in the order of the CIT(A) and confirm the same. Since we have quashed the penalty proceedings itself, we refrain from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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