TMI Blog2018 (4) TMI 1786X X X X Extracts X X X X X X X X Extracts X X X X ..... r to his satisfaction, would though in the backdrop of such unproved claim of the assessee justify addition of the same as an unexplained cash credit under Sec. 68, but however, in the absence of any material having been placed on record by the A.O on the basis of which the aforesaid claim of the assessee could be disproved, no penalty u/s 271(1)(c) could have been validly imposed in the hands of the assessee. though the assessee by failing to place on record the specific documentary evidence as was called for by the A.O to prove the credit worthiness of the donor, viz. Sh. Arun Jatia, had thus failed to prove his claim to the satisfaction of the A.O, but however, in the absence of any material having been placed on record by the A.O which could disprove the genuineness of the said claim of the assessee to the hilt, no penalty under Sec. 271(1)(c) could have been validly imposed in the hands of the assessee. We thus after deliberating at length on the merits of the case, not being able to persuade ourselves to subscribe to the views of the lower authorities, therefore, are of the considered view that the penalty imposed by the A.O under Sec.271(1)(c), which thereafter had been u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the aforesaid additional grounds of appeal raised by the assessee. We however find that as the assessee by raising the aforesaid additional grounds of appeal had only sought an adjudication of a legal issue based on the facts already available on record, therefore, keeping in view the judgment of the Hon‟ble Supreme Court in the case of National Thermal Power Company ltd. Vs. CIT (1998) 229 ITR 383 (SC) we reject the objection raised by the revenue and admit the additional grounds of appeal raised by the assessee. 2. Briefly stated, the facts of the case are that original assessment was framed in the case of the assessee under Sec. 143(3) on 21.11.2006. The A.O during the course of the assessment proceedings while deliberating on the veracity of the claim of the assessee as regards a gift of ₹ 45,15,884/- stated to have been received from Sh. Arun Jatia (nephew of the Karta), a resident of Singapore, being of the view that as the assessee could neither prove the credit worthiness of the said donor nor substantiate the genuineness of the transaction, therefore, held the same as an unexplained cash credit under Sec. 68 of the Act. That on appeal the addition made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c). The appeal filed by the assessee against the penalty imposed by the A.O under Sec. 271(1)(c) was dismissed by the CIT(A) vide his order dated 21.02.2014. 4. The assessee being aggrieved with the order of the CIT(A) confirming the penalty imposed by the A.O under Sec. 271(1)(c) had carried the matter in appeal before us. The Learned Authorized Representative (for short A.R.‟) for the assessee submitted that the assessee in order to substantiate the genuineness and veracity of the gift transaction and the credit worthiness of the donor, viz. Sh. Arun Jatia, had placed on record substantial documentary evidence as was available with it. It was submitted by the Ld. A.R. that though it remains as a matter of fact that the assessee despite his level best could not produce specific documents which were called for by the A.O to prove the financial capacity of the donor, but however, the veracity of the documents which were filed by the assessee to substantiate the genuineness of the gift transaction and credit worthiness of the donor had neither been disproved nor dislodged by the revenue till date. The Ld. A.R. in order to drive home his contention that the donor, viz. Sh. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e quantum addition of ₹ 45,15,884/- which was claimed by the assessee as a gift received from his nephew, viz. Sh. Arun Jatia was not accepted by the lower authorities for the reason that the assessee had failed to place on record the specific documentary evidence as was called for by the A.O to support the creditworthiness of the donor, but however, as the claim of the assessee had though remained unproved but had not been disproved, therefore, under no circumstances penalty under Sec. 271(1)(c) merely on the basis of the said unproved explanation could have been be imposed on the assessee. The Ld. A.R. in support of his aforesaid contention relied on the judgment of the Hon‟ble High Court of Bombay in the case of CIT Vs. Upendra V. Mithani [ITA(L) No. 1860 of 2009, dated 05.08.2009]. The Ld. A.R. further in support of his contention that the A.O had wrongly assumed jurisdiction under Sec. 271(1)(c), submitted that though the A.O vide his notice issued under Sec. 274 r.w. Sec. 271(1)(c) of the Act, dated 30.12.2010 had directed the assessee to show cause as to why penalty under Sec. 271(1)(c) may not be imposed on it, but however, as the default for which the penalty w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 7525/Mum/2016, dated 07.02.2018). Per contra, the Ld. Departmental Representative (for short D.R.‟) rebutting the claim of the assessee that no penalty in the absence of the striking off the irrelevant default by the A.O was liable to be imposed, submitted that as the same was merely a technical default which was curable by taking recourse to the provisions of Sec. 292B of the act, therefore, no cognizance of the same could be drawn, much the less for quashing the penalty proceedings and the consequential penalty which was validly imposed on the assessee. The Ld. D.R. in support of his aforesaid contention relied on the following judicial pronouncements : (i) Dhavan K. Jain Vs. ITO, Ward 16(3)(1) (ITA No. 996/Mum/2014) (Mum) (ii) Earthmoving Equipment Service Cooperation Vs. DCIT-22, Mumbai (ITA No. 6617/Mum/2014, dated 02.05.2017) (iii) CIT Vs. Smt. Kaushalya Ors. (1995 216 ITR 660) (Bom) The Ld. D.R further adverting to the merits of the case relied on the orders passed by the lower authorities and submitted that in the backdrop of the facts of the case the A.O had rightly imposed penalty under Sec. 271(1)(c) in respect of the bogus gift transaction c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utory obligation to have clearly intimated the assessee as regards the specific default for which it was being called upon to explain as to why penalty under Sec. 271(1)(c) of the Act may not be imposed on it. We however find that both the Show cause‟ notices issued in the present case by the A.O under Sec. 274 r.w. Sec. 271(1)(c), dated 30.12.2010 and 04.02.2013 clearly reveals that there has been no application of mind on the part of the A.O while issuing the same to the assessee. We find that the A.O on both the occasions had merely issued the Show cause‟ notices in the standard proforma without pointing out the default for which the assessee was being proceeded against, which we are of the considered view blatantly fails the statutory obligation cast upon the A.O of fairly putting the assessee to notice as regards the default for which penalty under Sec.271(1)(c) was sought to be imposed on the assessee. We are of the considered view that the very purpose of affording a reasonable opportunity of being heard to the assessee before imposing a penalty contemplated in Chapter XXI of the Act, as required per the mandate of Sec. 274(1), which reads as under: 274(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the more obligatory on the part of the A.O to fairly discharge his statutory duty of clearly putting the assessee to notice as regards the specific default for which penalty is sought to be imposed so that he may be able to come forth with an explanation in his defence that no such penalty for the said default was called for in its case. 6. We would now test the validity of the aforesaid notice and the jurisdiction emerging therefrom in the backdrop of the judicial pronouncements on the issue under consideration. We are not oblivious of the fact that the A.O is vested with the power to levy penalty under Sec. 271(1)(c) of the Act, if in the course of the proceedings he is satisfied that the assessee had either concealed his income‟ or furnished inaccurate particulars of his income‟. We are of a strong conviction that as penalty proceedings are in the nature of quasi criminal proceedings, therefore, the assessee as a matter of a statutory right is supposed to know the exact charge for which he is being put to notice for. The non specifying of the charge in the Show cause‟ notice not only reflects the non application of mind by the A.O, but rather, the same s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee of the statutory right of an opportunity of being heard and defend his case, thus, has a material bearing on the validity of the jurisdiction assumed by the A.O for imposing penalty in the hands of the assessee. 7. We have given a thoughtful consideration to the issue before us, and are of the considered view that the Hon‟ble High Court of Karnataka in the case of CIT Vs. SSA‟s Emerald Meadows (73 taxmann.com 241)(Kar) following its earlier order in the case of CIT Vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar) has held that where the notice issued by the A.O under Sec. 274 r.w Sec. 271(1)(c) does not specify the limb of Sec. 271(1)(c) for which the penalty proceedings had been initiated, i.e. whether for concealment of particulars of income‟ or furnishing of inaccurate particulars‟, the same has to be held as bad in law. The Special Leave Petition‟ (for short SLP‟) filed by the revenue against the aforesaid order of the Hon‟ble High Court of Karnataka had been dismissed by the Hon‟ble Supreme Court in CIT Vs. SSA‟s Emerald Meadows (2016) 73 taxmann.com 248 (SC). We further find that a similar v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent 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 furnishing of inaccurate particulars of income. Quite clearly, nonstriking-off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges it has to respond. The aforesaid 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition laid down by the Hon'ble Supreme Court, we proceed to reject the arguments advanced by the Id. 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 circumstance being bad, has been approved. 11. Apart from the aforesaid, the Id. 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 (Born.) 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 considered the said argument set-up by the Id. CIT-DR and find that a similar issue had come up before our coordinate Bench in the case of Dr. Santa Milind Davare (supra). Our coordinate Bench, after considering the judgment of the Honble Bombay High Court in the case of Smt. Kaushalya Ors., (supra) as also the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hence, in our view, the AG 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. Santa Milind Davare (supra), we hereby reject the aforesaid argument of the Id. 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 the penalty proceedings u/s 271(1)(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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Show cause‟ notice, had thus failed to clearly put the assessee to notice as regards the default for which penalty under Sec. 271(1)(c) was sought to be to be imposed on it. We thus in the backdrop of our aforesaid observations are of a strong conviction that as the A.O had clearly failed to discharge his statutory obligation of fairly putting the assessee to notice as regards the default for which it was being proceeded against, therefore, the penalty of ₹ 14,90,241/- imposed by him under Sec. 271(1)(c) clearly being in violation of the mandate of Sec. 274(1), thus cannot be sustained. We thus for the aforesaid reasons not being able to persuade ourselves to subscribe to the imposition of penalty by the A.O, therefore, set aside the order of the CIT(A) upholding the same. The penalty of ₹ 14,90,241/-imposed by the A.O under Sec.271(1)(c) is quashed in terms of our aforesaid observations. 9. Alternatively, we are of the considered view that even otherwise on merits of the case as had been canvassed by the Ld. A.R. before us, no penalty under Sec. 271(1)(c) could have validly been imposed in the hands of the assessee. We find that it remains as a matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Sec. 271(1)(c) could have been validly imposed in the hands of the assessee. We find that our aforesaid view is fortified by the judgment of the Hon‟ble High Court of Bombay in the case of CIT Vs. Upendra V. Mithani [ITA (L) No. 1860 of 2009], dated 05.08.2009, wherein the Hon‟ble High Court being of the view that unless the claim of the assessee is disproved no penalty under Sec. 271(1)(c) could be imposed, had held as under: The issue involved in the appeal revolves around deletion of penalty under Section 271(1)(c) of the I.T. Act. The Tribunal has concurred with the view taken by the Commissioner of Income Tax (A). The Commissioner of Income Tax (A) has rightly taken a view that no penalty can be imposed if the facts and circumstances are equally consistent with the hypothesis that the amount does not represent concealed income as with the hypothesis that it does. If the assessee gives an explanation which is unproved but not disproved, i.e. it is not accepted but circumstances do not lead to the reasonable and positive inference that the assessee s case is false. The view taken by the Tribunal is a reasonable and possible view. The appeal is without any su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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