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TMI Blog2019 (1) TMI 1797X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) failed to appreciate that proper explanation and disclosure was given during the course of search action in the statement recorded u/s. 132(4) of the Act and the disclosure so made was offered to tax in the return of income filed and hence, the case of the appellant falls within the scope of clause (a) to section 271 AAB of the Act and accordingly, the levy of penalty u/s.271AAB of the Act may be directed to be restricted to 10% of the undisclosed income. 3. The Ld. CIT(A) failed to appreciate that the return of income filed u/s. 13 9(4) of the Act is to be treated as filed within the extended due date u/s. 13 9(1) of the Act and that the manner of deriving the undisclosed income was duly explained and thus, the penalty u/s.271AAB of the Act ought to be levied at 10% of undisclosed income under clause (a) thereof and the excess penalty thus levied is unjustified and may be deleted. 4. The Ld. CIT(A) further failed to appreciate that additions of Rs. 7,75,407/- to the returned income were made on estimation / presumption basis and not on the basis of any material found and seized in the course of search action and hence, the penalty levied u/s.271 AAB of the Act on such est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds mentioned above for adjudicating on merits. 5. The brief facts of the case are that a search and seizure operation u/s.132(l) of the Act was conducted in the case of Associated Stone Industries (ASI) Group and its associated concerns on 13.18.2013. The main company of this group is M/s Associated Stone Industries (Kota) Ltd. which is engaged in mining and trading of Kota Stone. Simultaneously, search action was carried out in case of the assessee being Chairman and Managing Director of ASI. The assessee in the course of search action made total disclosure of Rs. 35.13 crores in the statement recorded u/s 132(4) of the Act on 14.08.13 and 15.08.13. The total disclosure of the assessee was made to the tune of Rs. 36.26 crores, which was later on enhanced of Rs. 42.89 crores by filing detailed letter dated 07.11.13. Since the assessee had admitted disclosure income in the course of statement recorded u/s 132(4) of the Act during the search, therefore the penalty u/s 271AAB was initiated against the assessee. The grand total of undisclosed income offered by the assessee on his own and the one detected during assessment was accordingly worked out at Rs. 18,09,25,230/- for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: "(3) Whether on facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when Assessing Officer was specified that the Assessee has concealed particulars of income?" 7. As per learned AR, in the case of Baisetty Revathi before the Hon'ble Andhra Pradesh High Court, the department had relied on judgment of Hon'ble Supreme Court in case of K P Madhusudhan, 251 ITR 99 and the same was distinguished and penalty was deleted following ratio laid down in case of Manjunatha. Copy of the judgment is at page 46 to 56 of the paper book and relevant part is at page 54. It reads as follows: "Smt. Kiranmayee, learned counsel, placed reliance on the judgment of the Supreme Court in K.P. MADHUSUDHAN'AN V/s. COMMISSIONER OF INCOME TAX, COCHIN . Therein, ? the Supreme Court held that it is not necessary for the Assessing Officer, while issuing a notice under Section 271(1 )(c)f to expressly invoke Explanation 1(B) appended to the provision. It is however relevant to note that Explanation 1(3) merely adverts to a case of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e breach of civil obligation. The observations of the Hon'ble Court against issuance of show cause notice appears to be in the context of quantum of penalty proposed to be imposed and not with reference to the doing away with the issuance of show cause notice as contemplated under section 274 of the Act. Therefore, the judgment of the Hon'ble Court cannot be read out of context or in a manner to mean that there is no need for mentioning the specific limb of section 271(l)(c) of the Act for which the penalty was intended to be imposed, as such issue never came up for consideration before the \Hon'ble High Court. That being the case, the aforesaid decision cannot be applied for rebutting the proposition that in the absence of recording of satisfaction regarding the exact nature of offence, no penalty under section 271(l)(c) can be imposed. In view of the aforesaid, we delete the penalty imposed." 9. Apart from above, Ld. AR also submitted that the identical ground has already been decided by the Coordinate Bench of ITAT Chennai Bench in the case of DCIT Vrs. R. Elangovan in ITA No. 1199/Chny/2017, wherein it was held as under:- 3. Ld. Counsel for the assessee submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SECTION 271AAB OF THE INCOME TAX ACT, 1961 PAN: AADPE1841Q Office of Deputy Commissioner of Income-tax, Central Circle-I, Coimbatore. Date: 13.08.2014 To Shri.R.Elangovan 821/2, Kallipalayam, Chikkarampalayam Post, Karamadai - 641104 Whereas in the course of the proceedings before me for the Assessment Year 2013 - 14. It appears to me that you:- *have without reasonable cause failed to furnish the return of income which you were required to furnish by a notice given under section 22( 1 )/22(2)/3 4 of the Indian Income tax Act 1922 or which you were required to furnish under section 139(1) or by a notice given under section 13 9(2)/148 of the Income tax l\ct, 1961, No. dated or have without reasonable cause failed to furnish it within the time allowed and in 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 Ad, 1922 or under section 142(1 )/143 (2) of the Income tax Act, 1961 No dated *have concealed the particulars of your income or............................_ furnished inaccurate particulars of such income. *ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the specified previous year ; and (B) pays the tax, together with interest, if any, in respect of the undisclosed income ; (c) a sum which shall not be less than thirty per cent. but which shall not exceed ninety per cent. of the undisclosed income of the specified previous year, if it is not covered by the provisions of clauses (a) and (b). (2) No penalty under the provisions of clause (c) of sub-section (1) of section 271 shall be imposed upon the assessee in respect of the undisclosed income referred to in sub-section (1). (3) The provisions of sections 274 and 275 shall, as far as may be, apply in relation to the penalty referred to in this section. Explanation For the purposes of this section,- (a) "specified date" means the due date of furnishing of return of income under sub-section (1) of section 139 or the date on which the period specified in the notice issued under section 153A for furnishing of return of income expires, as the case may be ; (b) "specified previous year" means the previous year- (i) which has ended before the date of search, but the date of furnishing the return of income under subsection (1) of section 139 for such year has not expired b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is bad in law and invalid despite the amendment of Section 271(1B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same? (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income? 3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short "the Act') 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produced by us at para 5 above was not valid. Exconsequenti, the penalty order is set aside. 10. In the case of Gillco Developers and Builders Vrs. DCIT in ITA No. 168/Chd/2017 for AY 2012-13, the Coordinate Bench had held as under:- 19. Now coming to the legal issues raised by the assessee, the Ld. Counsel for the assessee has contended that even the notice served upon the assessee u/s 274 of the Act is also invalid. We have gone through the show cause notice issued to the assessee. The Ld. Counsel for the assessee has invited our attention to the letter / notice issued u/s 274 read with section 271AAA of the Act dated 13.1.2014, which for the sake of reference is extracted as under:- "NOTICE U/S 274 READ WITH SECITON 271AAA OF THE INCOME TAX ACT, 1961 Office of the Dy. Commissioner of Income Tax, Central Circle -1II, Aayakar Bhawan, Sector 17-E, Chandigarh Dated 13.01.2014 To M/s Gilco Developers and Builders Pvt Ltd., SCF 23024, Gilco Valley Morinda Ropar Road, Ropar, Punjab 140001 Whereas in the course of proceedings before me for the assessment year 2012-13, it appears to me that you have not recorded the true particulars of your income in the books of ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly ordered to be deleted. 28 23. In the result, the appeal of the assessee is hereby allowed. 11. In the case of Orbit Enterprises Vrs. ITO in ITA No. 1596 & 1597/Mum/2014 for AY 2005-06 & 2006-07, the Coordinate Bench had held as under:- 7. At the time of hearing, the learned representative pointed out that the additional Grounds of appeal raised by the assessee involve a point of law for which the necessary facts are on record and, therefore, the same be admitted for adjudication. Insofar as the admission of the additional Grounds of appeal are concerned, there is no serious opposition by the ld. DR except pointing out that these aspects were otherwise not raised before the lower authorities. 8. Be that as it may, in our considered opinion, following the ratio of the judgment of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd., 229 ITR 383 (SC) as well as in the case of Jute Corporation of India Ltd., 187 ITR 688 (SC), the additional Grounds raised before us deserve to be admitted for adjudication inasmuch as the same involve points of law and does not require any further or fresh investigation of facts. It is also clear that the issues r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dings have been initiated for concealment of income and not for furnishing of inaccurate particulars of income. Apart therefrom, it is contended that Sec. 292BB of the Act saves the error, if any, in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act and, therefore, the plea of the assessee is not justified. Further, the ld. CIT-DR relied upon the decision of the Hon'ble Patna High Court in the case of Mithila Motors (P.) Limited, 149 ITR 751 (Patna) for the proposition that mention of an incorrect charge in the notice of penalty would not render the penalty proceedings void-ab-initio. 11. In reply, the learned representative for the assessee pointed out that non-striking off of irrelevant portion of the standard form of notice u/s 274 r.w.s. 271(1)(c) of the Act is a legal infirmity, which is fatal to the imposition of penalty because in the absence of specifying the ground on which penalty is initiated, there is a violation of principles of natural justice. In this context, the learned representative has specifically pointed out the judgments of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory & Ors., 359 ITR 565 (Karn.) and M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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 assesseecompany. 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 aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g off of the irrelevant clause in the notice as reflective of nonapplication 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 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 ld. CIT-DR and find that a similar issue had come up before our coordinate Bench in the case of Dr. Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to levy of penalty for shortfall in the payment of advance tax paid as compared with the tax finally assessed as payable, but in the notice issued u/s 274 r.w.s. 273(b) of the Act it was incorrectly mentioned that assessee had failed to file its estimate of advance tax. The Hon'ble Patna High Court held that mention of such incorrect charge would not render the penalty proceedings void-abinitio. The aforesaid parity of reasoning has been relied upon by the ld. CIT-DR before us to state that nonstriking 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" which does not prejudice the assessee. Secondly, non-striking off of the irrelevant clause in the notice u/s 274 r.w.s. 271(1)(c) of the Act has been completely differently understood by the various High Courts, including that by the Hon'ble Jurisdictional High Court of Bombay. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up by the ld. CITDR 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. 271(1)(c) of the Act are left intact in the standard printed notice, as the irrelevant clause has not been struck-off. This contradiction in the assessment order vis-a-vis the penalty notice issued u/s 274 r.w.s. 271(1)(c) of the Act on the same date clearly brings out a confusion on the part of the Assessing Officer, and apparently it is a situation where assessee is not aware about the clear and crystallised charge being made against him, thus violating the principles of natural justice. The penalty proceedings being quasi-criminal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tself. 17. Since the penalty has been deleted on the preliminary point, the other arguments of the assessee dealing with the merits of the levy of penalty are not being dealt with as the same are rendered academic in nature. 12. On the other hand learned DR relied on the order of Ld. CIT(A) and submitted that since in the present case, the assessee in the course of search had made statement in which he admits undisclosed income, therefore the provisions of section 271AAB would automatically attract. Thus relied upon the Hon'ble Allahabad High Court in the case of PCIT vrs. Sandeep Chandak (2018) 93 taxman.com 405(All), DCIT vrs. Sraddha Buidlers (ITA no. 890/Bang/2018 -AY 2013-14) and it was submitted that assessee was fully aware regarding the charges on which penalty was being levied upon. Thus, this plea raised by the assessee needs to be rejected as the AO has correctly levied penalty. 13. Our attention was invited to notice dated 31/03/2015 issued u/s. 274 r.w.s. 271 of the Act, wherein the AO has also incorporated the words u/s 271AAB and has not strike off inappropriate words. From the bare appearance of the notice, we find that the same is a cyclostyle copy being used b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-application of mind on the part of the assessing authority. 17. We are of the view that for visiting the assessee with the panel provisions, it is pre-requisite that it should be evident from the notice, the intend and purpose for levying penalty as the purpose of the notice is to inform the assessee as to the specific charge for which he has been show caused so that he could furnish his reply without any confusion and to the point. In the present case, neither the assessee nor anyone else could make out as to whether the notice u/s. 274 r.w.S. 271 of the Act was issued for concealing the particulars of income or for furnishing inaccurate particulars of such income disabling it to meet with the case of the Assessing Officer. There are a catena of judgments highlighting the necessity for identifying the charge for which the assessee is being visited and in all those decisions, Hon'ble Courts have repeatedly held that where the jurisdictional notice is vague, similar to the one in the present case, the consequent levy cannot be sustained. 18. In this connection, reliance is first placed upon the judgment of the Hon'ble Karnataka High Court In the case of CIT v. Manjuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired to be issued, the Hon'ble Court concluded thus: (p) Notice u/s 274 of the Act should be specifically state the grounds mentioned in section 271(1)(c), i.e. whether it is for concealment of income or for furnishing of incorrect particulars of income. 21. Finally, in concurring with the findings recorded in the order of the Tribunal, it was held thus: 66. In view of the aforesaid law, we are of the view that the Tribunal was justified in holding that the entire proceedings are vitiated as the notice issued is not in accordance with law and accordingly justified in interfering with the order passed by the appellate authority as well as the assessing authority and in setting aside the same. Hence, we answer the substantial questions of law framed in this case in favour of the assessee and against the Revenue. " 22. The aforesaid judgment was unsuccessfully challenged by the revenue before the Supreme Court, as it was rejected vide Petition for Special Leave to Appeal (C) No. 13898/2014 dated 11.07.2016. 23. Reliance was next placed upon another judgment of the Hon'ble Karnataka High Court in the case CIT v. SSA'S Emerald Meadows (Income Tax Appeal No. 380 of 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Bombay High Court: "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). Nothing has been shown to us in the present facts which would warrant our taking a view different from the Karnataka High Court in the case of Menjuneth Cotton and Ginning Factory (supra). 8. In view of the above, the question as framed do not give rise to any substantial question of law Thus, not entertained" 27. The Hon'ble Supreme Court in Dilip N. Shroff v/s JCIT, [2007] 291 ITR 519 (SC), has observed that while issuing the notice under section 274 r/w section 271, in the standard format, the Assessing Officer should delete the inappropriate words or paragraphs, otherwise, it may indicate that the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or had furnished inaccurate particulars of income. This, according to the Hon'ble Supreme Court, deprives the assessee of a fair opportunity to explain its stand, thereby, violates the principles of natural justice. As held by the Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X
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