TMI Blog2021 (6) TMI 985X X X X Extracts X X X X X X X X Extracts X X X X ..... we hold the impugned order passed under section 271(1)(c) of the Act as invalid and without jurisdiction due to defect in the show cause notice issued under section 274 r.w.s. 271(1)(c) of the Act. Thus, the penalty order passed in pursuance thereto, being vitiated, has to be quashed. Accordingly, we uphold the decision of learned Commissioner (Appeals) in deleting the penalty imposed under section 271(1)(c) - Decided in favour of assessee. - I.T.A. No.2138/Mum/2018, C.O. 215/Mum/2019 (Arising out of I.T.A. No.2138/Mum/2018) - - - Dated:- 28-6-2021 - Shri Saktijit Dey (Judicial Member) And Shri S. Rifaur Rahman (Accountant Member) For the Assesseeby : Shri Ashok Patil, AR For the Revenue : Mrs. Padmaja Siripurapa, CIT (DR) ORDER PER : SAKTIJIT DEY (JM): Captioned appeal and cross objection arise out of an order dated 30-01-2018 of learned Commissioner of Income Tax (Appeals)-2, Thane, deleting penalty imposed under section 271(1)(c) of the Income Tax Act, 1961 for the assessment year 2010-11. 2. Pertinently, though, learned Commissioner (Appeals) has deleted the decided issue in favour of the assessee on merits, however, the assessee has filed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,638/- under section 36(1)(viia) in respect of provision for bad and doubtful debt relating to rural branches. After calling for necessary details relating to the claim of deduction and examining them, the assessing officer observed that certain branches in respect of which the assessee had claimed the deduction, do not qualify as rural branches, as, the population in those areas are not below 10,000 as per the 2001 census. Further, he observed, the assessee has created a provision of ₹ 350 lakhs in its accounts, whereas, it has claimed deduction of ₹ 36,74,91,638/-. Thus, relying upon certain judicial precedents, the assessing officer held that the assessee has claimed excess deduction to the extent of Ra.33,24,91,638/-. Accordingly, after disallowing the said amount, the assessing officer added back the same to the income of the assessee. Based on such addition, the assessing officer initiated proceedings for imposition of penalty under section 271(1)(c) of the Act and ultimately passed an order on 30-06-3027 imposing penalty equivalent to 100% tax on the income in respect of which, the assessee allegedly furnished inaccurate particulars of income. Against the penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... captioned appeal is by Revenue and the CO is by assessee. The appeal is against the order of the Ld CIT A deleting the penalty levied u/s 271 [1] (c). Revised grounds of appeal were filed on 21.08.2019 by the DCIT Circle 3, Thane. The CO is against the additional legal ground that was raised before the CIT A and dismissed although the matter was decided in favour of the assessee Bank on merits. The CO was filed on 5.09.2019, per the assessee and there is a delay of 143 days in filing the CO. 2. Asst u/s 143(3) : The Ld AO in the assessment order u/s 143(3) dt. 14.03.2013 made an addition of ₹ 36,74,91,368/- on account of disallowance of deduction u/s 36 (l)(yiia) and restricted the deduction to ₹ 3,50,00,000/- to the extent of provision made for expenditure debited to P and L account. ( Please see para 1 , pp 1 of the penalty order u/s 271 (1) ( c) dt 30.06.2017 for AY 10-11.) 3. Order of the Hon'ble ITAT on quantum addition :Please see the order of the Hon'ble ITAT , E Bench in ITA 7295/M/2014 in assessee's own case for AY 10-11. The Hon'ble ITAT has upheld the addition in the assessment on account of disallowance of deduction u/s 36(l)(vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional ground raised by the assessee with respect to the appeal of the assessee that the penalty notice was bad in law due to the limbs of concealment / furnishing of inaccurate particulars not being struck of. Curiously, the CIT A at para 6.1, pp 10 has relied on the orders of the Hon'ble ITAT, D Bench in its own case for AY 08-09 and 09-10. This order of the ITAT which is relied on is based on the ratio of nonstriking of limbs in the penalty notice. Thus , the Ld CIT A at para 6.2 deletes the penalty by relying on earlier years orders of the ITAT and a passing reference to Reliance Petro , 322ITR158SC. The non-application of mind by the Ld CIT A is amply evident. He wrongly relies on the earlier years orders which are on non-striking off , while dismissing the identical additional ground of the assessee by relying on the decision of the Hon'ble ITAT in Earthmoving Equipment, which was the law prevalent at the time of passing the order. The Ld CIT A has discussed the facts of the disallowance in detail at para 3 and has also detailed the outcome of the disallowance in the appeal before the ITAT. He is also aware that disallowances on identical grounds were made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccurate particulars being established. Thus , it is amply evident that there is no infraction in fact and in law with respect to the penalty notice issued u/s 271(1] (c ]. 8. Merits of the levy of penalty u/s 271(1) (c ) have been discussed at length in para 6 of the penalty order. The claim of the disallowance has been made repeatedly over several assessment years. The argument of the Ld Counsel for assessee that the population certificates in respect of rural branches have now been obtained which clearly establish that these are indeed rural cannot be allowed as this was never before the AO in assessment proceedings, before the CIT A or ITAT in quantum appeal proceedings, and never before the AO in penalty proceedings. This evidence was not adduced even in the hearing even though three paper books were furnished by the assessee bank. The argument of the assessee that the Hon'ble Bom HC has admitted a question of law in the case of Mahalaxmi Coop Bank on the issue of disallowance u/s 36 (1) (viia) is of no relevance as the assessee has neither gone in appeal in its own case on quantum nor sought for the penalty appeal to be kept in abeyance till the outcome of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued under section 274 r.w.s. 271(1)(c) of the Act on 14-03-2013, the assessing officer has mentioned both the limbs of section 271(1)(c) of the Act without striking off the words concealed the particulars of your income . Even, in the subsequent show cause notice issued on 09-06-2017, though, not in a printed form, the assessing officer has still not disclosed the exact offence for which he intended to levy penalty. 11. Further, the following observations of the assessing officer in the remand report furnished to learned Commissioner (Appeals), as reproduced in the impugned order of learned Commissioner (Appeals), would set at rest the factual position regarding the specific limb for which penalty proceeding was initiated:- As would be seen, the assessing office has observed as under:- (b) In the quantum order, after due deliberations, it is clearly indicated by the AO that the penalty proceeding is initiated for furnishing inaccurate particulars which shows due application of mind qua penalty proceedings. However, while notice u/s 274 r.w.s. 271(1)(c) was issued for initiation of penalty proceedings striking off the irrelevant point was not done inadvertently. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the penalty proceedings. The other course of action is the prevention of defect in the notice - and that prevention takes just a tick mark. Prudence demands prevention is better than cure. Answers : Question No. 1 : If the assessment order clearly records satisfaction for posing penalty on one or the other, or both grounds mentioned in s. 271(2)(c), does a mere defect in the .notice - not striking off the the irrelevant matter - vitiate the penalty proceedings? 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under s. 271(1)(c) r/w.s. 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings has not met our acceptance. Question No. 3 : What is the effect of the Supreme Court's decision in Dilip N. Shroff on the issue of non-application of mind when the irrelevant portions of the printed notices are not struck off ? 187. In Dilip N. Shroff, for the Supreme Court, it is of some significance that in the standard Pro-forma used by the AO in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done . Then, Dilip N. Shroff, on facts, has felt that the AO himself was not sure whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. 188. We may, in this context, respectfully observe that a contravention of a mandatory condition or requirement for a communication to be valid communication is fatal, with no further proof. That said, even if the notice contains no caveat that the inapplicable portion be deleted, it is in the interest of fairness and justice that the notice must be precise. It should give no room for any ambiguity. Therefore, Dilip N. Shroff disapproves of the routine, rituali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the statutory notice. The hon ble Court has observed that an omnibus notice suffers from the vice of vagueness. Proceeding further, the hon ble Court has held that a penalty provision even for civil consequences, must be construed strictly and ambiguity, if any, must be resolved in assessee s favour. While coming to such conclusion, the hon ble jurisdictional High Court has also referred to the decision of the hon ble Supreme Court in case of Dilip N Shrfoff (supra), wherein, the hon ble Supreme Court disapproved the routine ritualistic practice of omnibus show cause notice issued in printed form without deleting or striking off the inapplicable part, which betrays non application of mind. Therefore, the infraction of a mandatory procedure leading to penal consequences assumes or implies prejudice. 15. Therefore, if we apply the ratio laid down in the aforesaid Full Bench decision of the hon ble jurisdictional High Court to the facts of the present appeal, it can be seen that the assessing officer has issued a generic show cause notice in a printed form without mentioning the specific charge by striking off the inapplicable words. Thus, the show cause notice issued under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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