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TMI Blog2024 (3) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... y making various additions in Assessment Year 2017-18 to 2019-20. Pursuant to the assessment orders three penalty orders u/s 271(1)(c)/271A and 271AAB of the Act have been passed on 12/10/2021 for the years under consideration. Aggrieved by the penalty orders the assessee preferred the Appeals before the CIT(A). The Ld. CIT(A) vide orders dated 29/12/2022 and 26/12/2022 dismissed the Appeals filed by the assessee. As against the orders of the Ld. CIT(A), the assessee preferred the above appeals on the grounds mentioned above. Since the appeals are pertaining to single assessee and issues involved in the Appeals are being identical which were heard together and dispose off in this common order. 3. The Grounds of Appeal of the Respective Appeals are as under: ITA No. 224/Del/2023 "1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) {CIT(A)} is bad both in the eyes of law and on facts. 2. On the facts and circumstances of the case, the Learned CIT(A) has erred both on facts and in laws in confirming the action of the AO levying penalty of Rs. 2,10,90,362/- invoking the provision of section 270A read with section 274 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "1. On the facts and circumstances of the case, the order passed by the Learned Commissioner of Income Tax (Appeals) (CIT(A)) is bad both in the eyes of law and on facts. 2. On the facts and circumstance of the case, the Learned CIT(A) has erred both on facts and in laws in confirming the action of the AO levying penalty of Rs. 2.51,96,355/- invoking the provision of section 271AAB read with section 274 of the Income-tax Act. 3. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied by the AO on the addition of Rs. 3,09,93,925/- made by AO estimating profit on undisclosed sales on the basis of documents seized during the course of search. 4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied on the addition of Rs. 1,10,00,000/- made by AO on account of advertisement expenditure claimed by the assessee treating the same as bogus. 5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied by the AO rejecting the contention of the assessee that no p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied on the addition of Rs. 1,00,00,000/- made by AO on account of cash found during the course of search proceedings treating the same as unexplained invoking the provision of section 69A read with section 115BBE of the Act. 6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied by the AO rejecting the contention of the assessee that no penalty can be levied on the addition made on the basis of estimation. 7. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the penalty levied by the AO u/s 271AAB despite the fact that case of the assessee does not fall in the definition of "Undisclosed income" and no penalty under section 271/AAB is leviable. 8. On the facts and circumstances of the case, the learned CIT (A) has erred both on facts and in law in confirming penalty levied by AO ignoring the contention of the assessee that the addition on which penalty has been levied by the AO is itself untenable in law. 9. On the facts and circumstances of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partmental Representative by relying on the findings and the conclusion of the Ld. CIT(A) sought for dismissal of the appeal filed by the assessee. 6. We have heard both the parties and perused the material available on record. The notice of penalty u/s 274 of the Act dated 02/06/2021 refers to the word 'under-reported income'. The allegation of the A.O. in the penalty notice was only regarding "under reporting of income". For the sake of convenience, the penalty notice dated 02/06/2021 issued for the Assessment Year 2017-18 is reproduced as under:- "Notice under section 274 read with section 270A of the Income Tax Act, 1961 Sir/Madam, Whereas in the course of proceedings before me for the Assessment Year 2017-18, it appears to me that you have under-reported income. You are hereby requested to appear before me either personally or through a duly authorized representative at 11:15 AM on 02/07/2021 and show cause why an order imposing a penalty on you should not be made under section 270A of the Income Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorised representative, you may show cause in writing on or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Prem Brothers Infrastructure LLP v. NFAC reported in 288 Taxmam 768 (Del) "7. This Court is of the opinion that the only addition in the assessment order framed by Respondent No. 1 is in respect of disallowance under section 14A of the Act. The Petitioner has made a disallowance of Rs. 3.20,14,010- which was recomputed by the Assessing Officer at Rs. 6,82,45.759/-. Thus, this is a case where the amount of underreporting of income is consequent to increase in the disallowance voluntarily estimated by the assessee. This court is conscious of the fact that there can be cases where underreporting of income may result in misreporting of income, however, in peculiar facts of the present case, the underreporting allegedly done by the assessee cannot amount to misreporting as the assessee had furnished all the details of the transactions relating to disallowance made under section 14A of the Act and the AO as well as assessee has used the same details to arrive at different conclusions ie. differing quantum of disallowances under section 14A of the Act. This by no stretch of imagination can be held to be 'misreporting'. 8. This Court also finds that there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring the action/omission on the part of the assessee in the ken of sub-section (9) of section 270A of the Act which are given (supra), viz (a) to (f) of section 270A(9) of the Act. However, a reading of the reasons given by the AO to levy penalty for misreporting (supra) it is discerned that he has failed to spell out as to how the assessee's case/additions falls within the ken of instances given in clause (a) to (f) of sub-section (9) of section 270A of the Act. Since AO failed to bring the addition/disallowance he made in quantum assessment, under the ken of (a) to (f) of the sub-section(9) of section 270A of the Act, the penalty levied for misreporting @ 200% cannot be sustained because it is trite law that penalty provisions have to be strictly interpreted. And therefore, taking into consideration, the facts and circumstances of the case, we find that the levy of penalty by the AO u/s 270A of the Act suffers from the vice of non-application of mind as well as violates principles of natural justice. And therefore, the penalty levied on addition of sustained quantum addition of Rs. 67,970/- cannot survive. And therefore, it is directed to be deleted. 11. The Pune Bench of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that the very line of judicial precedents would squarely apply even for the amended penalty provision i.e., sec.270A of the Act as well wherein the legislature has not only prescribed twin limbs of "under reporting of income as well as misreporting of income", but also, unlike the earlier provision u/sec.271, this time it has stipulated specific deeming illustrations under both the twin foregoing heads of the "under reported income" and "misreporting of income" in sub-sections (2) and (9) (a to f) respectively. In my considered opinion, once the instant twin appeals involve levy of penalty @ 200% of the taxes sought to be evaded and the learned lower authorities have held the assessee to have "under- reported his taxable income in consequence to misreporting", the latter limb of misreporting containing six "sub-limbs" in clauses (a to f) under sub- section- (9) deserve to be read as an extension of sub-section (8) to section 270A only. This indeed seems to be the only possible view as the legislature has incorporated the non-obstante clause "Notwithstanding anything contained in sub-sec. (6) or sub-sec. (7)" thereby not including the sub-section (9) envisaging the six ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to non-mentioning of specific limb of offence in the penalty show cause notice. 13. The issue of not mentioning specific limb in the penalty notice is fully covered by the decision of the Hon'ble Delhi High Court in the case of Sahara India Life Insurance Ltd reported in 432 ITR 84 (Del) wherein it was held that:- "21. The Respondent had challenged the upholding of the penalty imposed under section 271(1) (c) of the Act, which was accepted by the ITAT. It followed the decision of the Karnataka High Court in CIT v. Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250/218 Taxman 423/359 ITR 565 and observed that the notice issued by the AO would be bad in law if it did not specify which limb of section 271(1)(c) the penalty proceedings had been initiated under i.e. whether for concealment of particulars of income or for furnishing of inaccurate particulars of income. The Karnataka High Court had followed the above judgment in the subsequent order in CIT v. SSA's Emerald Meadows [2016] 73 taxmann.com 241, the appeal against which was dismissed by the Supreme Court of India in SLP No. 11485 of 2016 by order dated 5th August, 2016. 22. On this issue again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statutory notice suffered from neither non-application of mind nor any prejudice. According to it, "the so-called ambiguous wording in the notice [has not] impaired or prejudiced the right of the assessee to a reasonable opportunity of being heard". It went onto observe that for sustaining the plea of natural justice on the ground of absence of opportunity, "it has to be established that prejudice is caused to the concerned person by the procedure followed". Smt. Kaushalya case (supra) closes the discussion by observing that the notice issuing "is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done". 185 No doubt, there can exist a case where vagueness and ambiguity in the notice can demonstrate non-application of mind by the authority and/or ultimate prejudice to the right of opportunity of hearing contemplated under section 274. So asserts Smt. Kaushalya case (supra) In fact, for one assessment year, it set aside the penalty proceedings on the grounds of non-application of mind and prejudice. 186. That said, regarding the other assessment year, it reasons that the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a further precedential prop. we may refer to Rajesh Kumar v. CIT [2007] 27 SCC 181, in which the Apex Court has quoted with approval its earlier judgment in State of Orissav. Dr. Binapani Dei AIR 1967 SC 1269 According to it, when by reason of action on the part of a statutory authority, civil or evil consequences ensue, principles of natural justice must be followed. In such an event, although no express provision is laid down on this behalf, compliance with principles of natural justice would be implicit. If a statue contravenes the principles of natural justice, it may also be held ultra vires Article 14 of the Constitution. 191. As a result, we hold that Dilip N. Shroff Case (supra) treats omnibus show-cause notices as betraying non-application of mind and disapproves of the practice, to be particular, of issuing notices in printed form without deleting or striking off the inapplicable parts of that generic notice. Conclusion: We have, thus, answered the reference as required by us, so we direct the Registry to place these two Tax Appeals before the Division Bench concerned for further adjudication. 15. In the instant case, on perusal of the penalty notice placed on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Sahara India Life Insurance reported in 432 ITR 84 (Del) and other decision reffered supra squarely applies to the facts of the instant case before us. Hence we direct the Ld. AO to delete the penalty levied u/s 270A of the Act for the Assessment Year 2017-18. Accordingly, we allow the Appeal of the Assessee on this technical ground and leave the grounds raised on levy of penalty on merits left open as adjudication of the same becomes academic in nature. 17. Now, we take up the appeals are pertaining for A.Y 2018-19 & 2019-20. The impugned orders of penalty have been passed u/s 271AAB of the Act. The Ld. Counsel for the assessee submitted that the penalty notice issued u/s 271AAB of the Act in both the Assessment Years are not in manner depicting the charge against the assessee as to whether under which clause (a), (b) or (c) of Section 271AAB (1) or Clause (a) or (b) of 271AAB(1A) of the Act, penalty is leviable on the assessee. Thus, submitted that the notice initiating the penalty u/s 271AAB of the Act is a vague notice and therefore, illegal consequently, the order of penalty and the order of the Ld. CIT(A) thereon deserves to be set aside. The Ld. Counsel for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted to submit your explanation in writing on or before 14.09.2021 which will be considered before any such order is made under section 271AAB of the Income Tax Act, 1961. Please note that in case of non- compliance, it will be assumed that you have nothing to explain in your support and penalty shall be imposed on the basis of material available on record." 21. As could be seen from the above the notice issued u/s 271AAB of the Act, it does not depict the charge against the assessee as to under which Clause (a), (b) or (c) or Section 271AAB (1) or Clause (a) or (b) of 271 AAB (1A) of the Act penalty is leviable on the assessee. Therefore, we are of the opinion that the notice initiating penalty u/s 271AAB of the Act is vague and the assessee was not made aware of the actual charge on which the penalty proceedings will be initiated on the assessee. The various judicial precedents have held that the penalty notice should be clear enough to convey the assessee about the charge which is to be levied against him/her/it for levying penalty for the contravention of the related provisions of the Act. 22. An Identical question came for consideration before the Jaipur bench of the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1AAB. The AO has just mentioned "deliberately concealed the true income". Thus the AO without mentioning specific default of the assessee in terms of clause (a), (b) or (c) of section 271AAB of the Act, the, show cause notice issued in routine manner cannot be considered a valid notice in the eyes of law and accordingly the levy of penalty against the assessee is held to be void ab initio. Further, the assessee has substantiated the undisclosed cash available, as to the extent of surrendered income of Rs. 8,73,000/-. 6. In view of the above, considering the peculiar facts, the grievance of the assessee is accepted as genuine and as such the order of the Id. CIT (A) sustaining the penalty is hereby quashed. 7. In the result, appeal of the assessee is allowed." 22. The Indore Bench of the Tribunal in ITA No. 869/1nd/2018 in the case of Shri Ashok Bhatia vs. DCIT vide order dated 05.02.2020 held as under:- "8. From perusal of the above provision we observe that sub section 3 of Section 271AAB of the Act talks about issuing the notice u/s 274 of the Act. So for initiating the penalty proceedings u/s 271AAB of the Act the first step to be taken by 1.d. A.O is to issue a valid n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Merely issuing notice in general proforma will negate the very purpose of natural justice. Hon'ble Apex Court in the case of Dilip N Shraf 161 Taxmann 218 held that "the quasi criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice". 15. We, therefore respectfully following the judgment of jurisdictional High Court in the case of PCIT V/s Kulwant Singh Bhatia (supra), decision of Coordinate Bench of Chennai in the case of DCIT V/s R. Elangovan (supra) and Jaipur Bench in the case of Ravi Mathur Vs DCIT (supra) and in the given facts and circumstances of the case wherein the matter written in the body of the notice issued u/s 274 of the Act does not refer to the charges of provision of Section 271AAB of the Act makes the alleged notice defective and invalid and thus deserves to be quashed. Since the penalty proceedings itself has been quashed the impugned penalty of Rs. 64,22,348/- stands deleted. Thus assessee succeeds on legal ground challenging the validity of notice issued u/s 274 r.w.s. 271AAB of the Act." 23. The Kolkata Bench of the ITAT in the case of Sushil Kumar Paul vs. ACIT in ITA No. 2274/Ko1/2019 vide order dated 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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