Dr. Vishnumoorthy Kaushik, Bangalore V. DCIT, Bangalore

ITA 111/BANG/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0450 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-04-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 06-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAVISHANKAR S V

Judgement Text

ITA.111/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'C', BANGALORE BEFORE SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI. GEORGE GEORGE K, JUDICIAL MEMBER I.T.A NO.111/BANG/2015 (ASSESSMENT YEAR : 2010-11) DR. VISHNUMURTHY KAUSHIK, NO.131, 7 TH MAIN, 4 TH CROSS, 5 TH BLOCK, JAYANAGAR, BENGALURU 560 011 .. APPELLANT PAN : AHYPK6291L V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -5(1), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. RAVISHANKAR S. V, ADVOCATE REVENUE BY : SHRI. SUNIL KUMAR AGARWALA, JCIT HEARD ON : 11.04.2016 PRONOUNCED ON : 12.04.2016 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : ASSESSEE THROUGH THIS APPEAL ASSAILS LEVY OF PENALT Y U/S.271(1)(C) OF THE INCOME-TAX ACT, 1961 (THE ACT IN SHORT), FOR THE IMPUGNED ASSESSMENT YEAR, WHICH WAS CONFIRMED BY THE CIT(A) II, BENGAL URU. ITA.111/BANG/2015 PAGE - 2 02. ONE OF THE GROUNDS TAKEN BY THE ASSESSEE STATES THAT THE NOTICE ISSUED INITIATING THE PENALTY PROCEEDINGS SUFFER FR OM INCURABLE DEFECT. IN SUPPORT OF THIS, ASSESSEE HAS FILED A COPY OF TH E NOTICE DT.09.01.2013, ISSUED U/S.274 R.W.S.271 OF THE ACT. 03. PER CONTRA, LD. DR SUBMITTED THAT THE LEVY OF P ENALTY FOR THE IMPUGNED ASSESSMENT YEAR WAS FOR CONCEALMENT OF INC OME. LD. DR SUBMITTED THAT ASSESSEE HAD FAILED TO DISCLOSE THE CORRECT INCOME. THERE WAS CLEAR CONCEALMENT OF INCOME. ACCORDING T O HIM, VAGUENESS OF NOTICE COULD NOT BE CONSIDERED AS A RE ASON FOR ANNULLING THE LEVY OF PENALTY, WHEN THE ASSESSMENT ORDER WAS CLEAR FOR WHAT REASON THE PENALTY PROCEEDINGS WERE BEING INITIATED . 04. WE HAVE PERUSED THE ORDERS AND HEARD THE CONTEN TIONS. IT IS NECESSARY TO REPRODUCE THE NOTICE DT.09.01.2013 ISS UED TO THE ASSESSEE, UNDER SECTION 274 R.W.S. 271, WHICH READ AS UNDER : ITA.111/BANG/2015 PAGE - 3 05. IT IS SEEN THAT ASSESSEE HAD TAKEN A GROUND REG ARDING THE VAGUENESS OF NOTICE BEFORE THE CIT (A), WHICH WAS HOWEVER DECIDE D AGAINST THE ASSESSEE BY THE CIT (A). IN OUR OPINION, NOTICE HAS TO SPEC IFY WHETHER THERE WAS CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. IF THERE ARE BOTH, IT IS THE DUTY OF TH E AO TO SPECIFY SO. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. M/S . MANJUNATHA COTTON & GINNING FACTORY (359 ITR 565) HELD AS UNDER AT PARA S 15 TO 17 : ITA.111/BANG/2015 PAGE - 4 15. THE FIRST LEGAL QUESTION IS WHETHER THE NOTICE U/S 274 R.W.S.271 IS VALID. THE LEARNED DRS OBJECTION IS THAT THE AS SESSEE HAS NOT RAISED ANY SPECIFIC GROUND OF APPEAL ON THIS ISSUE. HOWEVER, WE FIND IN THE GROUND OF APPEAL NO.2, THE ASSESSSEE HA S RAISED AN OBJECTION THAT THE ORDER OF PENALTY PASSED BY THE L D.AO U/S271(1) OF THE IT ACT, IS WITHOUT JURISDICTION AS THE MANDATOR Y CONDITION FOR INVOKING PROVISION OF SEC.271(1)(C ) OF THE ACT HAS NOT BEEN COMPILED WITH. THEREFORE, WE HAVE TO EXAMINE WHETHE R MANDATORY CONDITIONS FOR INITIATING THE PROCEEDINGS U/S 271(1 )(C ) WERE COMPLIED WITH OR NOT. WHAT ARE THE MANDATORY CONDIT IONS FOR INVOKING THE PROVISION OF SEC.271(1)(C ) OF THE ACT ? ONE OF THE MANDATORY CONDITIONS IS THAT HE NOTICE U/S 274 R.W. S. 271 MUST BE VALID NOTICE. IN VIEW OF THE SAME, WE PROCEED TO AD JUDICATE THIS GROUND OF APPEAL. 16. AS SEEN FROM THE NOTICE ISSUED U/S 271(1)(C) OF THE IT ACT, IT IS DATED 29-03-2002 ADDRESSED TO THE ASSESSEE FOR THE ASSESSMENT YEAR 1998-99. IT IS IN THE PRESCRIBED FORM WITH THE BLANKS TO BE FILLED UP BY THE RELEVANT INFORMATION. AT THE BOTTO M OF THE NOTICE ON PAGE-2, IT IS MENTIONED THAT INAPPROPRIATE WORDS AN D PARAGRAPHS ARE TO BE DELETED. HOWEVER, WE FIND THAT THE AO EXC EPT FROM THE ASSESSMENT YEAR AND STRIKING OFF PARA 2 OF THE NOTI CE HAS NOT FILLED UP ANY OTHER BLANKS NOR HAS HE STRUCK OFF ANY OTHER INAPPROPRIATE WORDS OR PARAGRAPHS. PARA-4 MENTION BOTH THE CONCEA LMENT OF PARTICULARS OF INCOME AS WELL AS FURNISHING OF INAC CURATE PARTICULARS OF SUCH INCOME. THE AO HAS NOT SPECIFIE D AS TO WHICH OF THE CONDITIONS FOR INITIATING PENALTY IS FULFILLED. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. M/S MANJUNATHA COTTON & GINNING FACTORY (2013) PAGE 93 PARA 59 TO 61 HAS CONSIDERED THIS ISSUE AT LENGTH AND HAS HELD THAT C LAUSE(C ) OF THE PRINTED FORM OF NOTICE U/S 274 DEALS WITH TWO SATIS FACTIONS I.E. CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE HONBLE HIGH COURT HAS H ELD THAT BOTH THE CONDITIONS ARE DIFFERENT AND DISTINCT THOUGH AT TIMES THEY MAY OVERLAP WITH EACH OTHER. IT WAS HELD THAT AO WHILE ISSUING NOTICE U/S 274 HAS TO COME TO THE CONCLUSION AS TO WHETHER IT IS CASE OF CONCEALMENT OF INCOME OR IT IS A CASE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME AND IF THE STANDARD PROFORMA WITHOUT DELETING THE RELEVANT CLAUSE IS ISSUED, IT LEADS TO AN INFERENCE AS TO ITA.111/BANG/2015 PAGE - 5 NON-APPLICATION OF MIND BY THE AO. THE RELEVANT POR TION OF THE HONBLE HIGH COURTS ORDER IS REPRODUCED HEREUNDER: 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDIN GS CAN BE INITIATED ON VARIOUS GROUNDS SET OUT THEREIN. IF TH E ORDER PASSED BY THE AUTHORITY CATEGORICALLY RECORDS A FIN DING REGARDING THE EXISTENCE OF ANY SAID GROUNDS MENTION ED THEREIN AND THEN PENALTY PROCEEDINGS IS INITIATED, IN THE NOTICE TO BE ISSUED U/S 274, THE COULD CONVENIENTLY REFER TO THE SAID ORDER WHICH CONTAINS THE SATISFACTION OF T HE AUTHORITY WHICH HAS PASSED THE ORDER. HOWEVER, IF T HE EXISTENCE OF THE CONDITIONS COULD NOT BE DISCERNED FROM THE SAID ORDER AND IF IT IS A CASE OF RELYING ON DEEMIN G PROVISION CONTAINED IN EXPLANATION 1 OR IN EXPLANATION(B), TH EN THOUGH PENALTY PROCEEDINGS ARE IN THE NATURE OF CIVIL LIAB ILITY, IN FACT, IT IS PENAL IN NATURE. IN EITHER EVENT, THE P ERSON WHO IS ACCUSED OF THE CONDITIONS MENTIONED INSEC.271 SHOUL D BE MADE KNOWN ABOUT THE GROUNDS ON WHICH THEY INTEND IMPOSING PENALTY ON HIM AS THE SEC.274 MAKES FT C/E AR THAT ASSESSEE HAS A RIGHT TO CONTEST SUCH PROCEEDINGS AN D SHOULD HAVE FULL OPPORTUNITY TO MEET THE CASE OF THE DEPAR TMENT AND SHOW THAT THE CONDITIONS STIPULATED IN SEC.271(1)(C ) DO NOT EXIST AS SUCH HE IS NOT LIABLE TO PAY PENALTY. THE PRACTICE OF THE DEPARTMENT SENDING A PRINTED FORM WHERE AS THE GROUND MENTIONED IN SEC.271 ARE MENTIONED WOULD NOT SATISF Y REQUIREMENT OF LAW WHEN THE CONSEQUENCE OF THE ASSE SSEE NOT REBUTTING THE INITIAL PRESUMPTION IS SERIOUS IN NAT URE AND HE HAD TO PAY PENALTY FROM 100% TO 300% OF THE TAX LIA BILITY. AS THE SAID PROVISIONS HAVE TO BE HELD TO BE STRICTLY CONSTRUED, NOTICE ISSUED U/S 274 SHOULD SATISFY THE GROUNDS WH ICH HE HAS TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATU RAL JUSTICE IS OFFENDED/F THE SHOWN CAUSE NOTICE IS VOGUE. ON T HE BASIS OF SUCH PROCEEDINGS NO PENALTY COULD BE IMPOSED ON THE ASSESSEE. 60. CLAUSE (C) DEALS WITH TWO SPECIFIC OFFENCES, TH AT IS TO SAY, CONCEALING PARTICULARS OF INCOME OR FURNISHING INAC CURATE PARTICULARS OF INCOME. NO DOUBT, THE FACTS F THE SO ME CASES MAY ATTRACT BOTH THE OFFENCES AND IS SOME CASES THE RE MAY BE ITA.111/BANG/2015 PAGE - 6 OVERLAPPING OF THE TWO OFFENCES BUT IN SUCH CASES T HE INITIATION OF THE PENALTY PROCEEDINGS ALSO MUST BE FOR BOTH THE OFFENCES. BUT DRAWING UP PENALTY PROCEEDINGS FO R ONE OFFENCE AND FINDING THE ASSESSEE GUILTY OF ANOTHER OFFENCE OF FINDING HIM GUILTY FOR EITHER THE ONE OR THE OTHER CANNOT BE SUSTAINED IN LAW. IT IS NEEDLESS TO PINT SATISFACTI ON OF THE EXISTENCE OF THE GROUNDS MENTIONED IN SEC.271(1)(C) WHEN IT IS A SINE QUA NON FOR INITIATION OR PROCEEDINGS, TH E PENALTY PROCEEDINGS SHOULD BE CONFIRMED ONLY TO THOSE GROUN DS AND THE SAID GROUNDS HAVE TO BE SPECIFICALLY STATED TO THAT THE ASSESSEE WOULD HAVE THE OPPORTUNITY TO MET THOSE GR OUNDS. AFTER, HE PLACES HIS VERSION AND TRIES TO SUBSTANTI ATE HIS CLAIM, IF AT ALL, PENALTY IS TO BE IMPOSED, IT SHOU LD BE IMPOSED ONLY ON THE GROUNDS ON WHICH HE IS CALLED UPON TO A NSWER. IT IS NOT OPEN TO THE AUTHORITY, AT THE TIME OF IMPOSI NG PENALTY TO IMPOSE PENALTY ON THE GROUNDS OTHER THAN WHAT AS SESSEE WAS CALLED UPON TO MEET. OTHERWISE, THOUGH THE INIT IATION OF PENALTY PROCEEDINGS MAY BE VALID AND LEGAL, THE FIN AL ORDER IMPOSING PENALTY WOULD OFFEND PRINCIPLES OF NATURA L 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 INITIATIO N OF PENALTY PROCEEDINGS IS NOT IDENTICAL WITH THE GROUN D ON WHICH THE PENALTY WAS IMPOSED, THE IMPOSITION OF PE NALTY IS NOT VALID. THE VALIDITY OF THE ORDER OF THE PENALTY MUST BE DETERMINED WITH THE REFERENCE TO INFORMATION, FACTS AND MATERIALS IN THE HANDS OF THE AUTHORITY IMPOSING PE NALTY AT THE TIME THE ORDER WAS PASSED AND FURTHER DISCO VER Y OF FACTS SUBSEQUENT TO THE IMPOSITION OF PENALTY CANNOT VIOL ATE THE ORDER OF PENALTY WHICH, WHEN PASSED, WAS NOT SUSTAI NABLE. 61. THE AO IS EMPOWERED UNDER THE ACT TO INITIATE P ENALTY PROCEEDINGS ONCE HE IS SATISFIED IN THE CAUSE OF AN Y PROCEEDINGS THAT THERE IS CONCEALMENT OF INCOME OR FURNISHING OF INA CCURATE PARTICULARS OF TOTAL INCOME UNDER CLAUSE(C). CONCEA LMENT, FURNISHING INACCURATE PARTICULARS OF INCOME ARE DIF FERENCE. THUS, THE A 0 WHILE ISSUING NOTICE HAS TO COME TO THE CONCLU SION THAT WHETHER IS IT A CASE OF CONCEALMENT OF INCOME OR IS IT A CA SE OF FURNISHING OF ITA.111/BANG/2015 PAGE - 7 INACCURATE PARTICULARS. THE APEX COURT IN THE CASE OF ASHOK PAI REPORTED IN 292 ITR 11 AT PAGES 19 HAS HELD THAT CO NCEALMENT OF INCOME AND FURNISHING INACCURATE PARTICULARS OF INC OME CARRY DIFFERENT CONNOTATIONS. THE GUJARAT COURT IN THE CA SE OF MANU ENGINEERING REPORTED IN 122 ITR 306 AND THE BE DELH I HIGH COURT IN THE CASE OF VIRGO MARKETING REPORTED IN 171 TAXM AN 156, HAS HELD THAT LEVY OF PENALTY HAS TO BE CLEAR AS TO THE LIMB FOR WHICH IT IS LEVIED AND THE POSITION BEING UNCLEAR PENALTY IS NO T SUSTAINABLE. THEREFORE, WHEN THE AO PROPOSES TO INVOKE THE FIRST LIMB CONCEALMENT, THEN THE NOTICE HAS TO BE APPROPRIATEL Y MARKED. SIMILAR IS THE CASE FOR FURNISHING INACCURATE PARTI CULARS OF INCOME. THE STANDARD PROFORMA WITHOUT STRIKING OF THE RELEV ANT CLAUSES WILL LEAD TO AN INFERENCE AS TO NON -APPLICATION OF MIND 17. WE FIND THAT IN THE CASE BEFORE US ALSO, THE AO HAS NOT SPECIFIED THE RELEVANT PORTION OF THE CLAUSE (C) FOR INITIATI NG PENALTY PROCEEDINGS U/S 271(1)(C) OF THE IT ACT AND THEREF ORE, AS HELD BY THE HONBLE HIGH COURT, THE ASSESSEE COULD NOT HAVE REBUTTED THE INITIAL PRESUMPTIONS FOR INITIATION OF PENALTY WHIC H IS SERIOUS IN NATURE. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S MANJUN ATHA COTTON & GINNING FACTORY (CITED SUPRA) WE HOLD THAT THE NOTI CE U/S 274 R.W.S.271(1)(C) IS INVALID. THE CONTENTION OF THE L EARNED DR THAT IT IS ONLY A DEFECT WHICH IS CURABLE U/S 292B OF THE I T ACT, IS ALSO NOT ACCEPTABLE BECAUSE THE AO GETS THE JURISDICTION TO LEVY THE PENALTY ONLY BY ISSUANCE OF A VALID NOTICE AND, THEREFORE, WHEN THE JURISDICTION IS NOT VALIDLY INVOKED, THEN THE CONSE QUENT PROCEEDINGS ARE ALSO NOT VALID. HENCE, IT IS NOT A PROCEDURAL I RREGULARITY AS CONTENDED BY THE DR. THUS AS PER THE ABOVE JUDGMENT OF HONBLE JURISDICT IONAL HIGH COURT IT IS IMPERATIVE FOR THE AO TO SHOW IN THE NOTICE THE DEF AULT OF ASSESSEE. MERE MENTIONING OF THE DEFAULT IN THE ASSESSMENT ORDER M AY NOT BE SUFFICIENT. NOTICE ISSUED TO THE ASSESSEE, REPRODUCED BY US AT PARA 4 ABOVE, DOES NOT ITA.111/BANG/2015 PAGE - 8 SPECIFY THE DEFAULT OF THE ASSESSEE. IN OUR OPINIO N, NOTICE U/S.274 R.W.S.271 OF THE ACT, ISSUED FOR THE IMPUGNED ASSESSMENT YEAR WAS INVALID. EX- CONSEQUENTI THE PENALTY ORDER IS SET ASIDE. 06. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 12TH APRIL, 2 016. SD/- SD/- (GEORGE GEORGE K) (ABRAHAM P GEOR GE) JUDICIAL MEMBER ACCOUN TANT MEMBER