Sri Shivakumar N, Bangalore V. Commissioner of Income tax(Appeals)III, Bangalore

ITA 1167/BANG/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86099 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 11-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S HRI P DHIVAHAR J
• Keywords: Principle of natural justice; Initiation of penalty proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI , JUDICIAL MEMBER A ND SHRI JASON P.BOAZ, ACCOUNTANT MEMBER ITA NO S . 1167 & 1168 / BANG/20 14 ( ASSESSMENT YEARS: 200 7 - 08 & 2008 - 09 ) SHRI N. SHIVAKUMAR, # 1298, KODI GEHALLI MAIN ROAD, VIRUPAKSHAPURA, BANGALORE - 560097. PAN: ACRPS2792N VS. APPELLANT ASST. COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE 1(3), BANGALORE. RESPONDENT A PPELLANT BY: SHRI SURESH MUTHUKRISHNAN, CA. RESPONDENT BY: SHRI S HRI P.DHIVAHAR, J CIT(DR). DATE OF HEARING : 19 /0 3 /2015. DATE OF PRONOUNCEMENT: 31 /0 3 /2015. O R D E R PER SMT.P.MADHAVI DEVI, JM: THESE ARE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDERS OF THE CIT(A) - III, BANGALORE, DATED 07/05/2014 CONFIRMING THE PENALTY LEVIED BY THE ASSESSING OFFICER (AO) U/S 271(1)(C) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09. ITA NO S . 1167&1168 /BANG/20 1 4 SHRI N. SHIVAKUMAR. PAGE 2 OF 5 2. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUNDS OF APPEAL CHALLENGING THE VALIDITY OF THE NOTICE ISSUED U/S 274 READ WITH SEC.271(1)(C) OF THE ACT ON THE GROUND THAT IT DOES NOT SPECIFY THE GROUNDS ON WHICH PENALTY HAS BEEN INITIATED. SINCE THE ADDITIONAL GROUNDS OF APPEAL GO TO THE ROOT OF THE MATTER AN D ARE LEGAL GROUNDS, THEY ARE ADMITTED AND ADJUDICATED AS UNDER: 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT FOR ISSUANCE OF NOTICE U/S 274 READ WITH SEC.271(1)(C) OF THE ACT, THE AO HAS TO INDICATE THE EXACT GROUND FOR WHICH PENAL TY HAS BEEN INITIATED I.E. FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME OR CONCEALMENT OF INCOME. HE HAS FILED COPIES OF THE NOTICE S ISSUED U/S 274 READ WITH SEC.271(1)(C) OF THE ACT FOR BOTH THE ASSESSMENT YEARS WHEREIN THE AO HAS NOT STRUCK OFF TH E IRRELEVANT PORTION. HE PLACED RELIANCE UPON THE JUDGMENT OF THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF M/S.MANJUNATHA COTTON AND GINNING FACTORY IN ITA NO.2564 OF 2005 DATED 13 - 12 - 2012 WHEREIN IT HAS BEEN HELD THAT IF IT IS NOT DISCERNIBLE F ROM THE NOTICE ABOUT THE REASONS FOR INITIATING PENALTY THEN SUCH NOTICE IS INVALID AND THE PENALTY IS NOT MAINTAINABLE. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. HA VING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT IN ITA NO S . 1167&1168 /BANG/20 1 4 SHRI N. SHIVAKUMAR. PAGE 3 OF 5 THE CASE OF M/S.MANJUNATHA COTTON AND GINNING FACTORY (CITED SUPRA). THE RELEV ANT PARAGARAPH S OF THE HON BLE HIGH COURT S DECISION ARE REPRODUCED HEREUNDER FOR READY REFERENCE: 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDINGS CAN BE INITIATED ON VARIOUS GROUNDS SET OUT THEREIN. IF THE ORDER PASSED BY THE AUTHORITY CATEGORICALLY RECORDS A FINDING REGARDING THE EXISTENCE OF ANY SAID GROUNDS MENTIONED THEREIN AND THEN PENALTY PROCEEDINGS IS INITIATED, IN THE NOTICE TO BE ISSUED UNDER SECTION 274, THEY COULD CONVENIENTLY REFER TO THE SAID ORDER WHICH CONTAINS THE SATIS FACTION OF THE AUTHORITY WHICH HAS PASSED THE ORDER. HOWEVER, IF THE EXISTENCE OF THE CONDITIONS COULD NOT BE DISCERNED FROM THE SAID ORDER AND IF IT IS A CASE OF RELYING ON DEEMING PROVISION CONTAINED IN EXPLANATION - 1 OR IN EXPLANATION - 1(B), THEN THOUGH P ENALTY PROCEEDINGS ARE IN THE NATURE OF CIVIL LIABILITY, IN FACT, IT IS PENAL IN NATURE. IN EITHER EVENT, THE PERSON WHO IS ACCUSED OF THE CONDITIONS MENTIONED IN SECTION 271 SHOULD BE MADE KNOWN ABOUT THE GROUNDS ON WHICH THEY INTEND IMPOSING PENALTY ON H IM AS THE SECTION 274 MAKES IT CLEAR THAT ASSESSEE HAS A RIGHT TO CONTEST SUCH PROCEEDINGS AND SHOULD HAVE FULL OPPORTUNITY TO MEET THE CASE OF THE DEPARTMENT AND SHOW THAT THE CONDITIONS STIPULATED IN SECTION 271(1)(C) DO NOT EXIST AS SUCH HE IS NOT LIABL E TO PAY PENALTY. THE PRACTICE OF THE DEPARTMENT SENDING A PRINTED FORM WHERE ALL THE GROUND MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY REQUIREMENT OF LAW WHEN THE CONSEQUENCES OF THE ASSESSEE NOT REBUTTING THE INITIAL PRESUMPTION IS SERIOUS IN NATURE AND HE HAD TO PAY PENALTY FROM 100% TO 300% OF THE TAX LIABILITY. AS THE SAID PROVISIONS HAVE TO BE HELD TO BE STRICTLY CONSTRUED, NOTICE ISSUED UNDER SECTION 274 SHOULD SATISFY THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHERWISE, PRINCIPLES OF NATURAL JUSTICE IS OFFENDED IF THE SHOW CAUSE NOTICE IS VAGUE. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON THE ASSESSEE. 60. CLAUSE (C) DEALS WITH TWO SPECIFIC OFFENCES, THAT IS TO SAY, CONCEALING PARTICULARS OF INCOME OR FUR NISHING INACCURATE PARTICULARS OF INCOME. NO DOUBT, THE FACTS OF SOME CASES MAY ATTRACT BOTH THE OFFENCES AND IN SOME CASES THERE MAY BE OVERLAPPING OF THE TWO OFFENCES BUT IN SUCH CASES THE INITIATION OF THE PENALTY PROCEEDINGS ALSO MUST BE FOR BOTH THE O FFENCES. BUT DRAWING UP PENALTY PROCEEDINGS FOR ONE ITA NO S . 1167&1168 /BANG/20 1 4 SHRI N. SHIVAKUMAR. PAGE 4 OF 5 OFFENCE AND FINDING THE ASSESSEE GUILTY OF ANOTHER OFFENCE OR FINDING HIM GUILTY FOR EITHER THE ONE OR THE OTHER CANNOT BE SUSTAINED IN LAW. IT IS NEEDLESS TO POINT OUT SATISFACTION OF THE EXISTENCE OF TH E GROUNDS MENTIONED IN SECTION 271(1)(C) WHEN IT IS A SINE QUA NON FOR INITIATION OR PROCEEDINGS, THE PENALTY PROCEEDINGS SHOULD BE CONFINED ONLY TO THOSE GROUNDS AND THE SAID GROUNDS HAVE TO BE SPECIFICALLY STATED SO THAT THE ASSESSEE WOULD HAVE THE OPPOR TUNITY TO MEET THOSE GROUNDS. AFTER, HE PLACES HIS VERSION AND TRIES TO SUBSTANTIATE HIS CLAIM, IF AT ALL, PENALTY IS TO BE IMPOSED, IT SHOULD BE IMPOSED ONLY ON THE GROUNDS ON WHICH HE IS CALLED UPON TO ANSWER. IT IS NOT OPEN TO THE AUTHORITY, AT THE TIME OF IMPOSING PENALTY TO IMPOSE PENALTY ON THE GROUNDS OTHER THAN WHAT ASSESSEE WAS CALLED UPON TO MEET. OTHERWISE THOUGH THE INITIATION OF PENALTY PROCEEDINGS MAY BE VALID AND LEGAL, THE FINAL ORDER IMPOSING PENALTY WOULD OFFEND PRINCIPLES OF NATURAL JUSTI CE 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 INITIATION OF PENALTY PROCEEDINGS IS NOT IDENTICAL WITH THE GROUND ON WHICH THE PENALTY WAS IMP OSED, THE IMPOSITION OF PENALTY IS NOT VALID. THE VALIDITY OF THE ORDER OF PENALTY MUST BE DETERMINED WITH REFERENCE TO THE INFORMATION, FACTS AND MATERIALS IN THE HANDS OF THE AUTHORITY IMPOSING THE PENALTY AT THE TIME THE ORDER WAS PASSED AND FURTHER DIS COVERY OF FACTS SUBSEQUENT TO THE IMPOSITION OF PENALTY CANNOT VALIDATE THE ORDER OF PENALTY WHICH, WHEN PASSED, WAS NOT SUSTAINABLE. 61. THE ASSESSING OFFICER IS EMPOWERED UNDER THE ACT TO INITIATE PENALTY PROCEEDINGS ONCE HE IS SATISFIED IN THE COUR SE OF ANY PROCEEDINGS THAT THERE IS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF TOTAL INCOME UNDER CLAUSE (C). CONCEALMENT, FURNISHING INACCURATE PARTICULARS OF INCOME ARE DIFFERENT. THUS THE ASSESSING OFFICER WHILE ISSUING NOTICE HAS TO COME TO THE CONCLUSION THAT WHETHER IS IT A CASE OF CONCEALMENT OF INCOME OR IS IT A CASE OF FURNISHING OF INACCURATE PARTICULARS. THE APEX COURT IN THE CASE OF ASHOK PAI REPORTED IN 292 ITR 11 AT PAGE 19 HAS HELD THAT CONCEALMENT OF INCOME AND FURNISHI NG INACCURATE PARTICULARS OF INCOME CARRY DIFFERENT CONNOTATIONS. THE GUJARAT HIGH COURT IN THE CASE OF MANU ENGINEERING REPORTED IN 122 ITR 306 AND THE DELHI HIGH COURT IN THE CASE OF VIRGO MARKETING REPORTED IN 171 TAXMAN 156, HAS HELD THAT LEVY OF PENAL TY HAS TO BE CLEAR AS TO THE LIMB FOR WHICH IT IS LEVIED AND THE POSITION BEING UNCLEAR PENALTY IS NOT SUSTAINABLE. THEREFORE, WHEN THE ASSESSING OFFICER PROPOSES TO INVOKE THE FIRST LIMB ITA NO S . 1167&1168 /BANG/20 1 4 SHRI N. SHIVAKUMAR. PAGE 5 OF 5 BEING CONCEALMENT, THEN THE NOTICE HAS TO BE APPROPRIATELY MARKED. S IMILAR IS THE CASE FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THE STANDARD PROFORMA WITHOUT STRIKING OF THE RELEVANT CLAUSES WILL LEAD TO AN INFERENCE AS TO NON - APPLICATION OF MIND . RESPECTFULLY FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COU RT, THE NOTICE S ISSUED BY THE AO U/S 274 READ WITH SEC.271(1)(C) OF THE ACT FOR BOTH THE ASSESSMENT YEARS ARE HELD TO BE INVALID AND THE PENALTY FOR BOTH THE ASSESSMENT YEARS IS THEREFORE SET ASIDE. 5. IN THE RESULT, THE APPEALS ARE ALLOWED. PRON OUNCED IN THE OPEN COURT ON 31 ST M ARCH , 201 5 . S D/ - S D/ - (JASON P BOAZ ) ( SMT. P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. G UARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE T RIBUNAL BANGALORE