Yadram Agarwal, Kolkata V. ITO, WD-49(4), KOLKATA, Kolkata

ITA 1295/KOL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0607 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 08-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice; Initiation of penalty proceedings
• Section: 143(3); 69; 27

Judgement Text

1 ITA NO. 1295/KOL/2016 ASSESSMENT YEAR: 2007-2008 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA D BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 1295/KOL./2016 ASSESSMENT YEAR: 2007-2008 YADRAM AGARWAL,.................................... ...................................APPELLANT 24B, BLOCK-II, CLUB TOWN, TEGHORIA, KOLKATA-700 059 [PAN: AAEFB 7581 M] -VS.- INCOME TAX OFFICER,................................ .............................RESPONDENT WARD-49(4), KOLKATA, MANIKTALA CIVIC CENTRE, UTTARAPAN COMPLEX, KOLKATA-700 054 APPEARANCES BY: SHRI SUBASH AGARWAL, ADVOCATE, FOR THE ASSESSEE SHRI ARINDAM BHATTACHARJEE, ADDL. CIT, D.R., FOR TH E DEPARTMENT DATE OF CONCLUDING THE HEARING : DECEMBER 12, 2017 DATE OF PRONOUNCING THE ORDER : DECEMBER 22, 2017 O R D E R PER SHRI P.M. JAGTAP, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-15, KOLKATA DA TED 26.02.2016, WHEREBY HE CONFIRMED THE PENALTY OF RS.1,63,265/- I MPOSED BY THE ASSESSING OFFICER UNDER SECTION 271(1)(C) OF THE IN COME TAX ACT, 1961. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L, WHO IS ENGAGED IN THE BUSINESS OF TRADING OF MARBLE AND GRANITE. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY HIM ON 01 .11.2007 DECLARING TOTAL INCOME OF RS.2,75,410/-. IN THE ASSESSMENT CO MPLETED UNDER SECTION 143(3) VIDE AN ORDER DATED 29.12.2009, THE TOTAL IN COME OF THE ASSESSEE WAS DETERMINED BY THE ASSESSING OFFICER AT RS.18,67 ,224/- AFTER MAKING ADDITIONS OF RS.6,63,868/- AND RS.9,27,956/- ON ACC OUNT OF UNDISCLOSED PURCHASES AND UNDISCLOSED SALES RESPECTIVELY. ON AP PEAL, THE LD. CIT(APPEALS) CONFIRMED THE SAID ADDITIONS TO THE EX TENT OF RS.4,27,228/- 2 ITA NO. 1295/KOL/2016 ASSESSMENT YEAR: 2007-2008 AND RS.94,652/- RESPECTIVELY IN THE QUANTUM PROCEED INGS. THEREAFTER A NOTICE WAS ISSUED BY THE ASSESSING OFFICER REQUIRIN G THE ASSESSEE TO SHOW-CAUSE AS TO WHY PENALTY UNDER SECTION 271(1)(C ) SHOULD NOT BE IMPOSED IN RESPECT OF THE SAID ADDITIONS AS SUSTAIN ED BY THE LD. CIT(APPEALS) IN THE QUANTUM PROCEEDINGS. SINCE THE EXPLANATION OFFERED BY THE ASSESSEE IN RESPONSE TO THE SHOW-CAUSE NOTIC E ISSUED DURING THE COURSE OF THE SAID PROCEEDINGS, WAS NOT FOUND ACCEP TABLE BY HIM, THE ASSESSING OFFICER PROCEEDED TO IMPOSE PENALTY OF RS .1,63,265/- UNDER SECTION 271(1)(C) BEING 100% OF THE TAX SOUGHT TO B E EVADED BY THE ASSESSEE. 3. ON APPEAL, THE LD. CIT(APPEALS) CONFIRMED THE SA ID PENALTY IMPOSED BY THE ASSESSING OFFICER. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE T RIBUNAL. 4. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSE L FOR THE ASSESSEE RAISED A PRELIMINARY ISSUE CHALLENGING THE VERY INI TIATION OF PENALTY PROCEEDINGS BY THE ASSESSING OFFICER ON THE GROUND THAT THE SHOW-CAUSE NOTICE ISSUED BY HIM UNDER SECTION 274 WITHOUT CONT AINING THE SPECIFIC CHARGE AS TO WHETHER THE ASSESSEE WAS GUILTY OF HAV ING CONCEALED PARTICULARS OF ITS INCOME OR HAVING FURNISHED INACC URATE PARTICULARS OF SUCH INCOME, WAS DEFECTIVE. HE PLACED ON RECORD A C OPY OF THE SAID NOTICE TO SHOW THAT THE ASSESSING OFFICER HAS NOT STRUCK O FF THE IRRELEVANT PORTION IN THE SHOW-CAUSE NOTICE THEREBY NOT SPECIF YING THE EXACT CHARGE AGAINST THE ASSESSEE. HE CONTENDED THAT THE INITIAT ION OF PENALTY PROCEEDINGS THUS WAS BAD-IN-LAW AND THE PENALTY IMP OSED UNDER SECTION 271(1)(C) IN PURSUANCE OF SUCH INVALID INITIATION I S NOT SUSTAINABLE. IN SUPPORT OF THIS CONTENTION, HE RELIED ON THE DECISI ON OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS.- SSAS EMERALD MEADOWS (ITA NO. 380 OF 2015 DATED 23.11.2015), WHEREIN THE HONBLE KARNATAKA HIGH COURT FOLLOWING ITS EARLIER DECISION RENDERED IN THE CASE OF CIT VS.- MANJUNATHA COTTON & GINNING FACTORY [(2013) 359 ITR 565] TOOK A VIEW THAT THE PENALTY IMPOSED UNDER SECTION 271(1)(C) WA S BAD-IN-LAW AND INVALID ON THE GROUND THAT THE ASSESSING OFFICER IN THE SHOW-CAUSE NOTICE 3 ITA NO. 1295/KOL/2016 ASSESSMENT YEAR: 2007-2008 ISSUED UNDER SECTION 274 DID NOT SPECIFY THE EXACT CHARGE AGAINST THE ASSESSEE AS TO WHETHER HE WAS GUILTY OF HAVING CONC EALED PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF S UCH INCOME. HE ALSO BROUGHT TO OUR NOTICE THAT THE HONBLE SUPREME COUR T BY ITS ORDER DATED 05.08.2016 HAS DISMISSED THE SLP PREFERRED BY THE D EPARTMENT AGAINST THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SSAS EMERALD MEADOWS (SUPRA). HE ALSO CITED THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS.- SHRI SAM SON PERINCHERY (ITA NO. 1154 OF 2014 DATED 05.01.2017), WHEREIN IT WAS HELD BY THE HONBLE BOMBAY HIGH COURT BY RELYING ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNI NG FACTORY (SUPRA) THAT IMPOSITION OF PENALTY ON DEFECTIVE SHOW-CAUSE NOTICE WITHOUT SPECIFYING THE CHARGE AGAINST THE ASSESSEE CANNOT B E SUSTAINED. 5. THE LD. D.R., ON THE OTHER HAND, RELIED ON THE C ERTAIN DECISIONS OF THE TRIBUNAL AS WELL AS THE HONBLE HIGH COURTS IN SUPPORT OF THE REVENUES CASE ON THE ISSUE UNDER CONSIDERATION AND FILED A WRITTEN SUBMISSION GIVING THE GIST OF THE SAID DECISIONS AS UNDER:- 2. THE JUDGEMENT OF THE HON 'BLE CALCUTTA HIGH COU RT IN THE CASE DR. SYAMAL BARAN MONDAL VS. CIT (2011) 244 CTR 631 STATES THAT 'SECTION 271 NO WHERE MANDATES THAT REC ORDING OF SATISFACTION ABOUT CONCEALMENT OF ASSESSEE'S INC OME MUST BE IN SPECIFIC TERMS AND WORDS, SATISFACTION OF AO MUST REFLECT FROM THE ORDER EITHER WITH EXPRESSED WORDS RECORDED BY THE ASSESSING OFFICER HIMSELF OR BY HIS OVERT AC T AND ACTION.' 3. THE LD. ITAT MUMBAI IN ITS ORDER THE CASE OF TR ISHUL ENTERPRISES VS. DCIT (ITA NOS.384 & 385/MUM/2014 FO R A.YRS.2006-07 & 2007-08), DT.10-02-20 17 DISMISSED THE CONTENTION OF THE ASSESSEE REGARDING FAILURE OF THE AO TO STRIKE OFF THE RELEVANT PART OF THE NOTICE U/S.274 FOR INITIATING PROCEEDINGS U/S.271(I)(C). THE ITAT RELI ED UPON THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN T HE CASE OF CIT VS. SMT. KAUSHALYA (1992) WHEREIN IT WAS HEL D THAT 'MERE NOT STRIKING OFF SPECIFIC LIMB CANNOT BY ITSE LF INVALIDATE NOTICE ISSUED U/S. 274 OF THE ACT. THE L ANGUAGE OF THE SECTION DOES NOT SPEAK ABOUT THE ISSUANCE OF NO TICE. ALL THAT IS REQUIRED THAT THE ASSESSEE BE GIVEN AN OPPO RTUNITY OF SHOW CAUSE...........'. 4 ITA NO. 1295/KOL/2016 ASSESSMENT YEAR: 2007-2008 4. THE HON'BLE BOMBAY HIGHCOURT(NAGPUR BENCH) IN TH E CASE OF M/S. MAHARAJ GARAGE & COMPANY VS. CIT IN IT S JUDGEMENT DT.22-08-2017, HAS ALSO HELD THAT' 15. TH E REQUIREMENT OF SECTION 274 OF THE INCOME TAX ACT FO R GRANTING REASONABLE OPPORTUNITY OF BEING HEARD IN T HE MATTER CANNOT BE STRETCHED TO THE EXTENT OF FRAMING A SPECIFIC CHARGE OR ASKING THE ASSESSEE AN EXPLANATI ON IN RESPECT OF THE QUANTUM OF PENALTY PROPOSED TO BE IM POSED, AS HAS BEEN URGED. IT FURTHER OBSERVED THAT: '16. I T IS NOT IN DISPUTE THAT A REASONABLE OPPORTUNITY OF BEING HEAR D IN THE MATTER, AS REQUIRED BY SECTION 274 OF THE SAID ACT WAS GIVEN TO THE ASSESSEE BEFORE IMPOSING THE PENALTY BY THE INCOME TAX OFFICER.' 5. HONBLE MUMBAI E BENCH IN THE CASE OF EARTHMOVIN G EQUIPMENT SERVICE CORPORATION VS DCIT 22(2), MUMBAI (2017) 84 TAXMANN.COM 51 LOOKED INTO THE ISSUE VERY CLOSELY AND OPINED THAT AFTER PERUSING THE RATIO OF THE JUD GEMENT RENDERED IN MANJUNATHA COTON AND GINNING FACTORY WE FIND THAT THE ASSESSEES APPEAL WAS ALLOWED BY THE HONBL E HIGH COURT AFTER CONSIDERING THE MULTIPLE FACTORS AND NO T SOLELY ON THE BASIS OF DEFECT IN NOTICE U/ S 274. THEREFOR E WE ARE OF THE OPINION THAT THE PENALTY COULD NOT BE DELETED M ERELY ON THE BASIS OF DEFECT POINTED BY THE LD AR IN THE NOT ICE AND THEREFORE THE LEGAL GROUNDS RAISED ARE REJECTED. 6. THE MUMBAI BENCH OF ITAT IN A RECENT DECISION I N THE CASE OF MAHESH M GANDHI VS ACIT [TS-5465-ITAT-2017(MUMBA I)- O] ALSO DEALT WITH THIS ASPECT. THE TAXPAYER HAD NO T OFFERED DIRECTOR'S FEES AND INCOME FROM SHORT TERM CAPITAL GAINS TO TAX IN THE RETURN OF INCOME. DURING THE COURSE OF A SSESSMENT PROCEEDINGS WHEN THESE INCOMES WERE PICKED UP BY TH E TAX OFFICER, THE TAXPAYER ADMITTED EARNING OF THE INCOM ES AND FILED A REVISED COMPUTATION OF INCOME. BASED ON THI S FINDING, THE TAX OFFICER MENTIONED IN THE ASSESSMENT ORDER T HAT PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT WILL BE INITIATED FOR FURNISHING OF INACCURATE PARTICULA RS OF INCOME. SUBSEQUENTLY THE TAX OFFICER ISSUED A NOTIC E UNDER SECTION 274 READ WITH SECTION 271(1)(C) OF THE ACT WHEREIN THE REASON FOR PENALTY WAS NOT MENTIONED. THE TAXPA YER FILED AN APPEAL BEFORE THE CIT(A) WHICH RULED IN FA VOUR OF THE REVENUE. THE CIT(A) PLACED RELIANCE ON THE DECI SION OF THE KHC IN THE CASE OF CIT VS MANJUNATHA COTTON AND GINNING FACTORY (SUPRA), THE CIT(A) RULED IN FAVOUR OF THE REVENUE. AGGRIEVED THE TAXPAYER PREFERRED AN APPEAL BEFORE THE ITAT. THE ITAT AFTER OBSERVING THE FACTS OF THE CASE HELD THAT THE TAX OFFICER HAD RECORDED SATISFACTION IN T HE ASSESSMENT ORDER IN RELATION TO INVOKING PENALTY PR OVISIONS. 5 ITA NO. 1295/KOL/2016 ASSESSMENT YEAR: 2007-2008 THE TAX OFFICER HAD APPLIED HIS MIND WHILE DETAILIN G THE REASONS FOR INITIATION OF PENALTY PROCEEDINGS IN TH E ASSESSMENT ORDER. ACCORDINGLY, NOT MENTIONING THE R EASONS IN THE PENALTY NOTICE CANNOT INVALIDATE THE PENALTY PROCEEDINGS. 7. HON'BLE MUMBAI ITAT IN THE CASE OF DHANRAJ MILL S (P) LTD VS ACIT(OSD) CENTRAL RANGE-Z, MUMBAI ON 21 MARCH 20 17 HAS STATED AS THERE IS NO DECLARATION OF LAW WHICH MAY BE GOVERNED BY ARTICLE 141 OF THE CONSTITUTION OF INDI A IN THE CASE OF CIT- VERSUS - SSA'S EMERALD MEADOWS DISMISS ED BY HON'BLE APEX COURT, VIDE SLP (CC NO. 11485/2016) ON 05/08/2016. THE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN CIT VS KAUSHALYA (SUPRA) IS STILL HAVING A BINDING FORCE ON US. THUS, WITH UTMOST REGARDS TO THE JUDGM ENT OF KARNATAKA HIGH COURT IN CIT VS MANJUNATHA COTTON & GINNING FACTORY (SUPRA) WE ARE BOUND TO FOLLOW THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN CIT VS KAU SHALYA (SUPRA). OUR VIEW ALSO FIND SUPPORT FROM A DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DHAWAL K. JAIN VS INCOME TAX OFFICER (ITA NO.996/MUM/2014) ORDER D ATED 30/09/2016. WITH THESE OBSERVATIONS, THE ARGUMENT O F ID. COUNSEL OF THE ASSESSEE ON THE LEGAL/TECHNICAL GROU ND IS REJECTED. THUS, ALL THESE FOUR APPEALS ARE, THEREFO RE, DISMISSED AND THE STAND OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL) IS AFFIRMED. RELYING ON THE PROPOSITION PROPOUNDED IN THE VARIOU S JUDICIAL PRONOUNCEMENTS AS GIVEN ABOVE, HE CONTENDED THAT TH E INITIATION OF PENALTY PROCEEDINGS INSPITE OF THE IRRELEVANT PORTI ON OF A NOTICE NOT HAVING BEEN STRUCK OFF BY THE ASSESSING OFFICER WAS VALID AND THE PENALTY IMPOSED UNDER SECTION 271(1)(C) BY THE ASSESSING OF FICER CANNOT BE HELD TO BE UNSUSTAINABLE ON THIS GROUND. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND ALS O PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERV ED THAT A SIMILAR ISSUE WAS INVOLVED BEFORE THE COORDINATE BENCH OF THIS TR IBUNAL IN THE CASE OF JEETMAL CHORARIA VS.- ACIT IN ITA NO. 956/KOL/2016 AND AFTER CONSIDERING ALL THE SUBMISSIONS MADE BY BOTH THE SI DES, WHICH ARE SIMILAR TO THE SUBMISSIONS MADE BY BOTH THE SIDES BEFORE US IN THE PRESENT CASE, THE TRIBUNAL CANCELLED THE PENALTY IMPOSED UNDER SE CTION 271(1)(C) BY HOLDING THE SAME TO BE UNSUSTAINABLE VIDE PARAGRAPH S NO. 5 TO 15 OF ITS ORDER, WHICH READ AS UNDER:- 6 ITA NO. 1295/KOL/2016 ASSESSMENT YEAR: 2007-2008 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEF ORE US THAT THE SHOW CAUSE NOTICE ISSUED U/S 274 OF THE ACT BEFORE IMPOSING PE NALTY DOES NOT CONTAIN THE SPECIFIC CHARGE AGAINST THE ASSESSEE NAMELY AS TO W HETHER THE ASSESSEE WAS GUILTY OF HAVING CONCEALED PARTICULARS OF INCOME OR HAVING FURNISHED INACCURATE PARTICULARS OF INCOME. A COPY OF THE SHOW CAUSE NOT ICE U/S 274 OF THE ACT WAS FILED BEFORE US AND PERUSAL OF THE SAME REVEALS THA T AO HAS NOT STRUCK OUT THE IRRELEVANT PORTION IN THE SHOW CAUSE NOTICE AND THE REFORE THE SHOW CAUSE NOTICE DOES NOT SPECIFY THE CHARGE AGAINST THE ASSESSEE AS TO WHETHER THE CHARGE IS OF CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE SAME IS REPRODUCED FOR THE PURPOSE OF R EADY REFERENCE: HAVE CONCEALED THE PARTICULARS OF YOUR INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. 6. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTEN TION TO THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SSAS EMERALD MEADOWS IN ITA NO.380 OF 2015 DATED 23.11.2015 WHEREIN THE HON BLE KARNATAKA HIGH COURT FOLLOWING ITS OWN DECISION IN THE CASE OF CIT VS MA NJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565 TOOK A VIEW THAT IMPOSIN G OF PENALTY U/S 271(1)(C) OF THE ACT IS BAD IN LAW AND INVALID FOR THE REASON THAT THE SHOW CAUSE NOTICE U/S 274 OF THE ACT DOES NOT SPECIFY THE CHARGE AGAINST THE ASSESSEE AS TO WHETHER IT IS FOR CONCEALMENT OF PARTICULARS OF INCOME OR FURNISH ING OF INACCURATE PARTICULARS OF INCOME. THE LD. COUNSEL FURTHER BROUGHT TO OUR N OTICE THAT AS AGAINST THE DECISION OF THE HONBLE KARNATAKA HIGH COURT THE RE VENUE PREFERRED AN APPEAL IN SLP IN CC NO.11485 OF 2016 AND THE HONBLE SUPREME COURT BY ITS ORDER DATED 05.08.2016 DISMISSED THE SLP PREFERRED BY THE DEPAR TMENT. THE LD. COUNSEL ALSO BROUGHT TO OUR NOTICE THE DECISION OF THE HONBLE B OMBAY HIGH COURT IN THE CASE OF CIT VS SHRI SAMSON PERINCHERY IN ITA NO.1154 OF 2014 DATED 05.01.2017 WHEREIN THE HONBLE BOMBAY HIGH COURT FOLLOWING THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS MANJUNAT HA COTTON AND GINNING FACTORY (SUPRA) CAME TO THE CONCLUSION THAT IMPOSIT ION OF PENALTY ON DEFECTIVE SHOW CAUSE NOTICE WITHOUT SPECIFYING THE CHARGE AGA INST THE ASSESSEE CANNOT BE SUSTAINED. OUR ATTENTION WAS ALSO DRAWN TO THE DECI SION OF ITAT IN THE CASE OF SUVAPRASANNA BHATTACHARYA VS ACIT IN ITA NO.1303/KO L/2010 DATED 06.11.2015 WHEREIN IDENTICAL PROPOSITION HAS BEEN F OLLOWED BY THE TRIBUNAL. 7. THE LEARNED DR SUBMITTED THAT THE HONBLE CALCU TTA HIGH COURT IN THE CASE OF DR.SYAMAL BARAN MONDAL VS. CIT (2011) 244 CTR 631 ( CAL) HAS TAKEN A VIEW THAT SEC.271 DOES NOT MANDATE THAT THE RECORDING OF SATISFACTION ABOUT CONCEALMENT OF INCOME MUST BE IN SPECIFIC TERMS AND WORDS AND THAT SATISFACTION OF AO MUST REFLECT FROM THE ORDER EITHER WITH EXPRE SSED WORDS RECORDED BY THE AO OR BY HIS OVERT ACT AND ACTION. IN OUR VIEW THIS DECISION IS ON THE QUESTION OF RECORDING SATISFACTION AND NOT IN THE CONTEXT OF SP ECIFIC CHARGE IN THE MANDATORY SHOW CAUSE NOTICE U/S.274 OF THE ACT. THEREFORE REF ERENCE TO THIS DECISION, IN OUR VIEW IS NOT OF ANY HELP TO THE PLEA OF THE REVENUE BEFORE US. 8. THE LEARNED DR RELIED ON THREE DECISIONS OF MUM BAI ITAT VIZ., (I) DHANRAJ MILLS PVT. LTD. VS. ACIT ITA NO.3830 & 3833/MUM/2009 DATE D 21.3.2017; (II) EARTHMOVING EQUIPMENT SERVICE CORPORATION VS. DCIT 22(2), MUMBAI, (2017) 84 TAXMANN.COM 51 (III) MAHESH M.GANDHI VS. ACIT VS. A CIT ITA NO.2976/MUM/2016 DATED 27.2.2017. RELIANCE WAS PLAC ED ON TWO DECISIONS OF THE HONBLE BOMBAY HIGH COURT VIZ., (I) CIT VS. KAU SHALYA 216 ITR 660(BOM) AND (II) M/S.MAHARAJ GARAGE & CO. VS. CIT DATED 22. 8.2017. THIS DECISION WAS REFERRED TO IN THE WRITTEN NOTE GIVEN BY THE LEARNE D DR. THIS IS AN UNREPORTED 7 ITA NO. 1295/KOL/2016 ASSESSMENT YEAR: 2007-2008 DECISION AND A COPY OF THE SAME WAS NOT FURNISHED. HOWEVER A GIST OF THE RATIO LAID DOWN IN THE DECISION HAS BEEN GIVEN IN THE WRI TTEN NOTE FILED BEFORE US. 9. IN THE CASE OF CIT VS. KAUSHALYA (SUPRA), THE H ONBLE BOMBAY HIGH COURT HELD THAT SECTION 274 OR ANY OTHER PROVISION IN THE ACT OR THE RULES, DOE S NOT EITHER MANDATE THE GIVING OF NOTICE OR ITS ISSUANCE IN A P ARTICULAR FORM. PENALTY PROCEEDINGS ARE QUASI-CRIMINAL IN NATURE. SECTION 274 CONTAINS THE PRINCIPLE OF NATURAL JUSTICE OF THE ASSESSEE BEING HEARD BEFORE LEVYING PENALTY. RULES OF NATURAL JUSTICE CANNOT BE IMPRISONED IN ANY STRAIGH T-JACKET FORMULA. FOR SUSTAINING A COMPLAINT OF FAILURE OF THE PRINCIPLES OF NATURAL JUSTICE ON THE GROUND OF ABSENCE OF OPPORTUNITY, IT HAS TO BE ESTA BLISHED THAT PREJUDICE IS CAUSED TO THE CONCERNED PERSON BY THE PROCEDURE FOL LOWED. THE ISSUANCE OF NOTICE IS AN ADMINISTRATIVE DEVICE FOR INFORMING TH E ASSESSEE ABOUT THE PROPOSAL TO LEVY PENALTY IN ORDER TO ENABLE HIM TO EXPLAIN A S TO WHY IT SHOULD NOT BE DONE. MERE MISTAKE IN THE LANGUAGE USED OR MERE NON-STRIK ING OF THE INACCURATE PORTION CANNOT BY ITSELF INVALIDATE THE NOTICE. THE ITAT MUMBAI BENCH IN THE CASE OF DHANRAJ MILLS PVT.LTD. (SUPRA) FOLLOWED THE DECISION RENDERED BY THE JURISDICTIONAL HONBLE BOMBAY HIGH COURT IN THE CAS E OF KAUSHALYA (SUPRA) AND CHOSE NOT TO FOLLOW DECISION OF HONBLE KARNATAKA H IGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNING FACTORY (SUPRA). RELIAN CE WAS ALSO PLACED BY THE ITAT MUMBAI IN THIS DECISION ON THE DECISION OF HON BLE PATNA HIGH COURT IN THE CASE OF CIT V. MITHILA MOTOR 'S (P.) LTD. [1984] 149 ITR 751 (PATNA) WHEREIN IT WAS HELD THAT UNDER SECTION 274 OF THE INCOME-TAX ACT, 1961, ALL THAT IS REQUIRED IS THAT THE ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY TO SHOW CAUSE. NO STATUTORY NOTICE HAS BEEN PRESCRIBED IN THIS BEHALF. HENCE, I T IS SUFFICIENT IF THE ASSESSEE WAS AWARE OF THE CHARGES HE HAD TO MEET AND WAS GIVEN A N OPPORTUNITY OF BEING HEARD. A MISTAKE IN THE NOTICE WOULD NOT INVALIDATE PENALTY PROCEEDINGS. 10. IN THE CASE OF EARTHMOVING EQUIPMENT SERVICE C ORPORATION (SUPRA), THE ITAT MUMBAI DID NOT FOLLOW THE DECISION RENDERED IN THE CASE OF MANJUNATHA COTTON & GINNING FACTORY (SUPRA) FOR THE REASON THAT PENALTY IN THAT CASE WAS DELETED FOR SO MANY REASONS AND NOT SOLELY ON THE BASIS OF DEFE CT IN SHOW CAUSE NOTICE U/S.274 OF THE ACT. THIS IS NOT FACTUALLY CORRECT. ONE OF THE PARTIES BEFORE THE GROUP OF ASSESSEES BEFORE THE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNING (SUPRA) WAS AN ASSESSEE BY NAME M/ S.VEERABHADRAPPA SANGAPPA & CO., IN ITA NO.5020 OF 2009 WHICH WAS AN APPEAL BY THE REVENUE. THE TRIBUNAL HELD THAT ON PERUSAL OF THE NOTICE ISS UED UNDER SECTION 271(1)(C) OF THE ACT, IT IS CLEAR THAT IT IS A STANDARD PROFORMA USED BY THE ASSESSING AUTHORITY. BEFORE ISSUING THE NOTICE THE INAPPROPRIATE WORDS A ND PARAGRAPHS WERE NEITHER STRUCK OFF NOR DELETED. THE ASSESSING AUTHORITY WAS NOT SURE AS TO WHETHER SHE HAD PROCEEDED ON THE BASIS THAT THE ASSESSEE HAD EI THER CONCEALED ITS INCOME OR HAS FURNISHED INACCURATE DETAILS. THE NOTICE IS NOT IN COMPLIANCE WITH THE REQUIREMENT OF THE PARTICULAR SECTION AND THEREFORE IT IS A VAGUE NOTICE, WHICH IS ATTRIBUTABLE TO A PATENT NON APPLICATION OF MIND ON THE PART OF THE ASSESSING AUTHORITY. FURTHER, IT HELD THAT THE ASSESSING OFFI CER HAD MADE ADDITIONS UNDER SECTION 69 OF THE ACT BEING UNDISCLOSED INVESTMENT. IN THE APPEAL, THE SAID FINDING WAS SET-ASIDE. BUT ADDITION WAS SUSTAINED O N A NEW GROUND, THAT IS UNDER VALUATION OF CLOSING STOCK. SINCE THE ASSESSING AUT HORITY HAD INITIATED PENALTY PROCEEDINGS BASED ON THE ADDITIONS MADE UNDER SECTI ON 69 OF THE ACT, WHICH WAS STRUCK DOWN BY THE APPELLATE AUTHORITY, THE INITIAT ED PENAL PROCEEDINGS, NO LONGER EXISTS. IF THE APPELLATE AUTHORITY HAD INITI ATED PENAL PROCEEDINGS ON THE BASIS OF THE ADDITION SUSTAINED UNDER A NEW GROUND IT HAS A LEGAL SANCTUM. THIS WAS NOT SO IN THIS CASE AND THEREFORE, ON BOTH THE GROUNDS THE IMPUGNED ORDER PASSED BY THE APPELLATE AUTHORITY AS WELL AS THE AS SESSING AUTHORITY WAS SET- 8 ITA NO. 1295/KOL/2016 ASSESSMENT YEAR: 2007-2008 ASIDE BY ITS ORDER DATED 9 TH APRIL, 2009. AGGRIEVED BY THE SAID ORDER, THE REVE NUE FILED APPEAL BEFORE HIGH COURT. THE HONBLE HIGH CO URT FRAMED THE FOLLOWING QUSTION OF LAW IN THE SAID APPEAL VIZ., 1. WHETHER THE NOTICE ISSUED UNDER SECTION 271(1)(C) IN THE PRINTED FORM WITHOUT SPECIFICALLY MENTIONING WHETHER THE PROCEEDINGS ARE INITIATED ON THE GROUND OF CONCEALM ENT OF INCOME OR ON ACCOUNT OF FURNISHING OF INACCURATE PARTICULARS IS VALID AN D LEGAL? 2. WHETHER THE PROCEEDINGS INITIATED BY THE ASSESSING AUTHORITY WA S LEGAL AND VALID? THE HONBLE KARNATAKA HIGH COURT HELD IN THE NEGATIVE A ND AGAINST THE REVENUE ON BOTH THE QUESTIONS. THEREFORE THE DECISION RENDERED BY THE ITAT MUMBAI IN THE CASE OF EARTHMOVING EQUIPMENT SERVICE CORPORATION ( SUPRA) IS OF NO ASSISTANCE TO THE PLEA OF THE REVENUE BEFORE US. 11. IN THE CASE OF M/S.MAHARAJ GARAGE & CO. VS. CI T DATED 22.8.2017 REFERRED TO IN THE WRITTEN NOTE GIVEN BY THE LEARNED DR, WHICH IS AN UNREPORTED DECISION AND A COPY OF THE SAME WAS NOT FURNISHED, THE SAME PROP OSITION AS WAS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SMT.KA USHALYA (SUPRA) APPEARS TO HAVE BEEN REITERATED, AS IS EVIDENT FROM THE EXTRAC TS FURNISHED IN THE WRITTEN NOTE FURNISHED BY THE LEARNED DR BEFORE US. 12. IN THE CASE OF TRISHUL ENTERPRISES ITA NO.384 & 385/MUM/2014, THE MUMBAI BENCH OF ITAT FOLLOWED THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SMT.KAUSHALYA (SUPRA). 13. IN THE CASE OF MAHESH M.GANDHI (SUPRA) THE MUM BAI ITAT THE ITAT HELD THAT THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE MANJUNATHA COTTON & GINNING (SUPRA) WILL NOT BE APPLICABLE TO THE FAC TS OF THAT CASE BECAUSE THE AO IN THE ASSESSMENT ORDER WHILE INITIATING PENALTY PR OCEEDINGS HAS HELD THAT THE ASSESSEE HAD CONCEALED PARTICULARS OF INCOME AND ME RELY BECAUSE IN THE SHOW CAUSE NOTICE U/S.274 OF THE ACT, THERE IS NO MENTIO N WHETHER THE PROCEEDINGS ARE FOR FURNISHING INACCURATE PARTICULARS OR CONCEALING PARTICULARS OF INCOME, THAT WILL NOT VITIATE THE PENALTY PROCEEDINGS. IN THE PR ESENT CASE THERE IS NO WHISPHER IN THE ORDER OF ASSESSMENT ON THIS ASPECT. WE HAVE POINTED OUT THIS ASPECT IN THE EARLIER PART OF THIS ORDER. HENCE, THIS DECISION WI LL NOT BE OF ANY ASSISTANCE TO THE PLEA OF THE REVENUE BEFORE US. EVEN OTHERWISE THIS DECISION DOES NOT FOLLOW THE RATIO LAID DOWN BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNING (SUPRA) IN AS MUCH AS THE RATIO LA ID DOWN IN THE SAID CASE WAS ONLY WITH REFERENCE TO SHOW CAUSE NOTICE U/S.274 OF THE ACT. THE HONBLE COURT DID NOT LAY DOWN A PROPOSITION THAT THE DEFECT IN T HE SHOW CAUSE NOTICE WILL STAND CURED IF THE INTENTION OF THE CHARGE U/S.271(1) (C ) IS DISCERNIBLE FROM A READING OF THE ASSESSMENT ORDER IN WHICH THE PENALTY WAS IN ITIATED. 14. FROM THE AFORESAID DISCUSSION IT CAN BE SEEN T HAT THE LINE OF REASONING OF THE HONBLE BOMBAY HIGH COURT AND THE HONBLE PATNA HIG H COURT IS THAT ISSUANCE OF NOTICE IS AN ADMINISTRATIVE DEVICE FOR INFORMING TH E ASSESSEE ABOUT THE PROPOSAL TO LEVY PENALTY IN ORDER TO ENABLE HIM TO EXPLAIN A S TO WHY IT SHOULD NOT BE DONE. MERE MISTAKE IN THE LANGUAGE USED OR MERE NON-STRIK ING OF THE INACCURATE PORTION CANNOT BY ITSELF INVALIDATE THE NOTICE. THE TRIBUNAL BENCHES AT MUMBAI AND PATNA BEING SUBORDINATE TO THE HONBLE BOMBAY H IGH COURT AND PATNA HIGH COURT ARE BOUND TO FOLLOW THE AFORESAID VIEW. THE T RIBUNAL BENCHS AT BANGALORE HAVE TO FOLLOW THE DECISION OF THE HONBLE KARNATAK A HIGH COURT. AS FAR AS BENCHES OF TRIBUNAL IN OTHER JURISDICTIONS ARE CONC ERNED, THERE ARE TWO VIEWS ON THE ISSUE, ONE IN FAVOUR OF THE ASSESSEE RENDERED B Y THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNING (S UPRA) AND OTHER OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SMT.KAUSHA LYA. IT IS SETTLED LEGAL POSITION THAT WHERE TWO VIEWS ARE AVAILABLE ON AN I SSUE, THE VIEW FAVOURABLE TO 9 ITA NO. 1295/KOL/2016 ASSESSMENT YEAR: 2007-2008 THE ASSESSEE HAS TO BE FOLLOWED. WE THEREFORE PREFE R TO FOLLOW THE VIEW EXPRESSED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNATHA COTTON & GINNING (SUPRA). 15. WE HAVE ALREADY OBSERVED THAT THE SHOW CAUSE N OTICE ISSUED IN THE PRESENT CASE U/S 274 OF THE ACT DOES NOT SPECIFY THE CHARGE AGAINST THE ASSESSEE AS TO WHETHER IT IS FOR CONCEALING PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. THE SHOW CAUSE NOTICE U/S 27 4 OF THE ACT DOES NOT STRIKE OUT THE INAPPROPRIATE WORDS. IN THESE CIRCUMSTANCES , WE ARE OF THE VIEW THAT IMPOSITION OF PENALTY CANNOT BE SUSTAINED. THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE WHICH IS BASED ON THE DECISIONS REFERRED T O IN THE EARLIER PART OF THIS ORDER HAS TO BE ACCEPTED. WE THEREFORE HOLD THAT IM POSITION OF PENALTY IN THE PRESENT CASE CANNOT BE SUSTAINED AND THE SAME IS DI RECTED TO BE CANCELLED . 7. AS THE ISSUE INVOLVED IN THE PRESENT CASE AS WEL L AS ALL THE MATERIAL FACTS INCLUDING THE SUBMISSIONS MADE BY BOTH THE SI DES ARE SIMILAR TO THE CASE OF JEETMAL CHORARIA (SUPRA), WE RESPECTFULLY F OLLOW THE DECISION RENDERED BY THE COORDINATE BENCH OF THIS TRIBUNAL I N THE SAID CASE AND CANCEL THE PENALTY IMPOSED BY THE ASSESSING OFFICER UNDER SECTION 271(1)(C) AND CONFIRMED BY THE LD. CIT(APPEALS). 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND DAY OF DECEMBER, 2017. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA, THE 22 ND DAY OF DECEMBER, 2017 COPIES TO : (1) YADRAM AGARWAL, 24B, BLOCK-II, CLUB TOWN, TEGHORIA, KOLKATA-700 059 2) INCOME TAX OFFICER, WARD-49(4), KOLKATA, MANIKTALA CIVIC CENTRE, UTTARAPAN COMPLEX, KOLKATA-700 054 (3) CIT(APPEALS)-15, KOLKATA, (4) CIT- , KOLKATA, (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY, HEAD OF OFFICE/DDO, INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.