Smt. G. Lakshmi Aruna, V. DCIT,

ITA 1812/BANG/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0175 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 01-06-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 23-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR SIBICHEN K MATHEW CITIIIDR
• Assessee Lawyers: MAYANK JAIN
• Keywords: Principle of natural justice; Initiation of penalty proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NOS.1812 & 1844/BANG/2013 ASSESSMENT YEAR : 2006-07 SMT. G. LAKSHMI ARUNA, NO.8, ARUNA NAGAR, SIRUGUPPA ROAD, BELLARY 583 101. PAN: AFJPA 5974P & M/S. ENNOBLE CONSTRUCTION, NO.6/4, ENNOBLE HOUSE, RAHAVACHARI ROAD, BELLARY 583 1010. PAN: AABFE 6394E VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(3), BANGALORE. APPELLANTS RESPONDENT APPELLANTS BY : SHRI MAYANK JAIN, ADVOCATE RESPONDENT BY : DR.SIBICHEN K. MATHEW, CIT-III(DR) DATE OF HEARING : 01.06.2016 DATE OF PRONOUNCEMENT : 29.07.2016 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THESE APPEALS ARE PREFERRED BY THE ASSESSEES AGAI NST THE SEPARATE ORDERS DATED 24.09.2013 OF THE CIT(APPEALS)-VI, BAN GALORE FOR THE A.Y. ITA NO.1812 & 1844/BANG/2013 PAGE 2 OF 8 2006-07 CONFIRMING THE PENALTY LEVIED U/S. 271(1)(C ) OF THE INCOME-TAX ACT, 1961 [THE ACT]. 2. DURING THE COURSE OF HEARING OF THE APPEALS, T HE LD. COUNSEL FOR THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND CHALLENGIN G THE VALIDITY OF INITIATION OF PENALTY PROCEEDINGS. THE ADDITIONAL G ROUND RAISED IN THESE APPEALS IS EXTRACTED HEREUNDER:- THE ORDER OF THE LEARNED LOWER AUTHORITIES U/S. 2 71(1)(C) IS LIABLE TO BE CANCELLED FOR THE REASON THAT THE NOTI CE U/S. 274 DOES NOT STRIKE OFF THE PORTION RELATING TO LEVY OF PENA LTY FOR DELAY IN FILING RETURN OF INCOME AND ALSO DOES NOT INDICATE WHETHER IT IS A CASE OF CONCEALMENT OF INCOME OR FURNISHING OF I NACCURATE PARTICULARS OF INCOME AND ALSO FOR THE FURTHER REA SON THAT EVEN THE SATISFACTION RECORDED BY LEARNED AO DOES NOT IN DICATE WHETHER IT IS A CASE OF CONCEALMENT OF INCOME OR FU RNISHING OF INACCURATE PARTICULARS OF INCOME. IT IS PRAYED THAT THIS HONBLE ITAT MAY PLEASED TO CANCEL THE PENALTY LEVIED U/S. 271(1)(C) IN THE INTERESTS OF EQUITY AND JUSTICE. 3. SINCE THE ADDITIONAL GROUND RAISED BY THE ASSESS EE GOES TO THE ROOT OF THE CASE, WE ADMIT THE SAME AND PREFER TO ADJUDI CATE IT AT THE THRESHOLD, BEFORE GOING INTO THE MERITS OF THE PENALTY LEVIED U/S. 271(1)(C) OF THE ACT. WE HAVE THEREFORE HEARD THE PARTIES ON THE ADDITION AL GROUND. 4. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE HAS INVITED OUR ATTENTION TO THE NOTICE ISSUED U/S. 274 R.W.S. 271(1)(C) OF THE ACT DATED 31.12.2009 WHICH IS APPEARING ALONG WITH THE APPLICATION FOR ADMISSION OF ADDITIONAL GROUND IN ITA NO.1812/BANG/ 2013 AND AT PAGES 23 ITA NO.1812 & 1844/BANG/2013 PAGE 3 OF 8 & 24 OF THE COMPILATION FILED IN ITA NO.1844/BANG/2 013 WITH THE SUBMISSION THAT THE ASSESSING OFFICER DID NOT SPECIFICALLY MEN TION IN THE NOTICE AS TO WHETHER IT IS FOR CONCEALMENT OF INCOME OR FURNISHI NG OF INACCURATE PARTICULARS OF SUCH INCOME. SENDING PRINTED FORM W HERE ALL THE GROUNDS IN SECTION 271(1)(C) ARE SPECIFIED WOULD NOT SATISFY T HE REQUIREMENTS OF LAW. THEREFORE, IN THE LIGHT OF THESE FACTS, INITIATION OF PENALTY PROCEEDINGS IS NOT IN ACCORDANCE WITH LAW AND DESERVES TO BE ANNULLED. IN SUPPORT OF HIS CONTENTION, THE LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE UPON THE JUDGMENTS OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT & ANR. V. MANJUNATHA COTTON & GINNING FACTORY, 359 ITR 565 (KARN); THE HONBLE HIGH COURT OF GUJARAT IN THE CASES OF NATIONAL TEXTILES V. CIT, 249 ITR 125 (GUJ) & CIT V. MANU ENGINEERING WORKS, 122 ITR 306 (GUJ); AND THE DECISION OF THIS TRIBUNAL IN THE CASE OF SHRI E. KRISHNAPPA V. ITO IN ITA NO.313 TO 315/BANG/2014 DATED 14.08.2015. 5. PER CONTRA, THE LD. DR HAS SUBMITTED THAT MERE NON-STRIKING A PARTICULAR COLUMN IN THE NOTICE WOULD NOT BE THAT M UCH TO FATAL THE VALIDITY OF PENALTY PROCEEDINGS. 6. HAVING CAREFULLY EXAMINED THE NOTICES ISSUES U/S . 274 R.W.S. 271(1)(C) OF THE ACT, WE FIND THAT NOTICES WERE ISS UED ON A PRINTED PROFORMA IN WHICH THE AO DID NOT IDENTIFY, WHETHER THE ASSES SEE HAS CONCEALED PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTI CULARS OF SUCH INCOME. NOW THE QUESTION ARISES WHETHER, IT IS NECESSARY TO IDENTIFY IN THE NOTICE ITA NO.1812 & 1844/BANG/2013 PAGE 4 OF 8 ITSELF THAT THE PROCEEDINGS U/S. 271(1)(C) ARE INIT IATED EITHER FOR CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS O F INCOME. THIS ASPECT HAS BEEN EXAMINED BY THE HON'BLE JURISDICTIONAL HIG H COURT IN THE CASE OF CIT & ANR. V. MANJUNATHA COTTON & GINNING FACTORY ( SUPRA) AND THEIR LORDSHIPS HAVE LAID DOWN THE PARAMETERS UNDER WHICH PENALTY U/S. 271(1)(C) OF THE ACT HAS TO BE LEVIED. UNDER CLAUS ES (P) & (Q) OF PARA 63 OF THE JUDGMENT, THEIR LORDSHIPS HAVE HELD THAT NOTICE U/S. 274 SHOULD SPECIFICALLY STATE THE GROUNDS MENTIONED IN. 271(1) (C), I.E., WHETHER IT IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INCORREC T PARTICULARS OF INCOME. SENDING PRINTED FORM WHERE ALL THE GROUNDS MENTIONE D IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY THE REQUIREMENT OF LAW. BEFORE LAYING DOWN THE PARAMETERS, THEIR LORDSHIPS HAVE ANALYSED THE P ROVISIONS OF SECTION 274 FOR SENDING NOTICES AND FOR INITIATING PROCEEDI NGS U/S. 271(1)(C). THE RELEVANT OBSERVATIONS OF THEIR LORDSHIPS ARE EXTRAC TED HEREUNDER FOR REFERENCE:- 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDI NGS CAN BE INITIATED ON VARIOUS GROUNDS SET OUT THEREIN. IF TH E ORDER PASSED BY THE AUTHORITY CATEGORICALLY RECORDS A FINDING REGAR DING THE EXISTENCE OF ANY SAID GROUNDS MENTIONED THEREIN AND THEN PENALTY PROCEEDINGS IS INITIATED, IN THE NOTICE TO BE ISSUE D UNDER SECTION 274, THEY COULD CONVENIENTLY REFER TO THE SAID ORDE R WHICH CONTAINS THE SATISFACTION OF THE AUTHORITY WHICH HA S PASSED THE ORDER. HOWEVER, IF THE EXISTENCE OF THE CONDITIONS COULD NOT BE DISCERNED FROM THE SAID ORDER AND IF IT IS A CASE O F RELYING ON DEEMING PROVISION CONTAINED IN EXPLANATION 1 OR IN EXPLANATION 1(B), THEN THOUGH PENALTY PROCEEDINGS ARE IN THE NA TURE OF CIVIL LIABILITY, IN FACT, IT IS PENAL IN NATURE. IN EITHE R EVENT, THE PERSON WHO IS ACCUSED OF THE CONDITIONS MENTIONED IN SECTI ON 271 SHOULD BE MADE KNOWN ABOUT THE GROUNDS ON WHICH THEY INTEN D IMPOSING PENALTY ON HIM AS SECTION 274 MAKES IT CLEAR THAT T HE ASSESSEE HAS ITA NO.1812 & 1844/BANG/2013 PAGE 5 OF 8 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 E XIST AS SUCH HE IS NOT LIABLE TO PAY PENALTY. THE PRACTICE OF THE D EPARTMENT SENDING A PRINTED FORM WHERE ALL THE GROUNDS MENTIO NED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY THE REQ UIREMENT OF LAW WHEN THE CONSEQUENCES OF THE ASSESSEE NOT REBUT TING THE INITIAL PRESUMPTION IS SERIOUS IN NATURE AND HE HAD TO PAY PENALTY FROM 100 PER CENT TO 300 PER CENT OF THE TAX LIABIL ITY. 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, THE PRINCIPLES OF NAT URAL JUSTICE IS OFFENDED IF THE SHOW-CAUSE NOTICE IS VAGUE. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON THE ASS ESSEE. 60. CLAUSE (C) DEALS WITH TWO SPECIFIC OFFENCES, T HAT IS TO SAY, CONCEALING PARTICULARS OF INCOME OR FURNISHING INAC CURATE PARTICULARS OF INCOME. NO DOUBT, THE FACTS OF SOME CASES MAY ATTRACT BOTH THE OFFENCES AND IN SOME CASES THERE M AY BE OVERLAPPING OF THE TWO OFFENCES BUT IN SUCH CASES T HE INITIATION OF THE PENALTY PROCEEDINGS ALSO MUST BE FOR BOTH THE O FFENCES. BUT DRAWING UP PENALTY PROCEEDINGS FOR ONE OFFENCE AND FINDING THE ASSESSEE GUILTY OF ANOTHER OFFENCE OR FINDING HIM G UILTY FOR EITHER THE ONE OR THE OTHER CANNOT BE SUSTAINED IN LAW. IT IS NEEDLESS TO POINT OUT THE SATISFACTION OF THE EXISTENCE OF THE GROUNDS MENTIONED IN SECTION 271(1)(C) WHEN IT IS A SINE QU A 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 OPPORTUNITY 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 CALLE D UPON TO ANSWER. IT IS NOT OPEN TO THE AUTHORITY, AT THE TIM E OF IMPOSING PENALTY TO IMPOSE PENALTY ON THE GROUNDS OTHER THAN WHAT THE 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 THE PRINCIPLES OF NATURAL JUSTICE AND CANNOT BE SUSTAINED. THUS, ONCE THE PRO CEEDINGS 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 WHI CH THE PENALTY WAS IMPOSED, THE IMPOSITION OF PENALTY IS NOT VALID . THE VALIDITY OF THE ORDER OF PENALTY MUST BE DETERMINED WITH REF ERENCE TO THE ITA NO.1812 & 1844/BANG/2013 PAGE 6 OF 8 INFORMATION, FACTS AND MATERIALS IN THE HANDS OF TH E AUTHORITY IMPOSING THE PENALTY AT THE TIME THE ORDER WAS PASS ED AND FURTHER DISCOVERY OF FACTS SUBSEQUENT TO THE IMPOSITION OF PENALTY CANNOT VALIDATE THE ORDER OF PENALTY WHICH, WHEN PASSED, W AS NOT SUSTAINABLE. 61. THE ASSESSING OFFICER IS EMPOWERED UNDER THE A CT TO INITIATE PENALTY PROCEEDINGS ONCE HE IS SATISFIED I N THE COURSE OF ANY PROCEEDINGS THAT THERE IS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF TOTAL INCOM E UNDER CLAUSE (C). CONCEALMENT, FURNISHING INACCURATE PARTICULARS OF INCOME ARE DIFFERENT. THUS, THE ASSESSING OFFICER WHILE ISSUIN G 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 [20 07] 292 ITR 11 (SC) AT PAGE 19 HAS HELD THAT CONCEALMENT OF INC OME AND FURNISHING INACCURATE PARTICULARS OF INCOME CARRY D IFFERENT CONNOTATIONS. THE GUJARAT HIGH COURT IN THE CASE OF MANU ENGINEERING WORKS REPORTED IN [1980] 122 ITR 306 (G UJ) AND THE DELHI HIGH COURT IN THE CASE OF CIT V. VIRGO MARKET ING P. LTD. REPORTED IN [2008] 171 TAXMAN 156, HAS HELD THAT LE VY OF PENALTY HAS TO BE CLEAR AS TO THE LIMB FOR WHICH IT IS LEVI ED AND THE POSITION BEING UNCLEAR PENALTY IS NOT SUSTAINABLE. THEREFORE, WHEN THE ASSESSING OFFICER PROPOSES TO INVOKE THE FIRST LIMB BEING 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 T HE RELEVANT CLAUSES WILL LEAD TO AN INFERENCE AS TO NON-APPLICA TION OF MIND. 7. THIS ASPECT WAS ALSO EXAMINED BY THE HONBLE HIG H COURT OF GUJARAT IN THE CASE OF NATIONAL TEXTILES V. CIT (SUPRA) AND CIT V. MANU ENGINEERING WORKS (SUPRA) . FOLLOWING THE AFORESAID JUDGMENTS, THIS BENCH OF THE TRIBUNAL IN THE CASE OF E. KRISHNAPPA V. ITO (SUPRA) AND IN THE CASE OF M/S. SLN TRADERS (IN ITA NO.1045/BANG/2015 & CO NO.210/B ANG/2015 DATED 30.6.2016) HAS ALSO TAKEN A VIEW THAT WHERE THE ASS ESSING OFFICER HAS NOT SPECIFIED UNDER WHICH LIMB, PENALTY U/S. 271(1)(C) OF THE ACT IS TO BE LEVIED, ITA NO.1812 & 1844/BANG/2013 PAGE 7 OF 8 I.E., WHETHER PENALTY PROCEEDINGS ARE BEING INITIAT ED FOR CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF I NCOME; SUCH INITIATION OF PENALTY PROCEEDINGS HAS TO BE HELD TO BE ILLEGAL. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN E. KRISHNAPPA V. ITO (SUPRA) ARE EXTRACTED HEREUNDER:- 4.4.3 IN THE CASE ON HAND, WE FIND FROM A CAREFUL PERUSAL OF THE NOTICES, ISSUED UNDER SECTION 274 RWS 271 OF THE AC T DT.29.12.2011 FOR ASSESSMENT YEARS 2007-08 AND PLAC ED BEFORE THE BENCH IN THE COURSE OF HEARING THAT THE ASSESSI NG OFFICER HAS NOT SPECIFIED UNDER WHICH LIMB OF THE PENALTY U/S.2 71(1)(C) OF THE ACT IS TO BE LEVIED; I.E. WHETHER THE PENALTY PROCE EDINGS ARE BEING INITIATED FOR CONCEALMENT OF PARTICULARS OF INCOME OR FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. SUC H INITIATION OF PENALTY PROCEEDINGS HAS BEEN HELD TO BE ILLEGAL BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF MANJUNATHA C OTTON & GINNING FACTORY (SUPRA). FOLLOWING THE AFORESAID DE CISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF RAVE ENDHIRAA L & OTHERS (SUPRA), WE HOLD THAT THE NOTICES ISSUED U NDER SECTION 274 RWS 271 OF THE ACT DT.29.12.2011 FOR ASSESSMENT YEARS 2007-08 TO 2009-10 ARE BAD IN LAW FOR THE REASONS M ENTIONED IN THE AFORESAID ORDERS AND CONSEQUENTLY HOLD THE PENA LTY ORDERS PASSED IN CONSEQUENCE OF THESE DEFECTIVE, INVALID N OTICES ALSO TO BE INVALID AND CANCEL THEM. 8. TURNING TO THE FACTS OF THE INSTANT CASE, WE FIN D THAT UNDISPUTEDLY THE AO HAS NOT IDENTIFIED IN THE NOTICES AS TO WHETHER THE PENALTY PROCEEDINGS ARE INITIATED FOR CONCEALMENT OF INCOME OR FURNISHI NG OF INACCURATE PARTICULARS OF SUCH INCOME. THEREFORE, FOLLOWING T HE AFORESAID JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT, WE ARE OF THE CO NSIDERED VIEW THAT ON ACCOUNT OF DEFECTIVE NOTICE ISSUED FOR INITIATION O F PENALTY PROCEEDINGS, THE PENALTY ORDER PASSED BY THE AO IS NOT SUSTAINABLE I N THE EYES OF LAW. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(APPEALS) AS WELL AS THE ITA NO.1812 & 1844/BANG/2013 PAGE 8 OF 8 ASSESSING OFFICER AND DELETE THE PENALTY ON ACCOUNT OF WRONG INITIATION OF PENALTY PROCEEDINGS. 9. SINCE THE PENALTY PROCEEDINGS ARE QUASHED, WE FI ND NO JUSTIFICATION TO DEAL WITH THE APPEALS ON MERITS, AS IT BECOMES A CADEMIC. 10. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF JULY, 2016. SD/- SD/- ( A.K. GARODIA ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 29 TH JULY, 2016. /D S/ COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.