DR SARITA MILIND DAVARE, MUMBAI V. ACIT CEN CIR 40, MUMBAI

ITA 2187/MUM/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1510 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 01-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B PRUSETH
• Assessee Lawyers: VIJAY KOTHARI
• Keywords: Search and seizure; Opportunity of being heard; Principle of natural justice; Reasonable cause; Revised return
• Section: 153A; 27; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI B.R. BASKARAN (AM)& RAMLAL NEGI (JM) I.T.A. NO. 2187/MUM/2014 (ASSESSMENT YEAR 2009-10) DR. SARITA MILIND DAVARE FLAT NO. 501 SWAPNA APARTMENT PARANJPE SCHEME B VILE PARLE EAST MUMBAI-400 057. VS. ACIT CC-40 ROOM NO. 653 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. (APPELLANT) (RESPONDENT) I.T.A. NO. 1789/MUM/2014 (ASSESSMENT YEAR 2009-10) DCIT CC-40 ROOM NO. 653 6 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. DR. SARITA MILIND DAVARE FLAT NO. 501 SWAPNA APARTMENT PARANJPE SCHEME B VILE PARLE EAST MUMBAI-400 057. (APPELLANT) (RESPONDENT) PAN NO. AHVPD8632R ASSESSEE BY SHRI VIJAY KOTHARI DEPARTMENT BY SHRI B. PRUSETH DATE OF HEARING 6.10.2016 DATE OF PRONOUNCEMENT 21.12.2016 O R D E R PER B.R. BASKARAN (AM) :- THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 30-12-2013 PASSED BY LD CIT(A)-38, MUMBAI FOR ASSESSMENT YEAR 2009-10 PARTI ALLY CONFIRMING THE PENALTY LEVIED BY THE AO U/S 271(1)(C) OF THE ACT. 2. THE FACTS RELATING TO THE CASE ARE SET OUT IN BRIEF. THE ASSESSEE IS A PRACTICING DOCTOR SPECIALISED IN PAIN AND WEIGHT MANAGEMENT. THE ASS ESSEE FILED HER RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCOME OF RS. 36,19,140/-. THE REVENUE CARRIED OUT SEARCH AND SEIZURE OPERATIONS IN THE HANDS OF THE ASSESSEE U/S 132 OF THE ACT ON 12.1.2010. 2187&1789/M/14 DR. SARITA MILIND DAVARE 2 SUBSEQUENTLY THE ASSESSEE FILED A REVISED RETURN OF INCOME ON 31.3.2010 DECLARING A TOTAL INCOME OF RS.2,56,11,923/-. 3. CONSEQUENT TO THE SEARCH OPERATIONS, THE ASSES SING OFFICER ISSUED NOTICE U/S 153A OF THE ACT TO THE ASSESSEE. IN RESPONSE TO THE NOTICE, THE AS SESSEE FILED HER RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING A TOTAL INCOME OF RS. 2,64,52,643/-. 4. DURING THE COURSE OF SEARCH ACTION, THE SEARCH TEAM FOUND CASH BALANCE OF RS.7.95 CRORES AT THE RESIDENCE OF ASSESSEES SISTER NAMED MS. SANGEE TA KOYAL. IN THE STATEMENT TAKEN U/S 132(4) OF THE ACT, MS. SANGEETA KOYAL STATED THAT THE ABOV E SAID CASH BALANCE BELONGS TO THE ASSESSEE HEREIN. IN THE STATEMENT TAKEN FROM THE ASSESSEE, SHE ALSO ADMITTED THAT THE ABOVE SAID CASH BALANCE BELONGS TO HER AND THE SOURCE THERE OF WAS HER PROFESSIONAL RECEIPTS. THE ASSESSEE ALSO AGREED TO OFFER THE ABOVE SAID AMOUNT AS HER INCOME IN THE ASSESSMENT YEARS 2009-10 AND 2010- 11 AT RS.1.95 CRORES AND RS.6.00 CRORES RESPECTIVEL Y. ACCORDINGLY THE ASSESSEE OFFERED THE SUM OF RS.1.95 CRORES IN THE RETURN OF INCOME FILED FOR AY 2009-10. THE ASSESSEE ALSO ADMITTED A SUM OF RS.30.00 LAKHS TOWARDS THE ADDITIONAL AMOUNT PAID ON PURCHASE OF A PROPERTY AT SHIVANAND CHS LTD. THE ASSESSING OFFICER ASSESSED THE AGGREGATE AMOUNT OF RS.2.25 CRORES (1.95 + 0.30) ON WHICH PENALTY U/S 271(1)(C) OF THE ACT WAS LEVIED FOR CONCEALMENT OF PARTICULARS OF INCOME AT 150% (WRONGLY STATED AS 30 0%) OF THE TAX SOUGHT TO BE EVADED, WHICH WORKED OUT TO RS.1,11,71,360/-. 5. THE LD CIT(A) CONFIRMED THE VIEW TAKEN BY THE AO, BUT REDUCED THE QUANTUM OF PENALTY TO 100% OF TAX SOUGHT TO BE EVADED AS AGAINST 150% LEV IED BY THE AO. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD CIT(A) IN CONFIRMING THE PENA LTY TO THE EXTENT OF 100% AND THE REVENUE IS AGGRIEVED IN GRANTING RELIEF TO THE ASSESSEE. 6. THE LD A.R RAISED A PRELIMINARY ISSUE FIRST . HE SUBMITTED THAT THE ASSESSING OFFICER HAS NOT ISSUED A PROPER NOTICE TO THE ASSESSEE BY SPECIFYIN G THE CHARGE U/S 271(1)(C) OF THE ACT. HE SUBMITTED THAT THE NOTICE ISSUED BY THE AO IS NORMA LLY ISSUED TO CALL FOR A RETURN OF INCOME FROM THE ASSESSEE. HE SUBMITTED THAT THE AO HAS SIMPLY ADDED A PARAGRAPH IN THAT NOTICE BY STATING THAT WHY AN ORDER IMPOSING A PENALTY U/S 271(1)(C) OF THE ACT SHOULD NOT BE IMPOSED ON THE ASSESSEE. HE SUBMITTED THAT THERE IS TOTAL NON-APP LICATION OF MIND ON THE PART OF THE AO AND 2187&1789/M/14 DR. SARITA MILIND DAVARE 3 HENCE THE IMPUGNED PENALTY ORDER IS VITIATED. HE S UBMITTED THAT THE PENALTY IS LEVIED U/S 271(1)(C) OF THE ACT UNDER TWO DIFFERENT CHARGE AND THE COURTS HAVE HELD THAT NON-SPECIFICATION OF THE CHARGE WILL VITIATE THE PENALTY PROCEEDINGS, I.E., THE ASSESSEE SHOULD BE APPRAISED OF SPECIFIC CHARGE. IN THIS REGARD, HE PLACED RELIANC E ON THE DECISION RENDERED BY CO-ORDINATE BENCH OF TRIBUNAL IN THE CASE OF M/S M.G CONTRACTORS PVT. LTD VS. DCIT (ITA NO.7034 TO 7038/DEL/2014 DATED 19-09-2016), WHEREIN THE TRIBUN AL HAS FOLLOWED THE DECISION RENDERED BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF MANJUNA TH COTTON MILLS (359 ITR 565). HE SUBMITTED THAT THE AO, IN THE INSTANT CASE, HAS NOT SPECIFIED ANY CHARGE IN THE IMPUGNED NOTICE AND THUS HAS NOT APPRISED THE ASSESSEE OF ANY CHARG E FOR WHICH THE PENALTY PROCEEDINGS HAVE BEEN INITIATED. 7. THE LD D.R, ON THE CONTRARY, SUBMITTED THAT T HE PROVISIONS OF SEC. 274 PROVIDES THAT THE ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY BEFORE IMPO SING PENALTY. HE SUBMITTED THAT THE ASSESSEE HAS BEEN PROVIDED WITH AN OPPORTUNITY AND SHE HAS ALSO PARTICIPATED IN THE PENALTY PROCEEDINGS. ACCORDINGLY HE SUBMITTED THAT THE DEF ICIENCIES, IF ANY, IN THE PROCEEDINGS IS AUTOMATICALLY MADE GOOD BY THE PROVISIONS OF SEC. 2 92B/292BB OF THE ACT. HE SUBMITTED THAT THE AO HAS SPECIFIED IN THE ASSESSMENT ORDER THAT H E IS INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT FOR CONCEALING THE INCOME. HE PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CAS E OF CIT VS. SMT. KAUSHALYA AND OTHERS (216 ITR 660) AND SUBMITTED THAT THE HONBLE BOMBAY HIGH COURT HAS HELD THAT MERE MISTAKE IN THE LANGUAGE USED OR MERE NON-STRIKING OF THE INACC URATE PORTION CANNOT BY ITSELF INVALIDATE THE NOTICE. 8. IN THE REJOINDER, THE LD A.R SUBMITTED THAT T HE AO, IN THE INSTANT CASE, DID NOT ISSUE PROPER NOTICE AND HE DID NOT APPRISE THE ASSESSEE ABOUT TH E CHARGE FOR WHICH THE PENALTY PROCEEDINGS WERE INITIATED. HE SUBMITTED THAT THIS MATTER GOES TO THE ROOT OF THE MATTER AND THE SAME CANNOT BE CURED BY THE PROVISIONS OF SEC. 292B/292BB OF TH E ACT. IN THIS REGARD, HE PLACED RELIANCE ON THE DECISION RENDERED BY THE CO-ORDINATE BENCH IN T HE CASE OF SHRI K PRAKASH SHETTY VS. ACIT (ITA NOS.265 TO 267/BANG/2014 DATED 05-06-2014), WH ERE IN IT WAS HELD AS UNDER:- 16. IT IS CLEAR FROM THE AFORESAID DECISION THAT ON THE FACTS OF THE PRESENT CASE THAT THE SHOW CAU SE NOTICE U/S 274 OF THE ACT IS DEFECTIVE AS IT DOES NOT SPEL L OUT THE GROUNDS ON WHICH THE PENALTY IS SOUGHT TO BE IMPOSED. THE SHOW CAUSE NOTICE IS ALSO BAD FOR THE REASON THAT IN THE A.YS 2008-09 AND 2009-10 THE SH OW CAUSE NOTICE REFERS TO IMPOSITION OF PENALTY U/S 27 1AAA, WHEREAS THE ORDER IMPOSING PENALTY HAS BEEN 2187&1789/M/14 DR. SARITA MILIND DAVARE 4 PASSED U/S 271(1)(C) OF THE ACT. IN OUR VIEW, THE AFORESAID DEFECT CANNOT BE SAID TO BE CURABLE U/S 2 92BB OF THE ACT, AS THE DEFECT CANNOT BE SAID TO BE A NOTIC E WHICH IN SUBSTANCE AND EFFECT IN CONFORMITY WITH OR ACCORDING TO THE INTENT AND PURPOSE OF THE ACT. FO LLOWING THE DECISION OF THE HONBLE KARNATAKA HIGH COURT, WE HOLD THAT THE ORDERS IMPOSING PENALTY IN ALL THE ASSESSMENT YEARS HAVE TO BE HELD AS INVALID AND CONSEQUENTLY PENALTY IMPOSED IS CANCELLED. 9. WE HAVE HEARD THE RIVAL CONTENTIONS ON THIS L EGAL ISSUE AND PERUSED THE RECORD. WE HAVE GONE THROUGH THE NOTICE ISSUED BY THE AO FOR INITIA TING THE PENALTY PROCEEDINGS. FOR THE SAKE OF CONVENIENCE, THE SCANNED COPY OF THE NOTICE IS GIVE N BELOW:- WHEREAS IN THE COURSE OF PROCEEDINGS BEFORE ME FOR THE ASSESSMENT YEAR 2009-10 IT APPEARS TO BE THAT YOU :- *HAVE WITHOUT REASONABLE CAUSE FAILED TO FURNISH M E RETURN OF INCOME WHICH YOU WERE REQUIRED TO FURN ISH BY A NOTICE GIVEN UNDER SECTION 22(1 )/22(2)/34 OF THE INDIAN INCOME-TAX ACT, 1922 OR WHICH YOU WERE REQUIRED TO FURNISH UNDER SECTION 139( 1) OR BY A N OTICE UNDER SECTION 139(2)/148 OF THE INCOME-TAX A CT, 1961, NO._____ DATED_____ OR HAVE WITHOUT REASONA BLE CAUSE FAILED TO FURNISH IT WITHIN THE TIME ALLO WED AND THE MANNER REQUIRED BY THE SAID SECTION 139( 1 )OR BY SUCH NOTICE. 'HAVE WITHOUT REASONABLE CAUSE FAILED TO COMPLY WI TH A NOTICE UNDER SECTION 22(4)/23(2) OF THE INDIAN INCOME TAX ACT. 1922 OR UNDER SECTION 142(1)/143(2) OF THE INDIAN INCOME-TAX ACT,1961.NO.__________DATED _____________. YOU ARE HEREBY REQUESTED TO APPEAR BEFORE ME AT 11. 30 A.M. ON 10.01.2012 AND SHOW CAUSE WHY AN ORDER IMPOSING A PENALTY ON YOU SHOULD NOT BE MADE UNDER SECTION 271 OF THE INCOME-TAX ACT, 1961. IF YOU DO NOT WISH TO AVAIL YOURSELF OF THIS OPPORTUNITY OF BEING HEARD IN PERSON OR THROUGH AUTHORIZED REPRESENTATI VE, YOU MAY SHOW CAUSE IN WRITING ON OR BEFORE THE SAID DAT E WHICH WILL BE CONSIDERED BEFORE ANY SUCH ORDER IS MADE UNDER SECTION 271(1)(C ). A CAREFUL PERUSAL OF THE NOTICE WOULD SHOW THAT THE CONTENTS OF THE NOTICE ARE PRIMARILY MEANT TO ASK THE ASSESSEE TO FURNISH A RETURN OF INCOME. HO WEVER, THE ASSESSING OFFICER APPEARS TO HAVE MODIFIED THE LAST PARAGRAPH BY SHOW CAUSING THE ASS ESSEE TO EXPLAIN AS TO WHY AN ORDER IMPOSING A PENALTY SHOULD NOT BE MADE U/S 271(1)(C) OF THE A CT. THERE SHOULD NOT BE ANY DOUBT THAT THE PROVISIONS OF SECTION 271(1)(C) PRESCRIBES TWO TYPE S OF CHARGE VIZ., (A) CONCEALMENT OF PARTICULARS OF INCOME AND (B) FURNISHING OF INACCUR ATE PARTICULARS OF INCOME. HOWEVER, IN THE ABOVE SAID NOTICE THE AO DID NOT SPECIFY THE TYPE O F CHARGE FOR WHICH THE PENALTY PROCEEDINGS HAVE BEEN INITIATED. 10. IN THIS REGARD, IT IS PERTINENT TO REFER TO THE FOLLOWING OBSERVATIONS MADE BY HONBLE SUPREME COURT IN THE CASE OF DILIP N SHROFF (291 IT R 519)(SC). 83. IT IS OF SOME SIGNIFICANCE THAT IN THE STANDAR D PROFORMA USED BY THE ASSESSING OFFICER IN ISSUING A NOTICE DESPITE THE FACT THAT THE SAME POSTULATES TH AT INAPPROPRIATE WORDS AND PARAGRAPHS WERE TO BE 2187&1789/M/14 DR. SARITA MILIND DAVARE 5 DELETED, BUT THE SAME HAD NOT BEEN DONE. THUS, THE ASSESSING OFFICER HIMSELF WAS NOT SURE AS TO WHETHE R HE HAD PROCEEDED ON THE BASIS THAT THE ASSESSEE HAD CO NCEALED HIS INCOME OR HE HAD FURNISHED INACCURATE PARTICULARS. EVEN BEFORE US, THE LEARNED ADDITIONAL SOLICITOR GENERAL WHILE PLACING THE ORDER OF ASSES SMENT LAID EMPHASIS THAT HE HAD DEALT WITH BOTH THE SITUA TIONS. 84. THE IMPUGNED ORDER, THEREFORE, SUFFERS FROM NON -APPLICATION OF MIND. IT WAS ALSO BOUND TO COMPLY W ITH THE PRINCIPLES OF NATURAL JUSTICE. [ SEE MALABAR INDUSTRIAL CO. LTD. V. COMMISSIONER OF INCOME TAX, KERALA STATE , (2000) 2 SCC 718]. THE HONBLE SUPREME COURT HAS OBSERVED THAT THE AO, WHILE ISSUING A NOTICE SHOULD APPLY HIS MIND AND MAKE IT CLEAR AS TO WHETHER HE HAD PROCEED ED ON THE BASIS THAT THE ASSESSEE HAD CONCEALED HIS INCOME OR HE HAD FURNISHED INACCURATE PARTICULARS OF INCOME. THE HONBLE SUPREME COURT HAS CLARIFIED IN THE CASE OF RELIANCE PETRO PRODUCTS (322 ITR 158) HAS CLARIFIED THAT THE OBSERVATIONS MADE BY IT IN THE CASE OF DIL IP N SHROFF WITH REGARD TO MENS REA ALONE HAVE BEEN OVERRULED IN DHARMENDRA TEXTILE PROCESSOR S (306 ITR 277), MEANING THEREBY THAT THE ABOVE SAID OBSERVATIONS MADE BY THE HONBLE SUPREME COURT IN THE CASE OF DILIP N SHROFF SHALL CONTINUE TO PREVAIL. 11. HENCE, WE ARE OF THE VIEW THAT THE APPLICATI ON OF MIND ON THE PART OF THE ASSESSING OFFICER AT THE TIME OF ISSUING NOTICE FOR INITIATION OF PEN ALTY IS A MANDATORY REQUIREMENT AND THE NON- APPLICATION OF MIND WOULD VITIATE THE PENALTY PROCE EDINGS. WE NOTICE THAT THE HONBLE BOMBAY HIGH COURT HAS ALSO EXPRESSED IDENTICAL VIEW IN THE CASE OF SMT. KAUSHALYA AND OTHERS (SUPRA), ON WHICH THE REVENUE HAS PLACED HEAVY RELIANCE. IN THAT CASE ALSO, IT WAS CONTENDED THAT THE AO HAS NOT INDICATED THE APPROPRIATE CHARGE FOR WHICH THE PENALTY PROCEEDINGS WERE INITIATED. THE HONBLE BOMBAY HIGH COURT HAS EXPRESSED THE FOLLOWI NG VIEW:- THE ISSUANCE OF NOTICE IS AN ADMINISTRATIVE DEVICE FOR INFORMING THE ASSESSEE ABOUT THE PROPOSAL TO L EVY PENALTY IN ORDER TO ENABLE HIM TO EXPLAIN AS TO WHY IT SHOULD NOT BE DONE. MERE MISTAKE IN THE LANGUA GE USED OR MERE NON-STRIKING INACCURATE PORTION CANNOT BY ITSELF INVALIDATE THE NOTICE. THE ENTIRE FACTU AL BACKGROUND WOULD FALL FOR CONSIDERATION IN THE MATT ER AND NON ONE ASPECT WOULD BE DECISIVE. IN THIS CONTEXT, USEFUL REFERENCE MAY BE MADE TO THE FOLLOW ING OBSERVATION IN THE CASE OF CIT VS. MITHILA MOTO RS (P) LTD (1984)(149 ITR 751)(PATNA) (HEAD NOTE): 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 N OTICE HAS BEEN PRESCRIBED IN THIS BEHALF. HENCE, IT IS SUFFICIENT IF THE ASSESSEE WAS AWARE O F THE CHARGES HE HAD TO MEET AND WAS GIVEN AN OPPORTUNITY OF BEING HEARD. A MISTAKE IN THE NOTIC E WOULD NOT INVALIDATE PENALTY PROCEEDINGS. THE HONBLE BOMBAY HIGH COURT, THEREAFTER, CONSIDER ED VARIOUS DECISIONS RELIED UPON BY THE PARTIES AND CAME TO THE CONCLUSION THAT THERE SHOUL D BE APPLICATION OF MIND ON THE PART OF ASSESSING OFFICER. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY HONBLE BOMBAY HIGH COURT. 2187&1789/M/14 DR. SARITA MILIND DAVARE 6 11. THE CASE OF CIT V. LAKHDHIR LALJI [1972] 85 ITR 77 (GUJ) IS THE OTHER DECISION UPON WHICH THE TRIBUNAL HAS PLACED RELIANCE. IN THAT CASE A NOTICE UNDER SECTION 274 WAS ISSUED ON THE FOOTING OF CONCEALMENT OF INCOME BY SUPPRESSION OF SALES WHERE AS THE PENALTY WAS LEVIED ON THE FOOTING THAT THERE WAS FURNISHING OF INACCURATE PARTICULARS OF INCOME SINCE THE STOCK AT THE CLOSING OF THE YEAR WAS UNDERVALUED. THE PENALTY WAS QUASHED UPON A VIEW TH AT THE VERY BASIS FOR THE PENALTY PROCEEDINGS HAD DISAPPEARED WHEN IT WAS HELD THAT THERE WAS NO SUPP RESSION OF INCOME BY THE ASSESSEE. THUS, IT WOULD B E SEEN THAT THE RATIO OF THAT DECISION CANNOT BE APPL IED TO THIS CASE. 12. THE LAST DECISION RELIED UPON IS THE CASE OF N. N. SUBRAMANIA IYER V. UNION OF INDIA [1974] 97 ITR 228 (KER). THE FOLLOWING PASSAGE FROM THE SAID DECISION WOULD DEMONSTRATE HOW ENTIRELY DIFFERENT THE BACKGROUND OF THAT CASE WAS AND, THEREFORE, THE RAT IO OF THAT DECISION ALSO COULD NOT BE APPLIED (AT P AGE 231) : 'THE PENALTY NOTICE, EXHIBIT P-2, IS ILLEGAL ON THE FACE OF IT. IT IS IN A PRINTED FORM, WHICH COMPREHENDS ALL POSSIBLE GROUNDS ON WHICH A PENALTY CAN BE IMPOSED UNDER SECTION 18(1) OF THE WEALTH-TAX ACT. THE NOTICE HAS NOT STRUCK OFF ANY O NE OF THOSE GROUNDS; AND THERE IS NO INDICATION FOR WHAT CONTRAVENTION THE PETITIONER WAS CALLED UP ON TO SHOW CAUSE WHY A PENALTY SHOULD NOT BE IMPOSED. EVEN IN THE COUNTER-AFFIDAVIT FILED BY THE SECOND RESPONDENT, HE HAS NOT STATED FOR WHAT SPECIFIC VIOLATION HE ISSUED IT. IT IS NOT THAT IT WOULD HAVE SAVED HIS ACTION. APPARENTLY, EXHIBIT P- 2 IS A WHIMSICAL NOTICE ISSUED TO AN ASSESSEE WITHOUT INTENDING ANYTHING.' 13. NO DOUBT, THERE CAN EXIST A CASE WHERE VAGUENESS AN D AMBIGUITY IN THE NOTICE CAN DEMONSTRATE NON- APPLICATION OF MIND BY THE AUTHORITY AND/OR ULTIMAT E PREJUDICE TO THE RIGHT OF OPPORTUNITY OF HEARING CONTEMPLATED UNDER SECTION 274 . TAKE FOR EXAMPLE; THE NOTICE DATED MARCH 28, 1972, FOR THE ASSESSMENT YEAR 1967-68. THIS SHOW-CAUSE NOTICE WAS ISSUED EVE N BEFORE THE ASSESSMENT ORDER WAS MADE. THE ASSESSEE HAD NO KNOWLEDGE OF THE EXACT CHARGE OF TH E DEPARTMENT AGAINST HIM. IN THE NOTICE, NOT ONLY T HERE IS USE OF THE WORD 'OR' BETWEEN THE TWO GROUPS OF C HARGES BUT THERE IS USE OF THE WORD 'DELIBERATELY'. THE WORD 'DELIBERATELY' DID NOT EXIST IN SECTION 271(1)(C) WHEN THE NOTICE WAS ISSUED. IT IS WORTHWHILE RECAL LING THAT THE SAID WORD WAS OMITTED BY THE FINANCE ACT , 1964, WITH EFFECT FROM APRIL 1, 1964, AND THE EXPLANATION WAS ADDED. THE NOTICE CLEARLY DEMONSTRA TED NON-APPLICATION OF MIND ON THE PART OF THE INSPECTING ASSISTANT COMMISSIONER. THE VAGUENESS AN D AMBIGUITY IN THE NOTICE HAD ALSO PREJUDICED THE RIGHT OF REASONABLE OPPORTUNITY OF THE ASSESSEE SIN CE HE DID NOT KNOW WHAT EXACT CHARGES HE HAD TO FAC E. IN THIS BACKGROUND, QUASHING OF THE PENALTY PROCEEDING S FOR THE ASSESSMENT YEAR 1967-68 SEEMS TO BE FULLY JUSTIFIED. 12. A COMBINED READING OF THE DECISION RENDERED B Y HONBLE BOMBAY HIGH COURT IN THE CASE OF SMT. B KAUSHALYA AND OTHERS (SUPRA) AND THE DECISIO N RENDERED BY HONBLE SUPREME COURT IN THE CASE OF DILIP N SHROFF (SUPRA) WOULD MAKE IT CL EAR THAT THERE SHOULD BE APPLICATION OF MIND ON THE PART OF THE AO AT THE TIME OF ISSUING NOTICE . IN THE CASE OF LAKHDIR LALJI (SUPRA), THE AO ISSUED NOTICE U/S 274 FOR CONCEALMENT OF PARTICULAR S OF INCOME BUT LEVIED PENALTY FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THE HONBLE GUJA RAT HIGH COURT QUASHED THE PENALTY SINCE THE BASIS FOR THE PENALTY PROCEEDINGS DISAPPEARED WHEN IT WAS HELD THAT THERE WAS NO SUPPRESSION OF INCOME. THE HONBLE KERALA HIGH COURT HAS STRUCK D OWN THE PENALTY IMPOSED IN THE CASE OF N.N.SUBRAMANIA IYER VS. UNION OF INDIA (SUPRA), WHE N THERE IS NO INDICATION IN THE NOTICE FOR WHAT CONTRAVENTION THE PETITIONER WAS CALLED UPON T O SHOW CAUSE WHY A PENALTY SHOULD NOT BE IMPOSED. IN THE INSTANT CASE, THE AO DID NOT SPECI FY THE CHARGE FOR WHICH PENALTY PROCEEDINGS WERE INITIATED AND FURTHER HE HAS ISSUED A NOTICE M EANT FOR CALLING THE ASSESSEE TO FURNISH THE 2187&1789/M/14 DR. SARITA MILIND DAVARE 7 RETURN OF INCOME. HENCE, IN THE INSTANT CASE, THE ASSESSING OFFICER DID NOT SPECIFY THE CHARGE FOR WHICH THE PENALTY PROCEEDINGS WERE INITIATED AND AL SO ISSUED AN INCORRECT NOTICE. BOTH THE ACTS OF THE AO, IN OUR VIEW, CLEARLY SHOW THAT THE AO DI D NOT APPLY HIS MIND WHEN HE ISSUED NOTICE TO THE ASSESSEE AND HE WAS NOT SURE AS TO WHAT PURP OSE THE NOTICE WAS ISSUED. THE HONBLE BOMBAY HIGH COURT HAS DISCUSSED ABOUT NON-APPLICATI ON OF MIND IN THE CASE OF KAUSHALYA (SUPRA) AND OBSERVED AS UNDER:- .THE NOTICE CLEARLY DEMONSTRATED NON-APPLICATION OF MIND ON THE PART OF THE INSPECTING ASSISTANT COMMISSIONER. THE VAGUENESS AND AMBIGUITY IN THE N OTICE HAD ALSO PREJUDICED THE RIGHT OF REASONABLE OPPORTUNITY OF THE ASSESSEE SINCE HE DID NOT KNOW W HAT EXACT CHARGE HE HAD TO FACE. IN THIS BACK GROU ND, QUASHING OF THE PENALTY PROCEEDINGS FOR THE ASSESSM ENT YEAR 1967-68 SEEMS TO BE FULLY JUSTIFIED. IN THE INSTANT CASE ALSO, WE ARE OF THE VIEW THAT T HE AO HAS ISSUED A NOTICE, THAT TOO INCORRECT ONE, IN A ROUTINE MANNER. FURTHER THE NOTICE DID N OT SPECIFY THE CHARGE FOR WHICH THE PENALTY NOTICE WAS ISSUED. HENCE, IN OUR VIEW, THE AO HAS FAILED TO APPLY HIS MIND AT THE TIME OF ISSUING PENALTY NOTICE TO THE ASSESSEE. 13. THE LD D.R SUBMITTED THAT THE ASSESSEE HAS P ARTICIPATED IN THE PENALTY PROCEEDINGS AND HENCE THE ERROR, IF ANY, THAT HAS OCCURRED WOULD BE CURED IN VIEW OF THE PROVISIONS OF SEC. 292B/292BB OF THE ACT. OPPOSING THE SAID CONTENTIO N, THE LD A.R PLACED RELIANCE ON THE DECISION RENDERED BY THE BANGALORE BENCH OF TRIBUNA L IN THE CASE OF SHRI K PRAKASH SHETTY (SUPRA), WHEREIN IT WAS HELD THAT THE PROVISIONS OF SEC. 292BB WOULD NOT COME TO THE RESCUE OF THE REVENUE, WHEN THE NOTICE WAS NOT IN SUBSTANCE A ND EFFECT IN CONFORMITY WITH OR ACCORDING TO THE INTENT AND PURPOSE OF THE ACT. IN OUR VIEW, TH E NOTICE ISSUED BY THE AO, WHICH IS EXTRACTED ABOVE, WAS NOT IN SUBSTANCE AND EFFECT IN CONFORMIT Y WITH OR ACCORDING TO THE INTENT AND PURPOSE OF THE ACT, SINCE THE AO DID NOT SPECIFY THE CHARGE FOR WHICH PENALTY PROCEEDINGS WERE INITIATED AND FURTHER THERE WAS NON-APPLICATION OF MIND ON TH E PART OF THE AO. 14. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT ASSESSEE SHOULD SUCCEED ON THIS LEGAL ISSUE. ACCORDINGLY THE PENALTY PROCEEDI NGS INITIATED BY THE AO WITHOUT APPLICATION OF MIND IS LIABLE TO BE SET ASIDE AND WE ORDER ACCORDI NGLY. 2187&1789/M/14 DR. SARITA MILIND DAVARE 8 15. ON MERITS, THE LD A.R CONTENDED THAT THE EX PLANATION 5A TO SEC. 271 WILL NOT BE APPLICABLE TO THE ASSESSEE ON THE REASON THAT THE CASH FOUND DURING THE COURSE OF SEARCH WILL NOT FALL IN THE CATEGORY OF ASSETS SPECIFIED IN EXPLANATION 5 A, WHICH READS AS UNDER:- (I) ANY MONEY, BULLION, JEWELLERY OR OTHER VALUAB LE ARTICLE OR THING (HEREAFTER IN THIS EXPLANATION REFERRED TO AS ASSETS) AND THE ASSESSEE CLAIMS THAT SUCH ASS ETS HAVE BEEN ACQUIRED BY HIM BY UTILIZING (WHOLLY OR IN PART) HIS INCOME FOR ANY PREVIOUS YEAR THE LD A.R SUBMITTED THAT THE PENAL PROVISIONS SHOU LD BE CONSTRUED STRICTLY. HE SUBMITTED THAT THE EXPRESSION SUCH ASSETS HAVE BEEN ACQUIRED BY H IM BY UTILIZING (WHOLLY OR IN PART) HIS INCOME FOR ANY PREVIOUS YEAR SHOULD BE GIVEN PROPE R MEANING. THE A.R SUBMITTED THAT CASH CANNOT BE ACQUIRED BY UTILIZING INCOME OF THE ASSES SEE AND ACCORDINGLY CONTENDED THAT THE PROVISIONS OF EXPLANATION 5A WOULD FAIL IN THE CASE S WHERE CASH IS FOUND DURING THE COURSE OF SEARCH. THE LD A.R ALSO PLACED RELIANCE ON THE DECI SION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF SHERATON APPARELS VS. ACIT (20 02)(256 ITR 20), WHEREIN THE HONBLE HIGH COURT HAS EXPLAINED THE INTENTION OF INTRODUCI NG EXPLANATION 5 (IDENTICAL TO EXPLANATION 5A) UNDER THE HEAD LEGISLATIVE INTENTION. HE SUB MITTED THAT THE EXPLANATION 5/5A HAS BEEN INTRODUCED TO CURB THE PRACTICE OF EXPLAINING THE S OURCES OF UNDISCLOSED ASSETS AS INCOME OF EARLIER YEARS. HE SUBMITTED THAT EXPLANATION5/5A I NTRODUCES LEGAL FICTION AND HENCE THEY SHOULD BE INTERPRETED STRICTLY. ON THE CONTRARY, THE LD D .R SUBMITTED THAT THE EXPRESSION MONEY USED IN EXPLANATION 5A WOULD REFER TO CASH ONLY AND HE SUBMITTED THAT EXPLANATION 5A SHOULD BE GIVEN PURPOSIVE INTERPRETATION. 16. THE LD A.R ALSO CONTENDED THAT THE CASH BAL ANCE FOUND DURING THE COURSE OF SEARCH WOULD BE NORMALLY ASSESSABLE IN AY 2010-11, SINCE IT WAS FOUND ON 12-01-2010. HAD THE ASSESSEE OFFERED THE SAME IN AY 2010-11, SHE WOULD HAVE GOT IMMUNITY FROM PENALTY U/S 271AAA OF THE ACT. HE FURTHER SUBMITTED THAT THE OFFER MADE IN A Y 2009-10 OF RS.1.95 CRORES OUT OF CASH BALANCE WAS A VOLUNTARY OFFER. FURTHER THE RS.30.0 0 LAKHS OFFERED BY THE ASSESSEE IN RESPECT OF FLAT PURCHASE WAS ALSO A VOLUNTARY OFFER ONLY. ACC ORDINGLY HE SUBMITTED THAT THE PENALTY COULD NOT HAVE BEEN LEVIED FOR THE INCOME VOLUNTARILY OFF ERED BY THE ASSESSEE. 2187&1789/M/14 DR. SARITA MILIND DAVARE 9 17. SINCE WE HAVE HELD THAT THE PENALTY PROCEEDI NGS ARE LIABLE TO BE QUASHED ON THE REASONING THAT THERE WAS NON-APPLICATION OF MIND ON THE PART OF THE AO WHILE ISSUING NOTICE TO THE ASSESSEE, WE DO NOT FIND IT NECESSARY TO ADDRESS TH E ARGUMENTS URGED ON MERITS. 18. IN VIEW OF THE ABOVE, REVENUES APPEAL DOES NOT REQUIRE CONSIDERATION. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSE SSEE IS TREATED AS ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER HAS BEEN PRONOUNCED IN THE COURT ON 21.12.20 16 SD/- SD/- (RAMLAL NEGI) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED : 21/12/2016 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( DY./ASSTT. REGISTRAR) PS/JV. ITAT, MUMBAI