KANAKIA HOSPITALITY P.LTD, MUMBAI V. ACIT CEN CIR 23 (OLD) CEN CIR 4(1) (NEW), MUMBAI

ITA 2326/MUM/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0279 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2008-2009
• Appeal Filed On: 23-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR RAIDR
• Keywords: Bogus purchase; Search and seizure; Principle of natural justice; Wrong claim; Accommodation entries; Tax effect
• Section: 143(3)

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL -IBENCH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./I.T.A./2326/MUM/2015, /ASSESSMENT YEAR: 2008-09 ./I.T.A./2328/MUM/2015, /ASSESSMENT YEAR: 2010-11 M/S. KANAKIA HOSPITALITY PVT.LTD. 215, ATRIUM, 10 TH FLOOR, NEAR MARIOT COURTYARD HOTEL, ANDHERI-KURLA ROAD, ANDHERI(E), MUMBAI-400 059. PAN:AACCK 7755 R VS. ACIT, CENTRAL CIRCLCE-23(OLD); CENTRAL CIRCLE-4(1)(NEW) AAYAKAR BHAVAN, 4 TH FLOOR, M.K. ROAD, NEW MARINE LINES, MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI SAURABH KUMAR RAI-DR ASSESSEE BY: SHRI ANUJ KISNADWALA / DATE OF HEARING: 09.08.2017 / DATE OF PRONOUNCEMENT: 09.08.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDERS DATED,13/02/2015,OF THE CIT( A)-52,MUMBAI,THE ASSESSEE HAS FILED THE APPEALS FOR THE ABOVE-MENTIONED TWO ASSESSMENT YEAR S(AY.S).ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF REAL ESTATE DEVELOPMENT.AS THE I SSUE INVOLVED IN BOTH THE APPEALS IS ALMOST IDENTICAL I.E.LEVY OF PENALTY U/S.271(1)(C) OF THE ACT.SO,WE ARE ADJUDICATING BOTH THE APPEALS TOGETHER. BRIEF FACTS:- 2. DURING SEARCH AND SEIZURE OPERATION CARRIED IN THE CASE OF KANAKIA GROUP ON 29/03/2011, THE ASSESSEE WAS ALSO SUBJECTED TO SEARCH.THE ASSES SING OFFICER(AO)COMPLETED ASSESSMENT U/S.143(3) R.W.S.153C OF THE ACT ON 28/03/2013 DETE RMINING INCOME OF THE ASSESSEE AT RS.NIL DURING THE COURSE OF SEARCH RASESH KANAKIA CHAIRMAN OF KANAKIA GROUP ADMITTED THAT IT HAD PURCHASED BOGUS BILLS AMOUNTING TO RS. 1.85 CRORES, IN HIS STATEMENT RECORDED U/S.132(4) OF THE ACT ON 24/05/2011 FOR THE YEAR UNDER CONSIDERAT ION.IT WAS OBSERVED BY AO THAT BOGUS BILLS WERE DEBITED IN THE BOOKS OF THE ASSESSEE,TH AT MATERIAL WHATSOEVER WAS RECEIVED BY IT AGAINST ACCOMMODATION BILLS, THAT IT HAD INFLATED C OST OF CONSTRUCTION OF THE PROJECT BY DEBITING BOGUS BILLS IN ITS ACCOUNTS, THAT THE COST OF CONSTRUCTION WAS CARRIED FORWARD AS WORK- IN-PROGRESS(WIP) SINCE THE PROJECT WAS UNDER DEVELO PMENT .AS THE BOOKS OF ACCOUNT OF THE ASSESSEE FOR THE YEAR WERE CLOSED AT THE TIME OF SE ARCH SO IT COULD NOT GIVE EFFECT TO SUCH BOGUS PURCHASES IN THE RELEVANT YEAR IN ITS BOOKS.T O GIVE EFFECT TO THE ADMITTED BOGUS PURCHASES THE ASSESSEE REDUCED OPENING WIP IN THE A Y. 2011-12 BY THE ADMITTED AMOUNT OF BOGUS PURCHASES.THE CONTENTION RAISED BY THE ASSESS EE WAS ACCEPTED DURING THE ASSESSMENT 2328 & 2326/MUM/15 M/S. KANAKIA HOSPITALITY PVT.LTD.. 2 PROCEEDINGS.THE AO INITIATED PENALTY PROCEEDINGS U/ S. 271(1)(C).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,DATED 28/03/2013,THE AO HELD THAT THE ASSESSEE HAD DEBITED BOGUS BILLS IN ITS REGULAR BOOKS OF ACCOUNT, THAT I T WAS FOLLOWING PERCENTAGE METHOD OF ACCOUNTING, THAT DURING THE YEAR UNDER CONSIDERATIO N THE PROJECT OF THE ASSESSEE WAS NOT COMPLETE, THAT THE ASSESSEE HAD PASSED BOGUS ENTRIE S IN ITS BOOKS, THAT SAME WERE REVERSED IN THE AY.2011-12,THAT IT HAD FURNISHED INACCURATE PA RTICULARS OF INCOME.THE CONTENTION OF THE ASSESSEE THAT BOGUS PURCHASES HAD NOT RESULTED IN A NY ADDITION OF INCOME THAT COULD LEAD TO JUSTIFICATION OF LEVY OF PENALTY WAS NOT ACCEPTABLE ,THAT IT HAS PASSED BOGUS ENTRIES IN THE BOOKS, THAT THE BOOKING ITSELF AMOUNTED TO FURNISHI NG OF INACCURATE PARTICULARS IN RETURN OF INCOME, THAT TAX EFFECT WAS NIL DURING THE YEAR, TH AT THERE WOULD BE TAX EFFECT ON THE TOTAL INCOME/LOSS REALIZED OUT OF THE PROJECT WHEN IT WOU LD BE COMPLETE, THAT AT TIME OF COMPLETION OF PROJECT, THE PROFIR/LOSS WOULF BE AFFECTED BY TH E BOGUS BILLS,THAT THERE WAS A WILLFUL ATTEMPT ON THE PART OF THE ASSESSEE TO MAKE FALSE CLAIM, RE FERRING TO PROVISIONS OF SECTION 271(1)(C),HE HELD THAT THE ASSESSEE HAD FURNISHED INACCURATE PAR TICULARS OF INCOME. HE LEVIED PENALTY OF RS.57.36 LAKHS IN THAT REGARD,VIDE HIS ORDER DTD. 2 5/09/2013. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)AND MADE ELABORATE SUBMISSI ONS.AFTER CONSIDERING AVAILABLE MATE - RIAL,THE FAA HELD THAT KANAKIA GROUP HAD SURRENDERE D TOTAL BOGUS PURCHASES OF RS.38 CRORES AS PER STATEMENT OF THE MD OF THE ASSESSEE COMPANY IN HIS STATEMENT,RECORDED ON 30 / 03/ 2011 U/S.132(4) OF THE ACT.LATER ON, THE FIGURE OF BOGUS PURCHASES WAS ENHANCED TO RS. 39.42 CRORES,WHEN THE MD APPORTIONED THE BOGUS PURCHASES IN DIFFERENT GROUP ENTITIES, THAT OUT OF THE TOTAL BOGUS PURCHASES AN AMOUNT OF RS.4.41 CROR ES RELATED TO THE ASSESSEE COMPANY,THAT OUT OF THE SAID AMOUNT A SUM OF RS.1.85 CRORES RELA TED TO THE YEAR UNDER APPEAL, THAT NO PURCHASES HAD TAKEN PLACE,THAT THE ASSESSEE HAD OBT AINED ACCOMMODATION ENTRIES WITH A VIEW TO JACK UP EXPENSES TO REDUCE TAXABLE PROFITS AND T HE CLOSING WIP, THAT THE PURCHASES WERE DEBITED TO BOOKS OF ACCOUNT I.E. P&L ACCOUNT, THAT SUBSEQUENT TO THE SEARCH THE ASSESSEE HAD REDUCED THE SAME FROM THE CLOSING WIP,THAT IT WAS A CLEAR CASE OF FALSIFICATION OF BOOKS OF ACCOUNT AND JACKING OF EXPENDITURE.THE FAA REFERRED TO EXPLANATION 5A TO SECTION 271(1) (C)AND OBSERVED THAT NO ADDITION WAS MADE BY THE AO WHILE COMPUTING ASSESSMENT, THAT THE RETURNED INCOME AND ASSESSED INCOME REMAINED SAME,T HAT THE ASSESSEE WAS FOUND TO BE DEBITING BOGUS EXPENDITURE IN HIS BOOKS OF ACCOUNT, THAT CLOSING WIP WAS AKIN TO THE LOSS INCURRED BY ASSESSEE DURING THE YEAR AS ENVISAGED U NDER EXPLANATION 4 TO SECTION 271(1)(C), THAT THE AO HAD RIGHTLY LEVIED PENALTY U/S.271(1)(C ) OF THE ACT. 2328 & 2326/MUM/15 M/S. KANAKIA HOSPITALITY PVT.LTD.. 3 4. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE(AR)ARGUED THAT THERE WAS NO CHANGE IN INCOME, THAT NO ADDITION WAS MADE TO THE INCOME RETURNED BY THE ASSESSEE, THAT NO PENALTY FOR CONCEALMENT OF INCOME COULD BE LEVIED, THAT INCOME WAS OFFERED FOR THE YEAR UNDER APPEAL, THAT THE CALCULATION MACHINERY W OULD FAIL IN SUCH CASES,THAT THE SECTION SPOKE OF TAX SOUGHT TO BE EVADED, THAT FOR THE PURP OSE INCOME FOR THE CURRENT YEAR HAD TO BE CONSIDERED,THAT IT WAS A SEARCH AND SEIZURE CASE, T HAT NO INCRIMINATING MATERIAL WAS FOUND DURING THE SEARCH,THAT THE AO HAD NOT STRUCK OFF TH E PORTION IN THE PENALTY NOTICE TO INDICATE AS TO WHICH OF THE OMISSIONS THE ASSESSEE HAD COMMI TTED I.E. FURNISHING OF INACCURATE PARTICULARS OR CONCEALING THE INCOME.HE REFERRED TO THE CASES OF MEHERJEE KASINATH HOLDING PVT.LTD.(ITA/2555/MUM/2012,AY.2008-09,DT.28/4/2017) ;SAMSON PERINCHERY(392ITR4); BAISETTY REVATHI(ITA 684 OF 2016,DTD.13.07.2017);PR INCE CONSULTANCY P LTD.(ITA/6068/ MUM/2016,13.01.2017).HE ALSO PRODUCED THE NOTICE IS SUED BY THE AO AND DEMONSTRATED THAT THE AO HAD IN FACT NO STRUCK OFF THE PORTION IN THE PENALTY NOTICE TO INDICATE AS TO WHICH OMISSION THE ASSESSEE HAD COMMITED.THE DEPARTMENTAL REPRESENTATIVE (DR)CONTENDED THAT THE PENALTY WAS LEVIED IN THE YEAR WHEN EXPENSES WE RE CLAIMED, THAT THE ASSESSEE HAD BOOKED BOGUS PURCHASES,THAT IT WAS FOLLOWING PERCENTAGE CO MPLETION METHOD, THAT BY BOOKING BOGUS PURCHASES THE ASSESSEE HAD IMPLIEDLY EVADED THE TAX ,THAT IT HAD COMMITTED AN OFFENCE U/S.271(1)(C)OF THE ACT.HE REFERRED TO THE CASE OF DHAVAL K JAIN(ITA/996/MUM/2014-AY. 2003-04, DTD.30.09.2016) 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT WHILE DECIDING THE APPEAL IN THE CASE OF SARANG PROPERTI ES,ONE OF THE GROUP CONCERNS,FOR THE AY.2009-10(ITA/4013/MUM/2015,DTD.28/07/2017)THE TRI BUNAL HAS DELIBERATED UPON THE ISSUE OF LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE A CT,AS UNDER: 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD.WE FIND THAT THE MD OF THE GROUP,DURING THE SEARCH AND SEIZ URE PROCEEDINGS,ADMITTED UNDISCLOSED INCOME ON ACCOUNT OF BOGUS PURCHASE BILLS TAKEN BY VARIOUS ENTITIES OF THE GROUP,THAT THAT THE COST OF CONSTRUCTION WAS CARRIED FORWARD AS WIP,THA T THE AO LEVIED PENALTY ON TWO COUNTS NAMELY BOGUS PURCHASES AND CARRY FORWARD OF LOSSES, THAT THE FAA HAD CONFIRMED THE ORDER OF THE AO. BEFORE PROCEEDING FURTHER,WE WOULD LIKE TO REFER TO THE ORDER OF MEHARJEE CASSINATH HOLDINGS PRIVATE LTD.(SUPRA)WHEREIN THE ISSUE OF NON STRIKIN G OFF RELEVANT PORTION OF THE PENALTY NOTICE HAS BEEN DELIBERATED UPON EXTENSIVELY.WE ARE REPROD UCING THE PORTION DEALING WITH THE ISSUE AND THE FACTS OF THE CASE AND SAME READ AS UNDER: 2.IN THIS APPEAL, THE SOLITARY GRIEVANCE OF THE AS SESSEE IS WITH REGARD TO IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT. 3.IN BRIEF, THE RELEVANT FACTS ARE THAT THE APPELLA NT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF COMPANIES ACT, 1956 AND FOR THE A SSESSMENT YEAR UNDER CONSIDERATION IT DECLARED A TOTAL INCOME OF RS.86,9 4,668/- IN A RETURN FILED ON 29.9.2008, WHICH WAS SUBJECT TO A SCRUTINY ASSESSME NT U/S 143(3) OF THE ACT AND VIDE ORDER DATED 10.12.2010 THE FINAL INCOME HAS BEEN AS SESSED AT RS.1,11,84,640/-. THE RELEVANT ISSUE FOR OUR PURPOSE IS LONG TERM CAPITAL LOSS OF RS.18,19,34,011/- 2328 & 2326/MUM/15 M/S. KANAKIA HOSPITALITY PVT.LTD.. 4 REPORTED BY THE ASSESSEE IN ITS RETURN OF INCOME. T HE SAID LOSS WAS INCURRED BY THE ASSESSEE ON ACCOUNT OF REDEMPTION OF PREFERENCE SHA RES OF A CONCERN, NAMELY SHRI SANTRAM FINANCE LTD. IN THE ASSESSMENT FINALIZED U/ S 143(3) OF THE ACT, THE ASSESSING OFFICER DISALLOWED THE ENTIRE LONG TERM CAPITAL LOS S ON THE GROUND THAT THE TRANSACTION OF REDEMPTION OF PREFERENCE SHARES WAS A BOGUS TRANSACTION AND FURTHER THE ASSESSING OFFICER ALSO DENIED THE CARRY FORWARD OF SAID LOSS. SUBSEQUENTLY, THE ASSESSING OFFICER VIDE ORDER PASSED U/S 271(1)(C) O F THE ACT DATED 29.6.2011 HELD THE ASSESSEE GUILTY OF FURNISHING OF INACCURATE PARTICU LARS OF INCOME QUA THE AFORESAID ISSUE WITHIN THE MEANING OF SEC. 271(1)(C) OF THE A CT. THE ASSESSING OFFICER LEVIED PENALTY U/S 271(1)(C) OF THE ACT @ 100% OF THE TAX SOUGHT TO BE EVADED, WHICH WAS COMPUTED AT RS.5,45,80,203/-. THE CIT(A) HAS SUSTAI NED THE LEVY OF PENALTY, BUT HAS ALLOWED PARTIAL RELIEF BY CORRECTING THE COMPUTATIO N OF PENALTY AND ACCORDINGLY, THE CIT(A) HAS SCALED DOWN THE PENALTY TO RS.4,12,26,24 7/-. IN THIS BACKGROUND, THE RIVAL COUNSELS HAVE MADE THEIR SUBMISSIONS AND THE RELEVA NT MATERIAL HAS BEEN PERUSED. BEFORE WE PROCEED TO REFER TO THE RIVAL CONTENTIONS , IT WOULD BE APPROPRIATE TO BRING OUT THE BACKGROUND IN WHICH THE PENALTY U/S 3 271(1 )(C) OF THE ACT HAS BEEN LEVIED BY THE ASSESSING OFFICER. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD REPORTED LONG TERM CAPITAL LOSS OF RS.18,19,34,011/- ON REDEMPTION OF PREFERENCE SHARES OF SHRI SANTRAM FIN ANCE LTD., DETAILED AS UNDER :- XXXX 5. AT THE TIME OF HEARING, THE LEARNED REPRESENTATI VE FOR THE ASSESSEE POINTED OUT THAT THE QUANTUM ASSESSMENT PROCEEDINGS HAVE BECOME FINA L INASMUCH AS ASSESSEE HAS NOT GONE IN APPEAL AGAINST THE ACTION OF THE ASSESSING OFFICER. ANOTHER PERTINENT POINT RAISED BY THE ASSESSEE WAS THAT THE PENALTY NOTICE ISSUED U/S 274 R.W.S. 271 OF THE ACT DATED 10.12.2010, A COPY OF WHICH HAS BEEN PLACED ON RECORD, REVEALS NONAPPLICATION OF MIND BY THE ASSES SING OFFICER INASMUCH AS THE IRRELEVANT PORTION OF THE NOTICE HAS NOT BEEN STRUC K OFF. IT WAS, THEREFORE, CONTENDED THAT THE LEVY OF PENALTY IS ILLEGAL AND DESERVES TO BE SETASIDE. IN SUPPORT OF THE AFORESAID PROPOSITION, RELIANCE HAS BEEN PLACED ON THE FOLLOWING DECISIONS :- I) M/S. SSAS EMERALD MEADOWS, ITA NO. 380/2015 DAT ED 23.11.2015 (HON'BLE KARNATAKA HIGH COURT); II) MANJUNATHA COTTON AND GINNING FACTORY & ORS., 3 59 ITR 565 (KAR.); III) DILIP N. SHROFF, 161 TAXMAN 218 (SC); IV) DR. SARITA MILIND DAVARE, ITA NO. 2187 & 1789/M UM/2014 DATED 21.12.2016; V) SHRI SAMSON PERINCHERY, ITA NO. 4625 TO 4630/MUM /2013 DATED 11.10.2013 XXXX 7... WITH REGARD TO THE PLEA OF ASSESSEE THAT NOT ICE ISSUED U/S 274 R.W.S 271(1)(C) OF THE ACT WAS LEGALLY UNTENABLE, THE LD. CIT-DR PO INTED OUT THAT IN THE ASSESSMENT ORDER ITSELF THE ASSESSING OFFICER IN PARA 4 HAS RE CORDED THAT THE PENALTY U/S 271(1)(C) OF THE ACT WAS INITIATED FOR FURNISHING OF INACCURA TE PARTICULARS OF INCOME. IT WAS, THEREFORE, CONTENDED THAT THE ASSESSMENT ORDER ITSE LF SHOWS DUE APPLICATION OF 8 MIND BY THE ASSESSING OFFICER FOR INITIATION OF PROCEEDI NGS U/S 271(1)(C) OF THE ACT AND THAT THE NOTICE ISSUED U/S 274 R.W.S. 271(1)(C) OF THE A CT DATED 10.12.2010 CANNOT BE SOLELY EXAMINED TO SEE WHETHER THE ASSESSING OFFICER HAS D ULY APPLIED HIS MIND TO THE INITIATION OF PROCEEDINGS U/S 271(1)(C) OF THE ACT. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. SEC. 271(1)(C) OF THE ACT EMPOWERS THE ASSESSING OFFICER TO IMPOSE PENALTY TO THE EXTENT SPECIFIED IF, IN THE COURSE OF ANY PROCEEDINGS UNDER THE ACT, HE IS SATI SFIED THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURA TE PARTICULARS OF SUCH INCOME. IN OTHER WORDS, WHAT SEC. 271(1)(C) OF THE ACT POSTULA TES IS THAT THE PENALTY CAN BE LEVIED ON THE EXISTENCE OF ANY OF THE TWO SITUATION S, NAMELY, FOR CONCEALING THE PARTICULARS OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THEREFORE, IT IS OBVIOUS FROM THE PHRASEOLOGY OF SEC. 271(1)(C) O F THE ACT THAT THE IMPOSITION OF 2328 & 2326/MUM/15 M/S. KANAKIA HOSPITALITY PVT.LTD.. 5 PENALTY IS INVITED ONLY WHEN THE CONDITIONS PRESCRI BED U/S 271(1)(C) OF THE ACT EXIST. IT IS ALSO A WELL ACCEPTED PROPOSITION THAT CONCEA LMENT OF THE PARTICULARS OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME REFERRED TO IN SEC. 271(1)(C) OF THE ACT DENOTE DIFFERENT CONNOTATIONS. IN FACT, THI S DISTINCTION HAS BEEN APPRECIATED EVEN AT THE LEVEL OF HON'BLE SUPREME COURT NOT ONLY IN THE CASE OF DILIP N. SHROFF (SUPRA) BUT ALSO IN THE CASE 9 OF T.ASHOK PAI, 292 ITR 11 (SC). THEREFORE, IF THE TWO EXPRESSIONS, NAMELY CONCEALMENT OF THE PARTICULARS OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME HAVE DIFFERENT CO NNOTATIONS, IT IS IMPERATIVE FOR THE ASSESSEE TO BE MADE AWARE AS TO WHICH OF THE TWO IS BEING PUT AGAINST HIM FOR THE PURPOSE OF LEVY OF PENALTY U/S 271(1)(C) OF THE ACT , SO THAT THE ASSESSEE CAN DEFEND ACCORDINGLY. IT IS IN THIS BACKGROUND THAT ONE HAS TO APPRECIATE THE PRELIMINARY PLEA OF ASSESSEE, WHICH IS BASED ON THE MANNER IN WHICH THE NOTICE U/S 274 R.W.S. 271(1)(C) OF THE ACT DATED 10.12.2010 HAS BEEN ISSUED TO THE ASS ESSEE COMPANY. A COPY OF THE SAID NOTICE HAS BEEN PLACED ON RECORD AND THE LEARNED RE PRESENTATIVE CANVASSED THAT THE SAME HAS BEEN ISSUED BY THE ASSESSING OFFICER IN A STANDARD PROFORMA,WITHOUT STRIKING OUT THE IRRELEVANT CLAUSE. IN OTHER WORDS, THE NOTICE REFERS TO BOTH THE LIMBS OF SEC. 271(1)(C) OF THE ACT, NAMELY CONCEALMENT OF TH E PARTICULARS OF INCOME AS WELL AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. QUI TE CLEARLY, NON-STRIKING-OFF OF THE IRRELEVANT LIMB IN THE SAID NOTICE DOES NOT CONVEY TO THE ASSESSEE AS TO WHICH OF THE TWO CHARGES IT HAS TO RESPOND. THE AFORESAID INFIRM ITY IN THE NOTICE HAS BEEN SOUGHT TO BE DEMONSTRATED AS A REFLECTION OF NON-APPLICATION OF MIND BY THE ASSESSING OFFICER, AND IN SUPPORT, REFERENCE HAS BEEN MADE TO THE FOLL OWING SPECIFIC DISCUSSION IN THE ORDER OF HON'BLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF (SUPRA):- 83. IT IS OF SOME SIGNIFICANCE THAT IN THE STANDAR D PROFORMA USED BY THE ASSESSING OFFICER IN ISSUING A NOTICE DESPITE THE F ACT THAT THE SAME POSTULATES THAT INAPPROPRIATE WORDS AND PARAGRAPHS WERE TO BE DELETED, BUT THE SAME HAD NOT BEEN DONE. THUS, THE ASSESSING OFFICER HIMS ELF WAS NOT SURE AS TO WHETHER HE HAD PROCEEDED ON THE BASIS THAT THE ASSE SSEE HAD CONCEALED HIS INCOME OR HE HAD FURNISHED INACCURATE PARTICULARS. EVEN BEFORE US, THE LEARNED ADDITIONAL SOLICITOR GENERAL WHILE PLACING THE ORDER OF ASSESSMENT LAID EMPHASIS THAT HE HAD DEALT WITH BOTH THE SITUA TIONS. 84. THE IMPUGNED ORDER, THEREFORE, SUFFERS FROM NON-APPLICATION OF M IND. IT WAS ALSO BOUND TO COMPLY WITH THE PRINCIPLES OF NATURAL JUSTICE. (SEE MALABAR INDUSTRIAL CO. LTD. V. CIT [2000] 2 SCC 718] 9. FACTUALLY SPEAKING, THE AFORESAID PLEA OF ASSESS EE IS BORNE OUT OF RECORD AND HAVING REGARD TO THE PARITY OF REASONING LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF (SUPRA), THE NOTICE IN THE INSTA NT CASE DOES SUFFER FROM THE VICE OF NON-APPLICATION OF MIND BY THE ASSESSING OFFICER. I N FACT, A SIMILAR PROPOSITION WAS ALSO ENUNCIATED BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF M/S. SSAS EMERALD MEADOWS (SUPRA) AND AGAINST SUCH A JUDGMENT , THE SPECIAL LEAVE PETITION FILED BY THE REVENUE HAS SINCE BEEN DISMISSED BY TH E HON'BLE SUPREME COURT VIDE ORDER DATED 5.8.2016, A COPY OF WHICH IS ALSO PLACE D ON RECORD. 10. IN FACT, AT THE TIME OF HEARING, THE LD. CIT-DR HAS NOT DISPUTED THE FACTUAL MATRIX, BUT SOUGHT TO POINT OUT THAT THERE IS DUE APPLICATI ON OF MIND BY THE ASSESSING OFFICER WHICH CAN BE DEMONSTRATED FROM THE DISCUSSION IN TH E ASSESSMENT ORDER, WHEREIN AFTER DISCUSSING THE REASONS FOR THE DISALLOWANCE, HE HAS RECORDED A SATISFACTION THAT PENALTY PROCEEDINGS ARE INITIATED U/S 271(1)(C) OF THE ACT FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. IN OUR CONSIDERED OPINION, T HE ATTEMPT OF THE LD. CIT-DR TO DEMONSTRATE APPLICATION OF MIND BY THE ASSESSING OF FICER IS NO DEFENCE INASMUCH AS THE HON'BLE SUPREME COURT HAS APPROVED THE FACTUM O F NON-STRIKING OFF OF THE IRRELEVANT CLAUSE IN THE NOTICE AS REFLECTIVE OF NO N-APPLICATION OF MIND BY THE ASSESSING OFFICER. SINCE THE FACTUAL MATRIX IN THE PRESENT CASE CONFORMS TO THE PROPOSITION LAID DOWN BY THE HON'BLE SUPREME COURT, WE PROCEED TO REJECT THE ARGUMENTS ADVANCED BY THE LD. CIT-DR BASED ON THE O BSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. FURTHER, IT IS ALS O NOTICEABLE THAT SUCH PROPOSITION HAS 2328 & 2326/MUM/15 M/S. KANAKIA HOSPITALITY PVT.LTD.. 6 BEEN CONSIDERED BY THE HON'BLE BOMBAY HIGH COURT AL SO IN THE CASE OF SHRI SAMSON PERINCHERY, ITA NOS. 1154, 953, 1097 & 1126 OF 2014 DATED 5.1.2017 (SUPRA) AND THE DECISION OF THE TRIBUNAL HOLDING LEVY OF PENALTY IN SUCH CIRCUMSTANCES BEING BAD, HAS BEEN APPROVED. 11. APART FROM THE AFORESAID, THE LD. CIT-DR MADE A N ARGUMENT BASED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SMT . KAUSHALYA & OTHERS, 216 ITR 660 (BOM.) TO CANVASS SUPPORT FOR HIS PLEA THAT NON -STRIKING OFF OF THE IRRELEVANT PORTION OF NOTICE WOULD NOT INVALIDATE THE IMPOSITI ON OF PENALTY U/S 271(1)(C) OF THE ACT. WE HAVE CAREFULLY CONSIDERED THE SAID ARGUMENT SET-UP BY THE LD. CIT-DR AND FIND THAT A SIMILAR ISSUE HAD COME UP BEFORE OUR CO ORDINATE BENCH IN THE CASE OF DR. SARITA MILIND DAVARE (SUPRA). OUR COORDINATE BENCH, AFTER CONSIDERING THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SMT . KAUSHALYA & ORS., (SUPRA) AS ALSO THE JUDGMENTS OF THE HON'BLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF (SUPRA) AND DHARMENDRA TEXTILE PROCESSORS, 306 ITR 277 (SC) DEDUCED AS UNDER :- 12. A COMBINED READING OF THE DECISION RENDERED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF SMT. B KAUSHALYA AND OTHERS (S UPRA) AND THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF DI LIP N SHROFF (SUPRA) WOULD MAKE IT CLEAR THAT THERE SHOULD BE APPLICATI ON OF MIND ON THE PART OF THE AO AT THE TIME OF ISSUING NOTICE. IN THE CASE O F LAKHDIR LALJI (SUPRA), THE AO ISSUED NOTICE U/S 274 FOR CONCEALMENT OF PARTICU LARS OF INCOME BUT LEVIED PENALTY FOR FURNISHING INACCURATE PARTICULARS OF IN COME. THE HONBLE GUJARAT HIGH COURT QUASHED THE PENALTY SINCE THE BASIS FOR THE PENALTY PROCEEDINGS DISAPPEARED WHEN IT WAS HELD THAT THERE WAS NO SUPP RESSION OF INCOME. THE HONBLE KERALA HIGH COURT HAS STRUCK DOWN THE PENAL TY IMPOSED IN THE CASE OF N.N.SUBRAMANIA IYER VS. UNION OF INDIA (SUPRA), WHEN THERE IS NO INDICATION IN THE NOTICE FOR WHAT CONTRAVENTION THE PETITIONER WAS CALLED UPON TO SHOW CAUSE WHY A PENALTY SHOULD NOT BE IMPOSED. IN THE INSTANT CASE, THE AO DID NOT SPECIFY THE CHARGE FOR WHICH PENALTY PRO CEEDINGS WERE INITIATED AND FURTHER HE HAS ISSUED A NOTICE MEANT FOR CALLIN G THE ASSESSEE TO FURNISH THE RETURN OF INCOME. HENCE, IN THE INSTANT CASE, T HE ASSESSING OFFICER DID NOT SPECIFY THE CHARGE FOR WHICH THE PENALTY PROCEEDING S WERE INITIATED AND ALSO ISSUED AN INCORRECT NOTICE. BOTH THE ACTS OF THE AO , IN OUR VIEW, CLEARLY SHOW THAT THE AO DID NOT APPLY HIS MIND WHEN HE ISSUED N OTICE TO THE ASSESSEE AND HE WAS NOT SURE AS TO WHAT PURPOSE THE NOTICE WAS I SSUED. 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 AN D AMBIGUITY IN THE NOTICE HAD ALSO PREJUDICED THE RIGHT OF REASONABLE OPPORTUNITY OF THE ASSESSEE SINCE HE DID NOT KNOW WHAT EXACT CHARGE HE HAD TO F ACE. IN THIS BACK GROUND, QUASHING OF THE PENALTY PROCEEDINGS FOR THE ASSESSM ENT YEAR 1967-68 SEEMS TO BE FULLY JUSTIFIED. IN THE INSTANT CASE ALSO, W E ARE OF THE VIEW THAT THE AO HAS ISSUED A NOTICE, THAT TOO INCORRECT ONE, IN A R OUTINE MANNER. FURTHER THE NOTICE DID NOT SPECIFY THE CHARGE FOR WHICH THE PEN ALTY 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. 12. THE AFORESAID DISCUSSION CLEARLY BRINGS OUT AS TO THE REASONS WHY THE PARITY OF REASONING LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF (SUPRA) IS TO PREVAIL. FOLLOWING THE DECISION OF OU R COORDINATE BENCH IN THE CASE OF DR. SARITA MILIND DAVARE (SUPRA), WE HEREBY REJECT THE AFORESAID ARGUMENT OF THE LD. CIT-DR. 13. APART FROM THE AFORESAID DISCUSSION, WE MAY ALS O REFER TO THE ONE MORE SEMINAL FEATURE OF THIS CASE WHICH WOULD DEMONSTRATE THE IM PORTANCE OF NON-STRIKING OFF OF IRRELEVANT CLAUSE IN THE NOTICE BY THE ASSESSING OF FICER. AS NOTED EARLIER, IN THE ASSESSMENT ORDER DATED 10.12.2010 THE ASSESSING OFF ICER RECORDS THAT THE PENALTY 2328 & 2326/MUM/15 M/S. KANAKIA HOSPITALITY PVT.LTD.. 7 PROCEEDINGS U/S 271(1)(C) OF THE ACT ARE TO BE INIT IATED FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. HOWEVER, IN THE NOTICE ISSUE D U/S 274 R.W.S. 271(1)(C) OF THE ACT OF EVEN DATE, BOTH THE LIMBS OF SEC. 271(1)(C) OF THE ACT ARE REPRODUCED IN THE PROFORMA NOTICE AND THE IRRELEVANT CLAUSE HAS NOT B EEN STRUCK-OFF. QUITE CLEARLY, THE OBSERVATION OF THE ASSESSING OFFICER IN THE ASSESSM ENT ORDER AND NON-STRIKING OFF OF THE IRRELEVANT CLAUSE IN THE NOTICE CLEARLY BRINGS OUT THE DIFFIDENCE ON THE PART OF ASSESSING OFFICER AND THERE IS NO CLEAR AND CRYSTAL LISED CHARGE BEING CONVEYED TO THE ASSESSEE U/S 271(1)(C), WHICH HAS TO BE MET BY HIM. AS NOTED BY THE HON'BLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF (SUPRA), THE Q UASI-CRIMINAL PROCEEDINGS U/S 271(1)(C) OF THE ACT OUGHT TO COMPLY WITH THE PRINC IPLES OF NATURAL JUSTICE, AND IN THE PRESENT CASE, CONSIDERING THE OBSERVATIONS OF THE A SSESSING OFFICER IN THE ASSESSMENT ORDER ALONGSIDE HIS ACTION OF NON-STRIKING OFF OF T HE IRRELEVANT CLAUSE IN THE NOTICE SHOWS THAT THE CHARGE BEING MADE AGAINST THE ASSESS EE QUA SEC. 271(1)(C) OF THE ACT IS NOT FIRM AND, THEREFORE, THE PROCEEDINGS SUFFER FROM NON-COMPLIANCE WITH PRINCIPLES OF NATURAL JUSTICE INASMUCH AS THE ASSESSING OFFICE R IS HIMSELF UNSURE AND ASSESSEE IS NOT MADE AWARE AS TO WHICH OF THE TWO LIMBS OF SEC. 271(1)(C) OF THE ACT HE HAS TO RESPOND. 14. THEREFORE, IN VIEW OF THE AFORESAID DISCUSSION, IN OUR VIEW, THE NOTICE ISSUED BY THE ASSESSING OFFICER U/S 274 R.W.S. 271(1)(C) OF T HE ACT DATED 10.12.2010 IS UNTENABLE AS IT SUFFERS FROM THE VICE OF NONAPPLICA TION OF MIND HAVING REGARD TO THE RATIO OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF DILIP N. SHROFF (SUPRA) AS WELL AS THE JUDGMENT OF THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF SHRI SAMSON PERINCHERY (SUPRA). THUS, ON THIS COUNT ITSE LF THE PENALTY IMPOSED U/S 271(1)(C) OF THE ACT IS LIABLE TO BE DELETED. WE HO LD SO. SINCE THE PENALTY HAS BEEN DELETED ON THE PRELIMINARY POINT, THE OTHER ARGUMEN TS RAISED BY THE APPELLANT ARE NOT BEING DEALT WITH. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED, AS ABOVE RESPECTFULLY FOLLOWING THE ABOVE ORDER AND CONSIDER ING THE FAILURE OF THE AO TO STRIKE OFF THE RELEVANT PORTION IN THE PENALTY NOTICE WE HOLD THAT THE PENALTY LEVIED BY THE AO AND CONFIRMED BY THE FAA WAS NOT AS PER LAW.SO,REVERSING THE ORDE R OF THE FAA,WE DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. IN THE MATTER OF SAMSON PERINCHERY(SUPRA)THE HONBL E BOMBAY HIGH COURT HAS HELD THAT PENALTY CAN BE IMPOSED ONLY ON THE GROUND ON WHICH PROCEEDINGS WERE INITIATED.SIMILAR VIEWS HAVE BEEN EXPRESSED IN THE CASE OF BAISETTY R EVATHI(SUPRA). CONSIDERING THE ABOVE,WE REVERSE THE ORDER OF THE F AA AND DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. ITA/2328/MUM/2015,AY.2010-11 6. FOLLOWING OUR ORDER FOR THE AY.2008-09,WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE,AS THE FACTS OF BOTH THE CAS ES,EXCEPT FOR THE AMOUNTS INVOLVED,ARE IDENTICAL. AS A RESULT,APPEAL FILED BY THE ASSESSEE FOR BOTH THE AY.S.STAND ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH, AUGUST, 2017. 09 , 2017 SD/- SD/- ( / RAM LAL NEGI ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 2328 & 2326/MUM/15 M/S. KANAKIA HOSPITALITY PVT.LTD.. 8 MUMBAI; /DATED :09.08 .2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR I BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.