Shri Tejpal Singh Bhatia, Kanpur V. Income Tax Officer-1(5), Kanpur

ITA 362/LKW/2018

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 0681 (ITAT-LUCKNOW)
• Duration Of Justice: 4 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 30-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Principle of natural justice; Question of law; Assessment record
• Section: 271(1)(c); 143(3); 250; 274; 64; 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “A”, LUCKNOW BEFORE SHRI. A. D. JAIN, VICE PRESIDENT AND SHRI T. S. KAPOOR, ACCOUNTANT MEMBER ITA No.362/LKW/2018 Assessment Year: 2014-15 Tejpal Singh Bhatia 59/8, Birhana Road Kanpur v. The ITO-1(5) Kanpur TAN/PAN:ACDPB1399Q (Appellant) (Respondent) Appellant by: Shri Swaran Singh, C.A. Respondent by: Shri Pankaj Sachan, D.R. Date of hearing: 31 05 2022 Date of pronouncement: 04 07 2022 O R D E R PER A.D. JAIN, V.P.: This is assessee’s appeal against the order of the ld. CIT(A) – I, Kanpur, dated 24.1.2018 for Assessment Year 2014- 15, raising the following grounds of appeal: 1) That the ld. Commissioner of Income Tax (Appeals)-I, Kanpur has erred in law and on facts by sustaining the Penalty amounting to Rs.84,297/- imposed by the Ld. A.O. under section 271(1 )(c) of the Income Tax Act, 1961, without seeking assessment records in an ex-party manner. 2) That the Ld. C.I.T. (Appeals)-I, Kanpur has passed the order on ex-parte manner and without providing reasonable opportunity of being heard to the appellant. 3) That the Ld. Commissioner of Income Tax (Appeals)-I, Kanpur has erred in law and on facts by sustaining the Penalty amounting to Rs.84,297/- imposed by the Ld. A.O. under section 271(1)(c) of the Income Tax Act, 1961. Page 2 of 9 4) That the Ld. C.I.T(Appeals)-I, Kanpur has erred in law and on facts by sustaining the Penalty amounting to Rs.84,297/- imposed by the Ld. A.O. under section 271(1)(c) of the Income Tax Act, 1961, which is wholly unjustified, without proper basis, too high & deserves to be deleted. 5) That the order of the Ld. C.I.T. (Appeals)-I, Kanpur is insupportable in law and on facts and is also contrary to the principles of natural justice and equity. 6) That any other relief or reliefs as may be deemed fit in the case and circumstances of the case be granted. 2. The assessee has also raised an Additional Ground of Appeal, which reads as under: “7. That the show cause notice issued by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 for the Assessment Year 2014-15 did not mention the specific charge and limb against which penalty of Rs.84,297/- is proposed to be levied, therefore the impugned penalty order passed by the Assessing Officer and sustained by the ld. CIT(A)-1, Kanpur is liable to be quashed.” 3. This Additional Ground raises a legal issue going to the root of the matter, not requiring any fresh material to be gone into. Accordingly, it was admitted. 4. The brief facts of the case are that the assessee is an individual and is engaged in the business of trading medicines for over 25 years. The assessee e-filed his return of income on 30.11.2014 disclosing an income of Rs.7,95,560/-. The Assessing Officer completed assessment under section 143(3) of the Income Tax Act, 1961, assessing the income of the assessee at Rs.11,97,480/- by making addition/disallowance. The Assessing Officer, thereafter, initiated penalty proceedings under section 271(1)(c) of the Act, by issuing a show cause notice dated Page 3 of 9 03.06.2016, proposing the penalty to be levied and, thereafter, imposed a penalty of Rs.84,297/-, vide his order dated 09.11.2016. Aggrieved, the assessee preferred an appeal before the ld. CIT(A), who, vide his impugned order, confirmed the order of the Assessing Officer, levying a penalty of Rs.84,297/-. 5. The ld. Counsel for the assessee submitted that the Assessing Officer did not specify the charge and the limb under which the penalty is levied. The ld. A.R. of the assessee vehemently argued that it is a settled position of law that if the notice under section 274 is not specific about the charge or limb under which penalty is being levied under section 271(1)(c) of the Act, any penalty levied on the basis of such a notice is bad in law and it is liable to be cancelled. 6. The ld. D.R., however, relying on the impugned order, has contended that the penalty has been rightly confirmed; that due to non-mentioning of the specific charge and limb in penalty notice by the Assessing Officer, no prejudice has been caused to the assessee and the assessee has clearly understood what was the purport and import of the notice issued under section 274 read with section 271 of the Income Act; and that after understanding the notice, the assessee has submitted his reply dated 13.06.2016 and after consideration of the same, the Assessing Officer passed penalty order under section 271(1)(c) of the Act. The ld. D.R. has placed reliance on the decision of the Hon'ble Madras High Court in the case of ‘M/s Sundaram Finance limited vs. ACIT, Chennai’, 93 taxmann 250 (Madras). It was further submitted that the SLP filed against this order has been dismissed by the Hon'ble Supreme Court in 99 Táxmann 152(SC). 7. Heard. The show-cause notice in question is as follows: Page 4 of 9 8. From a perusal of this notice, it is crystal clear that the charge for which penalty is proposed to be levied under section 271(1)(c) of the Act, whether for concealment of income, or for furnishing of inaccurate particulars of income, is not specific, inasmuch as the alleged charge reads: “....have concealed the particulars of your income or furnished inaccurate particulars of such income....”. The law mandates that the authority, who is proposing to impose penalty, shall be certain as to the basis on which the penalty is being levied and the notice must reflect that specific reason, so that the assessee, to whom such notice is Page 5 of 9 given, can prepare himself regarding the defence, which he would like to take to support his case. This is even enshrined in the principles of natural justice and as has been upheld by the Hon'ble Apex Court and various High Courts. 9. In ‘CIT vs. SSA’s Emerald Meadows’, [2016] 73 Taxmann.com 248, the Hon'ble Apex Court looked into the facts before them that the Tribunal, relying on the decision of the Division Bench of the Hon'ble Karnataka High Court, in the case of ‘CIT and Another vs. Manjunath Cotton & Ginning Factory’, 239 ITR 565 Karn.), allowed the appeal of the assessee, holding that notice issued by the Assessing Officer under section 274 read with section 271(1)(c) of the Act was bad in law, as it did not specify under which limb of section 271(1)(c) of the Act, penalty proceedings had been initiated, i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. When the matter travelled up to the High Court, it followed the judgment of the Hon'ble Karnataka High Court in the case of ‘CIT and Another vs. Manjunath Cotton & Ginning Factory’ (supra) and decided that there was, therefore, no substantial question of law to be decided. Thereafter, an SLP was filed before the Hon'ble Apex Court and the Apex Court dismissed the SLP of the Revenue, finding no merit therein and confirming the issue in favour of the assessee. 10. In ‘CIT and Another vs. Manjunath Cotton & Ginning Factory’, (supra), it has been held by the Hon'ble Karnataka High Court that notice under section 274 read with section 271(1)(c) of the Act should specifically state the grounds mentioned in section 271(1)(c) of the Act, i.e., whether it is for concealment of income, or for furnishing of inaccurate particulars of income; that sending printed form, where all the grounds are mentioned Page 6 of 9 would not satisfy the requirement of law; that the assessee should know the grounds which he has to meet specifically, otherwise, the principles of natural justice are offended; that on the basis of such proceedings, no penalty could be imposed on the assessee; that penalty proceedings are distinct from assessment proceedings; and that they emanate from the assessment proceedings, still they are separate and independent proceedings all together. 11. In ‘Meherjee Cassinath Holdings Pvt. Ltd vs. ACIT’ (ITAT Mumbai), ITA No. 2555/MUM/2012, order dated 28/04/2017, the observation of the Bench was that penalty proceedings under section 271(1)(c) of the Act are "quasi-criminal" proceedings and ought to comply with the principles of natural justice; and that the non-striking off of the irrelevant portion in the show-cause notice means that the Assessing Officer is not firm about the charge against the assessee and the assessee is not made aware as to which of the two limbs of section 271(1)(c) he has to respond to. 12. In ‘Chandra Prakash Bubna vs. Income Tax Officer, Ward 27(3), Kolkata’, (ITAT, Kolkata Bench) [2015] 64 taxmann.com 155, it was held that when the Assessing Officer levied penalty without bringing out any specific charge for which the penalty had been imposed, the penalty was liable to be deleted. 13. In ‘Madan Lal Kishori Lal vs. CIT’, 197 CTR (All) 144, the Hon’ble Allahabad High Court, following ‘K.P. Madhusudanan’ in Civil Appeal No. 6465/2000 (SC), has held that Explanation-1 to Section 271(1)(c) applies whether or not the Assessing Officer has invoked it in the order or in the notice. This judgment is not an authority for the issue presently under consideration before the Page 7 of 9 Bench. The judgment explains the scope of Explanation- 1 appended to section 271(1)(c) of the Act. It has been held therein that the onus of the assessee will not get discharged by furnishing an explanation without any further proof; that in Explanation-1 to section 271(1)(c), the onus is on the assessee; that where the AO issues a notice to the assessee, he makes the assessee aware that the provisions thereof are to be used against him and these provisions include Explanation-1 to section 271(1)(c); and that where the returned income is less than 80% of the assessed income, the Explanation is automatically attracted. In the case under consideration, however, the issue is not about the applicability or otherwise of Explanation-1 to section 271(1)(c). Rather, the issue is regarding the validity and legality of the penalty notice. It cannot be gainsaid that it is only when the notice issued is a valid notice, that the question of considering the assessee’s explanation/reply in the light of Explanation -1 would arise. 14. In ‘M/s Sundaram Finance Ltd. vs. ACIT’ (supra), the judgment of the Hon'ble Madras High Court, on which reliance has been placed by the ld. D.R., their Lordships, dismissing the appeal of the assessee, held as under: “16. We have perused the notices and we find that the relevant columns have been marked, more particularly, when the case against the assessee is that they have concealed particulars of income and furnished inaccurate particulars of income. Therefore, the contention raised by the assessee is liable to be rejected on facts. That apart, this issue can never be a question of law in the assessee s case, as it is purely a question of fact. Apart from that, the assessee had at no earlier point of time raised the plea that on account of a defect in the notice, they were put to prejudice. All violations will not result in nullifying the orders passed by statutory authorities. Page 8 of 9 If the case of the assessee is that they have been put to prejudice and principles of natural justice were violated on account of not being able to submit an effective reply, it would be a different matter. This was never the plea of the assessee either before the Assessing Officer or before the first Appellate Authority or before the Tribunal or before this Court when the Tax Case Appeals were filed and it was only after 10 years, when the appeals were listed for final hearing, this issue is sought to be raised. Thus on facts, we could safely conclude that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice issued under section 274 read with 271(1)(c) of the Act. Therefore, principles of natural justice cannot be read in abstract and the assessee, being a limited company, having wide network in various financial services, should definitely be precluded from raising such a plea at this belated stage.” 15. It is seen that the Hon'ble Madras High Court in ‘M/s Sundaram Finance Ltd. vs. ACIT’ (supra) nowhere disagreed with the view taken by the Hon'ble Karnataka High Court in 'CIT and Another vs. Manjunath Cotton & Ginning Factory' (supra). Rather, the matter was decided on the facts of the case, holding, inter alia, that the case of the Revenue against the assessee was that of concealment of income as well as that of furnishing of inaccurate particulars of income. Therefore, ‘Sundaram Finance’ (supra) is of no aid to the Revenue. 16. Moreover, in the present case, as against that in ‘M/s Sundaram Finance Ltd. vs. ACIT’ (supra), this issue had been raised by the assessee before the ld. CIT(A), and it has also been raised before us, contending that prejudice has been caused to the assessee and the charge against the assessee in the assessment order as well as in the penalty notice is nebulous and the assessee has remained unable to understand the purport and Page 9 of 9 import of the notice issued under section 274 read with 271 of the Act. Therefore, the principles of natural justice have been flagrantly violated. 17. In view of the above, we hold that the show cause notice, which has not specified the charge and limb under which the penalty is proposed to be levied, is void ab initio and the consequent penalty imposed on the basis of such notice is, therefore, illegal and bad in law and liable to be deleted. Accordingly, the penalty is deleted and the appeal of the assessee is allowed. 18. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 04/07/2022. Sd/- Sd/- [T. S. KAPOOR] [A. D. JAIN] ACCOUNTANT MEMBER VICE PRESIDENT DATED:04/07/2022 JJ: Copy forwarded to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR