DEELIP VIJAYKUMAR KOTECHA, JALGAON V. DCIT, CIRCLE 1, JALGAON

ITA 40/PUN/2020

AI Insights

The case involves two cross appeals related to the penalty imposed on Dellip Vijaykumar Kotecha following a search operation. The Assessing Officer (AO) initially imposed a penalty under section 271AAA for undisclosed income identified during the search. However, the notice for this penalty was incorrectly issued under section 271 and referenced both limbs of section 271(1)(c), which was inappropriate for a penalty under section 271AAA. The Commissioner of Income Tax (Appeals) partly confirmed and partly deleted the penalty, leading to appeals by both the assessee and the Revenue. The Tribunal's decision focused on the legal validity of the notice and the correct application of section 271AAA.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 137851 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-02-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 08-01-2020
• Other Referred Cases: Ventura Textiles Ltd. vs. CIT, Mohd. Farhan A. Shaikh & Anr. vs. ACIT, PCIT vs. Golden Peace Hotels and Resorts (P.) Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: HARI KRISHAN
• Keywords: Opportunity of being heard; Set aside
• Section: 271(1)(c); 139; 142(1); 153A; 274; 143(2); 139(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, „A‟ PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER आयकर अपीऱ सं. / ITA. No.1898/PUN/2019 निर्धारण वषा / Assessment Year : 2011-12 Dellip Vijaykumar Kotecha 1, Pradhan Apartment, Pratap Nagar, Jalgaon – 425001 PAN: ABCPK8441J Vs. DCIT, Central Circle 1, Nashik Appellant Respondent आयकर अपीऱ सं. / ITA. No.40/PUN/2020 निर्धारण वषा / Assessment Year : 2011-12 DCIT, Central Circle 1, Nashik Vs. Dellip Vijaykumar Kotecha 1, Pradhan Apartment, Pratap Nagar, Jalgaon – 425001 PAN: ABCPK8441J Appellant Respondent आदेश / ORDER PER R.S. SYAL, VP : These two cross appeals – one by the assessee and the other by Revenue - arise out of the order dt. 25.10.2019 passed by the ld. CIT(A)-12, Pune, partly confirming the penalty imposed by Assessee by Shri Hari Krishan Revenue by Shri Ramnath P Murkunde Date of hearing 15-02-2023 Date of pronouncement 16-02-2023 ITA No.1898/PUN/2019 ITA No.40/PUN/2020 Dellip Vijaykumar Kotecha 2 the Assessing Officer (AO) u/s 271AAA of the Income-tax Act, 1961 (hereinafter referred to „as the Act‟) in relation to assessment year 2011-12. 2. Succinctly, the factual panorama of the case is that the assessee was subjected to search, pursuant to which the return was filed u/s 153A declaring the total income at Rs.1.57 crore. The assessment was completed at total income of Rs.9,65,49,046, making three additions viz., Expenditure incurred out of undisclosed sources amounting to Rs.1.38 crore; Investment out of undisclosed source at Rs.50 lacs; and Investment out of undisclosed source of Rs.6.20 crore. Thereafter, the AO imposed penalty u/s 271AAA of the Act to the tune of Rs.1.45 crore with reference to the above three additions. The assessee went in appeal before the ld. CIT(A), who sustained the penalty on two counts and deleted on the third one. This is how, both the sides have come up in further appeal before the Tribunal on their respective stands. 3. We have heard the rival contentions and perused the relevant material on record. The ld. AR raised a legal issue by contending that the penalty was imposed u/s 271AAA by virtue of notice u/s 274 r.w.s. 271 of the Act and that too, taking note of ITA No.1898/PUN/2019 ITA No.40/PUN/2020 Dellip Vijaykumar Kotecha 3 both the limbs of section 271(1)(c) of the Act, which vitiated the penalty order. For this proposition, he relied on the judgment of Hon‟ble jurisdictional High Court in Ventura Textiles Ltd. vs. CIT (2020) 426 ITR 478 (Bom). Per contra, the ld. DR batted for the confirmation of full penalty instead of part affirmed in the first appeal. 4. It goes without saying that the foundation for imposition of any penalty is its Notice, which makes the assessee acquainted with the charge against him for which the penalty proceedings are initiated. It is this charge, as set out in the penalty notice, which the assessee has to meet with culminating into imposition or otherwise of the penalty. The Full bench of Hon‟ble jurisdictional High Court in Mohd. Farhan A. Shaikh & Anr. vs. ACIT (2021) 434 ITR 1 (Bom)(FB) has held that if the charge in the notice u/s 274 is vague i.e. irrelevant charge has not been struck off, the penalty order u/s 271(1)(c) gets vitiated. Similar view has been taken by the Hon‟ble Bombay High Court in PCIT vs. Golden Peace Hotels and Resorts (P.) Ltd. (2021) 124 taxmann.com 248 (Bom). The SLP of Department against this judgment has since been dismissed in PCIT vs. Golden Peace Hotels and Resorts (P.) Ltd. (2021) 437 ITR (9) (ST) (SC). It is manifest from the above ITA No.1898/PUN/2019 ITA No.40/PUN/2020 Dellip Vijaykumar Kotecha 4 enunciation of law that the issuance of a lawful notice u/s 274, clearly setting out the charge for which the penalty is proposed to be levied, is sine qua non, for passing a valid penalty order. Where notice u/s 274 is vague, penalty order gets vitiated. 5. Adverting to the facts of the extant case, we find that the assessee was subjected to search and undisclosed income was determined by the AO. Thereafter, the penalty proceedings were initiated by means of: `Notice under section 274 read with section 271‟ issued on 30.03.2014. The notice is reproduced as under: “NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE INCOME TAX ACT 1961 PAN: ABCPK8441J Office of the Assistant Commissioner of Income Tax Central Circle 1, Nashik, Third Floor, Kendriya Rajaswa Bhawan, Gadkari Chowk, Old Agra Road, Nashik 422 002 Telephone No.[phone] Date : 30.03.2014. To, Shri Dileep Vijaykumar Kotecha 1, Pradhan Apartment, Pratap Nagar, Jalgaon 425 001 Whereas in the course of assessment proceedings before me for assessment year 2011-12 it appears that you:- have without reasonable cause failed to furnish me return of income which you were required to furnish by a notice given under section 22(1) / 22(2) 34 of the Indian Income Tax Act, 1922 or which ITA No.1898/PUN/2019 ITA No.40/PUN/2020 Dellip Vijaykumar Kotecha 5 you were required to furnish under section 139(1) or by a notice given under section 139(2) / 148 of the Income Tax Act, 1961, No.......... dated ............ or have without reasonable cause failed to furnish it within the time allowed and the manner required by the said section 139(1) or by such notice. have without reasonable cause failed to comply with a notice under section 22(4) / 23(2) of the Indian Income Tax Act, 1922 or under section 142(1) / 143(2) of the Income Tax Act, 1961. √ have concealed the particulars of your Income ........ furnished inaccurate particulars of such income You are hereby requested to appear before me at 11.00 A.M. on 15.04.2014 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 representative you may show cause in writing on or before the said date which will be considered before any such order is made under section 271AAA Sd/- Assistant Commissioner of Income Tax Central Circle 1, Nashik” 6. On going through the above notice, it is vivid that the same was issued u/s 274 r.w.s. 271 of the Act. 7. At this juncture, it is relevant to mention that section 271AAA was inserted by the Finance Act, 2007 w.e.f. 01.04.2007 providing for the imposition of penalty where search has been initiated. This section provides for penalty @ 10% of “undisclosed income” of the specified previous year. The term “undisclosed income” has been defined in Explanation (a) below ITA No.1898/PUN/2019 ITA No.40/PUN/2020 Dellip Vijaykumar Kotecha 6 sub-section (4) of section 271AAA of the Act to mean any income of the specified previous year represented either wholly or partly by any money, bullion, etc found in the course of search u/s 132 of the Act which has not been recorded before the date of search in the books of account or any expenditure recorded in the books of account which is found to be false etc. The term “specified previous year” has been defined in Explanation (b) to mean, inter alia, the previous year which has ended before the date of search, but the date of filing the return of income under sub-section (1) of section 139 for such year has not expired and the assessee has not furnished the return of income for the previous year. 8. Adverting to the facts of the instant case, it is seen that the assessee was subjected to search on 09.08.2011. The assessment year under consideration is 2011-12. Due date for filing the return u/s 139(1) was 30.09.2011. Thus, it is ostensible that the search and seizure operation was conducted before the due date and hence the year under consideration is a `specified previous year‟. 9. We revert to section 271AAA of the Act, which provides that the penalty is imposed with reference to the undisclosed income, ITA No.1898/PUN/2019 ITA No.40/PUN/2020 Dellip Vijaykumar Kotecha 7 where search is initiated after 1 st day of June, 2007 but before April, 2012. The AO has rightly imposed penalty u/s 271AAA as the date of search is covered within the given period. However, the notice was issued for penalty u/s 271 and not section 271AAA. Sub-section (3) of section 271AAA categorically provides that no penalty under the provisions of section 271(1)(c) of the Act shall be imposed upon the assessee in respect of `undisclosed income‟ referred to in sub-section (1) of section 271AAA. This shows that albeit there is a bar on imposing penalty u/s 271(1)(c) of the Act anent to the search conducted within the period specified as above, the AO in the present case still went ahead by issuing notice of penalty u/s 274 r.w.s. 271 of the Act. The notice deciphers that not only did the AO invoke wrong section 271 for imposing the penalty u/s 271AAA but also took note of the relevant limbs of section 271(1)(c) of the Act in the context of the penalty u/s 271AAA. He referred to the imposition of penalty u/s 271 for the assessee to “have concealed the particulars of your income or .... furnished inaccurate particulars of such income”. Ergo, it is evident that the AO recorded both the limbs (without striking out the irrelevant one) enshrined in 271(1)(c) of the Act in the notice for imposing the ITA No.1898/PUN/2019 ITA No.40/PUN/2020 Dellip Vijaykumar Kotecha 8 penalty under section 271AAA. Had it been a case of imposition of penalty u/s 271(1)(c), the notice on this count would have suffered irreversible deficient making the order void. 10. Right now, we are dealing with penalty u/s 271AAA of the Act, which requires its imposition on `undisclosed income‟. It can be seen from the notice that the AO committed two mistakes one after another, by firstly, issuing notice under wrong section and then taking cognizance of the requisite portions of such wrong section for imposing penalty u/s 271AAA. The Hon‟ble Full Bench in Mohd. Farhan A. Shaikh (supra) ordered to delete the penalty u/s 271 because notice issued under the correct section did not prescribe the correct limb under which the penalty was proposed to be levied. In other words, the first stage, namely, correct section 271 was rightly invoked in the notice in that case. The mistake occurred at the second stage, namely, not striking out the irrelevant limb of section 271, which vitiated the penalty order. In oppugnation, we are confronted with a situation in which the AO fell in error at both the stages, viz., he issued notice under wrong section 271 as against 271AAA and also took note of the limbs of clause (c) of the former section, namely, concealing the particular of income or furnishing the inaccurate ITA No.1898/PUN/2019 ITA No.40/PUN/2020 Dellip Vijaykumar Kotecha 9 particulars of income, as against the only correct limb of “undisclosed income” u/s 271AAA. This manifests that the facts of extant case are rather worse vis-à-vis those of Mohd. Farhan A. Shaikh (supra). 11. The ld. DR took assistance from the last para of the notice for bolstering his submission that such notice refers to section 271AAA. In our considered opinion, the view canvassed by the ld. DR is devoid of merits. The last para of the notice has two sentences. The first asks assessee the reasons: “to show cause why an order imposing a penalty on you should not be made under section 271 of the Income tax Act, 1961”. The AO reiterated here the reference to section 271 for imposing the penalty, which also finds place in the opening part of the notice. The last sentence of the para simply states that: “If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative, you may show cause in writing on or before the said date which will be considered before any such order is made under section 271AAA”. It is explicit that the second sentence contains a warning to the assessee to appear, failure of which would lead to making the order u/s 271AAA. Reference in the second sentence is only to the making of the ITA No.1898/PUN/2019 ITA No.40/PUN/2020 Dellip Vijaykumar Kotecha 10 order u/s 271AAA. On the other hand, the notice part informing the assessee of the charge against him has only reference to section 271 and the ingredients of section 271(1)(c). In such circumstances, we are satisfied that the penalty order passed by the AO, pursuant to notice issued under wrong section, has been rendered void. We, therefore, set aside the penalty order as well as the consequential impugned order. 12. In view of our decision in favour of the assessee on the above legal ground, there is no need to go into the merits of the penalty imposed or partly deleted by the ld. CIT(A), which have become academic in nature. 13. In the result, appeal of assessee is allowed in above terms and that of the Revenue is dismissed. Order pronounced in the Open Court on 16 th February, 2023. Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; दिन ांक Dated : 16 th February, 2023 GCVSR ITA No.1898/PUN/2019 ITA No.40/PUN/2020 Dellip Vijaykumar Kotecha 11 आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: 1. अपील र्थी / The Appellant; 2. प्रत्यर्थी / The Respondent 3. 4. 5. 6. The CIT(A)-12, Pune The Pr. CIT Central, Nagpur DR, ITAT, „A‟ Bench, Pune Guard file आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune Date 1. Draft dictated on 15-02-2023 Sr.PS 2. Draft placed before author 16-02-2023 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *