Sri. Lakhan Singh, Bangalore V. ACIT, Bangalore

ITA 482/BANG/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80642 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-08-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 03-04-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BIJU M K
• Assessee Lawyers: V SRINIVASANCA
• Keywords: Principle of natural justice; Reasonable cause; Procedural lapse
• Section: 27

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH C, BANGALORE BEFORE SMT P. MADAHVI DEVI, JUDICIAL MEMBER AND SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER ITA NOS.482,483,534 & 535(BANG) 2012 (ASSESSMENT YEARS : 2005-06 & 2006-07 & 2002-03 & 2003-04) SMT. UMADEVI & OTHERS, L/R OF LATE SHRI LAKHAN SING H, NO.2,4 TH FLOOR, RR CHAMBERS, VASANTHNAGAR, BANGALORE. APPELLANT PAN NO.ARDPS8589G VS THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-6(1), BANGALORE. RESPONDENT ASSESSEE BY : SHRI V.SRINIVASAN,CA REVENUE BY : SHRI BIJU, M.K. JCIT DATE OF HEARING : 05-08-2014 DATE OF PRONOUNCEMENT : 1 4-08-2014 O R D E R PER SHRI ABRAHAM P GEORGE, AM: ASSESSEE THROUGH THE ABOVE APPEALS ASSAILS THE LEVY OF PENALTY UNDER SECTION 271(1)(C ) OF THE IT ACT, 1961 (THE A CT, IN SHORT) FOR THE IMPUGNED ASSESSMENT YEARS, WHICH WERE CONFIRMED BY THE LEARNED CIT(A). ITA NOS.482,483,534&535 (BANG)2012 2 2. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED OUT O F THE COMMON GROUNDS 1 TO 6 RAISED BY HIM, IF GROUND NO.2 IS DEC IDED IN ASSESSEES FAVOUR, OTHER GROUNDS MIGHT NOT BE REQUIRED TO BE A DJUDICATED. GROUND NO.2 IS REPRODUCED HEREUNDER. 2. THE ORDER LEVYING PENALTY U/S 271(1)(C ) OF TH E IT ACT, 1961 IS BAD IN LAW IN AS MUCH AS, THE LEARNED AO H AS NEITHER REACHED ANY SATISFACTION NOR HAS SUCH SATIS FACTION BEEN RECORDED IN THE ASSESSMENT ORDER AND CONSEQUEN TLY, THE VERY INITIATION OF PROCEEDINGS U/S 271(1)(C ) O F THE IT ACT, IS NOT IN ACCORDANCE WITH THE REQUIREMENT OF SECTIO N 271(1)(C ) OF THE IT ACT AND CONSEQUENTLY, THE ORDER OF PENA LTY FOUNDED ON THE INVALID INITIATION OF PENALTY PROCEE DINGS IS LIABLE TO BE CANCELLED. 3. LEARNED AR IN SUPPORT OF THE ABOVE GROUND PLACE D COPIES OF THE NOTICES UNDER SECTION 274 R.W.S.271 OF THE ACT ISSU ED TO THE ASSESSEE FOR EACH OF THE YEAR. AS PER THE LEARNED AR THE AO HA D FAILED TO SPECIFY WHICH OF THE CONDITIONS MENTIONED IN SEC.271(1) WAS VIOLATED. UNLESS THE AO, WHILE ISSUING THE NOTICE HAD COME TO A DEFINITE CONCLUSION AS TO WHETHER IT WAS A CASE OF FURNISHING OF INACCURATE P ARTICULAR OR A CASE OF CONCEALMENT AND SPECIFIED THIS IN THE NOTICE, ASSES SEE WOULD BE ALL AT SEA. RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS MANJUNATHA COTTON & GIN NING FACTORY 359 ITR 565. LEARNED COUNSEL SUBMITTED THAT COORDINAT E BENCH OF THIS ITA NOS.482,483,534&535 (BANG)2012 3 TRIBUNAL IN WHICH HONBLE JUDICIAL MEMBER WAS A MEM BER, HAD FOLLOWED THE ABOVE JUDGMENT AND QUASHED PENALTY LEVIED U/S27 1(1)(C ) IN THE CASE OF SMT MADHU SOLANKI VS ITO (ITA NO.525/BANG/2011) DATED 20-09- 2013. 4. LEARNED DR FAIRLY ADMITTED THAT THE POSITION AS ON DATE WENT IN ASSESSEES FAVOUR. 5. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. NOTICE U/S 274 ISSUED TO THE ASSESSEE FOR ALL THE Y EARS ARE TYPICAL, EXCEPT FOR CHANGE IN MENTIONED ASSESSMENT YEAR AND READS A S UNDER; TO 31-12-07 LAKHAN SINGH, NO.2,RR CHAMBERS, IV FLOOR, 11 TH MAIN, VASANTHNAGAR, BANGALORE WHEREAS IN THE COURSE OF PROCEEDINGS BEFORE ME FOR THE ASSESSMENT YEAR 2006-07 IT APPEARS TO ME THAT YOU *HAVE WITHOUT REASONABLE CAUSE FAILED TO FURNISH ME RETURN OF INCOME WHICH YOU WERE REQUIRED TO FURNISH BY A NOTI CE GIVEN UNDER SECTIONS 22(1)/22(2)/34 OF THE INDIAN INCOME-TAX AC T, 1922 OR WHICH YOU WERE REQUIRED TO FURNISH UNDER SECTION 139(1) O R BY A NOTICE GIVEN UNDER SECTION 139(2)/148 OF THE INDIAN INCOME-TAX A CT, 1961.NO. .. DATED .OR HAVE WITHOUT REASONABLE CAUSE FAILED TO FURNISH IT WITHIN THE TIME ALLOWED AND TH E MANNER REQUIRED BY THE SAID SECTION 139(1) OR BY SUCH NOTICE. ITA NOS.482,483,534&535 (BANG)2012 4 *HAVE WITHOUT REASONABLE CAUSE FAILED TO COMPLY WIT H A NOTICE UNDER SECTIONS 22(4)23(2) OF THE INDIAN INCOME TAX ACT, 1922 OR UNDER SECTION 142(1)/143 OF THE INCOME-TAX ACT, 1961. NO. .. DATED . *HAVE CONCEALED THE PARTICULARS OF YOUR INCOME OR.FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. YOU ARE HEREBY REQUESTED TO APPEAR BEFORE ME AT 1 0.30 AM/PM ON 22-01-2008 AND SHOW CAUSE WHY AN ORDER IMPOSING A P ENALTY ON YOU SHOULD NOT BE MADE UNDER SECTION 271 OF INCOME-TAX ACT, 1961. IF YOU DO NOT WISH TO AVAIL YOURSELF OF THIS OPPORTUNITY O F BEING HEARD IN PERSON OR THROUGH AUTHORIZED REPRESENTATIVE, YOU MA Y SHOW CAUSE IN WRITING ON OR BEFORE THE SAID DATE WHICH WILL BE CO NSIDERED BEFORE ANY SUCH ORDER IS MADE UNDER SECTION 271. 6. EXCEPT FOR A TICK AGAINST THE PORTION HAVE CONC EALED THE PARTICULARS OF YOUR INCOME OR FURNISHED INACCURATE PARTICUL ARS OF SUCH INCOME NOTHING MEANINGFUL IS DISCERNABLE, MUCH LES S ANSWERABLE FOR THE ASSESSEE. CO-ORDINATE BENCH IN CASE REFERRED SUPRA HAD HELD AS UNDER AT PARAS 15 TO 17 WHERE ALSO THE FACT SITUATION AS REG ARDS THE NOTICE WAS PARI MATERIA WITH ASSESSEES CASE HERE. THIS PART I S REPRODUCED HEREUNDER; 15. THE FIRST LEGAL QUESTION IS WHETHER THE NOTICE U/S 274 R.W.S.271 IS VALID. THE LEARNED DRS OBJECTION IS THAT THE ASSESSEE HAS NOT RAISED ANY SPECIFIC GROUND OF APPE AL ON THIS ISSUE. HOWEVER, WE FIND IN THE GROUND OF APPEAL NO .2, THE ITA NOS.482,483,534&535 (BANG)2012 5 ASSESSSEE HAS RAISED AN OBJECTION THAT THE ORDER OF PENALTY PASSED BY THE LD.AO U/S271(1) OF THE IT ACT, IS WIT HOUT JURISDICTION AS THE MANDATORY CONDITION FOR INVOKIN G PROVISION OF SEC.271(1)(C ) OF THE ACT HAS NOT BEEN COMPILED WITH. THEREFORE, WE HAVE TO EXAMINE WHETHER MANDATORY CONDITIONS FOR INITIATING THE PROCEEDINGS U/S 271(1 )(C ) WERE COMPLIED WITH OR NOT. WHAT ARE THE MANDATORY COND ITIONS FOR INVOKING THE PROVISION OF SEC.271(1)(C ) OF THE ACT? ONE OF THE MANDATORY CONDITIONS IS THAT HE NOTICE U/S 2 74 R..S. 271 MUST BE VALID NOTICE. IN VIEW OF THE SAME, WE PROCEED TO ADJUDICATE THIS GROUND OF APPEAL. 16. AS SEEN FROM THE NOTICE ISSUED U/S 271(10(C ) OF THE IT ACT, IT IS DATED 29-03-2002 ADDRESSED TO THE ASS ESSEE FOR THE ASSESSMENT YEAR 1998-99. IT IS IN THE PRES CRIBED FORM WITH THE BLANKS TO BE FILLED UP BY THE RELEVAN T INFORMATION. AT THE BOTTOM OF THE NOTICE ONPAGE-2, IT IS MENTIONED THAT INAPPROPRIATE WORDS AND PARAGRAPHS A RE TO BE DELETED. HOWEVER, WE FIND THAT THE AO EXCEPT FROM MENTIONING THE ASSESSMENT YEAR AND STRIKING OFF PA RA 2 OF ITA NOS.482,483,534&535 (BANG)2012 6 THE NOTICE HAS NOT FILLED UP ANY OTHER BLANKS NOR H AS HE STRUCK OFF ANY OTHER INAPPROPRIATE WORDS OR PARAGRA PHS. PARA-4 MENTION BOTH THE CONCEALMENT OF PARTICULARS OF INCOME AS WELL AS FURNISHING OF INACCURATE PARTICUL ARS OF SUCH INCOME. THE AO HAS NOT SPECIFIED AS TO WHICH OF TH E CONDITIONS FOR INITIATING PENALTY IS FULFILLED. T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S MANJUN ATH COTTON & GINNING FACTORY (CITED SUPRA) AT PAGE 93 P ARA 59 TO 61 HAS CONSIDERED THIS ISSUE AT LENGTH AND HAS HELD THAT CLAUSE(C ) OF THE PRINTED FORM OF NOTICE U/S 274 DE ALS WITH TWO SATISFACTIONS I.E. CONCEALMENT OF PARTICULARS O F INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. T HE HONBLE HIGH COURT HAS HELD THAT BOTH THE CONDITIONS ARE DI FFERENT AND DISTINCT THOUGH AT TIMES THEY MAY OVERLAP WITH EACH OTHER. IT WAS HELD THAT AO WHILE ISSUING NOTICE U /S 274 HAS TO COME TO THE CONCLUSION AS TO WHETHER IT IS CASE OF CONCEALMENT OF INCOME OR IT IS A CASE OF FURNISHING OF INACCURATE PARTICULARS OF INCOME AND IF THE STANDAR D PROFORMA WITHOUT DELETING THE RELEVANT CLAUSE IS IS SUED, IT ITA NOS.482,483,534&535 (BANG)2012 7 LEADS TO AN INFERENCE AS TO NON-APPLICATION OF MIND BY THE AO. THE RELEVANT PORTION OF THE HONBLE HIGH COURTS OR DER IS REPRODUCED HEREUNDER; 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDI NGS CAN BE INITIATED ON VARIOUS GROUNDS SET OUT THEREIN. I F THE ORDER PASSED BY THE AUTHORITY CATEGORICALLY RECORDS A FIN DING REGARDING THE EXISTENCE OF ANY SAID GROUNDS MENTION ED THEREIN AND THEN PENALTY PROCEEDINGS IS INITITATED, IN THE NOTICE TO BE ISSUED U/S 274, THE COULD CONVENIENTLY REFER TO THE SAID ORDER WHICH CONTAINS THE SATISFACTION OF T HE AUTHORITY WHICH HAS PASSED THE ORDER. HOWEVER, IF THE EXISTENCE OF THE CONDITIONS COULD NOT BE DISCERNED FROM THE SAID ORDER AND IF IT IS A CASE OF RELYING ON DEEMIN G PROVISION CONTAINED IN EXPLANATION 1 OR IN EXPLANATION(B), TH EN THOUGH PENALTY PROCEEDINGS ARE IN THE NATURE OF CIVIL LIAB ILITY, IN FACT, IT IS PENAL IN NATURE. IN EITHER EVENT, THE PERSO N WHO IS ACCUSED OF THE CONDITIONS MENTIONED INSEC.271 SHOUL D BE MADE KNOWN ABOUT THE GROUNDS ON WHICH THEY INTEND I MPOSING PENALTY ON HIM AS THE SEC.274 MAKES IT CLEAR THAT A SSESSEE HAS 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 SEC.271(1)(C ) DO NOT EXIST AS SUCH HE IS NOT LIABLE TO PAY PENALTY. THE PRACTICE OF THE DEPARTMENT SENDING A PRINTED FORM WHERE AS THE GROU ND ITA NOS.482,483,534&535 (BANG)2012 8 MENTIONED IN SEC.271 ARE MENTIONED WOULD NOT SATISF Y REQUIREMENT OF LAW WHEN THE CONSEQUENCE OF THE ASSE SSEE NOT REBUTTING THE INITIAL PRESUMPTION IS SERIOUS IN NAT URE AND HE HAD TO PAY PENALTY FROM 100% TO 300% OF THE TAX LIA BILITY. AS THE SAID PROVISIONS HAVE TO BE HELD TO BE STRICT LY CONSTRUED, NOTICE ISSUED U/S 274 SHOULD SATISFY THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHERWISE, PRI NCIPLES OF NATURAL JUSTICE IS OFFENDED IF THE SHOWN CAUSE NOTI CE IS VOGUE. ON THE BASIS OF SUCH PROCEEDINGS NO PENALTY COULD B E IMPOSED ON THE ASSESSEE. 60. CLAUSE (C) DEALS WITH TWO SPECIFIC OFFENCES, T HAT IS TO SAY, CONCEALING PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME. NO DOUBT, THE FACTS F THE S OME CASES MAY ATTRACT BOTH THE OFFENCES AND IS SOME CASES THE RE MAY BE OVERLAPPING OF THE TWO OFFENCES BUT IN SUCH CASE S THE INITIATION OF THE PENALTY PROCEEDINGS ALSO MUST BE FOR BOTH THE OFFENCES. BUT DRAWING UP PENALTY PROCEEDINGS F OR ONE OFFENCE AND FINDING THE ASSESSEE GUILTY OF ANOTHER OFFENCE OF FINDING HIM GUILTY FOR EITHER THE ONE OR THE OTH ER CANNOT BE SUSTAINED IN LAW. IT IS NEEDLESS TO PINT SATIS FACTION OF THE EXISTENCE OF THE GROUNDS MENTIONED IN SEC.271(1)(C ) WHEN IT IS A SINE QUA NON FOR INITIATION OR PROCEEDINGS, TH E PENALTY PROCEEDINGS SHOULD BE CONFIRMED ONLY TO THOSE GROUN DS AND THE SAID GROUNDS HAVE TO BE SPECIFICALLY STATED TO THAT THE ASSESSEE WOULD HAVE THE OPPORTUNITY TO MET THOSE GR OUNDS. ITA NOS.482,483,534&535 (BANG)2012 9 AFTER, HE PLACES HIS VERSION AND TRIES TO SUBSTANTI ATE HIS CLAIM, IF AT ALL, PENALTY IS TO BE IMPOSED, IT SHOU LD BE IMPOSED ONLY ON THE GROUNDS ON WHICH HE IS CALLED UPON TO A NSWER. IT IS NOT OPNEN TO THE AUTHORITY, AT THE TIME OF IMPOS ING PENALTY TO IMPOSE PENALTY ON THE GROUNDS OTHER THAN WHAT AS SESSEE WAS CALLED UPON TO MEET. OTHERWISE, THOUGH THE IN ITIATION OF PENALTY PROCEEDINGS MAY BE VALID AND LEGAL,, THE FI NAL ORDER IMPOSING G PENALTY WOULD OFFEND PRINCIPLES OF NATUR AL JUSTICE AND CANNOT BE SUSTAINED. THUS, ONCE THE PROCEEDING S ARE INITIATED ON ONE GROUND, THE PENALTY SHOULD ALSO BE IMPOSED ON THE SAME GROUND WHERE THE BASIS OF THE INITIATION O F PENALTY PROCEEDINGS IS NOT IDENTICAL WITH THE GROUND ON WHI CH THE PENALTY WAS IMPOSED, THE IMPOSITION OFPENALTY IS NO T VALID. THE VALIDITY OF THE ORDER OF THE PENALTY MUST BE DE TERMINED WITH THE REFERENCE TO INFORMATION, FACTS AND MATERI ALS IN THE HANDS OF THE AUTHORITY IMPOSING PENALTY AT THE TIME THE ORDER WAS PASSED AND FURTHER DISCOVERY OF FACTS SUBSEQUEN T TO THE IMPOSITION OF PENALTY CANNOT VIOLATE THE ORDER OF P ENALTY WHICH, WHEN PASSED, WAS NOT SUSTAINABLE. 61. THE AO IS EMPOWERED UNDER THE ACT TO INITIATE PENALTY PROCEEDINGS ONCE HE IS SATISFIED IN THE CAUSE OF AN Y PROCEEDINGS THAT THERE IS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF TOTAL INCOM E UNDER CLAUSE(C ). CONCEALMENT, FURNISHING INACCURATE PA RTICULARS OF INCOME ARE DIFFERENCE. THUS, THE AO WHILE ISSUING NOTICE HAS ITA NOS.482,483,534&535 (BANG)2012 10 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 292 ITR 11 AT PAGES 19 HAS HELD THA T CONCEALMENT OF INCOME AND FURNISHING INACCURATE PAR TICULARS OF INCOME CARRY DIFFERENT CONNOTATIONS. THE GUJARA T COURT IN THE CASE OF MANU ENGINEERING REPORTED IN 122 ITR 30 6 AND THE DELHI HIGH COURT IN THE CASE OF VIRGO MARKETING REPORTED IN 171 TAXMAN 156, HAS HELD THAT LEVY OF PENALTY HA S TO BE CLEAR AS TO THE LIMB FOR WHICH IT IS LEVIED AND THE POSITION BEING UNCLEAR PENALTY IS NOT SUSTAINABLE. THEREFO RE, WHEN THE AO PROPOSES TO INVOKE THE FIRST LIMB CONCEALMEN T, THEN THE NOTICE HAS TO BE APPROPRIATELY MARKED. SIMILA R IS THE CASE FOR FURNISHING INACCURATE PARTICULARS OF INCOM E. THE STANDARD PROFORMA WITHOUT STRIKING OF THE RELEVANT CLAUSES WILL LEAD TO AN INFERENCES AS TO NON-APPLICATION OF MIND. 17. WE FIND THAT IN THE CASE BEFORE US ALSO, THE AO HAS NOT SPECIFIED THE RELEVANT PORTION OF THE CLAUSE (C ) FOR INITIATING PENALTY PROCEEDINGS U/S 271(1)(C )OF THE IT ACT AND THEREFORE, AS HELD BY THE HONBLE HIGH COURT, THE A SSESSEE COULD NOT HAVE REBUTTED THE INITIAL PRESUMPTIONS FO R INITIATION OF PENALTY WHICH IS SERIOUS IN NATURE. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S MANJUN ATH ITA NOS.482,483,534&535 (BANG)2012 11 COTTON & GINNING FACTORY (CITED SUPRA) WE HOLD THAT THE NOTICE U/S 274 R.W.S.271(1 ) (C ) IS INVALID. THE CONTENTION OF THE LEARNED DR THAT IT IS ONLY A DEFECT WHICH IS CURABLE U/S 292B OF THE IT ACT, IS ALSO NOT ACCEPTABLE BECA USE THE AO GETS THE JURISDICTION TO LEVY THE PENALTY ONLY BY ISSUANCE OF A VALID NOTICE AND, THEREFORE, WHEN THE JURISDICTION IS NOT VALIDLY INVOKED, THEN THE CONS EQUENT PROCEEDINGS ARE ALSO NOT VALID. HENCE, IT IS NOT A PROCEDURAL IRREGULARITY AS CONTENDED BY THE DR. 7. FOLLOWING THE ABOVE, WE HOLD THE NOTICES U/S 27 4 R.W.S.271 INVALID. EX-CONSEQUENTI, THE PENALTY ORDERS FOR TH ESE YEARS ARE QUASHED. IN THE CIRCUMSTANCES, WE DO NOT FIND IT NECESSARY T O ADJUDICATE ON THE OTHER GROUNDS RAISED BY THE ASSESSEE. 8. IN THE RESULT, APPEALS STAND PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 14.08.2014 SD/- (SMT P MADHAVI DEVI) SD/- (ABRAHAM P GEORGE) JUDICAL MEMBER AC C OUNTANT MEMBER BANGALORE: D A T E D : 14-08-2014 AM* ITA NOS.482,483,534&535 (BANG)2012 12 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE