SHRI BHANWARLAL M. HARSH, THANE V. DY CIT CC-3(3), MUMBAI

ITA 538/MUM/2021

AI Insights

The case involves Shri Bhanwarlal M. Shah, who appealed against the penalty of Rs.1,64,00,000 levied by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961, for the assessment year 2011-12. The penalty was based on various additions made during the assessment, including estimated commission income and other disallowances. The primary contention was the validity of the notice issued for the penalty, which did not clearly specify the grounds for the penalty. The Tribunal referenced decisions from the Bombay High Court and other ITAT cases, which emphasized the need for clarity in penalty notices to ensure they are not vague and meet the requirements of natural justice.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 129432 (ITAT-MUMBAI)
• Duration Of Justice: 11 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-11-2022
• Assessment Year: misc
• Appeal Filed On: 08-02-2011
• Other Referred Cases: Mohd Farhan A. Shaikh Vs. DCIT, Smt. Kaushalya Devi & Others (216 ITR 0660)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rule of consistency; Reasonable cause; Condonation of delay
• Section: 271(1)(c); 143(3); 153A; 274; 139(1)

Judgement Text

ITA No.538/Mum/2021 A.Y.2011-12 Shri Bhanwarlal M. Shah Vs. DCIT, CC-3(3) 1 IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ITA No. 538/Mum/2021 (A.Y.2011-12) Shri Bhanwarlal M Shah A/2, 406, Runwal Plaza, Nr. Koresh India Vartak Nagar, Thane (West) 400606 Vs. DCIT, Central Circle 3(3) Air India Building Nariman Point, Mumbai - 400021 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AACPH5666F Appellant .. Respondent Appellant by : Manoj Mundra Respondent by : J. Saravanan Date of Hearing 02.11.2022 Date of Pronouncement 14.12.2022 आदेश / O R D E R Per Amarjit Singh (AM): The present appeal filed by the assessee is directed against the order u/s 271(1)(c) of the Act passed by the ld. CIT(A)-51, Mumbai, dated 30.12.2020 for A.Y. 2011-12. The assessee has raised the following grounds before us: “1. Under the facts and in law, the Honorable CIT(A) has erred in confirming the penalty of Rs.1,64,00,000 levied under section 271(1)(c) of Income Tax Act, 1961 (the Act) 2. The Honorable CIT(A) failed to appreciate that penalty proceedings are distinct from the assessment proceedings and the mere fact that ITA No.538/Mum/2021 A.Y.2011-12 Shri Bhanwarlal M. Shah Vs. DCIT, CC-3(3) 2 disallowance is confirmed cannot per-se lead to concealment of any income because assessment & penalty proceedings are independent of each other. 3. Under the facts and circumstances, the Honorable CIT(A) failed to appreciate the fact that disallowance out of commission income is on estimated basis and there are various judicial precedence confirming that no penalty can be levied if the addition made is on estimated basis Further, Honorable CIT(A) has erred in confirming the penalty on entire disallowance made out of commission income, since part relief has been allowed to your appellant in Quantum appeal by CIT(A) 4. The Hon'ble CIT(A) failed to appreciate the fact that the learned AO had failed to arrive at a satisfaction as whether penalty proceedings are initiated for concealment or furnishing inaccurate particulars of income, resulting in the whole penalty proceeding void ab initio 5. Your appellant craves leave to allow to add/alter/amend/withdraw any ground of appeal.” 2. There was a delay in filing the appeal by 39 days. The assessee has filed affidavit dated 12.04.2021 along with application dated 27.11.2021 for condonation of delay in filing the appeal. The assessee reported that he has received order of CIT(A) dated 30.12.2020 in his registered email Id. However, he had verified the email only after 31.03.2021. Due to reason that he had travelled to his native place as his mother was expired on 10.01.2021 and he stayed back at his native place and due to prevailing Covid pandemic he could not access his email timely, therefore, requested for condonation of delay in filing the appeal. Heard both the sides, we find that there is a bonafide reason for filing this appeal late by 39 days, therefore, taking into consideration the submission of the assessee we condone the delay in filing the appeal. 2. Fact in brief is that assessment u/s 143(3) of the Act r.w.s 153A of the Act was passed on 29.01.2014. During the course of assessment the A.O made addition on account of commission income of Rs.5,19,33,700/-, disallowance on account of differences as per 26AS of ITA No.538/Mum/2021 A.Y.2011-12 Shri Bhanwarlal M. Shah Vs. DCIT, CC-3(3) 3 Rs.52,778/-, addition on account of cash deposit in the bank account of Rs.2,20,000/- and disallowance out of expenses of Rs.21,64,616/- and addition on account of remuneration of Rs.1,80,000/- were made. The A.O has also initiated penalty proceedings by issuing of notice u/s 274 r.w.s 271(1)(c) dated 29.01.2014. The A.O vide order u/s 271(1)(c) of the Act dated 29.03.2017 stated that para 5 of the order that assessee has deliberately furnished inaccurate particulars of income and concealed its income in the original return of income filed, therefore, A.O has levied penalty of Rs.1,64,00,000/- u/s 271(1)(c) of the Act. 3. The assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) stated that A.O has estimated commission at 3.5% of his turnover resulting in an addition of Rs.5,19,33,700/- and also mentioned the other addition which is already discussed above in this order. Before the ld. CIT(A) the assessee has also taken the ground that A.O has failed to arrived at a satisfaction as whether penalty proceedings were initiated for concealment or furnishing inaccurate particulars of income. However, the ld. CIT(A) has dismissed the appeal of the assesse after referring the decision of Hon’ble jurisdictional Bombay High Court in the case of Smt. Kaushlya Devi & Others (216 ITR 0660). 4. During the course of appellate proceedings before us the ld. Counsel vehemently contended that AO has issued notice under Section 274 read with section 271(1)(c) dated 29.01.2014 without specifying whether the penalty is being levied on account of concealment of particulars of income or furnishing inaccurate particulars of income. In this regard, the ld. Counsel has referred page no. 19 of the assessee’s paper book pertaining to copy of notice under section 274 read with section 271(1)(c) of the Act dated 29.01.2014. The ld. Counsel has placed ITA No.538/Mum/2021 A.Y.2011-12 Shri Bhanwarlal M. Shah Vs. DCIT, CC-3(3) 4 reliance on the decision of Hon’ble Jurisdictional High Court of Bombay in the case of Mohd Farhan A. Shaikh Vs. DCIT(2021) 125 Taxmann.com 253 (Bom) wherein held that if there is a defect in notice not striking off irrelevant matter, the penalty cannot be levied. The ld. Counsel has also submitted that A.O had levied penalty on estimated addition. On the other hand, the ld. D.R supported the order of lower authorities. 5. Heard both the sides and perused the material on record. Assessment in the case of the assessee was completed u/s 143(3) r.w.s 153A of the Act on 29.01.2014 assessing the total income at Rs.5,48,29,830/- after making various additions/disallowance. The Assessing Officer has levied penalty of Rs.1,60,00,000/- vide order u/s 271(1)(c) dated 29.03.2017. With the assistance of the ld. representatives we have gone through the notice u/s 274 r.w.s 271(1)(c) dated 29.01.2014. The relevant part of the notice is reproduced as under: “Whereas in the course of proceeding before me for the assessment year 2011- 12 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 notice given under section 2(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 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 or....................furnished inaccurate particular of such income. You are hereby requested to appear before me on 25.02.2014 at 11:30 AM and show cause why an order imposing a penalty on you should not be made ITA No.538/Mum/2021 A.Y.2011-12 Shri Bhanwarlal M. Shah Vs. DCIT, CC-3(3) 5 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 271(1)(c) of the I.T act 1961. On perusal of the aforesaid notice it is clear that A.O has not specified whether the penalty is being levied on account of concealment of income or furnishing of inaccurate particulars of income. However, the ld. CIT(A) referred the decision of Hon’ble jurisdictional Bombay High Court in the case of Smt. Kaushalya Devi & others (216 ITR 0660). In this regard we find that Hon’ble jurisdictional Bombay High Court in the case of Mohd Farhan A Shaikh Vs. DCIT (2021) 125 taxmann.com 253 (Bom) after considering the decision in the case of Smt. Kaushalya Devi & Others held that the case of Smt. Kaushalya Dev & Others does not lay down the correct position of the law. We have gone through the jurisdictional High Court in the case of Mohd Farhan A. Shaikh Vs. DCIT (2021) 125 Taxmann.com 253 (Bom) the relevant part of the head note is reproduced as under: “8. On perusal of the aforesaid notice it is clear that Assessing Officer has not specified whether the penalty is being levied on account of concealment of particulars of income or furnishing of inaccurate particulars of income. In this regard, we have gone through the case of Jurisdictional High court referred by learned counsel in the case of Mohd. Farhan A. Shaikh Vs. DCIT (2021) 125 taxmann.com 253 (Bombay), wherein the relevant Para of the head note is reproduced as under:- “Section 271(1)(c), read with section 274 of the Income-tax Act, 1961 - Penalty - For concealment of income (Recording of satisfaction) - Whether where assessment order clearly records satisfaction for imposing penalty on one or other, or both grounds mentioned in section 271(1)(c), a mere defect in notice-not striking off irrelevant matter would vitiate penalty proceedings - Held, yes - Whether since penalty proceedings culminate under a different statutory scheme that remains distinct from assessment proceedings, therefore, assessee must be informed of grounds of penalty proceedings only through statutory notice - Held, yes - Whether even if notice contains no caveat that inapplicable portion be deleted, it is in interest of fairness and justice that notice must be precise, it should give ITA No.538/Mum/2021 A.Y.2011-12 Shri Bhanwarlal M. Shah Vs. DCIT, CC-3(3) 6 no room for ambiguity - Held, yes [Paras 181 and 188][In favour of assessee]” 6. Further, we have also perused the decision of co-ordinate Bench of the ITAT, Mumbai in the case of M/s Bhavya Shashank Shanbhag Vs. DCIT in ITA No. 4630Mum/2019 vide order dated 09.07.2021, wherein the co-ordinate Bench in identical issue and similar facts has deleted the penalty after following the decision of Hon’ble Jurisdictional High Court in the case of Mohd. Farhan A. Shaikh (supra). The relevant part of the decision of co-ordinate Bench is reproduced as under:- “3. We have heard rival submissions and perused the materials available on record. We find that assessee for both the assessment years vide ground No.1(e) had raised the preliminary technical ground that in the show-cause notice issued by the ld. AO u/s.274 r.w.s. 271(1)(c) of the Act, he had not struck-off the irrelevant portion and that the ld. AO had not specified the specific offence committed by the assessee by stating as to whether the assessee has concealed his particulars of income or had furnished inaccurate particulars of income. 3.1. We find that this issue is no longer res-integra in view of the Full Bench decision of the Hon’ble Jurisdictional High Court in the case of Mohd. Farhan A Shaikh vs. DCIT reported in 434 ITR 1 (Bom). The relevant portion of the said order is reproduced hereunder:- 181. It does. The primary burden lies on the Revenue. In the assessment proceedings, it forms an opinion, prima facie or otherwise, to launch penalty proceedings against the assessee. But that translates into action only through the statutory notice under section 271(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, but they are not composite proceedings to draw strength from each other. Nor can each cure the other's defect. A penalty proceeding is a corollary; nevertheless, it must stand on its own. These proceedings culminate under a different statutory scheme that remains distinct from the assessment proceedings. Therefore, the assessee must be informed of the grounds of the penalty proceedings only through statutory notice. An omnibus notice suffers from the vice of vagueness. 182. More particularly, a penal provision, even with civil consequences, must be construed strictly. And ambiguity, if any, must be resolved in the affected assessee's favour. 183. Therefore, we answer the first question to the effect that Goa Dourado Promotions and other cases have adopted an approach ITA No.538/Mum/2021 A.Y.2011-12 Shri Bhanwarlal M. Shah Vs. DCIT, CC-3(3) 7 more in consonance with the statutory scheme. That means we must hold that Kaushalya does not lay down the correct proposition of law. Question No. 2: Has Kaushalya failed to discuss the aspect of 'prejudice'? 184. Indeed, Smt. Kaushalya case (supra) did discuss the aspect of prejudice. As we have already noted, Kaushalya noted that the assessment orders already contained the reasons why penalty should be initiated. So, the assessee, stresses Kaushalya, "fully knew in detail the exact charge of the Revenue against him". For Kaushalya, the statutory notice suffered from neither non- application of mind nor any prejudice. According to it, "the socalled ambiguous wording in the notice [has not] impaired or prejudiced the right of the assessee to a reasonable opportunity of being heard". It went onto observe that for sustaining the plea of natural justice on the ground of absence of opportunity, "it has to be established that prejudice is caused to the concerned person by the procedure followed". Smt. Kaushalya case (supra) closes the discussion by observing that the notice issuing "is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done". 185. No doubt, there can exist a case where vagueness and ambiguity in the notice can demonstrate non-application of mind by the authority and/or ultimate prejudice to the right of opportunity of hearing contemplated under section 274. So asserts Smt. Kaushalya case (supra) .In fact, for one assessment year, it set aside the penalty proceedings on the grounds of non-application of mind and prejudice. 186. That said, regarding the other assessment year, it reasons that the assessment order, containing the reasons or justification, avoids prejudice to the assessee. That is where, we reckon, the reasoning suffers. Kaushalya's insistence that the previous proceedings supply justification and cure the defect in penalty proceedings has not met our acceptance. Question No. 3: What is the effect of the Supreme Court's decision in Dilip N. Shroff Case (supra) on the issue of non-application of mind when the irrelevant portions of the printed notices are not struck off ? 187. In Dilip N. Shroff case (supra), for the Supreme Court, it is of "some significance that in the standard Pro-forma used by the assessing officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs were to be deleted, but the same had not been done". Then, Dilip N. Shroff case (supra), on facts, has felt that the assessing officer himself was not sure whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. ITA No.538/Mum/2021 A.Y.2011-12 Shri Bhanwarlal M. Shah Vs. DCIT, CC-3(3) 8 188. We may, in this context, respectfully observe that a contravention of a mandatory condition or requirement for a communication to be valid communication is fatal, with no further proof. That said, even if the notice contains no caveat that the inapplicable portion be deleted, it is in the interest of fairness and justice that the notice must be precise. It should give no room for ambiguity. Therefore, Dilip N. Shroff Case (supra) disapproves of the routine, ritualistic practice of issuing omnibus show-cause notices. That practice certainly betrays non- application of mind. And, therefore, the infraction of a mandatory procedure leading to penal consequences assumes or implies prejudice. 189. In Sudhir Kumar Singh, the Supreme Court has encapsulated the principles of prejudice. One of the principles is that "where procedural and/or substantive provisions of law embody the principles of natural justice, their infraction per se does not lead to invalidity of the orders passed. Here again, prejudice must be caused to the litigant, "except in the case of a mandatory provision of law which is conceived not only in individual interest but also in the public interest". 190. Here, section 271(1)(c) is one such provision. With calamitous, albeit commercial, consequences, the provision is mandatory and brooks no trifling with or dilution. For a further precedential prop, we may refer to Rajesh Kumar v. CIT [2007] 27 SCC 181, in which the Apex Court has quoted with approval its earlier judgment in State of Orissa v. Dr. Binapani Dei AIR 1967 SC 1269. According to it, when by reason of action on the part of a statutory authority, civil or evil consequences ensue, principles of natural justice must be followed. In such an event, although no express provision is laid down on this behalf, compliance with principles of natural justice would be implicit. If a statue contravenes the principles of natural justice, it may also be held ultra vires Article 14 of the Constitution. 191. As a result, we hold that Dilip N. Shroff Case (supra) treats omnibus show-cause notices as betraying non-application of mind and disapproves of the practice, to be particular, of issuing notices in printed form without deleting or striking off the inapplicable parts of that generic notice.” 3.2. Respectfully following the aforesaid decision, we hold that the penalty levied by the ld. AO for both the assessment years is hereby directed to be deleted. 3.3. Since the relief is granted to the assessee on this aspect by adjudicating the ground No.1(e), the other grounds raised by the assessee for both the years on legality of levy penalty as well as on merits of the case are not adjudicated herein and the same are hereby left open.” ITA No.538/Mum/2021 A.Y.2011-12 Shri Bhanwarlal M. Shah Vs. DCIT, CC-3(3) 9 7. In the light of the decision of the co-ordinate Bench as elaborated above, there is nothing before us on hand to differs from the issue raised in the cases cited (supra) so as to take a different view on this issue. Therefore, since the issue on hand being squarely covered following the principle of consistency, we find merit in the submission of the assessee and direct the Assessing Officer to delete the penalty since, the notice issued under section 274 read with section 271(1)(c) dated 18th March 2015 was bad in law. Since, we have deleted the penalty on account of invalid notice issued under section under section 274 read with section 271(1)(c) dated 18th March 2015, therefore other ground on merit are not require to be adjudicated.” 8. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 14.12.2022 Sd/- Sd/- (Vikas Awasthy) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 14.12.2022 Rohit: PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. विभागीय प्रविवनवध, आयकर अपीलीय अवधकरण DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. ITA No.538/Mum/2021 A.Y.2011-12 Shri Bhanwarlal M. Shah Vs. DCIT, CC-3(3) 10 सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.