SMARTSTREAM TECHNOLOGIES INDIA P.LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 6297/MUM/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0882 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 26-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 10-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH DESH
• Assessee Lawyers: MILIN THAKORE
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; Competent authority
• Section: 92C; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH K, M UMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.6297/MUM/2014 (ASSESSMENT YEAR- 2008-09) M/S SMARTSTREAM TECHNOLOGIES INDIA PVT. LTD. AVER PLAZA, 2 ND FLOOR, PLOT NO. B-13, NEW LINK ROAD, ANDHERI (W), MUMBAI 400 053. PAN: AAACQ2086M VS. DCIT 8(3), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI MILIN THAKORE (AR) REVENUE BY : SHRI SAURABH DESHPANDE (DR) DATE OF HEARING : 23.01.2018 DATE OF PRONOUNCEMENT : 23 .01.2018 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER : 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF INCOME TAX ACT IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-15, [CIT(A)] MUMBAI DATED 27.08.2014 FOR ASSESSMENT YEA R 2008-09, WHICH IN TURN ARISES FROM THE ORDER PASSED BY ASSESSING O FFICER (AO) UNDER SECTION 271(1)(C) OF THE ACT DATED 21.03.2013 FOR L EVYING THE PENALTY OF RS. 29,36,705/-. THE ASSESSEE HAS RAISED THE FOLLOW ING GROUNDS OF APPEAL: THE APPELLANT IS AGGRIEVED BY THE ORDER DATED 27 AU GUST 2014 (RECEIVED ON 16 SEPTEMBER 2014) PASSED BY THE COMMISSIONER OF INCOM E-TAX (APPEALS) - 15, MUMBAI ['CIT(A)'] UNDER SECTION 250 OF THE INCOME T AX ACT, 1961 ('THE ACT') ON THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTIO N OF THE DEPUTY COMMISSIONER OF INCOME TAX- 8(3) IN LEVYING PENALTY OFRS.29,36,705 UNDER SECTION 271(L)(C) OF THE ACT. 2 ITA NO.6297/M/2014 M/S SMARTSTREAM TECHNOLOGIES I NDIA PVT. LTD. 2. THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THA T THE APPELLANT HAD NEITHER CONCEALED ANY INCOME NOR FILED ANY INACCURATE PARTI CULARS OF INCOME. 3. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE PRI CE CHARGED BY THE APPELLANT IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES TO ITS ASS OCIATED ENTERPRISE HAS NOT BEEN COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92C OF THE ACT, IN GOOD FAITH AND WITH DUE DILIGENCE AND THEREFORE EXP LANATION 7 TO SECTION 271(1)(C) OF THE ACT WAS ATTRACTED, 4. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THE SUBMISSIONS MADE BY THE APPELLANT IN CORRECT PERSPECTIVE. 5. THE APPELLANT PRAYS THAT THE PENALTY OF RS.29,36 ,705 LEVIED UNDER SECTION 271(1)(C) OF THE ACT SHOULD THEREFORE BE DELETED. EACH ONE OF THE ABOVE GROUNDS OF APPEAL ARE DISTINC T AND SEPARATE AND WITHOUT PREJUDICE TO THE OTHER. 2. FURTHER, THE ASSESSEE VIDE APPLICATION DATED 10.11. 2016 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: WITHOUT PREJUDICE TO GROUND NOS. 1 TO 5 ABOVE, THE APPELLANT SUBMITS THAT IN THE EVENT THE ORDER OF THE ASSESSING OFFICER (AO) LEVYI NG PENALTY UNDER SECTION 271 (1)( C) OF THE INCOME- TAX ACT, 1961 ('THE ACT') IS UPHE LD, THE PENALTY SHOULD BE LEVIED ON THE DIFFERENCE BETWEEN THE ARM'S LENGTH PRICE AS AGREED UPON PURSUANT TO THE MUTUAL AGREEMENT PROCEDURE (MAP) AND THE PROFIT LEV EL INDICATOR (PU) AS COMPUTED BY THE APPELLANT I.E. ON THE ADJUSTMENT OF RS.33,73,682 AND NOT ON THE ENTIRE AMOUNT OF ADJUSTMENT MADE BY THE TRANSFER PR ICING OFFICER (TPO) OF RS.86,39,910 VIDE ORDER UNDER SECTION 92CA(3) OF TH E ACT DATED 25 OCTOBER 2011. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A COMP ANY, ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATE ENTE RPRISES (AE), FILED ITS RETURN OF INCOME FOR RELEVANT AY ON 24.09.2008. THE ASSESSMENT WAS COMPLETED ON 21.09.2002 UNDER SECTION 143(3) OF THE ACT. THE AO WHILE PASSING THE ASSESSMENT ORDER MADE THE ADJUSTMENT OF ARMS LENGTH PRICE (ALP) UNDER SECTION 92CA(3) OF RS. 86,29,910/- AND INITIATED PENALTY UNDER SECTION 271(1)(C). THE AO LEVIED THE PENALTY @ 100% OF THE TAX SOUGHT TO BE EVADED. THE AO WORKED OUT THE PENALTY OF RS. 29,36,705/- IN ITS ORDER DATED 21.03.2013 PASSED UNDER SECTION 271 (1)(C) OF THE ACT. ON APPEAL BEFORE THE LD. CIT(A), THE PENALTY ORDER WAS UPHELD. THUS, 3 ITA NO.6297/M/2014 M/S SMARTSTREAM TECHNOLOGIES I NDIA PVT. LTD. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE HAS FILED THE PRESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR ) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENU E AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE LD. AR OF THE ASS ESSEE ARGUED THAT THE AO WHILE PASSING THE ASSESSMENT ORDER HAS NOT RECOR DED ITS SATISFACTION ABOUT THE INITIATION OF PENALTY, IF IT IS INITIATED FOR CONCEALING THE INCOME OR FURNISHING THE INACCURATE PARTICULAR OF INCOME. THE NOTICE ISSUED UNDER SECTION 274 READ WITH SECTION 271(1)(C) ALSO DOES N OT INDICATE IF THE PENALTY IS INITIATED FOR CONCEALING THE INCOME OR FOR FILIN G INACCURATE PARTICULARS OF INCOME. FURTHER, WHILE PASSING THE PENALTY ORDER, T HE AO HAS NOT SPECIFIED UNDER WHICH LIMB OF CLAUSE-C OF SUB-SECTION (1) OF SECTION 271, THE PENALTY IS LEVIED. IN SUPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION OF MUMBAI TRIBUNAL IN MEHERJEE CA SSINATH HOLDINGS PVT. LTD. V/S. ACIT IN ITA NO. 2555/M/12 AND IN M/S ORBIT ENTERPRISES V/S. ITO IN ITA NO. 1596-1597/M/14. ON MERIT, THE L D. AR OF THE ASSESSEE ARGUED THAT THE ASSESSEE HAS NOT FURNISHED ANY INAC CURATE PARTICULAR OF INCOME NOR CONCEALED THE INCOME. THE AO WHILE PASSI NG THE ASSESSMENT ORDER MADE THE UPWARD ADJUSTMENT OF RS. 86,39,910/- . IT WAS FURTHER ARGUED THAT AGAINST THE DRAFT ASSESSMENT ORDER PASS ED BY AO, THE ASSESSEE FILED CROSS OBJECTION BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE OBJECTION OF ASSESSEE WAS REJECTED BY DRP VIDE ORDE R DATED 31.07.2012. 4 ITA NO.6297/M/2014 M/S SMARTSTREAM TECHNOLOGIES I NDIA PVT. LTD. THE ASSESSEE MEANWHILE FILED AN APPLICATION BEFORE THE COMPETENT AUTHORITY UNDER MUTUAL AGREEMENT PROCEDURE (MAP) AS PER ARTICLE-27 OF DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA A ND UK. IN PURSUANCE OF MAP AGREEMENT, THE TRANSFER PRICING AD JUSTMENT IN RESPECT OF SOFTWARE DEVELOPMENT SERVICES WAS CALCULATED AT RS. 33,73,682/- THEREBY, THE ASSESSEE WAS GRANTED RELIEF OF RS. 52, 66,228/- AND THE SAME WAS ACCEPTED BY THE ASSESSEE. ACCORDINGLY, THE ASSE SSEE HAS RAISED THE ADDITIONAL GROUND OF APPEAL IN THE PRESENT APPEAL. THE ASSESSEE ALSO RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN C IT V/S. SAMSON PERINCHERY IN ITA NO. 1154 OF 2014, SHRI SURESH SHE TH V/S. ITO IN ITA NO. 6914-6915/M/12, P.K. JOSHUA V/S. ITO IN ITA NO. 4487 TO 4491/M/14, ADITYA CHEMICALS LTD. V/S. ITO IN ITA NO . 5006/DEL/13, CIT V/S. MANJUNATHA COTTON & GINNING FACTORY (359 ITR 5 65), CIT V/S. SSAS EMERALD MEADOWS (73 TAXMANN.COM 241), CIT V/S . SSAS EMERALD MEADOWS (73 TAXMANN.COM 248) & SARITA MILIN D DAVARE V/S. ACIT IN ITA NO. 2187/M/14. ON THE OTHER HAND, THE L D. DR FOR THE REVENUE RELIED UPON THE ORDER OF THE AUTHORITIES BE LOW. IN SUPPORT OF HIS SUBMISSIONS RELIED ON THE DECISION OF NAGPUR BENCH OF HONBLE BOMBAY HIGH COURT IN M/S MAHARAJA GARAGE & CO. V/S. CIT IN ITA NO. 21/2008 DATED 22.08.2017. IN THE REJOINDER SUBMISSION, THE LD. AR OF THE ASSESSEE SUBMITS THAT THE FINDING GIVEN IN THE CASE OF M/S M AHARAJA GARAGE & CO. HAVE NO APPLICATION ON THE FACTS OF THE PRESENT CAS E AS QUESTION BEFORE THE 5 ITA NO.6297/M/2014 M/S SMARTSTREAM TECHNOLOGIES I NDIA PVT. LTD. HONBLE COURT WAS SOMETHING DIFFERENT. AND THAT THE DECISION IN MAHARAJA GARAGE & CO IS DISTINGUISHED BY COORDINATE BENCH IN MRS INDRANI SUNIL PILLAI VS ACIT VIDE ITA NO. 1339/M/2016. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE PERUSA L OF ASSESSMENT ORDER PASSED UNDER SECTION 143(3) ON 21.09.2002 REVEALS T HAT THE AO WHILE PASSING THE ASSESSMENT ORDER MADE UPWARD ADJUSTMENT OF RS. 86,39,910/- ON ACCOUNT OF ALP BETWEEN ASSESSEE AND ITS AE. WE H AVE NOTED THAT THE AO, WHILE PASSING THE ASSESSMENT ORDER UNDER SECTIO N 143(3) HAS NOT RECORDED THE SATISFACTION UNDER WHICH LIMB OF CLAUS E-C OF SUB-SECTION (1) OF SECTION 271, THE PENALTY IS PROPOSED. WE HAVE AL SO PERUSED THE COPY OF NOTICE UNDER SECTION 274 RWS 271(1)(C) DATED 07.09. 2012 (PAGE NO.1 OF PB). WE HAVE NOTED THAT THE ASSESSING OFFICER HAS NOT STRIKE OUT THE INAPPROPRIATE PORTION OF THE NOTICE. AGAIN WHILE L EVYING THE PENALTY UNDER SECTION 271(1)(C), THE AO HAS NOT SPECIFIED, IF THE PENALTY IS LEVIED FOR CONCEALING THE PARTICULAR OF INCOME OR FURNISHING I NACCURATE PARTICULAR. THE CO-ORDINATE BENCH OF MUMBAI TRIBUNAL IN MEHERJEE C ASSINATH HOLDINGS PVT. LTD. (SUPRA) WHILE CONSIDERING THE SIMILAR ISS UES HELD AS UNDER: 8 . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION S. SEC. 271(1)(C) OF THE ACT EMPOWERS THE ASSESSING OFFICER TO IMPOSE PENALTY TO THE EXTENT SPECIFIED IF, IN THE COURSE O F ANY PROCEEDINGS UNDER THE ACT, HE IS SATISFIED THAT ANY PERSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE P ARTICULARS OF SUCH INCOME. IN OTHER WORDS, WHAT SEC. 271(1)(C) OF THE ACT POSTULATES IS THAT THE PENALTY CAN BE LEVIED ON THE EXISTENCE OF ANY 6 ITA NO.6297/M/2014 M/S SMARTSTREAM TECHNOLOGIES I NDIA PVT. LTD. OF THE TWO SITUATIONS, NAMELY, FOR CONCEALING THE P ARTICULARS OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THEREFORE, IT IS OBVIOUS FROM THE PHRASEOLOGY OF SE C. 271(1)(C) OF THE ACT THAT THE IMPOSITION OF PENALTY IS INVITED O NLY WHEN THE CONDITIONS PRESCRIBED U/S 271(1)(C) OF THE ACT EXIS T. IT IS ALSO A WELL ACCEPTED PROPOSITION THAT 'CONCEALMENT OF THE PARTICULARS OF INCOME' AND 'FURNISHING OF INACCURATE PARTICULARS O F INCOME' REFERRED TO IN SEC. 271(1)(C) OF THE ACT DENOTE DIF FERENT CONNOTATIONS. IN FACT, THIS DISTINCTION HAS BEEN AP PRECIATED EVEN AT THE LEVEL OF HON'BLE SUPREME COURT NOT ONLY IN THE CASE OF DILIP N. SHROFF (SUPRA) BUT ALSO IN THE CASE OF T. ASHOK PAI, 292 ITR 11 (SC). THEREFORE, IF THE TWO EXPRESSIONS, NAMELY 'CO NCEALMENT OF THE PARTICULARS OF INCOME' AND 'FURNISHING OF INACC URATE PARTICULARS OF INCOME' HAVE DIFFERENT CONNOTATIONS, IT IS IMPER ATIVE 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. I T IS IN THIS BACKGROUND THAT ONE HAS TO APPRECIATE THE PRELIMINA RY 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 HA S BEEN ISSUED TO THE ASSESSEE- COMPANY. A COPY OF THE SAID NOTICE HAS BEEN PLACED ON RECORD AND THE LEARNED REPRESENTATIVE CAN VASSED THAT THE SAME HAS BEEN ISSUED BY THE ASSESSING OFFICER IN A STANDARD PROFORMA, WITHOUT STRIKING OUT THE IRRELEVANT CLAUS E. IN OTHER WORDS, THE NOTICE REFERS TO BOTH THE LIMBS OF SEC. 271(1)(C) OF THE ACT, NAMELY CONCEALMENT OF THE PARTICULARS OF INCOM E AS WELL AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. QUI TE CLEARLY, NON- STRIKING-OFF OF THE IRRELEVANT LIMB IN THE SAID NOT ICE DOES NOT CONVEY TO THE ASSESSEE AS TO WHICH OF THE TWO CHARG ES IT HAS TO RESPOND. THE AFORESAID INFIRMITY 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 BE EN MADE TO THE FOLLOWING SPECIFIC DISCUSSION IN THE ORDER OF HON'B LE SUPREME COURT IN THE CASE OF DILIP N. SHROFF (SUPRA):- '83. IT IS OF SOME SIGNIFICANCE THAT IN TH E STANDARD PROFORMA USED BY THE ASSESSING OFFICER IN ISSUING A NOTICE DESPIT E THE FACT THAT THE SAME POSTULATES THAT INAPPROPRIATE WORDS AND PA RAGRAPHS 7 ITA NO.6297/M/2014 M/S SMARTSTREAM TECHNOLOGIES I NDIA PVT. LTD. WERE TO BE DELETED, BUT THE SAME HAD NOT BEEN DONE. THUS, THE ASSESSING OFFICER HIMSELF WAS NOT SURE AS TO WHETHE R HE HAD PROCEEDED ON THE BASIS THAT THE ASSESSEE HAD CONCEA LED 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 SITUATIONS. 84. THE IMPUGNED ORDER, THEREFORE, SUFFERS FROM NON-APPLICATION OF MIND. IT WAS ALSO BOUND TO COMPLY WITH THE PRINCIPL ES OF NATURAL JUSTICE. ( SEE MALABAR INDUSTRIAL CO. LTD. V. CIT [2000] 2 SCC 718]' 9. FACTUALLY SPEAKING, THE AFORESAID PLEA OF ASSESSEE 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. S HROFF (SUPRA), THE NOTICE IN THE INSTANT CASE DOES SUFFER FROM THE VICE OF NON- APPLICATION OF MIND BY THE ASSESSING OFFICER. IN FA CT, A SIMILAR PROPOSITION WAS ALSO ENUNCIATED BY THE HON'BLE KARN ATAKA HIGH COURT IN THE CASE OF M/S. SSA'S EMERALD MEADOWS (SU PRA) AND AGAINST SUCH A JUDGMENT, THE SPECIAL LEAVE PETITION FILED BY THE REVENUE HAS SINCE BEEN DISMISSED BY THE HON'BLE SUP REME COURT VIDE ORDER DATED 5.8.2016, A COPY OF WHICH IS ALSO PLACED ON RECORD. 10. IN FACT, AT THE TIME OF HEARING, THE L D. CIT-DR HAS NOT DISPUTED THE FACTUAL MATRIX, BUT SOUGHT TO POINT OUT THAT TH ERE IS DUE APPLICATION OF MIND BY THE ASSESSING OFFICER WHICH CAN BE DEMONSTRATED FROM THE DISCUSSION IN THE ASSESSMENT ORDER, WHEREIN AFTER DISCUSSING THE REASONS FOR THE DISALL OWANCE, HE HAS RECORDED A SATISFACTION THAT PENALTY PROCEEDINGS AR E INITIATED U/S 271(1)(C) OF THE ACT FOR FURNISHING OF INACCURATE P ARTICULARS OF INCOME. IN OUR CONSIDERED OPINION, THE ATTEMPT OF T HE LD. CIT-DR TO DEMONSTRATE APPLICATION OF MIND BY THE ASSESSING OFFICER IS NO DEFENCE INASMUCH AS THE HON'BLE SUPREME COURT HAS A PPROVED THE FACTUM OF NON-STRIKING OFF OF THE IRRELEVANT CLAUSE IN THE NOTICE AS REFLECTIVE OF NON-APPLICATION OF MIND BY THE ASSESS ING OFFICER. SINCE THE FACTUAL MATRIX IN THE PRESENT CASE CONFOR MS TO THE PROPOSITION LAID DOWN BY THE HON'BLE SUPREME COURT, WE PROCEED 8 ITA NO.6297/M/2014 M/S SMARTSTREAM TECHNOLOGIES I NDIA PVT. LTD. TO REJECT THE ARGUMENTS ADVANCED BY THE LD. CIT-DR BASED ON THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESS MENT ORDER. FURTHER, IT IS ALSO NOTICEABLE THAT SUCH PROPOSITIO N HAS BEEN CONSIDERED BY (SUPRA) AND THE DECISION OF THE TRI BUNAL HOLDING LEVY OF PENALTY IN SUCH CIRCUMSTANCES BEING BAD, HA S BEEN APPROVED. 11. APART FROM THE AFORESAID, THE LD. CIT- DR MADE AN ARGUMENT BASED ON THE DECISION OF THE HON'BLE BOMBAY HIGH CO URT IN THE CASE OF SMT. KAUSHALYA & OTHERS, 216 ITR 660 (BOM.) TO CANVASS SUPPORT FOR HIS PLEA THAT NON-STRIKING OFF OF THE I RRELEVANT PORTION OF NOTICE WOULD NOT INVALIDATE THE IMPOSITION OF PE NALTY 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 S IMILAR ISSUE HAD COME UP BEFORE OUR COORDINATE 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 TH E CASE OF SMT. KAUSHALYA & ORS., (SUPRA) AS ALSO THE JUDGMENT S OF THE HON'BLE SUPREME COURT IN THE CASE OF DILIP N. SHROF F (SUPRA) AND DHARMENDRA TEXTILE PROCESSORS, 306 ITR 277 (SC) DED UCED AS UNDER :- '12. A COMBINED READING OF THE DECISION R ENDERED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF SMT. B KAUSHALYA A ND OTHERS (SUPRA) AND THE DECISION RENDERED BY HON'BLE SUPREM E COURT IN THE CASE OF DILIP N SHROFF (SUPRA) WOULD MAKE IT CL EAR THAT THERE SHOULD BE APPLICATION OF MIND ON THE PART OF THE AO AT THE TIME OF ISSUING NOTICE. IN THE CASE OF LAKHDIR LALJI (SUPRA ), THE AO ISSUED NOTICE U/S 274 FOR CONCEALMENT OF PARTICULARS OF IN COME BUT LEVIED PENALTY FOR FURNISHING INACCURATE PARTICULARS OF IN COME. THE HON'BLE GUJARAT HIGH COURT QUASHED THE PENALTY SINC E THE BASIS FOR THE PENALTY PROCEEDINGS DISAPPEARED WHEN IT WAS HELD THAT THERE WAS NO SUPPRESSION OF INCOME. THE HON'BLE KER ALA HIGH COURT HAS STRUCK DOWN THE PENALTY IMPOSED IN THE CA SE OF N.N.SUBRAMANIA IYER VS. UNION OF INDIA (SUPRA), WHE N 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 CHA RGE FOR WHICH 9 ITA NO.6297/M/2014 M/S SMARTSTREAM TECHNOLOGIES I NDIA PVT. LTD. PENALTY PROCEEDINGS WERE INITIATED AND FURTHER HE H AS ISSUED A NOTICE MEANT FOR CALLING THE ASSESSEE TO FURNISH TH E RETURN OF INCOME. HENCE, IN THE INSTANT CASE, THE ASSESSING O FFICER 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 A PPLY HIS MIND WHEN HE ISSUED NOTICE TO THE ASSESSEE AND HE WAS NO T SURE AS TO WHAT PURPOSE THE NOTICE WAS ISSUED. THE HON'BLE BOM BAY HIGH COURT HAS DISCUSSED ABOUT NON-APPLICATION OF MIND I N THE CASE OF KAUSHALYA (SUPRA) AND OBSERVED AS UNDER:- '....THE NOTICE CLEARLY DEMONSTRATED NON-AP PLICATION OF MIND ON THE PART OF THE INSPECTING ASSISTANT COMMISSIONER. THE VAGUENESS AND AMBIGUITY IN THE NOTICE HAD ALSO PREJUDICED THE RIG HT OF REASONABLE OPPORTUNITY OF THE ASSESSEE SINCE HE DID NOT KNOW WHAT EXACT CHARGE HE HAD TO FACE. IN THIS BACK GROUND, Q UASHING OF THE PENALTY PROCEEDINGS FOR THE ASSESSMENT YEAR 1967-68 SEEMS TO BE FULLY JUSTIFIED.' IN THE INSTANT CASE ALSO, WE ARE OF THE V IEW THAT THE AO HAS ISSUED A NOTICE, THAT TOO INCORRECT ONE, IN A ROUTINE MANN ER. 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 AP PLY 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'BL E SUPREME COURT IN THE CASE OF DILIP N. SHROFF (SUPRA) IS TO PREVAIL. FOLLOWING THE DECISION OF OUR COORDINATE BENCH IN T HE 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 ALSO REFER TO THE ONE MORE SEMINAL FEATURE OF THIS CASE WHICH WOULD D EMONSTRATE THE IMPORTANCE OF NON-STRIKING OFF OF IRRELEVANT CL AUSE IN THE NOTICE BY THE ASSESSING OFFICER. AS NOTED EARLIER, IN THE ASSESSMENT ORDER DATED 10.12.2010 THE ASSESSING OFF ICER RECORDS THAT THE PENALTY PROCEEDINGS U/S 271(1)(C) OF THE A CT ARE TO BE INITIATED FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. HOWEVER, IN THE NOTICE ISSUED U/S 274 R.W.S. 271(1) (C) OF THE ACT OF EVEN DATE, BOTH THE LIMBS OF SEC. 271(1)(C) OF T HE ACT ARE 10 ITA NO.6297/M/2014 M/S SMARTSTREAM TECHNOLOGIES I NDIA PVT. LTD. REPRODUCED IN THE PROFORMA NOTICE AND THE IRRELEVAN T CLAUSE HAS NOT BEEN STRUCK-OFF. QUITE CLEARLY, THE OBSERVATION OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND NON-S TRIKING OFF OF THE IRRELEVANT CLAUSE IN THE NOTICE CLEARLY BRINGS OUT THE DIFFIDENCE ON THE PART OF ASSESSING OFFICER AND THERE IS NO CL EAR AND CRYSTALLISED 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 COMPL Y WITH THE PRINCIPLES OF NATURAL JUSTICE, AND IN THE PRESENT C ASE, CONSIDERING THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE AS SESSMENT ORDER ALONGSIDE HIS ACTION OF NON-STRIKING OFF OF THE IRR ELEVANT CLAUSE IN THE NOTICE SHOWS THAT THE CHARGE BEING MADE AGAINST THE ASSESSEE QUA SEC. 271(1)(C) OF THE ACT IS NOT FIRM AND, THER EFORE, THE PROCEEDINGS SUFFER FROM NON-COMPLIANCE WITH PRINCIP LES OF NATURAL JUSTICE INASMUCH AS THE ASSESSING OFFICER IS HIMSEL F UNSURE AND ASSESSEE IS NOT MADE AWARE AS TO WHICH OF THE TWO L IMBS OF SEC. 271(1)(C) OF THE ACT HE HAS TO RESPOND. 14. THEREFORE, IN VIEW OF THE AFORESAID DI SCUSSION, IN OUR VIEW, THE NOTICE ISSUED BY THE ASSESSING OFFICER U/S 274 R.W. S. 271(1)(C) OF THE ACT DATED 10.12.2010 IS UNTENABLE AS IT SUFFERS FROM THE VICE OF NON- APPLICATION OF MIND HAVING REGARD TO THE RA TIO OF THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE O F DILIP N. SHROFF (SUPRA) AS WELL AS THE JUDGMENT OF THE HON'B LE BOMBAY HIGH COURT IN THE CASE OF SHRI SAMSON PERINCHERY (S UPRA). THUS, ON THIS COUNT ITSELF THE PENALTY IMPOSED U/S 271(1) (C) OF THE ACT IS LIABLE TO BE DELETED. 6. IN VIEW OF THE ABOVE DISCUSSION, WE FIND THAT THE R ATIO LAID DOWN IN THE AFORESAID DECISIONS IS APPLICABLE ON THE FACTS OF T HE PRESENT CASE. SO FAR AS DECISION OF JURISDICTIONAL HIGH COURT RELIED BY LD. DR IN MAHARAJ GARAGE & CO. (SUPRA) HAS NO APPLICATION ON THE FACTS OF TH E CASE. WITH UTMOST REGARD, ON CAREFUL READING OF THE DECISION, WE FIND THAT BASIC ISSUE ARISING OUT OF THE REFERENCE APPLICATION BEFORE THE HONBLE HIGH COURT WAS WHETHER WHILE GRANTING THE PREVIOUS APPROVAL BY THE INSPECTING ASSISTANT 11 ITA NO.6297/M/2014 M/S SMARTSTREAM TECHNOLOGIES I NDIA PVT. LTD. COMMISSIONER OF INCOME-TAX AS PER PROVISION OF SECT ION 271(1)(C)(III) OF THAT ACT, THE ASSESSEE WAS REQUIRED TO BE GIVEN AN OPPORTUNITY OF BEING HEARD. THE HONBLE COURT OBSERVED THAT THE PROVISIO N OF SECTION 271(1)(C) (III) DOES NOT ATTRACT THE RULE OF PRESUMPTION OF M ENS REA AS THE PENALTY IMPOSABLE UNDER THE SAID PROVISION IS FOR THE BREAC H OF CIVIL OBLIGATION. THUS, IN OUR VIEW, THE OBSERVATION OF HONBLE HIGH COURT FOR ISSUANCE OF SHOW-CAUSE NOTICE APPEARS TO BE IN CONTEXT OF QUANT UM OF PENALTY TO BE LEVIED AND NOT WITH REFERENCE OF ISSUANCE OF SHOW-C AUSE NOTICE AS PROVIDED UNDER SECTION 274. THUS, IN OUR VIEW, THE DECISION CANNOT BE READ OUT IN MANNER THAT HERE IS NO NEED FOR MENTIONING THE SPEC IFIC LIMB OF SUB-SECTION 271(1)(C) FOR WHICH PENALTY WAS INTENDED TO BE IMPO SED. IN OUR VIEW, SUCH ISSUE HAS NOT COME UP FOR CONSIDERATION BEFORE THE HONBLE HIGH COURT. HENCE, THE DECISION RELIED BY LD. DR IS NOT HELPFUL TO THE REVENUE. 7. CONSIDERING THE ABOVE LEGAL AND FACTUAL POSITION, I N OUR VIEW, THE AO HAS NOT RECORDED ANY SATISFACTION BEFORE INITIATING THE PENALTY UNDER WHICH LIMB OF CLAUSE-C OF SUB SECTION (1) OF SECTION 271 IS INITIATED. SIMILARLY IN THE NOTICE UNDER SECTION 274 THE ASSESSING OFFICER HAS NOT SPECIFIED THE SPECIFIC LIMB OF CLAUSE-C OF SUB-SECTION (1) OF SEC TION 271. AGAIN, NO SUCH SATISFACTION WAS RECORDED WHILE LEVYING THE PENALTY . THUS, WE ACCEPT THE LEGAL SUBMISSIONS OF THE LD AR FOR THE ASSESSEE AND ALLOW THE APPEAL ON LEGAL GROUNDS. AS WE HAVE ALLOWED THE APPEAL OF THE ASSESSEE ON LEGAL 12 ITA NO.6297/M/2014 M/S SMARTSTREAM TECHNOLOGIES I NDIA PVT. LTD. GROUND, THE DISCUSSION ON MERIT AND OTHER GROUNDS O F APPEAL BECAME ACADEMIC. IN THE RESULT, APPEAL FILED BY ASSES SEE IS ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF JANUARY, 2018. SD/- SD/- (G.S. PANNU) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED 23 /01/2018 S.K.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT.REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY/