Virender Kumar Khosla, New Delhi V. ACIT, Circle-53(1), New Delhi

ITA 8228/DEL/2018

AI Insights

The case involves Virender Kumar Khosla, the appellant, who appealed against the penalty imposed by the Assessing Officer (A.O.) and confirmed by the Commissioner of Income Tax (Appeals) - 18, New Delhi. The penalty was levied for not providing confirmations for sundry creditors amounting to Rs. 5,68,800, which were added to the assessee's income as 'income from other sources' under Section 68 of the Income Tax Act. The Tribunal's decision was based on the procedural error of the A.O. in not clearly specifying the limb of Section 271(1)(c) under which the penalty was imposed, as required by legal precedents.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 112568 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 07-12-2022
• Assessment Year: misc
• Appeal Filed On: 25-08-2022
• Other Referred Cases: CIT vs. NG Technologies Ltd, Mr. Mohd. Farhan A. Shaikh vs. ACIT, Dilip N. Shroff vs. ACIT, Rajesh Kumar vs. CIT, State of Orissa vs. Dr. Binapani Dei
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Opportunity of being heard; Principle of natural justice; Set aside
• Section: 271(1)(c); 274

Judgement Text

1 ITA No. 8228/Del/2018 Virender Kumar Khosla Vs. ACIT IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH : “F” NEW DELHI ] BEFORE DR. B. R. R. KUMAR, ACCOUNTANT MEMBER AND SHRI YOGESH KUMAR U.S., JUDICIAL MEMBER I.T.A. No. 8228/DEL/2018 (A.Y 2008-09) Virender Kumar Khosla B-3, 47/21-22, Aman Chamber, Old Rajinder Nagar, New Delhi PAN No. ABBPK9168R (APPELLANT) Vs. ACIT Circle-53(1) New Delhi (RESPONDENT) ORDER PER YOGESH KUMAR U.S., JM This appeal is filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals)-18, New Delhi [hereinafter referred to CIT (Appeals) dated 04/10/2018 for assessment year 2008-09. 2. The assessee has raised the following grounds of appeal:- Assessee by None Department by Shri K. K. Mishra, Sr. D. R.; Date of Hearing 06.12.2022 Date of Pronouncement 13.12.2022 2 ITA No. 8228/Del/2018 Virender Kumar Khosla Vs. ACIT “1. That the Ld.CIT(A) - 18 has wrongly and illegally passed order u/s 271(l)(c) dated 09/03/2016 confirming penalty of Rs. 1,91,458/- levied by learned ACIT. 2. That the Ld.CIT(A)- 18 had passed the order in haste and without providing fair and reasonable opportunity to the appellant. Hence the order is bad in law and illegal. 3. That the ACIT and CIT (A) has grossly erred in not appreciating the factsand circumstances of the case as well as reply of the appellant filed vide letter dated 28.12.2015 during the proceedings. As such the order imposing the penalty is bad in law. 4. That the learned CIT (Appeals) has grossly erred in stating in the order that “appellant failed to offer any explanation either before the AO or me regarding the fact that why these unexplained creditors of Rs. 5,50,690/-were not offered for tax. I am of the opinion that this is a fit case for levy of penalty u/s 271(l)(c) of the Act. While arriving at this conclusion, the legal position in such circumstances has been analyzed with reference to the decision of Hon’ble Delhi High Court in the case of CIT vs. NG Technologies Ltd, (370 ITR dated01.12.2014)”. 5. That the learned ACIT and CIT(A) has not considered the facts that entire explanation was submitted regarding sundry creditors during assessment proceedings and that a voluntary surrender was made of Rs. 5,68,000/- to buy peace from the department and to avoid frivolous litigations on the ground that no penalty proceedings will be initiated against the assessee. The same was also disclosed before CIT (A) vide letter dated 13.12.2010. 3 ITA No. 8228/Del/2018 Virender Kumar Khosla Vs. ACIT 6. That the learned ACIT has made the additions on account of not furnishing of confirmations which were old and from people related to the appellant. .The confirmation of these parties could not be given /furnished during assessment proceedings due to paucity of time and also due to sealing operation, most people had shifted and new addresses were to be found which would have taken time. The same was re-confirmed by the CIT (A) without considering the above facts. Hence, the order is bad in law. 7. That two of the creditors Sonia Export International of Rs. 50,000/- and INDAIR Express of Rs. 1,90,000/- were actually own concerns of the appellant and they were inadvertently offered for taxation. However, the appellant still paid entire tax voluntarily on the above keeping up the spirit of commitment to offer the same for taxation.” 3. Brief facts of the case are that, the assessee had shown various Sundry Creditors of Rs. 5,68,800/- in his balance sheet and the A.O. had asked the assessee to prove the genuineness of the same and to file confirmation letters from the parties. The assessee has surrendered the said amount of Rs. 5,60,800/- and agreed for addition to be made, accordingly, A.O made addition u/s 68 of the Act treating these credit entries in the books of the assessee as unexplained. A penalty proceedings have also been initiated and the order of penalty came to be passed on 09/03/2016 by levying penalty at 100% of the tax evaded at Rs. 1,91,458/-. 4. As against the order of penalty passed u/s 271(1)(c) of the Act dated 09/03/2016, the assessee has preferred and appeal before the CIT(A) and the Ld. CIT(A) vide order dated 04/10/2018 dismissed the appeal filed by the assessee. 4 ITA No. 8228/Del/2018 Virender Kumar Khosla Vs. ACIT 5. Aggrieved by the order of the Ld. CIT(A) dated 04/10/2018 the assessee has preferred the present appeal on the grounds mentioned above. 6. None appeared for the assessee even after the notices sent by the registry was duly served on the Assessee. Therefore, we deem it fit to decide the appeal after hearing the Ld. DR and verifying the material on record. 7. It is found from the record that while passing the assessment order u/s 143(3) of the Act, at Page No. 5.5, the Ld. A.O. has observed as under:- “5.5. In view of the facts discussed above, amount of Rs. 5,68,800/- (being the unconfirmed loans) is added to the assessee income of the assessee as “income from other sources.” As per the provision of Section 68 of the Act. Also being satisfied that assessee has filed inaccurate particulars of income and has concealed his income in filing of return of income, penalty proceedings u/s 271(1)(c) are separately initiated on this account.” 8. Further during the penalty proceedings at Para 2 (iii) the Ld. A.O. has observed as under:- Penalty proceedings u/s 271(1)(c) was initiated vie assessment order and notice u/s 271(1)(c) r.w.s. 274 of the I.T Act was issued.” In the conclusion para 5(iii) of the Penalty order it has been observed as under:- 5 ITA No. 8228/Del/2018 Virender Kumar Khosla Vs. ACIT “In view of the above, it is held that the assessee concealed/furnished inaccurate particulars of his income and thus, attracts penalty u/s 271(1)(c) of the I.T Act. Hence, it is a case where the assessee has willfully and deliberately field inaccurate particulars of his income and concealed the income to avoid payment of tax.” 9. In our view, the penalty provisions of Section 271(1)(c) of the Act are attracted, where the assessee concealed the particulars of income or furnished inaccurate particulars of income. It is well settled law that the aforesaid two limbs of Section 271(1)(c) of the Act, carrying different meanings. Therefore, it is imperative for the A.O. to specify the relevant and exact limb so as to make the assessee aware as to what is the charge made against him so that he can respond adequately which has been violated by the A.O in the Assessment order. The Ld. A.O. has failed to specify the exact limb under which the penalty proceedings to be initiated. 10. The Hon'ble Bombay High Court (full bench at Goa) in the case of Mr. Mohd. Farhan A. Shaikh vs. ACIT [434 ITR (1)] and the Hon'ble High Court held as under:- "Question No. l: If the assessment order clearly records satisfaction for imposing penalty on one or the other, or both grounds mentioned in Section 271(l)(c), does a mere defect in the notice--not striking off the irrelevant matter--vitiate the penalty proceedings? 181. It does. The primary burden ties 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(l)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, 6 ITA No. 8228/Del/2018 Virender Kumar Khosla Vs. ACIT 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'sfavour. 183. Therefore, we answer the first question to the effect that Goa Dourado Promotions and other cases have adopted an approach more in consonance with the statutory scheme. That means we must hold that Kaushaiya does not lay down the correct proposition of law. Question No.2: Has Kaushaiya failed to discuss the aspect of 'prejudice? 184. Indeed, Kaushaiya did discuss the aspect of prejudice. As we I.T.A.No.1409/Del/2016 have already noted, Kaushaiya noted that the assessment orders already contained the reasons why penalty should be initiated. So, the assessee, stresses Kaushaiya, "fully knew in detail the exact charge of the Revenue against him". For Kaushaiya, the statutory notice suffered from neither non- application of mind nor any prejudice. According to it, "the so-called ambiguous wording in the notice [has not] impaired or prejudiced the right of the assessee to a reasonable opportunity of being heard". It 7 ITA No. 8228/Del/2018 Virender Kumar Khosla Vs. ACIT went onto observe that for sustaining the piea 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". Kaushalya doses 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 Kaushalya. 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 on the issue of non-application of mind when the irrelevant portions of the printed notices are not struck off ? 187. In DUip N. Shroff, 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, on facts, has felt that the assessing officer himself was not sure whether he had 8 ITA No. 8228/Del/2018 Virender Kumar Khosla Vs. ACIT proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars. 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 I.T.A.No.1409/Del/2016 ambiguity. Therefore, Dilip N. Shroff disapproves of the routine, ritualistic practice of issuing omnibus show-cause notices. That practice certainly betrays nonappiication of mind. And, therefore, the infraction of a mandatory procedure leading to penai 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(l)(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[74], in which the Apex Court has quoted with approval its earlier judgment in State of Orissa v. Dr. Binapani Dei[ 75]. 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, 9 ITA No. 8228/Del/2018 Virender Kumar Khosla Vs. ACIT 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 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. Conclusion: We have, thus, answered the reference as required by us; so we direct the Registry to place these two Tax Appeals before the Division Bench concerned for further adjudication." 11. As could be seen from the above the Hon'ble Bombay High Court (Full Bench at Goa) in the case of Mr. Mohd. Farhan A. Shaikh v. ACIT [(2021) 434 ITR 1 (Bom)] while dealing with the issue of non-strike off of the irrelevant part in the notice issued u/s.271(l)(c) of the Act, held that assessee must be informed of the grounds of the penalty proceedings only through statutory notice and an omnibus notice suffers from the vice of vagueness. 12. Ratio of this full bench decision of the Hon'ble Bombay High Court (Goa) squarely applies to the facts of the Assessee’s case as the Ld. A.O. has failed to specify the irrelevant portion of the limb and failed to intimate the assessee the relevant limb and charge for which the notices to be issued. 13. In view of the above discussion, the Grounds of Appeal of the Assessee is allowed and the penalty order stood deleted. 10 ITA No. 8228/Del/2018 Virender Kumar Khosla Vs. ACIT 14. In result, the appeal filed by the assessee is allowed. Order pronounced in the Open Court on : 13.12.2022. Sd/- Sd/- (B. R. R. KUMAR) (YOGESH KUMAR U.S.) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 13/12/2022 *R. N, SR. PS* Copy forwarded to : 1. Appellant 2. Respondent 3. CIT 4. CIT (Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI