Sri. S.D. Raddi, Dharwad V. Asst.C.I.T., Hubli

ITA 947/BANG/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9328 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-08-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 21-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R V SREENIVASAN JT
• Assessee Lawyers: ASHOK A KULKARNI
• Keywords: Principle of natural justice; Initiation of penalty proceedings

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO.947/BANG/2014 ASSESSMENT YEAR : 2003-04 SHRI S.D. RADDI, SRI SAPTAGIRI NIVAS, SADHANKERI, DHARWAD. PAN: AECPR 6185B VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 2(1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI ASHOK A. KULKARNI, ADVOCATE RESPONDENT BY : SHRI A.R.V. SREENIVASAN, JT. CIT(DR) DATE OF HEARING : 25.08.2016 DATE OF PRONOUNCEMENT : 18.10.2016 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST T HE ORDER OF CIT(APPEALS) INTER ALIA ON THE FOLLOWING GROUNDS:- 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX ( APPEALS) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. NEITHER IN RESPECT OF THE SUM OF RS. 8,47,981/- BEING THE ADDITION IN RESPECT OF CREDITORS AND RS. 3,88,925/- BEING THE SUSTAINED ADDITION IN RESPECT OF ALLEGED INFLATION OF WAGES, THE PROVISION OF SECTION 271 (1 )(C) ARE NOT ATTRAC TED. ITA NO.947/BANG/2014 PAGE 2 OF 8 3. THE TRUE TESTS LAID DOWN BY THE BINDING DECISION OF THE KARNATAKA HIGH COURT IN 359 ITR 565 HAVE NOT BEEN S ATISFIED AND HENCE NO PENALTY U/S. 271 (1 )(C) IS EXIGIBLE. 4. IT SHOULD HAVE BEEN APPRECIATED THAT THERE WAS NO 'DIRECTION' IN THE ASSESSMENT ORDER FOR ACTION U/S. 271 (1)(C) AS CLARIFIED BY THE ABOVE DECISION AND THEREFORE THE P ROVISIONS OF 271 (1B) DO NOT COME TO THE ASSISTANCE OF THE DE PARTMENT TO JUSTIFY THE LEVY OF PENALTY AND THEREFORE, THE LAW PRIOR TO THE INTRODUCTION OF THAT SUB-SECTION WOULD BE OPERATIVE AND ON THAT BASIS, NO PENALTY IS LEVIABLE. 5. THE ALTERNATIVE REQUIREMENT REQUIRED UNDER LAW AS ENUNCIATED BY THEIR LORDSHIPS OF KARNATAKA HIGH COU RT IN THE SAID DECISION OF SATISFACTION AS REGARDS CONCEALMENT/FIL ING OF INACCURATE PARTICULARS IN THE BODY OF THE ORDER IS CONSPICUOUSLY ABSENT. THEREFORE, THE ABSENCE OF A DIRECTION IS FA TAL TO THE IMPUGNED ORDER OF PENALTY. 6. IT SHOULD HAVE BEEN APPRECIATED THAT THE MERE REP ETITION IN THE BODY OF THE ORDER OF WHAT APPEARS AT THE END OF THE ORDER BEING 'PENALTY PROCEEDINGS U/S. 271 (1)(C) ARE INITIATED SEPARATELY' DOES NOT AMOUNT TO SATISFACTION HAVING BEEN REACHED IN THE COURSE OF THE ASSESSMENT PROCEEDINGS AS REGA RDS CONCEALMENT / FURNISHING OF INACCURATE PARTICULARS. 7. WITHOUT PREJUDICE AND IN THE ALTERNATIVE, NOTICE U/S. 274 BEING AMBIGUOUS AND NOT SPECIFIC AS TO WHETHER THER E WAS CONCEALMENT/FURNISHING OF INACCURATE PARTICULARS, T HE ORDER OF PENALTY CANNOT BE SUSTAINED. 8. THE APPELLANT CRAVES FOR LEAVE TO ADD, TO DELE TE FROM OR AMEND THE GROUND OF APPEAL. 2. DURING THE COURSE OF HEARING, THE LD. COUNSEL F OR THE ASSESSEE HAS CHALLENGED THE VALIDITY OF THESE PROCEEDINGS ON THE GROUND THAT IN THE SHOW CAUSE NOTICE FOR LEVYING THE PENALTY U/S. 271(1)(C) , THE AO HAS NOT SPECIFIED AS TO ON WHAT GROUND THE AO INTENDS TO LEVY PENALTY , WHETHER IT IS ON ITA NO.947/BANG/2014 PAGE 3 OF 8 ACCOUNT OF CONCEALMENT OF INCOME OR FURNISHING OF I NACCURATE PARTICULARS. TO EXPLAIN THESE FACTS, HE FILED A COPY OF NOTICE U /S. 274 OF THE ACT. HE HAS ALSO PLACED RELIANCE UPON THE ORDERS OF TRIBUNAL AN D THE JUDGMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT & ANR. V. MANJUNATHA COTTON & GINNING FACTORY REPORTED IN 359 ITR 565 (KARN) . COPY OF THE JUDGMENT OF THE HIGH COURT IS PLACED ON RECORD. 3. PER CONTRA, THE LD. DR HAS SUBMITTED THAT MERE NON-STRIKING A PARTICULAR COLUMN IN THE NOTICE WOULD NOT BE THAT M UCH FATAL TO THE VALIDITY OF PENALTY PROCEEDINGS. 4. HAVING CAREFULLY EXAMINED THE NOTICE ISSUED U/S. 274 R.W.S. 271(1)(C) OF THE ACT, WE FIND THAT NOTICE WAS ISSUED ON A PRI NTED PROFORMA IN WHICH THE AO DID NOT IDENTIFY, WHETHER THE ASSESSEE HAS C ONCEALED INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. NOW THE QUESTION ARISES WHETHER, IT IS NECESSARY TO IDENTIFY IN THE NOTICE ITSELF THAT THE PROCEEDINGS U/S. 271(1)(C) ARE INITIATED EITHER FOR CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THIS ASPECT HAS BEEN EXAMINED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT & ANR. V. MANJUNATHA COTTON & GINNING FACTORY (SUPRA) AND THEIR LORDSHIPS HAVE LAID DOWN THE PARAMETERS UNDER WHICH PENALTY U/S. 2 71(1)(C) OF THE ACT HAS TO BE LEVIED. UNDER CLAUSES (P) & (Q) OF PARA 63 O F THE JUDGMENT, THEIR LORDSHIPS HAVE HELD THAT NOTICE U/S. 274 SHOULD SPE CIFICALLY STATE THE GROUNDS MENTIONED IN. 271(1)(C), I.E., WHETHER IT I S FOR CONCEALMENT OF ITA NO.947/BANG/2014 PAGE 4 OF 8 INCOME OR FOR FURNISHING OF INCORRECT PARTICULARS O F INCOME. SENDING PRINTED FORM WHERE ALL THE GROUNDS MENTIONED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY THE REQUIREMENT OF LAW. BEFORE LAYING DOWN THE PARAMETERS, THEIR LORDSHIPS HAVE ANALYSED THE PROVISIONS OF SEC TION 274 FOR SENDING NOTICES AND FOR INITIATING PROCEEDINGS U/S. 271(1)( C). THE RELEVANT OBSERVATIONS OF THEIR LORDSHIPS ARE EXTRACTED HEREU NDER FOR REFERENCE:- 59. AS THE PROVISION STANDS, THE PENALTY PROCEEDI NGS CAN BE INITIATED ON VARIOUS GROUNDS SET OUT THEREIN. IF TH E ORDER PASSED BY THE AUTHORITY CATEGORICALLY RECORDS A FINDING REGAR DING THE EXISTENCE OF ANY SAID GROUNDS MENTIONED THEREIN AND THEN PENALTY PROCEEDINGS IS INITIATED, IN THE NOTICE TO BE ISSUE D UNDER SECTION 274, THEY COULD CONVENIENTLY REFER TO THE SAID ORDE R WHICH CONTAINS THE SATISFACTION OF THE AUTHORITY WHICH HA S PASSED THE ORDER. HOWEVER, IF THE EXISTENCE OF THE CONDITIONS COULD NOT BE DISCERNED FROM THE SAID ORDER AND IF IT IS A CASE O F RELYING ON DEEMING PROVISION CONTAINED IN EXPLANATION 1 OR IN EXPLANATION 1(B), THEN THOUGH PENALTY PROCEEDINGS ARE IN THE NA TURE OF CIVIL LIABILITY, IN FACT, IT IS PENAL IN NATURE. IN EITHE R EVENT, THE PERSON WHO IS ACCUSED OF THE CONDITIONS MENTIONED IN SECTI ON 271 SHOULD BE MADE KNOWN ABOUT THE GROUNDS ON WHICH THEY INTEN D IMPOSING PENALTY ON HIM AS SECTION 274 MAKES IT CLEAR THAT T HE ASSESSEE 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 SECTION 271(1)(C) DO NOT E XIST AS SUCH HE IS NOT LIABLE TO PAY PENALTY. THE PRACTICE OF THE D EPARTMENT SENDING A PRINTED FORM WHERE ALL THE GROUNDS MENTIO NED IN SECTION 271 ARE MENTIONED WOULD NOT SATISFY THE REQ UIREMENT OF LAW WHEN THE CONSEQUENCES OF THE ASSESSEE NOT REBUT TING THE INITIAL PRESUMPTION IS SERIOUS IN NATURE AND HE HAD TO PAY PENALTY FROM 100 PER CENT TO 300 PER CENT OF THE TAX LIABIL ITY. AS THE SAID PROVISIONS HAVE TO BE HELD TO BE STRICTLY CONSTRUED , NOTICE ISSUED UNDER SECTION 274 SHOULD SATISFY THE GROUNDS WHICH HE HAS TO MEET SPECIFICALLY. OTHERWISE, THE PRINCIPLES OF NAT URAL JUSTICE IS OFFENDED IF THE SHOW-CAUSE NOTICE IS VAGUE. ON THE BASIS OF SUCH PROCEEDINGS, NO PENALTY COULD BE IMPOSED ON THE ASS ESSEE. ITA NO.947/BANG/2014 PAGE 5 OF 8 60. CLAUSE (C) DEALS WITH TWO SPECIFIC OFFENCES, T HAT IS TO SAY, CONCEALING PARTICULARS OF INCOME OR FURNISHING INAC CURATE PARTICULARS OF INCOME. NO DOUBT, THE FACTS OF SOME CASES MAY ATTRACT BOTH THE OFFENCES AND IN SOME CASES THERE M AY BE OVERLAPPING OF THE TWO OFFENCES BUT IN SUCH CASES T HE INITIATION OF THE PENALTY PROCEEDINGS ALSO MUST BE FOR BOTH THE O FFENCES. BUT DRAWING UP PENALTY PROCEEDINGS FOR ONE OFFENCE AND FINDING THE ASSESSEE GUILTY OF ANOTHER OFFENCE OR FINDING HIM G UILTY FOR EITHER THE ONE OR THE OTHER CANNOT BE SUSTAINED IN LAW. IT IS NEEDLESS TO POINT OUT THE SATISFACTION OF THE EXISTENCE OF THE GROUNDS MENTIONED IN SECTION 271(1)(C) WHEN IT IS A SINE QU A NON FOR INITIATION OR PROCEEDINGS, THE PENALTY PROCEEDINGS SHOULD BE CONFINED ONLY TO THOSE GROUNDS AND THE SAID GROUNDS HAVE TO BE SPECIFICALLY STATED SO THAT THE ASSESSEE WOULD HAVE THE OPPORTUNITY TO MEET THOSE GROUNDS. AFTER, HE PLACES HIS VERSION AND TRIES TO SUBSTANTIATE HIS CLAIM, IF AT ALL, PENALTY IS TO BE IMPOSED, IT SHOULD BE IMPOSED ONLY ON THE GROUNDS ON WHICH HE IS CALLE D UPON TO ANSWER. IT IS NOT OPEN TO THE AUTHORITY, AT THE TIM E OF IMPOSING PENALTY TO IMPOSE PENALTY ON THE GROUNDS OTHER THAN WHAT THE ASSESSEE WAS CALLED UPON TO MEET. OTHERWISE, THOUGH THE INITIATION OF PENALTY PROCEEDINGS MAY BE VALID AND LEGAL, THE FINAL ORDER IMPOSING PENALTY WOULD OFFEND THE PRINCIPLES OF NATURAL JUSTICE AND CANNOT BE SUSTAINED. THUS, ONCE THE PRO CEEDINGS ARE INITIATED ON ONE GROUND, THE PENALTY SHOULD ALSO BE IMPOSED ON THE SAME GROUND. WHERE THE BASIS OF THE INITIATION OF PENALTY PROCEEDINGS IS NOT IDENTICAL WITH THE GROUND ON WHI CH THE PENALTY WAS IMPOSED, THE IMPOSITION OF PENALTY IS NOT VALID . THE VALIDITY OF THE ORDER OF PENALTY MUST BE DETERMINED WITH REF ERENCE TO THE INFORMATION, FACTS AND MATERIALS IN THE HANDS OF TH E AUTHORITY IMPOSING THE PENALTY AT THE TIME THE ORDER WAS PASS ED AND FURTHER DISCOVERY OF FACTS SUBSEQUENT TO THE IMPOSITION OF PENALTY CANNOT VALIDATE THE ORDER OF PENALTY WHICH, WHEN PASSED, W AS NOT SUSTAINABLE. 61. THE ASSESSING OFFICER IS EMPOWERED UNDER THE A CT TO INITIATE PENALTY PROCEEDINGS ONCE HE IS SATISFIED I N THE COURSE OF ANY PROCEEDINGS THAT THERE IS CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF TOTAL INCOM E UNDER CLAUSE (C). CONCEALMENT, FURNISHING INACCURATE PARTICULARS OF INCOME ARE DIFFERENT. THUS, THE ASSESSING OFFICER WHILE ISSUIN G NOTICE HAS 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 [20 07] 292 ITR ITA NO.947/BANG/2014 PAGE 6 OF 8 11 (SC) AT PAGE 19 HAS HELD THAT CONCEALMENT OF INC OME AND FURNISHING INACCURATE PARTICULARS OF INCOME CARRY D IFFERENT CONNOTATIONS. THE GUJARAT HIGH COURT IN THE CASE OF MANU ENGINEERING WORKS REPORTED IN [1980] 122 ITR 306 (G UJ) AND THE DELHI HIGH COURT IN THE CASE OF CIT V. VIRGO MARKET ING P. LTD. REPORTED IN [2008] 171 TAXMAN 156, HAS HELD THAT LE VY OF PENALTY HAS TO BE CLEAR AS TO THE LIMB FOR WHICH IT IS LEVI ED AND THE POSITION BEING UNCLEAR PENALTY IS NOT SUSTAINABLE. THEREFORE, WHEN THE ASSESSING OFFICER PROPOSES TO INVOKE THE FIRST LIMB BEING CONCEALMENT, THEN THE NOTICE HAS TO BE APPROPRIATEL Y MARKED. SIMILAR IS THE CASE FOR FURNISHING INACCURATE PARTI CULARS OF INCOME. THE STANDARD PROFORMA WITHOUT STRIKING OF T HE RELEVANT CLAUSES WILL LEAD TO AN INFERENCE AS TO NON-APPLICA TION OF MIND. 5. THIS ASPECT WAS ALSO EXAMINED BY THE HONBLE HIG H COURT OF GUJARAT IN THE CASE OF NATIONAL TEXTILES V. CIT 249 ITR 125 (GUJ) AND CIT V. MANU ENGINEERING WORKS 122 ITR 306 (GUJ) . FOLLOWING THE AFORESAID JUDGMENTS, THIS BENCH OF THE TRIBUNAL IN THE CASE OF E. KRISHNAPPA V. ITO IN ITA NO.313 TO 315/BANG/2014 DATED 14.08.2015 AND IN THE CASE OF M/S. SLN TRADERS (IN ITA NO.1045/BANG/2015 & CO NO.210/BANG/ 2015 DATED 30.6.2016) HAS ALSO TAKEN A VIEW THAT WHERE THE ASS ESSING OFFICER HAS NOT SPECIFIED UNDER WHICH LIMB, PENALTY U/S. 271(1)(C) OF THE ACT IS TO BE LEVIED, I.E., WHETHER PENALTY PROCEEDINGS ARE BEING INITIAT ED FOR CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF I NCOME; SUCH INITIATION OF PENALTY PROCEEDINGS HAS TO BE HELD TO BE ILLEGAL. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN E. KRISHNAPPA V. ITO (SUPRA) ARE EXTRACTED HEREUNDER:- 4.4.3 IN THE CASE ON HAND, WE FIND FROM A CAREFUL PERUSAL OF THE NOTICES, ISSUED UNDER SECTION 274 RWS 271 OF THE AC T DT.29.12.2011 FOR ASSESSMENT YEARS 2007-08 AND PLAC ED BEFORE THE BENCH IN THE COURSE OF HEARING THAT THE ASSESSI NG OFFICER HAS ITA NO.947/BANG/2014 PAGE 7 OF 8 NOT SPECIFIED UNDER WHICH LIMB OF THE PENALTY U/S.2 71(1)(C) OF THE ACT IS TO BE LEVIED; I.E. WHETHER THE PENALTY PROCE EDINGS ARE BEING INITIATED FOR CONCEALMENT OF PARTICULARS OF INCOME OR FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME. SUC H INITIATION OF PENALTY PROCEEDINGS HAS BEEN HELD TO BE ILLEGAL BY THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF MANJUNATHA C OTTON & GINNING FACTORY (SUPRA). FOLLOWING THE AFORESAID DE CISION OF THE HON'BLE HIGH COURT OF KARNATAKA IN THE CASE OF RAVE ENDHIRAA L & OTHERS (SUPRA), WE HOLD THAT THE NOTICES ISSUED U NDER SECTION 274 RWS 271 OF THE ACT DT.29.12.2011 FOR ASSESSMENT YEARS 2007-08 TO 2009-10 ARE BAD IN LAW FOR THE REASONS M ENTIONED IN THE AFORESAID ORDERS AND CONSEQUENTLY HOLD THE PENA LTY ORDERS PASSED IN CONSEQUENCE OF THESE DEFECTIVE, INVALID N OTICES ALSO TO BE INVALID AND CANCEL THEM. 6. TURNING TO THE FACTS OF THE INSTANT CASE, WE FIN D THAT UNDISPUTEDLY THE AO HAS NOT IDENTIFIED IN THE NOTICES AS TO WHETHER THE PENALTY PROCEEDINGS ARE INITIATED FOR CONCEALMENT OF INCOME OR FURNISHI NG OF INACCURATE PARTICULARS OF SUCH INCOME. THEREFORE, FOLLOWING T HE AFORESAID JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT, WE ARE OF THE CO NSIDERED VIEW THAT ON ACCOUNT OF DEFECTIVE NOTICE ISSUED FOR INITIATION O F PENALTY PROCEEDINGS, THE PENALTY ORDER PASSED BY THE AO IS NOT SUSTAINABLE I N THE EYES OF LAW. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(APPEALS) AS WELL AS THE ASSESSING OFFICER AND DELETE THE PENALTY ON ACCOUNT OF WRONG INITIATION OF PENALTY PROCEEDINGS. 7. SINCE THE PENALTY PROCEEDINGS ARE QUASHED, WE FI ND NO JUSTIFICATION TO DEAL WITH THE APPEALS ON MERITS, AS IT BECOMES A CADEMIC. ITA NO.947/BANG/2014 PAGE 8 OF 8 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF OCTOBER, 2016. SD/- SD/- ( A.K. GARODIA ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 18 TH OCTOBER, 2016. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.