Stone Shippers, Mumbai vs Asst Cit Rg 12(3), Mumbai on 28 December, 2018

[Cites 13, Cited by 0]

Income Tax Appellate Tribunal - Mumbai

Stone Shippers, Mumbai vs Asst Cit Rg 12(3), Mumbai on 28 December, 2018

  IN THE INCOME TAX APPELLATE TRIBUNAL"G" BENCH, MUMBAI
  BEFORE SHRI RAJESH KUMAR, AM AND SHRI AMARJIT SINGH, JM

                I.T.A. Nos.1226, 1227 & 1228/M/2014
           (Assessment Years: 2005-06, 2006-07 & 2007-08)
M/s. Stone Shippers (Since        Vs.    ACIT-Range 12(3)
converted into Stone                     Mumbai
Shippers Ltd.)
117, Jolly Maker Chambers
III, Nariman Point, Mumbai -
400021.

स्थायीले खासं ./जीआइआरसं ./PAN/GIR No. : AAKFS7395C

         (Appellant)               ..              (Respondent)


Assessee by:                              Shri Haresh G. Buch/Ms.
                                          Moksha Mehta
Department by:                            Shri Suhas Kulkarni (DR)

                          Date of Hearing:        24.12.2018
                    Date of Pronouncement:        28.12.2018
                                ORDER

  PER AMARJIT SINGH, JM:

The assessee has filed the above mentioned appeals against the different orders passed by the Commissioner of Income Tax (Appeals)-23, Mumbai [hereinafter referred to as the "CIT(A)"] relevant to the assessment years 2005-06, 2006-07 & 2007-08.

ITA. NO.1226/M/2014

2. The assessee has filed the present appeal against the order dated 02.12.2013 passed by the Commissioner of Income Tax (Appeals)-23, ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 Mumbai [hereinafter referred to as the "CIT(A)"] relevant to the assessment year 2005-06 in which the penalty levied by the AO has been ordered to be confirmed.

3. The assessee has raised the following grounds: -

"Ground I

1. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals)-23 (the "CIT(A)") erred in upholding the action of the Assistant Commissioner of Income Tax- 12(3) ("the A.O.") in levying penalty of Rs.37,69,845/- u/s. 271(1)(c) of the Income Tax Act, 1961 ("the Act") on the following additions / disallowances on the alleged ground of concealment of income or! and furnishing of inaccurate particulars of income:

i) Disallowing shipment expenses in the nature of choking, strapping and unloading expenses amounting to Rs.48,09,327/-.

ii) Disallowing a part of shipment expenses on adhoc basis, incurred at location other than Shilphata and Pawane, amounting to Rs.

54,92,907/-.

2. The Appellant therefore, prays that, the penalty of Rs.37,69,845/- u/s. 271(1)(c) of the Act be deleted.

Ground II

1. The Appellant craves leave to add to, amend, alter and / or delete all or any of the above grounds of appeal at the time of hearing."

4. The brief facts of the case are that the assessment of the assessee was completed on 18.12.2009 u/s 143(3) r.w.s. 147 of the Act assessing the total income to the tune of Rs.7,04,61,603/-. The assessee is an exporter of building stones and its main exports are to the United Kingdom. A survey operation u/s 133A of the I.T. Act, 1961 was conducted at the assessee's premises on 09.08.2007. During 2 ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 the course of this survey, various loose paper etc. were impounded. At the time of survey, the statement on oath of Shri Mitesh J. Mody(Accountant) was recorded at the office premises of assessee. On the basis of statement of Shri Mitesh J. Mody, the assessee was found claiming bogus/inflated shipment labour expenses and accordingly the addition was raised to the extent of Rs.1,21,37,323/-, therefore, the penalty proceeding was initiated and penalty in sum of Rs.37,69,845/- was imposed. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who confirmed the order passed by the AO dated 30.03.2012, therefore, the assessee has filed the present appeal before us.

5. We have heard the argument and advanced by the Ld. Representative of the parties and perused the record. At the very outset, the Ld. Representative of the assessee has argued that the penalty notice nowhere speaks about specific limb to levy the penalty because the particular charge was not tick off in the notice, therefore, in the said circumstances the penalty is not justifiable hence the order of the CIT(A) confirming the penalty order of the AO is wrong against law and facts and is liable to be set aside. In support of these contentions the Ld. Representative of the assessee has placed reliance upon the law settled in ITA. No.1154/M/2014 CIT-11 Vs. Samson Perinchery and the order of the ITAT, Mumbai Bench in ITA. No.2555/M/2012 vide order dated 28.04.2017 titled as Meherjee 3 ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 Cassinath Holdings P. Ltd. Vs. ACIT, Circle-4(2). However, on the other hand, the Ld. Representative of the Department has refuted the said contentions. The copy of notice dated 18.12.2009 is on the file in which the Assessing Officer nowhere specify any limb to levy the penalty because none of the charge was specifically tick off in the notice. It is not in dispute that the penalty u/s 271(c) of the Act is leviable on account of the concealment of particular of income and on account of furnishing the inaccurate particulars of income. Both have different connotations. In this regard, the Hon'ble Supreme Court has appreciated the distinction between both the limb in the case Dilip N. Shroff 161 taxman 218 (SC). As per the record, the assessment order speaks about levying the penalty on account of furnishing the inaccurate particulars of income and concealment of particulars income but the notice nowhere specify any limb to levy the penalty. The notice is not justifiable in view of the law settled by the Bombay High Court in the case of CIT-11 Vs. Samson Perinchery and the order of the ITAT, Mumbai Bench. At the time of argument, the Ld. Representative of the assessee has also placed reliance upon the finding of the Hon'ble ITAT in ITA. No. 2555/M/2012 titled as Meherjee Cassinath Holdings P. Ltd. Vs. ACIT, Circle-4(2). The relevant para is hereby reproduced below: -

"8. We have carefully considered the rival submissions. Sec. 271(1)(c) of the Act empowers the Assessing Officer to impose penalty to the extent specified if, in the course of any proceedings under the Act, he is satisfied that any person has concealed the 4 ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 particulars of his income or furnished inaccurate particulars 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 of the two situations, namely, for concealing the particulars of income or for furnishing inaccurate particulars of income. Therefore, it is obvious from the phraseology of Sec. 271(1)(c) of the Act that the imposition of penalty is invited only when the conditions prescribed u/s 271(1)(c) of the Act exist. It is also a well accepted proposition that 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income' referred to in Sec. 271(1)(c) of the Act denote different connotations. In fact, this distinction has been appreciated 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 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income' have different connotations, it is imperative 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. It is in this background that one has to appreciate the preliminary 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 has been issued to the assessee-company. A copy of the said notice has been placed on record and the learned representative canvassed that the same has been issued by the Assessing Officer in a standard proforma, without striking out the irrelevant clause. In other words, the notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealment of the particulars of income as well as furnishing of inaccurate particulars of income. Quite clearly, non-striking-off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges 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 been made to the following specific discussion in the order of Hon'ble Supreme Court in the case of Dilip N. Shroff (supra):-

"83. It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs 5 ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 were to be deleted, but the same had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed 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 principles 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. Shroff (supra), the notice in the instant case does suffer from the vice of non-application of mind by the Assessing Officer. In fact, a similar proposition was also enunciated by the Hon'ble Karnataka High Court in the case of M/s. SSA's Emerald Meadows (supra) and against such a judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Hon'ble Supreme 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 ld. CIT-DR has not disputed the factual matrix, but sought to point out that there 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 disallowance, he has recorded a satisfaction that penalty proceedings are initiated u/s 271(1)(c) of the Act for furnishing of inaccurate particulars of income. In our considered opinion, the attempt of the ld. CIT-DR to demonstrate application of mind by the Assessing Officer is no defence inasmuch as the Hon'ble Supreme Court has approved the factum of non-striking off of the irrelevant clause in the notice as reflective of non-application of mind by the Assessing Officer. Since the factual matrix in the present case conforms to the proposition laid down by the Hon'ble Supreme Court, we proceed to reject the arguments advanced by the ld. CIT-DR based on the observations of the Assessing Officer in the assessment order.

ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 Further, it is also noticeable that such proposition has been considered by the Hon'ble Bombay High Court also in the case of Shri Samson Perinchery, ITA Nos. 1154, 953, 1097 & 1126 of 2014 dated 5.1.2017 (supra) and the decision of the Tribunal holding levy of penalty in such circumstances being bad, has been approved.

11. Apart from the aforesaid, the ld. CIT-DR made an argument based on the decision of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Others, 216 ITR 660 (Bom.) to canvass support for his plea that non-striking off of the irrelevant portion of notice would not invalidate the imposition of penalty 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 similar 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 the case of Smt. Kaushalya & Ors., (supra) as also the judgments of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) and Dharmendra Textile Processors, 306 ITR 277 (SC) deduced as under :-

"12. A combined reading of the decision rendered by Hon'ble Bombay High Court in the case of Smt. B Kaushalya and Others (supra) and the decision rendered by Hon'ble Supreme Court in the case of Dilip N Shroff (supra) would make it clear 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 income but levied penalty for furnishing inaccurate particulars of income. The Hon'ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon'ble Kerala High Court has struck down the penalty imposed in the case of N.N.Subramania Iyer Vs. Union of India (supra), when 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 charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not 7 ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. The Hon'ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya (supra) and observed as under:-

"....The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified."

In the instant case also, we are of the view that the AO has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the AO has failed to apply 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'ble Supreme Court in the case of Dilip N. Shroff (supra) is to prevail. Following the decision of our coordinate Bench in the 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 demonstrate the importance of non-striking off of irrelevant clause in the notice by the Assessing Officer. As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act 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 the Act are reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in 8 ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 the notice clearly brings out the diffidence on the part of Assessing Officer and there is no clear 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 quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant 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, therefore, the proceedings suffer from non- compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond.

14. Therefore, in view of the aforesaid discussion, 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 ratio of the judgment of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) as well as the judgment of the Hon'ble Bombay High Court in the case of Shri Samson Perinchery (supra). Thus, on this count itself the penalty imposed u/s 271(1)(c) of the Act is liable to be deleted. We hold so. Since the penalty has been deleted on the preliminary point, the other arguments raised by the appellant are not being dealt with."

6. In view of the above facts and circumstances, it is quite clear that the penalty is not leviable in accordance with law. Since the penalty is not sustainable on the issue of defective notice, therefore, we are not inclined to decide the matter of controversy on merits. In view of the said circumstances, we are of the view that the finding of the CIT(A) is wrong against law and facts and is not liable to be sustainable in the eyes of law, therefore, we set aside the finding of the CIT(A) on this issue and delete the penalty.

ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 ITA NO.1227/M/2014:-

7. The assessee has filed the present appeal against the order dated 02.12.2013 passed by the Commissioner of Income Tax (Appeals)-23, Mumbai [hereinafter referred to as the "CIT(A)"] relevant to the assessment year 2006-07 in which the penalty levied by the AO has been ordered to be confirmed.

8. The assessee has raised the following grounds: -

"Ground I

1. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals)-23 (the "CIT(A)") erred in upholding the action of the Assistant Commissioner of Income Tax- 12(3) ("the A.O.") in levying penalty of Rs.58,11,754/- u/s. 271(1)(c) of the Income Tax Act, 1961 ("the Act") on the following additions / disallowances on the alleged ground of concealment of income or! and furnishing of inaccurate particulars of income:

i) Disallowing shipment expenses in the nature of choking, strapping and unloading expenses amounting to Rs.97,70,027/-.

ii) Disallowing a part of shipment expenses on adhoc basis, incurred at location other than Shilphata and Pawane, amounting to Rs.12,98,466/-.

III) Unexplained cash payments u/s 69B, for acquiring assets, amounting to Rs.61,97,561/-

2. The Appellant therefore, prays that, the penalty of Rs.58,11,754/- u/s. 271(1)(c) of the Act be deleted.

Ground II

1. The Appellant craves leave to add to, amend, alter and / or delete all or any of the above grounds of appeal at the time of hearing."

ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08

9. The facts of the present case are quite similar to the facts of the case as narrated above in ITA. No.1226/M/2014 above, however, the figure is different, therefore, there is no need to repeat the same. The matter of controversy in this appeal is also the same. The finding given in the above mentioned appeal bearing ITA. No.1226/M/2014 is quite applicable as mutatis and mutandis, therefore, the penalty levied by the AO is hereby ordered to be deleted on similar lines.

ITA NO.1228/M/2014:-

10. The assessee has filed the present appeal against the order dated 02.12.2013 passed by the Commissioner of Income Tax (Appeals)-23, Mumbai [hereinafter referred to as the "CIT(A)"] relevant to the assessment years 2007-08 in which the penalty levied by the AO has been ordered to be confirmed.

11. The assessee has raised the following grounds. -

"Ground I

1. On the facts and circumstances of the case and in law, the Commissioner of Income Tax (Appeals)-23 (the "CIT(A)") erred in upholding the action of the Assistant Commissioner of Income Tax- 12(3) ("the A.O.") in levying penalty of Rs.31,57,648/- u/s. 271(1)(c) of the Income Tax Act, 1961 ("the Act") on the following additions / disallowances on the alleged ground of concealment of income or! and furnishing of inaccurate particulars of income:

i) Disallowing shipment expenses in the nature of choking, strapping and unloading expenses amounting to Rs.64,18,041/-.

ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08

ii) Disallowing a part of shipment expenses on adhoc basis, incurred at location other than Shilphata and Pawane, amounting to Rs.29,62,970/-.

2. The Appellant therefore, prays that, the penalty of Rs.31,57,648/- u/s. 271(1)(c) of the Act be deleted.

Ground II

1. The Appellant craves leave to add to, amend, alter and / or delete all or any of the above grounds of appeal at the time of hearing."

12. We have heard the argument advanced by the Ld. Representative of the parties and perused the record. The Ld. Representative of the assessee has argued that the appeal of the assessee on quantum has been admitted by the Hon'ble High Court in view of ITA. No.1012 of 2012 dated 10.03.2014, therefore, in the said circumstances, the penalty is not leviable in view of the law settled in CIT Vs. M/s. Nayan Builders and Developers ITA. No. 415 of 2012. It is also specifically argued that the notice issued to the assessee nowhere speaks about any particular charge as nothing was tick off in the said notice, therefore, in the said circumstances, the notice is not justifiable, hence, the penalty is not liable to be sustainable in view of the law settled in CIT Vs. SSA Emerald Meadows SLP © No. 11485/2016 SC, CIT VS. SSA Emerald Meadows (ITA. No. 380 of 2015 Kar. High Court, CIT Vs. Shri Samson Perincherry (ITXA No. 1154 of 2014 Bom. High Court & Extract of CIT Vs. Manjunatha Cotton & Ginning Factory 35 taxmann.com 250 Kar. High Court. On the other hand, the ld.

ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 Representative of the Department has refuted the said contentions. The copy of order of the Hon'ble High Court dated 10.03.2014 ITA. No.1012 of 2012 is on the file in which it is quite clear that the appeal of the assessee has been admitted by the Hon'ble High Court on quantum. In the case CIT Vs. M/s. Nayan Builders and Developers ITA. No. 415 of 2012 it has been held that if the appeal of the assessee has been admitted by the Hon'ble Bombay High Court being substantial question of law involved, therefore, in the said circumstances, the penalty is not liable to be sustainable in the eyes of law. So far as the claim of the assessee regarding the set off of brought forward losses against short term capital gain is concerned, the same is not allowable. In brief, the assessee nowhere furnished the inaccurate particulars nor concealed the particulars of income. If the assessee raised wrong claim which was not allowable in accordance with law, therefore, in the said circumstances no penalty is leviable in view of the law settled in CIT Vs. Reliance petroproducts (P.) Ltd. (2010) 189 Taxman 322 (SC) . On account of legal issues, it is not in dispute that the AO nowhere alleged any specific charge in the notice issued to the assessee. No charge was tick off in the notice. It is not in dispute that the penalty u/s 271(c) of the Act is leviable on account of the concealment of particular of income and on account of furnishing the inaccurate particulars of income. Both the limbs have different connotations. In this regard, the Hon'ble Supreme Court as appreciated the distinction between both the limb in the case Dilip N. 13 ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 Shroff 161 taxman 218 (SC). As per the record the assessment order speaks about levying the penalty on account of furnishing the inaccurate particulars of income and concealment of particulars income but the notice nowhere specify any limb to levy the penalty. The notice is not justifiable in view of the law settled by the Bombay High Court in the case of CIT-11 Vs. Samson Perinchery and the order of the ITAT, Mumbai Bench. At the time of argument, the Ld. Representative of the assessee has also placed reliance upon the finding of the Hon'ble ITAT in ITA. No. 2555/M/2012titled as Meherjee Cassinath Holdings P. Ltd. Vs. ACIT, Circle-4(2). The relevant para is hereby reproduced below: -

"8. We have carefully considered the rival submissions. Sec. 271(1)(c) of the Act empowers the Assessing Officer to impose penalty to the extent specified if, in the course of any proceedings under the Act, he is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars 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 of the two situations, namely, for concealing the particulars of income or for furnishing inaccurate particulars of income. Therefore, it is obvious from the phraseology of Sec. 271(1)(c) of the Act that the imposition of penalty is invited only when the conditions prescribed u/s 271(1)(c) of the Act exist. It is also a well accepted proposition that 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income' referred to in Sec. 271(1)(c) of the Act denote different connotations. In fact, this distinction has been appreciated 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 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income' have different connotations, it is imperative 14 ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 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. It is in this background that one has to appreciate the preliminary 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 has been issued to the assessee-company. A copy of the said notice has been placed on record and the learned representative canvassed that the same has been issued by the Assessing Officer in a standard proforma, without striking out the irrelevant clause. In other words, the notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealment of the particulars of income as well as furnishing of inaccurate particulars of income. Quite clearly, non-striking-off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges 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 been made to the following specific discussion in the order of Hon'ble Supreme Court in the case of Dilip N. Shroff (supra):-

"83. It is of some significance that in the standard proforma 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. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the assessee had concealed 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 principles 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. Shroff (supra), the notice in the instant case does suffer from the vice of 15 ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 non-application of mind by the Assessing Officer. In fact, a similar proposition was also enunciated by the Hon'ble Karnataka High Court in the case of M/s. SSA's Emerald Meadows (supra) and against such a judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Hon'ble Supreme Court vide order dated 5.8.2016, a copy of which is also placed on record.

11. Apart from the aforesaid, the ld. CIT-DR made an argument based on the decision of the Hon'ble Bombay High Court in the case of Smt. Kaushalya & Others, 216 ITR 660 (Bom.) to canvass support for his plea that non-striking off of the irrelevant portion of notice would not invalidate the imposition of penalty 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 similar 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 the case of 16 ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 Smt. Kaushalya & Ors., (supra) as also the judgments of the Hon'ble Supreme Court in the case of Dilip N. Shroff (supra) and Dharmendra Textile Processors, 306 ITR 277 (SC) deduced as under :-

"12. A combined reading of the decision rendered by Hon'ble Bombay High Court in the case of Smt. B Kaushalya and Others (supra) and the decision rendered by Hon'ble Supreme Court in the case of Dilip N Shroff (supra) would make it clear 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 income but levied penalty for furnishing inaccurate particulars of income. The Hon'ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon'ble Kerala High Court has struck down the penalty imposed in the case of N.N.Subramania Iyer Vs. Union of India (supra), when 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 charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued. The Hon'ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya (supra) and observed as under:-

"....The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified."

ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08 In the instant case also, we are of the view that the AO has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the AO has failed to apply his mind at the time of issuing penalty notice to the assessee."

13. Apart from the aforesaid discussion, we may also refer to the one more seminal feature of this case which would demonstrate the importance of non-striking off of irrelevant clause in the notice by the Assessing Officer. As noted earlier, in the assessment order dated 10.12.2010 the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act 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 the Act are reproduced in the proforma notice and the irrelevant clause has not been struck-off. Quite clearly, the observation of the Assessing Officer in the assessment order and non-striking off of the irrelevant clause in the notice clearly brings out the diffidence on the part of Assessing Officer and there is no clear 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 quasi-criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice, and in the present case, considering the observations of the Assessing Officer in the assessment order alongside his action of non-striking off of the irrelevant 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, therefore, the proceedings suffer from non- compliance with principles of natural justice inasmuch as the Assessing Officer is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond.

ITA Nos. 1226, 1227 & 1228/Mum/2014 A.Ys. 2005-06, 2006-07 & 2007-08

13. In view of the above said finding, we are of the view that the penalty is not liable to be sustainable in the eyes of law, therefore, we set aside the finding of the CIT(A) on these issues and delete the penalty.

14. In the result, all the appeals filed by the assessee are hereby ordered to be allowed.

Order pronounced in the open court on 28.12.2018.

                  Sd/-                                       Sd/-
           (RAJESH KUMAR)                              (AMARJIT SINGH)
लेखासदस्य / ACCOUNTANT MEMBER                न्याययकसदस्य/JUDICIAL MEMBER
मंबई Mumbai; यदनां कDated : 28.12.2018.
Vijay




                                        19
                                                                 ITA Nos. 1226, 1227
                                                                  & 1228/Mum/2014
                                                   A.Ys. 2005-06, 2006-07 & 2007-08

आदे शकीप्रतितितिअग्रेतिि/Copy of the Order forwarded to :

1. अपीलाथी/ The Appellant

2. प्रत्यथी/ The Respondent.

3. आयकरआयक्त(अपील)/ The CIT(A)-

4. आयकरआयक्त/ CIT

5. यिभागीयप्रयियनयि,आयकरअपीलीयअयिकरण, मंबई/ DR, ITAT, Mumbai

6. गार्ड फाईल /Guard file.

आदे शानुसार/ BY ORDER, सत्यायपिप्रयि //True Copy// Sr. Private Secretary) आयकरअिीिीयअतिकरण, मंबई / ITAT, Mumbai 20

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