Income Tax Appellate Tribunal - Mumbai
Oshiwara Silver Sand Chsl., Mumbai vs Ito 20(2)(3), Mumbai on 4 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "B", MUMBAI
BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND
SHRI C.N. PRASAD, JUDICIAL MEMBER
ITA.NO.2815/MUM/2016 (A.Y: 2008-09)
Oshiwara Silver Sand Co-Op. v. Income Tax Officer - 20(2)(3)
Housing Society Ltd., High colony, Mumbai
Bldg.No.18-19-20
Oshiwara, Jogeshwari (West)
Mumbai - 400 102
PAN : AAAAO 0213 A
(Appellant) (Respondent)
Assessee by: Shri Bharat Kumar
Department by: Shri N.P. Singh
Date of Hearing: 16.05.2017
Date of Pronouncement: 04.08.2017
ORDER
PER C.N. PRASAD (JM)
1. This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-36, Mumbai dated 05.02.2016 for the Assessment Year 2008-09 in sustaining penalty of ₹ 4,76,510/- levied u/s 271(1)(c) of the Act.
2. The Learned Counsel for the assessee at the outset submits that assessee is a cooperative housing society filed return of income claiming certain incomes/loss under head income from business. The assessment was completed u/s 143(3) assessing the income under the head house property and denied set off of business loss claimed. Assessing Officer initiated the penalty proceedings for furnishing inaccurate particulars of income by claiming undue 2 ITA.NO.2815/MUM/2016 (A.Y: 2008-09) Oshiwara Silver Sand CHSL set off of business loss. In other words, the assessee claimed set off of business loss against other heads of income which the Assessing Officer denied holding that assessee is not a business concern but is a cooperative housing society. The Learned Counsel for the assessee submits that the charge in levying penalty mentioned in the Assessment Order is that the penalty proceedings were initiated for furnishing inaccurate particulars of income for claiming undue set off but whereas while levying the penalty was levied holding that assessee had the intention of concealing his income; and furnished inaccurate particulars of income.
3. The Learned Counsel for the assessee submits that there is non- application of mind by the Assessing Officer in initiating the penalty proceedings against the assessee. He submits that the Assessing Officer is not clear in his mind against which charge he is imposing penalty. Therefore, he submits that in the absence of any specific charge/non striking of the limb in the penalty notice the Assessing Officer failed to specify the charge being made against the assessee u/s 271(1)(c) of the Act. The Learned Counsel for the assessee strongly placed reliance on the decision of the Coordinate Bench of this Tribunal in the case of M/s Dharni Developers v. ACIT in ITA.No.1848 to 1851/Mum/2012 dated 07.01.15 and submitted that when the charge is not clear and when the Assessing Officer initiated penalty proceedings under one limb of section 271(1)(c) but levied for another default or limb of that section the penalty is not sustainable.
4. He further relied in the case of Meherjee Cassinath Holdings Private Limited v. ACIT in ITA.No.2555/Mum/2012 dated 28.04.2017, wherein the Coordinate Bench after considering the decisions of various Coordinate Benches of the Tribunal, the decisions of the Karnataka High Court in the case of M/s. SSA's emerald Meadows, Manjunatha Cotton and Ginning Factory & Others, the decision of the Apex Court in the case of Dilip N. Shroff and recent decision of the Bombay High Court in the case of Samson Perinchery, the Coordinate Bench held that non striking of the relevant clause in the notice 3 ITA.NO.2815/MUM/2016 (A.Y: 2008-09) Oshiwara Silver Sand CHSL clearly brings out the diffidence on the part of the Assessing Officer, there is no clear and crystalized charge being conveyed to the assessee u/s 271(1)(c) and therefore no penalty could be imposed u/s 271(1)(c) of the Act. Ld.DR vehemently supported the orders of the authorities below.
5. We have heard the rival submissions perused the orders of the authorities below. We have perused the penalty notice issued u/s 274 r.w.s 271(1)(c) and also the Assessment Order passed u/s 143(3) of the Act. It is abundantly clear from these that the Assessing Officer failed to strike of the relevant limb in initiating the penalty proceedings, charge is not made clear. The Coordinate Bench in the case of Dharni Developers (supra) held as under
:-
"5. We have heard the parties on this legal issue and perused the record. We notice that the AO has observed as under in the assessment order relating to the assessment year 2003-04:
"Since the assessee had not offered this amount of Rs.7,63,600/- in its return of income file u/s 139(1) of the IT Act, the assessee has concealed his particulars of income and penal proceedings are initiated u/s 271(1)( c) of the Act."
Identical observations have been made by the AO in other years under consideration also. Since the penalty notices are issued during the course of assessment proceedings, in our view, the said notices have to be read along with the assessment order. Accordingly, even if the assessing officer has failed to strike down any one of the two defaults, the intention of the assessing officer for initiating the penalty proceedings could be ascertained form the assessment order. In all the years under consideration, the solitary addition made by the assessing officer was related to unaccounted business receipts. The above said observations made by the assessing officer in the assessment orders would show that the penalty proceedings were initiated for "concealment of particulars of income" only. However in the penalty order, the AO has concluded as under:
"Thus it is clear that the assessee has tried to evade the taxes on income by filing inaccurate particulars of their income and thereby concealing the same. I therefore, hold that the assessee in this case has deliberately furnished inaccurate particulars of their income for relevant previous year thereby attracting penalty provision u/s 271(1)(c) of the IT Act. I am therefore, satisfied that this is a fit case for levy of penalty u/s 271(1)( c 4 ITA.NO.2815/MUM/2016 (A.Y: 2008-09) Oshiwara Silver Sand CHSL of the Act, 1961."
Thus, it can be noticed that the AO, after having initiated proceedings for "concealing the particulars of income", has levied penalty for "furnishing of inaccurate particulars of income".
6. At this stage, it is pertinent to refer to the decision of the Hon'ble Gujarat High Court in the case of K.M.Bhatia (Quarry) V/s CIT reported in 193 ITR 379(Guj), wherein the Hon'ble Gujarat High Court has held that penalty proceeding having been initiate on the ground of "furnishing inaccurate particulars of income", imposition of penalty on the ground of "concealment of income" was not justified. Identical view has been expressed by the Hon'ble Gujarat High Court in the case of CIT V/s Lakhdhir Lalji [1972] 85 ITR 77 (Guj).
7. A co-ordinate Bench of the Mumbai Tribunal has also considered an identical issue in the case of Shri Samson Perinchery (supra), wherein the AO had initiated penalty proceedings for "furnishing inaccurate particulars of income", however, levied penalty for "concealment of particulars of income". The Co-ordinate Bench after considering the decision of Hon'ble Karnataka High Court in the case of CIT V/s Manjunatha Cotton and Ginning Factory (Karn) (supra) has observed and held as under:
"12. The above extracts reveal that the AO has not applied his mind to the fact for which reason of the penalty, the notices were issued. The above documents reveal that the penalty proceedings were initiated for "failure to furnish inaccurate particulars of income and however, the penalty was levied for concealment of income".
12.1. In this regard, we have perused the said paras 59 to 61 of the Hon"ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra) and the same read as under:
"NOTICE UNDER SECTION 274
59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-i(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the 5 ITA.NO.2815/MUM/2016 (A.Y: 2008-09) Oshiwara Silver Sand CHSL conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that 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(i)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. 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, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
60. Clause (C) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(D(c) when it is a sine qua 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 called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what 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 principles of natural justice and cannot be sustained. Thus once the proceedings 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 which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.6
ITA.NO.2815/MUM/2016 (A.Y: 2008-09) Oshiwara Silver Sand CHSL 61 The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing 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 Pal reported in (2007) 292 ITR 11(C) at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxmann 156, has held that levy of penalty has to be clear as to the limb for which it is levied 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 appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind."
13. From the above, it is clear that the penalty should be clear as to the limb for which it is levied and the position being unclear here the penalty is not sustainable. Therefore, considering the same, we are of the opinion that the ground raised by the assessee should be allowed on technical grounds. Accordingly, adjudication of the penalties on merits become an academic exercise. Therefore, the grounds raised in all the six assessment years are allowed."
8. In the instant cases also, we have noticed that the assessing officer has initiated penalty proceedings under one default or limb of sec. 271 (1)(c) of the Act, but levied for another default or limb of that section. Consistent with the view expressed by the Tribunal and High Courts, we hold that the impugned penalty levied in all the years under consideration is not sustainable. Hence, we do not find it necessary to address the issues urged on merits. Accordingly we set aside the orders of Ld CIT(A) and direct the assessing officer to delete the penalty levied u/s 271 (1)(c) of the Act for all the years under consideration.
6. Similar situation was considered by the Coordinate Bench in the case of Meherjee Cassinath Holdings Private Limited v. ACIT (supra) and the implication of non-striking of the relevant portion of the notice and not specifying the charge while imposing the penalty u/s 271(1)(c). It was held that if there is no specific charge mentioned by the Assessing Officer for imposing of penalty, 7 ITA.NO.2815/MUM/2016 (A.Y: 2008-09) Oshiwara Silver Sand CHSL the penalty cannot be sustained. While holding so the Coordinate Bench held as under:-
"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 Pal, 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 thesome postulates that inappropriate words and paragraphs were to be deleted, but the some had not been done. Thus, the Assessing Officer himself was not sure as to whether he had proceeded on the basis that the 8 ITA.NO.2815/MUM/2016 (A.Y: 2008-09) Oshiwara Silver Sand CHSL assessee had concealed his income or he had furnished to Meherjee Cassinath Holdings Pvt. Ltd.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 5CC 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 Id. 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 Id. 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 Id. CIT-DR based on the observations of the Assessing Officer in the assessment order. 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 Id. 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 (Born.) 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 Id. CIT-DR and find that a similar issue had come up before our coordinate Bench in the case of Dr. 9 ITA.NO.2815/MUM/2016 (A.Y: 2008-09) Oshiwara Silver Sand CHSL Santa Milimd 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 Dump N. Shroff (supra) and Dharrnendra Textile Processors, 306 1TR 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 AD at the time of issuing notice. In the case of Lakhdir Lalji (supra), the AD 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 lyer 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 AD 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 AD, in our view, clearly show that the AD 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 AD 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 AD 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 10 ITA.NO.2815/MUM/2016 (A.Y: 2008-09) Oshiwara Silver Sand CHSL coordinate Bench in the case of Dr. Santa Milind Davare (supra), we hereby reject the aforesaid argument of the Id. 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 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.
7. We respectfully following the said decision of the Coordinate Benches hold that non striking of one of the limbs in the notice suffers from vice of non- application of the mind having regard to the ratio of the decision of the Hon'ble Supreme Court in the case of the Dilip N. Shroff (supra) and Bombay High Court in the case of Samson Perinchery (supra), thus we delete the penalty levied u/s.
11ITA.NO.2815/MUM/2016 (A.Y: 2008-09) Oshiwara Silver Sand CHSL 271(1)(c) of the Act on the preliminary point. The other arguments on merits raised by the Learned Counsel for the assessee are not being dealt with.
8. In the result the appeal of the assessee is allowed.
Order pronounced in the open court on the 04th August, 2017.
Sd/- Sd/-
(RAJENDRA) (C.N.PRASAD)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai / Dated 04/08/2017
VSSGB, SPS
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT(A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
//True Copy//
BY ORDER,
(Asstt. Registrar)
ITAT, Mum