Income Tax Appellate Tribunal - Raipur
Kailash Agrawal, Raigarh vs Income Tax Officer, Ward-3, Raigarh on 30 January, 2024
आयकर अपील य अ धकरण यायपीठ रायपुर म।
IN THE INCOME TAX APPELLATE TRIBUNAL,
RAIPUR BENCH, RAIPUR
BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER
AND
SHRI ARUN KHODPIA, ACCOUNTANT MEMBER
आयकर अपील सं. / ITA Nos. 373, 374 & 375/RPR/2023
नधारण वष / Assessment Years : 2009-10, 2010-11 & 2012-13
Kailash Agrawal,
Prop. M/s. Balaji Enterprises &
Mantu Transport, House No.27, Kalindi Kunj,
Kabeer Chowk, Dist. Raigarh-496 001
PAN : AGWPA7538H
.......अपीलाथ / Appellant
बनाम / V/s.
The Income Tax Officer,
Ward-3, Raigarh
...... यथ / Respondent
Assessee by : Shri S.R. Rao, Advocate
Revenue by : Shri Satya Prakash Sharma, Sr. DR
सन
ु वाई क तार ख / Date of Hearing : 24.01.2024
घोषणा क तार ख / Date of Pronouncement : 30.01.2024
2
Kailash Agrawal Vs. ITO, Ward-3, Raigarh
ITA Nos. 373, 374 & 375 /RPR/2023
आदे श / ORDER
PER RAVISH SOOD, JM:
The captioned appeals filed by the assessees are directed against the respective orders passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 11.10.2023 & 17.11.2023, which in turn arises from the respective orders passed by the A.O under Sec.143(3)/147 of the Income-tax Act, 1961 (in short 'the Act') dated 28.12.2016 & 26.12.2019 for the assessment year 2009-10 & 2012-13 AND u/s. 271(1)(c) of the Act dated 29.06.2018 for A.Y.2010-11.
2. We shall first take up the appeal filed by the assessee in ITA No.373/RPR/2023 for A.Y.2009-10 and the order therein passed shall mutatis- mutandis apply for the appeal filed by the assessee in ITA No.375/RPR/2023 for A.Y.2012-13. The assessee has assailed the impugned order on the following grounds of appeal before us:
"1) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) is not justified in confirming initiation of re-assessment proceedings this 147 of the Income-tax Act, 1961.
2) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) is not justified in confirming addition of Rs.14,91,783/- by way of treating genuine purchases as unexplained expenditure u/s 69C of the Income-tax Act, 1961.
3) The impugned order is bad in law and on facts.
4) The appellant reserves the right to addition, after or omit all or any of the grounds of appeal in the interest of justice.3
Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023
3. Succinctly stated, the assessee who is engaged in the business of trading of minerals under the name and style of Balaji Enterprises, had e-filed his return of income for A.Y.2009-10 on 26.02.2010 declaring an income of Rs.3,22,050/-. Based on the input received from JDIT (Inv.), Raipur that as per information shared by the Commercial Tax Department the assessee firm was one of the beneficiaries which had obtained bogus purchase bills amounting to Rs.10,04,294/- from M/s. R.K Sales Corporation, Raipur and M/s. Rajdhani Trading Company, Raipur, thus proceedings u/s.147 of the Act were initiated by the A.O. Notice u/s.148 of the Act dated 29.03.2016 was issued by the A.O. In compliance, the assessee vide its letter dated 17.06.2016 submitted that his original return of income filed on 26.02.2010 may be treated as a return filed u/s. 148 of the Act. Acting upon the aforesaid request of the assessee, the A.O issued notices u/s. 143(2)/142(1) of the Act.
4. During the course of the assessment proceedings, the A.O observed that the assessee had made purchases of Rs.10,04,294/- from the following two tainted parties:
S. Name of beneficiary Name of party having Amount
No. furnished bogus bills.
1. M/s. Balaji M/s. R.K Sales Rs.6,46,114/-
Enterprises, Kalindi Corporation, Raipur
Kunj, Raigarh
2. -do- M/s. Rajdhani Trading Rs.1,93,798/-
Company, Raipur
Rs.1,64,382/-
4
Kailash Agrawal Vs. ITO, Ward-3, Raigarh
ITA Nos. 373, 374 & 375 /RPR/2023
Rs.10,04,294/-
As the assessee had failed to substantiate the authenticity of the aforesaid purchase transactions, therefore, the A.O held a conviction that the assessee had merely procured bogus purchase bills from the aforementioned concerns for routing its unaccounted stock through its regular books of account. Also, the A.O recorded statement of Shri Mantu Agrawal S/o. Shri Kailash Agrawal who had appeared before him in compliance to the summons issued u/s. 131 of the Act to his father, viz. Shri Kailash Agrawal. The A.O on the basis of the facts that had surfaced in the statement of Shri Mantu Agrawal recorded u/s. 131 of the Act, observed that the assessee had also booked bogus purchases from M/s. Rajrani Trading Company, Raipur aggregating to Rs.4,87,489/-. As per the facts gathered from the statement of Shri Mantu Agrawal (supra), it was observed by the A.O that the payments towards impugned purchase consideration to M/s. Rajrani Trading Company, Raipur were deposited by the assessee in the bank account of M/s. Rajdhani Trading Company, Raipur. Accordingly, the A.O based on his aforesaid deliberations disallowed the entire amount of purchases aggregating to Rs.14,91,783/- that was claimed by the assessee to have been made from the aforementioned three concerns, viz. (i) M/s. R.K Sales Corporation; (ii) M/s. Rajdhani Trading Company and (iii) M/s. Rajrani Trading Company. After disallowing the purchase of Rs.14,91,783/- the income of the assessee was determined by the A.O at Rs.18,13,830/-.
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Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023
5. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success. For the sake of clarity, the relevant observations of the CIT(Appeals) qua the sustainability of the addition of the bogus purchases as was assailed by the assessee before him are culled out as under:
"5.2 Ground No.2 : " Ld. AO is not justified in making addition of Rs.14,91,783/- u/s. 69C of the Income Tax Act, 1961 as unexplained expenditure".
5.2.1 I have carefully considered the facts of the case. In this regard, the relevant extract of the assessment order is reproduced hereunder: 6
Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 5.2.2. During the assessment proceedings, it is well established that the appellant was indulged in acquiring bogus purchase bills from M/s. Rajdhani Trading Co. Raipur, M/s R.K.Sales Corporation and M/s Rajrani Trading Co., thereby debiting bogus purchases in its books during the F.Yr. 2009-
10. The evidences collected from Axis Bank, Raigarh clearly signify that the appellant was involved in operating the account of the facilitator i.e. M/s Rajdhani Trading Co., Raipur. H3 possessed the signed cheque book of the facilitator, which he used to present in the bank to withdraw cash against the cheque deposited by him in the account of the facilitator. This amply from his signatures as bearer on the cheques of M/s Rajdhani Trading Co., Raipur. The prevalent practice of providing accommodation entry ends with the execution of return of the amount in cash to the beneficiary, which is established in this case. Recently in its judgment dated 16.01.2017 reported in 2017-TIOL-23-SC-IT, the Hon'ble Supreme Court has dismissed the SLP filed by NK Proteins Ltd. in which it was held that bogus transactions deserve to be added to total income. Consequent upon the findings the total amount of Rs. 14,91,783/- [Rs. 4,87,489/-(Bogus purchased from M/s Rajrani Trading Co.) + Rs, 10,04,294/- (Bogus purchased from R.K.Sales Corpn. And Rajdhani Trading Co.)] was treated as deemed income and added to the total income.
5.2.3 The appellant could not prove the genuineness of the purchases from these alleged parties as the parties themselves were not existing. As the purchases could not be proved, the books of account in which these purchases are recorded cannot be relied upon. In view of this, the books of account u/s 145(3) of the IT Act are rejected.
5.2.4 The appellant once again put great reliance on the neutral facts such as source of purchase and the corresponding sale being made. But the appellant could not appreciate the fact that while it could be that purchases and corresponding sales being shown in the trading account, but does it prove the transaction earned into by him from these parties as genuine.
5.2.5 The finding by way of field enquiries revealed that an organized racket was in operation to provide bogus accommodation entries to the customers in a manner that looked apparently genuine.
5.2.6 As regards the case laws relied upon by the appellant, the facts are distinguishable and hence not applicable.
5.2.7 Considering the above facts, I am of the view that the explanation furnished by the appellant explaining the purchases from Rajdhani Trading Co. and R.K.Sales Corpn. lack any substance and is not supported by concrete evidence. The provisions of section 69C have been rightly invoked. The order of the AO is made on sound footings. The appellant has not been able to controvert the findings of the AO. So the addition of Rs.
14,91,783/- u/s 69C of the IT Act made by the AO is confirmed." 7
Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023
6. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
7. We have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
8. Admittedly, it is a matter of fact borne from record that the assessee had failed to substantiate the authenticity of his claim of having made genuine purchases from the aforementioned tainted parties, viz. (i) M/s. R.K Sales Corporation; (ii) M/s. Rajdhani Trading Company and (iii) M/s. Rajrani Trading Company. At the same time, we find that it is a matter of fact borne from record that the A.O in the course of the assessment proceedings, had observed that the assessee in the garb of bogus bills procured from the aforementioned parties had routed the unaccounted stock available with him through his regular books of account. For the sake of clarity, the relevant observations of the A.O to the said effect are culled out as under:
"3.4 Here Sales Tax Department not only detected the parties issuing bogus sale bills and parties purchasing those bogus bills but also it carried out on spot verification and enquiries before sharing the information with other Govt. Agencies. Moreover, Sales Tax Department is a Govt. Department who through its defined working mechanism, with the help of technology and human efforts has traced out the racket of issuing and purchasing of bogus bills without any stock actually changing hands. The purchasers of these bogus bills, in this case, the assessee enters the purchases in his books, but sells the unaccounted stock which is acquired through other unfair means. This unaccounted stock fills up the room created by purchase of paper stock through Bogus Bills. Taxes are paid on the 8 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 sales and turnover is recorded in the books to give it a colour of genuine transaction thereby, converting the unaccounted stock into accounted sale. The purchaser makes the payment through cheque and sellers issuing bogus bills pay him back the amount in cash after deducting his commission, 3.4 This modus operandi was unearthed by the Investigation Wing, Raipur. The proprietor of M/s. R.K. Sales Corporation, Raipur Shri R. Ravi Kumar was examined on oath. In his deposition he admitted that he /his concern had not sold any material to the parties and only sale bills were issued for commission of Rs.3,000/-: on issue of sale bills worth Rs.6 lakhs. The whole exercise of providing accommodation entries was carried out in an organized manner without doing any actual business.
3.5 There are two kinds of sellers involved in the operation - one who sells bill but gives no stock and the other sells stock but gives no bill. There is one purchaser, who purchases stock and bill both from respective sellers and mixes them i.e. the unaccounted stock with bogus purchase bills to create a blanket of accounted stock that is supported by a purchase bill. Thereafter, the sale of it is accounted for, the taxes are paid and the necessary entries are made wherever meant for. On the face of affairs it looks apparent but it is not real. The assessee was asked to furnish statement of confirmation of accounts of the seller parties but the assessee only furnished copies of ledgers. After all, due to invasions by various Govt. Departments, the sellers of bogus bills have winded up their business and are no more available at their given addresses. They had to suspend their business as they had adopted unfair means to provide accommodation a entries to the purchasers without carrying out any actual trading. For these reasons, the ITAT's above order is squarely not applicable with the facts of this case and assessee cannot get any help with the above decision."
9. Based on the aforesaid facts, we are of the view that now when the A.O was of the view that the assessee had not made any genuine purchases from the aforesaid bogus/hawala parties and had merely procured bogus bill from them to route the unaccounted stock through his regular books of account, then, the sole inference which can be drawn is that the assessee had purchased goods not from the aforementioned tainted parties but had procured the same at a discounted value from open/grey market. Considering the aforesaid facts, we are unable to concur with the A.O who had made addition of the entire value of the impugned 9 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 purchases in the hands of the assessee. Also, we find that the A.O had at no stage rejected the books of account of the assessee u/s.145(3) of the Act.
10. Be that as it may, we are of the view that in light of the aforesaid facts of the case, the addition in the case of the assessee could only have been made to the extent of the profit element which he would have made by procuring goods at a discounted value from the open/grey market as against the value booked by him in the garb of aforesaid bogus purchase bills in his books of account. In so far the issue of quantification of the profit which the assessee would have made by procuring the goods in question from the open/grey market is concerned, we find that the Hon'ble High Court of Bombay in the case of Pr. Commissioner of Income Tax-17 Vs. M/s. Mohhomad Haji Adam & Company, ITA No1004 of 2016, dated 11.02.2019 while upholding the order of the Tribunal, had observed, that the addition in the hands of the assessee as regards the bogus/unproved purchases was to be made to the extent of bringing the G.P rate of such purchases at the same rate as those of other genuine purchases. The Hon'ble High Court while concluding as hereinabove had observed as under:
"8. In the present case, as noted above, the assessee was a trader of brics. The A.O found three entities who were indulging in bogus billing activities. A.O. found that the purchases made by the assessee from these entities were bogus. This being a finding of fact, we have proceeded on such basis. Despite this, the question arises whether the Revenue is correct in contending that the entire purchase amount should be added by way of assessee's additional income or the assessee is correct in contending that such logic cannot be applied. The finding of the CIT(A) and the Tribunal would suggest that the department had not disputed the assessee's sales. There was no discrepancy between the purchases shown by the assessee and the sale declared. That being the position, the Tribunal was correct in coming to the conclusion that the purchases cannot be rejected without disturbing the sales in 10 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 case of a trade. The Tribunal, therefore, correctly restricted the additions limited to the extent of bringing the G.P. rate on purchases at the same rate of other genuine purchases. The decision of the Gujarat High Court in the case of N.K. Industries Ltd. (supra) cannot be applied without reference to the facts. In fact in paragraph 8 of the same Judgment the Court held and observed as under-
"So far as the question regarding addition of Rs.3,70,78,125/- as gross profit on sales of Rs.37.08 Crores made by the Assessing Officer despite the fact that the said sales had admittedly been recorded in the regular books during Financial Year 1997-98 is concerned, we are of the view that the assessee cannot be punished since sale price is accepted by the revenue. Therefore, even if 6 % gross profit is taken into account, the corresponding cost price is required to be deducted and tax cannot be levied on the same price. We have to reduce the selling price accordingly as a result of which profit comes to 5.66% Therefore, considering 5.66 % of Rs.3,70,78,125/- which comes to Rs.20,98,62 1.88 we think it fit to direct the revenue to add Rs.20,98,621.88 as gross profit and make necessary deductions accordingly. Accordingly, the said question is answered partially in favour of the assessee and partially in favour of the revenue."
9. In these circumstances, no question of law, therefore, arises. All Income Tax Appeals are dismissed, accordingly. No order at costs." It was, thus, observed by the Hon'ble High Court that the addition in respect of purchases which were found to be bogus in the case of the assessee before them, who was a trader, was to be worked out by bringing the G.P. rate of such bogus purchases at the same rate as that of other genuine purchases. On the basis of the aforesaid observations of the Hon'ble High Court, we are of the considered view that on the same lines the profit made by the assessee in the case before us by procuring the goods at a discounted value from the open/grey market can safely be determined by bringing the G.P rate of such bogus purchases at the same rate as that of the other genuine purchases.
11. We, thus, in terms of our aforesaid observations restore the matter to the file of the A.O, with a direction to him to restrict the addition in the hands of the 11 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 assessee w.r.t the impugned bogus/unverified purchases made by him by bringing the GP rate of such bogus purchases at the same rate as that of the other genuine purchases.
12. In the result, appeal of the assessee in ITA No.373/RPR/2023 for A.Y.2009- 10 is allowed for statistical purposes in terms of our aforesaid observations. ITA No.375/RPR/2023
A.Y.2012-13
13. We shall now deal with the appeal filed by the assessee in ITA No.375/RPR/2023 for A.Y.2012-13, wherein the impugned order has been assailed on the following grounds of appeal before us:
"1) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) is not justified in confirming initiation of re-assessment proceedings u/s.147 of the Income-tax Act, 1961.
2) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) is not justified in confirming addition of Rs.20,86,256/- by way of treating genuine purchases as unexplained expenditure u/s.69C of the Income-tax Act, 1961 wrongly applying the decision of Hon'ble Supreme Court in case of N.K. Proteins Ltd. vs. DCIT (2017) TIOL-23-SC-80.
3) The impugned order is bad in law and on facts.
4) The appellant reserves the right to addition, after or omit all or any of the grounds of appeal in the interest of justice."
14. Succinctly stated, the A.O had reopened the case of the assessee u/s. 147 of the Act. During the course of the assessment proceedings, the A.O observed that the assessee could not substantiate the authenticity of the purchase of dolomite of Rs.20,86,256/- that was claimed to have been made from M/s. 12
Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 Rajdhani Trading Company, Raipur. The A.O vide his order passed u/s. 143(3)/147 of the Act dated 26.12.2019 made an addition of the entire value of impugned purchases of Rs.20,86,256/- in the hands of the assessee.
15. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success. For the sake of clarity, the relevant observations of the CIT(Appeals) are culled out as under:
"5.2.1 During the assessment proceedings, it is well established that the appellant was indulged in acquiring bogus purchase bills from M/s Rajdhani Trading Co., Raipur, thereby debiting bogus purchases in its books during the F.Yr. 2012-13. The evidences collected from Axis Bank, Raigarh clearly signify that the appellant was involved in operating the account of the facilitator i.e. M/s Rajdhani Trading Co., Raipur. He possessed the signed cheque book of the facilitator, which he used to present in the bank to withdraw cash against the cheque deposited by him in the account of the facilitator. This amply from his signatures as bearer on the cheques of M/s Rajdhani Trading Co., Raipur. The prevalent practice of providing accommodation entry ends with the execution of return of the amount in cash to the beneficiary, which is established in this case. Recently in its judgment dated 16.01.2017 reported in 2017-TIOL-23-SC-IT, the Hon'ble Supreme Court has dismissed the SLP filed by NK Proteins Ltd. in which it was held that bogus transactions deserve to be added to total income. Consequent upon the findings the total amount of Rs.20,86,256/- was treated as deemed income and added to the total income.
5.2.2 The appellant could not prove the genuineness of the purchases from these alleged parties as the parties themselves were not existing. As the purchases could not be proved, the books of account in which these purchases are recorded cannot be relied upon. In view of this, the books of account u/s 145(3) of the IT Act are rejected.
5.2.3 The appellant once again put great reliance on the neutral facts such as source of purchase and the corresponding sale being made. But the appellant could not appreciate the fact that while it could be that purchases,:
and corresponding sales being shown in the trading account, but does it prove the transaction earned into by him from these parties as genuine.
5.2.4 The finding by way of field enquiries revealed that an organized racket was in operation to provide bogus accommodation entries to the customers in a manner that looked apparently genuine.13
Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 5.2.5 As regards the case laws relied upon by the appellant, the facts are distinguishable and hence not applicable.
5.2.6 Considering the above facts, I am of the view that the explanation furnished by the appellant explaining the purchases from Rajdhani Trading Co. lack any substance and is not supported by concrete evidence. The provisions of section 69C have been rightly invoked. The order of the AO is made on sound footings. The appellant has not been able to controvert the findings of the AO. So the addition of Rs. 20,86,256/- u/s 69C of the IT Act made by the AO is confirmed.
5.3 Ground No. 3 : "3. The Id. Assessing Officer has also wrongly applied the decision of Honorable Supreme Court in the case of NK Proteins Ltd. vs. DCIT(201 7)TIOL-23-SC-lT."
5.3.1 The Assessing Officer has correctly applied the above decision of Hon'ble Supreme Court. Further, I rely on the decision of the Division Bench of Gujrat High Court in the case of N.K. Industries Ltd. Vs Dy. C.I.T. in Tax Appeal No. 240 of 2003 and connected appeals decided on 20th June, 2016. In such judgment the Court had observed as under -
"The Tribunal in the case of Vijay Proteins Ltd. Vs. CIT had observed that it would be just and proper to direct the Assessing Officer to restrict the addition in respect of the undisclosed income relating to the purchases to 25 % of the total purchases. The said decision was confirmed by this Court as well. On consideration of the matter, we find that the facts of the present case are identical to those of M/s Indian Woolen Carpet Factory (supra) or M/s Vijay Proteins Ltd. In the present case the Tribunal has categorically observed that the assessee had shown bogus purchases amounting to Rs.2,92,93,288/- and taxing only 25 % of these bogus claim goes against the principles of Sections 68 and 69C of the Income Tax Act. The entire purchases shown on the basis of fictitious invoices have been debited in the trading account since the transaction has been found to be bogus. The Tribunal having once come to a categorical finding that the amount of Rs.2,92,93,288/- represented alleged purchases from bogus suppliers it was not incumbent on it to restrict the disallowance to only Rs.73,23,322/-."
SLP against the above decision was dismissed by Supreme Court. In view of the above discussion, this ground is dismissed.
5.4 Ground Nos. 4 : "4. The impugned order is bad in law and in facts. 5. The appellant reserves the right to add, alter, amend, omit or withdraw all or any of the grounds of appeal with permission of the Honorable appellate authority".
5.4.1 The last grounds of appeal is general in nature and no decision is required, hence this should be taken to be dismissed.
6. In the result, the appeal is dismissed."
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Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023
16. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
17. As the facts involved in the captioned appeal filed by the assessee remains the same as were there before us in the aforementioned ITA No.373/RPR/2023 for assessment year 2009-10, therefore, our order therein passed while disposing off the said appeal shall apply mutatis-mutandis for disposing off the captioned appeal, i.e., ITA No. 375/RPR/2023 for A.Y.2012-13.
18. In the result, appeal of the assessee in ITA No.375/RPR/2023 for A.Y.2012- 13 is allowed for statistical purposes in terms of our aforesaid observations. ITA No.374/RPR/2023
A.Y.2010-11
19. We shall now deal with the appeal filed by the assessee in ITA No.374/RPR/2023 for A.Y.2010-11, wherein the impugned order has been assailed on the following grounds of appeal before us:
"1) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) is not justified in confirming levy of penalty under section 271(1)(c) of the Income-tax Act 1961 without defining the charge of default. i.e. whether there was concealment of income or furnishing of inaccurate particulars of income.
2) In the facts and circumstances of the case and in law, the Ld. Commissioner of Income-tax (Appeals) is not justified in confirming imposition of penalty of Rs.25,84,000/- under section 271(1)(c) of the income-tax Act, 1961.
3) In the facts and circumstances of the case and in law the Id.
Commissioner of Income-tax (Appeals) has erred in deciding the appeal confirming the penalty order passed during pendency of writ petition filed 15 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 assailing initiation of re-assessment proceedings u/s.147 of the Act before Hon'ble Chhattisgarh High Court under Article 226 of Constitution of India.
4) The impugned order is bad in law and on facts.
5) The appellant reserves the right to addition, after or omit all or any of the grounds of appeal in the interest of justice."
20. Succinctly stated, the assessee who is engaged in the business of transportation a/w. trading of coal and other minerals, had e-filed his return of income for A.Y.2010-11 on 23.10.2010, declaring an income of Rs.4,72,530/-.
21. Original assessment, was thereafter, framed by the A.O vide his order passed u/s.143(3) dated 14.01.2023, wherein income of the assessee was assessed at Rs.5,79,870/-. On the basis of information that the assessee as a beneficiary had obtained bogus purchase bills from a tainted party, viz. M/s. Rajdhani Trading Company, Raipur, the A.O reopened the case of the assessee u/s. 147 of the Act.
22. Assessment was thereafter framed by the A.O vide his order passed u/s. 143(3) r.w.s. 147 dated 28.12.2017, wherein the entire value of the impugned purchases claimed by the assessee to have been made from, viz. (i) M/s. Rajdhani Trading Company, Raipur and (ii) M/s. Sai Sales, Raipur aggregating to an amount of Rs.83,62,471/- was added to his returned income by dubbing the same as bogus purchases. The A.O while culminating the assessment-initiated penalty proceedings u/s. 271(1)(c) of the Act for "concealing the income on account of furnishing of inaccurate particulars of income". Subsequently, the A.O vide his order passed u/s. 271(1)(c) r.w.s. 274 of the Act dated 29.06.2018 saddled the 16 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 assessee with penalty of Rs.25,84,003/- for "concealing the income on account of furnishing of inaccurate particulars of income".
23. Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success. For the sake of clarity, the relevant observations of the CIT(Appeals) are culled out as under:
"5.3 Coming to the contentions of the appellant that the AO has not specified s to on what ground the penalty has been levied whether it is concealed income or on account of furnishing in accurate particulars of income it is important to examine the sum and substance of the penalty order as well as the assessment order wherein it was held by the AO that the appellant had furnished inaccurate particulars of income. The appellant indulged in bogus purchases to the tune of Rs. 83,62,471/- from M/s Rajdhani Trading Co. and M/s Shri Sai Sales Corpn.
5.4 The Hon'ble High Court in the following judgments:
i) CIT vs Kausalya and others (Bom) 216 ITR 660
ii) H.P. State Forest Corp. Ltd CIT & Ors. (HP) 268 ITR 285
iii) CIT vs Maharaj Krishnan (Del) 246 ITR 327 have held as under :-
"Mere mistake in language used in penalty notice and non-striking of the inapplicable portion cannot by itself invalidate the notice".
5.5 The relevant information from the Sales Tax Department and non- existence of the parties, operation of their bank account by the appellant himself and that details itself speak about the genuineness of the transactions in question. It is well settled law that strict rules of evidence do not apply to income-tax proceedings and conclusive proof is also not necessary to arrive at any conclusion or to establish a fact. The AO was entitled to arrive at a conclusion on appreciation of a number of facts, the cumulative effect whereof may be considered to judge the soundness of the conclusion. It was conceivable that a mere denial by the assessee was not sufficient to rebut the circumstantial evidence which considered along with the conduct of the assessee had led to the inescapable conclusion that the appellant had taken accommodation entries and alleged purchases were not genuine.
17
Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 5.6 The appellant has enclosed copy of order of Hon'ble Jurisdictional ITAT in the case of Vikash Nashine vs. DCIT in ITA No. 161 & 162 of RPR of 2018. However, the same is not applicable since the appellant derived income from salary in that case, whereas in the present case, the appellant derives income from business & profession.
5.7 In totality of the facts and circumstances of the which are distinguishable from the case laws relied upon by the appellant and considering the material brought on record by the AO with regards to bogus purchases and thereby furnishing inaccurate particulars of income, the penalty levied by the AO u/s 271(1)(c) is confirmed.
6. In the result, the appeal is dismissed."
24. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
25. We have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.
26. Shri S.R. Rao, Ld. Authorized Representative (for short 'AR') for the assessee at the threshold assailed the validity of the jurisdiction that was assumed by the A.O for imposing penalty u/s. 271(1)(c) of the Act. Elaborating on his contention, the Ld. AR submitted that as the A.O while issuing "Show cause notice"
(SCN) dated 28.12.2017 had failed to strike off the irrelevant default for which the assessee was called upon to show cause as to why penalty may not be imposed on him, therefore, he had wrongly assumed jurisdiction and imposed penalty in the hands of the assessee. The Ld. AR in order to buttress his aforesaid claim had drawn our attention to SCN dated 28.12.2017 issued by the A.O, Page 25 of APB.18
Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 The Ld. AR in support of his aforesaid contention, had relied on the order of the ITAT, Raipur in the case of Vikash Nashine Vs. Dy.CIT-1(1), ITA Nos. 161 & 162/RPR/2018 dated 02.06.2022. Apart from that the Ld. AR had assailed the sustainability of the penalty imposed by the A.O qua the merits of the case.
27. Per contra, the Ld. Departmental Representative (for short DR) relied on the orders of the lower authorities.
28. As the Ld. AR had assailed the validity of the jurisdiction assumed by the A.O for imposing penalty u/w. 271(1)(c) of the Act, therefore, we shall first deal with the same. As stated by the Ld. AR, and rightly so, it is a matter of fact borne from record that the A.O vide SCN u/s. 271(1)(c) r.w.s. 274 dated 28.12.2017, Page 25 of APB had failed to strike off the irrelevant default for which the impugned penalty proceedings were initiated by him. For the sake of clarity, the SCN dated 28.12.2017 is culled out as under:
19
Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023
29. We have heard the ld. authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. Admittedly, on a perusal of the SCN, dated 28.12.2017, it stands revealed that the Assessing Officer had failed to strike-off the irrelevant default while calling upon the assessee to explain as to why he may not be subjected to penalty u/s 271(1)(c) of the Act. As 20 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 such the aforesaid failure to point out the specific default for which penalty u/s 271(1)(c) was sought to be imposed, viz. "concealment of the particulars of income" or "furnishing of inaccurate particulars of income" or both the said defaults, was allowed by the A.O to perpetuate in the SCN, dated 28.12.2017 (supra). At this stage, we may herein observe that the A.O even while framing the assessment vide his order passed U/s. 143(3) r.w.s. 147 dated 28.12.2017, had failed to clearly specify the default for which penalty proceedings u/s. 271(1)(c) of the Act were being initiated, and had observed that the same were being initiated for "concealing the income on account of furnishing of inaccurate particulars of income". The A.O, had, thus, in no clear terms conveyed to the assessee the specific default for which the penalty proceedings were sought to be proceeded with in his hands.
30. Be that as it may, the A.O in the aforesaid SCN dated 28.12.2017 had failed to validly put the assessee to notice as regards the default for which he was called upon to explain that as to why penalty u/s.271(1)(c) may not be imposed on him. Although the A.O was obligated to have validly put the assessee to notice about the default for which penalty u/s.271(1)(c) was sought to be imposed on him w.r.t the additions/disallowances in question, but we find that he had in fact kept the latter guessing and failed to do so.
31. Insofar the validity of the jurisdiction assumed by the A.O for imposing penalty u/s 271(1)(c) is concerned, we find that the same has been assailed before us on the ground that as the A.O had in the aforesaid 'Show cause' notice, dated 21 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 28.12.2017 failed to point out the specific default for which penalty u/s.271(1)(c) was sought to be imposed in his case, therefore, the assessee was not validly put to notice as regards the default for which he was called upon to explain that as to why penalty may not be imposed on him under Sec. 271(1)(c) of the I.T Act.
32. We have given a thoughtful consideration to the facts of the case, and are persuaded to subscribe to the claim of the Ld. AR that the A.O in the aforesaid SCN dated 28.12.2017 had failed to point out the default for which penalty was sought to be imposed on the assessee. In our considered view, as both of the two defaults envisaged in Sec. 271(1)(c) i.e 'concealment of income' and 'furnishing of inaccurate particulars of income' are separate and distinct defaults which operate in their respective independent and exclusive fields, therefore, it was obligatory for the A.O to have clearly put the assessee to notice as regards the default for which he was being called upon to explain that as to why penalty under Sec. 271(1)(c) may not be imposed on him. As observed by us hereinabove, a perusal of the 'Show cause' notice issued in the present case by the A.O had clearly failed in his statutory obligation of conveying and validly putting the assessee to notice about the default for which penalty was sought to be imposed upon him, and, thus, had divested him from putting forth his defense that no such penalty was called for in his case. We are of a strong conviction that the very purpose of affording a reasonable opportunity of being heard to an assessee as per the mandate of Sec. 274(1) of the Act would not only be frustrated, but would be rendered as redundant if the assessee is not conveyed in clear terms the specific default for which penalty 22 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 under the said statutory provision was sought to be imposed on him. In our considered view, the indispensable requirement on the part of the A.O to put the assessee to notice as regards the specific charge contemplated under the aforesaid statutory provision, viz. 'concealment of income' or 'furnishing of inaccurate particulars of income' or both of the said defaults is not merely an idle formality but is a statutory obligation cast upon him, which we find had not been discharged in the present case as per the mandate of law.
33. We would now test the validity of the aforesaid 'Show Cause' notice dated 28.12.2017, and the jurisdiction emerging therefrom in the backdrop of the judicial pronouncements on the issue under consideration. Admittedly, the A.O is vested with the powers to levy penalty under Sec. 271(1)(c) of the Act, if in the course of the proceedings he is satisfied that the assessee had either 'concealed his income' or 'furnished inaccurate particulars of his income' or had committed both the defaults w.r.t. the various additions/disallowances made in its hands while framing the assessment. In our considered view as penalty proceedings are in the nature of quasi criminal proceedings, therefore, the assessee as a matter of a statutory right is supposed to know the exact charge for which he is being called upon to explain that as to why the same may not be imposed on him. The non-specifying of the charge in the 'Show cause' notice not only reflects the non-application of mind by the A.O, but in fact defeats the very purpose of giving a reasonable opportunity of being heard to the assessee as envisaged under Sec. 274(1) of the I.T Act. We find that the fine distinction between the said two defaults contemplated in Sec. 23
Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 271(1)(c), viz. 'concealment of income' and 'furnishing of inaccurate particulars of income' had been appreciated at length by the Hon'ble Supreme Court in its judgments passed in the case of Dilip & Shroff Vs. Jt. CIT (2007) 210 CTR (SC) 228 and T. Ashok Pai Vs. CIT (2007) 292 ITR 11 (SC). The Hon'ble Apex Court in its aforesaid judgments had observed that the two expressions, viz. 'concealment of particulars of income' and 'furnishing of inaccurate particulars of income' have a different connotation. The Hon'ble Apex Court was of the view that the non-striking off the irrelevant limb in the notice clearly revealed a non-application of mind by the A.O, and had observed as under:-
"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 has furnished inaccurate particulars. Even before us, the learned Additional Solicitor General while placing reliance on 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. Vs. CIT (2000) 2 SCC 718].
We are of the considered view that now when as per the settled position of law the two defaults, viz. 'concealment of income' and 'furnishing of inaccurate particulars of income' are separate and distinct defaults, therefore, it was incumbent on the part of the A.O to have clearly specified his said intention in the 'Show cause' notice dated 28.12.2017 (supra), which we find he had failed to do in the case 24 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 before us. The aforesaid failure of the A.O cannot be merely dubbed as a technical default as the same had clearly divested the assessee of his statutory right of an opportunity of being heard and defend his case.
34. We find that the Hon'ble High Court of Karnataka in the case of CIT Vs. SSA's Emerald Meadows (73 taxmann.com 241)(Kar) following its earlier order in the case of CIT Vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar), had held that where the notice issued by the A.O under Sec. 274 r.w Sec. 271(1)(c) does not specify the limb of Sec. 271(1)(c) for which the penalty proceedings were initiated, i.e. whether for 'concealment of particulars of income' or 'furnishing of inaccurate particulars', then, the same has to be held as bad in law. The 'Special Leave Petition' (for short 'SLP') filed by the revenue against the aforesaid order of the Hon'ble High Court of Karnataka had been dismissed by the Hon'ble Supreme Court in CIT Vs. SSA's Emerald Meadows (2016) 73 taxmann.com 248 (SC). Apart from that, we find that a similar view had been taken by the Hon'ble High Court of Bombay in the case of CIT Vs. Samson Perinchery (ITA No. 1154 of 2014; Dt. 05.01.2017) (Bom). The Hon'ble High Court relying on the judgment of the Hon'ble High Court of Karnataka in the case of Manjunathja Cotton and Ginning Factory (supra), which in turn had relied on the judgment of the Hon'ble Apex Court in T. Ashok Pai Vs. CIT, 292 ITR 1 (SC) had approved the order of the Tribunal that had deleted the penalty u/s 271(1)(c) imposed by the A.O and had, inter alia, observed, that the failure of the AO to strike-off the irrelevant default in the notice issued under Sec. 274 of the Act which 25 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 is in a standard proforma clearly indicates a non-application of mind by the A.O while issuing the notice. Further, we find that the Hon'ble High Court of Bombay in the case of Pr. CIT (Central), Bengaluru Vs. Golden Peace Hotels & Resorts (P) Ltd. (2021) 124 tamnn.com 249 (SC), by drawing support from its earlier order in the case of CIT Vs. Shri Samson Perinchery (2017) 392 ITR 4 (Bom) and PCIT Vs. New Era Sova Mine (2020) 420 ITR 376 (Bom), had observed that AO while issuing show-cause should clearly indicate that as per him the case of the assessee involves concealment of particulars of income; or there is furnishing of inaccurate particulars. It was further observed, that if the notice is issued in the printed form, then, the necessary portions which are not applicable are required to be struck-off, so as to indicate with clarity the nature of the satisfaction recorded.
The High Court observed that as in the case before them the AO had failed to strike-off the irrelevant default in the body of the SCN issued under Sec. 274 of the Act, therefore, the penalty imposed by the AO u/s 271(1)(c) of the Act was liable to be vacated. For the sake of clarity the observations of the Hon'ble High Court of Bombay in its aforesaid order are culled out as under:
"4. We have carefully examined the record as well as duly considered the rival contentions. Both the Commissioner (Appeals) as well as the ITAT have categorically held that in the present case, there is no record of satisfaction by the Assessing Officer that there was any concealment of income or that any well as in New Era Soya Mine (supra) has held that the notice which is inaccurate particulars were furnished by the assessee. This being a sine qua non for initiation of penalty proceedings, in the absence of such satisfaction, the two authorities have quite correctly ordered the dropping of penalty proceedings against the assessee.
6. Besides, we note that the Division Bench of this Court in Samson (supra) as applicable are required to be struck off, so as to indicate 26 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 with clarity the nature of the satisfaction recorded. In both Samson Perinchery and New Era Soya furnishing of inaccurate particulars of income or both, with clarity. If the notice is issued in the printed form, then, the necessary portions which are not applicable are required to be struck off, so as to indicate clarity the nature of satisfaction recorded. In both Samson Perinchery and New Era Sova Mine (supra), the notices issued had not struck off the portion which were inapplicable. From this, the Division Bench concluded that there was no proper record of satisfaction or proper application of mind in matter of initiation of penalty proceedings.
7. In the present case, as well if the notice dated 30/09/16 (at page
32) is perused, it is apparent that the inapplicable portions have not been struck off. This coupled with the fact adverted to in paragraph (5) of this order, leaves no ground for interference with the impugned order. The impugned order is quite consistent with the law laid down in the case of Samson Perinchery and New Era Soya Mine (supra) and therefore, warrants no interference."
The Special Leave Petition (SLP) filed by the revenue against the aforesaid order had thereafter been dismissed by the Hon'ble Apex Court in Pr. CIT (Central) Vs. Golden Peace Hotels and Resorts (P) Ltd. (2021) 124 taxmann.com 249 (SC). Also, the "Full bench" of the Hon'ble High Court of Bombay in the case of Mohd. Farhan A. Shaikh V. DCIT, Central Circle-1, Bengaluru (2021) 280 Taxman 334 (Bombay), had observed that where the assessment order clearly records a satisfaction for imposing penalty on one or other; or both grounds mentioned in Sec. 271(1)(c), but there is a defect in the SCN, wherein the AO had failed to strike-off the irrelevant default, then, the same would vitiate the penalty proceedings. The Hon'ble High Court while concluding as hereinabove had held as under:
" 173. We, however, accept that the Revenue, often, adopts a pernicious practice of sending an omnibus, catch-all, printed notice. It contains both relevant and 27 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 irrelevant information. It assumes, perhaps unjustifiably, that whoever pays tax is or must be well-versed in the nuances of tax law. So it sends a notice without specifying what the assessee, facing penalty proceedings, must meet. In justification of what it omits to do, it will ask, rather expect, the assessee to look into previous proceedings for justification of its action in the later proceedings, which are, undeniably, independent. It forgets that a stitch in time saves nine. Its one cross or tick mark clears the cloud, enables the assessee to mount an effective defence, and, in the end, its diligence avoids a load of litigation. Is not prejudice writ large on the face of the mechanical methods the Revenue adopts in sending a statutory notice to the assessee under section 271 (1) (c) read with section 274 of the Act? Pragmatically speaking, Kaushalya casts an extra burden on the assessee and assumes expertise on his part. It wants the assessee to make up for the Revenue's lapses.
Ex Post and Ex Ante Approaches of Adjudication:
174. In ex-post adjudication, the Court looks back at a disaster or other event after it has occurred and decides what to do about it or how to remedy it. In an ex-ante adjudication, the Court looks forward, after an event or incident, and asks what effects the decision about this case will have in the future--on parties who are entering similar situations and have not yet decided what to do, and whose choices may be influenced by the consequences the law says will follow from them. The first perspective also might be called static since it accepts the parties' positions as given and fixed; the second perspective is dynamic since it assumes their behaviour may change in response to what others do, including judges. (for a detailed discussion, see Ward Farnsworth's Legal Analyst: A Toolkit for Thinking about the Law)[ 72].
175. Kaushalya has adopted an ex-post approach to the issue resolution; Goa Dourado Promotions, an ex-ante approach. Kaushalya saves one single case from further litigation. It asks the assessee to look back and gather answers from whatever source he may find, say, the assessment order. On the other hand, Goa Dourado Promotions saves every other case from litigation. It compels the Revenue to be clear and certain. To be more specific, we may note that if we adopt Kaushalya's approach to the issue, it requires the assessee to look for the precise charge in the penalty proceedings not only from the statutory note but from every other source of information, such as the assessment proceedings. That said, first, penalty proceedings may originate from the assessment proceedings, but they are independent; they do not depend on the assessment proceeding for their outcome. Assessment proceedings hardly influence the penalty proceedings, for assessment does not automatically lead to a penalty
176. Second, not always do we find the assessment proceedings revealing the grounds of penalty proceedings. Assessment order need not contain a specific, explicit finding of whether the conditions mentioned in section 271(1)(c) exist in the case. It is because Explanations 1(A) and 1(B), as the deeming provisions, 28 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 create a legal fiction as to the grounds for penalty proceedings. Indeed, the Apex Court in CIT v. Atul Mohan Bindal [ 73], has explained the scope of section 271(1)(c) thus:
"[Explanation 1, appended to section 27(1) provides that if that person fails to offer an explanation or the explanation offered by such person is found to be false, or the explanation offered by him is not substantiated, and he fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him, for the purposes of section 271(1)(c), the amount added or disallowed in computing the total income is deemed to represent the concealed income."
177. That is, even if the assessment order does not contain a specific finding that the assessee has concealed income or he is deemed to have concealed income because of the existence of facts which are set out in Explanation 1, if a mere direction to initiate penalty proceedings under clause (c) of sub-section (1) is found in the said order, by legal fiction, it shall be deemed to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under the said clause (c). In other words, the Assessing Officer's satisfaction as to be spelt out in the assessment order is only prima facie. Even if the assessment order gives no reason, a mere direction for penalty proceedings triggers the legal fiction as contained in the Explanation (1).
178. Therefore, in every instance, it is a question of inference whether the assessment order contained any grounds for initiating the penalty proceedings. Then, whenever the notice is vague or imprecise, the assessee assails it as bad; the Revenue defends it by saying that the assessment order contains the precise charge. Thus, it becomes a matter of adjudication, opening litigious floodgates. The solution is a tick mark in the printed notice the Revenue is used to serving on the assessees.
179. Besides, the prima facie opinion in the assessment order need not always translate into actual penalty proceedings. These proceedings, in fact, commence with the statutory notice under section 271(1)(c) read with section 274. Again, whether this prima facie opinion is sufficient to inform the assessee about the precise charge for the penalty is a matter of inference and, thus, a matter of litigation and adjudication. The solution, again, is a tick mark; it avoids litigation arising out of uncertainty.
180. One course of action before us is curing a defect in the notice by referring to the assessment order, which may or may not contain reasons for the penalty proceedings. The other course of action is the prevention of defect in the notice-- and that prevention takes just a tick mark. Prudence demands prevention is better than cure.
29
Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 Answers: Question No.1: 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 lies 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(1)(c), read with section 274 of IT Act. True, the assessment proceedings form the basis for the penalty proceedings, 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's favour.
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 Kaushalya does not lay down the correct proposition of law.
Question No.2: Has Kaushalya failed to discuss the aspect of 'prejudice'?
184. Indeed, Kaushalya did discuss the aspect of prejudice. As we have already noted, Kaushalya noted that the assessment orders already contained the reasons why penalty should be initiated. So, the assessee, stresses Kaushalya, "fully knew in detail the exact charge of the Revenue against him". For Kaushalya, 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 went onto observe that for sustaining the plea 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 closes 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. 30
Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023
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 Dilip 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 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 ambiguity. Therefore, Dilip N. Shroff disapproves of the routine, ritualistic practice of issuing omnibus show-cause notices. That practice certainly betrays nonapplication of mind. And, therefore, the infraction of a mandatory procedure leading to penal 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(1)(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, 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.
31
Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023
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."
Also, the Hon'ble High Court of Bombay in the case of Pr. CIT (Central) Bengaluru Vs. Goa Coastal Resorts and Recreation Pvt. Ltd. (2020) 113 taxmann.com 574 (Bombay), had observed that where there was no recording of satisfaction by the AO in relation to any concealment of income or furnishing of inaccurate particulars by assessee in the notice issued for initiation of such proceedings, then, the Tribunal had in absence of said statutory requirement rightly vacated the penalty proceedings. Also, the Hon'ble High Court of Bombay in the case of PCIT, Panaji Vs. Goa Dourdo Promotions (P) Ltd. (2021) 433 ITR 268 (Bombay) relying upon its earlier orders in the case of, viz.(i). Goa Coastal Resorts & Recreation P. Ltd. (supra); (ii). Samson Perinchery (supra); and (iii). New Era Sova Mine (supra), had observed that recording of satisfaction by AO in relation to any concealment of income or furnishing of inaccurate particulars by the assessee in notice issued u/s 271(1)(c) is the sine qua non for initiation of such proceedings. Further, we find that the ITAT, Pune in Ashok Sahahakari Sakhar Karkhana Ltd. Vs. ACIT (2018) 99 taxman.com 374 (Pune), had held that where in a notice issued u/s 274 of the Act the AO had used conjunction "or" to mention both limbs, i.e, concealment of income or furnishing inaccurate particulars of income and charge for levy of penalty was not explicitly clear from notice, then, the same was 32 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 to be held as bad in law and penalty was liable to be set-aside. On a similar footing was the view taken by the ITAT, Mumbai "B" Bench in ACIT Vs. Bhushan Kamanayan Vora (2018) 99 taxmann.com 373 (Mum). It was observed by the Tribunal that where the AO was not sure about the charge, i.e whether it was for concealment of income or furnishing of inaccurate particulars of income, the penalty imposed by him u/s 271(1)(c) could not be sustained.
35. We have given a thoughtful consideration to the issue before us and after deliberating on the facts, are of the considered view, that the failure on the part of the A.O to clearly put the assessee to notice as regards the default for which penalty under Sec. 271(1)(c) was sought to be imposed on him by clearly and explicitly pointing out the specific defaults in the SCN, dated 28.12.2017 (supra) for which the assessee was called upon to explain that as to why penalty u/s.271(1)(c) of the Act may not be imposed upon him, had, thus, left the assessee guessing of the default for which he was being proceeded against, and had divested him of an opportunity to put forth an explanation before the A.O that no such penalty was called for in his case. We, thus, in the backdrop of our aforesaid observations are of a strong conviction that as the A.O had clearly failed to discharge his statutory obligation of fairly putting the assessee to notice as regards the default for which he was being proceeded against, therefore, the penalty under Sec. 271(1)(c) of Rs.25,84,000/- imposed by him being in clear violation of the mandate of Sec. 274(1) of the Act cannot be sustained. We, thus, for the aforesaid reasons not being able to persuade ourselves to subscribe to the imposition of penalty by the 33 Kailash Agrawal Vs. ITO, Ward-3, Raigarh ITA Nos. 373, 374 & 375 /RPR/2023 A.O, therefore, set-aside the order of the CIT(A) who had upheld the same. The penalty of Rs.25,84,000/- imposed by the A.O under Sec.271(1)(c) is quashed in terms of our aforesaid observations.
36. As the penalty imposed on the assessee under Sec. 271(1)(c) of the Act had been quashed by us for want of valid assumption of jurisdiction on the part of the A.O, therefore, we refrain from adverting to and adjudicating the other grounds of appeal raised by the assessee on the basis of which he had assailed the imposition of penalty qua the merits of the case, which thus, are left open.
37. In the result, appeal of the assessee in ITA No.374/RPR/2023 for A.Y.2010- 11 is allowed in terms of our aforesaid observations.
38. In the combined result, appeals of the assessee are disposed of in terms of our aforesaid observations as indicated hereinabove.
Order pronounced in open court on 30th day of January, 2024.
Sd/- Sd/-
ARUN KHODPIA RAVISH SOOD
(ACCOUNTANT MEMBER) (JUDICIAL MEMBER)
रायपुर/ RAIPUR ; दनांक / Dated : 30th January, 2024
SB
आदे श क त ल प अ े षत / Copy of the Order forwarded to :
1. अपीलाथ / The Appellant.
2. यथ / The Respondent.
3. The CIT(Appeals)-1, Raipur (C.G.)
4. The Pr. CIT, Raipur-1 (C.G)
34
Kailash Agrawal Vs. ITO, Ward-3, Raigarh
ITA Nos. 373, 374 & 375 /RPR/2023
5. वभागीय त न ध, आयकर अपील य अ धकरण, रायपुर बच,
रायपरु / DR, ITAT, Raipur Bench, Raipur.
6. गाड फ़ाइल / Guard File.
आदे शानुसार / BY ORDER,
// True Copy //
नजी स चव / Private Secretary
आयकर अपील य अ धकरण, रायपुर / ITAT, Raipur.