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Citation Codes
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citation codes
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Attorney(S)
Acts
  • section 142(1)/143(2) of the Income Tax Act, 1961
  • section 274 read with Section 271(1)(c)
  • u/s. 271(1)(c) of the I.T. Act, 1961. 10
  • u/s. 271(1)(c) of the I.T. Act, 1961.
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Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
Acts
  • section 142(1)/143(2) of the Income Tax Act, 1961
  • section 274 read with Section 271(1)(c)
  • u/s. 271(1)(c) of the I.T. Act, 1961. 10
  • u/s. 271(1)(c) of the I.T. Act, 1961.
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Smart Summary

Factual and Procedural Background

This appeal by the assessee is directed against the order of the Learned Commissioner of Income Tax (Appeals)-35, New Delhi dated 16.1.2015 relating to assessment year 2008-09. The assessee filed ten grounds of appeal but, at the hearing, the assessee's counsel confined arguments to legal ground no. 4: that in the absence of any specific charge, initiation of penalty under section 271(1) is illegal and liable to be quashed. The revenue's narrated facts were not disputed by the parties and therefore were not repeated in the opinion. The Assessing Officer issued a notice dated 31.03.2010 under section 271(1) (filed in the paper book) which, according to the assessee's counsel, is a standard form with an option ticked for "concealment of income or furnishing inaccurate particulars" without specifying which limb of section 271(1) was invoked. The Tribunal heard both parties, examined the notice and the records and delivered its decision on 26/04/2018.

Legal Issues Presented

  1. Whether initiation of penalty proceedings under section 271(1) of the Income Tax Act, 1961, without specifying which limb of section 271(1) is being invoked (i.e., whether for concealment of particulars of income or for furnishing inaccurate particulars of income), is bad in law and renders the notice and consequent penalty unsustainable.

Arguments of the Parties

Assessee's Arguments

  • The penalty notice dated 31.03.2010 is a standard form in which the Assessing Officer merely ticked an option indicating "concealment of income or furnishing inaccurate particulars" but did not specify which limb of section 271(1) was being invoked.
  • Because no specific allegation was made in the notice as to whether the penalty was for concealment of particulars of income or for furnishing inaccurate particulars, the initiation of penalty proceedings under section 271(1) is illegal and the penalty should be quashed.
  • The assessee's counsel cited several authorities in support, including ITAT (Delhi) in ABR Auto Pvt. Ltd. v. ACIT (ITA No. 6236/Del/2015 dated 4.12.2017), ITAT A Bench (New Delhi) in Ashok Kumar Chordia v. DCIT (ITA No. 5788–5790/Del/2014 dated 05.12.2017), Karnataka High Court in Commissioner of Income Tax & Ors. v. M/s Manjunatha Cotton and Ginning Factory & Ors (2013) and the decisions in CIT & Anr. v. M/s SSAs Emerald Meadows (Karnataka High Court and the Supreme Court confirmation), as well as ITAT D Bench Rajender Jain v. ACIT (ITA No. 6804/Del/2013 dated 26.5.2017).

Respondent's (Revenue) Arguments

  • The Departmental Representative (Ld. DR) relied upon the orders of the authorities below. The opinion does not set out any further detailed submissions or specific legal argumentation advanced by the revenue in the course of the hearing.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
ABR Auto Pvt. Ltd. vs. ACIT, ITA No. 6236/Del/2015 (ITAT, Delhi) dated 4.12.2017 The opinion records this decision was cited by the assessee's counsel. The text of the opinion does not reproduce the holding or specific principle from this decision. The decision was cited by the assessee's counsel in support of the legal ground but the Tribunal's opinion does not reproduce or explicate how this authority was applied beyond noting it as cited.
Ashok Kumar Chordia vs. DCIT, ITA No. 5788–5790/Del/2014 (ITAT, A Bench, New Delhi) dated 05.12.2017 The opinion records that this ITAT decision was cited by the assessee's counsel; the full observation from that decision is not reproduced in the opinion. The Tribunal noted the authority as supporting the assessee's contention. The opinion refers to the decision but does not set out detailed excerpts of its reasoning in the text provided.
Commissioner of Income Tax & Ors. vs. M/s Manjunatha Cotton and Ginning Factory & Ors (Division Bench, Karnataka High Court) (2013) This decision is recorded in the opinion as relied upon by the Tribunal in the Emerald Meadows matter; the opinion does not itself reproduce a distinct principle from this decision other than that it was relied upon by the Tribunal in Emerald Meadows. The opinion mentions that the Tribunal in Emerald Meadows relied on this Division Bench decision. The present Tribunal follows the line of authorities that includes this decision as one of the precedents supporting the assessee.
CIT & Anr. vs. M/s SSAs Emerald Meadows — Karnataka High Court (2015) (11) TMI 1620 Held that a notice issued by the Assessing Officer under section 274 read with section 271(1)(c) is bad in law if it does not specify which limb of section 271(1) the penalty proceedings were initiated under (i.e., whether for concealment of particulars of income or for furnishing inaccurate particulars). The Tribunal expressly relied on this High Court decision as binding in the facts: it applied the principle that a notice which fails to specify the limb of section 271(1) is bad in law and used it to cancel the penalty in dispute.
CIT & Anr. vs. M/s SSAs Emerald Meadows — Supreme Court confirmation (2016) (8) TMI 1145 The Supreme Court confirmed the Karnataka High Court's decision that a notice under section 274 read with section 271(1)(c) is bad in law if it does not specify which limb of section 271(1) the penalty proceedings were initiated under. The Tribunal treated the Supreme Court confirmation as authoritative and applied the confirmed principle to hold the penalty unsustainable and to cancel it.
Rajender Jain vs. ACIT, ITA No. 6804/Del/2013 (ITAT, D Bench, New Delhi) dated 26.5.2017 The ITAT observed (as recorded in the opinion) that where the AO has not recorded a clear finding whether the assessee was guilty of concealment of income or furnishing of inaccurate particulars of income, and where the notice and subsequent penalty order are inconsistent, the penalty may be unsustainable. The Tribunal relied on this ITAT decision for the proposition that an absence of a clear recorded finding by the AO (and inconsistencies between notice and penalty order) undermines the sustainability of the penalty; the Tribunal applied that reasoning in deleting the penalty in the present case.

Court's Reasoning and Analysis

The Tribunal's reasoning, based on the content of the opinion, proceeded in the following steps:

  1. The Tribunal heard both parties and examined the record, placing particular emphasis on the Assessing Officer's penalty notice dated 31.03.2010 (and another notice dated 26.3.2013 referenced in related cited decisions).
  2. The Tribunal reproduced some contents of the 31.03.2010 notice which, in substance, stated that it appeared to the AO that the assessee had either failed to comply with a notice under section 142(1)/143(2) or had concealed particulars of income or furnished inaccurate particulars of income.
  3. On perusal of the notice, the Tribunal concluded that the AO had initiated penalty proceedings ambiguously — i.e., for "concealment of particulars of income or furnishing inaccurate particulars" — without specifying which specific limb of section 271(1) was being invoked.
  4. The Tribunal held that such an ambiguous initiation of proceedings is contrary to law because a notice under section 271(1) read with section 274 must specify which limb of section 271(1) the penalty proceedings are being initiated under (whether for concealment or for furnishing inaccurate particulars). The Tribunal described a notice that fails to make this specification as "bad in law."
  5. To support this legal conclusion, the Tribunal relied on a line of authorities — notably the Karnataka High Court decision in CIT & Anr. v. M/s SSAs Emerald Meadows and the Supreme Court's confirmation of that decision — which held that a notice under section 274 read with section 271(1)(c) is bad in law if it does not specify the particular limb of section 271(1) being invoked. The Tribunal also relied on ITAT decisions including Rajender Jain and the cited ITAT A Bench decisions.
  6. Applying this principle to the facts before it — i.e., the ambiguous notice and absence of a clear specification by the AO — the Tribunal concluded that the penalty imposed by the AO was not sustainable in law.
  7. Accordingly, by following the cited precedents and their ratio, the Tribunal deleted the penalty and allowed the assessee's appeal.

Holding and Implications

Holding: The penalty under section 271(1) in dispute is deleted and the appeal filed by the assessee is allowed.

Implications:

  • Direct effect on the parties: The penalty that was levied by the Assessing Officer in this matter is cancelled and the assessee's appeal is allowed. The opinion records that the Tribunal respectfully followed existing precedents in reaching this result.
  • Precedential effect: The Tribunal's decision rests on and follows prior decisions (including a Karnataka High Court decision and its confirmation by the Supreme Court) that a notice under section 274 read with section 271(1)(c) which does not specify which limb of section 271(1) is being invoked is bad in law. The Tribunal did not purport to lay down a new broad legal principle beyond following those precedents; the opinion does not state that it establishes a new precedent.

Order pronounced in open court on 26/04/2018. Members: [L.P. SAHU] (Accountant Member) and [H.S. SIDHU] (Judicial Member).

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    M/s. ACB India Ltd., New Delhi v. ACIT, New Delhi

    PER H.S. SIDHU, JM This appeal by the Assessee is directed against the Order of the Ld. Commissioner of Income Tax (Appeals)-35, New Delhi dated 16.1.2015 pertaining to assessment year 2008-09.

    2. The assessee has raised as many as 10 grounds relating to levy of penalty, but the Ld. Counsel of the assessee has only argued the following legal ground no. 4:- That in the absence of any specific charge, the initiation of levying of penalty u/s. 271(1) is illegal, bad in law and is liable to be quashed.

    3. Facts narrated by the revenue authorities are not disputed by both the parties, hence, the same are not repeated here for the sake of brevity.

    4. At the time of hearing, Ld. Counsel of the Assessee has stated that no specific allegation as to the concealment of particulars of income or furnishing of inaccurate particulars has been levied by the AO in the notice dated 31.03.2010 issued by him u/s. 271(1) of the Act filed with the Paper Book at page no. 81 which clearly shows that the same is the standard format of the notice and AO has just ticked on the option of concealment of income or furnishing inaccurate particulars of such income. She further stated that the penalty imposed is liable to be quashed on legal ground as the issue is squarely covered by the following decisions.: - ITAT, Delhi decision in the case of ABR Auto Pvt. Ltd. vs. ACIT in ITA No. 6236/Del/2015 dated 4.12.2017. - ITAT, A Bench, New Delhi decision dated 05.12.2017 in the case of Ashok Kumar Chordia vs. DCIT passed in ITA No. 5788 to 5790/Del/2014. - Honble Karnataka High Court decision in the case of CIT & Ors. Vs. M/s Manjunatha Cotton and Ginnig Factory & Ors. (2013) 359 ITR 565 - Apex Court decision in the case of CIT & Anr. Vs. M/s SSAs Emerald Meadows in CC No. 11485/2016 dated 05.8.2016.

    5. On the contrary, Ld. DR relied upon the orders of the authorities below.

    6. We have heard both the parties and perused the relevant records, especially the orders of the revenue authorities alongwith the provisions of law as well as the case law cited by the Ld. Counsel of the Assessee. We have perused the Notice dated 31.03.2010 issued by the AO for initiation of penalty and directing the assessee to appear before him. For the sake of convenience, some of the contents of the penalty Notice dated 31.03.2010 are reproduced as under:- ..it appears to me that you:- *have without reasonable cause failed to comply with a notice under section 142(1)/143(2) of the Income Tax Act, 1961 dated.. * have concealed the particulars of your income or furnished inaccurate particulars of such income in terms of explanation 1, 2, 3, 4, & 5... 6.1 After perusing the aforesaid contents of the Notice dated 31.03.2010, we are of the view that the AO has initiated the penalty for concealment of particulars of income or furnishing of inaccurate particulars, which is contrary to the provisions of law. We are of the view that notice issued by the AO u/s. 271(1) read with Section 274 of the Act is bad in law as it does not specify which limb of section 271(1) of the Act, the penalty proceedings had been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars. Therefore, the penalty in dispute is not sustainable in the eyes of law, hence, we cancel the penalty in dispute. Our aforesaid view is supported by the following decisions:-

    i) CIT & Anr. Vs. M/s SSAs Emerald Meadows 2015 (11) TMI 1620 Karnataka High Court has held that Tribunal has correctly allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under section 274 read with Section 271(1)(c) to be bad in law as it did not specify which limb of Section 271(1) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of Commissioner of Income Tax vs. Manjunatha Cotton and Ginning Factory (2013) (7) TMI 620- Karanataka High Court. Thus since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion no substantial question of law arises decided in favour of assessee. ii) CIT & Anr. Vs. M/s SSAs Emerald Meadows Honble Supreme Court of India reported in 2016 (8) TMI 1145 Supreme Court. The Apex Court held that High Court order confirmed (2015) (11) TMI 1620 (Supra) Karnataka High Court. Notice issued by AO under section 274 read with Section 271(1)(c) to be bad in law as it did not specify which limb of Section 271(1) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income Decided in favour of assessee. iii) ITAT, A Bench, New Delhi decision dated 05.12.2017 in the case of Ashok Kumar Chordia vs. DCIT passed in ITA No. 5788 to 5790/Del/2014 wherein the Tribunal has observed as under:-

    7. We have heard both the parties and perused the orders passed by the Revenue Authorities alongwith the relevant records available with us. Firstly, we have perused the Notice dated 26.3.2013 issued by the AO for initiating the penalty and directing the assessee to appear before him at 11.30 AM on 26/04/2013 and issued a Show Cause to the assessee stating therein that ..you have concealed the particulars of your income or furnished inaccurate particulars of such income. After perusing the notice dated 26.3.2013 issued by the AO to the assessee, we are of the view that the AO has initiated the penalty for furnishing inaccurate particulars of income or concealment of income as well as in the penalty order dated 30.9.2013 AO has stated that he is satisfied that the assessee has concealed particulars of his income, which is contrary to law. In view of above, the penalty is not sustainable in the eyes of law. Our aforesaid view is fortified by the following decisions:-

    i) CIT & Anr. Vs. M/s SSAs Emerald Meadows 2015 (11) TMI 1620 Karnataka High Court has held that Tribunal has correctly allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under section 274 read with Section 271(1)(c) to be bad in law as it did not specify which limb of Section 271(1) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of Commissioner of Income Tax vs. Manjunatha Cotton and Ginning Factory (2013) (7) TMI 620- Karanataka High Court. Thus since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion no substantial question of law arises decided in favour of assessee. ii) CIT & Anr. Vs. M/s SSAs Emerald Meadows Honble Supreme Court of India reported in 2016 (8) TMI 1145 Supreme Court. The Apex Court held that High Court order confirmed (2015) (11) TMI 1620 (Supra) Karnataka High Court. Notice issued by AO under section

    274 read with section 271(1)(c) to be bad in law as it did not specify which limb of Section 271(1) of the Act, the penalty proceedings had been initiated

    i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income Decided in favour of assessee.

    8. In the background of the aforesaid discussions and respectfully following the precedents, we delete the penalty in dispute and decide the issue in favor of the assessee and against the Revenue. iv) ITAT, D Bench, New Delhi decision dated 26.5.2017 in the case of Rajender Jain vs. ACIT passed in ITA No. 6804/Del/2013 wherein the Tribunal has observed as under:-

    7. We have heard both the parties and perused the orders passed by the Revenue Authorities alongwith the relevant records available with us. Firstly, we have perused the assessment order wherein the AO has recorded his satisfaction on the page 2, 2nd para viz. I am satisfied that it is a fit case for initiation of penalty proceedings u/s. 271(1)(c) of the Act for furnishing inaccurate particulars of income/concealment of income. We have also perused the notice dated 31.12.2007 issued by the AO for initiating the penalty and directing the assessee to appear before him at

    ---------AM/PM on --------200------ and issued a Show Cause to the assessee stating therein that why an order imposing the penalty of amount should not be made u/s. 271(1)(c) of the I.T. Act, 1961. After perusing the notice dated 31.12.2007 issued by the AO to the assessee, we are of the view that the AO has initiated the penalty for furnishing inaccurate particulars of income/concealment of income, but in the penalty order dated 06.11.2009 he has stated that he is satisfied that the assessee has furnished the inaccurate particulars of income. 7.1 However, the Ld. CIT(A) has given clear finding regarding the furnishing of inaccurate particulars. For the sake of convenience, the relevant para no. 5.3.1 of the impugned order passed by the Ld. CIT(A) is reproduced as under:- 5.3.1 The above findings of the Ld. CIT(A) clearly establishes that the appellant has concealed the income of Rs. 26,50,500/- and did not declare in the return of income inspite of admitting a disclosure of Rs. 40,00,000/- during survey. Thus, the appellant has furnished inaccurate particulars of his income. The facts of the case clearly reveal that the appellant tried to evade payment of taxes by furnishing inaccurate particulars of income. Therefore, I hold that the AO was fully justified in levying the penalty u/s. 271(1)(c) of the Act. The penalty levied by the AO is upheld. This ground of appeal is rejected.

    8. Keeping in view of the aforesaid finding of the Ld. CIT(A), we are of the considered view that the AO has passed the assessment order wherein the AO has recorded his satisfaction on the page 2, 2nd para viz. I am satisfied that it is a fit case for initiation of penalty proceedings u/s. 271(1)(c) of the Act for furnishing inaccurate particulars of income/concealment of income. Further the AO vide his Notice dated 31.12.2007 for initiating the penalty and directed the assessee to appear before him at ---------AM/PM on ---- ----200------ and issued a Show Cause to the assessee stating therein that why an order imposing the penalty of amount should not be made u/s. 271(1)(c) of the I.T. Act, 1961. After perusing the notice dated 31.12.2007 issued by the AO to the assessee, we are of the view that the AO has initiated the penalty for furnishing inaccurate particulars of income/concealment of income, but in the penalty order dated 06.11.2009 he has stated that he is satisfied that the assessee has furnished the inaccurate particulars of income. In our view the penalty in dispute is not sustainable in the eyes of law, because the AO has not recorded any clear finding whether the assessee was guilty of concealment of income or furnishing of inaccurate particulars of income. Secondly, the notice u/s. 271(1)(c) has been issued to the assessee levying the penalty for furnishing of inaccurate particulars of income/concealment of income, whereas the penalty in dispute has been levied by the AO on account of furnishing of inaccurate particulars. In our view the penalty is not sustainable in the eyes of law. Our aforesaid view is fortified by the following decisions:-

    i) CIT & Anr. Vs. M/s SSAs Emerald Meadows 2015 (11) TMI 1620 Karnataka High Court has held that Tribunal has correctly allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under section 274 read with Section 271(1)(c) to be bad in law as it did not specify which limb of Section 271(1) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. The Tribunal, while allowing the appeal of the assessee, has relied on the decision of the Division Bench of this Court rendered in the case of Commissioner of Income Tax vs. Manjunatha Cotton and Ginning Factory (2013) (7) TMI 620- Karanataka High Court. Thus since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion no substantial question of law arises decided in favour of assessee. ii) CIT & Anr. Vs. M/s SSAs Emerald Meadows Honble Supreme Court of India reported in 2016 (8) TMI 1145 Supreme Court. The Apex Court held that High Court order confirmed (2015) (11) TMI 1620 (Supra) Karnataka High Court. Notice issued by AO under section

    274 read with section 271(1)(c) to be bad in law as it did not specify which limb of Section 271(1) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income Decided in favour of assessee. 8.1 In the background of the aforesaid discussions and respectfully following the precedents, we delete the penalty in dispute and decide the issue in favor of the assessee and against the Revenue.

    7. Keeping in view of the aforesaid discussions, we cancel the penalty in dispute by respectfully following the aforesaid decisions and allow the appeal of the assessee.

    8. In the result, the appeal filed by the Assessee stands allowed. Order pronounced in the Open Court on 26/04/2018. Sd/- Sd/- [L.P. SAHU] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER Date: 26/04/2018 SRBhatnagar Copy forwarded to: -

    1. Appellant 2. Respondent 3. CIT 4.CIT (A) 5. DR, ITAT Assistant Registrar, ITAT, Delhi Benches

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    M/s. ACB India Ltd., New Delhi v. ACIT, New Delhi
    (Apr 26, 2018)