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Shri Ashok Bhatia , Indore v. DCIT Central-1, INDORE

Income Tax Appellate Tribunal

Feb 5, 2020

Judgment

Subsequent
References

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Tribunal Opinion Summary: Shri Ashok Bhatia (ITA Nos. 729, 729 & 885/Ind/2018)

Factual and Procedural Background

The consolidated appeals arise from assessment years 2011-12 to 2013-14 involving assessee Shri Ashok Bhatia and the Department (DCIT/ACIT Central-1, Indore). A search and seizure under section 132 of the Income-tax Act was carried out on the business and residential premises of the CHL Group (including the assessee) on 4 October 2013.

The assessee, who derives income from retail trading of sarees, income from house property and interest, filed returns for Assessment Years 2011-12 and 2012-13 on 22 December 2015 under section 153A. The returns declared incomes (figures in the record are partially truncated in the provided opinion) and included surrendered income.

Penalty proceedings under section 271(1)(c) were initiated by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) (CIT(A)) in respect of certain years. The assessee challenged confirmation/levy of penalty in appeals before the Tribunal. The appeals include (as recorded) ITA Nos. 729, 729 & 885/Ind/2018.

Legal Issues Presented

Whether the notice initiating penalty proceedings under section 271(1)(c) read with section 274 was valid where the notice did not specify which limb of section 271(1)(c) (i.e., concealment of particulars of income or furnishing inaccurate particulars of income) the proceedings were initiated under.
Whether defects or omissions in the penalty initiation notice could be cured by invoking section 292B of the Income-tax Act (i.e., whether technical/ procedural defects could validate an otherwise defective initiation of penalty proceedings).
Whether deletion of penalty by the lower appellate authority (CIT(A)) for Assessment Year 2013-14 was correct, given the Revenue's contention that the penalty related to income disclosed on the basis of seized material and that the CIT(A) deleted penalty on technical grounds without addressing merits.

Arguments of the Parties

Appellant's (Assessee's) Arguments

The penalty proceedings initiated under section 271(1)(c) were legally infirm because the AO's notice failed to specify whether the charge was for concealment of particulars of income or for furnishing inaccurate particulars of income; consequently the notice did not comply with natural justice requirements.
The learned CIT(A) erred in confirming the penalty of Rs. 3,00,000 (as pleaded in one ground) and/or in not accepting the assessee's reliance on judicial pronouncements; the penalty therefore required deletion.
The assessee relied on prior Tribunal authority in Varad Mehta (ITA No.693/Ind/16 dated 06.12.2018) and on judgments of the jurisdictional High Court (Kulwant Singh Bhatia) to support the contention that non‑specific notices vitiate penalty proceedings.

Respondent's (Revenue / Departmental Representative) Arguments

The Departmental Representative supported the orders of the lower authorities (AO and CIT(A)) upholding the levy of penalty.
For AY 2013-14 the Revenue contended that deletion of penalty by the CIT(A) was incorrect because the penalty was levied on amounts supported by seized material (LPS-1, LPS-3, LPS-6, LPS-7 and BALANCE-SHEET-1) and that deletion was on technical grounds; further, the Revenue relied on section 292B to argue that defects in the notice were curable.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Varad Mehta (ITA No.693/Ind/16 dated 06.12.2018) [Tribunal authority]	Decision in favour of the assessee on a similar issue of non‑specific penalty notice under section 271(1)(c).	The Tribunal relied on this decision to support its view that a non‑specific notice initiating penalty proceedings is invalid and the penalty cannot be sustained.
Kulwant Singh Bhatia (jurisdictional High Court) [referred]	Authority relied upon by Varad Mehta; invoked in support of the proposition that initiation of penalty proceedings must meet natural justice requirements (specificity of charge).	The Tribunal stated that it relied on the jurisdictional High Court authority (as applied in Varad Mehta) to conclude that the notice was deficient for lack of specific charge and therefore invalid.
CIT v. Manjunatha Ginning Factory (Hon'ble High Court of Karnataka)	Held that a notice under section 274 r.w.s. 271(1)(c) must specifically mention which ground of section 271(1)(c) is relied upon; use of a printed form that does not specify the limb denies natural justice.	The Tribunal cited this authority to emphasize that a general/printed form notice that does not specify the limb of section 271(1)(c) fails the requirement of fairness and is invalid for imposing penalty.
Dilip N. Shraf (161 Taxmann 218) (Hon'ble Apex Court)	Quasi‑criminal proceedings under section 271(1)(c) must comply with principles of natural justice.	The Tribunal invoked this high authority to support the proposition that non‑specific notices negate natural justice and thus penalty cannot be imposed where the notice is deficient.
Spice Infotainment Ltd. vs. Commissioner of Income Tax (247 CTR (2012) 500)	View that mere procedural irregularity/defect can be cured by invoking section 292B.	The Tribunal noted this authority when considering the Revenue's contention that defects in the notice could be cured under section 292B, but the Tribunal distinguished between curable technical defects and jurisdictional defects.
Instant Holdings Ltd. v. Deputy Commissioner of Income Tax (49 ITR (Trib) (2016) 32)	Expresses a similar view to Spice Infotainment that procedural defects may be curable under section 292B.	The Tribunal acknowledged this Tribunal precedent while analysing section 292B but concluded that section 292B cannot cure a jurisdictional lacuna in the initiation of penalty proceedings.
Surendra A. Kotadia v. ACIT (ITA No. 3350/MUM/2015 pronounced 09.10.2017)	Where no penalty proceedings under a specific provision (e.g., 271AAA) had been initiated, the defect was not curable under section 292B.	The Tribunal cited this decision to support the position that certain defects in initiation of penalty proceedings are not curable by section 292B; this influenced the Tribunal's conclusion that there was no valid initiation in the present facts.

Court's Reasoning and Analysis

The Tribunal recorded that it heard rival contentions and reviewed the record. The central legal scrutiny focused on the validity of the notice issued under section 274 read with section 271(1)(c):

The Tribunal first identified the recurring legal issue: whether the AO's notice was deficient because it did not specify whether penalty was being initiated for concealment of particulars of income or for furnishing inaccurate particulars of income (the two limbs of section 271(1)(c)). The assessee contended that the absence of such specification deprived him of a fair opportunity and thus violated natural justice.
The Tribunal examined earlier decisions, including its own authority in Varad Mehta (which relied on the jurisdictional High Court decision in Kulwant Singh Bhatia), and the Karnataka High Court decision in CIT v. Manjunatha Ginning Factory. Those authorities emphasised that a notice must specifically mention the limb under section 271(1)(c) relied upon and that the use of a generic printed form that fails to do so denies the assessee knowledge of the precise charge and thus natural justice.
The Tribunal considered the Revenue's contention that defects in the notice could be cured by section 292B (which validates certain technical mistakes, defects or omissions). The Tribunal reviewed authorities taking differing views: Spice Infotainment and Instant Holdings (observing that procedural irregularities may be curable under section 292B) and decisions such as Surendra A. Kotadia (finding some defects not curable by section 292B).
The Tribunal analysed the statutory language of section 292B and concluded (following the authorities it discussed) that section 292B is intended to cure mere technical or procedural defects and omissions. However, it held that the section cannot be used to cure an inherent jurisdictional lacuna in a notice (i.e., where the notice fails to satisfy the requirement that it fairly informs the assessee of the specific limb under which penalty is proposed).
Applying this analysis to the facts, the Tribunal concluded that the notice in question (issued under section 274 r.w.s. 271(1)(c)) failed to specify the limb of section 271(1)(c) on which penalty was initiated. The Tribunal characterised this failure as a substantive defect affecting the validity of the initiation of penalty proceedings and as non‑compliance with the requirements of natural justice.
In the matter of AY 2013-14, the Tribunal further noted procedural facts concerning the AO's conduct: the AO had earlier dropped penalty proceedings under section 271AAB and subsequently taken 14/09/2016 as the date of initiation of penalty under section 271(1)(c). The Tribunal treated these factual elements in the context of whether there was valid initiation and whether section 292B could cure any defect; it concluded there was no valid initiation.
Because the initiation was held invalid, the Tribunal declined to consider the merits of the levy of penalty (observing that merits were rendered academic once initiation was invalid).

Holding and Implications

Holding: The Tribunal concluded that the notices initiating penalty proceedings under section 271(1)(c) read with section 274 were invalid because they did not specify which limb of section 271(1)(c) the penalty proceedings were initiated under. Consequently, the Tribunal set aside/deleted the penalty orders in the appeals before it.

Direct outcomes recorded in the opinion:

Appeals of the assessee for Assessment Years 2011-12 and 2012-13 were partly allowed by the Tribunal; the Tribunal held the notice for penalty invalid and did not adjudicate the merits of penalty (they were treated as academic).
In Revenue Appeal for Assessment Year 2013-14 (ITA No. 885/Ind/2018), the Tribunal allowed the assessee's position on the key ground and deleted the penalty of Rs. 1,00,00,000 levied under section 271(1)(c), holding there was no valid initiation of penalty proceedings.

The opinion follows and applies existing authorities addressing notice‑specificity and the limits of section 292B; it does not announce or claim to establish a new legal principle beyond applying those authorities to the facts. The Tribunal expressly said it was "respectfully following above referred judgments."

Show all summary ...

PER MANISH BORAD, AM. The above captioned appeals which includes two appeals filed by the assessee and one filed by the Revenue pertaining to Assessment Years 2011-12 to 2013-14 are directed against the Shri Ashok Bhatia 54, Joshi Market, Naliya Bakhal, Indore DCIT Central-1, Indore (Appellant) (Revenue ) PAN No.ACFPB4590H ACIT Central-1, Indore Shri Ashok Bhatia 54, Joshi Market, Naliya Bakhal, Indore (Revenue) (Respondent ) PAN No.ACFPB4590H Shri Ashok Bhatia ITA Nos.729, 729 & 885/Ind/2018

4. The assessee has raised following grounds of appeal in ITANo.729/Ind/2018 (Assessment Year 2012-13): 1.1. That the learned CIT(A) has grossly erred in confirming penalty u/s 271(1)(c) of the Act of Rs.3,00,000/- levied by Assessing Officer which is not in accordance with law and therefore penalty requires to be deleted.

2. That the learned CIT(A) has erred in not accepting the assessees contention and various judicial pronouncements therefore penalty required to be deleted.

3. That the appellant craves leave to adduce additional grounds and/or amend or withdraw any of the aforesaid grounds before, or at the time of hearing of appeal.

5. Brief common facts of the case as culled out from the records are that assessee derives income from business of retail trading of sarees, income from house properties and income from other sources as interest. A search and seizure operations u/s 132 of the Act were carried out on the business as well as residential premises of CHL Group of Indore including the assessee on 4.10.2013. The return for Assessment Year 2011-12 & 2012-13 were filed on 22.12.2015 u/s 153A of the Act declaring income of Rs.16,38,850/- and Rs.20,64,270/- including surrendered income of Rs. Shri Ashok Bhatia ITA Nos.729, 729 & 885/Ind/2018 provisions of section 271(1)(c) of the Act by initiating the penalty proceedings without levying specific charge on the assessee thus not following the principal of natural justice. Reliance was also placed on Indore Tribunal decision in the case of Varad Mehta ITA No.693/Ind/16 dated 06.12.2018.

8. Per contra Departmental Representative vehemently argued supporting the orders of lower authorities.

9. We have heard rival contentions and perused the records placed before us. The issues raised by the assessee revolves around the legality and quantum of levy of penalty at Rs.1,66,500/- levied by the Ld. A.O u/s 271(1)(c) of the Act levied by the Ld. A.O and subsequently confirmed by Ld.CIT(A).

10. Ld. Counsel for the assessee is in appeal before the Tribunal, firstly raising the legal issue pleaded that Ld. A.O has wrongly initiated the penalty proceedings by not specifying the charge for levy of penalty i.e. whether the penalty proceedings has been initiated for concealing particulars of income or for furnishing the inaccurate particulars of income. It is also pleaded by the Ld. Counsel for the assessee that the Ld. Assessing Officer remained silent by not specifying as for which charge the penalty Shri Ashok Bhatia ITA Nos.729, 729 & 885/Ind/2018 given under section 139(2)/148 of the Income-Tax Act, 1961, No , Dated , or have without reasonable cause failed to furnish it within the time allowed and in the manner required by the said section 139(1) or by such notice. X *have without reasonable cause failed to comply with a notice under section 22(4)/23(2) of the India Income-Tax Act, 1922, or under section 142(1)/143(2) of the Income-Tax Act, 1961 No , Dated \I '*have concealed the particulars of your income or .......... , furnished inaccurate particulars of such income. You are hereby requested to appear before me at 3.30 P. M. on 21.04.2016 and show cause why an order imposing a penalty on you should not be made under section 271 of the Income-Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative you may show cause in writing on or before the said date which be will be considered before any such order is made under section 271(1). Sd/- (Amit Kumar Soni) Asst. Commissioner of Income Tax(Central)-1 Indore OFFICE OF THE DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL)-l, INDORE Room No. 101, Aayakar Bhawan (Main), Opp. White Church, Indore F. No. DCIT-(Cent.)-l/Penalty/ 16-17 Dated: 16/09/2016 PAN-ACFPB4590H Shri Ashok Bhatia 33-A, Radha Nagar, Neelkanth Colony, Indore-452006 Sir, Shri Ashok Bhatia ITA Nos.729, 729 & 885/Ind/2018

12. We find that similar legal issue came up for adjudication before us in the case of Varad Mehta ITA No.693/Ind/16 dated 06.12.2018 (supra) wherein we decided the issue in favour of the assessee, relying on the judgment of Hon'ble jurisdictional High Court in case of Kulwant Singh Bhatia (supra) observing as follows;

11. We have heard rival contentions and perused the records placed before us. The issues raised by the assessee revolves around the levy of penalty at Rs.16,00,000/- levied by the Ld. A.O and confirmed by Ld.CIT(A) on the addition of Rs.51,00,000/- from undisclosed sources for purchase of immovable properties. Perusal of records shows that the assessee remaining negligent and non compliant to various opportunities provided by the Ld. A.O as well as Ld.CIT(A) during the course of penalty proceedings as well as appellate proceedings towards the levy of penalty.

12. Now the assessee is in appeal before the Tribunal, firstly raising the legal issue pleading that Ld. A.O has wrongly initiated the penalty proceedings by not specifying the charge for levy of penalty i.e. whether the penalty proceedings has been initiated for concealing of particulars of income or for furnishing the inaccurate particulars of income. It was also pleaded by the Ld. Counsel for the assessee that though the Ld. Assessing Officer has made proper satisfaction on record in the assessment order for initiating penalty proceedings but in the notice issue u/s 274 r.w.s. 271(1)(c) of the Act, but Ld. A.O remained silent by not specifying as to which charge the penalty proceedings have been initiated. To examine this fact we have gone through the impugned notice issued for initiating the penalty proceedings u/s 271(1)(c) of the Act which is placed at Page-52 of the Paper book and the relevant extract is reproduced below: Shri Ashok Bhatia ITA Nos.729, 729 & 885/Ind/2018 requirement of law, as notice was not specific, we are of the view that Ld. Tribunal has rightly allowed the appeal of the assessee and set aside the order of penalty enforced by the authority.

15. Similarly in the case of CIT V/s Manjunatha Ginning Factory, Hon'ble High Court of Karnataka held that the notice issued u/s 274 r.w.s. 271(1)(c) of the Act should specifically mention the ground in section 271(1)(c) whether concealment of income or for furnishing in accurate particulars of income. Sending printed form where all ground of section 271(1)(c ) would not mentioned the specific requirement of law. Assessee should know the grounds on which he has charged specific otherwise opportunities of natural justice denied. On the basis of such proceedings no penalty could be imposed to the assessee. Taking up the penalty proceedings on one limb and finding the assesssee in another limb is bad in law. Though in the instant appeal the Ld. A.O has made proper satisfaction in the body of the assessment order but in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act he failed to mention the limbs for which penalty proceedings have been initiated. It is the negligence of the Ld. A.O in not making proper specific charge in the notice u/s 274 about the addition for which penalty proceedings have been initiated. Ld. A.O should be clear as to whether the alleged addition goes under the limb of concealment of particulars of income or furnishing inaccurate particulars of income. Merely issuing notice in general proforma will negate the very purpose of natural justice as held by the Hon'ble Apex Court in the case of Dilip N Shraf 161 Taxmann 218 that the quasi- criminal proceedings u/s 271(1)(c) of the Act ought to comply with the principles of natural justice.

14. We therefore respectfully following above referred judgments and in the given facts and circumstances of the case are of the considered view that the alleged notice issued u/s 274 r.w.s. 271(1)(c) of the Act dated 31.12.10 is invalid, untenable and suffers from the infirmity of non application of mind by the Assessing Officer. We accordingly direct to Shri Ashok Bhatia ITA Nos.729, 729 & 885/Ind/2018 merits of the levy of penalty are not been dealt with, as the same are rendered academic in nature. Thus grounds raised on merits are dismissed as infructuous. Appeal of the assessee for the Assessment Years 2011-12 and 2012-13 are partly allowed .

14. Now we take Revenue Appeal for A.Y. 2013-14 in ITANo.885/Ind/2018 (Assessment Year 2013-14):

15. The Revenue has raised following grounds of appeal in ITANo.885/Ind/2018 for Assessment Year 2013-14:-

1. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting the penalty of Rs.1,00,00,000/- levied by the Assessing Officer us/ 271(1)(c) for A.Y. 2013-14 on account of concealment of particulars of income without appreciating the fact that penalty was levied on the amount of income which was disclosed by the assessee on the basis of seized material LPS-1, LPS-3, LPS-6, LPS-7 and BALANCE-SHEET-1 seized during the course of search operation, in the return filed in response to notice u/s 153A and deleted the penalty only on technical grounds without deciding the case on merits.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that there is no valid intimation of penalty u/s 271(1)(C) without appreciating the fact that the provisions of section 292B of the Income Tax Act, 1961 imply clearly that no notice issued in Shri Ashok Bhatia ITA Nos.729, 729 & 885/Ind/2018 NOTICE UNDER section 271(1)(c) READ WITH SECTION 274 OF INCOME TAX ACT, 1961 PAN ACFPB4590H OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX (CENTRAL)-1, INDORE Date 22.03.2016 Shri Ashok Kumar Bhatia 33,-A Radha Nagar Neelknanth Colony Indore -452006 Sir/Madam, Whereas in the course of proceedings before me for the Assessment Year 2013-14, it appears to me that you: - X *have without reasonable cause failed to furnish the return of income which you were required to furnish by a notice given under section 22(1 )/22(2)/34 of the Indian Income- Tax Act, 1922, or which you were required to furnish under section 139(1) or by a notice given under section 139(2)/148 of the Income-Tax Act, 1961, No , Dated , or have without reasonable cause failed to furnish it within the time allowed and in the manner required by the said section 139(1) or by such notice. X *have without reasonable cause failed to comply with a notice under section 22(4)/23(2) of the India Income-Tax Act, 1922, or under section 142(1)/143(2) of the Income-Tax Act, 1961 No , Dated \I '*have concealed the particulars of your income or .......... , furnished inaccurate particulars of such income. You are hereby requested to appear before me on 21.04.2016 at 3:30 PM and show cause why an order imposing a penalty on you should not be made under section

271 of the Income-Tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through authorized representative you may show cause in writing on or before the said date which be will be considered before any such order is made under section 271(1). (Amit Kumar Soni) Asst. Commissioner of Income Tax(Central)-1 Indore Shri Ashok Bhatia ITA Nos.729, 729 & 885/Ind/2018 income, assessment) notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act."

13. A reading of the above reproduced provision makes it clear that a mistake, defect or omission in the return of income, assessment, notice, summons or other proceeding is not sufficient to invalidate an action taken by the competent authority, provided that such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the provisions of the Act. To put it differently, Section 292B can be relied upon for resisting a challenge to the notice) etc., only if there is a technical defect or omission in it. However, there is nothing in the plain language 'Of that section from which it can be inferred that the same can be relied upon for curing a jurisdictional defect in the assessment notice, summons or other proceeding. In other words, if the notice, summons or other proceeding taken by an authority suffers from an inherent lacuna affecting his/its: jurisdiction, the same cannot be cured by having resort to section 292B. 6.3.1 The Hon'ble Delhi High Court in the case of Spice Infotainment Ltd. vs. Commissioner of Income Tax reported in

247 CTR (2012) 500 has expressed its view that mere procedural irregularity/defect can be cured by invoking the provisions of Section 292B. Similar views are expressed by Hon'ble I.T.A.T., Mumbai "I" Bench in the case of Instant Holdings Ltd…. v. The Deputy Commissioner Of Income Tax reported in 49 IT:R (Trib) (2016) 32. 6.3.2 The Hori'ble I.T.A.T., Mumbai, "J" Bench, in case of Surendra A. Kotadia Vs. A.C.LT. in ITA No. 3350/MUM/2015 pronounced on 09.10.17 has observed that where no penalty proceedings has been initiated xx] s 271AAA, the defect is not curable defect as provided u] s 292B of the Act. 6.4 For a while, even if it is considered a mistake curable u/s 292B, then in that case the AO was not required to drop the penalty proceedings u] s 271AAB and initiate the proceedings u/s 271(1)(c) afresh. The AO could have considered the initiation of penalty u/s 271AAB as initiation u/ s 271(1)(c) itself. However, in this case the Assessing Officer dropped the penalty proceedings u/s 271AAB for A.Y. 2013-14 vide letter dated 14/09/2016 and the date of initiation of penalty u/s 271(l)(c) has been taken as 14/09/2016 as evident from the subsequent letter dated 16/09/2016.

7. In view of the above facts and circumstances of the case, it is clear that there is no valid Initiation of penalty u/s 271(1)(c) and therefore, the penalty of Rs. 1,00,00,QOO'/- levied u/s 271(l)(c) is deleted. Ground No.1 is allowed.