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SHRI TEJPAL SINGH NUNIA, JHUNJHUNU v. DCIT, CENTRAL CIRCLE-2, JAIPUR
Concise Analytical Summary — ITA Nos. 1294 to 1296/JP/2019 (Tejpal Singh Nunia vs DCIT)
Factual and Procedural Background
The assessee, an individual named Shri Tejpal Singh Nunia, was subject to a search and seizure operation carried out on 17.11.2009. A notice under section 153A of the Income Tax Act, 1961 was issued. Subsequent to assessment, the Assessing Officer (AO) initiated penalty proceedings by issuing a notice under section 274 dated 27.12.2011 proposing penalty under section 271(1)(c). By orders dated 18.02.2016, penalties were imposed in the following amounts: Rs.1,26,100 for A.Y. 2006-07; Rs.3,73,000 for A.Y. 2007-08; and Rs.1,93,000 for A.Y. 2008-09. The assessee appealed against the penalties; the Commissioner of Income Tax (Appeals)-4, Jaipur (Ld. CIT(A)) upheld the AO's action by a combined order dated 19.08.2019. The assessee then filed these appeals to the Income Tax Appellate Tribunal (ITAT), Jaipur Bench. The ITAT heard the matter (by video conference, due to the COVID-19 pandemic) and delivered a common order on 11.09.2020 allowing all three appeals and directing deletion of the penalties.
Legal Issues Presented
- Whether the penalty under section 271(1)(c) can be validly imposed when the statutory jurisdictional notice under section 274 r.w.s. 271(1)(c) is vague or ambiguous as to which limb of section 271(1)(c) (concealment of particulars of income OR furnishing inaccurate particulars of income) is the basis for the proposed penalty.
- Whether issuance of a pre-printed notice that does not specify or strike out the inappropriate limb(s) constitutes lack of application of mind by the AO and results in violation of principles of natural justice, rendering the penalty proceedings void.
- How the Tribunal should reconcile the AO's reliance on higher court decisions (including UOI v. Dharmendra Textiles) and the CIT(A)'s reliance on Sundaram Finance Ltd. v. DCIT with authorities holding that notice must indicate the precise charge and reveal application of mind.
Arguments of the Parties
Appellant's (Assessee's) Arguments
- The notice under section 274 dated 27.12.2011 did not specify the precise charge: whether the proposed penalty was for concealment of particulars of income or for furnishing inaccurate particulars of income.
- The notice used the word "OR" between the two limbs, and the AO issued a pre-printed notice without striking off the unnecessary charge, thereby making the notice vague and ambiguous.
- Because the notice was vague, the assessee (and others) could not reasonably determine the exact charge for which a show-cause response was required; thus principles of natural justice were violated and the penalty proceedings were initiated without application of mind.
- Consequently, initiation of penalty proceedings is void ab initio and the penalty should be deleted for all three assessment years under consideration.
Revenue's / Assessing Officer's Arguments
- The AO relied on the decision of the Hon'ble Supreme Court in UOI v. Dharmendra Textiles (as mentioned in the order) to support imposition of penalty.
- The first appellate authority (Ld. CIT(A)) sustained the penalty by relying on the decision of the Hon'ble Supreme Court in Sundaram Finance Ltd. v. DCIT (2018) 99 taxmann.com 152 (SC), as recorded in the order dated 26.10.2018.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court in this Opinion |
|---|---|---|
| Shri Subhash Sharma vs DCIT (ITA No.205/JP/2020) — order dated 21.07.2020 | Notice under section 271(1)(c) is bad in law if it did not specify which limb of section 271(1)(c) (concealment OR furnishing inaccurate particulars) the penalty proceedings were initiated under. | The Tribunal relied on this decision to support the conclusion that a notice failing to specify the limb is vague and invalid; used as direct authority to hold the instant notice defective and to delete the penalty. |
| UOI vs Dharmendra Textiles (293 ITR 581 (SC)) | Referenced by the AO in support of imposition of penalty (as per the order). | The Tribunal noted the AO's reliance on this Supreme Court decision, but examined it in light of other authorities and subsequent Bench decisions which require clarity in the notice; the Tribunal did not accept the AO's reliance as decisive here. |
| Shri Rajendra Kumar Khandelwal vs DCIT (ITA No.1094/JP/2019) — order dated 03.01.2020 (DPB 922) | Explains that while issuing the notice under section 274 r.w.s. 271 in standard format, the AO should delete inappropriate words/paragraphs; failure to do so may indicate lack of application of mind and deprives the assessee of fair opportunity (citing Dilip N. Shroff and Reliance Petroproducts). | The Tribunal recalled and relied on this Bench decision to reinforce the requirement that notices must be drafted to indicate the precise charge; used to support the finding that the instant notice was vague and violated natural justice. |
| Dilip N. Shroff (2007) 291 ITR 519 (SC) (as cited in Rajendra Khandelwal) | Requires the Assessing Officer to delete inappropriate words/paragraphs in standard-format notices so that the assessee knows the exact charge and can make an effective reply; otherwise it violates principles of natural justice. | The Tribunal relied on the principle stated in Dilip N. Shroff (as discussed in Rajendra Khandelwal) to hold that the AO's failure to indicate the specific limb deprived the assessee of a fair opportunity. |
| CIT v/s Reliance Petroproducts Pvt. Ltd. (322 ITR 158 (SC)) (as cited) | Referenced to support that the principle in Dilip N. Shroff continues to hold good despite other decisions. | Used (via Rajendra Khandelwal) to buttress the Tribunal's view that vagueness in notice violates natural justice; applied to conclude the notice in the instant case was defective. |
| CIT v/s Smt. Kaushalya & Ors. [1995] 216 ITR 660 (Bom) | Observed that a notice issued under section 274 must reveal application of mind by the AO and the assessee must be made aware of the exact charge; vagueness deprives the assessee of reasonable opportunity. | The Tribunal cited this high court authority to support the proposition that ambiguity in the notice leads to violation of natural justice and to support deletion of penalty in the instant case. |
| Sundaram Finance Ltd. vs DCIT (2018) 99 taxmann.com 152 (SC) | Relied upon by the CIT(A) to sustain imposition of penalty in the present case (as recorded by the Ld. CIT(A)). | The Tribunal distinguished Sundaram Finance on the facts and law: in Sundaram the defect was not pointed out at any stage, whereas in the present case the defect was challenged before the appellate authority; the Tribunal therefore did not treat Sundaram as decisive to deny relief. |
| CIT Vs M/s SSA Emerald Meadows (2015) 11 TMI 1620 (Karnataka HC) | Listed among authorities supporting the assessee's contention (as per the order). | The Tribunal relied upon this and other listed decisions collectively to apply their ratio to the instant facts and conclude that the penalties lack merit. |
| Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Karnataka HC) | Listed in support of the assessee's position regarding defective notices. | Referenced by the Tribunal as part of a body of supporting authorities; applied in combination to justify deletion of penalty. |
| M/s Jyoti Ltd. vs CIT (2013) taxmann.com 65 (Guj) | Listed among supporting authorities. | Used by the Tribunal as part of the corpus of precedents favouring relief where notices are vague. |
| Shevata Construction Co. Pvt Ltd vs CIT (Raj HC) | Listed among supporting authorities. | Considered by the Tribunal in aggregate with other authorities to reach its conclusion. |
| Rajkumar Sodhani vs DCIT (ITA No.424 to 426/JP/2016) — order dated 15.07.2019 | Listed among supporting authorities. | Referenced by the Tribunal as part of the supporting precedential matrix. |
| Prathvi Pal Dhabhai vs ITO (ITA No.789/JP/2015) — order dated 07.08.2018 | Listed among supporting authorities. | Referenced by the Tribunal to support deletion of penalty where notice is defective. |
| Ratan Kumar Sharma vs ITO (ITA No.176/JP/2018) — order dated 08.03.2019 | Listed among supporting authorities. | Referenced by the Tribunal in its compilation of supporting precedents. |
| Neha Sharma vs ITO (ITA No.781/JP/2017) — order dated 08.03.2019 | Listed among supporting authorities. | Referenced by the Tribunal in support of the assessee's contention. |
| NN Jewellers vs ITO (ITA Nos.63–68/JP/2019) — order dated 26.03.2019 | Listed among supporting authorities. | Considered in the Tribunal's survey of relevant decisions that favour relief in case of vague notices. |
| Lal Chand Mittal vs DCIT (ITA No.772/JP/2016) — order dated 29.12.2011 | Listed among supporting authorities. | Included by the Tribunal among the decisions relied upon to delete the penalty. |
| Murari Lal Mittal (ITA No.334/JP/2015) — order dated 09.11.2016 | Listed among supporting authorities. | Referred to by the Tribunal as part of the precedent base applied to the facts. |
Court's Reasoning and Analysis
The Tribunal's analysis proceeded in the following logical steps, relying only on matter stated in the opinion:
- The Tribunal first identified the crucial defect in the AO's section 274 notice dated 27.12.2011: the notice did not specify whether the proposed penalty under section 271(1)(c) was for "concealment of particulars of income" or for "furnishing inaccurate particulars of income." The use of the word "OR" and issuance of a pre-printed notice without striking out the inappropriate limb rendered the notice vague and ambiguous.
- The Tribunal found that such vagueness meant the assessee could not discern the precise charge for which a response was required. This, the Tribunal held, amounted to a failure to provide a fair opportunity and to a lack of application of mind by the AO in initiating penalty proceedings.
- Relying on a series of precedents (including the Jaipur Bench decision in Shri Subhash Sharma, the Rajendra Khandelwal Bench decision, the principles in Dilip N. Shroff and observations in CIT v/s Smt. Kaushalya & Ors.), the Tribunal emphasized the settled proposition that a notice under section 274 must reveal the AO's application of mind and must enable the assessee to know the exact charge so as to make an effective reply; vagueness deprives the assessee of reasonable opportunity and violates principles of natural justice.
- The Tribunal acknowledged the AO's and CIT(A)'s reliance on higher court decisions such as UOI v. Dharmendra Textiles and Sundaram Finance Ltd. It examined those authorities as they had been considered by coordinate Benches and distinguished Sundaram Finance on factual and legal grounds: in Sundaram Finance, the defect was not pointed out at any stage of proceedings, whereas in the present case the defect was challenged before the appellate authority.
- Considering the cumulative weight of the cited authorities and applying their ratio to the instant facts, the Tribunal concluded that the initiation of penalty proceedings was void ab initio due to the defective jurisdictional notice and the consequent levy of penalty was illegal.
- On this basis, the Tribunal directed deletion of the penalties imposed by the AO for the assessment years 2006-07, 2007-08 and 2008-09 and allowed the appeals in full.
Holding and Implications
Holding (core ruling):
The appeals are allowed and the penalty imposed under section 271(1)(c) for the assessment years 2006-07, 2007-08 and 2008-09 is deleted.
Consequences and implications:
- Direct effect: The AO was directed to delete the penalties of Rs.1,26,100 (A.Y. 2006-07), Rs.3,73,000 (A.Y. 2007-08) and Rs.1,93,000 (A.Y. 2008-09) which had been previously imposed under section 271(1)(c).
- Legal implication recorded in the order: The Tribunal applied existing precedents that require a section 274 notice to specify the precise limb of section 271(1)(c) relied upon; a failure to do so renders the notice vague and the penalty levy illegal. The Tribunal distinguished the authority relied upon by the CIT(A) (Sundaram Finance) on factual grounds and found the present case deserving of relief.
- The order does not purport to lay down a new binding precedent beyond applying and following existing judicial pronouncements; it records application of those authorities to the facts and delivers the direct relief of deletion of penalty for the parties before the Tribunal.
Order pronouncement date: 11th September 2020. Bench: (SANDEEP GOSAIN) (RAMESH C SHARMA) — Judicial Member and Accountant Member, ITAT Jaipur.
PER: R.C. SHARMA, A.M. These are the appeals filed by the assessee against the composite order of ld. CIT(A)-4, Jaipur dated 19/08/2019 for the A.Y. 2006-07 to 2008-09 in the matter of imposition of penalty U/s 271(1)(c) of the Income Tax Act, 1961 (in short, the Act).
2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic. ITA 1294 to 1296/JP/2019_ Tejpal Singh Nunia Vs DCIT
3. In all these three appeals of the assessee, common issue is involved, therefore, for the sake of convenience, a common order is being passed.
4. Rival contentions have been heard and record perused. Facts in brief are that asessee is an individual. A search and seizure operation was conducted on assessee group on 17.11.2009 and notice u/s 153A of the Act was issued to assessee. After making addition, penalty proceedings were initiated by the AO vide Notice u/s 274 dated 27.12.2011 and penalty of Rs.1,26,100/-(AY 2006-07), Rs.3,73,000/- (AY 2007-08), Rs.1,93,000/- (AY 2008-09) was imposed u/s 271(1)(c) on account of concealment of particulars of income, vide orders dated 18.02.2016.
5. The assessee preferred an appeal against imposition of said penalty, however, the action of the AO was sustained by Ld. CIT(A)-4, Jaipur vide a combined order dated 19.08.2019. In this case, the penalty proceedings were init iate vide notice u/s 274 read with section 271 of the Act dated 27.12.2011. The relevant portion of the said notice is reproduced hereunder: ITA 1294 to 1296/JP/2019_ Tejpal Singh Nunia Vs DCIT "Whereas in the course of proceedings before me for the assessment year 2006-07 it appears to me that:-- Have concealed the particulars of your income or furnished inaccurate particulars of such income."
6. The law is well settled that penalty u/s 271(1)(c) can be imposed for concealing particulars of income or furnishing inaccurate particulars of income which are two limbs of the section 271(1) (c) but the penalty can be imposed only when the authority is satisfied that either of the two events of limbs exists in a particulars case and this perquisite should invariably be evident from the notice issued u/s 274 r.w.s 271 of the Act, which is a statutory jurisdictional notice. The intent and purpose of this notice is to inform the assessee as to for which specific charge he has been show caused.
7. In the present case, from the notice u/s 274 dated 27.12.2011, neither the assessee nor anyone else could make out as to 'for what precise charge, the assessee was asked to show cause viz. whether the charge is for furnishing inaccurate particulars of income or concealment of particulars of such income. It is further important to note that, in notice, under the point which is intended towards proposed penalty u/s 271(1)(c), the word ITA 1294 to 1296/JP/2019_ Tejpal Singh Nunia Vs DCIT OR has been used between the charge of concealment of income and furnishing inaccurate particulars of income. These facts and circumstances make it abundantly clear that in the case of assessee, penalty notice is completely vague and ambiguous. The AO simply issued a preprinted notice without striking off the unnecessary charge and not mentioning the precise charge. The above act of the AO clearly shows that the entire exercise of initiation of penalty proceedings has been done without application of mind which resulted into issuing a completely vague jurisdictional notice u/s 274 and the jurisdictional notice being vague, the consequent levy of penalty is illegal and deserves to be deleted in full.
8. In view of above facts and circumstances, the initiation of penalty proceeding is void ab initio. For this purpose, reliance may be placed on the decision of Jaipur Bench of ITAT in the case of Shri Subhash Sharma Vs DCIT in ITA No.205/JP/2020 vide order dated 21.07.2020, wherein it was held as under: 5..the notice issued by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 is bad in law in as much as it did not specify in which limb of section 271(1)(c) of the Income Tax Act, 1961 the penalty proceedings has been initiated, i.e. whether ITA 1294 to 1296/JP/2019_ Tejpal Singh Nunia Vs DCIT for concealment of income or furnishing of inaccurate particulars of income. 5.1. It is pertinent to note that in the notice, AO has not clearly mentioned the limb, on the basis of which, penalty was proposed to be imposed. The AO in assessment order or penalty notices did not specify the limb under which the penalty was initiated and simply issued a pre-printed notice without striking off the unnecessary portions of the notice. If the AC) was of the view that the assessee has concealed the income or furnishing inaccurate particulars of income then he should have deleted or not mentioned the other limb for imposition of penalty i.e. concealing the particulars of income. The above act of the AO clearly shows that the entire exercise of initiation of penalty proceedings has been done without application of mind. "
9. We also observe that during the course of penalty proceedings, the strong reliance has been put by the AO on the decision of Hon'ble Apex Court the case of UOI Vs Dharmendra Textiles
293 ITR 581 (SC). In this regard we observe that the issue has been dealt by Hon'ble Bench at length in the case of Shri Rajendra Kumar Khandelwal Vs DCIT in ITA No. 1094/JP/2019 vide order dated 03.01.2020 (DPB 922) by holding as under: "19. The Honble Supreme Court in Dilip N. Shroff s JCI'I', [20071291 ITR 519 (SC), has observed that while issuing the notice under section 274 r/ w section 271, in the standard format, the Assessing Officer should delete the inappropriate words or ITA 1294 to 1296/JP/2019_ Tejpal Singh Nunia Vs DCIT paragraphs, otherwise, it may indicate that the Assessing Officer himself' was not sure as to whether he had proceeded on the basis that the assessee had concealed his income or had furnished inaccurate particulars of income. This, according to the Hon'ble Supreme Court, deprives the assessee of a fair opportunity to explain its stand, thereby, violates the principles of natural justice. As held by the Hon'ble Supreme Court in CIT V/ s Reliance Petroproducts Pvt. Ltd. 1201 01 322 1TR 158 (SC), the aforesaid principle laid in Dilip N. Shroff (supra) stil l holds good in. spite of the decision of the Hon'ble Supreme Court in (101 u/ s Dharmendra Textile Processors (2008) 306 1TR 277 (SC). The Hon'ble Jurisdictional High Court in CIT v/ s Srnt. Kaushalya & Ors., [1995] 216 ITR 660 (Born), observed that notice issued under section 274 must reveal application of mind by the Assessing Officer and the assessee must be made aware of the exact charge on which he had to file his explanation. The Court observed, vagueness and ambiguity in the notice deprives the assessee of reasonable opportunity as he is unaware of the exact charge he has to face
10. During the course of appellate proceedings, the action of imposition of penalty by the AO was upheld by Ld.CIT(A) placing reliance upon the decision of Hon'ble Apex Court in the case of Sundaram Finance Limited Vs DCIT (2018) 99 taxmann.com 152 (SC) vide order dated 26.10.2018. The decision of Hon'ble SC, is distinguishable on the facts as well as law on the following grounds: ITA 1294 to 1296/JP/2019_ Tejpal Singh Nunia Vs DCIT
(i) In the case of Sundarma Finance, the decision was passed against the assessee on the ground that defect in the notice was never pointed out at any stage of proceedings, whereas in the case of assessee the same has been challenged before appellate authority.
(ii) The case of Sundaram Finance Ltd recorded a very favorable finding and upheld the principle of natural justice by holding that "If the case of the assessee is that they have been put to prejudice and principles of natural justice were violated on account of not being able to submit an effective reply, it would be a different matter". This finding by Hon'ble Court strengthen the contention of the assessee that vague and ambiguous notice results in violation of principle of natural justice.
11. The Coordinate Bench of Cochin Bench of ITAT in the case of ITO Vs A Shihabudeen (2020) 116 taxmann.com 495 vide order dated 10.02.2020 after discussing the case of Sundararn Finance Ltd (supra), answered the issue in favour of assessee.
12. In support of our contention we rely upon the following case laws. * CIT Vs M/s SSA Emerald Meadows (2015) 11 TMI 1620 (Karnataka HC) (Para-3) ITA 1294 to 1296/JP/2019_ Tejpal Singh Nunia Vs DCIT * Manjunatha Cotton 86 Ginning Factory (2013) 359 ITR 565 (Karnataka HC) * M/s Jyoti Ltd. Vs CIT (2013) taxmann.com 65 (Guj * Shevata Construction Co. Pvt Ltd Vs CIT in ITA No.534/2008 (Raj HC) * Rajkumar Sodhani Vs DCIT in ITA No.424 to 426/JP/2016 vide order dated 15.07.2019 * Prathvi Pal Dhabhai Vs ITO in ITA No.789/JP/2015 vide order dated 07.08.2018. * Ratan Kumar Sharma Vs ITO in ITA No.176/JP/2018 vide order dated 08.03.2019 * Neha Sharma Vs ITO in ITA No.781/JP/2017 vide order dated 08.03.2019 * NN Jewellers Vs ITO in ITA No.63 to 68/JP/2019 vide order dated 26.03.2019 * Lal Chand Mittal Vs DCIT in ITA No.772/JP/2016 vide order dated 29.12.2011 * Murari Lal Mittal in ITA No.334/JP/2015 vide order dated 09.11.2016.
13. In view of the above discussion and considering various judicial pronouncements and applying the ratio laid down ITA 1294 to 1296/JP/2019_ Tejpal Singh Nunia Vs DCIT therein to the facts of the instant case, we do not find any merit in the penalty so imposed U/s 271(1)(c) of the Act. Accordingly, the A.O. is directed to delete the penalty imposed in all these three years under consideration.
14. In the result, al l these three appeals pertaining to the A.Y. 2006-07, 2007-08 and 2008-09 are allowed. Order pronounced in the open court on 11th September, 2020. Sd/- Sd/- lanhi xlka jes'k lh 'kekZ (SANDEEP GOSAIN) (RAMESH C SHARMA) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 11/09/2020 *Ranjan vkns'k dh izfrfyfi vxzsfkr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Shri Tejpal Singh Nunia, Jhunjhunu.
2. izR;FkhZ@ The Respondent- The D.C.I.T., Central Circle-2, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDrvihy@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 1294, 1295 & 1296/JP/2019) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar
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