|CORAM:||B. R. Baskaran (AM), Ram Lal Negi (JM)|
|CATCH WORDS:||concelment Penalty, furnishing inaccurate particulars of income|
|DATE:||December 21, 2016 (Date of pronouncement)|
|DATE:||December 30, 2016 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 271(1)(c): The law in Dilip Shroff 291 ITR 519 (SC) & Kaushalya 216 ITR 660 (Bom) requires a show-cause notice u/s 274 to be issued after due application of mind. The non-specification in the notice as to whether penalty is proposed for concealment or for furnishing of inaccurate particulars reflects non-application of mind and renders it void. The fact that the assessee participated in the penalty proceedings does not save it u/s 292B/292BB|
(i) A careful perusal of the notice issued u/s 274 would show that the contents of the notice are primarily meant to ask the assessee to furnish a return of income. However, the assessing officer appears to have modified the last paragraph by show causing the assessee to explain as to why an order imposing a penalty should not be made u/s 271(1)(c) of the Act. There should not be any doubt that the provisions of section 271(1)(c) prescribes two types of charge viz., (a) concealment of particulars of income and (b) furnishing of inaccurate particulars of income. However, in the above said notice the AO did not specify the type of charge for which the penalty proceedings have been initiated.
(ii) The Hon’ble Supreme Court has observed in Dilip N Shroff (291 ITR 519)(SC) that the AO, while issuing a notice should apply his mind and make it clear as to whether he had proceeded on the basis that the assessee had concealed his income or he had furnished inaccurate particulars of income. The Hon’ble Supreme Court has clarified in the case of Reliance Petro products (322 ITR 158) that the observations made by it in the case of Dilip N Shroff with regard to “mens rea” alone have been overruled in Dharmendra Textile processors (306 ITR 277), meaning thereby that the above said observations made by the Hon’ble Supreme Court in the case of Dilip N Shroff shall continue to prevail.
(iii) Hence, we are of the view that the application of mind on the part of the assessing officer at the time of issuing notice for initiation of penalty is a mandatory requirement and the non-application of mind would vitiate the penalty proceedings. We notice that the Hon’ble Bombay High Court has also expressed identical view in the case of CIT Vs. Smt. Kaushalya and others (216 ITR 660) on which the revenue has placed heavy reliance. In that case also, it was contended that the AO has not indicated the appropriate charge for which the penalty proceedings were initiated. The Hon’ble Bombay High Court, thereafter, considered various decisions relied upon by the parties and came to the conclusion that there should be application of mind on the part of assessing officer.
(iv) A combined reading of the decision rendered by Hon’ble Bombay High Court in the case of Smt. B Kaushalya and Others (216 ITR 660) and the decision rendered by Hon’ble Supreme Court in the case of Dilip N Shroff (supra) would make it clear that there should be application of mind on the part of the AO at the time of issuing notice. In the case of Lakhdir Lalji (supra), the AO issued notice u/s 274 for concealment of particulars of income but levied penalty for furnishing inaccurate particulars of income. The Hon’ble Gujarat High Court quashed the penalty since the basis for the penalty proceedings disappeared when it was held that there was no suppression of income. The Hon’ble Kerala High Court has struck down the penalty imposed in the case of N.N.Subramania Iyer Vs. Union of India (supra), when there is no indication in the notice for what contravention the petitioner was called upon to show cause why a penalty should not be imposed. In the instant case, the AO did not specify the charge for which penalty proceedings were initiated and further he has issued a notice meant for calling the assessee to furnish the return of income. Hence, in the instant case, the assessing officer did not specify the charge for which the penalty proceedings were initiated and also issued an incorrect notice. Both the acts of the AO, in our view, clearly show that the AO did not apply his mind when he issued notice to the assessee and he was not sure as to what purpose the notice was issued.
(v) The Hon’ble Bombay High Court has discussed about non-application of mind in the case of Kaushalya (216 ITR 660) and observed as under:- “….The notice clearly demonstrated non-application of mind on the part of the Inspecting Assistant Commissioner. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity of the assessee since he did not know what exact charge he had to face. In this back ground, quashing of the penalty proceedings for the assessment year 1967-68 seems to be fully justified.” In the instant case also, we are of the view that the AO has issued a notice, that too incorrect one, in a routine manner. Further the notice did not specify the charge for which the penalty notice was issued. Hence, in our view, the AO has failed to apply his mind at the time of issuing penalty notice to the assessee.
(vi) The Ld D.R submitted that the assessee has participated in the penalty proceedings and hence the error, if any, that has occurred would be cured in view of the provisions of sec. 292B/292BB of the Act. Opposing the said contention, the Ld A.R placed reliance on the decision rendered by the Bangalore bench of Tribunal in the case of Shri K Prakash Shetty vs. ACIT (ITA Nos.265 to 267/Bang/2014 dated 05-06-2014) wherein it was held that the provisions of sec. 292BB would not come to the rescue of the revenue, when the notice was not in substance and effect in conformity with or according to the intent and purpose of the Act. In our view, the notice issued by the AO, which is extracted above, was not in substance and effect in conformity with or according to the intent and purpose of the Act, since the AO did not specify the charge for which penalty proceedings were initiated and further there was non-application of mind on the part of the AO.