Orbit Enterprises vs. ITO (ITAT Mumbai)

(i) Sec. 271(1)(c) of the Act postulates that penalty prescribed therein can be levied on existence of any of the two situations, namely for concealment of particulars of income or for furnishing inaccurate particulars of such income. It has been judicially well understood by now that ‘concealment of particulars of income’ and ‘furnishing of inaccurate particulars of income’ referred to in Sec. 271(1)(c) of the Act denote two different connotations. As a ready reference for the aforesaid proposition, we may look upon the judgments of the Hon’ble Supreme Court in the case of Dilip N. Shroff, 161 Taxman 218 (SC) and also T. Ashok Pai, 292 ITR 11 (SC) to appreciate that the aforesaid two expressions convey different connotations. Having understood that the two expressions have different connotations, the Mumbai Bench of the Tribunal in the case of Meherjee Cassinath Holdings Pvt. Ltd. (supra), wherein one of us is a party, held that it was imperative for the Assessing Officer to make the assessee aware in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act as to which of the two limbs are being put-up against him for the purposes of levy of penalty u/s 271(1)(c) of the Act. Ostensibly, unless the assessee is made aware of the specific charge against him, it would be violative of the principles of natural justice inasmuch as the assessee would not be in a position to put up his defence appropriately. It is in this manner one has to appreciate the point being canvassed by the assessee before us, which is based on the tone and tenor of the notice issued u/s 274 r.w.s. 271(1)(c) of the Act dated 22.12.2008, a copy of which has been placed on record.

(ii) At this point, we may also make a reference to the judgment of the Hon’ble Patna High Court relied by the ld. CIT-DR before us. The issue before the Hon’ble Patna High Court was relating to levy of penalty for shortfall in the payment of advance tax paid as compared with the tax finally assessed as payable, but in the notice issued u/s 274 r.w.s. 273(b) of the Act it was incorrectly mentioned that assessee had failed to file its estimate of advance tax. The Hon’ble Patna High Court held that mention of such incorrect charge would not render the penalty proceedings void-ab-initio. The aforesaid parity of reasoning has been relied upon by the ld. CIT-DR before us to state that non-striking off of the irrelevant portion of the notice u/s 274 r.w.s. 271(1)(c) of the Act does not render the proceedings invalid. In our view, the said decision does not help the case of the Revenue qua the issue before us. Firstly, the Hon’ble Patna High Court itself noted that it was a case of mere “wrong labelling of the section or some mistake in the charge framed against the assessee” which does not prejudice the assessee. Secondly, non-striking off of the irrelevant clause in the notice u/s 274 r.w.s. 271(1)(c) of the Act has been completely differently understood by the various High Courts, including that by the Hon’ble Jurisdictional High Court of Bombay. In the case of Shri Samson Perinchery (supra), the Hon’ble Bombay High Court noted that the order imposing penalty u/s 271(1)(c) of the Act has to be made only on the ground on which the penalty proceedings have been initiated. In the case of Shri Samson Perinchery (supra), the Revenue had put up an argument to the effect that there is no difference between furnishing of inaccurate particulars of income and concealment of income. The aforesaid argument has been specifically rejected by the Hon’ble High Court by referring to the judgment of the Hon’ble Supreme Court in the case of T. Ashok Pai, 292 ITR 11 (SC). It was further noted that the judgment in the case of T. Ashok Pai (supra) has been relied upon by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory & Ors., 359 ITR 565 (Karn.). The Hon’ble High Court approved the proposition that once the two limbs contained in the notice u/s 274 r.w.s. 271(1)(c) of the Act, namely concealment of income and furnishing of inaccurate particulars of income are understood to be carrying different meanings/connotations, non-striking off of the irrelevant clause or striking off one of the limbs and imposing penalty on the other limb is not as per law. Thirdly, it may be noted that the issue before the Hon’ble High Court was incorrect mentioning of charge in the show cause notice, but the case before us is of non-mentioning of the charge at all. Therefore, for all the above reasons, non-striking off of the irrelevant clause in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act cannot be said to be a mere wrong labelling of the section or some mistake of the nature that was before the Hon’ble Patna High Court in the case of Mithila Motors (P.) Limited (supra). Therefore, the judgment of the Hon’ble Patna High Court does not help the case of the Revenue before us.

(iii) The other plea of the ld. CIT-DR before us was that there was no ambiguity inasmuch as the Assessing Officer had made aware the assessee about the charge being made against him, namely concealment of income, by referring to the assessment order and also the reply of the assessee filed at the time of penalty proceedings. In our considered opinion, if one were to examine the entire conspectus of fact-situation starting from the assessment order upto the passing of penalty order, the error in the argument set-up by the ld. CIT-DR would be clear. In the assessment order dated 22.12.2008, the Assessing Officer records that the penalty proceedings u/s 271(1)(c) of the Act are initiated for concealment of income while in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act of even date, both the limbs of Sec. 271(1)(c) of the Act are left intact in the standard printed notice, as the irrelevant clause has not been struck-off. This contradiction in the assessment order vis-a-vis the penalty notice issued u/s 274 r.w.s. 271(1)(c) of the Act on the same date clearly brings out a confusion on the part of the Assessing Officer, and apparently it is a situation where assessee is not aware about the clear and crystallised charge being made against him, thus violating the principles of natural justice. The penalty proceedings being quasi-criminal in nature, as noted by the Hon’ble Supreme Court in the case of Dilip N. Shroff (supra), the same are necessarily required to be in compliance with the principles of natural justice. In this view of the matter, in our view, the ld. CIT-DR is not correct in contending that non-striking off of the irrelevant clause in the notice issued u/s 274 r.w.s. 271(1)(c) of the Act is not material, and that the assessee had understood that the proceedings were initiated for concealment of income based on the observations in the assessment order itself. Before parting, we may also refer to a recent judgment of the Hon’ble Karnataka High Court in the case of S. Chandrashekar, 396 ITR 538 (Karn.) wherein a notice issued u/s 274 r.w.s. 271(1)(c) of the Act in printed form without specifying the grounds of initiation of penalty proceedings was held to be invalid and untenable in law. As per the Hon’ble High Court, in the absence of any specific ground in the notice so issued, there is a breach of principles of natural justice and accordingly, the order imposing penalty cannot be sustained.

(iv) Before parting, we may also deal with the argument set-up by the ld. CIT-DR based on the provision of Sec. 292BB of the Act. Notably, Sec. 292BB of the Act has been inserted w.e.f. 01.04.2008 and is understood basically as a rule of evidence. The implication of Sec. 292BB of the Act is that once the assessee appears in any proceedings or has co-operated in any inquiry relating to assessment or reassessment, it shall be deemed that any notice under any provisions of the Act that is required to be served has been duly served upon him in accordance with the provisions of the Act and under these circumstances, assessee would be precluded from objecting that a notice that was required to be served under the Act was either not served upon him or was not served in time or was served in an improper manner. In our considered opinion, the provisions of Sec. 292BB of the Act have no relevance in the context of the impugned examination of the efficacy of the notice issued by the Assessing Officer u/s 274 r.w.s. 271(1)(c) of the Act. Notably, the issue before us is not about the service of notice but as to whether the contents of the notice issued meets with the requirements of law. Therefore, the said argument of the ld. CIT-DR is also rejected.

Cases referred:

i) Meherjee Cassinath Holdings Pvt. Ltd., ITA No. 2555/Mum/2012 dated 28.04.2017;

ii) Jehangir HC Jehangir, ITA No. 1261/Mum/2011 dated 17.05.2017;

iii) M/s. Wadhwa Estate & Developers India Pvt. Ltd., ITA No. 2158/Mum/2016 dated 24.02.2017;

iv) Shri Samson Perinchery, ITA Nos. 1154 of 2014, 953 of 2014, 1097 of 2014 & 1226 of 2014 dated 05.01.2017 (Hon’ble Bombay High Court);

v) M/s. SSA’s Emerald Meadows, CC No. 11485/2016 dated 05.08.2016 (Hon’ble Supreme Court);

vi) M/s. SSA’s Emerald Meadows, ITA No. 380 of 2015 dated 23.11.2015 (Hon’ble Karnataka High Court); and

vii) Mrs. Piedade Perinchery, ITA No. 1310 of 2014 dated 10.01.2017 (Hon’ble Bombay High Court)