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Show cause notice issued under Section 274 of IT Act 1961 should clearly mention the charge of offence

आयकर अपील य अधीकरण, यायपीठ – “B” कोलकाता,
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA BENCH “B” KOLKATA

Before Shri S.S.Godara, Judicial Member and
Shri, M. Balaganesh, Accountant Member

ITA No.1098/Kol/2018
Assessment Year :2012-13

Civtect India Pvt. Ltd. V/s. DCIT, Circle-10(1),
Subash Agarwal &
Associates Siddha
Gibson, 1 Gibson Lane,
2 n d Floor, Suite-213,
Kolkata-700 069
[P AN No. AABCC 3760 B]

अपीलाथ /Appellant .. यथ /Respondent
अपीलाथ क ओर से/By Appellant Shri Siddharth Agarwal, Advocate यथ क ओर से/By Respondent Shri S. Dasgupta, Addl.CIT-DR सन ु वाई क तार ख/Date of Hearing 28-06-2018 घोषणा क तार ख/Date of Pronouncement 18-07-2018 आदे श /O R D E R PER S.S.Godara, Judicial Member:-

This assessee’s appeal for assessment year 2012-13 arises against Commissioner of Income Tax (Appeals)-4, Kolkata’s order dated 18.08.2017 passed in case No.1823/CIT(A)-4/2014-15, upholding Assessing Officer’s action imposing penalty of ₹2,04,180 in proceedings u/s 271(1)(c) of the Income Tax Act, 1961; in short ‘the Act’.

2. It emerges at the outset that assessee’s instant appeal suffers from 193 days delay in fling. It has placed on record its condonation petition dated 04.06.2018 pleading therein that its office staff had inadvertently mixed the ITA No.1098/Kol/2018 A.Y. 2012-13 Civect India Pvt. Ltd. Vs. DCIT, Cir-10(1), Kol. Page 2 instant case file with similar other records. All these solemn averments duly supported by assessee’s practicing CA’s affidavit dated 27.06.2018 have gone unrebutted from the Revenue side. It is therefore clear that assessee’s delay in filing of instant appeal is neither intentional nor deliberate. The same is accordingly condoned.

3. We come to above sole issue of correctness of impugned penalty amounting to ₹2,04,180/- imposed by both the lower authorities pertaining to alleged undisclosure of interest income amounting to ₹6,60,776/- on assessee’s part. There is no dispute that Assessing Officer had made the said addition in assessment order dated 12.11.2014 passed u/s 143(3) of the Act which attained finality. The Assessing Officer thereafter treated it as a case of concealment of income since the amount is concerned saw light of the day only during the course of scrutiny. The assessee appears to have pleaded that the impugned penalty show cause notice did not specify the relevant charge as to whether it failed in furnishing of inaccurate particulars of income or concealment of income. The CIT(A) holds both the above limbs are attracted in the instant taxpayer’s act and conduct. This what leaves the assessee aggrieved.

4. We have given our thoughtful consideration to rival contentions against and in support of impugned penalty. Learned counsel representing assessee before us quotes the relevant penalty show cause notice dated 12.11.2014 not specifying as to whether it had concealed the relevant particulars of income or furnished inaccurate particulars thereon. He relies on this tribunal’s co- ordinate bench’s decision in ITA 687/Kol/2016 DCIT vs. M/s Jai Loknath Oil Extraction (P) Ltd. decided on 13.12.2017 adjudicating the very issue against the Revenue as para 6 to 8 reproduced as under:-

6. We have heard the rival submissions and considered the written submissions and the case laws relied upon by the Ld.DR.
We find the same set of written submissions were filed before the Coordinate Bench of this Tribunal in the case of Jeetmal Choraria in ITA 956/KOL/16 for AY 2010-11, wherein the Coordinate Bench ITA No.1098/Kol/2018 A.Y. 2012-13 Civect India Pvt. Ltd. Vs. DCIT, Cir-10(1), Kol. Page 3 elaborately discussed the facts in the decisions as relied upon by the Ld.DR and principle laid down by the respective Hon’ble High Courts at Bombay and Patna and preferred to follow the ratio laid down by the Hon’ble High Court of Karnataka in the case of Manjunatha Cotton and Ginning supra by taking support of the established principle enunciated by the Hon’ble Supreme Court in the case of Vegetable Products ltd reported in 88 ITR 192 (SC). W e are in agreement with the reasoning of the in its order dt:01-12-2017 of Coordinate Bench in the case of Jeetmal Choraria and the same is reproduced for ready reference:

“7. The learned DR submitted that the Hon’ble Calcutta High Court in the case of Dr.Syamal Baran Mondal Vs. CIT (2011) 244 CTR 631 (Cal) has taken a view that Sec.271 does not mandate that the recording of satisfaction about concealment of income must be in specific terms and words and that satisfaction of AO must reflect from the order either with expressed words recorded by the AO or by his overt act and action. In our view this decision is on the question of recording satisfaction and not in the context of specific charge in the mandatory show cause notice u/s.274 of the Act. Therefore reference to this decision, in our view is not of any help to the plea of the Revenue before us.
8. The learned DR relied on three decisions of Mumbai ITAT viz., (i) Dhanraj Mills Pvt. Ltd. Vs. ACIT ITA No.3830 & 3833/Mum/2009 dated 21.3.2017; (ii) Earthmoving Equipment Service Corporation Vs. DCIT 22(2), Mumbai, (2017) 84 taxmann.com 51 (iii) Mahesh M.Gandhi Vs. ACIT Vs. ACIT ITA No.2976/Mum/2016 dated 27.2.2017. Reliance was placed on two decisions of the Hon’ble Bombay High Court viz., (i) CIT Vs. Kaushalya 216 ITR 660(Bom) and (ii) M/S.Maharaj Garage & Co. Vs. CIT dated 22.8.2017. This decision was referred to in the written note given by the learned DR. This is an unreported decision and a copy of the same was not furnished. However a gist of the ratio laid down in the decision has been given in the written note filed before us.
9. In the case of CIT Vs. Kaushalya (supra), the Hon’ble Bombay High Court held that section 274 or any other provision in the Act or the Rules, does not either mandate the giving of notice or its issuance in a particular form.
Penalty proceedings are quasi-criminal in nature. Section 274 contains the principle of natural justice of the assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining a complaint of failure of the Principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice is caused to the concerned person by the procedure followed. The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The ITAT Mumbai Bench in the ITA No.1098/Kol/2018 A.Y. 2012-13 Civect India Pvt. Ltd. Vs. DCIT, Cir-10(1), Kol. Page 4 case of Dhanraj Mills Pvt.Ltd. (supra) followed the decision rendered by the Jurisdictional Hon’ble Bombay High court in the case of Kaushalya (supra) and chose not to follow decision of Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra). Reliance was also placed by the ITAT Mumbai in this decision on the decision of Hon’ble Patna High court in the case of CIT v. Mithila Motor’s (P.) Ltd. [1984] 149 ITR 751 (Patna) wherein it was held that under section 274 of the Income- tax Act, 1961, all that is required is that the assessee should be given an opportunity to show cause. No statutory notice has been prescribed in this behalf. Hence, it is sufficient if the assessee was aware of the charges he had to meet and was given an opportunity of being heard. A mistake in the notice would not invalidate penalty proceedings.

10. In the case of Earthmoving Equipment Service Corporation (supra), the ITAT Mumbai did not follow the decision rendered in the case of Manjunatha Cotton & Ginning Factory (supra) for the reason that penalty in that case was deleted for so many reasons and not solely on the basis of defect in show cause notice u/s.274 of the Act. This is not factually correct. One of the parties before the group of Assessees before the Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) was an Assessee by name M/s.Veerabhadrappa Sangappa & Co., in ITA NO.5020 OF 2009 which was an appeal by the revenue. The Tribunal held that on perusal of the notice issued under Section 271(1)(c) of the Act, it is clear that it is a standard proforma used by the Assessing Authority. Before issuing the notice the inappropriate words and paragraphs were neither struck off nor deleted. The Assessing Authority was not sure as to whether she had proceeded on the basis that the assessee had either concealed its income or has furnished inaccurate details. The notice is not in compliance with the requirement of the particular section and therefore it is a vague notice, which is attributable to a patent non application of mind on the part of the Assessing authority. Further, it held that the Assessing Officer had made additions under Section 69 of the Act being undisclosed investment. In the appeal, the said finding was set-aside. But addition was sustained on a new ground, that is under valuation of closing stock. Since the Assessing Authority had initiated penalty proceedings based on the additions made under Section 69 of the Act, which was struck down by the Appellate Authority, the initiated penal proceedings, nolonger exists. If the Appellate Authority had initiated penal proceedings on the basis of the addition sustained under a new ground it has a legal sanctum. This was not so in this case and therefore, on both the grounds the impugned order passed by the Appellate Authority as well as the Assessing Authority was set-aside by its order dated 9th April, 2009. Aggrieved by the said order, the revenue filed appeal before High Court. The Hon’ble High Court framed the following question of law in the said appeal viz., 1. Whether the notice issued under Section 271(1)(c) in the printed form without specifically mentioning whether the proceedings are initiated on the ground of concealment of ITA No.1098/Kol/2018 A.Y. 2012-13 Civect India Pvt. Ltd. Vs. DCIT, Cir-10(1), Kol. Page 5 income or on account of furnishing of inaccurate particulars is valid and legal? 2. Whether the proceedings initiated by the Assessing Authority was legal and valid? The Hon’ble Karnataka High Court held in the negative and against the revenue on both the questions. Therefore the decision rendered by the ITAT Mumbai in the case of Earthmoving Equipment Service Corporation (supra) is of no assistance to the plea of the revenue before us.

11. In the case of M/S.Maharaj Garage & Co. Vs. CIT dated 22.8.2017 referred to in the written note given by the learned DR, which is an unreported decision and a copy of the same was not furnished, the same proposition as was laid down by the Hon’ble Bombay High Court in the case of Smt.Kaushalya (supra) appears to have been reiterated, as is evident from the extracts furnished in the written note furnished by the learned DR before us.

12. In the case of Trishul Enterprises ITA No.384 & 385/Mum/2014, the Mumbai Bench of ITAT followed the decision of the Hon’ble Bombay High Court in the case of Smt.Kaushalya (supra).

13. In the case of Mahesh M.Gandhi (supra) the Mumbai ITAT the ITAT held that the decision of the Hon’ble Karnataka High Court in the case Manjunatha Cotton & Ginning (supra) will not be applicable to the facts of that case because the AO in the assessment order while initiating penalty proceedings has held that the Assessee had concealed particulars of income and merely because in the show cause notice u/s.274 of the Act, there is no mention whether the proceedings are for furnishing inaccurate particulars or concealing particulars of income, that will not vitiate the penalty proceedings. In the present case there is no whispher in the order of assessment on this aspect. We have pointed out this aspect in the earlier part of this order. Hence, this decision will not be of any assistance to the plea of the revenue before us. Even otherwise this decision does not follow the ratio laid down by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) in as much as the ratio laid down in the said case was only with reference to show cause notice u/s.274 of the Act. The Hon’ble Court did not lay down a proposition that the defect in the show cause notice will stand cured if the intention of the charge u/s.271(1) (c ) is discernible from a reading of the Assessment order in which the penalty was initiated.

14. From the aforesaid discussion it can be seen that the line of reasoning of the Hon’ble Bombay High Court and the Hon’ble Patna High Court is that issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inaccurate portion cannot by itself invalidate the notice. The Tribunal Benches at Mumbai and Patna being subordinate to the Hon’ble Bombay ITA No.1098/Kol/2018 A.Y. 2012-13 Civect India Pvt. Ltd. Vs. DCIT, Cir-10(1), Kol. Page 6 High Court and Patna High Court are bound to follow the aforesaid view. The Tribunal Benchs at Bangalore have to follow the decision of the Hon’ble Karnataka High Court. As far as benches of Tribunal in other jurisdictions are concerned, there are two views on the issue, one in favour of the Assessee rendered by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra) and other of the Hon’ble Bombay High Court in the case of Smt.Kaushalya. It is settled legal position that where two views are available on an issue, the view favourable to the Assessee has to be followed. We therefore prefer to follow the view expressed by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning (supra).

15. We have already observed that the show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld. Counsel for the assessee which is based on the decisions referred to in the earlier part of this order has to be accepted. We therefore hold that imposition of penalty in the present case cannot be sustained and the same is directed to be cancelled.

7.We find that the notice dt. 27-03-2014 issued u/s 274 r.w.s 271 of the Act does not specify the charge of offence committed by the assessee viz whether had concealed the particulars of income or had furnished inaccurate particulars of income. Hence the said notice is to be held as defective.

8. Further, We find that the Revenue had preferred a SLP before the Hon’ble Supreme Court against this judgment which was dismissed in CC No. 11485/2016 dated 5.8.2016 by observing as under:-

UPON hearing the counsel, the Court made the following ORDER Delay condoned.

We do not find any merit in this petition. The special leave petition is , accordingly dismissed.

Pending application, if any, stands disposed of.

5. Learned Departmental Representative’s only argument is that the assessment order duly clarified that the impugned penalty had been initiated for processing inaccurate particulars of income. We find no merit in Revenue’s above plea since it is only the relevant notice issued u/s. 274 of the Act that ITA No.1098/Kol/2018 A.Y. 2012-13 Civect India Pvt. Ltd. Vs. DCIT, Cir-10(1), Kol. Page 7 carries prime significance in the penalty proceedings in question. We therefore accept assessee’s argument on merits.

6. This assessee’s appeal is accordingly allowed.

Order pronounced in the open court 18/07/2018

Sd/- Sd/-
(लेखा सद%य) ( या’यक सद%य)
(M.Balaganesh) (S.S.Godara)
(Accountant Member) (Judicial Member)
Kolkata,
*Dkp, Sr.P.S
(दनांकः- 18/07/2018 कोलकाता ।
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. अपीलाथ /Appellant-Civtect India Pvt. Ltd., Subash Agarwal & Associates, Siddha Gibson, 1 Gibson lane, 2nd Fl, Suit-213, Kolkta-69

2. यथ /Respondent-DCIT, Circle-10(1), Kolkata

3. संब3ं धत आयकर आय4 ु त / Concerned CIT Kolkata

4. आयकर आय4 ु त- अपील / CIT (A) Kolkata

5. 7वभागीय ‘त’न3ध, आयकर अपील य अ3धकरण, कोलकाता / DR, ITAT, Kolkata

6. गाड< फाइल / Guard file.

By order/आदे श से, /True Copy/ Sr. Private Secretary, Head of Office/DDO आयकर अपील य अ3धकरण, कोलकाता ।

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