Non-striking off of the relevant column of the show cause notice cannot be a valid reason for deletion of the penalty u/s.271(1)(c) of the Act if responded and participated in the proceedings. hence, matter was remanded back to CIT(A) for adjudication of the appeal on merits. (Paras 8&9)
INCOME TAX OFFICER vs. RAJAN KALIMUTHU
CHENNAI TRIBUNAL
ITA NO. 2900/CHNY/2018 May 22, 2019
Section 148, 271(1)(c), 274
AY 2014-2015
Cases Followed:
P.M.Abdulla vs. ITO, ITA Nos.1223 & 1224/Bangalore/2012
Cases Referred to
Sundaram Finance Ltd. Vs. ACIT, Company Circle – VI(4), Chennai ( 403 ITR 407)
CIT v. Smt. aushalya [1995] 216 ITR 660 (Bom)
CIT vs. Reliance Petro Products Ltd, 322 ITR 158
CIT vs. Manjunatha Cotton and Ginning Factory, 359 ITR 565
Counsel appeared:
- Yamuna, IRS, JCIT for the Appellant.: Y. Sridhar, C.A for the Respondent
INTURI RAMA RAO, AM.
- This is an appeal filed by the Revenue directed against the order of the learned Commissioner of Income Tax (Appeals)-16, Chennai (hereinafter called as ‘CIT(A)’) dated 10.05.2018 deleting penalty of Rs.47,21,610/- levied u/s. 271(1)(c) of the Income Tax Act, 1961 (in short ‘’the Act”) for the Assessment year 2014-15.
- The Revenue raised the following grounds of appeal:
“1. The Order of the learned Commissioner of Income Tax (Appeals) is contrary to the Law and facts of the case.
- The Ld.CIT(A) erred in deleting the penalty of Rs. 47,21,610/- levied by the Assessing Officer u/s 271(1)(c) of the Act on technical grounds, without going in the merits of the case.
2.1. The Ld. CIT(A) failed to note that the decision of the Supreme Court in the case of M/s SSA’s Emerald Meadows (CC 11485/ 2016), rendered based on the decision of the Divisional Bench of Karnataka High Court in the case of Manjunatha Cotton & Ginning Factor (359 ITR 565- Kar.), is not applicable to the facts of the case, since in that case, the assessee is not in the know of the charge against, or the default for which penalty is proposed to be levied on him.
2.2. The Ld. CIT(A) failed to consider the fact that the Assessing Officer had clearly established the concealment and furnishing of inaccurate particulars on the part of the assessee in the assessment order, and the assessee has not preferred any appeal against the assessment order.
2.3 The Ld. CIT(A) failed to note that the issued involved in the assessee’s case can never be a question of law in the case and it is purely a question of fact and that that, the assesse had at no earlier point of time raised the plea that on account of a defect in the notice, he was put to prejudice, as observed by the Hon’ble Madras High Court in the case of Sundaram Finance Ltd. Vs. ACIT, Company Circle – VI(4), Chennai ( 403 ITR 407).
2.4. The Ld. CIT(A) failed to obverve that after the insertion of the Explanation, it cannot be said that the onus lies on the Revenue to establish mens-rea for concealment of income before imposition of penalty and if there was failure to return the correct income, there would be a presumption of concealment, unless the assessee was able to prove that his failure to return his correct income was not due to fraud or neglect, as observed by the Hon’ble Madras High Court in the case of Pr. CIT-6, Chennai vs. Sundaram Fasteners Ltd. reported in 92 Taxmann.com, 356.
2.5. The Ld. CIT(A) failed to note the decisions of Jurisdictional ITAT in the case of R. Vasugi Coimbatore vs. DCIT in ITA No. 899/Mds/2015 dt. 1.11.2017 and ITa Vs. S. Anandalakshmi in ITA No.1948/Mds/2016 & CO No.142/Mds /2016, wherein it was held that “a mistake in the notice does not invalidate the penalty proceedings, and even granting that the notice u/s. 274 was defective or bas in law, the penalty proceedings would not fail as no prejudice had been caused to the assessee”.
2.6. The ld. CIT(A) failed to note that “the issuance of notice is an administrative device for in rming the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done and mere mistake in the language used or mere non-striking of the inapplicable portion cannot by itself invalidate the notice, ” as observed by the Hon’ble Bombay High Court in the case of Smt. Kaushalya & Others (supra) [CIT v. Smt. aushalya [1995] 216 ITR 660 (Bom).
- For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the Learned CIT(A) may be set aside and that of the Assessing Officer be restored”.
- The brief facts of the case are as under:
The Respondent assessee is an individual. He filed return of income for the assessment year 2014-15 disclosing total income of Rs.3,60,910/-. During the course of assessment proceedings for the assessment year 2014-2015, ld. Assessing Officer noticed that Respondent assessee had not returned capital gains arising from sale of land and building at Plot No.386, 30 feet road, Nehru Nagar, Kottivakkam sold for a consideration of Rs.2,00,00,000/-. When put on notice by the ld. Assessing Officer, it is stated that he had purchased another house property at 73, Annai Indira Nagar, Oggiam Thoraipakkam for a consideration of Rs.1,55,63,000/- out of sale consideration received on sale of property of original asset. However he failed to substantiate purchase of the property. Then ld. Assessing Officer brought to tax long term capital gains of Rs.47,21,610/- on the sale of property at Kottivakkam for a consideration of Rs.2,00,00,000/. Assessee had not contested the addition in the appeal. Thus, the assessment order attained finality. The Assessing Officer also initiated penalty proceedings u/s.274 r.w.s. 271(1)(c) of the Act for concealing of particulars of income. The assessee offered the explanation in respect to the show cause notice stating that mere wrong claim does not amount to concealment of particulars of income or furnishing inaccurate particulars of income, placing reliance on the decision of Hon’ble Supreme Court in the case of CIT vs. Reliance Petro Products Ltd, 322 ITR 158. However, the ld. Assessing Officer had not accepted the said explanation and proceeded with levy penalty of 47,21,610/- u/s.271(1)(c) of the Act vide order dated 31.05.2017.
- Being aggrieved by levy of penalty, an appeal was preferred before ld. Commissioner of Income Tax (Appeals), who vide impugned order deleted the penalty on the technical ground that the ld. Assessing Officer had not struck off the relevant column of the show cause notice by applying ratio of the decision of Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton and Ginning Factory, 359 ITR 565.
- Being aggrieved by the above decision of Commissioner of Income Tax (Appeals), the Revenue is in appeal before us.
- We heard the rival submissions and perused the material on record. The issue in the appeal relates to whether or not the penalty order can be squashed for reason that ld. Assessing Officer had not struck off the relevant column of the show cause notice. The Bangalore Bench of the Tribunal in the case of P.M.Abdulla vs. ITO (in ITA Nos.1223 & 1224/Bangalore/2012, dated 17.10.2016) had held that this cannot be a valid reason for deletion of the penalty u/s.271(1)(c) of the Act by holding as under:-
“9. We heard rival submissions and perused material on record. The only issue involved is whether levy of penalty u/s.271(1) ( C) is valid in law keeping in view the decision of the Jurisdictional High Court in the case of Manjunatha Cotton &Ginning Factory (supra). The contention of the assessee is that since the Assessing Officer had not ticked off the relevant column in the show cause notice, it goes to prove that the Assessing Officer had not reached satisfaction before initiating proceedings u/s.271(1)(c). The contention of the learned Counsel for assessee that the relevant column has not been ticked, cannot be accepted as it is found from material placed before us that for both the years, the column relevant to concealment of particulars of income has been ticked by the Assessing Officer. In any event, it is found that the assessee had offered an explanation for concealment of particulars of income only. The assessee, at no stage of penalty proceedings and at no stage had complained of violation of the principles of natural justice. Thus, no prejudice is caused on account of any omission or commission in the show cause issued. The provisions of Section 292B clearly lay down that :-
“Return of income, etc, not to be invalid on certain grounds:
292B:- No return of income, assessment, notice, summons or other proceeding furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of 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.
The Hon’ble Jurisdictional High Court had neither considered nor brought to the notice of the Hon’ble High Court, provisions of Section 292B of the Act. Even assuming that there is a defect in the show cause notice issued, as canvassed by the learned Counsel for assessee that will vitiate the entire penalty proceedings, the judgment was rendered by the Hon’ble High Court in the case of Manjunatha Cotton & Ginning Factory (supra) without considering the provisions of Section 292B. Subsequently, the Hon’ble Jurisdictional High Court in the case of CIT vs. Sri Durga Enterprises (2014) 44 taxmann.com 442 (Kar) while dealing with the validity of notice u/s.148 of the Act as valid and responded to it in letter and spirit and participated in the proceedings and in light of the provisions of Section 292B, notice issued u/s.148 was held to be valid. The relevant paragraph of judgment is extracted below:-
- In the present case, as observed earlier, the assessee not only responded to the notice under Section 148 of the Act within one month, but on the basis of the return filed earlier, participated in the proceedings till the matter reached the FAA and was disposed of. A glance at Section 292B of the Act, shows that under this provision, certain Acts are not to be treated as invalid, may be by reason of any mistake, defect or omissions, either in return of income, assessment, notice, summons or other proceedings. In other words, a notice cannot be invalidated by reason of any mistake, such as the one occurred in the present case, namely, the period of filing return of income was not specified as contemplated by Section 148 of the Act. If such a defect is not allowed to be cured, or treated as invalid so as to declare the notice invalid, despite the fact that assessee had taken that notice as valid and responded to it in letter and spirit and participated in the proceedings, the very purpose/objective of the provisions contained in Section 292B of the Act would stand frustrated/defeated. The intent of the Legislature is clear from the language employed in this provision which states that a defective notice, such as the one in the present case, cannot be declared invalid by reason of any mistake, defect or omission, if the notice in ‘substance’ and in ‘effect’ is in conformity with or according to the intent of purpose of this Act. The intent or purpose of issuing the notice is to call upon the assessee to file return, if the Assessing Officer finds that income has escaped the assessment. This being the intent and purpose of the provisions contained in Section 148 of the Act, in our opinion, it stands satisfied if the notice is responded within reasonable time, which in the present case was 30 days, irrespective of the fact whether the period was specified or not in the notice for filing return of income. In the present case, if the assessee had not responded to this notice at all and had raised such ground of challenge, perhaps, he would not succeed. But having responded and participated in the proceedings, he cannot be allowed to turn around and raise objection for the first time before the Tribunal seeking invalidation of the proceedings initiated by issuing notice under Section 148 of the Act. In the circumstance, we allow this appeal answering both the substantial questions of law in favour of the Revenue and against the assessee. In view of the peculiar facts and circumstances of the case, there shall be no order as to costs.
Thus, having regard to the ratio laid down by the Hon’ble Jurisdictional High Court in the subsequent decision in the case of Sri Durga Enterprise (supra) we hold that show cause notice issued u/s.274 r.w.s 271(1)(c) cannot be held to be invalid‘.
In the light of the above decision, we are of the considered opinion that ld.CIT(A) ought not have deleted the penalty based on the decision of Manjunatha Cotton and Ginning Factory (supra) and therefore we remand the matter back to the ld. Commissioner of Income Tax (Appeals) for adjudication of the appeal on merits.
- In the result, the appeal of the Revenue is partly allowed for statistical purpose.
Order pronounced on 22nd day of May, 2019, at Chennai.