IN INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA No.947/Bang/2014 Assessment year : 2003-04 Shri S.D. Raddi, Vs. Assistant Commissioner of Sri Saptagiri Nivas, Income Tax, Sadhankeri, Circle 2(1), Dharwad. Bangalore. PAN: AECPR 6185B APPELLANT RESPONDENT Appellant by : Shri Ashok A. Kulkarni, Advocate Respondent by : Shri A.R.V. Sreenivasan, Jt. CIT(DR) Date of hearing : 25.08.2016 Date of Pronouncement : 18.10.2016 ORDER Per Sunil Kumar Yadav, Judicial Member This is appeal filed by assessee against order of CIT(Appeals) inter alia on following grounds:- 1. order of Commissioner of Income Tax (Appeals) is opposed to law and facts of case. 2. Neither in respect of sum of Rs. 8,47,981/- being addition in respect of creditors and Rs. 3,88,925/- being sustained addition in respect of alleged inflation of wages, provision of section 271 (1 )(C) are not attracted. ITA No.947/Bang/2014 Page 2 of 8 3. true tests laid down by binding decision of Karnataka High Court in 359 ITR 565 have not been satisfied and hence no penalty u/s. 271 (1 )(C) is exigible. 4. It should have been appreciated that there was no "direction" in assessment order for action u/s. 271 (1)(C) as clarified by above decision and therefore provisions of 271 (1B) do not come to assistance of department to justify levy of penalty and therefore, law prior to introduction of that sub-section would be operative and on that basis, no penalty is leviable. 5. alternative requirement required under law as enunciated by their lordships of Karnataka High Court in said decision of satisfaction as regards concealment/filing of inaccurate particulars in body of order is conspicuously absent. Therefore, absence of direction is fatal to impugned order of penalty. 6. It should have been appreciated that mere repetition in body of order of what appears at end of order being "penalty proceedings u/s. 271 (1)(C) are initiated separately" does not amount to satisfaction having been reached in course of assessment proceedings as regards concealment / furnishing of inaccurate particulars. 7. Without prejudice and in alternative, notice u/s. 274 being ambiguous and not specific as to whether there was concealment/furnishing of inaccurate particulars, order of penalty cannot be sustained. 8. appellant craves for leave to add, to delete from or amend ground of appeal. 2. During course of hearing, ld. counsel for assessee has challenged validity of these proceedings on ground that in show cause notice for levying penalty u/s. 271(1)(c), AO has not specified as to on what ground AO intends to levy penalty, whether it is on ITA No.947/Bang/2014 Page 3 of 8 account of concealment of income or furnishing of inaccurate particulars. To explain these facts, he filed copy of notice u/s. 274 of Act. He has also placed reliance upon orders of Tribunal and judgment of jurisdictional High Court in case of CIT & Anr. V. Manjunatha Cotton & Ginning Factory reported in 359 ITR 565 (Karn). Copy of judgment of High Court is placed on record. 3. Per contra, ld. DR has submitted that mere non-striking particular column in notice would not be that much fatal to validity of penalty proceedings. 4. Having carefully examined notice issued u/s. 274 r.w.s. 271(1)(c) of Act, we find that notice was issued on printed proforma in which AO did not identify, whether assessee has concealed income or furnished inaccurate particulars of such income. Now question arises whether, it is necessary to identify in notice itself that proceedings u/s. 271(1)(c) are initiated either for concealment of income or furnishing of inaccurate particulars of income. This aspect has been examined by Hon'ble jurisdictional High Court in case of CIT & Anr. V. Manjunatha Cotton & Ginning Factory (supra) and Their Lordships have laid down parameters under which penalty u/s. 271(1)(c) of Act has to be levied. Under clauses (p) & (q) of para 63 of judgment, Their Lordships have held that notice u/s. 274 should specifically state grounds mentioned in. 271(1)(c), i.e., whether it is for concealment of ITA No.947/Bang/2014 Page 4 of 8 income or for furnishing of incorrect particulars of income. Sending printed form where all grounds mentioned in section 271 are mentioned would not satisfy requirement of law. Before laying down parameters, Their Lordships have analysed provisions of section 274 for sending notices and for initiating proceedings u/s. 271(1)(c). relevant observations of Their Lordships are extracted hereunder for reference:- 59. As provision stands, penalty proceedings can be initiated on various grounds set out therein. If order passed by authority categorically records finding regarding existence of any said grounds mentioned therein and then penalty proceedings is initiated, in notice to be issued under section 274, they could conveniently refer to said order which contains satisfaction of authority which has passed order. However, if existence of conditions could not be discerned from said order and if it is case of relying on deeming provision contained in Explanation 1 or in Explanation 1(B), then though penalty proceedings are in nature of civil liability, in fact, it is penal in nature. In either event, person who is accused of conditions mentioned in section 271 should be made known about grounds on which they intend imposing penalty on him as section 274 makes it clear that assessee has right to contest such proceedings and should have full opportunity to meet case of Department and show that conditions stipulated in section 271(1)(c) do not exist as such he is not liable to pay penalty. practice of Department sending printed form where all grounds mentioned in section 271 are mentioned would not satisfy requirement of law when consequences of assessee not rebutting initial presumption is serious in nature and he had to pay penalty from 100 per cent to 300 per cent of tax liability. As said provisions have to be held to be strictly construed, notice issued under section 274 should satisfy grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if show-cause notice is vague. On basis of such proceedings, no penalty could be imposed on assessee. ITA No.947/Bang/2014 Page 5 of 8 60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, facts of some cases may attract both offences and in some cases there may be overlapping of two offences but in such cases initiation of penalty proceedings also must be for both offences. But drawing up penalty proceedings for one offence and finding assessee guilty of another offence or finding him guilty for either one or other cannot be sustained in law. It is needless to point out satisfaction of existence of grounds mentioned in section 271(1)(c) when it is sine qua non for initiation or proceedings, penalty proceedings should be confined only to those grounds and said grounds have to be specifically stated so that assessee would have opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on grounds on which he is called upon to answer. It is not open to authority, at time of imposing penalty to impose penalty on grounds other than what assessee was called upon to meet. Otherwise, though initiation of penalty proceedings may be valid and legal, final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus, once proceedings are initiated on one ground, penalty should also be imposed on same ground. Where basis of initiation of penalty proceedings is not identical with ground on which penalty was imposed, imposition of penalty is not valid. validity of order of penalty must be determined with reference to information, facts and materials in hands of authority imposing penalty at time order was passed and further discovery of facts subsequent to imposition of penalty cannot validate order of penalty which, when passed, was not sustainable. 61. Assessing Officer is empowered under Act to initiate penalty proceedings once he is satisfied in course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus, Assessing Officer while issuing notice has to come to conclusion that whether is it case of concealment of income or is it case of furnishing of inaccurate particulars. apex court in case of Ashok Pai reported in [2007] 292 ITR ITA No.947/Bang/2014 Page 6 of 8 11 (SC) at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. Gujarat High Court in case of Manu Engineering Works reported in [1980] 122 ITR 306 (Guj) and Delhi High Court in case of CIT v. Virgo Marketing P. Ltd. reported in [2008] 171 Taxman 156, has held that levy of penalty has to be clear as to limb for which it is levied and position being unclear penalty is not sustainable. Therefore, when Assessing Officer proposes to invoke first limb being concealment, then notice has to be appropriately marked. Similar is case for furnishing inaccurate particulars of income. standard proforma without striking of relevant clauses will lead to inference as to non-application of mind. 5. This aspect was also examined by Hon ble High Court of Gujarat in case of National Textiles v. CIT 249 ITR 125 (Guj) and CIT v. Manu Engineering Works 122 ITR 306 (Guj). Following aforesaid judgments, this Bench of Tribunal in case of E. Krishnappa v. ITO in ITA No.313 to 315/Bang/2014 dated 14.08.2015 and in case of M/s. SLN Traders (in ITA No.1045/Bang/2015 & CO NO.210/Bang/2015 dated 30.6.2016) has also taken view that where Assessing Officer has not specified under which limb, penalty u/s. 271(1)(c) of Act is to be levied, i.e., whether penalty proceedings are being initiated for concealment of income or furnishing of inaccurate particulars of income; such initiation of penalty proceedings has to be held to be illegal. relevant observations of Tribunal in E. Krishnappa v. ITO (supra) are extracted hereunder:- 4.4.3 In case on hand, we find from careful perusal of notices, issued under Section 274 rws 271 of Act dt.29.12.2011 for Assessment Years 2007-08 and placed before Bench in course of hearing that Assessing Officer has ITA No.947/Bang/2014 Page 7 of 8 not specified under which limb of penalty u/s.271(1)(c) of Act is to be levied; i.e. whether penalty proceedings are being initiated for concealment of particulars of income or for furnishing of inaccurate particulars of income. Such initiation of penalty proceedings has been held to be illegal by Hon ble High Court of Karnataka in case of Manjunatha Cotton & Ginning Factory (supra). Following aforesaid decision of Hon'ble High Court of Karnataka in case of Raveendhiraa L & Others (supra), we hold that notices issued under Section 274 rws 271 of Act dt.29.12.2011 for Assessment Years 2007-08 to 2009-10 are bad in law for reasons mentioned in aforesaid orders and consequently hold penalty orders passed in consequence of these defective, invalid notices also to be invalid and cancel them. 6. Turning to facts of instant case, we find that undisputedly AO has not identified in notices as to whether penalty proceedings are initiated for concealment of income or furnishing of inaccurate particulars of such income. Therefore, following aforesaid judgment of Hon'ble jurisdictional High Court, we are of considered view that on account of defective notice issued for initiation of penalty proceedings, penalty order passed by AO is not sustainable in eyes of law. We accordingly set aside order of CIT(Appeals) as well as Assessing Officer and delete penalty on account of wrong initiation of penalty proceedings. 7. Since penalty proceedings are quashed, we find no justification to deal with appeals on merits, as it becomes academic. ITA No.947/Bang/2014 Page 8 of 8 8. In result, appeal of assessee is allowed. Pronounced in open court on this 18th day of October, 2016. Sd/- Sd/- ( A.K. GARODIA ) (SUNIL KUMAR YADAV ) Accountant Member Judicial Member Bangalore, Dated, 18th October, 2016. /D S/ Copy to: 1. Appellant 2. Respondents 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order Assistant Registrar, ITAT, Bangalore. S.D. Raddi v. Assistant Commissioner of Income Tax, Circle 2(1), Bangalore