ITA Nos. 647 & 648/Kol/2018 M/s. R. S. Chemicals, AY- 2007-08 & 2009-10 , C , IN INCOME TAX APPELLATE TRIBUNAL C BENCH: KOLKATA [Before Shri A. T. Varkey, JM & Dr. A. L. Saini, AM] I.T.A. Nos. 647 & 648/Kol/2018 Assessment Years 2007-08 & 2009-10 M/s. R. S. Chemicals Vs. Income-tax Officer, Wd-36(1), Kolkata. (PAN AAFFR3325Q) Appellant Respondent Date of Hearing 19.09.2019 Date of Pronouncement 25.09.2019 For Appellant Shri Manish Tiwari, FCA For Respondent Shri Supriyo Pal, JCIT, Sr. DR ORDER Per Shri A.T.Varkey, JM Both these appeals preferred by assessee are against separate orders of Ld. CIT(A)-10, Kolkata dated 28.12.2017 for AYs 2007-08 and 2009-10 in respect of upholding penalty imposed by AO u/s. 271(1)(c) of Income-tax Act, 1961 (hereinafter referred to as Act ). Since grounds are common and facts are identical, except variance in amount, we dispose of both these appeals by this consolidated order for sake of convenience. 2. appeal for AY 2007-08 is taken as lead case and result will be followed for other assessment year also. In this appeal assessee has challenged order of CIT(A) in confirming penalty u/s. 271(1)(c) of Act. facts and circumstances under which penalty u/s 271(1)(c) of Act was imposed on assessee by AO are that in this case assessment u/s. 143(3) of Act was made on 31.12.2009 determining total income at Rs.7,68,850/- against assessee s declared returned income of Rs.2,83,794/-. In said order amount of Rs.2,89,198/- was added by AO since there is difference in closing balance of Rs.63,917/- in respect of party M/s. A. B. Elesto 2 ITA Nos. 647 & 648/Kol/2018 M/s. R. S. Chemicals, AY- 2007-08 & 2009-10 Products (Pvt.) Ltd. and Rs.2,25,281/- in respect of party M/s. Softel Associates (P) Ltd. On considering same as suppressed income as well as undisclosed portion of income, penal proceedings u/s. 271(1)(c) of Act was initiated on 31.12.2009 by invoking notice u/s. 274 read with sec. 271 of Act. On considering reply of assessee AO imposed penalty of Rs.1,02,420/-. Aggrieved, assessee preferred appeal before Ld. CIT(A), who confirmed action of AO. Aggrieved, assessee is before us. 3. At outset, ld. Counsel for assessee submitted before us that show cause notices issued u/s 274 of Act r.w.s. 271 of Act dated 31.12.2009 by AO before imposing penalty does not contain specific charge against assessee namely as to whether assessee was being proceeded against for having concealed particulars of income or having furnished inaccurate particulars of income. copy of show cause notice u/s 274 of Act dated 31.12.2009 was filed before us and perusal of same reveals that AO has not struck out irrelevant portion in show cause notice and, therefore, show cause notice does not specify charge against assessee as to whether charge is for concealment of particulars of income or furnishing of inaccurate particulars of income. same is reproduced for purpose of ready reference: Whereas in course of proceedings before me for assessment year 2007-08 it appears to me that you have concealed particulars or furnished inaccurate particulars of such income. 4. ld. Counsel for assessee drew our attention to decision of Hon ble Karnataka High Court in case of CIT vs. SSA s Emerald Meadows in ITA No.380 of 2015 dated 23.11.2015 wherein Hon ble Karnataka High Court following its own decision in case of CIT vs Manjunatha Cotton and Ginning factory (2013) 359 ITR 565 took view that imposing of penalty u/s 271(1)(c) of Act is bad in law and invalid for reason that show cause notice u/s 274 of Act does not specify charge against assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. ld. Counsel further brought to our notice that as against decision of Hon ble Karnataka High Court revenue preferred appeal 3 ITA Nos. 647 & 648/Kol/2018 M/s. R. S. Chemicals, AY- 2007-08 & 2009-10 in SLP in CC No.11485 of 2016 and Hon ble Supreme Court by its order dated 05.08.2016 dismissed SLP preferred by department. ld. Counsel also brought to our notice decision of Hon ble Bombay High Court in case of CIT vs Shri Samson Perinchery in ITA No.1154 of 2014 dated 05.01.2017 wherein Hon ble Bombay High Court following decision of Hon ble Karnataka High Court in case of CIT vs Manjunatha Cotton and Ginning factory (supra) came to conclusion that imposition of penalty on defective show cause notice without specifying charge against assessee cannot be sustained. Our attention was also drawn to decision of ITAT in case of Suvaprasanna Bhattacharya vs ACIT in ITA No.1303/Kol/2010 dated 06.11.2015 wherein identical proposition has been followed by Tribunal. 5. Ld. DR vehemently opposed submission of Ld. AR and has cited various case laws to oppose case laws suggested by Ld. AR. We note that all case laws cited before us by Ld. DR has been dealt with elaborately by Coordinate Bench of this Tribunal in case of Jeetmal Choraria Vs. ACIT, ITA No. 956/Kol/2016 for AY 2010-11 dated 01.12.2017, wherein Tribunal has noted as under: 7. learned DR submitted that Hon ble Calcutta High Court in case of Dr.Syamal Baran Mondal Vs. CIT (2011) 244 CTR 631 (Cal) has taken view that Sec.271 does not mandate that recording of satisfaction about concealment of income must be in specific terms and words and that satisfaction of AO must reflect from order either with expressed words recorded by AO or by his overt act and action. In our view this decision is on question of recording satisfaction and not in context of specific charge in mandatory show cause notice u/s.274 of Act. Therefore reference to this decision, in our view is not of any help to plea of Revenue before us. 8. 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 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 written note given by learned DR. This is unreported decision and copy of same was not furnished. However gist of ratio laid down in decision has been given in written note filed before us. 9. In case of CIT Vs. Kaushalya (supra), Hon ble Bombay High Court held that section 274 or any other provision in Act or Rules, does not either mandate giving of notice or its issuance in particular form. Penalty proceedings are quasi-criminal in 4 ITA Nos. 647 & 648/Kol/2018 M/s. R. S. Chemicals, AY- 2007-08 & 2009-10 nature. Section 274 contains principle of natural justice of assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining complaint of failure of Principles of natural justice on ground of absence of opportunity, it has to be established that prejudice is caused to concerned person by procedure followed. issuance of notice is administrative device for informing assessee about proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in language used or mere non-striking of inaccurate portion cannot by itself invalidate notice. ITAT Mumbai Bench in case of Dhanraj Mills Pvt.Ltd. (supra) followed decision rendered by Jurisdictional Hon ble Bombay High court in case of Kaushalya (supra) and chose not to follow decision of Hon ble Karnataka High Court in case of Manjunatha Cotton & Ginning Factory (supra). Reliance was also placed by ITAT Mumbai in this decision on decision of Hon ble Patna High court in case of CIT v. Mithila Motor's (P.) Ltd. [1984] 149 ITR 751 (Patna) wherein it was held that under section 274 of Income-tax Act, 1961, all that is required is that assessee should be given opportunity to show cause. No statutory notice has been prescribed in this behalf. Hence, it is sufficient if assessee was aware of charges he had to meet and was given opportunity of being heard. mistake in notice would not invalidate penalty proceedings. 10. In case of Earthmoving Equipment Service Corporation (supra), ITAT Mumbai did not follow decision rendered in case of Manjunatha Cotton & Ginning Factory (supra) for reason that penalty in that case was deleted for so many reasons and not solely on basis of defect in show cause notice u/s.274 of Act. This is not factually correct. One of parties before group of Assessees before Karnataka High Court in case of Manjunatha Cotton & Ginning (supra) was Assessee by name M/s.Veerabhadrappa Sangappa & Co., in ITA NO.5020 OF 2009 which was appeal by revenue. Tribunal held that on perusal of notice issued under Section 271(1)(c) of Act, it is clear that it is standard proforma used by Assessing Authority. Before issuing notice inappropriate words and paragraphs were neither struck off nor deleted. Assessing Authority was not sure as to whether she had proceeded on basis that assessee had either concealed its income or has furnished inaccurate details. notice is not in compliance with requirement of particular section and therefore it is vague notice, which is attributable to patent non application of mind on part of Assessing authority. Further, it held that Assessing Officer had made additions under Section 69 of Act being undisclosed investment. In appeal, said finding was set-aside. But addition was sustained on new ground, that is under valuation of closing stock. Since Assessing Authority had initiated penalty proceedings based on additions made under Section 69 of Act, which was struck down by Appellate Authority, initiated penal proceedings, no longer exists. If Appellate Authority had initiated penal proceedings on basis of addition sustained under new ground it has legal sanctum. This was not so in this case and therefore, on both grounds impugned order passed by Appellate Authority as well as Assessing Authority was set-aside by its order dated 9th April, 2009. Aggrieved by said order, revenue filed appeal before High Court. Hon ble High Court framed following question of law in said appeal viz., 1. Whether notice issued under Section 271(1)(c) in printed form without specifically mentioning whether proceedings are initiated on ground of concealment of income or on account of furnishing of inaccurate particulars is valid and legal? 2. Whether proceedings initiated by Assessing Authority was legal and valid? Hon ble Karnataka High Court held in negative and against revenue on both questions. Therefore decision rendered by ITAT Mumbai in case of Earthmoving Equipment Service Corporation (supra) is of no assistance to plea of revenue before us. 5 ITA Nos. 647 & 648/Kol/2018 M/s. R. S. Chemicals, AY- 2007-08 & 2009-10 11. In case of M/S.Maharaj Garage & Co. Vs. CIT dated 22.8.2017 referred to in written note given by learned DR, which is unreported decision and copy of same was not furnished, same proposition as was laid down by Hon ble Bombay High Court in case of Smt.Kaushalya (supra) appears to have been reiterated, as is evident from extracts furnished in written note furnished by learned DR before us. 12. In case of Trishul Enterprises ITA No.384 & 385/Mum/2014, Mumbai Bench of ITAT followed decision of Hon ble Bombay High Court in case of Smt.Kaushalya (supra). 13. In case of Mahesh M.Gandhi (supra) Mumbai ITAT ITAT held that decision of Hon ble Karnataka High Court in case Manjunatha Cotton & Ginning (supra) will not be applicable to facts of that case because AO in assessment order while initiating penalty proceedings has held that Assessee had concealed particulars of income and merely because in show cause notice u/s.274 of Act, there is no mention whether proceedings are for furnishing inaccurate particulars or concealing particulars of income, that will not vitiate penalty proceedings. In present case there is no whispher in order of assessment on this aspect. We have pointed out this aspect in earlier part of this order. Hence, this decision will not be of any assistance to plea of revenue before us. Even otherwise this decision does not follow ratio laid down by Hon ble Karnataka High Court in case of Manjunatha Cotton & Ginning (supra) in as much as ratio laid down in said case was only with reference to show cause notice u/s.274 of Act. Hon ble Court did not lay down proposition that defect in show cause notice will stand cured if intention of charge u/s.271(1) (c ) is discernible from reading of Assessment order in which penalty was initiated. 14. From aforesaid discussion it can be seen that line of reasoning of Hon ble Bombay High Court and Hon ble Patna High Court is that issuance of notice is administrative device for informing assessee about proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in language used or mere non-striking of inaccurate portion cannot by itself invalidate notice. Tribunal Benches at Mumbai and Patna being subordinate to Hon ble Bombay High Court and Patna High Court are bound to follow aforesaid view. Tribunal Benchs at Bangalore have to follow decision of Hon ble Karnataka High Court. As far as benches of Tribunal in other jurisdictions are concerned, there are two views on issue, one in favour of Assessee rendered by Hon ble Karnataka High Court in case of Manjunatha Cotton & Ginning (supra) and other of Hon ble Bombay High Court in case of Smt.Kaushalya. It is settled legal position that where two views are available on issue, view favourable to Assessee has to be followed. We therefore prefer to follow view expressed by Hon ble Karnataka High Court in case of Manjunatha Cotton & Ginning (supra). 15. We have already observed that show cause notice issued in present case u/s 274 of Act does not specify charge against assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. show cause notice u/s 274 of Act does not strike out inappropriate words. In these circumstances, we are of view that imposition of penalty cannot be sustained. plea of ld. Counsel for assessee which is based on decisions referred to in earlier part of this order has to be accepted. We therefore hold that imposition of penalty in present case cannot be sustained and same is directed to be cancelled. 6 ITA Nos. 647 & 648/Kol/2018 M/s. R. S. Chemicals, AY- 2007-08 & 2009-10 Respectfully following aforesaid order of coordinate bench of this Tribunal, we, therefore, hold that imposition of penalty and subsequently confirmed by Ld. CIT(A) in present case cannot be sustained and same is hereby deleted. Both appeals of assessee are allowed. 6. In result, both appeals of assessee are allowed. Order is pronounced in open court on 25th September, 2019. Sd/- Sd/- (Dr. A. L. Saini) (Aby. T. Varkey) Accountant Member Judicial Member Dated 25th September, 2019 Jd.(Sr.P.S.) Copy of order forwarded to 1. Appellant M/s. R. S. Chemicals, Narayani Building, 27, Brabourne Road, Kolkata-700 001. 2 Respondent ITO, Ward-36(1), Kolkata. 3. CIT(A)-10, Kolkata 4. CIT-, Kolkata. 5. DR, ITAT, Kolkata. (sent through e-mail) /True Copy, By order, Assistant Registrar R. S. Chemicals v. Income-tax Officer, Wd-36(1), Kolkata