Itl5.2016(J v. Itl5.2016(J

IN THE HIGH COURT OF JUDICATURE AT BOMBAYNAGPUR BENCH, NAGPUR. INCOME TAX APPEAL NO.5 OF 2016 Appellant:M/s. Ganga Iron & Steel Trading Co.,Bagadganj, Nagpur. ...V E R S U S… Respondent :The Commissioner of Income Tax,Central, Nagpur. -------------------------------------------------------------------------------------------------------------------- Shri K.P.Dewani, Advocate for appellant.Shri S.N.Bhattad, Advocate for respondent. –------------------------------------------------------------------------------------------------------------------ CORAM: A.S.CHANDURKAR and G.A.SANAP, JJ.ARGUMENTS WERE HEARD ON : 24.11.2021JUDGMENT IS PRONOUNCED ON : 22.12.2021 JUDGMENT(Per A.S.CHANDURKAR, J.) When this Income Tax Appeal was admitted the following sub-stantial questions of law were framed : (I)Whether the Income Tax Appellate Tribunal, Nag-pur was justified in law in upholding the levy of penaltyunder Section 271(1)(c) of the Income Tax Act, 1961 byholding that the assessee has concealed the income ofRs.96 Lakhs ? (II)Whether the Income Tax Appellate Tribunal, Nag-pur was justified in law in upholding the levy of penaltyunder Section 271 (1) (c) of the Income Tax Act, 1961when the assessee had offered income of Rs.96 Lakhs in order to buy peace and avoid litigation even though nosuch income is assessable at the hands of assessee ? 2.After hearing the learned counsel for the parties for some time anadditional substantial question of law was framed on 23.11.2021 which readsas under: (III)“Whether the show cause notice dated 12.02.2008issued to the appellant without indicating that there wasconcealment of particulars of income or furnishing ofincorrect particulars of such income would vitiate thepenalty proceedings or whether such notice as issued canbe held to be valid ?” 3.The learned counsel for the parties have been heard on all thethree substantial questions of law as framed. 4.Shri K.P.Dewani, learned counsel for the appellant - Assesseeinter-alia submits that the Assessing Officer on 31.12.2007 in proceedingsunder Section 143 (3) of the Income Tax Act, 1961 (for short, ‘the said Act’)observed that an amount of Rs.96,00,000/- towards unexplained cash wastaken into consideration by the Assessing Officer and on the premise that theAssessee had concealed income, proposed imposition of penalty under Section271(1)(c) of the said Act. Pursuant thereto a show cause notice dated12.02.2008 was issued by the Assistant Commissioner of Income Tax as to 3.The learned counsel for the parties have been heard on all thethree substantial questions of law as framed. 4.Shri K.P.Dewani, learned counsel for the appellant - Assesseeinter-alia submits that the Assessing Officer on 31.12.2007 in proceedingsunder Section 143 (3) of the Income Tax Act, 1961 (for short, ‘the said Act’)observed that an amount of Rs.96,00,000/- towards unexplained cash wastaken into consideration by the Assessing Officer and on the premise that theAssessee had concealed income, proposed imposition of penalty under Section271(1)(c) of the said Act. Pursuant thereto a show cause notice dated12.02.2008 was issued by the Assistant Commissioner of Income Tax as to why penalty under Section 271(1)(c) of the said Act should not be imposed.It is submitted by the learned counsel in the context of substantial question oflaw no. III that since the show cause notice refers to concealment ofparticulars of income or furnishing inaccurate particulars of such income, thesaid show cause notice being vague in nature indicates non-application ofmind on the part of the Authority issuing the same. Placing reliance on thejudgment of the Full Bench in Mohd. Farhan A. Shaikh vs. DeputyCommissioner of Income Tax, Central Circle 1, Belgaum 2021 (434) ITR 1(Bombay), it was submitted that such defect in the show cause notice of notmentioning the basis for imposition of penalty resulted in vitiating the penaltyproceedings. It was his submission that under Section 271(1)(c) of the saidAct penalty was contemplated either for concealment of income or forfurnishing incorrect particulars of the same or both. It was necessary for theAuthority issuing the show cause notice to specifically indicate as to whetherthere was any concealment of particulars or furnishing of incorrect details onthe part of the Assessee or both. In that regard the learned counsel referred tothe decisions in Income Tax Appeal No.796 of 2016 with connected appeal(The Pr. Commissioner of Income Tax-17 Vs. Hafeez S. Contractor) decided on11.12.2018, Commissioner of Income Tax vs. Samson Pernchery (2017) 98CCH 0039 (Mum.), Principal Commissioner of Income Tax (Central) vs. GoaCoastal Resorts and Recreation Pvt. Ltd. (2019) 106 CCH 0183 (Mum.) and in Tax Appeal Nos.70/2018 with connected appeals (The PrincipalCommissioner of Income Tax, Panji vs New Era Sova Mine) decided on18.06.2019. It was his contention that the law as laid down by the Hon’bleSupreme Court in Dilip N.Shroff Vs. Joint Commissioner of Income-Tax andanr. (2007) 291 ITR 519 (SC) as clarified by the Hon’ble Supreme Court inthe decision in Commissioner of Income Tax vs. Reliance Petroproducts (P)Ltd. (2010) 322 ITR 0158, it was necessary for the show cause notice to bespecific and clear as to whether there was any concealment of income orfurnishing of inaccurate particulars. It was submitted that though theaforesaid contention was not raised before the statutory authorities since itwas a pure question of law based on undisputed facts, it was permissible toraise the same even in appeal under Section 260A of the said Act. In thatregard the learned counsel placed reliance on the decision of this Court inVentura Textiles Ltd.vs. Commissioner of Income Tax, Mumbai City-II (2020)426 ITR 478 (Bombay). On substantial questions at Serial Nos. I and II it wassubmitted that there being no concealment of income by the Assessee and theamount of Rs.96 lakhs having been offered to buy peace, the impugned orderwas liable to be set aside. 5.Shri S.N.Bhattad, learned counsel for the Revenue opposed theaforesaid submissions. He submitted that while issuing the show cause notice 5.Shri S.N.Bhattad, learned counsel for the Revenue opposed theaforesaid submissions. He submitted that while issuing the show cause notice the Assistant Commissioner of Income Tax had recorded his satisfaction asregards the necessity of initiating the penalty proceedings against theAssessee. Such a conclusion having been recorded by the AssistantCommissioner of Income Tax, the show cause notice could not be faulted on atechnical ground that a specific assertion as regards concealment ofparticular income/furnishing of incorrect income had not been specifiedtherein. Referring to the order passed by the Assistant Commissioner ofIncome Tax dated 31.12.2007 he submitted that the satisfaction recorded waswith regard to both the aforesaid aspects as could also be gathered from theorder dated 10.03.2010 passed under Section 271(1)(c) of the said Act.Referring to the judgment of the Full Bench in Mohd. Farhan (supra) heinvited attention to the contentions of paragraph 160 (e), (f) and (s) to urgethat the show cause notice could not be faulted on the basis of the contentsurged by the learned counsel for the Assessee. He then referred to the judg-ment of the Hon’ble Supreme Court in MAK Data Private Limited vs.Commissioner of Income Tax-II (2014) 1 SCC 674, Commissioner of IncomeTax, Delhi vs Atul Mohan Bindal (2009) 9 SCC 589 and Union of India andothers vs. Dharmendra Textile Processors and Others (2008) 13 SCC 369 tosubstantiate his contentions. According to him, since the decision in DilipShroff (supra) had been held as not laying down the correct law inDharmendra Textile Processors and others (supra) no reliance could be placed on the decision in Dilip Shroff (supra). It was thus submitted that since it wasfound that the Assessee had concealed income on account of which penaltyproceedings had been initiated, there was no reason to interfere with theorder passed by the Tribunal. 6.We have heard the learned counsel for the parties at length andwe have given due consideration to their respective submissions. At theoutset, we may refer the judgment of this Court in Ventura Textiles Ltd.(supra) that was relied upon by the learned counsel for the Assessee whileurging that even if the question as regards validity of the show cause noticewas not raised before the Tribunal, the same could be raised in the presentappeal under Section 260A of the said Act. This Court in the aforesaiddecision after referring to earlier precedents has held that an appeal underSection 260A of the said Act can be entertained by the High Court on the issueof jurisdiction even if that issue was not raised before the Tribunal. The factsof the case indicate that the question with regard to validity of the show causenotice issued under Section 271(1)(c) of the said Act was permitted to beraised in appeal under Section 260A of the said Act for the first time since thesame was a jurisdictional issue going to the root of the lis. In view ofaforesaid decision we do not find any reason not to consider a similar jurisdic-tional issue as raised by the Assessee in the present appeal. 7.Since substantial question of law no. III raises a jurisdictionalissue going to the root of the proceedings initiated under Section 271(1)(c) ofthe said Act we propose to answer that question first for the reason that if it isfound that the show cause notice was vitiated on account of failure toexpressly indicate as to whether there was any concealment of particulars ofincome of the Assessee or failure to furnish inaccurate particulars of income orboth, answer to the other two substantial questions would be renderedacademic. .In the present case show cause notice dated 12.02.2008 issued to the Assessee under Section 271(1) (c) of the said act reads as under: “Whereas in the course of proceedings before me for theAY 2006-07 it appears that you have concealed the partic-ulars of your income or furnished inaccurate particulars ofsuch income.” .In the present case show cause notice dated 12.02.2008 issued to the Assessee under Section 271(1) (c) of the said act reads as under: “Whereas in the course of proceedings before me for theAY 2006-07 it appears that you have concealed the partic-ulars of your income or furnished inaccurate particulars ofsuch income.” (other contents of the notice are not relevant for the present purpose) The aforesaid notice thus indicates that according to the AssistantCommissioner of Income Tax the Assessee was called upon to show cause whypenalty under Section 271 of the said Act should not be imposed as “theAssessee had concealed the particulars of his income or furnished inaccurateparticulars of such income”. 8.We may at the outset refer to the judgment of the Full Bench ofthis Court in Mohd. Farhan (supra) wherein this precise question was considered and answered. The said question reads as under: 1. If the assessment order clearly records satisfaction forimposing penalty on one or the other, or both groundsmentioned in Section 271(1)(c), does a mere defect inthe notice-not striking off the irrelevant matter-vitiatethe penalty proceedings? 9.After considering various decisions of the Hon’ble Supreme Court and of this Court including the decision in Dilip Shroff (supra) the Full Benchanswered the aforesaid question as under: “181. It does. The primary burden lies on the Revenue.In the assessment proceedings, it forms an opinion,prima facie or otherwise, to launch penalty proceedingsagainst the assessee. But that translates into action onlythrough the statutory notice under Section 271(1)(c),read with Section 274 of the IT Act. True, the assess-ment proceedings form the basis for the penalty pro-ceedings, but they are not composite proceedings todraw strength from each other. Nor can each cure theother’s defect. A penalty proceeding is a corollary; nev-ertheless, it must stand on its own. These proceedingsculminate under a different statutory scheme thatremains distinct from the assessment proceedings.Therefore, the assessee must be informed of the groundsof the penalty proceedings only through statutory notice.An omnibus notice suffers from the vice of vagueness. 182. More particularly, a penal provision, even withcivil consequences, must be construed strictly. Andambiguity, if any, must be resolved in the affectedassessee’s favour. 183. Therefore, we answer the first question to theeffect that Goa Dourado Promotions and other cases have adopted an approach more in consonance with thestatutory scheme. That means we must hold thatKaushalya does not lay down the correct proposition oflaw.” It is thus clear from the law as laid down that even if there was an order recording satisfaction for imposing penalty on one or the other, or onboth grounds as mentioned in Section 271(1)(c) of the said Act, if the showcause notice suffers from the vice of vagueness the same would vitiate suchnotice. 10.We find that the law as laid down by the Full Bench applies on allfours to the facts of the present case as in the show cause notice dated12.02.2008, the Assistant Commissioner of Income Tax is not clear as towhether there was concealment of particulars of income or that the Assesseehad furnished inaccurate particulars of income. We therefore find thatissuance of such show cause notice without specifying as to whether theAssessee had concealed particulars of his income or had furnished inaccurateparticulars of the same has resulted in vitiating the show cause notice. Heavy reliance was placed by the learned counsel for the Revenueon the decision in Mak Data Private Limited (supra) to urge that the penaltycontemplated by Section 271 (1) (c) of the said Act was in the nature of civilliability and mens rea was not essential therein. The decision in Dilip Shroff(supra) having been held as not laying down good law in Dharmendra Textile Heavy reliance was placed by the learned counsel for the Revenueon the decision in Mak Data Private Limited (supra) to urge that the penaltycontemplated by Section 271 (1) (c) of the said Act was in the nature of civilliability and mens rea was not essential therein. The decision in Dilip Shroff(supra) having been held as not laying down good law in Dharmendra Textile Processors Ltd. (supra), it was submitted that the show cause notice issued inthe present proceedings was liable to be upheld. It may be noted that all thedecisions relied upon by the learned counsel for the Revenue were consideredby the Full Bench while answering the issues referred to it on reference. TheFull Bench having considered these decisions and having answered thequestion as regards defect in the notice under Section 271(1)(c) of the saidAct resulting in vitiating the penalty proceedings, we find ourselves bound bythe answers given by the Full Bench. It would not be permissible for us todisregard this aspect and take a different view of the matter. Accordingly substantial question of law no. III is answered byholding that since the show cause notice dated 12.02.2008 does not indicatewhether there was concealment of particulars of income or furnishingof incorrect particulars of such income, the same would vitiate the penaltyproceedings. 11.Since it has been found that the show cause notice dated12.02.2008 that was issued to the Assessee was vague and the penalty pro-ceedings initiated on that basis were vitiated, it would not be necessary toanswer substantial questions of law as framed at serial nos. I and II. This isfor the reason that the said substantial questions pertain to the merits of theadjudication of the proceedings under Section 271(1)(c) of the said Act. Onceit is found that the show cause notice dated 12.02.2008 issued to the Assessee was not in accordance with law, the orders passed thereon would automaticcease to operate. 12.In view of the answer given to the substantial question of lawno.III, the impugned order passed by the Tribunal in I.T.(SS)A.No.05/Nag/2011 dated 10.07.2015 is set aside. Income Tax Appeal No.5/2016 is allowedwith no order as to costs. (G.A.SANAP, J.) (A.S.CHANDURKAR, J.) Andurkar..