Pr Commissioner Of Income Tax 4 v. Kartikeya Buildcon Pvt Ltd

$~32 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 318/2024 PR COMMISSIONER OF INCOME TAX 4 .....Appellant Through: Mr. Shlok Chandra, SSC with Ms. Madhavi Shukla, JR SC, Mr. Priya Sarkar, JR SC and Mr. Sudharshan Roy, Advocates. versus KARTIKEYA BUILDCON PVT LTD .....Respondent Through: None. CORAM:HON'BLE MR. JUSTICE YASHWANT VARMAHON'BLE MR. JUSTICE RAVINDER DUDEJA O R D E R% 03.07.2024 CM APPL. 36520/2024 (Exemption) Allowed, subject to all just exceptions. Application stands disposed of. CM APPL. 36519/2024 (104 Days Delay in Refiling) 1.This is an application filed by the appellant seeking condonation of 104 days delay in refiling the present appeal. 2.For the reasons stated in the application, the delay of 104 days in filing the appeal is condoned. 3. Application is disposed of. ITA 318/2024 1.The Principal Commissioner impugns the order dated 13 September 2023 passed by the Income Tax Appellate Tribunal [‘Tribunal’] and which has affirmed the view expressed by the Commissioner of Income Tax (Appeals) [“CIT(A)”] on the issue of levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961 [‘Act’]. The CIT(A) has essentially taken the view that in the absence of the Department having specified the particular limb of that provision, the penalty would not sustain. The said view was not interfered with by the Tribunal and which additionally observed that since the addition for the concerned Assessment Year 2008-09 was deleted by the Tribunal, the levy of penalty under Section 271(1)(c) would not sustain. 2.Although it was argued by Mr. Chandra that the order of assessment had alluded to the relevant limb of Section 271(1)(c) of the Act being invoked, we note that this Court has considered in detail the imperatives of the show cause notice itself specifying the particular limb of Section 271(1)(c) which was sought to be invoked. 3.We note that while dealing with an identical question, this Court in GE Capital US Holding Inc vs. Dy. Commissioner of Income Tax (International Taxation) Circle 1(13)(1), New Delhi & Ors. [2024:DHC:4535:-DB] has held as follows:- “22. As is evident from a reading of Section 270A(1), a person would be liable to be considered to have under-reported its income if the contingencies spoken of in clauses (a) to (g) of Section -270A(2) were attracted. In terms of Section 270A(3), the underreported income is thereafter liable to be computed in accordancewith the stipulations prescribed therein. However, the subject ofmisreporting of income is dealt with separately in accordance with-the provisions comprised in subsections (9) and (10) of Section270A. It is thus evident that both under-reporting as well asmisreporting are viewed as separate and distinct misdemeanors. 23. However, and as we read the orders of assessment which were passed, the same carry no findings which may be viewed asindicative of the contingencies spelt out in clauses (a) to (f) ofSection 270A(9) being attracted. In our considered opinion, in the absence of the AO having specified the transgression of thepetitioner and which could be shown to fall within the ambit ofsub-section (9) of Section 270A, proceedings for imposition ofpenalty could not have been mechanically commenced. 23. However, and as we read the orders of assessment which were passed, the same carry no findings which may be viewed asindicative of the contingencies spelt out in clauses (a) to (f) ofSection 270A(9) being attracted. In our considered opinion, in the absence of the AO having specified the transgression of thepetitioner and which could be shown to fall within the ambit ofsub-section (9) of Section 270A, proceedings for imposition ofpenalty could not have been mechanically commenced. 24. Notwithstanding the above, we note that the SCNs’ which came to be issued for commencement of action under Section 270A were themselves vague and unclear. This since they failed to specify whether the petitioner was being charged with under-reporting or misreporting of income. The aforesaid aspect assumesadded significance bearing in mind the indisputable position that aprayer for immunity could have been denied in terms of Section270AA(3) only if it were a case of misreporting. The SCNs’ failedto indicate the specific charge which was sought to be laid againstthe petitioner. This, since they sought to invoke both sub-sections-(2) as well as subsection (9) of Section 270A. There was thus anabject failure on the part of the respondents to indicate the branchof Section 270A which was sought to be invoked. The SCNs’ would thus clearly fall foul of the principles which had beenenunciated in Minu Bakshi and Schneider Electric. 25. Turning then to Section 270AA, we find that sub-section (3) of that provision requires the AO to confer consideration on the following three aspects: - (a) Whether the conditions precedent specified in sub-section (1) of Section 270AA have been complied with? (b) The period for filing an appeal under Section 249(2)(b) having passed. having passed. (c) The subject matter of penalty not falling within the ambit of Section 270A (9). Section 270A (9). 26. Since an application for grant of immunity cannot possibly be pursued unless the assessee complies with clauses (a) and (b) of Section 270AA (1), the observation of the respondent that mere payment of demand would not lead to a prayer for immunity being pursued is wholly unsustainable. xxxx xxxx xxxx 29.Since there was a clear and apparent failure on the part of therespondents to base the impugned proceedings on a contraventionrelatable to Section 270A (9), the application for immunity could not have been rejected. As was noticed hereinabove, neither theAO nor the impugned SCNs’ laid an allegation which could be saidto be reflective of the petitioner having been found to have violatedSection 270 A (9). In fact, the notices themselves sought to take awholly ambivalent stance while alleging that the petitioner hadindulged in “underreporting/misreporting”. We thus have no hesitation in holding that the impugned SCNs’ are renderedunsustainable on this short ground alone. 30. The importance of clarity and comprehensiveness which must imbue show cause notices came to be duly emphasised by us in our decision in Puri Constructions (P) Ltd. Vs. CIT:- “78. The requisites of a valid show-cause notice were lucidly explained by the Supreme Court in Gorkha Security Services v. Government (NCT of Delhi) as under: ― “Contents of the show-cause notice hesitation in holding that the impugned SCNs’ are renderedunsustainable on this short ground alone. 30. The importance of clarity and comprehensiveness which must imbue show cause notices came to be duly emphasised by us in our decision in Puri Constructions (P) Ltd. Vs. CIT:- “78. The requisites of a valid show-cause notice were lucidly explained by the Supreme Court in Gorkha Security Services v. Government (NCT of Delhi) as under: ― “Contents of the show-cause notice 21. The central issue, however, pertains to therequirement of stating the action which is proposed to be taken. The fundamental purpose behind the servingof show-cause notice is to make the noticee understandthe precise case set up against him which he has tomeet. This would require the statement of imputationsdetailing out the alleged breaches and defaults he hascommitted, so that he gets an opportunity to rebut thesame. Another requirement, according to us, is thenature of action which is proposed to be taken for such abreach. That should also be stated so that the noticee isable to point out that proposed action is not warranted inthe given case, even if the defaults/breaches complainedof are not satisfactorily explained. When it comes toblacklisting, this requirement becomes all the moreimperative, having regard to the fact that it is harshestpossible action. 79. Similar observations find place in UMC Technologies Pvt. Ltd. v. Food Corporation of India: “13. At the outset, it must be noted that it is the first principle of civilised jurisprudence that a person against whom any action is sought to be taken or whose right or interests are being affected should be given a reasonable opportunity to defend himself. The basic principle of natural justice is that before adjudication starts, the authority concerned should give to the affected party a notice of the case against him so that he can defend himself. Such notice should be adequate and the grounds necessitating action and the penalty/action proposed should be mentioned specifically and unambiguously. An order travelling beyond the bounds of notice is impermissible and without jurisdiction to that extent. This court in Nasir Ahmad v. Custodian General, Evacuee Property- has held that it is essential for the notice to specify the particular grounds on the basis of which an action is proposed to be taken so as to enable the noticee to answer the case against him. If these conditions are not satisfied, the person cannot be said to have been granted any reasonable opportunity of being heard.” 80. The reliance which is placed by Mr. Hossain on the decisions in Isha Beevi v. TRO and CIT v. Rajinder Nath is clearly misconceived. We note that in Isha Beevi, the writ petitioner had sought the issuance of a writ of prohibition seeking quashing of notices that were impugned. It was in the aforesaid context and the prerequisites of a writ of prohibition that the Supreme Court observed that the mere mentioning of a wrong provision would not justify the issuance of that prerogative writ and more so where the writ petitioner had failed to establish a total absence of jurisdiction.\ xxxx xxxx xxxx 83. The principle of a power otherwise inhering or existing and not being impacted by the mere mention of a wrong provision is one which we apply to ratify, save and uphold a decision which is otherwise found to be valid and sustainable. We would be wary of either readily or unhesitatingly adopting or invoking that precept at the stage of a show-cause notice especially where the noticee is left to fathom which of the more than fifty variable obligations it is alleged to have violated.” xxxx xxxx xxxx 83. The principle of a power otherwise inhering or existing and not being impacted by the mere mention of a wrong provision is one which we apply to ratify, save and uphold a decision which is otherwise found to be valid and sustainable. We would be wary of either readily or unhesitatingly adopting or invoking that precept at the stage of a show-cause notice especially where the noticee is left to fathom which of the more than fifty variable obligations it is alleged to have violated.” 31. We are further constrained to observe that even the assessment orders fail to base the direction for initiation of proceedings under Section 270A on any considered finding of the conduct of the petitioner being liable to be placed within the sweep of sub-section (9) of that provision. The order of assessment as well as the SCNs’ clearly fail to meet the test of ―”specific limb” as propounded in Minu Bakshi and Schneider Electric. A case of misreporting, in anycase, cannot possibly be said to have been made out bearing inmind the fact that the petitioner had questioned the taxability ofincome asserting that the same would not constitute royalty. Theissue as raised was based on an understanding of the legal regimewhich prevailed. The contentions addressed on that score canneither be said to be baseless nor specious. In fact, that stand astaken by the petitioner was based on a judgment rendered by thejurisdictional High Court which was indisputably binding upon theAO who, for reasons unfathomable, thought it fit to base itsdecision on a judgment rendered by the Karnataka High Court. The AO, it would be pertinent to recall, chose to distinguish the judgment of the Supreme Court in Engineering Analysis itself. In any event, the position which the petitioner sought to assert and canvass clearly stood redeemed in light of the decision rendered by the Supreme Court. 32.Undisputedly, the petitioner had duly complied with the-statutory preconditions set out in Section 270AA(1). It was thusincumbent upon the respondent to have come to the firmconclusion that the case of the petitioner fell in the category ofmisreporting since that alone would have warranted a rejection ofits application for immunity.On an overall conspectus of the aforesaid, we come to the firm conclusion that the impugned orders would not sustain.” 4.Consequently, and following the aforesaid decision, we find no merit in the instant appeal which shall stand dismissed. YASHWANT VARMA, J. RAVINDER DUDEJA, J. JULY 3, 2024/vp