Principal Commissioner Of Income Tax 1, Coimbatore v. Shri.r.elangovan

In the High Court of Judicature at Madras Dated : 30.3.2021 Coram : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Ms.Justice R.N.MANJULATax Case Appeal Nos.770 & 771 of 2018& CMP.No.18581 of 2018 Principal Commissioner of Income Tax 1, Coimbatore ..Appellant in both Cases VsShri.R.Elangovan...Respondent in both cases APPEALS under Section 260A of the Income Tax Act, 1961against the common order dated 05.4.2018 made respectively inITA.No.1199/ Chny/2017 and C.O.No.75/Chny/2017 on the file ofthe Income Tax Appellate Tribunal, Madras 'A' Bench for theassessment year 2013-14 and against the order of theCommissioner of Income Tax (Appeals) 18, Chennai-34, dated23.01.2017, made in I.T.A.No.1125/15-16, and against the orderof the Assistant Commissioner of Income Tax, Central Circle-I,Coimbatore-18, dated 03.02.2016 made in AADPE1841Q/CC-1/CBE/2015-16, and against the order of the Deputy Commissionerof Income Tax, Central Circle-1 Coimbatore, dated 13.08.2014made in PAN/GIR No. . For Appellant : Mr.T.R.Senthilkumar, SSC assisted by Ms.K.G.Usharani, JSC For Respondent : Mr.N.V.Narayanan for Mr.N.V.BalajiCOMMON JUDGMENT(Judgment was delivered by T.S.Sivagnanam,J) We have heard Mr.T.R.Senthilkumar, learned Senior StandingCounsel assisted by Ms.K.G.Usharani, learned Junior StandingCounsel appearing for the appellant – Revenue andMr.N.V.Narayanan, learned counsel appearing for the respondent. https://hcservices.ecourts.gov.in/hcservices/ 2. These appeals, filed by the Revenue under Section 260A ofthe Income Tax Act, 1961 (for short, the Act) are directedagainst the common order dated 05.4.2018 made respectively inITA.No.1199/ Chny/2017 and C.O.No.75/Chny/2017 on the file ofthe Income Tax Appellate Tribunal, Chennai 'A' Bench (forbrevity, the Tribunal) for the assessment year 2013-14.3. The Revenue has filed these appeals by raising thefollowing substantial questions of law :“i. Whether the Tribunal was right byholding the notice under Section 274 readwith Section 271AAB as not valid when theassessee himself has comprehended thecontents of the notice and filed replies tothe said notice ? ii. Whether the Appellate Tribunal wascorrect in holding that the notice underSection 274 read with Section 271AAB of theAct was not valid by quoting case lawsrelated to Section 271(1)(c) of the IT Act,by ignoring the fact that no ambiguousprovisions are present in Section 271AAB asavailable in Section 271(1)(c)? iii. Whether the Tribunal erred in notapplying the provisions of Section 292BB tothe penalty levied when the contents of thegoverning section namely Section 271AAB andthe assessment order passed under Section153A read with Section 143(3) discuss onlyundisclosed income of the assessee ?iv. Whether the Tribunal is right inruling that the case of Manjunatha Cottonand Ginning Factory (KAR) to the facts ofthe case of the assessee, which are notidentical? andv. Whether, on the facts andcircumstances and in law, the Tribunal haserred in not applying the ruling in the caseof PCIT Vs. Sandeep Chandak [(2018) 93Taxmann.com 405 (All.)] which is moreidentical to the issues of the assessee'scase, which on assessee's SLP, the Hon'bleApex Court has dismissed is reported in(2018) 93 Taxmann.com 406 (SC)?” 4. The short issue, which falls for consideration in theseappeals, is as to whether the Tribunal was right in vacating thepenalty imposed on the assessee under Section 271AAB of the Act. https://hcservices.ecourts.gov.in/hcservices/ 4. The short issue, which falls for consideration in theseappeals, is as to whether the Tribunal was right in vacating thepenalty imposed on the assessee under Section 271AAB of the Act. https://hcservices.ecourts.gov.in/hcservices/ 5. Mr.T.R.Senthilkumar, learned Senior Standing Counselappearing for the Revenue has elaborately referred to the datesand events and pointed out that the due date for the assessee tofile the return of income for the assessment year underconsideration namely 2013-14, the year, during which, the searchand seizure operations were conducted, was 30.9.2013. Since noreturn was filed by the assessee on or before the due date, theAssessing Officer issued the notice under Section 142(1) of theAct on 09.12.2013. However, the assessee did not file the returnof income beyond the specified date, which means due date offurnishing of return of income under Sub-Section (1) of Section139 of the Act or the date, on which, the period specified inthe notice issued under Section 153A of the Act for furnishingthe return of income expires, as the case may be. 6. It is not clear as to on what date, the notice wasreceived by the assessee and as to what was the time granted tothe assessee by the Assessing Officer to file his return ofincome pursuant to the notice dated 09.12.2013. 7. Be that as it may, the regular assessment under Section143(3) of the Act was completed on 13.8.2014, in which, it hasbeen mentioned that penalty proceedings under Section 271AAB ofthe Act would be initiated separately. Pursuant to that, anotice was issued to the assessee, for which, the assessee filedhis objections. The first and foremost objection was that thenotice was vague and that it did not specify as to under whichlimb of the said provision, the Assessing Officer proposed totake action. The assessee also touched upon the merits of thecase and sought to demonstrate as to how the penalty was notleviable. 8. The Assessing Officer did not agree with the stand takenby the assessee and held that the notice was clear since, in thenotice, it had been stated that it was issued under Section 274read with Section 271AAB of the Act and that there was nothingvague in it. With regard to the merits of the case, theAssessing Officer did not agree with the same and referred tocertain portions of the assessment order and ultimately imposedpenalty at 30% in terms of Clause (c) to Sub-Section (1) ofSection 271AAB of the Act vide order dated 03.2.2016. 9. Aggrieved by that, the assessee filed an appeal before theCommissioner of Income Tax (Appeals)-18, Chennai-34 [for short,the CIT(A)]. The first ground raised by the assessee before theCIT(A) was that the penalty proceedings themselves were withoutjurisdiction since there were gross infirmities in the noticewhile initiating penalty proceedings and that this would vitiatethe entire order. The assessee also made submissions on themerits of the case. The CIT(A) chose to proceed further on the https://hcservices.ecourts.gov.in/hcservices/ merits of the case and found that the Assessing Officer oughtnot to have imposed penalty at 30% and ought to have restrictedto 10%. 10. Aggrieved by the order passed by the CIT(A) dated23.1.2017, the Revenue filed an appeal before the Tribunal. Theassessee filed a cross objection reiterating their stand thatthe notice was vague and consequently, the entire proceedingsstood vitiated. The Revenue sought to sustain the order dated03.2.2016 passed by the Assessing Officer. Ultimately, theTribunal, by the impugned order, dismissed the appeal filed bythe Revenue and allowed the cross objection filed by theassessee. Thus, the Revenue is before us by way of these appeals. https://hcservices.ecourts.gov.in/hcservices/ merits of the case and found that the Assessing Officer oughtnot to have imposed penalty at 30% and ought to have restrictedto 10%. 10. Aggrieved by the order passed by the CIT(A) dated23.1.2017, the Revenue filed an appeal before the Tribunal. Theassessee filed a cross objection reiterating their stand thatthe notice was vague and consequently, the entire proceedingsstood vitiated. The Revenue sought to sustain the order dated03.2.2016 passed by the Assessing Officer. Ultimately, theTribunal, by the impugned order, dismissed the appeal filed bythe Revenue and allowed the cross objection filed by theassessee. Thus, the Revenue is before us by way of these appeals. 11. The argument of Mr.T.R.Senthilkumar, learned SeniorStanding Counsel appearing for the Revenue is that the noticeissued by the Assessing Officer while imposing penalty clearlystated that it was a notice issued under Section 274 read withSection 271AAB of the Act. Therefore, the assessee was awarethat he had to face penalty proceedings initiated under Section271AAB of the Act. That apart, the assessee submitted tworeplies and was also heard in person and thereafter penalty wasimposed. Hence, it is submitted that the order passed by theTribunal setting aside the penalty in its entirety is notsustainable. The learned Senior Standing Counsel has alsoreferred to Sections 274 and 275 of the Act. 12. In support of his contention, the learned Senior StandingCounsel has placed reliance on the decision of the AllahabadHigh Court in the case of PCIT Vs. Sandeep Chandak [reported in(2018) 93 Taxmann.com 405]. 13. Per contra, Mr.N.V.Narayanan, learned counselappearing for the respondent – assessee would submit that thenotice issued prior to initiation of penalty proceedings did notspecify as to under which limb of Section 271AAB of the Act, theAssessing Officer proposed to levy penalty, that this defectgoes to the root of the matter and vitiates the entireproceedings and that the Tribunal was right in allowing theassessee's cross objection. In support of his contention, thelearned counsel for the assessee has placed reliance on thedecisions of the Karnataka High Court in the case of CIT Vs.Manjunatha Cotton and Ginning Factory [reported in (2013) 359ITR 565] and in the case of CIT Vs. SSA's Emerald Meadows[(2016) 73 Taxmann. Com 241] and also the decision of thisCourt, to which, one of us (TSSJ) was a party, in the case ofBabuji Jacob Vs. ITO, Non Corporate Ward 1(2), Chennai[reported in (2021) 124 Taxmann.com 363]. 14. In our considered view, the Tribunal is fully right invacating the penalty on the ground that the notice wasdefective. The provisions of the Act have clearly laid down theprocedure to be followed and adhered to while imposing thepenalty. The proposal for such penalty proceedings wasseparately initiated upon completion of assessment and there maybe cases where the assessee would not even contest the order ofassessment. But, that would not preclude the assessee fromchallenging the penalty proceedings, as penalty proceedings areindependent and the procedure required to be followed cannot bedispensed with. 14. In our considered view, the Tribunal is fully right invacating the penalty on the ground that the notice wasdefective. The provisions of the Act have clearly laid down theprocedure to be followed and adhered to while imposing thepenalty. The proposal for such penalty proceedings wasseparately initiated upon completion of assessment and there maybe cases where the assessee would not even contest the order ofassessment. But, that would not preclude the assessee fromchallenging the penalty proceedings, as penalty proceedings areindependent and the procedure required to be followed cannot bedispensed with. 15. As rightly pointed out by the learned counsel appearingfor the assessee, Section 271AAB of the Act, which deals withpenalty consists of three contingencies. Therefore, theAssessing Officer should point out to the assessee as to underwhich of the three clauses, he chooses to proceed against theassessee so as to enable the assessee to give an effectivereply. Since the same has not been mentioned, the assessee hasbeen denied reasonable opportunity to put forth theirsubmissions. The Tribunal, in paragraph 5 of the impugned order,has verbatim reproduced the penalty notice and we find that thenotice is absolutely vague and none of the irrelevant portionshad been struck off nor the relevant portions had been marked orindicated. Hence, the Tribunal is right in observing that thepenalty could not have been levied based on such defectivenotice and more particularly, when the assessee has beenstrenuously canvassing the jurisdictional issue from theinception. 16. In so far as the decision of the Allahabad High Court in thecase of Sandeep Chandak is concerned, the factual position isslightly different. This decision is for the principle thatwhere the assessee, in the course of search, makes a statement,in which, he admits the undisclosed income and specifies themanner, in which, such income has been derived, then theprovisions of Section 271AAB of the Act would automatically getattracted. There can be no quarrel over this proposition. But,once the provisions get attracted, it is incumbent on the partof the Assessing Officer to specify as to under which clause inSection 271AAB(1) of the Act, he intends to proceed against theassessee. In the instant case, in the absence of such materialin the penalty notice, it has to be held that the notice isdefective. 17. The decisions of the Karnataka High Court in the cases ofManjunatha Cotton and Ginning Factory and SSA's Emerald Meadowsand the decision of this Court in the case of Babuji Jacobclearly support our above conclusion. For all the above reasons, we find no grounds to interfere with the common order passed bythe Tribunal. 18. Accordingly, the above tax case appeals are dismissedconfirming the common impugned order passed by the Tribunal. Nocosts. Consequently, the connected CMP is also dismissed. Sd/-Assistant Registrar //True copy//Sub Assistant RegistrarRSTo1.The Income Tax Appellate Tribunal, Chennai 'A' Bench, Chennai.2. The Commissioner of Income Tax (Appeals) 18, Chennai-18.3. The Assistant Commissioner of Income Tax, Central Circle-I, Coimbatore-18.4. The Deputy Commissioner of Income Tax, Central Circle -I, Coimbatore. +1cc to Mr.T.R.Senthilkumar, Advocate SR.No.20958+1cc to Mr.N.V.Balaji, Advocate SR.No.21536 TCA.Nos.770 & 771 of 2018and CMP.No.18581 of 2018 BR(CO)GMY(23/06/2021)