By TIOL News Service

MUMBAI, MAY 19, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether notice issued for levying penalty u/s 271(1)(c) can be said to be untenable if such notice fails to clarify to the assessee as to which of the two charges under the said section he has to respond to? YES is the answer.

Facts of the case:

The assessee is a Company. For the relevant AY it declared a total income of Rs.86,94,668/- in a return filed on 29.9.2008, which was taken up for scrutiny and the final income was assessed at Rs.1,11,84,640/-. The assessee reported Long Term Capital Loss of Rs.18,19,34,011/- in its return. The said loss was incurred by the assessee on account of redemption of Preference shares of a concern, namely Shri Santram Finance Ltd. AO disallowed the entire Long Term Capital Loss on the ground that the transaction of redemption of Preference shares was a bogus transaction and further the AO also denied the carry forward of said loss. Subsequently, the AO held that the assessee was guilty of furnishing of inaccurate particulars of income qua the aforesaid issue within the meaning of Sec. 271(1)(c) of the Act. The AO levied penalty u/s 271(1)(c) of the Act @ 100% of the tax sought to be evaded. The CIT(A) has sustained the levy of penalty, but allowed partial relief by reducing the amount of penalty.

On appeal, the Tribunal held that,

++ penalty u/s 271(1)(c) can be levied for 'concealment of the particulars of income' and 'furnishing of inaccurate particulars of income'. Both these expressions, have different connotations, thus, it is imperative that the assessee be made aware as to which of the two is being put against him for the purpose of levy of penalty u/s 271(1)(c), so that the assessee can defend accordingly. In the present case the said notice has been issued by the AO in a standard proforma, without striking out the irrelevant clause. In other words, the notice refers to both the limbs of Sec. 271(1)(c) of the Act, namely concealment of the particulars of income as well as furnishing of inaccurate particulars of income. Quite clearly, non-striking-off of the irrelevant limb in the said notice does not convey to the assessee as to which of the two charges it has to respond. The aforesaid infirmity in the notice has been sought to be demonstrated as a reflection of non-application of mind by the AO, and in support, reference has also been made to the order of Supreme Court in the case of Dilip N. Shroff. Factually speaking, the aforesaid plea of assessee is borne out of record and having regard to the parity of reasoning laid down by theSupreme Court in the case of Dilip N. Shroff, the notice in the instant case does suffer from the vice of non-application of mind by the AO;

++ in fact, a similar proposition was also enunciated by the Karnataka High Court in the case of M/s. SSA's Emerald Meadows and against such a judgment, the Special Leave Petition filed by the Revenue has since been dismissed by the Supreme Court. Thus, considering the observations of the AO in the assessment order alongside his action of non-striking off of the irrelevant clause in the notice shows that the charge being made against the assessee qua Sec. 271(1)(c) of the Act is not firm and, therefore, the proceedings suffer from non-compliance with principles of natural justice inasmuch as the AO is himself unsure and assessee is not made aware as to which of the two limbs of Sec. 271(1)(c) of the Act he has to respond.

(See 2017-TIOL-685-ITAT-MUM)