Merely non-specifying limb the penalty in Income Tax Notice cannot lead to cancellation of Penalty: ITAT

Facts of the case, in brief, are that the assessee is an individual and co-owner of a parcel of land admeasuring acres 6.08 guntas in survey Nos. 14, 20, 21, 22 and 23 situated at Dargah Hussain Shahwali(v), Serlingampally(M), Ranga Reddy district. The assessee along with other co-owners entered into a land development agreement with M/s. Western Constructions on 03.05.2007. As per the supplementary development agreement dated 26.03.2010 the landlords were supposed to get 40% of the total built up area of 10,35,565/- sq.ft. Accordingly, capital gains will arise in the hands of the assessee on sale of individual flats. A search and survey operation u/s. 132 of I.T.Act was conducted in the group case of Sri Arakula Vinod and others on 09.05.2018. The Assessing Officer on perusal of the records and returns of income, noted that assessee failed to file his return of income for the AY 2012-13 admitting the income under the head capital gains as accrued in his hands relevant to AY 2012-13. Accordingly, notice u/s. 148 for the AY 2012-13 was issued on 26.03.2019. In response to the notice the assessee filed return of income on 03.10.2019 declaring total income of Rs.1,84,41,140/-.

The AO issued statutory notices u/s. 143(3) and 142(1) of the Act to which the AR of the assessee appeared before the AO from time to time and filed the requisite details. The AO thereafter completed the assessment u/s. 143(3) r.w.s. 147 of the I.T.Act on 09.12.2019 accepting the returned income of Rs.1,84,41,136/-.

Subsequently, the AO initiated penalty proceedings u/s. 271(1)(c) of the I.T.Act and asked the assessee to explain as to why penalty should not be levied u/s. 271(1)(c) of the I.T.Act submitted that he has neither concealed the income nor submitted inaccurate particulars of income since the assessee disclosed the income and filed the return under the provisions of section 148 of the I.T.Act and such income has been accepted.

However, the AO was not satisfied with the arguments advanced by the assessee. He noted that had the department not reopened the case of the assessee by issuing notice u/s. 148 of the I.T.Act, the assessee would not have filed the return of income. He further noted that the Joint Development Agreement (JDA) has been considered and taxed by the AO on the capital gains accrued to the assessee on the land given for development in the group case in the year of execution of the JDA. Subsequent to the capital gains accrued to the assessee as per JDA, the additional/further capital gains accrue to the assessee on the sale of individual flats to third party. Accordingly, capital gains will arise in the hands of the assessee on sale of individual flats which was computed at Rs.1,84,41,136/-. The AO accordingly held that there is a clear-cut concealment of particulars of income for the relevant assessment year. Since the assessee had not filed the return of income, it clearly falls within the ambit of provisions of section 271(1)(c) of the I.T.Act by which the assessee concealed the taxable income. He accordingly levied penalty of Rs.37,61,793/- being 100% of the tax sought to be evaded u/s. 271(1)(c) of the I.T.Act.

Contention of Assessee

The learned Counsel for the assessee strongly challenged the order of the ld.CIT(A) in sustaining the penalty levied by the Assessing Officer u/s 271(1)(c) of the Act. The ld.counsel for the assessee, at the outset, submitted that the returned income has been accepted and therefore, there is neither concealment of any particulars of income nor furnishing of inaccurate particulars thereof. Referring to the notice issued u/s. 274 r.w.s. 271(1)(c) of the I.T.Act, 1961 dated 10.12.2019, copy of which is placed at page no. 1 of the paper book, he submitted that the AO in the instant case has initiated penalty proceedings on account of concealment of particulars of income and furnishing of inaccurate particulars of such income. He submitted that there cannot be levy of penalty for both the limbs i.e. concealment of income and furnishing of inaccurate particulars of income.

Contention of Department

The ld.DR on the other hand heavily supported the order of the AO and the ld.CIT(A). He submitted that the assessee in the instant case was a non filer of return of income and only due to issue of notice u/s. 148 filed the return of income declaring total income of Rs.1,84,41,136/- which has been accepted by the AO. He submitted that had the department not initiated the reassessment proceedings, the assessee would not have declared its income, since the statutory due date for filing of the return had elapsed. Referring to the conduct of the assessee in the past also, he submitted that the assessee was also a non-filer.

ITAT’s Order

ITAT opined that merely for non-specifying in the notice as to under which limb the penalty is levied i.e., for concealment of income or furnishing inaccurate particular of income thereof, the penalty cannot be cancelled especially when the assessee who is a non- filer was put to notice which he has understood and has replied to such notice issued by the AO.

22. We have considered the rival arguments made by the both the sides, perused the orders of the AO and the ld.CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee in the instant case was a non-filer of income tax return for the impugned assessment year and on the basis of notice issued u/s. 148 of the Act, the assessee filed the return of income on 03.10.2019 declaring total income of Rs. 1,84,41,136/- which was accepted by the AO. We find subsequently the AO initiated penalty proceedings u/s. 271(1)(c) of the I.T.Act and levied penalty of Rs.37,61,793/- being 100% of the tax sought to be evaded u/s. 271(1)(c) of the I.T.Act which has been upheld by the ld.CIT(A). It is the submission of the ld.counsel for the assessee that the returned income has been accepted by the AO and therefore, there is neither concealment of income nor furnishing of inaccurate particulars of income and therefore, penalty could not have been levied u/s. 271(1)(c) of the I.T.Act. The alternate argument of the ld.counsel for the assessee is that since according to the notice issued by the AO, the assessee has concealed the particulars of income and furnished inaccurate particulars of such income, therefore, such penalty cannot be levied for both the limbs and since the AO has not levied for any particular limb as per provisions of section 271(1)(c) of the I.T.Act, therefore, such penalty so levied being not in accordance with law has to be cancelled.

23. We do not find any force in the above argument of the ld.counsel for the assessee. We find Explanation 3 to section 271(1)(c) reads as under:

“Where any person fails, without reasonable cause, to furnish within the period specified in sub-section (1) of section 153 a return of his income which he is required to furnish u/s 139 in respect of any A.Y commencing on or after 1st of April, 1989, and until the expiry of the period aforesaid, no notice has been issued to him under clause(i) of sub-section (1) of section 142 or section 148 and the Assessing Officer or the CIT(A) is satisfied that in respect of such A.Y such person has taxable income, then such person shall, for the purposes of clause (c) of this sub-section, be deemed to have concealed the particulars of his income in respect of such A.Y, notwithstanding that such person furnishes a return of his income at any time after the expiry of the period aforesaid in pursuance of a notice u/s 148”.

24. A perusal of the assessment order as well as penalty order clearly shows that the assessee was a non-filer and only on the basis of issue of notice u/s. 148 of the Act, the assessee filed the return of income declaring income of Rs.1,84,41,136/- which has been accepted by the AO. In our opinion, had the AO not issued notice u/s. 148, the assessee would not have filed the return of income, especially considering the past conduct of the assessee and therefore, it is a clear case of concealment of income as per Explanation 3 to section 271(1)(c) of the I.T. Act. Therefore, penalty in our opinion was rightly levied by the AO and sustained by the ld.CIT(A).

25. So far as the argument of the ld.cousnel for the assessee that the AO has levied penalty for both concealment of income and furnishing of inaccurate particulars of income which he could not have done and therefore, the notice being defective such penalty should be cancelled is concerned, we find the argument of the ld.counsel for the assessee ought to be rejected outright. We find the Hon’ble AP High Court in the case of CIT vs. Chandulal (supra) while deciding an identical issue at para no. 8 and 9 of the order has observed as under:-

8. We are unable to subscribe to the view that by reason of the ITO not striking out inappropriate portions of the notice issued under s. 274, the notice issued was rendered invalid. In the first place, it has to be borne in mind that the notice issued under s. 274 is not prescribed under the rules. It is a notice administratively devised for the purpose of putting the assessee in the knowledge of the fact that the ITO initiated proceedings for levy of penalty in order to enable him to show cause why penalty should not be levied. So long as the object of putting the assessee in the awareness and knowledge of the initiation of the penalty proceedings is accomplished by the issuance of a notice, the question of invalidity does not arise on account of either inappropriate language in the notice or on account of any inappropriate portions of the notice not being stuck off. There was no offence to any of the rules prescribed in as much as the notice is given to secure the assessee’s explanation to fulfil the requirement of natural justice. It is not in dispute that the assessee did not entertain any doubt in his mind when he received the notice issued by the ITO under s. 274. If the assessee was under a mistaken view about the real intent and effect of the notice issued, he could have asked the ITO to clarify whether the penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars of such income. In the present case, it is not denied that in the explanation given to the ITO in response to the notice issued under s. 274, the assessee did not raise any objection on the ground that the notice did not convey the nature of offence committed by him. No objection was also taken regarding the validity of the notice on that ground. It is, therefore, clear that the assessee was not under any misapprehension about the offence alleged against him. There was proper understanding and indeed, in the explanation filed, the assessee dealt with the reasons for contending that no penalty could be levied under s. 271(1)(c). It was not shown to us that any prejudice was caused to the assessee on account of the assesseee not being put in the knowledge of the nature of offence committed by him. The contention regarding the validity of the notice was urged only during the course of the appeal before the Tribunal and it seems to us that the explanation was only an after-thought. The assessee certainly understood the offence alleged against him and showed cause to the ITO by pointing of s. 274 would apply not only to concealment of income but also for furnishing inaccurate particulars of such income and where the offence is two-fold, there is no need on the part of the ITO to strike off any inappropriate portions. In the present case, the offence alleged against the assessee is that there is concealment of income and furnishing of inaccurate particulars of such income. It is not, therefore, necessary for the ITO to strike out any portion of the notice issued to him.

9. The principle of natural justice contained in s. 274 which requires that an assessee shall be heard before levying penalty under s. 271 is to ensure that the basic requirement of fair play in action is fulfilled. The rules of natural justice are flexible and cannot be put on any rigid formula. In order to sustain a complaint of violation of principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice has been caused to the party concerned by the procedure followed. We have already mentioned above that the assessee has not shown that any such prejudice has been caused to him. Attention may be invited in this connection to the decision of the Supreme Court in Tripathi v. State Bank of India,. We have perused the judgment of the Kerala High Court in Subramania Iyer v. Union of India [1974] 97 ITR 228, on which the assessee has relied. With great respect, we are unable to agree that the mere non-striking off of the inappropriate portions in a notice renders the notice automatically invalid unless in a further enquiry in the matter it is shown that by reason of the notice not properly conveying the gist of the offence to the assessee, prejudice is caused to him. We cannot accept as a general proposition of law that in every

26. We find following the above decision, the Hon’ble AP High court in the case of Srinivasa Pitty & sons vs CIT (supra) at para 3 of the order has observed as under:-

3. The Revenue filed an appeal before the Tribunal. The Tribunal accepted the Revenue’s contention that there was no defect in the show-cause notice. Consequently, it directed the Appellate Assistant Commissioner to consider the question regarding merits. Aggrieved by the aforesaid order, the matter has been carried to this court by the assessee. Looking at the notice under section 274 dated March 12, 1974, we are inclined to accept the assessee’s contention that the notice was defective, because the relevant portion in the notice concerning the levy of penalty for concealment of income and giving inadequate particulars of income was struck off. Fortunately, for the Revenue, however, the assessee understood the notice as one for the levy of penalty under section 271(1) (C) of the Income-tax Act. Accordingly, he sent a reply. The assessee’s reply was considered and penalty was levied. We, therefore, think that no prejudice is caused to the assessee by the defective nature of the notice as he has had full opportunity before the Income-tax Officer to set out his defence against the levy of penalty under section 271(1) (C) of the Act. In that view, we consider that the order of the Income-tax Officer levying penalty under section 271(1) (C) of the Act does not suffer from want of jurisdiction. Support for this view can be found in a decision of this court in CIT v. Chandulal .

27. Though the learned Counsel for the assessee cited a few decisions of the Hon’ble AP High Court, cancelling the penalty for not specifying in the notice as to whether such penalty is for concealment of particulars of income or furnishing of inaccurate particulars thereof, we find the Hon’ble High court in the later decisions have not considered the earlier decisions of the High Court since these were not brought to the notice of their lordships and therefore, cannot be followed especially when the earlier decisions are not reversed by the Apex Court and therefore, still holds good.

28. In this view of the matter, we are of the considered opinion that merely for non-specifying in the notice as to under which limb the penalty is levied i.e., for concealment of income or furnishing inaccurate particular of income thereof, the penalty cannot be cancelled especially when the assessee who is a non- filer was put to notice which he has understood and has replied to such notice issued by the AO. In the light of the above discussion, we uphold the order of the ld.CIT(A) in sustaining the penalty levied by the AO. The grounds raised by the assessee are accordingly dismissed.

29. In the result, the appeal filed by the assessee is dismissed.

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