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Penalty proceedings are valid even if notice u/s 274 erroneously charges assessee with furnishing inaccurate particulars of income where such assessee is guilty of concealment of income & fails to refute such charges: ITAT

2019-TIOL-1661-ITAT-AMRITSAR

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘SMC’ AMRITSAR

ITA No. 594/Asr/2014
Assessment Year: 1997-98

H K GANDOTRA
R/O 733, PREM NAGAR, NEW PLOTS, JAMMU
(PRESENTLY, F-2555, ANSAL PALAM VIHAR, GURGAON)
PAN NO:ACBPG1745P

Vs

INCOME TAX OFFICER
WARD-2(1), JAMMU

Sanjay Arora, AM

Date of Hearing: April 02, 2019
Date of Decision: June 28, 2019

Appellant Rep by: Shri P N Arora, Adv.
Respondent Rep by: Shri Charan Dass, DR

Income Tax – Sections 271(1)(c) & 274.

Keywords: Concealment of income – Furnishing inaccurate particulars of income – Jurisdictional defect – Notice of Penalty.

Assessee, an individual, filed his return on the basis of a search at his residence, as well as at the house belonging to his Uncle, Shri Kunj Lal, by the State Vigilance Department. In such search, the assessee being an employee of the Government of Jammu & Kashmir, found to had assets worth Rs. 27.02 lacs, i.e., disproportionate to his known sources of income. After confronting the assessee with the evidences in its’ possession, i.e., in respect of expenditure incurred (being in the main on the marriage of his daughter) and investment made, by the assessee, seeking his explanation as to the source thereof, the assessment was made by the AO at Rs. 17,23,262 vide order u/s 143(3) r/w/s 147. Penalty preceding u/s 271(1)(c) were also initiated.

The assessment was carried in appeal successively before the CIT(A) and the Tribunal. The assessee was, however, unsuccessful. Apart from that, an addition for Rs. 8.76 lacs toward investment on the construction of a residential house, under construction at the time of search, belonging to his brother-in-law, a driver with the State Government (of J&K), which addition was though made protectively. Proceedings u/s 271(1)(c) were accordingly proceeded with, and after considering the assessee’s explanation/s, not found tenable, penalty levied for concealment of particulars of income, on the balance income brought to tax in assessment (i.e., Rs. 7,24,672), at the minimum rate of 100% of the tax thereon, i.e., Rs.2,62,899. Again, CIT(A) upheld penalty. Therefore, being aggrieved, assessee was on second appeal before the Tribunal.

Tribunal held that,

Whether when assessee is well aware of the charge of ‘concealment of income’ against him and abysmally fails to explain the same, merely because notice u/s 274 erroneously explain such charge as ‘furnishing inaccurate particulars of income’, same will not invalidate penalty proceedings – YES: ITAT

Whether such defect in the notice only amounts to an irregularity, and is not a jurisdictional defect – YES: ITAT

++ The assessees’ principal argument is that the penalty proceedings are bad in law in-as-much as there is no specific ‘charge’ for which the assessee is being show-caused vide notice u/s 274; the AO initiating penalty u/s 271(1)(c) failing to strike off one of the two limbs, i.e., concealment of particulars of income or furnishing inaccurate particulars of income, for which default/s the penalty is being thereby proposed to be levied. It may, before proceeding further, be clarified that there is no claim, or in facts of the case could possibly be, of the assessee being not aware or of being not communicated the reason/s for which the penalty is sought to be imposed, or the income/s on which it is so. The same, aggregating to Rs. 16,00,672 – not disclosed (per the return of income), stand assessed as income on the failure of the assessee to explain satisfactorily the source of the expenditure incurred or, as the case may be, investment made, by him (u/s. 69/69C). This is so said as the assessee has contested the said addition/s to his returned income right up to the Tribunal, only upon confirmation by which, as would be apparent from the foregoing part of this order (para 3.1), the penalty proceedings, initiated on the conclusion of the assessment proceedings on 26/3/2002, were proceeded with. That his plea/s for the non-inclusion of the said income/s, did not find acceptance, firstly by the Revenue authorities, and then by the tribunal, is another matter – a question on merits. The premise of the penalty proceedings is also the same, i.e., an ostensible absence of an explanation for non-returning the income/s, brought to tax in assessment, i.e., voluntarily, per his return of income. The substance of the explanation on merits is thus the same, even as the assessee could lead evidence in penalty proceedings, i.e., as to why income/s, though includible in total income, was not in the facts and circumstances of the case returned suo motu, and which, where bona fide, would eschew the levy of penalty;

++ The assesse has, on the basis of his explanation/s, been allowed relief by the AO, i.e., on the income in respect of unexplained investment (of Rs. 8.76 lacs) on the construction of a residential house, on which, though penalty notice was also issued, no penalty obtains. Would it mean that the assessee was conveyed the ‘charge’ properly for him to have furnished a satisfactory explanation in its respect, i.e., qua this addition to his returned income, but not qua others. It would be ludicrous to so suggest. As clarified in Maharaj Garage & Co. v. CIT 2017-TIOL-1661-HC-MUM-IT, holding like-wise, i.e., as by the Court per its’ earlier decision in Smt. Kaushalaya, though without noticing it, after adverting to the facts of the case, that the assessee stands supplied with the findings recorded in the order of assessment (or reassessment), passed on the same date on which the notice u/s. 271(1)(c) r/w s. 274 was issued for initiating the proceedings for imposing the penalty. The requirement of section 274 of granting reasonable opportunity of being heard in the matter, it explained, could not be stretched to the extent of framing a specific charge. As explained earlier in CIT v. Manu Engineering Works, also referred to during hearing, the use of the words ‘and/or’, i.e., between the two charges, being ‘concealment of particulars of income’ and ‘furnishing inaccurate particulars of income’, may be proper while issuing the notice for penalty in-as-much as the said satisfaction is only prima facie or tentative. It is only subsequently, while imposing the penalty, that this charge has to be specific, i.e., after hearing the assessee in the matter, concluding that the penalty is, in the facts of the case, imposable;

++ it stands already observed that not only is the assessee well aware of the nature of the charge against him, i.e., explanation as to the source of the sum found invested or expended by him. This being the crux of the matter, it is for this reason that it stands stated earlier that the same is in fact more comprehensible to the assessee than the terms ‘concealment of particulars of income’ or ‘furnishing inaccurate particulars of income’, which are technical terms, with the Act further deeming ‘concealment’ under certain circumstances. Inas- much as the assessee has abysmally failed to explain the same – which he is in law required to satisfactorily, he is deemed to have ‘concealed particulars of income’, i.e., even if the notice u/s. 274 were to be construed as having been issued qua furnishing inaccurate particulars of income. In fact, there being no strike off of any particular limb, why, one wonders, the same be not construed as requiring the assessee, being in the intimate know of his affairs, explain the source having regard to both the aspects, i.e., of having either omitted to disclose the same or disclosed it incorrectly;

++ continuing further, on facts, not only, therefore, the import of the notice u/s. 274 well understood, the assessee has furnished an explanation on merits, which has been found not satisfactory. How could, then, it to be said that the terms of the notice are defective or not clear and the assessee has, thus, suffered a prejudice. Even if one indeed is, i.e., assuming so, in the facts of a particular case, the same would not invalidate the penalty proceedings, jurisdiction for which stands validly assumed. A defect in the notice, it is well-settled, only amounts to an irregularity, and is not a jurisdictional defect;

++ it needs to be stated that the counsel for the assessee has in his written submissions also mentioned about no penalty u/s. 271(1)(c) being imposable in case of an estimate, contending the expenditure on the marriage of the assessee’s daughter during the year (on 17/10/1996), reckoned at Rs. 5.80 lacs, to be an estimate, on which therefore penalty could not be imposed. No arguments qua this plea were advanced nor, consequently, countered by the other side, during hearing. There is in fact no ground toward the same and, which cannot be a matter of presumption. The said inclusion in the written submissions, which are furnished by the arguing counsels so as to ensure that any argument, advanced during hearing, may not escape attention or consideration while adjudicating the appeal, is, thus, surreptitiously so, and unfortunate indeed. There is in fact no such ground even before the first appellate authority, for which reference is made both to the order as well as Form 35. There is accordingly no finding by him in the matter. In fact, even if assumed before the CIT(A) by way of an additional ground, in which case too it ought to find mention in his order, his non-admission or, as the case may be, non-adjudication thereof, would be the assessee’s first grievance on merits before the tribunal, which is absent. The Tribunal accordingly, decline to admit the said ground;

++ in passing it may though be mentioned that the matter is principally factual, to be decided on the basis of the material on record, i.e., on the basis of which the estimate, which could have a reliable, objective basis, including the explanation/s advanced in support, would need to be appreciated. In the instant case, the tribunal, the final fact finding authority under the Act, has confirmed the addition to the stated extent in the quantum proceedings, which would, again, only be on the basis of the evidences on record. No infirmity in its’ findings, or the reason as to why, notwithstanding the same, penalty is not exigible, has been shown. Why, even as much as its’ order has not been placed on record by the assessee. The solemnizing of the marriage of the assessee’s daughter, Arti, during the relevant year, is admitted, as indeed is the holding of functions at Hotel Ashok, Jammu and Vasant Vihar Club, New Delhi, both elite stations. Giving of gold ornaments for 15 tolas of gold is also admitted. The estimate appears to be on a reasonable basis. Needless to add, the assessee has not disclosed any expenditure in his return or out of his capital toward the said marriage, for which the AO has allowed a relief of Rs. 50,000, as being out of explained sources.

Assessee’s appeal dismissed

ORDER

Per: Sanjay Arora:

This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals), Jammu (‘CIT(A)’ for short) dated 12.08.2014, dismissing the assessee’s appeal contesting the levy of penalty under section 271(1)(c) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for the Assessment Year (AY) 1997-98 vide order dated 28.8.2008.

2. The facts of the case in brief are that the assessee-individual, who returned his income for the year on 31.10.1997 at Rs. 1,22,590, was, on the basis of a search on 4/5.12.1996 at his residence, as well as at the house belonging to his Uncle, Shri Kunj Lal, by the State Vigilance Department – the assessee being an employee of the Government of Jammu & Kashmir, found to have assets worth Rs. 27.02 lacs, i.e., disproportionate to his known sources of income. After confronting the assessee with the evidences in its’ possession, i.e., in respect of expenditure incurred (being in the main on the marriage of his daughter) and investment made, by the assessee, seeking his explanation as to the source thereof, the assessment was made by the Assessing Officer (AO) at Rs. 17,23,262 vide order u/s.143(3) r/w s.147 dated 26.03.2002. Penalty preceding u/s. 271(1)(c) were also initiated. The assessment was carried in appeal successively before the first and the second appeal authority. The assessee was, however, unsuccessful, i.e., apart from, as it appears, an addition for Rs. 8.76 lacs toward investment on the construction of a residential house, under construction at the time of search, belonging to his brother-in-law, a driver with the State Government (of J&K), which addition was though made protectively. Proceedings u/s. 271(1)(c) were accordingly proceeded with, and after considering the assessee’s explanation/s, not found tenable, penalty levied for concealment of particulars of income, on the balance income brought to tax in assessment (i.e., Rs. 7,24,672), at the minimum rate of 100% of the tax thereon, i.e., Rs.2,62,899. The assessee being unsuccessful in appeal, is in second appeal.

3. I have heard the parties, and perused the material on record.

3.1 The appeal was argued principally on the ground of absence of a definite ‘charge’ inasmuch as there is no specific charge against the assessee in the assessment order, i.e., while initiating penalty proceedings. The Grounds of Appeal, however, include a ground as to the penalty being time barred u/s. 275 of the Act (Gd. 5), also contested before the ld. CIT(A). Though not argued during hearing, with accordingly the Revenue not responding thereto, the same is included in the written submissions, adduced during hearing, and which are principally to refresh the memory qua the arguments advanced during hearing, and do not substitute oral submissions, or extend the scope thereof. The said inclusion is, therefore, not proper.

The said plea being, however, legal, with the primary facts not in dispute, the same is taken up first as a same goes to the root of the matter. The basis of the assessee’s case, for which he relies of the decision in Tarlochan Singh (HUF) v. ITO [2008] 114 TTJ 82 (Asr). The proviso to s. 275 (1)(a) states that where the relevant assessment or other order is the subject matter of appeal u/s. 246 or s. 246A, and the Commissioner (Appeals) passes the order on or after June 01, 2003, the penalty order shall be passed before the expiry of the financial year, in which the proceedings, in the course of which action for imposing penalty has been initiated, are completed, or within one year from the end of the financial year in which the order by the Commissioner (Appeals) is received by the CCIT/CIT, whichever is later. In the instant case, the order by the Commissioner (Appeals) was passed on 31.12.2003, while the penalty order stands passed on 28.08.2008. The Tribunal in Tarlochan Singh (HUF) (supra) has stated that the proviso shall be invoked in all cases where the order by the Commissioner (Appeals), the first appellate authority, is passed on or after 01.6.2003. This is as the proviso, in the language of which there is no ambiguity, was inserted to avoid delay in the completion of the penalty proceedings. It provides an exception to the general rule of time limitation provided u/s. 275 (1)(a) whereby the time limitation is to be reckoned, in a case where the order by the Commissioner (Appeals) is subject to further appeal before the Tribunal, within six months of the receipt of the Tribunal’s order by the office of the CCIT/CIT. Though the date of receipt of the order dated 31.12.2003 (by the first appellate authority) by the office of the CCIT/CIT has not been stated, the penalty order stands passed, years later, on 28.8.2008, so that it would, presuming the receipt of the order dated 31.12.2003 in due course, be barred by time. The ld. CIT(A) did not accept the assessee’s case in view of the decision in Rayala Corporation Pvt. Ltd. v. Union of India [2007] 288 ITR 452 (Mad.) The same view stands subsequently expressed in CIT v. Mohair Investment & Trading Co. Pvt. Ltd. [2012] 345 ITR 51 (Del) = 2011-TIOL-647-HC-DEL-IT . It stands clarified that the proviso, inserted to section 275(1)(a) by Finance Act, 2003, becomes applicable only in cases where no appeal is preferred before the Appellate Tribunal. A proviso, it was explained, making reference to judicial decisions regarding the function of a proviso, that the same is merely subsidiary to the main section, and must be construed in the light of the section itself and, further, in harmony with the main provision, in consonance with which it is to be read, also making reference to s. 275 (1A).

The premise of keeping the penalty proceedings in abeyance till the decision in the second appeal in the quantum proceedings is received by the competent authority, very clearly, is to avoid multiplicity of proceedings. This gets defeated by the construction advocated by the assessee, which though found favour with the Tribunal in Tarlochan Singh (HUF)(supra). The province of the Appellate Tribunal, being the final fact finding authority under the Act, it must be borne in mind, is to decide matters agitated before it, issuing findings of fact. The explanation/s furnished to eschew levy of penalty u/s. 271(1)(c) are principally factual. Therefore, the view that the time limit in all cases where the order by the first appellate authority is passed on after 01.6.2003 shall be governed by the proviso, that is, even where that said order is not final and is subject to further appeal before the Appellate Tribunal, as held in Tarlochan Singh (HUF) (supra), may not be the correct view, even as on the basis of judicial precedents, that by the higher courts of law shall apply. No decision by any Hon’ble High Court taking a contrary view was brought to my notice, or even otherwise noticed. The assessee’s plea qua time limitation, thus, cannot be accepted. Further, before parting, it may be clarified that even if this decision does not find approval, in appeal, by the Hon’ble High Court, the acceptance of the assessee’s claim shall be subject to the date of the receipt of the order dated 31.12.2003 by the office of CCIT/CIT, which (date), thought relevant, is not on record. This is as the same cannot be a matter of presumption and, besides, would be available with the Revenue, though was not inquired into as, as afore-stated, this aspect of the matter was not argued by the ld. counsel. I decide accordingly.

3.2 The assessees’ principal argument is examined next. The penalty proceedings, it is stated, are bad in law in-as-much as there is no specific ‘charge’ for which the assessee is being show-caused vide notice u/s. 274; the AO initiating penalty u/s. 271(1)(c) failing to strike off one of the two limbs, i.e., concealment of particulars of income or furnishing inaccurate particulars of income, for which default/s the penalty is being thereby proposed to be levied. Reliance for the proposition was placed on the decision in SSA’s Emerald Meadows case (rendered following the decision in CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 (Kar)) = 2013-TIOL-536-HC-KAR-IT, special leave petition (SLP No. CC 11485/2016) against which has been dismissed by the Apex Court, besides decisions by the Tribunal, including by its’ larger constitution. The ld. Sr. DR, on the other hand, relied on decisions in CIT vs. Mithila Motors (P.) Ltd. [1984] 149 ITR 751 (Pat); CIT v. Chandulal [1985] 152 ITR 238 (AP); CIT vs. Smt. Kaushalya & Ors. [1995] 216 ITR 660 (Bom), also adverted to by the Bench, also affording, on his asking, time to the ld. counsel for the assessee, Shri Arora, to respond there to.

3.3 It may, before proceeding further, be clarified that there is no claim, or in facts of the case could possibly be, of the assessee being not aware or of being not communicated the reason/s for which the penalty is sought to be imposed, or the income/s on which it is so. The same, aggregating to Rs. 16,00,672 – not disclosed (per the return of income), stand assessed as income on the failure of the assessee to explain satisfactorily the source of the expenditure incurred or, as the case may be, investment made, by him (u/s. 69/69C). This is so said as the assessee has contested the said addition/s to his returned income right up to the Tribunal, only upon confirmation by which, as would be apparent from the foregoing part of this order (para 3.1), the penalty proceedings, initiated on the conclusion of the assessment proceedings on 26/3/2002, were proceeded with. That his plea/s for the non-inclusion of the said income/s, did not find acceptance, firstly by the Revenue authorities, and then by the tribunal, is another matter – a question on merits. The premise of the penalty proceedings is also the same, i.e., an ostensible absence of an explanation for non-returning the income/s, brought to tax in assessment, i.e., voluntarily, per his return of income. The substance of the explanation on merits is thus the same, even as the assessee could lead evidence in penalty proceedings, i.e., as to why income/s, though includible in total income, was not in the facts and circumstances of the case returned suo motu, and which, where bona fide, would eschew the levy of penalty. It is for this reason that is it is oft said that a plausible explanation saves penalty. That no such explanation is advanced in the penalty proceeding in the instant case is, again, another matter. The point being sought to be made is that it is this understanding, i.e., that a plausible reason for non returning of income/s suo motu, as apparent from the assessee’s explanation/s advanced in the assessment proceedings, that informs the assessee’s case. How, then, one may ask, could it be said that the assessee is not made aware of the ‘charge’, implying the reason for which the penalty is proposed, or that he has suffered a prejudice on that account, invalidating the penalty proceedings. Rather this, i.e., the understanding afore-stated is more intelligible and comprehensible to an assessee, a lay person, than the technical terms, i.e., the ‘concealment of particulars of income’ or ‘furnishing inaccurate particulars of income’, even as held by the tribunal in ITO v. S. Anandalakshmi (in ITA No. 1948/ Mds/2016, dated 17.10.2017); the exact meaning and scope of which terms, signifying omission or commission respectively, having in fact been the subject matter of deliberation by the Apex Court, which itself shows, if one was required, that the same warranted explanation and, in any case, clarification. No wonder, the Hon’ble Madras High Court in Sundaram Finance Ltd. v. Asst. CIT [2018] 93 taxmann.com 250 (Mad) = 2018-TIOL-813-HC-MAD-IT held that where the assessee has understood the purport and import of the notice u/s. 274 r/w s. 271, the non strike-off the limb of s. 271(1)(c) would be of no moment as no prejudice has been caused to the assessee.

The assesse has, on the basis of his explanation/s, been allowed relief by the AO, i.e., on the income in respect of unexplained investment (of Rs. 8.76 lacs) on the construction of a residential house, on which, though penalty notice was also issued, no penalty obtains. Would it mean that the assessee was conveyed the ‘charge’ properly for him to have furnished a satisfactory explanation in its respect, i.e., qua this addition to his returned income, but not qua others. It would be ludicrous to so suggest. As clarified in Maharaj Garage & Co. v. CIT [2018] 400 ITR 292 (Bom) = 2017-TIOL-1661-HC-MUM-IT, holding like-wise, i.e., as by the Hon’ble Court per its’ earlier decision in Smt. Kaushalaya (supra), though without noticing it, after adverting to the facts of the case, that the assessee stands supplied with the findings recorded in the order of assessment (or reassessment), passed on the same date on which the notice u/s. 271(1)(c) r/w s. 274 was issued for initiating the proceedings for imposing the penalty. The requirement of section 274 of granting reasonable opportunity of being heard in the matter, it explained, could not be stretched to the extent of framing a specific charge. As explained earlier in CIT v. Manu Engineering Works [1980] 122 ITR 306 (Guj), also referred to during hearing, the use of the words ‘and/or’, i.e., between the two charges, being ‘concealment of particulars of income’ and ‘furnishing inaccurate particulars of income’, may be proper while issuing the notice for penalty in-as-much as the said satisfaction is only prima facie or tentative. It is only subsequently, while imposing the penalty, that this charge has to be specific, i.e., after hearing the assessee in the matter, concluding that the penalty is, in the facts of the case, imposable. What value, then, the impugned non-strike off ? This would also meet the assessee’s reliance on New Sorathia Engg. Co. v. CIT [2006] 282 ITR 642 (Guj), passed following the decision in Manu Engineering Works (supra). In fact, the two limbs, which signify omission and commission respectively, may, in the facts of a case, or considering the explanation furnished, be very thin or even overlap, as held in A.M. Shah v. CIT [1999] 238 ITR 415 (Guj) = 2003-TIOL-452-HC-AHM-IT,so that nothing in fact turns thereon, and it all depends on the facts and circumstances of the case, i.e., if any prejudice stands caused to the assessee. Why, in S. Anandalakshmi (supra), the tribunal cites an example as to how a particular adjustment to the returned income could be, in view of the explanation furnished, hitherto regarded as falling under one limb, may be construed as falling under the other limb, or even in addition to the former.

3.4 Continuing further, Explanation 1 to section 271(1)(c) deems a person to have concealed the particulars of his income where he is unable to furnish an explanation, or substantiate that furnished, with all the facts relevant and material to the computation of his income, or the explanation furnished is found false. The said Explanation 1 is, as would be apparent from a bare reading of the provision, applicable to both the limbs of the penalty u/s. 271(1)(c) inasmuch as the explanation to be furnished, the onus of which is on the assessee, is, in either case qua facts material to the computation of his total income under the Act. That is, whether the facts material to the computation of income, qua which therefore explanation is sought in penalty proceedings, pertain to a case of omission or commission, i.e., concealment of particulars of income or furnishing inaccurate particulars of income. Reference for this may be made to the decision in Dilip N. Shroff v. Jt. CIT [2007] 291 ITR 519 (SC) 2007-TIOL-96-SC-IT, holding that to have always been the position. How, then, one may ask, this distinction in the penalty notice is of any significance, i.e., in the final analysis, much less lead to any prejudice? It needs to be appreciated, and is to be borne in mind, that the primary and relevant facts are only in the special knowledge of the assessee. Why, in Sivagaminatha Moopanar & Sons v. CIT [1964] 52 ITR 591 (Mad), the Hon’ble High Court found the assessee to have concealed the particulars of income and, at any rate, furnished inaccurate particulars of income, to of course no adverse consequence. This, in fact, is the premise of the said Explanation, inferring ‘deliberateness’ where therefore these facts are not forthcoming, or an explanation in their respect, or that furnished found false or is otherwise unsubstantiated.

The whole purport of a notice, i.e., generally speaking, as explained per its’ several decision by the Hon’ble Apex Court, to some of which reference is being made here (CST v. Subhash & Co., in C.A. No. 1374 of 2003, dated 17/2/2003); CIT v. Jai Prakash Singh [1996] 219 ITR 737 (SC); Estate of Late Rangalal Jajodia v. CIT [1971] 79 ITR 505 (SC)) = 2002-TIOL-1473-SC-IT-CB, is to put the assessee (noticee) to notice about the contemplated proceedings; in the present case seeking explanation as to why, in view of being unable to explain the source of investment, i.e., to the extent of Rs.10.20 lacs, as well as the expenditure incurred on the marriage of his daughter, and the concomitant deeming thereof as his income by way of unexplained investment/expenditure, being not returned, penalty u/s. 271(1)(c) be not levied qua the same. In all these cases, attempts to assail the proceedings on the basis of a defect in the notice were discountenanced by the Apex Court on the basis that there was no ambiguity about the purport of the notice under reference as well as for whom it was issued. Why, in the facts of a particular case, as indeed observed by the tribunal in Malwa Motors v. ITO (in ITA No. 131/Asr/2018, dated 28/6/2019), the penalty u/s. 271(1)(c) was initiated by the AO qua different sums, recording his satisfaction toward the same separately, under different limbs. How could, then, it was asked – to no answer, the AO strike off one of the limbs in the notice u/s. 274, which is a single notice, as is indeed contemplated to be, being a mechanism to provide an opportunity of being heard to the assessee before any decision in the matter is taken. The said appeal was in fact posted for hearing alongside this appeal, both represented by Sh. Arora. The notice u/s. 274 is one, single notice qua all such sums in relation to the assessment of income for a particular year. The impugned non-strike off, accordingly, carries no particular significance, particularly where there is, as in the instant case, no ambiguity with regard to the nature of the default, and the purpose for which the notice u/s. 274 is, in the context of the case, issued. That a defect in the notice, i.e., assuming so, does not invalidate the proceedings stands clarified by the Apex Court in Kantamani Vankata Narayana & Sons vs. ITO (First Addl.) [1967] 63 ITR 638 (SC) = 2002-TIOL-1907-SC-IT-LB, noted in Mithila Motors (P.) Ltd. (supra). All these decisions, it may be noted, are prior to the insertion of s. 292B on the statute-book, which provision, it would be seen, is itself in harmony with the law as clarified by the Apex Court in the afore-cited cases, which also explains reference thereto in this order.

The nature of the notice u/s. 274 stands in fact examined per several decisions, for which one only needs to advert to the provision of s. 274, the relevant part of which reads as under:

‘(1) No order imposing a penalty under this Chapter shall be made unless the assesse has been heard, or has been given a reasonable opportunity of being heard.’

It may though at the outset clarified that the same is not a jurisdictional notice, i.e., qua the penalty proceedings. The jurisdiction to impose penalty u/s. 271(1)(c), it is again well-settled, is on the basis of a satisfaction, prima facie, of the assessing (or other authority imposing penalty), that the assessee does not have a proper, duly substantiated, explanation with regard to the facts material to the computation of his total income under the Act (refer: D.M. Manasvi v. CIT [1972] 86 ITR 557 (SC) = 2002-TIOL-250-SC-IT-LB CIT v. S.V. Angidi Chettiar [1962] 44 ITR 739 (SC)) = 2002-TIOL-249-SC-IT-CB , which (satisfaction) may not even be reduced in writing, though ought to be discernible from the record in any proceedings under the Act (refer: Mak Data Pvt. Ltd. v. CIT [2015] 358 ITR 593 (SC) = 2013-TIOL-58-SC-IT ; CIT v. Atul Mohan Bindal [2009] 317 ITR 1 (SC)) = 2009-TIOL-97-SC-IT. There is no issue as regards the said jurisdiction in the instant case. Coming back to the scope of the said notice u/s. 274, the Hon’ble High Court in Mithila Motors (supra) held as: (Head Note/pg. 756)

‘Under sec. 274 of the Income Tax. Act, 1961, all that is required is that the assessee should be given an opportunity of show cause. No statutory notice has been prescribed in this behalf. Hence, it is sufficient if the assessee was aware of the charges he had to meet and was given an opportunity of being heard. A mistake in the notice would not invalidate penalty proceedings.’

(emphasis, supplied)

In Chandulal (supra), it was held as:

‘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 K.C. Tripathi vs. State Bank of India AIR 1984 SC 273. We have perused the judgment of the Kerala High Court in Subramania Iyer vs. Union of India (supra), 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 case a notice is rendered invalid just because inappropriate portions in the notice are not struck off.

10. For the aforesaid reasons, we uphold the Revenue’s plea that the notice issued under s. 274 of the IT Act, in the present case, is perfectly valid and the order of penalty did not suffer from any legal infirmity.’

(emphasis, supplied)

This decision stands subsequently concurred with in T.A. Abdul Khader v. CWT [2008] 296 ITR 20 (Ker). In Smt. Kaushalya & Ors. (supra), relying on the decision in Mithila Motors (supra), it was held as under: (pg. 665(e-g))

‘Sec. 274 of the Income-tax Act, 1961 contains a principle of natural justice of the assessee being heard before levying penalty. Rules of natural justice cannot be imprisoned in any straight-jacket formula. For sustaining a complaint of failure of the principles of natural justice on the ground of absence of opportunity, it has to be established that prejudice is caused to the concerned person by the procedure followed. The issuance of notice is an administrative device for informing the assessee about the proposal to levy penalty in order to enable him to explain as to why it should not be done. Mere mistake in the language used or mere non-striking of the inapplicable portion cannot by itself invalidate the notice. The entire factual background would fall for consideration in the matter and no one aspect would be decisive.’

(emphasis, supplied)

In all these cases, the specific issue urged was the validity of the notice u/s. 274 and, therefore, that of the penalty proceedings initiated thus, inasmuch as the assessing authority issuing the said notice had not struck off the inappropriate portion of the notice, i.e., concealment of particulars of income or furnishing inaccurate particulars of income. Each of the decisions cited supra, relied upon, merit a close reading, being based on first legal principles, including the purport of a notice u/s. 274, explained to be not a statutory notice but only an administrative device for extending an opportunity of hearing to the assesse, even as contemplated by the provision. That is, requiring him to furnish an explanation in respect of facts material to the computation to his total income under the Act for the relevant year, substantiating the same, or, else, penalty u/s. 271(1)(c) would stand to be levied. The said notice, which is rather for penalty under any of the provisions under Chapter XXI of the Act, only aims at providing reasonable opportunity to the assessee to state his case. This is precisely what stands held in Maharaj Garage & Co. (supra), rendered, in fact, without noticing the precedents in the matter, though, as shall be noted, founded on and consistent with the settled legal principles.

3.5 In the present case, it stands already observed that not only is the assessee well aware of the nature of the charge against him, i.e., explanation as to the source of the sum found invested or expended by him. This being the crux of the matter, it is for this reason that it stands stated earlier that the same is in fact more comprehensible to the assessee than the terms ‘concealment of particulars of income’ or ‘furnishing inaccurate particulars of income’, which are technical terms, with the Act further deeming ‘concealment’ under certain circumstances. Inas- much as the assessee has abysmally failed to explain the same – which he is in law required to satisfactorily, he is deemed to have ‘concealed particulars of income’, i.e., even if the notice u/s. 274 were to be construed as having been issued qua furnishing inaccurate particulars of income. In fact, there being no strike off of any particular limb, why, one wonders, the same be not construed as requiring the assessee, being in the intimate know of his affairs, explain the source having regard to both the aspects, i.e., of having either omitted to disclose the same or disclosed it incorrectly.

Continuing further, on facts, not only, therefore, the import of the notice u/s. 274 well understood, the assessee has furnished an explanation on merits, which has been found not satisfactory. How could, then, it to be said that the terms of the notice are defective or not clear and the assessee has, thus, suffered a prejudice. Even if one indeed is, i.e., assuming so, in the facts of a particular case, the same would not invalidate the penalty proceedings, jurisdiction for which stands validly assumed. A defect in the notice, it is well-settled, only amounts to an irregularity, and is not a jurisdictional defect. As explained in Mithila Motors Pvt. Ltd. (supra), with reference to the decision in Kantamani Vankata Narayana & Sons vs. First Addl. ITO [1967] 63 ITR 638 (SC) = 2002-TIOL-1907-SC-IT-LB, a mistake in the notice does not invalidate penalty proceedings (at pg. 757). That is, the non strike-off, even if regarded as having caused a prejudice, would only amount to an irregularity, requiring the proceedings to be restored to the stage at which the irregularity had occurred, i.e., to remove the said prejudice, enabling the assessee (noticee) the opportunity to state its case; the jurisdiction of levy penalty having been already assumed. Reference in this regard may be made to the decisions, inter alia, in Supdt., Central Excise v. Pratap Rai [1978] 114 ITR 231 (SC) = 2002-TIOL-322-SC-CX-LB and Guduthur Bros. v. ITO [1960] 40 ITR 298 (SC) 2002-TIOL-990-SC-IT-LB, both by the larger benches of the Apex Court.

In Manu Engineering Works (supra), the Hon’ble Court itself clarifies that it may be proper to issue a notice u/s. 274 without specifying any particular limb of the provision of s. 271(1)(c), though the same must be specified while imposing the penalty. How does then, this, one wonders, supports the assessee’s case? The proposition is unexceptional as the satisfaction recorded at the time of issue of notice, and which confers jurisdiction for the same, is, as explained, only preliminary and prima facie, and may even not be reduced in writing, though ought to be discernable from the record (refer: Mak Data Pvt. Ltd. (supra); Atul Mohan Bindal (supra)). Why, for all one knows, the assessing authority, on considering the assessee’s explanation, may not levy the penalty, or may stand deleted, again on the strength of the assessee’s explanation, in appellate proceedings. That would not however disturb the assumption of jurisdiction by the assessing or the other authority imposing the penalty. This would also meet the assessee’s reliance on CIT v. Lakhdhir Lalj [1972] 85 ITR 77 (Guj). Rather, the basis for stating in Manu Engineering Works (supra) that the charge while levying the penalty is to be specific, as would be apparent from the reading of its order, is on the basis of the penalty proceedings being criminal or quasi criminal in nature, a notion, never encouraged, dispelled by the larger bench decision by the Apex Court in Dharmendra Textile Processors v. UoI [2008] 306 ITR 277 (SC) = 2008-TIOL-192-SC-CX-LB. Now, this does not mean to suggest, and it is nobody’s case, that the charge is not to be specified, that in fact being the basis for the levy of the penalty, but only that it may as well fall in the other limb, to little consequence. This, it may be clarified, though not relevant for deciding the appeal under reference wherein the proceedings are assailed on the basis of the penalty notice being defective, is yet stated only for the sake of the completeness of the discussion in the matter. Continuing with the discussion, it is so said, as the whole issue is if any prejudice stands suffered by the notice, which is essentially a matter of fact, and which, as observed in Chandulal (supra), could not be determined on the basis of the notice itself. Why, in the facts of a particular case, an appellate authority may, having regard to the facts of the case and the assessee’s explanation, hold the penalty to have been rightly imposed though stands to fall under the other limb. Now, it could not possibly lie in the assessee’s – whose explanation qua the default in not returning the specific income or making a particular claim in returning his income stands considered, mouth to contend that though penalty is leviable under another limb, it would not hold as the notice providing opportunity (s. 274) specifies another limb, and toward which reference, once again, may be made to Sivagaminatha Moopanar & Sons (supra). What is relevant is if any prejudice for that reason stands caused – a matter of fact, inasmuch as there is denial of proper opportunity. However, if the assessee’s explanation is to be the same, this would be of little consequence. The congruence of the two limbs inasmuch as Explanation 1 to the provision deems concealment of particulars of income on the assesse failing to satisfy the mandate thereof, has already been noted hereinbefore. Why, Explanation 5/5A, again, deems the assessee, where the conditions specified therein are satisfied, to have concealed the particulars of income or furnished inaccurate particulars of his income. A wrong mention of the section, as long as the authority has the requisite power and jurisdiction to exercise the same, it is well-settled, is of no moment (viz. L. Hazari Mal Kathulia v. ITO [1960] 41 ITR 12 (SC) = 2002-TIOL-1296-SC-IT-CB; Kantamani Vankata Narayana & Sons (supra)), while here both the limbs form part of the same section and, as apparent from the reading of, inter alia, Explanation 1 thereto, form part of the same charge.

3.6 Next may be discussed the assessee’s reliance on the decision in Manjunatha Cotton & Ginning Factory (supra). The said reliance, as indeed the legal argument raised, is de hors the facts of the case, and in view of the law as explained, is without merit. The said decision, carefully perused, is, firstly, without reference to the judicial precedents and, further, as explained by the tribunal in many a case, as in Earthmoving Equipment Service Corporation vs. Dy. CIT (in ITA No. 617/Mum/ 2014 = 2017-TIOL-630-ITAT-MUM , dated 02/5/2017), rendered considering multiple factors, and not solely on the basis of a defect in the notice u/s. 274. The premise of the said decision is that the assessee must be made known the charge against him. The argument is unexceptional. As explained in Smt. Kaushalya & Ors. (supra) and others, however, no general proposition can hold and the entire factual background would fall for consideration. That is, the matter is principally factual. No such case has been made out at any stage, even as both the assessee’s explanation at the assessment and the penalty stage, including the impugned order, have been carefully perused for the purpose, to arrive at a finding that there is no ambiguity as to the nature and the scope of the proceedings, with the assessee, well represented before the Revenue by tax professionals, carrying the matter up to the Tribunal in the quantum proceedings and, further, on being unsuccessful, raising detailed arguments before the ld. CIT(A) in the penalty proceedings. There is no case to contend any prejudice, nor indeed any was before me, much less shown, i.e., apart from raising a legal plea, as stated, de hors the facts of the case. In fact, even in a case of prejudice the issue of the subsequent action would arise, toward which law has been adverted to, though is no occasion to consider the same. Nothing, further, turns, it may be added, on the dismissal of the SLP in CIT v. SSA Emrald’s case in-as-much as the same does not lay down any proposition of law, which only is binding (refer: Palam Gas Services v. CIT [2017] 394 ITR 3 (SC)) = 2017-TIOL-207-SC-IT. The decision in SSA Emrald’s (supra) in fact follows Manjuna tha Cotton & Ginning Factory (supra), which stands considered and explained. As afore explained, the matter – in view of the concern of law to prevent any prejudice being caused, becomes one of fact, even as explained in Mithila Motors (supra); Chandulal (supra); Smt. Kaushalya & Ors. (supra); Maharaj Garage & Co. (supra); and Sundaram Finance Ltd. (supra). This, indeed is also the purport of s. 292-B of the Act. The decisions by the Tribunal relied upon cannot, I am afraid, be followed for the same reasons.

3.7 Before parting with this order, it needs to be stated that the ld. counsel, Sh. Arora, has in his written submissions also mentioned about no penalty u/s. 271(1)(c) being imposable in case of an estimate, contending the expenditure on the marriage of the assessee’s daughter during the year (on 17/10/1996), reckoned at Rs. 5.80 lacs, to be an estimate, on which therefore penalty could not be imposed. No arguments qua this plea were advanced nor, consequently, countered by the other side, during hearing. There is in fact no ground toward the same and, which cannot be a matter of presumption. The said inclusion in the written submissions, which are furnished by the arguing counsels so as to ensure that any argument, advanced during hearing, may not escape attention or consideration while adjudicating the appeal, is, thus, surreptitiously so, and unfortunate indeed. There is in fact no such ground even before the first appellate authority, for which reference is made both to the impugned order as well as Form 35. There is accordingly no finding by him in the matter. In fact, even if assumed before the ld. CIT(A) by way of an additional ground, in which case too it ought to find mention in his order, his non-admission or, as the case may be, non-adjudication thereof, would be the assessee’s first grievance on merits before the tribunal, which is absent. I, accordingly, decline to admit the said ground.

In passing it may though be mentioned that the matter is principally factual, to be decided on the basis of the material on record, i.e., on the basis of which the estimate, which could have a reliable, objective basis, including the explanation/s advanced in support, would need to be appreciated. In the instant case, the tribunal, the final fact finding authority under the Act, has confirmed the addition to the stated extent in the quantum proceedings, which would, again, only be on the basis of the evidences on record. No infirmity in its’ findings, or the reason as to why, notwithstanding the same, penalty is not exigible, has been shown. Why, even as much as its’ order has not been placed on record by the assessee. The solemnizing of the marriage of the assessee’s daughter, Arti, during the relevant year, is admitted, as indeed is the holding of functions at Hotel Ashok, Jammu and Vasant Vihar Club, New Delhi, both elite stations. Giving of gold ornaments for 15 tolas of gold is also admitted. The estimate appears to be on a reasonable basis. Needless to add, the assessee has not disclosed any expenditure in his return or out of his capital toward the said marriage, for which the AO has allowed a relief of Rs. 50,000, as being out of explained sources.

3.8 I decide accordingly.

4. In the result, the assessee’s appeal is dismissed.

(Order pronounced in the open court on 28.06.2019)

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