Court Strikes Down Penalty for Lack of Clear Notice on Income Concealment

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Case Name: 

Principal Commissioner of Income Tax (Central) Vs Goa Coastal Resorts and Recreation Pvt. Ltd. (High Court of Bombay)

Tax Appeal No. 24 of 2019

Key Takeaways:

1. The notice for penalty must clearly indicate whether the AO is satisfied about concealment of income, furnishing of inaccurate particulars, or both.

2. If using a printed form, inapplicable portions must be struck off to show clarity in the AO's satisfaction.

3. Proper recording of satisfaction by the AO is crucial for initiating penalty proceedings.

4. Piecemeal disclosure in revised returns doesn't automatically relieve the assessee from penalty.

Issue:

Was the Tribunal correct in law and fact in deleting the penalty levied under Section 271(1)(c) of the Income Tax Act, 1961?

Facts:

1. The assessee, Goa Coastal Resorts and Recreation Pvt. Ltd., filed revised returns.

2. The Assessing Officer imposed a penalty under Section 271(1)(c) of the Income Tax Act.

3. Both the CIT(A) and ITAT ordered the dropping of penalty proceedings.

4. The Principal Commissioner of Income Tax appealed against this decision.

5. A notice dated 30/09/2016 was issued to the assessee without striking off irrelevant portions.

Arguments:

Appellant (Revenue):

- The revised returns showed piecemeal disclosures, which doesn't relieve the assessee from penalty.

- The assessment order referred to concealment and/or inaccurate particulars.

- Relied on the case of Mak Data (P.) Ltd v/s. Commissioner of Income Tax.

Respondent (Assessee):

- There was no finding of concealment or furnishing of inaccurate particulars.

- The notice issued was defective as relevant portions were not struck off.

- Relied on cases of Commissioner of Income Tax-11 v/s. Shri Samson Perinchery and Principal Commissioner of Income Tax v/s. New Era Sova Mine.

Key Legal Precedents:

1. Mak Data (P.) Ltd v/s. Commissioner of Income Tax

2. Commissioner of Income Tax-11 v/s. Shri Samson Perinchery, [(2017) 392 ITR 4]

3. Principal Commissioner of Income Tax v/s. New Era Sova Mine

These precedents established that the notice must clearly indicate the nature of satisfaction recorded by the AO, and if using a printed form, inapplicable portions must be struck off.

Judgement:

The High Court dismissed the appeal, agreeing with the CIT(A) and ITAT's decisions. The court found:

1. No record of satisfaction by the AO regarding concealment or inaccurate particulars.

2. The notice issued was defective as relevant portions were not struck off.

3. The case was consistent with the law laid down in Samson Perinchery and New Era Sova Mine.

4. The contention based on MAK Data (P.) Ltd. was not applicable due to the defective notice and lack of recorded satisfaction.

FAQs:

1. Q: What was the main reason for dismissing the appeal?

  A: The main reasons were the lack of proper satisfaction recorded by the AO and the defective notice issued to the assessee.

2. Q: Why was the notice considered defective?

  A: The notice was considered defective because the irrelevant portions were not struck off, failing to clearly indicate whether the case involved concealment of income, furnishing of inaccurate particulars, or both.

3. Q: What is the significance of this judgment for future cases?

  A: This judgment emphasizes the importance of proper procedure in issuing notices for penalties, particularly the need for clear indication of the AO's satisfaction and proper use of printed forms.

4. Q: Does this mean that assessees can always avoid penalties by pointing out procedural errors?

  A: Not necessarily. While procedural correctness is crucial, each case would be judged on its merits. However, this judgment does highlight the importance of following proper procedures in penalty proceedings.

5. Q: What should tax authorities learn from this case?

  A: Tax authorities should ensure that notices are properly filled out, satisfaction is clearly recorded, and all procedural requirements are met when initiating penalty proceedings.

1. Heard Ms Razaq, learned Advocate for the appellant and Shri. Rao, learned Advocate for the respondent No.2.

2. Ms. Razaq, learned Advocate for the appellant urges admission of this appeal on the following substantial questions of law:

i) Whether on the facts and in the circumstances of the case, the Tribunal is right in law and fact, in deleting the penalty levied u/s. 271(1) (c) of the Income Tax Act, 1961?

3. Ms Razaq, learned Advocate submits that in this case the revised returns filed by the respondents indicated that the disclosures were made only by piecemeal. Relying upon Mak Data (P.) Ltd v/s. Commissioner of Income Tax 1 , she submits that such disclosure does not relieve the assessee of the requirement of paying penalty. He submits that the assessment order in the present case makes reference to concealment and/or inaccurate particulars. In this view of the matter, she submits that the substantial questions of law as aforesaid will be arises and the view taken by the Commissioner (Appeals) as well as the ITAT in relation the deletion of penalty, warrants interference.

4. Mr Rao, learned Advocate for the assessee points out that there is absolutely no finding as regards concealment or furnishing of inaccurate particulars. He further points out that in the notice issued to the assessee on 30/09/2016, the Deputy Commissioner had not even bothered to strike down the relevant portion of the printed form in order to indicate whether the satisfaction is based upon the concealment of particulars or furnishing of inaccurate particulars. He relies on Commissioner of Income Tax-11 v/s. Shri Samson Perinchery2 and Principal Commissioner of Income Tax v/s. New Era Sova Mine3 to submit that on the basis of such a defective notice, award of penalty can never be sustained.

5. We have carefully examined the record as well as duly considered the rival contentions. Both the Commissioner (Appeals) as well as the ITAT have categorically held that in the present case, there is no record of satisfaction by the Assessing Officer that there was any concealment of income or that any inaccurate particulars were furnished by the assessee. This being a sine qua non for initiation of penalty proceedings, in the absence of such petition, the two authorities have quite correctly ordered the dropping of penalty proceedings against the petitioner.

6. Besides, we note that the Division Bench of this Court in Samson(supra) as well as in New Era Sova Mine(supra) has held that the notice which is issued to the assessee must indicate whether the Assessing Officer is satisfied that the case of the assessee involves concealment of particulars of income or furnishing of inaccurate particulars of income or both, with clarity. If the notice is issued in the printed form, then, the necessary portions which are not applicable are required to be struck off, so as to indicate with clarity the nature of the satisfaction recorded. In both Samson Perinchery and New Era Sova Mine(supra), the notices issued had not struck of the portion which were inapplicable. From this, the Division Bench concluded that there was no proper record of satisfaction or proper application of mind in matter of initiation of penalty proceedings.

7. In the present case, as well if the notice dated 30/09/16 (at page 33) is perused, it is apparent that the relevant portions have not been struck off. This coupled with the fact adverted to in paragraph (5) of this order, leaves no ground for interference with the impugned order. The impugned order are quite consistent by the law laid down in the case of Samson Perinchery and New Era Sova Mine(supra) and therefore, warrant no interference.

8. The contention based upon MAK Data (P.) Ltd.(supra) also does not appeal to us in the peculiar facts of the present case. The notice in the present case is itself is defective and further, there is no finding or satisfaction recorded in relation to concealment or furnishing of inaccurate particulars.

9. For the aforesaid reasons, we hold that no substantial questions of law arises in this appeal. Consequently, this appeal is dismissed.

NUTAN D. SARDESSAI, J. M. S. SONAK, J.