In a recent judgment, Bangalore Income Tax Appellate Tribunal (ITAT) allowed the additional ground in the form of preliminary objection with respect to the validity of the notice u/s 271(1)(c).

Case Details:
ITA 313-315/Bang/2014          AY: 2007-08 to 2009-10
Shri E. Krishnappa (Appellant) vs Income Tax Officer (respondent)
Date of order: 14-08-2015

Facts of the Case(s):
Order was passed against the appellant assessee by the Assessing Officer u/s 271(1)(c) who held that the assessee had concealed particulars of his income and furnished inaccurate particulars of income. The appeal of the assessee to CIT(A) did not met any success and was dismissed.

During the course of proceedings before ITAT, the assessee raised an additional ground in the form of a preliminary issue challenging the validity of the orders imposing penalty under

Section 271(1)(c). It was seen that the Assessing Officer has placed a tick mark in the paragraph “… concealed particulars of your income or furnished inaccurate particulars of such income” without deleting the inappropriate words and paragraphs, and he/she is required to do as per the instructions at the bottom of the notices. In other words, the show cause notices issued under Section 274 rws 271 did not spell out the charge against the assessee; i.e. as to whether the assessee was guilty of having concealed particulars of income or of having furnished inaccurate particulars of income.

Contentions of the Revenue:
The Department objected to the admission of the additional grounds and contended that since the assessee had raised the additional grounds before the Tribunal for the first time and not before the authorities below, the said additional grounds be remanded to the file of CIT (Appeals) for consideration. Reliance was placed on the decision of the Hon'ble Madhya Pradesh High Court in the case of CIT V Tolaram Hassomal reported in 298 ITR 22.

Contention of the Assessee:
The assessee submitted that the additional grounds raised by the assessee is purely question of law and no facts are required to be investigated other than the information and details available in the records of the Department It was further contended that the additional grounds raised with regard to the validity of the notices issued under Section 274 rws 271 of the Act is a jurisdictional issue and which is not a curable defect as per the statute and also the decision of the Hon'ble High Court of Karnataka in the case of CIT V Manjunatha Cotton & Ginning Factory reported in 359 ITR 565. The issue of notices which are proper and legally correct in all respects is since qua non for invoking penal provisions and any proceedings concluded on an illegal notice is void-ab-initio and would have no legs to stand on.

Held:
ITAT allowed the additional grounds and held the notices u/s 274 rws 271 bad in law and consequently holding that the penalty orders passed in consequence of these defective were also invalid.

Excerpts from the Judgment of ITAT

On a careful appreciation thereof we find that these grounds are pure question of law and do not involve investigation of any facts otherwise than those on the records of the department. Taking into consideration the matter before us, we are of the considered view that, in the interest of equity and justice, these additional grounds raised by the assessee require to be admitted for consideration in this appeal as they go to the very root of the matter of the validity of the initiation of the proceedings that resulted in the levy of penalty u/s.271(1)(c) of the Act.....

In the case on hand, we find from a careful perusal of the notices, issued under Section 274 rws 271 of the Act dt.29.12.2011 for Assessment Years 2007-08 and placed before the Bench in the course of hearing that the Assessing Officer has not specified under which limb of the penalty u/s.271(1)(c) of the Act is to be levied; i.e. whether the penalty proceedings are being initiated for concealment of particulars of income or for furnishing of inaccurate particulars of income. Such initiation of penalty proceedings has been held to be illegal by the Hon’ble High Court of Karnataka in the case of Manjunatha Cotton & Ginning Factory (supra). Following the aforesaid decision of the Hon'ble High Court of Karnataka in the case of Raveendhiraa L & Others (supra), we hold that the notices issued under Section 274 rws 271 of the Act dt.29.12.2011 for Assessment Years 2007-08 to 2009-10 are bad in law for the reasons mentioned in the aforesaid orders and consequently hold the penalty orders passed in consequence of these defective, invalid notices also to be invaid and cancel them.

On a careful appreciation of the rival contentions, the material on record and the judicial decision cited by the learned Authorised Representative, we are of the opinion that the issue raised by the assessee in the additional grounds with regard to the validity of the defective notices issued by the Assessing Officer under Section 274 rws 271 of the Act for Assessment Years 2007-08 to 2009-10 in the case on hand is a jurisdictional matter, a pure question of law in respect of a defect in the notice that is not curable in nature. In this view of the matter, we are of the opinion that the additional grounds in this regard are not required to be set aside to the file of the learned CIT (Appeals) as requested by the learned Departmental Representative. The fact that it is clear that the impugned notices under Section 274 rws 271 of the Act dt.29.12.2011 do not have the appropriate portions marked to specify as to whether the penalty is proposed to be levied for concealment of income or for furnishing of inaccurate particulars of income; which fact has not been disputed by Revenue and the defects being not curable, we are of the opinion that in view of the factual and legal reasoning rendered above, there is no requirement for us to set aside the additional ground to the file of the learned CIT (Appeals) for consideration.

As regards the decision cited by the learned Departmental Representative CIT V Tolaram Hassomal (298 ITR 22) (MP), the co-ordinate bench of this Tribunal in the case of Smt. K.R. Prabhavati in M.P. No.5/Bang/2014 (in ITA No.234/Bang/2011) had occasion to examine the said decision. The co-ordinate bench in its order dt.10.4.2015 observed that it is not the decision of the jurisdictional High Court by the Hon'ble High Court of Karnataka and is also contrary to the law laid down by the Hon'ble Apex Court in he case of NTPC Ltd. in 229 ITR 383 (SC). The relevant portion of the order of the co-ordinate bench at para 10 thereof reads as under :-

“ … As far as the decision of the Hon ble Madhya Pradesh High Court in Tolaram Hassomal

(supra) is concerned, it is not the decision of the jurisdictional High Court and is contrary to the law laid down by the jur sdictional High Court viz. Hon'ble High Court of Karnataka in the case of Sankeshwar Pr nters Pvt. Ltd. (supra) and is also contrary to the decision of the law laid down by the Hon'ble Supreme Court in the case of NTPC Ltd. (supra)………”

In fact, the Hon'ble Madhya Pradesh High Court itself has not followed the decision of Tolaram Hassomal (supra) in its subsequent decisions. The Hon'ble Madhya Pradesh High Court has analysed the powers of the Tribunals on admissibility of additional grounds in the case of Torquouise Investment & Finance Ltd., in 299 ITR 143 dt.28.3.2006 wherein the Hon'ble Court relying on the decision of the Hon'ble Apex Court in the case of PVAL Kulandagan Chettiar (267 ITR 654) held that the Tribunal could not be precluded from considering the question of law arising in an assessment proceeding and not raised earlier. It was held that the Tribunal was justified in law in recording a finding on an issue which was not raised by the assessee either before the Assessing Officer or the learned CIT (Appeals) but was raised for the first time before the Tribunal. The said order has been affirmed by the Hon'ble Apex Court in 168 Taxmann 107.

The Indore Bench of the Tribunal in the case of Basantilal Jain in IT(SS)A No.64/Ind/2007 has examined both the aforesaid decisions of the Hon'ble Madhya Pradesh High Court and at para 4 of its order held that :-

“ 4….………Hon’ble High Court of Madhya Pradesh in 11 the case of Either Motors reported in 293 ITR 464 have held that additional grounds can be raised before the ITAT even if not raised before the Assessing Officer or the learned Commissioner of Income tax (Appeals). Accordingly, the Tribunal was justified in permitting the assessee to raise additional grounds of appeal even through the issue was not raised before the Assessing Officer or the learned Commissioner of Income tax (Appeals). Similarly, Hon’ble Madhya Pradesh High Court in the case of Steel Ingots; 135 CTR 379 held that additional ground requiring no appreciation of facts, Tribunal should have permitted the assessee to raise the question. It was observed that eventual destination of every litigation is justice and as such technicality should not be 12 permitted to prevail as a speed breaker in the case of dispension of justice. Similar view has been taken by the Hon’ble High Court of Madhya Pradesh in the case of Bhopal Sugar Mills Limited; 233 ITR 429 wherein it was held that there is no prohibition on the power of the Tribunal to entertain an additional ground which according to the Tribunal arises in the matter and for just decision of the case. In view of the above discussion and decision of the Hon’ble Supreme Court in the case of National Thermal Power (supra) and the latest decision of the Hon’ble jurisdictional High Court in the case of Turquise I vestment & Finance Limited (supra), which was after the date of decision cited by the learned CIT DR in the case of Tolaram Hassomal (supra), we 13 are inclined to follow the latest decision of the Hon’ble jurisdictional High Court decided after considering the decision of Hon’ble Supreme Court reported at 267 ITR 654. As all the facts relating the additional legal grounds taken before us are already on record, we are inclined to entertain the additional grounds which are purely legal in nature and accordingly proceed to decide the same.”

From the above discussion, it is clear that when a legal question is raised, the Tribunal cannot be precluded from admitting the same and considering it in accordance with law.

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