The notice did not specify the default, but you clearly understood it. Does the defect still help you?
In Madras, no. The assessee had understood the purport and import of the notice, and claiming depreciation on machinery that did not exist was inaccurate particulars. The penalty was upheld.
Decided by the High Court (Madras High Court — T.S. Sivagnanam and N. Seshasayee, JJ. (judgment by T.S. Sivagnanam, J.)) on 2018-04-23, reported as T.C. (Appeal) Nos. 876 and 877 of 2008; [2018] 93 taxmann.com 250 (Madras) / [2018] 403 ITR 407 (Madras) / 304 CTR 846. It bears on section 271(1)(c), section 274, section 32, section 132 of the Income Tax Act 1961, in Penalty matters.
It shows the limit of the notice-defect argument in practice: where the underlying facts are bad, courts find that you understood the charge. The assessee's SLP was dismissed, which makes it harder to argue around.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The assessee, in the business of hire purchase, equipment leasing and allied activities, purchased air pollution control equipment from Pioneer Engineering Company and leased it back to Prakash Industries Ltd. A search under s.132 on Pioneer Engineering Company by the Investigation Wing at Ranchi produced a sworn statement from its managing partner that it had sold no such equipment to any leasing company, and showed current accounts in that company's name with different proprietors at different addresses through which money received from finance companies was routed, most of it reaching the lessee. The Assessing Officer treated the lease as a finance transaction, disallowed the depreciation and levied penalty under s.271(1)(c). Before the Commissioner (Appeals) the assessee admitted that it had claimed depreciation on an asset that did not exist and had reversed the claim; the penalty was upheld, and the Tribunal dismissed its appeals in ITA Nos. 1497 and 1498/Mds/2003. In the High Court the assessee obtained leave to add a third substantial question on the sufficiency of the s.274 notice, which had never been raised below.
The appeals were dismissed and the substantial questions answered against the assessee. Penalty under s.271(1)(c) was rightly levied: claiming depreciation on air pollution control equipment that did not exist and was never supplied amounted both to concealing particulars of income and to furnishing inaccurate particulars, and the three authorities below had concurrently rejected the assessee's plea of bona fide belief. On the notice point, the Court found on perusal that the relevant columns of the s.274 notice had in fact been marked, the case against the assessee being that it had both concealed particulars and furnished inaccurate particulars; the additional substantial question was therefore rejected as not arising on the facts. The Court added that the point was one of fact and not of law, that it had never been raised before the Assessing Officer, the Commissioner (Appeals), the Tribunal or in the appeal memorandum and was taken for the first time ten years later at final hearing, and that even assuming a defect it had caused no prejudice because the assessee clearly understood the purport and import of the notice (paras 13, 16, 17).
The Court took its statement of principle from the Karnataka High Court's summary in CIT v. Manjunatha Cotton & Ginning Factory: penalty under s.271(1)(c) is a civil liability; mens rea is not essential and wilful concealment is not an ingredient; the existence of the s.271(1)(c) conditions is a sine qua non and must be discernible from the assessment, appellate or revisional order; imposition is not automatic even where the tax liability is admitted; where the explanation offered is not substantiated a penalty order may follow; the notice proposing penalty should specifically state the grounds mentioned in s.271(1)(c); and findings in the assessment proceedings do not operate as res judicata in the penalty proceedings (para 10). Applying that, the Court found the s.271(1)(c) conditions writ large on the face of the Assessing Officer's and the first appellate authority's orders. The whole matter had come to light only through a search under s.132 on Pioneer Engineering Company by the Investigation Wing at Ranchi, in which the managing partner deposed that the company had sold no such equipment to any leasing company; current accounts had been opened in that company's name showing different proprietors at different addresses, money from finance companies was deposited and withdrawn, and the bulk went to the lessee. The inspection report the assessee relied on was vague, and it was for the assessee to satisfy itself that the asset existed rather than rely on the lessee's word or a self-serving inspection report. The Court said it was very hard to believe that a leasing company had advanced money to lease out machinery that never existed, noted that the assessee had not said what action it had taken against the lessee it accused of fraud, and observed that the reversal of the claim came only when the assessee was confronted with the search findings (paras 12, 13). On the notice, the Court distinguished CIT v. Jindal Equipments Leasing and Consultancy Services Ltd., on which the assessee relied for the right to raise a pure question of law late, and held that the question here was factual, that the columns had been marked, that no prejudice had been shown, that not every violation nullifies an order made by a statutory authority, and that principles of natural justice cannot be read in the abstract by a limited company with a wide network of financial services raising the point ten years on (paras 14 to 16).
Thus on facts, we could safely conclude that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice issued under Section 274 r/w, Section 271 of the Act.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppIn Madras, no. The assessee had understood the purport and import of the notice, and claiming depreciation on machinery that did not exist was inaccurate particulars. The penalty was upheld. This was decided by the High Court (Madras High Court — T.S. Sivagnanam and N. Seshasayee, JJ. (judgment by T.S. Sivagnanam, J.)) and bears on section 271(1)(c), section 274, section 32, section 132 of the Income Tax Act 1961. It is reported as T.C. (Appeal) Nos. 876 and 877 of 2008; [2018] 93 taxmann.com 250 (Madras) / [2018] 403 ITR 407 (Madras) / 304 CTR 846. It shows the limit of the notice-defect argument in practice: where the underlying facts are bad, courts find that you understood the charge. The assessee's SLP was dismissed, which makes it harder to argue around. If it applies to you, the first step is this: Assess your facts honestly before relying on a notice defect; a strong merits case behind you is what makes the defect matter.
The assessee, in the business of hire purchase, equipment leasing and allied activities, purchased air pollution control equipment from Pioneer Engineering Company and leased it back to Prakash Industries Ltd. A search under s.132 on Pioneer Engineering Company by the Investigation Wing at Ranchi produced a sworn statement from its managing partner that it had sold no such equipment to any leasing company, and showed current accounts in that company's name with different proprietors at different addresses through which money received from finance companies was routed, most of it reaching the lessee. The Assessing Officer treated the lease as a finance transaction, disallowed the depreciation and levied penalty under s.271(1)(c). Before the Commissioner (Appeals) the assessee admitted that it had claimed depreciation on an asset that did not exist and had reversed the claim; the penalty was upheld, and the Tribunal dismissed its appeals in ITA Nos. 1497 and 1498/Mds/2003. In the High Court the assessee obtained leave to add a third substantial question on the sufficiency of the s.274 notice, which had never been raised below. The matter was decided on 2018-04-23 by the High Court (Madras High Court — T.S. Sivagnanam and N. Seshasayee, JJ. (judgment by T.S. Sivagnanam, J.)). On those facts the High Court held as follows. The appeals were dismissed and the substantial questions answered against the assessee. Penalty under s.271(1)(c) was rightly levied: claiming depreciation on air pollution control equipment that did not exist and was never supplied amounted both to concealing particulars of income and to furnishing inaccurate particulars, and the three authorities below had concurrently rejected the assessee's plea of bona fide belief. On the notice point, the Court found on perusal that the relevant columns of the s.274 notice had in fact been marked, the case against the assessee being that it had both concealed particulars and furnished inaccurate particulars; the additional substantial question was therefore rejected as not arising on the facts. The Court added that the point was one of fact and not of law, that it had never been raised before the Assessing Officer, the Commissioner (Appeals), the Tribunal or in the appeal memorandum and was taken for the first time ten years later at final hearing, and that even assuming a defect it had caused no prejudice because the assessee clearly understood the purport and import of the notice (paras 13, 16, 17).
The Court took its statement of principle from the Karnataka High Court's summary in CIT v. Manjunatha Cotton & Ginning Factory: penalty under s.271(1)(c) is a civil liability; mens rea is not essential and wilful concealment is not an ingredient; the existence of the s.271(1)(c) conditions is a sine qua non and must be discernible from the assessment, appellate or revisional order; imposition is not automatic even where the tax liability is admitted; where the explanation offered is not substantiated a penalty order may follow; the notice proposing penalty should specifically state the grounds mentioned in s.271(1)(c); and findings in the assessment proceedings do not operate as res judicata in the penalty proceedings (para 10). Applying that, the Court found the s.271(1)(c) conditions writ large on the face of the Assessing Officer's and the first appellate authority's orders. The whole matter had come to light only through a search under s.132 on Pioneer Engineering Company by the Investigation Wing at Ranchi, in which the managing partner deposed that the company had sold no such equipment to any leasing company; current accounts had been opened in that company's name showing different proprietors at different addresses, money from finance companies was deposited and withdrawn, and the bulk went to the lessee. The inspection report the assessee relied on was vague, and it was for the assessee to satisfy itself that the asset existed rather than rely on the lessee's word or a self-serving inspection report. The Court said it was very hard to believe that a leasing company had advanced money to lease out machinery that never existed, noted that the assessee had not said what action it had taken against the lessee it accused of fraud, and observed that the reversal of the claim came only when the assessee was confronted with the search findings (paras 12, 13). On the notice, the Court distinguished CIT v. Jindal Equipments Leasing and Consultancy Services Ltd., on which the assessee relied for the right to raise a pure question of law late, and held that the question here was factual, that the columns had been marked, that no prejudice had been shown, that not every violation nullifies an order made by a statutory authority, and that principles of natural justice cannot be read in the abstract by a limited company with a wide network of financial services raising the point ten years on (paras 14 to 16). In the words reproduced by the source cited on this page: "Thus on facts, we could safely conclude that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice issued under Section 274 r/w, Section 271 of the Act." The decision followed or applied CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 (Kar.) — followed for the summary of principles on s.271(1)(c); CIT v. Jindal Equipments Leasing and Consultancy Services Ltd. [2010] 325 ITR 87 (Delhi) — distinguished; Lakshmi Vilas Bank Ltd. v. CIT [2006] 284 ITR 93 (Mad.) — relied on by the Tribunal below.
It was decided by the High Court on 2018-04-23 and is reported as T.C. (Appeal) Nos. 876 and 877 of 2008; [2018] 93 taxmann.com 250 (Madras) / [2018] 403 ITR 407 (Madras) / 304 CTR 846. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 271(1)(c), section 274, section 32, section 132, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeals were dismissed and the substantial questions answered against the assessee. Penalty under s.271(1)(c) was rightly levied: claiming depreciation on air pollution control equipment that did not exist and was never supplied amounted both to concealing particulars of income and to furnishing inaccurate particulars, and the three authorities below had concurrently rejected the assessee's plea of bona fide belief. On the notice point, the Court found on perusal that the relevant columns of the s.274 notice had in fact been marked, the case against the assessee being that it had both concealed particulars and furnished inaccurate particulars; the additional substantial question was therefore rejected as not arising on the facts. The Court added that the point was one of fact and not of law, that it had never been raised before the Assessing Officer, the Commissioner (Appeals), the Tribunal or in the appeal memorandum and was taken for the first time ten years later at final hearing, and that even assuming a defect it had caused no prejudice because the assessee clearly understood the purport and import of the notice (paras 13, 16, 17). It arises in Penalty matters, on section 271(1)(c), section 274, section 32, section 132 of the Income Tax Act 1961, and was decided by Madras High Court — T.S. Sivagnanam and N. Seshasayee, JJ. (judgment by T.S. Sivagnanam, J.). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Note that reversing a claim when confronted was treated as evidence that the charge was understood. Check whether your High Court follows this line or the Bombay Full Bench line.
Validity check could not be completed. The report carries the citator banner 'This case is Dismissed/Rejected [2018] 99 taxmann.com 152 (SC)'. That is Sundaram Finance Ltd. v. Dy. CIT, SLP (Civil) Diary No. 34548 of 2018, decided 26 October 2018 by Rohinton Fali Nariman and Navin Sinha, JJ., reported at [2018] 99 taxmann.com 152 (SC) / [2018] 259 Taxman 220 (SC). The order reads in full: delay condoned, and the Special Leave Petitions are dismissed. A non-speaking dismissal of a special leave petition is not an affirmance of the High Court's reasoning and does not convert this judgment into approved law, so the status stays unverified. No later decision applying or following the judgment was found on the database. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Decided 23 April 2018 by T.S. Sivagnanam and N. Seshasayee, JJ. in T.C.(A) Nos. 876 and 877 of 2008; reported at [2018] 93 taxmann.com 250 (Madras) / [2018] 403 ITR 407 (Madras). The single most important correction: the Court did not uphold a penalty despite an unparticularised notice. It found the relevant columns of the s.274 notice had been marked, held the question to be factual rather than legal, and rejected the additional substantial question as not arising; the observations about the assessee having understood the purport and import of the notice, and about the plea being taken ten years late, are conditional and supplementary. The assessee's SLP was dismissed without reasons on 26 October 2018 at [2018] 99 taxmann.com 152 (SC) / [2018] 259 Taxman 220 (SC), which is not an affirmance. Note also that the judgment gives the assessment years inconsistently: para 1 identifies the Tribunal orders as being for AYs 1995-96 and 1996-97 and para 5 speaks of AY 1995-96, while the digest heading says AY 1994-95. The judgment states the assessment years inconsistently — para 1 refers to Tribunal orders for AYs 1995-96 and 1996-97, para 5 to AY 1995-96, and the digest heading to AY 1994-95 — so verify the year before citing. Because the Court found the notice adequate on the facts, it decided nothing on what follows where a s.274 notice genuinely fails to specify the limb, and the conflict with the Bombay Full Bench view in Mohd. Farhan A. Shaikh is untouched. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were dismissed and the substantial questions answered against the assessee. Penalty under s.271(1)(c) was rightly levied: claiming depreciation on air pollution control equipment that did not exist and was never supplied amounted both to concealing particulars of income and to furnishing inaccurate particulars, and the three authorities below had concurrently rejected the assessee's plea of bona fide belief. On the notice point, the Court found on perusal that the relevant columns of the s.274 notice had in fact been marked, the case against the assessee being that it had both concealed particulars and furnished inaccurate particulars; the additional substantial question was therefore rejected as not arising on the facts. The Court added that the point was one of fact and not of law, that it had never been raised before the Assessing Officer, the Commissioner (Appeals), the Tribunal or in the appeal memorandum and was taken for the first time ten years later at final hearing, and that even assuming a defect it had caused no prejudice because the assessee clearly understood the purport and import of the notice (paras 13, 16, 17).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Valuables were found at my premises and I say they are not mine. Who has to prove ownership?
Is penalty under s.271(1)(c) criminal, quasi-criminal or civil?
When must the satisfaction note be recorded before proceedings are taken against a third party?
We treated a building's full cost as application of income. Can we also claim depreciation on it?