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Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
These two appeals by the assessee are directed against different orders of CIT(A) for the assessment years 2015-16 & 2016- 17 dated 22.2.2023 & 16.2.2023 respectively, wherein ld. CIT(A) has confirmed the levy of penalty u/s 271(1)(c) of the Income-tax Act,1961 ['the Act' for short]. The grounds in both the assessment years are common in nature except for the figures. Hence, these are clubbed together, heard together and disposed of by this common order for the sake of convenience. The grounds raised in AY 2015- 16 are reproduced as under: 1. “The order of the ld. CIT(A) is opposed to law, facts and circumstances of the case.
The order is passed in haste, without providing sufficient and reasonable opportunity of being heard.
& 322/Bang/2023 M/s. Vinayaka Enterprises, Bangalore Page 2 of 11 3. The order is passed against the principle of natural justice and thus liable to be quashed.
4. On the facts and circumstances of the case and in law, the ld. CIT(A) erred in confirming the action of ld. AO by levying penalty u/s 271(1)(c) of the Act.
5. The ld. CIT(A) failed to acknowledge the fact that there was no “mens rea or guilty mind” which is a vital point in the expression “concealment” as envisaged in section 271(1)(c). The levy of penalty was uncalled for.
6. The ld. CIT(A) and the ld. AO failed to acknowledge the genuinity of the appellant as return of income filed which was accepted by the ld. AO was filed voluntarily by the appellant.
7. The ld. CIT(A) ought to have objectively evaluated the merits of the case laws relied upon by the appellant. Though the facts of the case laws relied upon were different, the essence of the case for levy of penalty ought to have been considered rather than disregarding the same on face value.
8. The ld. CIT(A) disregarded the fact that the appellant had made full and true disclosure of all the details in its return of income and hence no penalty on account of such bonafide mistake on the part of the appellant was liable to be imposed. Total tax effect – Rs.14,03,453/-.”
2. The assessee has raised common additional ground in both the assessment years before us and the addition ground raised in AY 2015-16 is reproduced as under: 9. “The ld. CIT(A) and the ld. AO have erred in not appreciating that the penalty order was illegal and penalty was levied for ‘concealment of income’ when the proceedings were initiated for ‘furnishing inaccurate particulars of income’ which is not permitted by law and has rendered the satisfaction of the ld. AO under section 271(1)(c) void.”
The ld. A.R. submitted that at the time of filing the appeal before this Tribunal, inadvertently assessee has not raised this ground which goes to the root of the issue before the Tribunal and also there is no necessity of any investigation of fresh facts otherwise & 322/Bang/2023 M/s. Vinayaka Enterprises, Bangalore Page 3 of 11 on record and prayed that this additional ground to be admitted in the interest of justice.
We have heard the rival submissions and perused the materials available on record. In our opinion, all the facts are already on record and there is no necessity of investigation of any fresh facts for the purpose of adjudication of above ground. Accordingly, by placing reliance on the judgement of Hon’ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC) we inclined to admit the additional ground for the purpose of adjudication as there was no investigation of any fresh facts otherwise on record and the action of the assessee is bonafide.
Facts of the issue are that the assessee is a partnership firm engaged in the business of real estate. The Assessee for the AY 2015-16 had filed its return of income u/s 139 of the Act on 14.10.2016 declaring total income of Rs.42,39,920/- and for 2016-17 filed its return of income u/s.139 of the Act on 19/10/2016 declaring total income of Rs.28,39,380/-.
5.1 A search and seizure operation under section 132 was conducted on 03.01.2019 in the case of Shri M. Chandrashekar Group and Others. In this connection, certain evidences pertaining to the Assessee were seized and after recording satisfaction, notice under section 153C of the Act was issued to the Assessee on 11.03.2021 requiring the Assessee to file its return of income within 7 days of service of the notice for the assessment years.
5.2 The assessee accordingly filed its return of income in response to the notice under section 153C of the Act on 15.04.2021 and declared income of Rs.87,81,840/- for 2015-16 and Rs.28,39,380/- for 2016-17 assessment year. The case of & 322/Bang/2023 M/s. Vinayaka Enterprises, Bangalore Page 4 of 11 the assessee was thereafter taken up for scrutiny assessment and vide order dated 07.09.2021, the assessment was completed under section 143(3) read with section 153C of the Act accepting the return filed by the assessee in response to 153C notice for both the years. Since the income offered in the return of income was pursuant to the search proceeding, a penalty notice was issued to the Assessee under section 271(1)(c) of the Act for furnishing 'inaccurate particulars of income'.
5.3 The learned Assessing Officer ("AO") passed the two different penalty orders both dated 16.03.2022 and levied penalty of Rs.14,03,453/- for Concealment of Income for assessment year 2015-16 and levied penalty of Rs.59,458/-for AY 2016-17. The Assessee being aggrieved by the penalty order filed appeal before the Commissioner of Income-tax (Appeals). The CIT (A) dismissed the grounds of appeal raised by the assessee and upheld the penalty order passed by the AO. The Assessee being aggrieved by the order of the ld. CIT (A) has preferred the present appeal before this Tribunal.
5.4 The Assessee has filed additional ground challenging the order of the ld. AO and ld. CIT(A) which has initiated the penalty proceedings under one limb of section 271(1)(c) i.e., 'furnishing of inaccurate particulars of income' and has concluded that penalty was leviable since there was concealment of income on the other limb.
5.5 The ld. A.R. for the assessee submitted that initiating the penalty proceedings for one limb of the section and levying the penalty by finding assessee guilty for another limb is illegal. In other words, if proceedings are initiated on charge of furnishing & 322/Bang/2023 M/s. Vinayaka Enterprises, Bangalore Page 5 of 11 of inaccurate particulars of income, then penalty cannot be levied for concealment of income and vice versa.
5.6 The ld. A.R. relied on the decision of the Hon'ble Bombay High Court in the case of CIT v Samson Perinchery (2017) 392 ITR 4 (Bombay) wherein it has been held that order imposing penalty can be made only on the ground of which penalty proceedings have been initiated and it cannot be a fresh ground of which assessee has no notice.
5.7 The ld. A.R. further submitted that the Jodhpur Bench of this Tribunal in the case of Kansara Bearings Ltd vs. ACIT (2013) 35 taxmann.com 188 (Jodhpur-Trib) has held that the AO has to clearly show-cause assessee as to which of two defaults, [i.e., assessee has concealed particulars of his income or furnished inaccurate particulars of such income] have been committed by assessee and only when assessee is put to that defence penalty under section 271(1)(c) can be imposed.
5.8 He further submitted that the jurisdictional High Court of Karnataka in the case of CIT v Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Karnataka) has also held that taking up the penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law.
5.9 Given the above, he submitted that since it is clear from the notice issued by the AO under section 274 read with section 271(1)(c) of the Act that the penalty proceedings in the case of the Assessee has been initiated for 'furnishing inaccurate particulars of income'. The AO while passing the penalty order has computed the penalty for 'concealment of income' for which no notice has been given to the Assessee. The penalty & 322/Bang/2023 M/s. Vinayaka Enterprises, Bangalore Page 6 of 11 order and the consequent order of the ld. CIT(A) upholding the levy of penalty deserves to be quashed and the appeal of the Assessee deserves to be allowed in the interest of equity and justice.
The ld. D.R. submitted that there was a search & seizure operation u/s 132 of the Act conducted on 3.1.2019 in the case of Shri M. Chandrasekhar Group & Others. In this connection, search was also conducted at the premises of M/s. Vinayaka Enterprises, No.212/G, D-Block, Opal Road Extension, Shivamogga. Various incrimination evidences were found and seized during the course of search operation showed the material pertain to are relating to the assessee. Consequent to the search in the case of M/s. Vinayaka Enterprises, notice u/s 153C of the Act was issued to the assessee and assessment was made. There was offer of income by assessee at Rs.87,81,840/- for the assessment year 2015-16 and Rs.28,39,380/- for the assessment year 2016-17. Had been there no search action, the assessee would not have declared this income in the return of income filed u/s 153C of the Act. Hence, the penalty to be confirmed and further she submitted that the assessee not filed original return u/s 139 of the Act. Therefore, on merit, the penalty to be sustained and the additional ground shall not be considered as there was no injury caused to the assessee by mentioning in the penalty order that it has been levied for concealment of income instead of mentioning that penalty has been levied for furnishing inaccurate particulars of income as notice issued u/s 274 of the Act.
We have heard the rival submissions and perused the materials available on record. First of all we will decide the additional ground raised
by the assessee as below:
9. The ld. CIT(A) and the ld. AO have erred in not appreciating that the penalty order was illegal and penalty was levied for ‘concealment of income’ when the proceedings were initiated for ‘furnishing inaccurate particulars of income’ which is not permitted & 322/Bang/2023 M/s. Vinayaka Enterprises, Bangalore Page 7 of 11 by law and has rendered the satisfaction of the ld. AO under section 271(1)(c) void.”
7.1 In these cases the ld. AO mentioned the initiation of penalty in the assessment order for AY 2015-16 as below: “Penalty proceedings are initiated u/s 271(1)(c) of the Income Tax Act, 1961 for furnishing inaccurate particulars of income.”
7.1.1 Similar is the position for the assessment year 2016-17. 7.2 Accordingly, he issued a notice for levy of penalty u/s 274 of the Act and this fact was also recorded by ld. AO in the penalty order passed by him in para 5 in assessment year 2015-16, which is as follows: “5. Assessment u/s 143(3) r.w.s. 153C have been completed on 7.9.2021 accepting the return income filed in response to the notice u/s 153C. Since, income offered in the return of income was due to the search proceeding, a penalty notice was issued to the assessee u/s 271(1)(c) of the Income Tax Act, 1961 for furnishing inaccurate particulars of income. Show cause notices were issued to the assessee on 7.9.2021 and 14.1.2022.”
7.3 Similarly, in para 4 in assessment year 2016-17, it was recorded as follows: “4. Assessment u/s 143(3) r.w.s. 153C have been completed on 7.9.2021 accepting the return income filed in response to the notice u/s 153C. Since, income offered in the return of income was due to the search proceeding, a penalty notice was issued to the assessee u/s 271(1)(c) of the Income Tax Act, 1961 for furnishing inaccurate particulars of income. Show cause notices were issued to the assessee on 7.9.2021 and 14.1.2022.”
7.4 Contrary to this, he mentioned in para 7 of the penalty order in assessment year 2015-16 as follows: “7. The amount of tax sought to be evaded works out to Rs.14,03,453/- the same is worked out as under: Concealed income Rs.45,41,920/- Tax @ 30% Rs.13,62,576/- Education cess @ 3% of (a) Rs.40,877/- Total tax sought to be evaded Rs.14,03,453/-“ & 322/Bang/2023 M/s. Vinayaka Enterprises, Bangalore Page 8 of 11 7.5 For the assessment year 2016-17, in para 6 he mentioned as follows: “6. The amount of tax sought to be evaded works out to Rs.59,458/- the same is worked out as under:
Concealed income Rs.1,92,420/- Tax @ 30% Rs.57,726/- Education cess @ 3% of (a) Rs.1,732/- Total tax sought to be evaded Rs.59,458/-“
7.6 Thus, it seems that though the ld. AO initiated the penalty for furnishing inaccurate particulars of income, however, he levied the penalty for concealment of income. It is settled principle that whenever ld. AO initiate the levy of penalty either for furnishing inaccurate particulars of income or for concealment of income, he should specify the same and bring to the notice of the assessee so tht the assessee would be in a position to give reply to the levy of penalty under which circumstances penalty has been levied. 7.7 In our opinion, the ld. AO has not applied his mind while passing the penalty order and not given fair opportunity of hearing to the assessee to show cause as to why the penalty cannot be levied for concealment of income and since he has initiated the penalty only for furnishing inaccurate particulars of income. This action of the ld. AO cannot be upheld. 7.8 In this regard, we have perused the said paras 59 to 61 of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (supra) and the same read as under: “NOTICE UNDER SECTION 274 59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of & 322/Bang/2023 M/s. Vinayaka Enterprises, Bangalore Page 9 of 11 relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form „here all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(l)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order & 322/Bang/2023 M/s. Vinayaka Enterprises, Bangalore Page 10 of 11 of penalty must be determined with reference to the information, facts arid materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61 The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pal reported in 292 flR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujrat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case o VIRGO MARKETING reported in 171 Taxmn 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind.”
7.9 From the above, it is clear that the penalty should be clear as to the limb for which it is levied and the position being unclear here, the penalty is not sustainable. Therefore, considering the same, we are of the opinion that the ground raised by the assessee should be allowed on additional ground. Accordingly, adjudication of the penalties on merits become an academic exercise.
7.10 Same view was taken by Mumbai Bench of this Tribunal in the case of Shri Samson Perinchery in to 4630/Mum/2013 dated 11.10.2013. In view of the above discussion, we quash the penalty order in these assessment years u/s 271(1)(c) of the Act. & 322/Bang/2023 M/s. Vinayaka Enterprises, Bangalore Page 11 of 11
In the result, both the appeals of the assessee are allowed.
Order pronounced in the open court on 30th Aug, 2023