PADAM KUMAR JAIN,RANCHI vs. DCIT, CENTRAL CIRCLE-1, RANCHI

IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH, RANCHI VIRTUAL HEARING AT KOLKATA [Before Shri Rajesh Kumar, Accountant Member & Shri Sonjoy Sarma, Judicial Member] I.T.A. Nos. 16 & 17/Ran/2020 Assessment Year : 2010-11 & 2013-14 Sri Padam Kumar Jain Vs. DCIT, Central Circle-1, Ranchi PAN: ABRPJ 0001 E Appellant Respondent Date of Hearing 16.01.2023 Date of Pronouncement 17.02.2023 For the Assessee Shri Devesh Poddar, Advocate For the Revenue Shri Pranob Kumar Koley, Sr. DR

ORDER Per Shri Sonjoy Sarma, JM: The above captioned appeals have been filed by the assessee challenging the separate orders of ld. CIT(A)-3, Patna by which the ld. CIT(A) upheld the penalty imposed u/s 271(1)(c) of the I.T. Act, 1961. Appeals being 16 & 17/Ran/2020 relating to assessment year 2010-11 & 2013-14 against the same assessee. Since the facts and issues involved and appeals are common except for date, figures and assessment years. They have been clubbed together and taken up for disposal in consolidated order for the sake of convenience. The decision in ITA No. 16/Ran/2020 shall apply mutantis mutandis in another appeal. Hence the grounds raised in ITA No. 16/Ran/2020 is reproduced as under:

“1. For that the penalty imposed is unjustified, arbitrary and illegal. 2. For that ld. CIT(A) erred in not appreciating that the search and seizure u/s 132(1) in the business and residential places of the appellant had taken place on 03.07.2014 and accordingly in view of statutory provisions of sub-section (2) of section 271AAB the penalty provisions of section 271(1)(c) were not applicable in the case of the appellant. As such the penalty imposed u/s 271(1)(c) is illegal, ultra-vires and liable to be quashed.

2 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain 3. For that ld. CIT(A) further erred in not appreciating that the penalty imposed u/s 271(1)(c) amounting to Rs. 16,74,935/- is illegal, ultra-vires and liable to be quashed since notice issued by Assessing Officer u/s 274 read with section 271(1)(c) was bad in law, as it did not specify under which limb of section 271(1)(c) penalty proceedings had been initiated, i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. 4. For that ld. CIT(A) was not justified in confirming penalty on alleged addition of Rs. 54,00,000/- as undisclosed income of the appellant. It is admitted fact the addition related to the expenditure at the Chaibasa site office though the employee out of the income arisen there, which were not recorded in the regular books of accounts due to mistake of accountant. The expenditure incurred has not been doubted by the ld. AO and as such if the income earned was credited the expenditure incurred was also debited and the net effect would have been nil. As such there was no undisclosed real income on which penalty u/s 271(1)(c) could be imposed. 5. For that ld. CIT(A) was not justified in confirming penalty on the additional income Rs. 20,500/- declared in the return u/s 153A. The same was on account of correction of calculation of claim of donation u/s 80G, which does not amounts the concealment. 6. For that other grounds, if any will be argued at the time of hearing.” 2. The brief facts of the case are that in pursuant to warrant of authorization issued by the Director of Income-tax (Inv.), Patna and Addl. Director of Income-tax (Inv.), Ranchi, a search and seizure operation u/s 132(1) of the I.T. Act, 1961 was carried out in the business and residential premises of Padam Kumar Jain Group of cases at Ranchi on 03.07.2014 and notice u/s 153A of the I.T. Act was issued to the assessee on 09.02.2015 by the ld. AO. In response to the notice u/s 153A, the assessee has filed his return of income at Rs. 5,86,94,960/- on 01.10.2016. The assessment was made u/s 153A/143(3) of the Act on 23.12.2016 on the assessed income of Rs. 6,52,94,920/-. Further, the ld. AO has initiated penalty proceeding u/s 271(1)(c) of the Act by imposing penalty of Rs. 16,74,935/-.

3 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain “I have gone through the penalty order, assessment order and the submission of the appellant. The undisputed fact is that a search & seizure operation u/s 132(1) was conducted on 03.07.2014 at the residential as well as business premises of Padam Kumar Jain group of cases. Subsequently, the AO issued notice u/s.l53A requesting the appellant to file the Return of income. In compliance the appellant filed the ROI declaring total income at Rs. 5,86,74,460/- and later on revised the same to Rs. 5,86,94,960/-. Subsequently the AO passed order u/s 153A/143(3) on 23.12.2016 determining the total income at Rs. 6,52,94,920/- and also initiated penalty proceedings u/s.271(1)(c) read with explanation 5A of the Act. The AO passed penalty order u/s.271(1)(c) on 30.06.2017 and levied penalty of Rs.16,74,935/- being @100% of tax sought to be evaded. The penalty was levied on enhanced income of Rs.20,500/ (being the difference in the original return u/s. 153A and revised return u/s.153A) and as increased by the undisclosed income of Rs.54,00,000/- which was detected during the course of assessment proceeding based on the seized material marked as UKD-1 to UKD-4, which the appellant surrendered by way of letter dated 21.12.2016. In other words the AO excluded additions made u/s.14A and other adhoc disallowances from the total assessed income u/s.153A/143(3). Hence, the contention of the appellant that the penalty was levied on disallowance made u/s. 14/A and adhoc disallowance is factually incorrect. Under these circumstances the main issue is whether penalty u/s.271 (1)(c) is attracted in the case of the appellant or not. In order to appreciate the issue in proper perspective, the relevant provisions of section 271(1)c) of the Act, is reproduced here-in-below: Failure to furnish returns, comply with notices, concealment of income, etc. Section 271: (1) If the Assessing Officer or the Commissioner (Appeals) or the Commissioner in the course of any proceedings under this Act, is satisfied that any person- (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty - Explanation 1- where in respect of any facts material to the computation of the total income of any person under this Act- (A) Such person fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) or the Commissioner to be false. Or (B) Such person offers an explanation which he is not able to substantiate and fails to prove that such explanation is bone fide and that all the facts relating to

4 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain the same and material to the computation of his total income have been disclosed by him. 3.3.2 Clause (A) of the Explanation applies when an assessee fails to furnish any explanation or when an explanation is found to be false. Further. sub-clause (B) to the explanation provides for examination of two conditions; i.e. (i) the assessee has been able to show his explanation was bonafide and (ii) he had furnished facts relevant and material to the computation of his income. 3.3.3 Following are the settled principles laid down in various judicial precedents including Hon'ble Supreme Court in relation to the penalty proceedings: a Findings recorded in the quantum proceedings are relevant but it does not follow that every addition justifies and compulsorily mandates imposition of penalty. (b) Subject matter in the assessment proceedings is computation of correct income as per the Act, whereas, the subject matter of the penalty proceedings is the conduct of the assessee i.e. concealment or furnishing of inaccurate particulars of income which has resulted in additions in the quantum proceedings. (c) If the assessee discloses all the relevant details in the return of income and does not conceal or tries to camouflage the nature of expense, then penalty u/s. 271(1)(c) of the Act is not eligible. (d) Levy of penalty is not an automatic consequence when an addition is made by disallowing an expense and by not accepting the interpretation given by the assessee. (c) Merely, making a claim which is held as not sustainable under law should not lead to penalty, when the assessee had furnished full details in the return of income and the claim is reasonably plausible. 3.3.4. Seen from the above scuttled position of law, the appellant has not disclosed all material facts to the computation of total income which are known to him. Further, the appellant has not offered any satisfactory explanation as to the non-inclusion of undisclosed income of Rs.54,00,000/- which was detected during the course of assessment proceeding in the return filed u/s. 153A. Further, why only at the fag end of the assessment proceeding, the appellant by way of a letter admitted to the undisclosed income of Rs.54,00,000/-. Further the appellant has not offered any proper explanation in revising the return filed u/s.153A. All these events points to only one direction, that the appellant has deliberately tried his level best to conceal the income. Moreover, the appellant is not able to offer any

5 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain proper explanation and also not able to substantiate the same with bonafide omission commission. The only defense of the appellant appears to be that he voluntarily offered additional income during the assessment 'proceeding to avoid litigation and penalty. Such a defense is not acceptable in view of decision of the Hon'ble Calcutta High Court in the case of CIT Vs. Prasanna Dugar reported in (2015) 371 ITR 19 wherein it was held that Even where subsequent to search, assessee voluntarily disclosed a sum and offered said sum to tax, since said amount was not disclosed in original return, penalty levied under section 271(1)(c) was justified. Further, the Hon'ble Apex court in the case of UOI Vs. Dharmendra Textile Processors reported in (2007) 295 ITR 244(SC) held that there is a conflict of opinions between the judgments of the Division Bench of the Supreme Court in the case of Dilip N. Shroff (supra) on one hand and on the other in the case of Shriram Mutual Fund (supra). Secondly, the object behind enactment of section 271(1)(c), read with the Explanations indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under the said section is a civil liability. Willful concealment is not an essential ingredient for attracting the civil liability as is the case in the matter of prosecution under section 276C. While considering an appeal against an order made under section 271(1)(c) what is required to be examined is the record which the officer imposing the penalty had before him and if that record can sustain the finding there had been concealment, that would be sufficient to sustain the penalty. Keeping in mind these two circumstances, it is to be opined that the judgment of the Division Bench in the case of Dilip N. Shroff (supra) needs consideration. The Explanations added to section 271(1)(c) in that entirety also indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing returns. The judgment in Dilip N. Shroff's case (supra) has also not considered the provisions of section 276C. While considering an appeal against an order made under section 271(1)(c) what is required to be examined is the record which the officer imposing the penalty had before him and if that record can sustain the finding there had been concealment, that would be sufficient to sustain the penalty. Keeping in mind these two circumstances, it is to be opined that the judgement of the Division Bench in the case of Dilip N. Shroff (supra) needs consideration. The Explanations added to section 271(1)(c) in that entirely also indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing returns. The judgement in Dilip N. Shroff’s case (supra) has also not considered the provisions of section 276C. 3.3.5. In fact, the facts and circumstances of the appellant case is squarely covered by the decision of Hon'ble Supreme Court in the case of MAK Data (P.) Ltd Vs. CIT reported in [2013] 358 ITR 593 (SC). In this decision the Hon'ble Apex court held as under:

6 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain The Assessing Officer, shall not be carried away by the plea of the assessee like voluntary disclosure', 'buy peace', 'avoid litigation', 'amicable settlement’, etc to explain away its conduct. The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to section 271(1) raises a presumption of concealment, when a difference is noticed by the Assessing Officer, between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence. When the initial onus placed by the explanation, has been discharged by him the onus shifts on the revenue to show that the amount in question constituted the income and not otherwise. [Para 71 Assessee has only stated that he had surrendered the additional sum with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income tax department. Statute does not recognize those types of defenses under the Explanation 1 to section 271(1)(c). It is true law that the voluntary disclosure does not release the assessee from the mischief of penal proceedings under section 271(1)(c). The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty. [Para 7] The surrender of income on this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the Assessing Officer in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year.

7 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain The Assessing Officer, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under section 271, read with section 274. [Para 9) The Assessing Officer has to satisfy whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the Assessing Officer is not required to record his satisfaction in a particular manner or reduce it into writing. [Para 10] In view of above, impugned penalty order passed by the High Court deserved to be confirmed.[Para 11]

3.3.6. Further, the Hon'ble Bombay High Court in the case of Mahesh N Thakkar Vs ACIT reported in 59 taxmann.com 272 held that -Where assessee had declared correct amount of capital gain only after an explanation sought by Assessing Officer and it was not a case of suo-moto explanation, Assessing Officer liable to invoke penalty proceedings under section 271(1)(c). Similarly, the Hon'ble Delhi High Court in the case of CIT Vs Zoom Communication (P.) Ltd. reported in 191 Taxman 179 (Delhi)/ [2010] 327 ITR 510 (Delhi)/[2010] 233 CTR 465 held that If assessee makes a claim which is not only incorrect in law, but is also wholly without any basis and explanation furnished by him for making such a claim is not found to be bona fide, Explanation 1 to section 271(1)(c) would come into play and assessee will be liable to penalty. The Hon'ble Apex Court in the case of B.A. Balasubramaniam & Bros. Co Vs CIT reported in 116 Taxman 842, 236 ITR 977, 157 CTR 556 held that Difference between income assessed and income returned being more than 20 per cent, Explanation to section 271(1)(c) became applicable and assessee having failed to discharge onus being cast on assessee by virtue of said Explanation, Assessing Officer was justified in imposing penalty. 3.3.7. Further, to take care of these type of concealment of income or furnishing of in accurate particulars of income, Explanation-5A was inserted by Finance (No.2) Act 2009 with retrospective effect from 01.06.2007. Therefore, it is necessary to refer to Explanation 5A as it stood for the relevant assessment year, which reads as under: Explanation 5A.- Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of () any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have

8 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain been acquired by him by utilising (wholly or in part) his income for any previous year, or (i) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous' year, which has ended before the date of search and,- (a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or (b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return, then, notwithstanding that such income is declared by him in any return or income furnished on or after the date of search, he shall, for the purposes imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. 3.3.8. From the plain reading of the above deeming fiction inserted by way of Explanation 5A, it is clearly applicable to all the searches initiated under section 132 of the Act on or after first day of June, 2007. Further, the conditions laid down in Explanation 5A is that, where, in the course of search initiated, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing referred to as assets, and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income for any previous year; or any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of search and, (a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or (b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. 3.3.9. Viewed from the above, the facts of the appellant's case are squarely covered by Explanation 5A, In the appellants case a search was conducted on 03.7.2014 i.e. after 01.06.2007 and the appellant had transactions/entry in books of account or other documents and he claimed that such entry in the books of

9 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain account or other documents or transactions represents his income (wholly or in part) for the previous year and the appellant had not declared income from these transactions in the regular return u/s 139(1) and such income was declared/offered/admitted by the appellant either in the return of income furnished after the date of search or during the assessment proceeding. Hence, seen from the above factual and legal matrix, the appellant has deemed to have concealed the particulars of his income within the meaning of Explanation 5A of Sec. 271(1)(c). 3.3.10. Further, the facts of the appellant's case is squarely covered by the recent decision of the Hon'ble ITAT Patna, Patna Bench in the case of Deep Kumar Maskara Vs DCIT, CC-3, Patna arising out of ITA No.79/Pat./2018 dated 25.10.2018. The relevant operative part of the decision of Hon'ble ITAT supra) is reproduced as under. "11. We have given a careful consideration to the rival submissions and perused the materials available on record. We note that from the plain reading of the above deeming fiction inserted by way of explanation 5A to section 271(1)(c) of the Act, it is abundantly clear that all the searches initiated under section 132 of the Act on or after first June, 2007. Further, the conditions laid down in the Explanation 5A is that, whether, in the course of a search initiated, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing referred to as assets, and the assessee claims that such assets have been acquired by him by utilizing wholly or in part) his income for any previous years or any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of search and, (a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or (b) the due date for filing the return of income for such previous year has expired but the assessee has not fled the return, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause(c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. Viewed from the above, the facts of the appellant's case are squarely covered by Explanation 5A. In the appellants case a search was conducted on 03.02.2009 i.e. after 01.06.2007 and the appellant was found to be the owner of cash of Rs.27,00,000/- as found in Locker No.C-32 of SBI, and no return for the previous year 2007-08 was filed till the due date of filing the return u/s 139(1) i.e. upto 31.10.2008, and such income was declared/offered by the appellant in the return of income furnished after the date

10 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain of search. Hence, seen from the above factual and legal matrix, the appellant has deemed to have concealed the particulars of his income within the meaning of Explanation 5A of Sec. 271(1)(c), and therefore, we confirm the penalty levied under section 271(1)(c) of the Act." 3.3.11. The other contention of the appellant is that, if at all a penalty is required to be levied, the AO should have levied the same u/s.27 1AAB and not u/s.271(1)(c). This contention of the appellant is contrary to the provisions of the Act, in as much as a search and seizure operation wàs conducted on 03.07.2014 and by any wild interpretation A.Y.2010-11 can be termed as "specified previous year" as defined in sec.271AAB. In view of the detailed findings given above, the AO was justified in levying penalty of Rs.16,74,935/- u/s 271(1)(c) r.w. Explanation 5 of the Act.” 4. Aggrieved by the above order passed by the ld. CIT(A), assessee is in appeal before this Tribunal.

11 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain penalty under section 271(1)(c) was held to be invalid by the Tribunal relying on the decision of the Hon’ble Karnataka High Court in the case of CIT & Another –vs.- Manjunatha Cotton & Ginning Factory reported in 359 ITR 565 after discussing the proposition laid down therein in great detail in paragraph no. 8 to 8.2 of its order dated 06.11.2015, which read as under:-

“8. The next argument that the show cause notice u/s.274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the for “furnishing inaccurate particulars of income” or “concealing particulars of such income”. On this aspect we find that in the show cause notice u/s.274 of the Act the AO has not struck out the irrelevant part. It is therefore not spelt out as to whether the penalty proceedings are sought to be levied for “furnishing inaccurate particulars of income” or “concealing particulars of such income”. 8.1 The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon’ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed. 8.2 The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down the following principles to be followed in the matter of imposing penalty u/s.271(1)(c) of the Act. “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 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

12 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain 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 farm where 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. 60. 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(1)(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 of penalty must be determined with reference to the information, facts and 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.

13 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain 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 Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxman 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 pro forma without striking of the relevant clauses will lead to an inference as to non-application of mind.” The final conclusion of the Hon’ble Court was as follows:- “63. In the light of what is stated above, what emerges is as under: a) Penalty under Section 271(1)(c) is a civil liability. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. e) The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B).

14 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order. l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority. p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law.

15 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. u) The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings.” (emphasis supplied) It is clear from the aforesaid decision that on the facts of the present case that the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision of the Hon’ble Karnataka High Court, we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled. For the reasons given above, we hold that levy of penalty in the present case cannot be sustained. We therefore cancel the orders imposing penalty on the Assessee and allow the appeal by the Assessee”. 6. Per contra, the ld. DR submitted before us that the notice issued by the ld. AO u/s 271(1)(c) of the Act is a valid one and as such the ld. CIT(A) rightly dismiss the appeal of the assessee.

16 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain that the notice issued under section 271(1)(c) without specifying are of the two limbs is defective and the penalty imposed in pursuance of such defective notice was not sustainable. To arrive at this conclusion, Hon’ble Calcutta High Court relied on the decision of Amrit Foods –vs.- Commissioner of Central Excise UP reported in (2005) 13 SCC 419 as well as their own decision in the case of Principal CIT –vs. Dr. Murari Mohan Koley (ITAT No. 306 of 2017 dated 18.07.2018). The issue raised by the assessee in this appeal thus is squarely covered by the said judicial pronouncements including the decision of the Hon’ble Jurisdictional High Court and respectfully following the same, we cancel the penalty imposed upon the assessee under section 271(1)(c) by the ld. AO and set aside the order passed by the ld. CIT(A).

Order pronounced in the open court on 17.02.2023 Sd/- Sd/-

(Rajesh Kumar) (Sonjoy Sarma) Accountant Member Judicial Member Dated:17.02.2023 Biswajit, Sr. PS

17 ITA Nos. 16 & 17/Ran/2020 AY: 2010-11 & 2013-14 Sri Padam Kumar Jain

Copy of the order forwarded to: 1. Appellant- Sri Padam Kumar Jain, Ratanlal Surajmal Compound, Main Road, Ranchi-834001. 2. Respondent – DCIT, Central Circle-I, Ranchi.