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Income Tax Appellate Tribunal, CUTTACK BENCH CUTTACK
Before: SHRI GEORGE MATHAN & SHRI MANISH AGARWAL
(िनधा�रण िनधा�रण िनधा�रण वष� िनधा�रण वष� वष� / Assessment Year : 2010-2011) वष� Santosh Kumar Sahoo, Vs ITO, Khurda Ward, Khurda At: Durga Bazar, PO: Rajsunakhala, Nayagarh PAN No. :AXFPS 2477 K (अपीलाथ� अपीलाथ� अपीलाथ� /Appellant) अपीलाथ� (��यथ� ��यथ� ��यथ� / Respondent) ��यथ� .. िनधा�रती िनधा�रती क� िनधा�रती िनधा�रती क� क� ओर क� ओर ओर सेसेसेसे /Assessee by ओर : Shri S.K.Agrawalla, CA राज�व क� राज�व क� ओर ओर सेसेसेसे /Revenue by राज�व राज�व क� क� ओर ओर : Shri S.C.Mohanty, Sr.DR सुनवाई क� तारीख / Date of Hearing : 14/10/2024 घोषणा क� तारीख/Date of Pronouncement : 14/10/2024 आदेश / O R D E R आदेश आदेश आदेश Per Bench : This is an appeal filed by the assessee against the order of the ld. CIT(A), Bhubaneswar-2, dated 30.06.2024, passed in DIN & Order No.ITBA/APL/S/250/2024-25/1066274744(1) for the assessment year 2010-2011, on the following grounds of appeal :-
1. That, penalty order passed u/s 271(1)(c) of the Act is not sustainable in view of the fact that, the Ld. Assessing Officer had not reached at a positive finding that whether the appellant concealed the income or furnished the particulars of income and the Commissioner of Income Tax (Appeals) is wrong in confirming the action of the Ld. Assessing Officer. Therefore, the penalty of 6,09,800 is liable to be deleted.
2. That, the penalty order passed by the Ld. Assessing officer without recording any satisfaction in the Assessment Order is without jurisdiction, and the Ld. Commissioner of Income Tax (Appeals) is not correct in dismissing this ground of appeal.
3. That, the penalty order passed u/s 271(1)(c) of the Act is barred by limitation and therefore liable to be quashed.
4. That, the appellant craves to alter, amend, modify or add any other ground that may be considered necessary in the course of appeal proceeding.
Brief facts of the case are that a survey was conducted at the business premises of the assessee on 24.03.2010. During the course of survey, stock physically available was quantified and it was found that assessee was having excess stock and accordingly addition was made on this account vide order passed u/s.143(3) of the Act, dated 21.03.2013.
The matter travelled upto ITAT and finally the addition was reduced to Rs.10,09,500/- with respect to gold ornaments and Rs.1,50,447/- with respect to silver ornaments items, in terms of the order passed u/s.144/254 of the Act dated 17.03.2021. In the meantime, the AO proceeded with pending penalty proceedings and levied penalty u/s.271(1)(c) of the Act vide order dated 26.04.2019 at Rs.6,09,800/- by treating the excess stock of Rs.18,73,275/- of gold jewellery and Rs.1,50,447/- of silver jewellery articles found in excess during the course of survey, determined vide order dated 31.10.2018, passed u/s.144 r.w.s.254 of the Act.
Before us, the ld. AR of the assessee submitted that the penalty was levied on the amount of Rs.20,23,722/- holding the same as excess stock found during the course of survey. The said amount was reduced further by the AO in its order passed u/s.154 of the Act and finally the addition sustained was of Rs.10,09,500/- with respect to gold ornaments and Rs.1,50,447/- of silver ornaments/articles. He further submitted that while initiating the penalty proceedings the ld. AO has failed to record satisfaction whether assessee has furnished inaccurate particulars of income or concealed the income. He further drew our attention to the notice issued for initiation of the penalty proceedings u/s.271(1)(c) of the Act which reads as under :-
4. Ld. AR submitted that when the penalty proceedings were initiated, it was not specified in the notice about which fault proceedings were initiated i.e. whether the assessee has concealed the income or furnished inaccurate particulars of income and, therefore, the penalty is required to be deleted.
Per Contra, ld. Sr. DR supported the order of the lower authorities and submitted that though the AO has not clearly stated that on which limb the penalty proceedings are initiated, however, the ld. CIT(A) has observed that the satisfaction was recorded for furnishing inaccurate particular of income and confirmed the penalty. He, accordingly, supported the order of the lower authorities and requested for the confirmation of the penalty so levied by the lower authorities.
We have considered the rival submissions and perused the material available on record. In this case, from the assessment order it is seen that while initiating the penalty proceedings, the AO has not recorded satisfaction as to which limb of Section 271(1)(c) of the Act was invoked for initiation of penalty proceedings. The relevant observations of the AO as contained in page 14 of the assessment order are reproduced hereunder :-
As per Section 271(1)(c) of the Act, the AO should record his satisfaction that the assessee has either concealed the income or furnished inaccurate particulars of his income. From the perusal of the observations made by the AO while initiating the penalty proceedings in the assessment order it is clear that he has not recorded his satisfaction on either of the limb nor in the notice issued u/s.274(1) r.w.s.271(1)(c) of the Act dated 21.03.2013, it was specifically pointed out as to whether the assessee has concealed the particulars of income or furnished the inaccurate particulars of income. Therefore, the penalty proceedings initiated without recording the satisfaction is liable to be quashed. In this regard, reliance can be placed on the decision of the Hon’ble Apex Court vide judgment in case of M/s. SSA's Emerald Meadows, (2016) 73 taxmann.com 248(SC) wherein the Hon’ble Supreme Court has dismissed the Special Leave Petition filed by the Revenue against the judgment rendered by Hon'ble High Court of Karnataka whereby identical issue was decided in favour of the assessee. Operative part of the judgment in case of M/s. SSA's Emerald Meadows (supra) decided by Hon'ble High Court of Karnataka is reproduced below:-
"2. This appeal has been filed raising the following substantial questions of law: (1) Whether, omission if assessing officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? (2 Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in. holding that the penalty notice under Section 274 r.w.s. 271(1)(c) is had in law and. invalid in spite the amendment of Section 271(1 B) with retrospective effect and by virtue of the amendment, the assessing officer has initiated the penalty by properly recording the satisfaction for the same? (3) Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding the appeals against the Revenue on the basis of notice issued, under Section 274 without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income? 3. The Tribunal has allowed the appeal filed by the assessee holding the notice issued by the Assessing Officer under Section 274 read with Section 271(1)(c) of the Income Tax Act, 1961 (for short 'the Act') to be bad in law as it did not specify which limb of Section 271(1)(c) of the Act, the penalty proceedings had been initiated i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. .The Tribunal, while allowing the appeal of the assessee, has relied 01 the derision of the Division Bench of this Court rendered In the case of COMMISSIONER or INCOME TAX -VS- MANJUNATHA COTTON AND GINNING FACTORY (2013) 359 ITR 565.
In our view, since the matter is covered by judgment of the Division Bench of this Court, we are of the opinion, no substantial question of law arises in this appeal for determination by this Court, the appeal is accordingly dismissed."
Bare perusal of the notice issued u/s 271(1)(c) of the Act apparently goes to prove that the Assessing Officer initiated the penalty proceedings by issuing the notice u/s 274/271(1)(c) of the Act without specifying whether the assessee has concealed ''particulars of income" or assessee has furnished "inaccurate particulars of income", so as to provide adequate opportunity to the assessee to explain the show cause notice.
Rather notice in this case has been issued in a stereotyped manner without applying any mind which is bad in law, hence is not a valid notice sufficient to impose penalty u/s 271(1)(c) of the Act.
The penalty provisions of section 271(1)(c) of the Act are attracted where the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it was imperative for the Assessing Officer to strike- off the irrelevant limb so as to make the assessee aware as to what is the charge made against him so that he can respond accordingly. The Hon'ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory, 359 ITR 565 (Kar) observed that the levy of penalty has to be clear as to the limb under which it is being levied. As per Hon'ble High Court, where the Assessing Officer proposed to invoke first limb being concealment, then the notice has to be appropriately marked.
The Hon'ble High Court held that the standard proforma of notice under section 274 of the Act without striking of the irrelevant clauses would lead to an inference of non-application of mind by the Assessing Officer. The Hon'ble Supreme Court in the case of Dilip N. Shroff vs. JCIT, 291 ITR 519(SC) has also noticed that where the Assessing Officer issues notice under section 274 of the Act in the standard proforma and the inappropriate words are not deleted, the same would postulate that the Assessing Officer was not sure as to whether he was to proceed on the basis that the assessee had concealed the particulars of his income or furnished inaccurate particulars of income. According to the Hon'ble Supreme Court, in such a situation, levy of penalty suffers from non- application of mind. In the background of the aforesaid legal position and, having regard to the manner in which the Assessing Officer has issued notice under section 274 r.w.s. 271(1)(c) of the Act dated 25.03.2013 without striking off the irrelevant words and more particularly looking to the satisfaction recorded in the assessment order, as reproduced above, the penalty proceedings show a non-application of mind by the Assessing Officer and is, thus, unsustainable.
In view of the facts and circumstances of the case, particularly looking to the fact that the AO has failed to record the satisfaction about any limb at the time of initiation of penalty proceedings u/s.271(1)(c) of the Act, therefore, the penalty levied u/s.271(1)(c) of the Act is hereby deleted.
In the result, appeal of the assessee is allowed.
Order dictated and pronounced in the open court on 14/10/2024.