SATPAL SACHDEV HUF,JAMSHEDPUR vs. ITO WARD-3(1), JAMSHEDPUR

Coming to assessee’s former appeal ITA No.66/Ran/2019 its sole grievance raised in the instant appeal challenges correctness of both the lower authorities action imposing the penalty in issue of ₹83,87,400/- u/s 271(1)(c) of the Act. It emerges from the penalty notice dated 26.03.2015 that the Assessing Officer did not specify as to whether the assessee is accused of concealment of particulars of any taxable income or he had furnished inaccurate particulars of such income. This tribunal’s co-ordinate bench’s decision in Nishith Kumar Jain Vs. ACIT in ITA 961-964/Kol/2013 decided on 10-02-2016 has deleted an identical penalty on this count alone as under:- “9. We have considered the rival submissions. The argument of the learned counsel for the Assessee was that the show cause notice u/s.274 of the Act which is in a printed form and the AO has indicated in the said notice as to whether the penalty is sought to be levied on the assessee for “furnishing inaccurate particulars of income” or “concealing particulars of such income” by striking off the irrelevant portion of the printed show cause notice. 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”.

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.

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

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 the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him

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.

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

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. In view of our above conclusions on the issue of defect in show cause notice u/s.274 of the Act, we are not dealing with the other arguments made on merits of the orders imposing penalty on the assessee.” Hon’ble Calcutta high court’s decision in PCIT vs. Dr. Murari Mohan Koley ITAT 306/2017 GA No.2968/2017 dated 18.07.2018 has also declined Revenue’s similar plea. We therefore direct the Assessing Officer to delete the penalty in question.

We notice during the course of hearing that the tribunal’s co-ordinate bench’s order in assessee’s quantum appeal in ITA No.317/Ran/2016 decided on 23.05.2018 has restored the corresponding issue back to the CIT(A). We thus are of the view that larger interest of justice would be met in case the instant consequential lis also follow suit. We order accordingly.

The two assessee’s former appeal ITA No.66/Ran/2019 is allowed and that of ITA No.67/Ran/2019 is allowed for statistical purposes in above terms. A copy of the instant common order be placed in the respective case file(s). Order pronounced in open court at the close of hearing on Wedne ay, 15th July, 2020 (लेखा सद"य) (&या'यक सद"य) (Dr. A.L. Saini) (S.S.Godara) (Accountant Member) (Judicial Member) *Dkp Sr.P.S. (दनांकः- 15/07/2020 कोलकाता ।