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Income Tax Appellate Tribunal, DELHI BENCH ‘E’ : NEW DELHI
Before: SHRI O.P. KANT & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Since common questions of facts and law have been raised in the aforesaid appeal and cross objections, the same are being discussion.
Appellant, ACIT, Central Circle 2, New Delhi (hereinafter referred to as ‘the Revenue’) by filing the present appeal sought to set aside the impugned order dated 03.06.2016 passed by the Commissioner of Income-tax (Appeals)-23, New Delhi deleting the penalty order dated 29.09.2015 passed u/s 271(1)(c) of the Income- tax Act, 1961 (for short ‘the Act’), qua the assessment year 2012-13 on the grounds inter alia that :-
“1. The order of Ld. CIT (A) is not correct in law and on facts. 2. On the facts and circumstances of the case, the Ld. CIT (A) has erred in law in cancelling the penalty amounting to Rs.3,26,61,833/- imposed by the AO u/s 271(1)(c) of the Income-tax Act, 1961.”
The cross objector, M/s. Nexus Infracon Pvt. Limited (hereinafter referred to as ‘the assessee’) by filing the present cross objections sought to quash the penalty order dated 29.09.2015 and uphold the impugned order passed by the ld. CIT (A) qua the assessment year 2012-13 on the grounds inter alia that :-
“1. On the facts and in the circumstances of the case and in law, the Worthy CIT (A) in Appeal No.48/15-16 has erred in passing that order in contravention of the provisions of section 250(6) of the Income Tax act, 1961, to the extent of not allowing some of the grounds raised by the appellant.
2. That on law, facts and circumstances and legal position of the case, the impugned penalty order imposed by the ld. AO u/s 271(1)(c) was a nullity and deserved to be quashed on multiple tangents. The Worthy CIT (A) has quashed the ./2016 CO No.327/Del/2016 imposition of penalty by considering only one tangent. The imposition of penalty deserves to be declared a nullity on other tangents of Sec 271(1)(c) also.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : On the basis of assessment order framed under section 153A read with section 143(3) of the Act at an income of Rs.10,06,10,680/- i.e. at the declared income in the return of income filed in response to the notice issued u/s 153A of the Act, Assessing Officer (AO) initiated the penalty proceedings u/s 271(1)(c) of the Act on the ground that if the proceedings u/s 153A of the Act were not initiated then income to the tune of Rs.10,05.53,048/- would have escaped from assessment. Declining the contentions raised by the assessee, AO levied the penalty to the tune of Rs.3,26,61,833/- @ 100% of the tax sought to be evaded.
Assessee carried the matter by way of an appeal before the ld. CIT (A) who has deleted the penalty by allowing the appeal.
Feeling aggrieved, the Revenue as well as assessee has come up before the Tribunal by way of filing the present appeal and cross objections respectively.
Assessee has not preferred to put in appearance despite issuance of the notice and consequently, we proceeded to decide the present appeal with the assistance of the ld. DR as well as on the basis of documents available on the file.
Revenue to the appeal, gone through the documents relied upon and orders passed by the Revenue authorities below in the light of the facts and circumstances of the case.
Undisputedly, original return of income was e-filed by the assessee u/s 139 of the Act on 17.09.2012 declaring loss of Rs.57,632/-. It is also not in dispute that consequent to the search and seizure operation carried out on Kanwar Singh Tanwar Group of cases on 08.02.2013, notice u/s 153A of the Act was issued to the assessee on 06.06.2014. It is also not in dispute that in response to the notice issued u/s 153 of the Act, assessee filed return of income declaring total income of Rs.10,06,10,680/- and declared income was accepted by the AO.
In the backdrop of the aforesaid facts and circumstances of the case, order passed by the lower authorities and arguments addressed by the ld. DR for the Revenue, the sole question arises for determination in this case is:-
“as to whether the assessee has concealed particulars of income or has furnished inaccurate particulars of income during assessment proceedings?”
Ld. DR for the Revenue challenging the impugned order passed by the ld. CIT (A) relied upon the order passed by the AO and contended that this is a case of furnishing of inaccurate income e-filed u/s 139 of the Act, assessee claimed loss of Rs.57,632/- but, subsequently in response to the notice u/s 153A, it filed the return of income at Rs.10,06,10,680/-. Had the notice u/s 153A of the Act been not issued to the assessee income of Rs.10,05.53,048/- would have escaped assessment.
However, bare perusal of the assessment order more particularly para 5 goes to show that AO has failed to apply his mind to record his valid satisfaction as to whether he is initiating the penalty proceedings u/s 271AAB or initiating penalty proceedings u/s 271(1)(c) of the Act. For ready perusal, operative part of the assessment order is extracted as under :-
“5. During the course of assessment proceedings it has been noticed that the assessee company had filed its return of income u/s 139(1) of the Act declaring loss of Rs.57,632/- and subsequently in response to notice u/s 153A of the Act, the assessee filed its return of income declaring total income of Rs.10,06,10,680/-. This increase in income is on account of a seized document is pertinent to mention here that if proceedings u/s 153A of the Act were not initiated then the income amounting to Rs.10,05,53,048/- would have escaped from assessment. Therefore, penalty proceedings u/s 271AAB of the Act is being initiated separately. After examination of details, income declared at Rs.10,06,10,680/- is accepted and assessed. Charge interest as per law. Issue notice of demand and challan to the assessee. Penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961 is initiated separately.”
When we examine para 8 of the penalty order passed in this case it contains the finding that “I hold the assessee in default for this case within the sweeping provisions of Explanation 1 appended to section 271(1)(c) of the Act.”
13 Again, we are constrained to record that when there is invalid satisfaction of the AO that, “penalty proceedings u/s 271(1)(c) of the Act is initiated separately” rather it is “no satisfaction” because neither Explanation 1 of section 271(1)(c) of the Act was invoked while recording the satisfaction nor it is brought on record as to whether he is initiating the proceedings for concealment of particulars of income or furnishing of inaccurate particulars of income during the penalty proceedings by the assessee. So, recording a valid satisfaction by the AO is a sine qua non for initiating the penalty proceedings u/s 271(1)(c) of the Act, without which subsequent proceedings are nullity.
Hon’ble High Court of Karnataka in case of CIT vs. Manjunatha Cotton and Ginning Factory 359 ITR 565 held that valid satisfaction is mandatory requirement for initiating the penalty. Operative part of the judgment is extracted as under :-
“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 ./2016 CO No.327/Del/2016 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 T Ashok Poi v. CIT [2007] 292 ITR 11 /161 Taxman 340 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 CIT v. Manu Engg. [1980] 122 ITR 306 and the Delhi High Court in the case of CIT v. Virgo Marketing (P) Ltd. [2008] 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 proforma without striking of the relevant clauses will lead to an inference as to non-application of mind.”
In view of what has been discussed above, we are of the considered view that when the AO has failed to apply his mind while recording satisfaction at the time of framing assessment to initiate the penalty proceedings u/s 271(1)(c) of the Act as to under particulars of income or furnishing of inaccurate particulars of income, such penalty proceedings initiated on the basis of vague and ambiguous satisfaction are not sustainable in the eyes of law.
Consequently, ld. CIT(A) has rightly deleted the penalty levied by the AO. Finding no illegality or perversity in the impugned order, appeal filed by the Revenue is hereby dismissed. Consequently, cross objections filed by the assessee are also dismissed having been withdrawn or having been become infructuous. Order pronounced in open court on this 27th day of May, 2021.