SURESH KUMAR AGARWAL,DHANBAD vs. ACIT,C.C., DHANBAD

I have heard arguments of the both the sides and carefully perused the material available on the record of the Tribunal.

Ld. AR drawing the attention of the Bench towards penalty order at para 4 and submitted that the AO has invoked provision of Explanation 5 to Section 271(1)(c) of the Act for imposing penalty on the assessee, which provides that, where in the course of a search initiated under section 132 of the Act before 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 and the assessee claims that such assets have been acquired by him by utilizing, wholly or in part, his income, for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the 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.

The ld. AR vehemently pointed out that in the present case, the assessee has not been found owner of any money, bullion, jewellery or other valuable article or thing and the assessee claims that such assets have been acquired by him by utilizing his income. Ld. AR drew attention of the Bench towards the assessment order dated 22.03.2016 passed u/s.153A r.w.s.143(3) of the Act and submitted that only disclosed additional income of Rs.3,34,861/- pursuant to search, which was included in the return of the assessee for A.Y.2007-2008, has been picked up by the AO for imposing penalty u/s.271(1)(c) of the Act and neither in the reassessment order nor in the penalty order there is any positive finding establishing that the assessee during the course of search found to be owner of any money, bullion, jewellery or other valuable article or thing, therefore, the penalty by invoking Explanation 5 to Section 271(1)(c) of the Act cannot be sustained.

The second limb of arguments of the ld. AR is that from the penalty notice dated 22.03.2016 for A.Y.2008-2009 which is clearly discernible that the AO has not specifically pointed that whether he intent to impose penalty for concealment of particulars of income or for furnishing of inaccurate particulars of income, therefore, in view of the decision of Hon’ble Supreme Court in the case of CIT vs. SSA's. Emarld Meadows 73 taxmann.com 248 (SC), initiation of penalty is invalid and the same may be cancelled.

On the other hand, ld. Departmental Representative (DR), supported the penalty as well as first appellate order and submitted that Explanation 5 to Section 271(1)(c) of the Act clearly provides that any income voluntarily surrendered during the course of search will attract penalty u/s.271(1)(c) of the Act and merely because surrendered income has been included in the return of income cannot absolve the assessee from trigger of penalty. So far as defect, as pointed out by the ld. AR in the penalty notice is concerned, ld. DR submitted that the penalty u/s.271(1)(c) of the Act can be imposed on both the counts i.e. on concealment of particulars of income or for furnishing of inaccurate particulars of income, therefore, merely because the AO did not strike one allegation of furnishing inaccurate particulars of income, the penalty notice cannot be held to be as bad in law, especially when the AO has clearly alleged in the reassessment order dated 22.03.2016 that penalty proceedings u/s.271(1)(c) of the Act initiated for concealment of income.

On careful consideration of above rival submission, first of all, I proceed to adjudicate the legal argument of the assessee pertaining to the issuance of notice for initiation of penalty proceedings u/s.271(1)(c) of the Act. The Hon'ble Apex Court in the case of M/s. SSA's Emerald Meadows, (2016) 73 taxmann.com 248(SC) 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 :- "

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) 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 274without taking into consideration the assessment order when the assessing officer has specified that the assessee has concealed particulars of income?

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(l)(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. 4. 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."

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.

The facts of the present appeals are identical to the facts of the case before the Hon'ble Supreme Court in the case of SSA's. Emarld Meadows(supra) and, therefore, the decision of Hon'ble Supreme Court squarely applies to the case of the assessee. Hence, the penalty imposed by the AO and confirmed by the CIT(A) is not sustainable.

The second issue of my adjudication is that as to whether the ld. AO was correct in imposing penalty by pressing into service of Explanation 5 to Section 271(1)(c) of the Act. In the present case, from, the reassessment order dated 22.03.2016 as well as the impugned penalty order dated 30.09.2016, I observe that the amount of Rs.3,34,861/- was offered for taxation in the return filed u/s.153A of the Act as a consequence of search action and not a voluntarily compliance by the assessee. At the same time, I may point out that the Explanation 5 to Section 271(1)(c) of the Act has been invoked by the AO for imposing penalty on the assessee. I find profitable to reproduce the said Explanation 5 for the sake of completeness and clarity in my findings which reads as under :- “[Explanation 5.—Where in the course of a [search initiated under section 132 before 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 been acquired by him by utilising (wholly or in part) his income,— (a) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein ; or (b) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the 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, [unless,— (1) such income is, or the transactions resulting in such income are recorded,— (i) in a case falling under clause (a), before the date of the search ; and (ii) in a case falling under clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner] before the said date ; or (2) he, in the course of the search, makes a statement under sub- section (4) of section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his 76income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section (1) of section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income.]”

From the vigilant and careful reading of Explanation 5(supra), I find that the AO has invoked provision of Explanation 5 to Section 271(1)(c) of the Act for imposing penalty on the assessee, which provides that, where in the course of a search initiated under section 132 of he Act before 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 and the assessee claims that such assets have been acquired by him by utilizing, wholly or in part, his income, for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein; or for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the 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.

In the present case, neither in the reassessment order passed u/s.153A r.w.s.143(3) of the Act, nor in penalty order there is any finding acquired by him by utilizing, wholly or in part, his income. Therefore, in my humble understanding of above provision of the Act, I am inclined to hold that for pressing into service of Explanation 5 to Section 271(1)(c) of the Act, mandatory requirement is that during the course of search, the assessee should be found to be the owner of any money, bullion, jewellery or other valuable article or thing and the assessee claims that such assets have been acquired by him by utilizing, wholly or in part, his income. In absence of such finding, the penalty u/s.271(1)(c) of the Act with the aid of Explanation 5 cannot be imposed on the assessee. Therefore, on this count also, penalty imposed by the AO and confirmed by the CIT(A) cannot be held as valid and sustainable, therefore, I delete the same. Accordingly, the sole ground of assessee is allowed and the AO is directed to delete the penalty so imposed in all three cases of assessee for the assessment years 2008-2009, 2009-2010 & 2010-2011, respectively. I order accordingly.

In the result, all the three appeals of the assessee are allowed. Order pronounced in the open court on 24/05/2019. (CHANDRA MOHAN GARG) न्यानयक सदस्य / JUDICIAL MEMBER रााँची/Ranchi; ददनांक Dated 24/05/2019 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : 1. अऩीऱाथी / The Appellant- . Suresh Kumar Agarwal Est Shastri Nagar, Near Jain Mandir, Dhowatand, Dhanbad(Jharkhand)-826001 2. प्रत्यथी / The Respondent- ACIT, Central Circle, Dhanbad आयकर आयुक्त(अऩीऱ) / The CIT(A), 3. आयकर आयुक्त / CIT 4. 5. ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, रााँची / DR, ITAT, Ranchi 6. गार्ग पाईऱ / Guard file. सत्यावऩत प्रयत ////