SHRI GAURAV SHARMA,BHOPAL vs. THE ACIT 1(1), BHOPAL

आदेश / O R D E R

PER BENCH

This bunch of 6 appeals in case of the assessee

pertaining to the assessment years 2002-03 & 2004-05 to

is directed against different orders of the 2008-09

Commissioner of Income Tax (Appeals)-I, Bhopal, all dated

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma 7.12.2016 arising out of different orders u/ 271(1)(c) of

Income Tax Act (in short referred as ‘Act’) Act framed by the

ACIT 1(1), Bhopal.

heard together and are being disposed of by this

consolidated order for the sake of convenience.

that search and seizure operations were carried out u/s

132(1) of the Act on 7.9.2007 at the residential premises of

the assessee. Protective assessments were made in the case

of the assessee u/s 153A read with section 143(3) of the

Act vide order dated 30.12.2009 whereas substantive

additions were made in the hands of the assessee’s father,

Dr. Yogiraj Sharma. When the quantum issue came up

before the Tribunal, protective addition in the hands of the

assessee was confirmed as substantive addition.

Subsequently, penalty proceedings were initiated u/s 2

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma 271(1)(c) of the Act and notices u/s 274 r.w.s. 271(1)(c) of

the Act of the Act dated 16.6.2015 were issued alleging that

“has concealed the particulars of your income or has

furnished inaccurate particulars of such income”. The

Assessing Officer on the strength of the order of the

Tribunal confirmed the substantive addition in the hands

of the assessee and levied penalty u/s 271(1)(c) of the Act

of Rs. 60,000/- for the assessment year 2002-03, Rs.

2,50,000/- for the assessment year 2004-05,

Rs.8,00,000/- for the assessment year 2005-06,

Rs.21,00,000/- for the assessment year 2006-07 and

Rs.11,50,000/- for the assessment year 2007-08 and

Rs.1,55,000/- for the assessment year 2008-09.

Aggrieved, the assessee preferred appeal before the learned

Commissioner of Income Tax (Appeals) but could not

succeed. Now the assessee is in appeal before the Tribunal

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma raising following common grounds of appeal for six

assessment years :-

(i) The order imposing penalty u/s 271(1)(c) of Income tax

Act 1961 is illegal, invalid and bad in law.

(ii) The learned CIT(A) erred in confirming the penalty

imposed u/s 271(1)(c) of the Income tax Act, 1961.

(iii) The learned authorities erred in holding that penalty

u/s 271(1)(c) of Income tax Act can be levied in respect

to protective addition.

(iv) The show cause notice issued u/s 271 (1)© in case of

assessee is illegal, invalid and bad in law and

consequent levy of penalty for the same is unjustified,

unwarranted and bad in law.

(v) Any other ground shall be prayed at the time hearing.

legality of the notice u/s 274 r.w.s. 271(1)(c) of the Act and 4

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma has also challenged the findings of the learned

Commissioner of Income Tax (Appeals) confirming the

penalty even when the addition made by the Assessing

Officer was on protective basis. We shall first take up the

legal ground for the alleged notice as well as order u/s

271(1)(c) of the Act being illegal, invalid and bad in law.

submissions as under :-

“Ground No. 4: Show Cause Notice for Initiation and Levy of Penalty u/s 271(1)(c). (P- 170 to 177) [Vol.-I]

A) Notice issued u/s 271(1)(c) is in printed proforma and no specific charge is specified for which penalty u/s 271(1)(c) of I.T. Act 1961 is sought to be levied.

B) The penalty levied in respect to show cause notice which is bad in law as observed hereinabove is unsustainable. Reliance on:

i) (2017) 98 CCH 0039 Mum HC CIT vs. Samson Pernchery (P- 95 – 98)(95)[Vol.-I]

ii) Supreme Court order Petition(s) for Special Leave to Appeal (C) ...…../2016 5

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma (CC No.11485/2016) in the case of M/s. SSA’s Emerald Meadows vide order dated 05/08/2016. (P- 99) [Vol.-I] i) Hon’ble High Court of Karnataka at Bengaluru order in ITA No.380 of 2015 in the case of M/s. SSA’s Emerald Meadows vide order dated 23/11/2015. (P- 100 – 103)(102, 103) [Vol.-I] ii) Hon’ble High Court of Hyderabad in the case of Smt. Baisetty Revathi in ITTA No.684 of 2016 vide judgement dated 13/07/2017. (P- 141 – 151) (149, 150, 151) [Vol.-I]

v) Hon’ble ITAT, Jaipur Bench, Jaipur in the case of Narayana Heights & Towers in ITA No.1033/JP/2016 vide order dated 20/02/2017. (P- 152 – 171) (165, 166, 168) [Vol.-I]

Apart from the above, the learned counsel for the assessee

submitted that the additions were made on protective

basis. When the notices were issued for levying the

penalty, the Assessing Officer was not clear as to whether it

has to be levied for concealing the particulars of income or

furnishing of inaccurate particulars of income and even in

the penalty order also, the Assessing Officer is not clear

about the limb under which the penalty is to be levied.

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma 6. On the other hand, the learned DR vehemently argued

submitting that the coordinate Bench has already held that

the addition in the hands of the assessee is on substantive

basis. Therefore, the penalty levied is justified. However,

the ld. DR could not contradict the submissions of the

assessee with regard to legality of the notice issued u/s

274 r.w.s. 271(1)(c) of the Act.

the record placed before us. The common issue raised in

this Bunch of appeal is levying penalty u/s 271(1)(c) of the

Act. In the case of the assessee search u/s 132 of the Act

was carried out and substantive additions were made in

the hands of the assessee’s father Yogiraj Sharma. On the

protective addition so made in the hands of the assessee.

Penalty proceedings were initiated. The assessee could not

get relief up to the first appellate authority. Before us, the

assessee has raised the legal ground no. 4 alleging that the

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma show cause notice issued u/s 271(1)(c) of the Act is ilegal

and bad in law and consequently levy of penalty for the

same is unjust, unwarranted and bad in law. To adjudicate

this issue, we reproduce below two relevant portions of the

show cause notice for the assessment year 2002-03 issued

by ACIT 1(1), Bhopal, vide letter dated 16.6.2015 as under

:-

“Whereas in the course of proceedings before me

for the assessment year 2002-03 it appears to me that

you :-

Have without reasonable cause failed to furnish the

return of income which you were required to furnish by a

notice given under section 22(1)(/22(2)/34 of the Indian

Incometax Act, 1961 or which you were required to

furnish under section 139(1).

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma Have without reasonable cause failed to comply with a

notice under section 22(4)/23(2) of the Indian Incometax

Act, 1961 or under section 142(1)/143(2) of the Income

tax Act, 1961, No….dated.

have concealed the particulars of your income or

have furnished inaccurate particulars of such income.

Section 271(1)(c) of the Act(1)(c).

xxx xxx xxx

years 2004-05 to 2008-09. Under these notices, the reason

given by the Assessing Officer is an allegation which is not

specific. The Assessing Officer has alleged that either the

assessee has concealed the particulars of income or has

furnished inaccurate particulars of income. It is clearly

visible from the notice that at the time of initiation of

penalty proceedings the Assessing Officer has not made

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma specific satisfaction as to whether the assessee is guilty of

concealing the particulars of income or furnishing

inaccurate particulars of income. Similarly, when the

Assessing Officer finally framed the penalty order on

31.7.2015 in para 8 of the impugned order the Assessing

Officer observed that “I am satisfied that the assessee has

concealed the particulars of income or furnished inaccurate

particulars of such income within the meaning of section

271(1)(c) of the Act.” It is crystal clear that even in the

penalty order the Assessing Officer is not sure about the

specific charge on the assessee for which penalty has been

levied. In these facts, whether the Assessing Officer was

justified in levying the penalty u/s 271(1)(c) of the Act we

find that the coordinate Bench of Jaipur in the case of

Narayana Heights & Towers; ITA No. 1033/JP/2016 order

dated 20.2.2017 adjudicated the very same issue and

decided the same in favour of the assessee following the

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma judgment of the Hon'ble Karnataka High Court in the

caseof CIT vs. Manjunath Cotton & Ginning Factory; 359

ITR 565 by observing as under :-

“3.2. We have heard the rival contention, perused the material available on

record and gone through the orders of the authorities below. For the sake of

clarity the relevant contents of the Assessment Order are reproduced as

under: “Penalty u/s 271(1)(c) is separately as assessee has concealed the

income.” Relevant contents of the Penalty Order are reproduced as under:-

”As the assessee had not filed any appeal against order of the AO and it

appears that the assessee is satisfied with the order passed by the AO.

Therefore, it appears that the assessee has nothing to say and has no

objection regarding imposing the penalty u/s 271(1)(c) of I.T. Act, 1961.

Therefore, I impose a penalty of equal to 100% of tax sought to be evaded

on account of the above acts of the assesee of Rs. 34,05,436/- i.e. 100% tax

evaded.” In the light of the above, we need to examine whether assessment

order and the penalty order comply with the provisions of section 271(1)(c)

of the Act. We find that on page 3 of the assessment order, the assessing

order, AO observed as under:-

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma “As the assessee has concealed/furnished the inaccurate particulars of

income therefore, penalty u/s 271(1)(C) is also initiated.” 3.3. As per section

271 (1)(c), the assessing officer is empowered to impose penalty if in the

course of any proceedings under this Act is satisfied that any person has

concealed the particulars of his income or furnished inaccurate particulars

of such income. From the above provision it is clear that there has to be a

specific satisfaction by the Assessing Officer that the assessee is guilty of

concealing the particulars of his income or furnishing inaccurate particulars

of such incomes. 3.4. From the above, it is clear that the assessing officer

should give a specific finding. In the present case, in the assessment order

as noted above the assessing officer has stated that the assessee has

concealed/furnished the inaccurate particulars of income. Therefore, the

penalty under Section 271(1) (c) was also initiated, from this it can not be

inferred whether there is specific charge of concealing the particulars of

income or furnished the inaccurate particulars of such income Law is well

settled that the assessing officer has to come to a definite satisfaction

whether the assessee has concealed the income of particulars or furnished

the inaccurate particulars of income. The Hon’ble Karnataka High Court in

the case of CIT and Another Vs. Manjunatha Cotton and Ginning

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma Factory,359 ITR 565(Kar.) has held that the notice u/s 274 of the Act should

specifically state as to whether penalty is being proposed for concealment

of particulars of income or inaccurate particulars of income. In the present

case notice under section 274 dated 25/3/2015 enclosed at paper book

page 16 reads as under: “Penalty Notice Under Section 274, Read with

Section 271 of the IT Act. 1961” Whereas in the course of proceedings

before me for the Assessment Year 2012-13. It appears to me that you

have:- Read With Section 271(1)(c) concealed particulars of income or

furnished inaccurate particulars of income.” Therefore, there is no specific

charge by the Assessing Officer. Further, it is noted that the Assessing

Officer in penalty order (as noted hereinabove) has proceeded on the basis

of the assumption that the assessee is satisfied with the assessment order.

Therefore, it appears that the assessee has nothing to say and has no

objection regarding the imposing of the penalty under section 271(1)(c) of

the Act. In our considered view, the assessing officer was not justified in

imposing the penalty on this basis, the action of the assessing officer is

contrary to the provision of law. The ld. CIT (A) without considering the

binding precedents proceeded to hold that the penalty order can not be

invalidated on account of any mistake or affect or omission if anywhere in

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma view of the provision of section 292B of the Act. This finding of the Ld. CIT

(A) is contrary to the judgment of the Hon’ble Karnataka High Court

rendered in the case of CIT and Another Vs. Manjunatha Cotton and Ginning

Factory,359 ITR 565(Kar.) (supra). The Hon’ble Karnataka High Court has

held as under:- “ 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 the order of the appellate authority or the

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) and 1(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(1)(c) is a sine qua non for the Assessing Officer to initiate the

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma proceedings because of the deeming provision contained in sub-section

(1B). (h) The said deeming provisions are not applicable to the orders

passed by the Commissioner of Income-tax (Appeals) and the Commissioner.

(i) The imposition of penalty is not automatic. (j) The 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 the authorities it has resulted in

payment of such tax or such tax liability came to be admit ted 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

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma referred to in Explanation 1(B) 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. 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 grounds mentioned in section 271

are mentioned would not satisfy the requirement of law. (r) The assessee

should know the grounds which he has to meet spe cifically. Otherwise, the

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. (t) The penalty proceedings are distinct from the assessment pro

ceedings. 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"

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma would not operate as res judicata in the penalty proceedings. It is open to

the assessee to contest the said proceedings on the 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.”

In the light of the above judgment we are unable to affirm the action of the

authorities below. As the initiation of penalty under section 271(1)(c) vide

notice 274 of the Act is not inconformity with the requirement of the law.

Thus, the Penalty order can not be sustained in the eyes of the law. Same

deserves to be quashed. Hence, Ground no. 1 the assessee’s appeal is

allowed.”

find that the case of the assessee is squrely covered by this

decision. We, therefore, in the given facts and

circumstances of the case, are of the considered view that

initiation of penalty proceedings by way of issuing notice

u/s 274 r.w.s. 271(1)(c) of the Act do not meet the

requirements as envisaged in the provisions of law and,

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma therefore, all the six penalty orders under consideration

cannot be sustained in the eyes of law. We accordingly

quash all the six penalty orders and allow this common

legal ground no. 4 raised by the assessee in all these six

appeals thereby deleting penalty of Rs.60,000/- for the

assessment year 2002-03, Rs. 2,50,000/- for the

assessment year 2004-05, Rs.8,00,000/- for the

assessment year 2005-06, Rs.21,00,000/- for the

assessment year 2006-07 and Rs.11,50,000/- for the

assessment year 2007-08 and Rs.1,55,000/- for the

assessment year 2008-09

merits of the case, we find it academic to deal with the

same as we have already deleted the impugned penalty u/s

271(1)(c) of the Act at Rs.60,000/- for the assessment year

2002-03, Rs. 2,50,000/- for the assessment year 2004-05,

Rs.8,00,000/- for the assessment year 2005-06,

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma Rs.21,00,000/- for the assessment year 2006-07 and

Rs.11,50,000/- for the assessment year 2007-08 and

Rs.1,55,000/- for the assessment year 2008-09 and,

therefore, the remaining grounds are dismissed as

infructuous.

stand allowed.

Pronounced in open Court on 16 May, 2018.

Sd/- sd/-

(KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER

16th May, 2018 Dn/- Copy to – Appellant/Respodent/Pr.CIT/CIT(A)/DR/Guard File By order Private Secretary

ITA Nos. 136 to 147/Ind/2017 Shri Gaurav Sharma