KAILASH CHAND BANGUR,JAIPUR vs. ITO, KISHANGARH

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”A” JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 858 & 859/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2011-12 cuke Shri Kailash Chand Bangur, The ITO, M/s Arun Marble Traders, Vs. Kishangarh. 51, Bhati Colony, Jaipur Road, Madanganj, Kishangarh. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ACYPB 0569 M vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Sandeep Jhanwar (C.A.) jktLo dh vksj ls@ Revenue by : Shri K.C. Gupta (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 06/02/2019 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 12/02/2019 vkns'k@ ORDER

PER: VIJAY PAL RAO, J.M. These two appeals by the assessee are directed against two separate orders of the ld. CIT(A), Ajmer both dated 18.07.2016 arising from the penalty order passed U/s 271B and 271(1)(c) of the I.T. Act for the assessment year 2011-12. In ITA No. 858/JP/2016 the assessee has raised the following ground of appeal:-

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

“1. Under the facts and circumstances of the case, the Ld. CIT(A) has erred confirming the penalty imposed by the Ld. AO u/s 271B of the Income Tax Act, 1961 amounting to Rs. 36,650/-. The penalty so imposed deserves to be deleted. 2. The assessee craves the right to add, amend, alter, or modify any of the ground of the appeal.”

through his proprietorship concern M/s Arun Morble Traders and filed its

return of income on 16.07.2011 declaring total income of Rs. 1,76,720/-

at turnover of Rs. 19,92,544/-. There was survey U/s 133A of the Act in

the case of Shri P.C. Vijayvargiya and others on 06.01.2011 by the

Investigation Wing, Jaipur. During the course of survey proceedings it

was found that the assessee was indulged in suppressing their sales by

routing through bank account of Shri P.C. Vijayvargiya. Thus, as per the

cash deposit in the bank account of Shri P.C. Vijayvargiya the

Department proposed to make the addition in respect of the

unaccounted sales of Rs. 53,37,500/-. During the assessment

proceedings the assessee agreed to the addition @ 15.15% of the

alleged unaccounted turnover amounting to Rs. 8,08,631/-. Thus, the

assessment was completed by making the addition of unaccounted

turnover. Subsequently the AO initiated penalty proceedings U/s 271B

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

of the Act for non compliance of the provisions of Section 44AB of the

Act as the account of the assessee were not audited. The AO then,

levied the penalty of Rs. 36,650/- U/s 271B of the Act which is half per

cent of the total turnover of the assessee. The assessee challenged the

action of the AO before the ld. CIT(A) but could not succeed.

books of accounts and return of income filed by the assessee, the

turnover of the assessee was Rs. 19,92,544/- and therefore, the books

of accounts of the assessee were not required to be audited as per

provisions of Section 44AB of the Act. It is only when the AO proposed

to make the addition on account of the alleged turnover based on the

statement of Shri P.C. Vijayvargiya recorded during the survey U/s 133A

of the Act the assessee to avoid unnecessary litigation and to buy peace

of mind agreed with the addition to the extent of 15.15% profit on the

alleged turnover. Thus, the ld. AR of the assessee has submitted that

the addition made by the AO will not automatically be considered as the

turnover of the assessee for the purpose of Section 44AB of the Act. He

has further submitted that the Department is taking divergent on this

issue as there were various of transactions of deposits in the bank

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

account of Shri P.C. Vijayvargiya found during the survey and the

Department in some of the cases has made only protective addition in

the hands of the other individual and substantive addition in the hands

of Shri P.C. Vijayvargiya. Merely because the assessee agreed to the

addition to buy peace of mind would not lead to the conclusion that

actual turnover of the assessee is Rs. 73,30,044/- as considered by the

AO. Thus, the ld. AR has submitted that the penalty levied by the AO

U/s 271B of the Act is not justified and the same may be deleted.

authorities below and submitted that the assessee has admitted

unaccounted turnover then, the provisions of Section 44AB of the Act

are applicable as the total turnover exceeds the limit provided U/s 44AB

of the Act.

material on record there was no dispute that the turnover of the

assessee as per books of accounts regularly maintained by the assessee

is only 19,92,544/- which do not exceed the limit provided U/s 44AB of

the Act, however, due to the unaccounted turnover as considered by

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

the AO based on the survey in case of one Shri P.C. Vijayvargiya the AO

has made an addition to the income of the assessee to which the

assessee agreed. Thus, even if the assessee has agreed to the addition

on unaccounted turnover since, the said turnover was not part of the

books of accounts, therefore, the question of audit of the books of

account in terms of section 44AB does not arise. The requirement of

audit of books of accounts as per the provisions of Section 44AB of the

Act is based on the turnover which is recorded in the books of account

as the audit report in the prescribed form will verify and certify the

correctness of the accounts and therefore, whatever not part of the

books of accounts cannot be subjected to audit. Hence, the purpose of

getting of books of account accounted to get the accounts verified and

examined by the auditor so that prima facie the audited accounts to the

extent of the entry recorded in the books of account and book results

are considered as correct except any defect is pointed out by the AO.

Accordingly, the provisions of Section 271B of the Act cannot be

invoked when the turnover of the assessee as recorded in the books of

account is not exceeding the limit provided U/s 44AB of the Act. Hence,

the penalty levied U/s 271B of the Act is deleted.

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

ground of appeal:-

“1. Under the facts and circumstances of the case, the Ld. CIT(A) has erred confirming the penalty imposed by the Ld. AO u/s 271(1)(c) of the Income Tax Act, 1961 amounting to Rs. 1,53,000/-. The penalty so imposed deserves to be deleted. 2. The assessee craves the right to add, amend, alter, or modify any of the ground of the appeal.”

Since, the additional ground raised by the assessee is legally in nature

and goes to the root of the matter and therefore, first we take up the

addition ground.

relevant material on record for admission of additional ground. There is

no dispute that the additional ground raised by the assessee involves a

question of law which does not require any verification or investigation

of new facts but the additional ground cannot be decided on the basis

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

of the facts already available on record. Therefore, in view of the

decision of the Hon’ble Supreme Court in case of NTPC vs. CIT 229 ITR

383 the additional ground raised by the assessee is admitted for

adjudication on merits.

assessee has submitted that the Assessing Officer while issuing the

notice U/s 274 of the Act has not m specified whether the assessee has

concealed the particulars of income or furnished inaccurate particulars

of income. Therefore, the AO has not made it clear on what ground he

proposed to levy the penalty U/s 271(1)(c) of the Act and consequently

it does not satisfy the requirement of law to make the assessee known

the basis for levy of penalty as proposed by the AO. He has relied upon

the decision of the Hon’ble Karnataka High Court in case of CIT

Manjunathan Cotton & Ginning Factory 359 ITR 565 and

submitted that the said decision of the Hon’ble High Court has been

confirmed by the Hon’ble Supreme Court in case of CIT vs. SSA’s

Emerald Meadows 73 taxmann.com 241. The ld. AR has also relied

upon the decision of Hon’ble jurisdictional High Court in case of

Sheveta Construction Co. vs. ITO in ITA No. 534/2008 dated

06.12.2016. Hence, the ld. AR has pleaded that the initiation of the

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

penalty U/s 271(1)(c) of the Act is bad in law and not sustainable and

consequently the order passed by the AO U/s 271(1)(c) of the Act is

liable to be quashed.

case of concealment of income as the assessee has not disclosed the

correct amount of turnover which was detected during the investigation

carried out in case of one Shri P.C. Vijayvargiya. The assessee has

admitted the addition made by the AO and therefore, it was known to

the assessee that he has concealed the particulars of income. He has

relied upon the order of the authorities below.

material on record. There is not dispute that the addition made by the

AO is based on the statement of one Shri P.C. Vijayvargiya wherein he

has alleged that a sum of Rs. 53,37,500/- deposited in the bank account

pertains to the sale of the assessee. Thus, the AO has made an addition

to the extent of 15.15% of the said turnover as income of the assessee.

The Assessing Officer while initiated the penalty proceeding U/s

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

271(1)(c) of the Act issued notice dated 20.02.2014 wherein he

proposed to levy the penalty but has not specified the ground on which

the penalty was to be levied U/s 271(1)(c) of the Act. The AO has

neither specified the limb nor delete or strike off the irrelevant part of

the notice which reads as under:-

“have concealed the particulars of your income or …………………….. furnished inaccurate particulars of such income.” Therefore, show cause notice issued U/s 274 of the Act does not

specify the limb for which the AO has proposed the levy of penalty.

Once the AO has failed to specify the default of the assessee against

which the penalty was to be levied then, it is a clear case of initiation of

the proceedings without making the assessee known about his default

and consequently the assessee was not given the opportunity to

respond to the show cause notice or to meet the charges on which the

penalty was proposed to be levied by the AO. Even while passing the

penalty order U/s 271(1)(c) of the Act the AO has again stated that the

assessee has concealed income and furnished inaccurate particulars of

income. The addition is only one which cannot be regarded as

concealment as well as furnishing inaccurate particulars of income. The

Hon’ble Karnataka High Court in case of CIT vs. Manjunatha Cottn &

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

Ginning Factory (supra) while dealing with this issue has held in para 59

& 63 as under:-

“59. 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 as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(l)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

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 Pai v. CIT [2007] 292 ITR 11/161 Taxman 340at 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. INDEPENDENT PROCEEDING 62. The penalty proceedings are distinct from assessment proceedings, and independent therefrom. The assessment proceedings are taxing proceedings. The proceedings for imposition of penalty though emanating from proceedings of assessment are independent and separate aspects of the proceeding. Separate provision is made for the imposition of penalty and separate notices of demand are made for recovery of tax and amount of penalty. Also separate appeal is provided against order of imposition of penalty. Above all, normally, assessment proceedings must precede penalty proceedings. Assessee is entitled to submit fresh evidence in the course of penalty proceedings. It is because penalty proceedings are independent proceedings. The assessee cannot question the 12

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

assessment jurisdiction in penalty proceedings. Jurisdiction under penalty proceedings can only be limited to the issue of penalty, so that validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter in penalty proceedings. It is not possible to give a finding that the reassessment is invalid in such penalty proceedings. Clearly, there is no identity between the assessment proceedings and the penalty proceedings. The latter are separate proceedings that may, in some cases, follow as a consequence of the assessment proceedings. Though it is usual for the Assessing Officer to record in the assessment order that penalty proceedings are being initiated, this is more a matter of convenience than of legal requirement. All that the law requires, so far as the penalty proceedings are concerned, is that they should be initiated in the course of the proceedings for assessment. It is sufficient, if there is some record somewhere, even apart from the assessment order itself, that the Assessing Officer has recorded his satisfaction that the assessee is guilty of concealment or other default for which penalty action is called for. Indeed, in certain cases, it is possible for the Assessing Officer to issue a penalty notice or initiate penalty proceedings even long before the assessment is completed. There is no statutory requirement that the penalty order should precede or be simultaneous with the assessment order. In point of fact, having regard to the mode of computation of penalty outlined in the statute, the actual penalty order cannot be passed until the assessment is finalised. CONCLUSION 63. In the light of what is stated above, what emerges is as under:

(a) Penalty under Section 271(l)(c) is a civil liability.

(b) Mens rea is not an essential element for imposing penalty for

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

breach of civil obligations or liabilities.

(c) Wilful concealment is not an essential ingredient for attracting civil liability.

(d) Existence of conditions stipulated in Section 271(l)(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 order of the Appellate Authority or Revisional Authority.

(f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(l)(c), at least the facts set out in Explanation 1(A) & (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(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B).

(h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner.

(i) The imposition of penalty is not automatic.

(j) 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

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

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 authorities it has resulted in payment of such tax or such tax liability came to be admitted 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 bonafide, an order imposing penalty could be passed.

(m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide 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 referred to in Explanation IB 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.

(p) Notice under Section 274 of the Act should specifically state the grounds mentioned in Section 271(l)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO

(q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law.

(r) The assessee should know the grounds which he has to meet specifically. Otherwise, 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 proceedings. 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 insofar as "concealment of income" and "furnishing of incorrect particulars" would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on 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.”

The said issue was also came up before the Hon’ble Supreme Court in

case of CIT vs. SSA’s Emerald Meadows (supra) in the SLP filed by the

Revenue against the decision of Hon’ble Karnataka High Court,

however, the Hon’ble Supreme Court has dismissed the SLP filed by the

Revenue. Accordingly, in view of the above facts and circumstances of

the case as well as the decisions cited (supra) we hold that the initiation 16

ITA No. 858 &859/JP/2016 Shri Kailash Chand Bangur vs. ITO of penalty as well as the levy of penalty U/s 271(1)(c) of the Act is not valid and is liable to be quashed.

In the result, both the appeals of the assessee are allowed.

Order pronounced in the open court on 12/02/2019

Sd/- Sd/- ¼fot; iky jko½ ¼foØe flag ;kno½ (Vikram Singh Yadav) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:-12/02/2019. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Kailash Chand Bangur, Kishangarh. 2. izR;FkhZ@ The Respondent- ITO, Kishangarh. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 858 & 859/JP/2016} vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत