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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N. V. VASUDEVAN & SHRI B. R. BASKARAN
Per Bench
ITA Nos.1700 to 1702/Bang/2018 are appeals by the Revenue against the order dated 4.12.2017 of CIT(A)-6, Bengaluru, relating to Assessment Years
IT(TP)A Nos. 1700 to 1702/Bang/2018 C.O. Nos.38 to 40/Bang/2019
Page 2 of 11 2005-06 to 2007-08. The assessee has filed C.O. against the very same order of CIT(A).
In the appeals filed by the Revenue, there is a delay of one day in the filing of appeal which has been explained as due to administrative reasons. The delay being not inordinate is condoned accepting the reasons given in the Affidavit filed in support of the application for condonation of delay.
As far as the C.O. filed by the assessee is concerned, there is a delay of 327 days in filing the C.O. It has been explained by the assessee in the application for condonation of delay supported by Affidavit that the earlier Chartered Accountant did not advise the assessee to file a C.O. and that the Counsel to whom the case was entrusted later advised the assessee to file C.O.
We have considered the reasons given for the condoning the delay in filing C.O. In terms of Rule 27 of the ITAT Rules, 1963, an assessee is entitled to support the order appealed against on any ground desired against him. One of the grounds which is sought to be urged by the assessee in the C.O. is that the show cause notice issued under section 274 of the Income Tax Act, 1961 (hereinafter called ‘the Act’), before imposing penalty under section 271(1)(c) does not spell out the exact charge against the assessee i.e., whether the assessee is guilty in furnishing inaccurate particulars of income or concealing particulars of income. This ground was not specifically urged by the assessee before the CIT(A) but is sought to be urged as an additional ground in the C.O. filed before the Tribunal. This ground of objection being a legal ground can be raised by the assessee before the Tribunal for the first time in the light of the decision of the Hon’ble Supreme Court in the case of NTPC Ltd., 229 ITR 383 (SC). In the circumstances of the case, we are of the view that even without a C.O. the assessee can seek to urge a legal ground which can be decided on the basis of facts already available on record. In these circumstances, we accept the plea of the assesseee for condoning the delay in filing C.O.
IT(TP)A Nos. 1700 to 1702/Bang/2018 C.O. Nos.38 to 40/Bang/2019
Page 3 of 11 6. In the appeal by the Revenue, the Revenue is aggrieved by the action by the CIT(A) in deleting the penalty imposed on the assessee by the AO under section 271(1)(c) of the Act. The facts and circumstances under which penalty was imposed on the assessee by the AO are that the Assessee is in the business of Real Estate, Leasing quarries, and he has about 1200 acres of land in his possession in and around Devanahalli and also in Andra Pradesh. His modus operandi is that he enters into agreement, MOU, with the farmers and acquires their lands or takes it on General Power of Attorney (GPA) and sells the same to bigger companies like ITC L'I'd., Global Constructions, My Country, Minu constructions etc. From these transactions, he has earned commission/margin money and reinvested this income in purchasing of huge properties, construction of house, vehicles. Assessee was not filing return of income regularly since 1998 though he had earned income more than taxable limit in various land transactions. A Search u/s 132 of the Act, was conducted at the residential premises and the office located at first floor of his residence at no. 639, Sulibele Main Road, Devanahalli on 26.08.2008. During the search proceedings, incriminating documents evidencing phenomenal land transactions and concealment of income were found, seized and impounded. While analyzing the materials seized/impounded at his residence and office premises it was seen that the Assesseee has about 1200 acres of land in his possession. The Assessee was confronted with the seized materials and his books and statement of affairs was constructed on the basis of the bank accounts and seized materials. The Assessee failed to substantiate the details of all the assets held by him with the explainable sources. Further he adopted "Net Wealth Accretion Method" to arrive at his undisclosed income. Notice under section 153A dated 24.7.2009 was issued to the assessee, requiring the assessee to file the return of income within 30 days from the date of service of notice, by the ACIT, Central Circle-2(1), Bangalore.
IT(TP)A Nos. 1700 to 1702/Bang/2018 C.O. Nos.38 to 40/Bang/2019
Page 4 of 11 7. In response to the notice u/s.153A of the Act, the assessee filed a letter dated 18.4.2010 stating that the return of income already filed by him on 2.4.2009 declaring income of Rs.1,64,27,758/- for Assessment Year 2005-06 and Rs.4,68,76,382/- for Assessment Year 2006-07 and Rs.4,69,13,969/- for Assessment Year 2007-08 should be taken as a return filed in response to the notice under section 153A of the Act. It is not in dispute that the income so declared by the assessee was accepted by the AO and assessment was completed for the aforesaid Assessment Year under section 153A of the Act. It is in respect to the income declared in the return filed in response to notice under section 153A of the Act. The AO imposed penalty under section 271(1)(c) of the Act holding that the assessee was guilty of furnishing inaccurate particulars of income.
On appeal by the assessee, the CIT(A) cancelled the order of the AO imposing penalty for the following reasons:
“8. It is noticed that in the all the years under consideration, returned income has been accepted and no addition was made. In this context it is to be noted that Hon'ble High Court of Karnataka in the case of CIT vs Manjunatha Cotton & Ginning Factory 263 CTR 153 has held penalty cannot be merely because assessee accepted assessment order unless it is discernible from the assessment order that addition was on account of concealment or filing of inaccurate particulars of income, as the case may be. It is noticed that in the instant case no concealment of income nor filing of inaccurate particulars was detected by the AO in the assessment proceedings so as to justify imposing of penalty. Therefore relying on this judgment of the jurisdictional High Court, imposition of penalty u/s 271(1)(c) is found to be unsustainable. Hence, Penalty levied in all the years are deleted.”
Aggrieved by the order of the CIT(A), the Revenue has filed present appeals before the Tribunal.
In the C.O, the assessee apart from supporting the order of CIT(A), has sought to raise the additional ground in which the assessee has sought to question the validity
IT(TP)A Nos. 1700 to 1702/Bang/2018 C.O. Nos.38 to 40/Bang/2019
Page 5 of 11 of the order of imposing penalty on the ground that the show cause notice under section 274 of the Act was defective. The specific additional ground raised by the assessee in this regard reads as follows:
“5. The order of penalty is bad in law for the reason that the Notice for initiation of penalty as to whether it is concealment of income or furnishing of inaccurate particulars of income is not discernable from the notice issued under section 274 r.w.s. 271 of the Act and consequently the order of penalty passed under section 271[1][c] of the Act on an invalid notice do not have any legs to stand and requires to be cancelled and the penalty imposed under section 271[1][c] of the Act deserves to be deleted, on the facts and circumstances of the case.”
We have heard the submissions of the parties on the additional ground raised by the assessee in the C.O. We have perused the show cause notice issued under section 274 of the Act for Assessment Years 2005-06, 2006-07 and 2007-08. Copies of which are at pages 2, 14 and 26 of the Paper Book filed by the assessee. A perusal of the aforesaid show cause notice reveals that the AO has not struck off the irrelevant portion as to whether the charge against the assessee is concealing of particulars of income or furnishing of inaccurate particulars of income. The learned Counsel for the assessee drew our attention to the decision of Hon’ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton and Ginning Factory (2013) 218 Taxmann 423 (Kar) wherein it was held that if the show cause notice under section 274 of the Act does not specifically mentioned as to the exact charge viz., whether the charge is for furnishing of inaccurate particulars of income or concealing of particulars of income by striking out the irrelevant portion of printed show cause notice, then the imposing of penalty on the basis of such invalid show cause notice cannot be sustained. The learned DR while relying on the order of the AO pointed out that the defect pointed out in the show cause notice under section 274 of the Act is not fatal to imposing of penalty.
IT(TP)A Nos. 1700 to 1702/Bang/2018 C.O. Nos.38 to 40/Bang/2019
Page 6 of 11 12. We have considered the rival submission. 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 on another limb of Sec.271(1)(c) of the Act. 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 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(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm 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
IT(TP)A Nos. 1700 to 1702/Bang/2018 C.O. Nos.38 to 40/Bang/2019
Page 7 of 11 the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. 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 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. 61. 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
IT(TP)A Nos. 1700 to 1702/Bang/2018 C.O. Nos.38 to 40/Bang/2019
Page 8 of 11 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.” 13. The final conclusion of the Hon’ble Court was as follows:-
“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 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(1)(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 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,
IT(TP)A Nos. 1700 to 1702/Bang/2018 C.O. Nos.38 to 40/Bang/2019
Page 9 of 11 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(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 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 in so far 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
IT(TP)A Nos. 1700 to 1702/Bang/2018 C.O. Nos.38 to 40/Bang/2019
Page 10 of 11 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.” (emphasis supplied)
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. The Hon’ble Karnataka High Court in the case of CIT vs. SSA’s Emerald Meadows in ITA No.380 of 2015 dated 23.11.2015 wherein the Hon’ble Karnataka High Court following its own decision in the case of CIT vs Manjunatha Cotton and Ginning factory (2013) 359 ITR 565 took a view that imposing of penalty u/s 271(1)(c) of the Act is bad in law and invalid for the reason that the show cause notice u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealment of particulars of income or furnishing of inaccurate particulars of income. The ld. Counsel further brought to our notice that as against the decision of the Hon’ble Karnataka High Court the revenue preferred an appeal in SLP in CC No.11485 of 2016 and the Hon’ble Supreme Court by its order dated 05.08.2016 dismissed the SLP preferred by the department.
We have already observed that the show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee as to whether it is for concealing particulars of income or furnishing inaccurate particulars of income. The show cause notice u/s 274 of the Act does not strike out the inappropriate words. In these circumstances, we are of the view that imposition of penalty cannot be sustained. The plea of the ld. Counsel for the assessee, which is based on the decisions referred to in the earlier part of this order, has to be accepted. We therefore hold that imposition of penalty in the present cases cannot be sustained. The order of the CIT(A) is accordingly upheld though for different reasons.
IT(TP)A Nos. 1700 to 1702/Bang/2018 C.O. Nos.38 to 40/Bang/2019
Page 11 of 11 16. In the result, the appeals are dismissed while the cross objections are partly allowed.
Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (B. R. BASKARAN) (N. V. VASUDEVAN) Accountant Member Vice President Bangalore. Dated: 20.1.2021. /NS/* Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard file
By order
Assistant Registrar, ITAT, Bangalore.