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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI B.R. BASKARAN
O R D E R Per Bench
These are appeals by the Assessee against four orders, all dated 14.08.2017 of CIT(Appeals)-2, Panaji, Goa, relating to assessment years 2011-12 to 2014-15. In all these appeals, the Assessee has challenged the order of the CIT(Appeals) whereby the CIT(A) confirmed the order of the AO imposing penalty on the Assessee u/s. 271(1)(c) of the Income Tax Act, 1961 (the Act).
The facts and circumstances under which penalty was imposed on the Assessee by the AO are that the Assessee sold certain plots of land at Hubli during the previous years relevant to AYs 2011-12 & 2012-13. No return of income was filed for AY 2013-14 & 2014-15 till 19.11.2014, when a search took place in the business premises of M/s. Kalburgi Projects, Kalburgi Homes, Arvind Kalburgi Enterprises and Bhavani Enterprises (hereinafter referred to as Kalburgi group of cases). In the search of Kalburgi group of cases, certain incriminating documents relating to the Assessee was found. Based on the same, proceedings u/s.153C of the Act were initiated against the Assessee. The Assessee had not disclosed income arising from the sale of the said plots in the return of income filed for AYs 2011-12 and 2012-13. The seized documents showed that the Assessee earned income from sale of plots. In the return of income filed for AYs 2011-12 to 2014-15, in response to notice u/s.153C of the Act, income from sale of plots was disclosed for the aforesaid AYs. The income so disclosed were brought to tax in the order of assessment passed u/s.153C of the Act for the aforesaid AYs.
The AO initiated penalty proceedings in the order of assessment for all the AYs in respect of the income disclosed in the return of income u/s.153C of the Act in respect of sale of plots. The AO imposed penalty on the Assessee holding that but for the search and seizure operation the Assessee would not have declared the income in question in the returns of income and agreed for additions made in the course of assessment proceedings. The AO also held that the mere fact that the Assessee declared income from sale of plots in the return of income filed u/s.153C of the Act and the fact that the said declaration was accepted by the AO in the assessment u/s.153C of the Act without any addition being made over and above the income declared in the return of income filed u/s.153C of the Act, will not give any immunity to the Assessee from the levy of penalty u/s.271(1)( c) of the Act. The AO was also of the view that the additions made to the income declared in the returns filed for the aforesaid AYs. u/s.153C of the Act would by itself be sufficient to impose penalty u/s.271(1) (c) of the Act. The AO also held that the Assessee would not be entitled to any immunity.
On appeal by the Assessee, the CIT(A) held that, but for the search, the Assessee would not have declared income in the return filed u/s.153C of the Act. The CIT(A) therefore confirmed the orders of the AO imposing penalty on the Assessee.
Aggrieved by the orders of the CIT(A), which are identical in all the aforesaid AYs, the Assessee is in appeal before the Tribunal.
The learned counsel for the Assessee filed an application for admission of additional grounds in each of the appeals, in which the Assessee has contended that the notice issued before imposing penalty was not accordance with law and on this ground the order imposing penalty should be quashed. Since this ground is a legal ground and can be decided on the basis of facts already available on record, we deem it proper and fit to admit the additional ground, keeping in mind the ratio of the Hon’ble Supreme Court in the case of NTPC 229 ITR 383(SC) laying down the proposition that question of law which can be decided on facts available on record should be permitted to be raised before the Tribunal.
The learned counsel for the Assessee also drew our attention to the show cause notice issued u/s.274 of the Act before imposing penalty and submitted that the said notice does not specify as to whether the Assessee is guilty of having “furnished inaccurate particulars of income” or of having “concealed particulars of such income”. He pointed out that the show cause notice does not strike out the irrelevant portion viz., “furnished inaccurate particulars of income” or “concealed particulars of such income”. He drew our attention to a decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.) wherein it was held that if the show cause notice u/s.274 of the Act does not specify as to the exact charge viz., whether the charge is that the Assessee has “furnished inaccurate particulars of income” or “concealed particulars of income” by striking out the irrelevant portion of printed show cause notice, then the imposition of penalty on the basis of such invalid show cause notice cannot be sustained.
We have also perused the show-cause notice issued u/s. 274 of the Act for all the aforesaid AYs 2011-12 to 2014-15. The AO in the said show cause notice has not struck off the irrelevant portion as to whether the charge against the Assessee is “concealing particulars of income” or “furnishing of inaccurate particulars of income”.
The learned DR relied on the order of the CIT(A). He placed reliance on the decision of the Hon’ble Supreme Court in the case of Prasanna Dugar Vs. CIT 373 ITR 681(SC) wherein the Supreme Court dismissed Special Leave Petition against order of Hon’ble Calcutta High Court which held that when an addition has been made on the basis of disclosure in a search and subsequent declaration of income in a return of income filed, the AO is justified in imposing penalty u/s.271(1)(c) of the Act. This decision, in our view, is not germane to the issue of show cause notice u/s.274 of the Act not specifying the charge against the Assessee and therefore not relevant to the present appeal.
The learned DR placed reliance on the decision of the Hon’ble Supreme Court in the case of MAK Data (P) Ltd. Vs. CIT 358 ITR 593 (SC) wherein it was held that satisfaction is not required to be recorded in any particular manner or reduce such manner of arriving at satisfaction in writing. We have considered the submission of the learned DR. The decision of the Hon’ble Supreme Court in the case of MAK Data (P) Ltd. (supra) has to be understood in the context of the facts of the said case. The relevant portion of the judgment in the aforesaid case, reads thus:-
“9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer 8 deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961.
10. The AO has to satisfy whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the AO is not required to record his satisfaction in a particular manner or reduce it into writing…….”
The decision is not a case on the show cause notice u/s.274 of the Act being defective. The decision is in the context of, whether satisfaction regarding concealment of income has to be expressed stated in an order of assessment or can be implied. Therefore, this decision is not of any relevance to the plea of the Assessee on validity of show cause notice u/s.274 of the Act.
The learned DR relied on the decision of Hon’ble Karnataka High Court in the case of B. Damodar Varman Baliga Jewellers Vs. JCIT 353 ITR 206 (Karn.) wherein the question was with regard to recording of satisfaction in the order of assessment and are not relevant to the issue of validity of show cause notice u/s.274 of the Act.
The learned DR relied on the decisions of ITAT Bangalore Bench in the case of M/s. Jaysons Infrastructure India Pvt. Ltd. Vs. ITO order dated 9.6.2017 and Shri P.M. Abdulla Vs. ITO ITA No.1223 & 1224/Bang/2012 order dated 17.10.2016 taking a view that absence of specific mention in the show cause notice u/s.274 of the Act about the charge u/s.271(1)(c ) of the Act is not fatal to levy of penalty u/s.271(1)( c) of the Act.
A Co-ordinate bench in the case of Shri A Nagarju (ITA No.2196/Bang/2016 dated 6/4/2018), has considered the decision cited by the learned DR in the case of P.M. Abdullah (supra) and has held that the same is contrary to the decision of Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Spinning Mills Ltd., (supra) and therefore cannot be followed. The same reasoning would apply to the decision of the ITAT Bangalore in the case of Jayson Infrastructure India Ltd. (supra).
The learned DR relied on the decision of Mumbai ITAT in the case of Mahesh M. Gandhi Vs. ACIT Vs. ACIT dated 27.2.2017. In the case of Mahesh M. Gandhi (supra) the Mumbai ITAT held that the decision of the Hon’ble Karnataka High Court in the case Manjunatha Cotton & Ginning (supra) will not be applicable to the facts of that case, because the AO in the assessment order while initiating penalty proceedings has held that the Assessee had concealed particulars of income and merely because in the show cause notice u/s.274 of the Act, there is no mention whether the proceedings are for furnishing inaccurate particulars or concealing particulars of income, that will not vitiate the penalty proceedings. This decision is contrary to the decision of Hon’ble Karnataka High Court which is the jurisdictional High Court, as far as the Bangalore Benches of ITAT are concerned and is therefore not binding.
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 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(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 the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
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.
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 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.”
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, 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 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 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 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 and the same is directed to be cancelled.
In the result, the appeals are allowed.
Pronounced in the open court on this 27th day of February, 2019.