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Income Tax Appellate Tribunal, BANGALORE BENCH C
Before: SHRI VIJAYPAL RAO & SHRI JASON P BOAZ
PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER:
This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Appeals) - 4, Bengaluru dated 17/3/2017 upholding the order of DCIT, Circle-2(2), Bangalore dated 9/7/2015 levying penalty of Rs.2,08,365/- u/s 271(1)(c) of the Income-tax Act, 1961 (in short ‘the Act’) for asst. year 2011-12.
Briefly stated, the facts of the case relevant for this appeal are as under:-
2.1 A search action u/s 132 of the Act was conducted, inter alia, at the premises of this individual assessee on 5/7/2011. On the date of search, jewellery was found which was valued at Rs.56,74,320/-. In the course of search, the assessee had also declared, inter alia, a sum of Rs.50 lakhs as additional income in respect of the aforesaid jewellery found for asst. year 2011-2. The assessment was competed u/s 153A r.w 143(3) of the Act vide order dated 26/2/2013, wherein the assessee’s income was determined at Rs.114,42,43,772/- as against revised declared income of Rs.23,97,25,547/- due to various additions made therein, In the order of assessment the Assessing Officer (‘AO’) observed that the assessee had only declared the sum of Rs.50 lakhs on account of unexplained jewellery as per the declaration u/s 132(4) of the Act in the return of income filed for asst. year 2011-2; but had not disclosed the balance Rs.6,74,320/- in respect of unexplained jewellery found and valued at the time of search. In that view of the matter, the AO inter alia, made an addition of Rs.6,74,320/- to the income of the assessee in respect of the jewellery found.
2.2 In further appeals before appellate authorities, in respect of the additions made in the order of assessment dated 26/2/2013 for asst. year 2011-2, this addition of Rs.6,74,320/- in respect of jewellery was upheld by the co-ordinate bench of this Tribunal in its order in & 1779/Bang/2015 dated 10/4/2015. Based on the aforesaid addition of Rs.6,74,320/-, on account of jewellery being sustained by the aforesaid order of the Tribunal (Supra), the AO vide order dated 9/7/2015 levied penalty u/s 171(1)(c) of the Act of Rs.2,08,365/- in respect of addition of Rs.6,74,320/- sustained on account of unexplained investment in jewellery. On appeal, the ld CIT(A) also vide order dated 17/3/2017 upheld the penalty order passed by the AO. 3.0 Aggrieved by the order of the CIT(A)-4, Bangalore dated 17/3/2017 for asst. year 2011-12, upholding in the levy of penalty u/s 271(1)(c) of the Act, the assessee has preferred this appeal raising the following on grounds:-
“1. The orders of the authorities below in so far as levying penalty u/s 271 [1][c] of the Act against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The order levying penalty u/s.271[1][c] of the Act, is bad in law in as much as, the learned A.O. has neither reached any satisfaction nor has such satisfaction been recorded in the assessment order and consequently, the very initiation of proceedings u/s.271[1][c] of the Act, is not in accordance with the requirements of Section 271[1] of the Act and consequently, the order of penalty founded on the invalid initiation of penalty proceedings is liable to be cancelled.
The order of penalty passed u/s 271[1][c] of the Act is bad in law as the notice issued under section 274 rws 271 of the Act is not discernable whether the penalty proceedings is initiated for furnishing of inaccurate particulars of income or concealment of income under the facts and in the circumstances of the appellant's case.
4. Without prejudice to the above, the authorities below are not justified in levying a penalty of Rs.2,08,365/- u/s 271 [1][c] of the Act under the facts and in the circumstances of the appellant's case.
5. The authorities below failed to appreciate that the appellant has neither' concealed any income nor furnished inaccurate particulars of income to warrant levy of penalty and therefore, the penalty levied u/s.271[1][c] of the Act requires to be cancelled.
Without prejudice to the above, the penalty levied is highly excessive and liable to be reduced substantially.
For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
Grounds 1,6 & 7 are general in nature and not being urged before us, are dismissed as infructuous.
Grounds No:2 and 3 5.1 In these grounds (Supra), the sum and substance of the assessee’s contentions are that the penalty proceedings initiated by the AO vide notice issued u/s 274 r.w.s 271 of the Act dated 26/2/2013 for levy of penalty u/s 271(1)(c) of the Act, is defective. In this regard the ld AR for the assessee has placed reliance on the decision of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (359 ITR 565) (Kar) and the rejection of the Revenue’s SLP by the Hon’ble Apex Court in the case of SSAS Emerald Meadows in SLP: (CC 11485/2016) dated 5/8/2016. The ld AR also filed a copy of the decision of the co- ordinate bench of this Tribunal in the case of Shri Moorsavirappa C Batli in dated 10/2/2016 in support of the assessee’s case. It is contended that in similar circumstances, as in the case on hand, the co-ordinate bench has held that the penalty proceedings initiated on the basis of defective notice has to be cancelled. On merits, the ld AR submitted that the addition of Rs.6,74,320/-, on the basis of which the said penalty of Rs.2,08,365/- has been levied u/s 271(1)(c) of the Act, cannot be considered as unexplained investment as the said addition has been made on the basis of Valuation Report and no penalty can be levied on valuation which is only an estimation.
5.2 Per contra, the ld DR for Revenue supported the orders of the authorities below. It was submitted that since the ld CIT(A) had not considered and decided the ground of appeal pertaining to the issue of defective notice u/s 271 r.w.s 271 of the Act for initiation of penalty proceedings u/s 271(1)(c) of the Act, therefore the matter requires to be sent back to the file of the CIT(A) for adjudication of this ground. On merits, the ld DR contended that the addition of Rs.6,74,320/- was sustained because there was no reconciliation statement filed by the assessee in support of the plea that the entire jewellery has been declared.
5.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. At the outset we may mention that the assessee has raised the aforesaid issue of defective notice before the ld CIT(A) and find that there is no finding rendered by the ld CIT(A) on this issue in the impugned order. However, since the facts of the matter on this issue are apparent from the copy of the said notice issued u/s 274 r.w.s 271 of the Act dated 26/2/2013 (filed by the assessee at page 6 of paper book pages 1 to 33) and the judicial view of Courts and ITAT co-ordinate bench in the matter (Supra) in our view, no useful purpose would be served in restoring the matter to the file of the ld CIT(A) as prayed for by the ld DR for Revenue. We have perused the copy of the notice issued u/s 274 r.w.s 271 of the Act dated 26/2/2013 and find that it reveals that the AO has not deleted the inappropriate words and parts in the relevant paragraph of the notice, whereby it is not clear as to which default has been committed by the assessee; i.e whether by furnishing of inaccurate particulars of income or concealing particulars of income for which penalty u/s 271(1)(c) of the Act is sought to be levied.
5.3.2 The Hon’ble Karnataka High Court in the case of M/s Manjunatha Cotton & Ginning Factory in (359 ITR 565) (Kar) has held that a notice issued u/s 274 r.ws 271 of the Act without specifying the nature of default; i.e; whether the notice is issued for concealment of particulars of income or furnishing of inaccurate particulars of income; is invalid and the consequential penalty proceedings/order are also not valid. The relevant portion of the aforesaid judgment of the Hon’ble Karnataka High Court (Supra) at paras 59 to 61 are extracted hereunder:-
“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-I or in Explanation- l(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 oil 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(I)('c,) c/a 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 tax liability. As the said provisions have to be held to be standby 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 M4NU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO IvL4RKETING reported in 171 Taxman 156, has held that penalty has to be clear as to the limb for which it is levied and the action 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 relevant1 clauses will lead to an inference as to non-application of mind."
5.3.3 The aforesaid view taken by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton & Ginning Factory (Supra) was followed by the Hon’ble Karnataka High Court in the case of SSAS Emerald Meadows in ITA No:380 of 2015 dated 23/11/2015; wherein the Hon’ble Court upheld the order of co-ordinate bench of this Tribunal, cancelling the penalty levied on the basis of the defective notice issued by the AO. Revenue’s SLP filed against he said judgment of the Hon’ble High Court in the case of SSAS Emerald Meadows (Supra) has also been dismissed by the Hon’ble Apex Court in CC/1485/2016 dated 5/8/2016.
5.3.4 Respectfully following the judgments of the Hon’ble Karnataka High Court in the cases of M/s Manjunatha Cotton & Ginning Factory (359 ITR 565( (Kar) and SSAS Emerald Meadows in ITA No:380 of 2015 dated 23/11/2015, we hold that the notice issued by the AO u/s 274 r.w.s 271 of the Act dated 26/2/2013 for initiating penalty proceedings is invalid and consequently, the penalty proceedings, conducted in pursuance thereof, are also invalid and we therefore delete the penalty of Rs.2,08,365/- levied u/s 271(1)(c) of the Act for asst. year 2011-12. Consequently, the grounds raised by the assessee at S.Nos. 2 and 3. (Supra) are allowed.
6. Since the very basis for levy of penalty u/s 271(1)(c) of the Act has been held by us to be invalid as discussed in paras 5.1 to 5.3.4 of this order (Supra), the order grounds of appeal at S.Nos. 4 and 5, raised on the merits of the levy of penalty u/s 271(1)(c) of the Act require no adjudication by us at this stage.
In the result, assessee’s appeal for asst. year 2011-12 is allowed as indicated above.
Order pronounced in the open court on 22nd September, 2017.