M/S KSHEMA GEO HOLDINGS PVT LTD., vs. THE INCOME TAX OFFICER

Whether, in the facts and circumstances of the case, the Tribunal ought to have held that the Explanation 1 to section 271(1)(c) is not applicable to the instant case?

Whether, in the facts and circumstances of the case, the Tribunal ought to have quashed the penalty as the provisions of section 271(1B) are not satisfied?

Whether, in the facts and circumstances of the case, the Tribunal ought to have quashed the penalty as the addition arose from only a valuation exercise and the

After hearing Shri. K.K. Chythanya, learned Senior Advocate for the assessee and Shri. E.I. Sanmathi, learned Standing Counsel for the Revenue, in our view, the first question needs to be considered at the outset.

Briefly stated the facts of the case are, assessee, a Private Limited Company filed its returns for the A.Y. 2014-15. It has collected premium for issue of shares in the relevant assessment year. The Assessing Officer has recorded in para 3.1 of his order that the assessee had issued 75000 equity shares with the face value of Rs.10/- at a premium of Rs.690/- and had called upon the assessee to submit the valuation report in accordance with Rule 11U/11UA read with Clause (viib) Sub-section (2) of Section 56 of the Income Tax Act, 19611. The Assessing Officer came to the conclusion that where a Company, not being a Company in which public are substantially interested, receives in any previous year, from any person being a

Shri. Chythanya, submitted that although ITAT has remanded the matter, the issue is covered by the decision of the Hon’ble Supreme Court of India and also this Court. According to him, the notice dated December 8, 2016 issued under Section 274 of the Act was categorical that the assessee had furnished inaccurate particulars of the income. The said notice is contrary to the satisfaction of the Assessing Officer to initiate penalty proceedings. In support of this contention, he placed reliance on Dilip N. Shroff Vs. Joint Commissioner of Income-tax, Special Range, Mumbai2. He made particular reference to para 60 and argued that the satisfaction of the Assessing Officer during the course of assessment proceedings with regard to concealment of income would constitute the basis of foundation for proceedings to levy penalty. He next relied upon Commissioner of Income-tax Vs. Manjunatha Cotton & Ginning Factory3. Adverting to para 60 of the said authority, he argued that the existence of grounds

In reply, Sanmathi, learned Standing Counsel for the Revenue submitted that combined reading of paras 3.3 and 4 of the assessment order, shows that concealed income has been admitted in the letter written by the Director of the Assesee Company. Therefore, there is no legal infirmity in the penalty order. Adverting to para 63(e) & (f) of Manjunatha Cotton and Ginning Factory, he submitted that incorrect submission of facts is discernable from the assessment order. Therefore, the conclusion at para 63(e) in the said aouthoirty is in favour of the Revenue.

We have carefully considered rival contentions and perused the records.

Para 4 of the assessment order reads as follows: “4. As the assessee failed to disclose income under the head Income from Other Sources in the return of income filed for the

In the notice dated December 8, 2016, among other things, the Assessing Officer has struck-off one half of para 3 and it reads as follows: *have concealed particulars of income/ have furnished inaccurate particulars of income.

The principal contention urged by Shri. Chythanya is that the penalty proceedings have been initiated based on the satisfaction recorded in para 4 of the assessment order. A careful perusal of the same shows that the Assessing Officer was of the view that assessee has concealed true and correct particulars of its income whereas the ground on which the notice is issued is ‘have furnished inaccurate particulars of income’. It is relevant to note that five words ‘have concealed particulars of income’ have been struck off in the notice.

We may record that in paras 60 and 67 of Dilip Shroff, it has held as follows: 60. It is furthermore interesting to note that this Court in D.M. Manasvi (supra) categorically opined that it would be the satisfaction of the Income Tax Officer in the course of the assessment proceedings regarding the concealment of income which would constitute the basis of foundation of the proceedings for levy of penalty. It was furthermore observed : "It may also be observed that what is contemplated by Sections 271 and 274 of the Act is that there should be, prima facie, satisfaction of the Income Tax Officer or the Appellate Assistant Commissioner in respect of the matters mentioned in sub-section (1) before he hears the assessee or gives him an opportunity of being heard. The final conclusion on the point as to whether the requirements of clauses (a), (b) and (c) of Section 271(1) have been satisfied would be reached only after the assessee has been heard or has been given a reasonable opportunity of being heard."

'Concealment of income' and 'furnishing of inaccurate particulars' are different. Both concealment and furnishing inaccurate particulars refer to deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppressio veri or suggestio falsi. Although it may not be very accurate or apt but suppressio veri would amount to concealment, suggestio falsi would amount to furnishing of inaccurate particulars.

A similar question arose for consideration before this Court in Manjunatha Cotton and Ginning factory. The relevant portion of the order concerning a notice under Section 274 reads as follows: 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

A combined reading of the authorities in Dilip Shroff and Manjunatha Cotton & Ginning Factory, leads us to an inference that the satisfaction of existence of ground under Section 271(1)(c) is the sine qua non for initiation of proceedings and the penalty proceedings should be confined only to those grounds specifically stated in the notice. As recorded hereinabove, the Assessing Officer had issued notice only with regard to furnishing in accurate particulars. Whereas the satisfaction recorded is with regard to concealment of income particulars and the very ground has been struck-off. The notice has been issued on the specific premise that assessee had furnished inaccurate particulars of income.

In view of the law laid down in the authorities referred by us, we are of the view that the penalty order is not sustainable in law. Hence, the following: