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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
O R D E R PER PRASHANT MAHARISHI, A. M.
This appeal is filed by assessee against the order of the Commissioner of income tax (appeals) –xvii, New Delhi dated 21/02/2011 confirming the penalty of Rs. 5 56365/– under section 271 (1) (C) of the income tax act, 1961 for assessment year 2007 – 08.
Assessee has raised four grounds of appeal as under:- i. that having regard to the facts and circumstances of the case, the Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in assuming jurisdiction to impose penalty of Rs. 5 56365/– under section 271 (1) (C) that too without recording the mandatory satisfaction as per law. ii. That in any view of the matter and in any case, the action of the Ld. CIT (A) in confirming the action of Ld. AO in framing the impugned penalty order which is beyond jurisdiction, illegal, in violation of principles of natural Justice, barred by limitation, contrary to the law and facts and deserves to be quashed.
Pinky rubber Udyog private limited versus Income Tax Officer ITA 2526/DEL/2011 Assessment year 2007 – 08 iii. That having regard to the facts and circumstances of the case, the Ld. CIT (A) has erred in law and on facts in confirming the action of Ld. AO in levying the penalty under section 271 (1) (C) and in passing the impugned penalty order in as much as the assessment order passed under section 143 (3) dated 24/12/2009 is in violation of principles of natural Justice, beyond jurisdiction, barred by limitation, contrary to law and facts, unjustified, illegal and void ab initio. iv. That having regard to the facts and circumstances of the case, the Ld. CIT (A) has erred in law and on facts in not reversing the action of Ld. AO in levying the penalty and passing the impugned order that too without discharging his burden as envisaged under the law of proving concealment of income on furnishing inaccurate particulars by the assessee and by recoding incorrect facts and findings.”
Briefly stated, the facts of the case is that assessee is a private limited company engaged in the business of trading of footwear and clothes and also in the manufacturing of footwear, who filed its return of income for Rs. 3 2186/– on 16/10/2007. During the course of assessment proceedings, on examination of the bank statement of the assessee. It was revealed that cash deposits were made in the bank account of the assessee at various places on different dates. The assessee explained by producing the cashbook maintained at Hathras and New Delhi. The AO noted that cash deposits at various places was withdrawn from the bank on the same day at Delhi or Hathras and the deposit of cash was explained out of the cash either available at Delhi or at Hathras. Assessee submitted that it is engaged in the business of purchase and sale of footwear, which is generally sold in retail catering to the need of small towns and villages of Uttar Pradesh, and most of the buyers are not the regular shopkeepers. The amount of cash deposited was also stated to be explained that these are the deposits by the sales man or by the persons to whom sales are made. The Ld. assessing officer did not believe the explanation of the assessee and also assessee vide letter dated 24/12/2009 surrendered a sum of Rs. 15 Lacs being short credits with a view to buy peace and avoid litigation. Further during the course of Pinky rubber Udyog private limited versus Income Tax Officer ITA 2526/DEL/2011 Assessment year 2007 – 08 assessment proceedings, notice under section 133 (6) was issued to one M/s Balaji traders, the party did not confirm the transactions entered into with the assessee and therefore assessee agreed for the addition of this sum of Rs. 1652904/–. Consequently, assessment order under section 143 (3) was passed determining the total income of the assessee of Rs. 1685089/– against the returned income of Rs. 32186/–. Consequent to this, assessee challenged the same before the Commissioner of income tax (appeals) unsuccessfully and further agitated the matter before the coordinate bench who vide order dated 12/02/2016 dismissed the appeal of the assessee for non prosecution. Consequently, notice under section 274, read with section 271 of the income tax act was issued to the assessee on 24/12/2009 to show cause that why penalty should not be levied. The assessee explained before the Ld. assessing officer requesting not to levy penalty. The Ld. assessing officer did not accept the explanation of the assessee and vide order dated 29/06/2010 levied a penalty of Rs. 556365/–. Assessee being aggrieved with the order of the Ld. assessing officer preferred an appeal before the Commissioner of income tax (appeals) who vide order dated 21/02/2011 dismissed the appeal of the assessee confirming the penalty levied by the Ld. assessing officer. Therefore, assessee aggrieved with that order has preferred appeal before us.
Before us, the Ld. authorized representative raised several arguments as under:- i. Assessee has surrendered sum of Rs. 15 Lacs vide letter dated 24/12/2009 with a pre-condition that no concealment penalty should be initiated against the company. ii. That explanation is offered by the assessee during the course of assessment proceedings, which was not found to be false, and therefore penalty cannot be levied. He further referred to the various bank statements of the assessee and its working submitted before the Ld. assessing officer. He referred to 3 Pinky rubber Udyog private limited versus Income Tax Officer ITA 2526/DEL/2011 Assessment year 2007 – 08 various pages of the paper book to demonstrate that none of the cash deposit was not accounted for in the books of account of the assessee. He referred to the cash book as well as the bank statement along with the reconciliation placed before the assessing officer. iii. That notice issued by the Ld. assessing officer has not struck off the two alternatives given thereunder and therefore, the Ld. assessing officer was not sure of the charge on the assessee. iv. He further referred to the assessment order to show that assessing officer has merely initiated penalty proceedings without specifying that whether assessee has concealed the particulars of income or furnished inaccurate particulars. v. He further referred to the order of the penalty to submit that that the penalty order in para No. 2 at page No. 6 states that there is a consequence of furnishing inaccurate particulars of income and the assessing officer has levied the penalty holding it to be a concealment of income. vi. He further submitted that merely because one of the customer has not confirmed the transactions made with the appellant company, it doesn’t become concealment of income or furnishing of inaccurate particulars because of the reason that the relationship with that party were not so cordial. vii. He further relied upon the decision of the Hon’ble Bombay High Court in case of CIT versus Upendra V Mithani of 2009 dated 05/08/2009 to submit that that if the assessee gives an explanation which is unproved but not disproved and if it is not accepted, but the circumstances do not lead to the reasonable and positive inference that the assessee’s case is false the penalty cannot be levied. viii. He further referred to the decision of the Hon’ble Karnataka High Court in case of AP Shanmugam Raj versus M WP Ltd, 264 CTR 502 (KA R) to state that mere reference of initiation of penalty cannot be held to be proper assumption of jurisdiction for levying penalty. He referred to para No. 11 of that decision to show that if there is a mere reference of initiation of penalty proceedings than it cannot be said that Ld. assessing officer was satisfied for levy of penalty.
Pinky rubber Udyog private limited versus Income Tax Officer ITA 2526/DEL/2011 Assessment year 2007 – 08 ix. He further referred to the decision of the Hon’ble Supreme Court of India in case of CIT Vs. SSA Emerald Meadows dated 05/08/2016, dismissing the special leave petition of the revenue against the decision of Hon’ble Karnataka High Court in of 2015 to say that if the show cause notice did not specify which limb of section 271(1)(C) of the act is attracted while initiating penalty proceedings then penalty order cannot be said to be valid. x. He further referred and relied vehemently on the decision of CIT Vs. Manjunatha Cotton and Ginning factory (2013) 359 ITR 565. xi. He further referred to the decision of the coordinate bench in ITA No. 2555/MUM/2012 for assessment year 2008–09 in case of Meherjee Cashinath Holdings Private Limited Vs. ACIT dated 28/04/2017 wherein it is held that if one of the charges in the notice is not struck of the penalty order is unsustainable. xii. He further referred to the decision of coordinate bench in Tri-Star intach private limited versus ACIT 43 ITR (Trib) 279 to submit that explanation 1 to section 271 (1)(c) only applies to the concealment of income and not to the furnishing of inaccurate particulars. He submitted that assessing officer has invoked explanation 1 for levying penalty for furnishing inaccurate particulars of income, which is not in accordance with law. Based on the above decision he submitted that the penalty order passed by the Ld. assessing officer and confirmed by the Ld. first appellate authority is unsustainable in law and facts.
The Ld. departmental representative vehemently supported the order of the Ld. assessing officer and first appellate authority to say that assessee has surrendered sum of Rs. 15 Lacs after detection and also the addition made during the course of assessment was not contested by the assessee before the tribunal. He therefore submitted that assessee has rightly been levied penalty under section 271 (1)(C) of Pinky rubber Udyog private limited versus Income Tax Officer ITA 2526/DEL/2011 Assessment year 2007 – 08 the act. He further submitted that merely there is non striking off one of the option in the show cause notice does not invalidate the penalty proceedings.
We have carefully considered the rival contention and also perused the relevant documents placed before us. Hon’ble Karnataka High Court in case of CIT versus Manjunatha Cotton and Ginning factory (2013) 359 ITR 565, has held as under:-
“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 the order of the appellate authority or the 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) and 1(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(1)(c) is a sine qua non for the Assessing Officer to initiate the proceedings because of the deeming provision contained in sub- section (1B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Income-tax (Appeals) and the Commissioner. i) The imposition of penalty is not automatic.
Pinky rubber Udyog private limited versus Income Tax Officer ITA 2526/DEL/2011 Assessment year 2007 – 08 j) The 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 the authorities it has resulted in payment of such tax or such tax liability came to be admit ted 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 bona fide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide 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 1(B) 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 grounds mentioned in section 271 are mentioned would not satisfy the requirement of law.
Pinky rubber Udyog private limited versus Income Tax Officer ITA 2526/DEL/2011 Assessment year 2007 – 08 r) The assessee should know the grounds which he has to meet specifically. Otherwise, the 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 the 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.”
We proceed to examine the whole issue on these principles. We have perused the penalty notice dated 24/12/2009 and we note that Ld. assessing officer has not cancelled any of two options. Therefore, in the show cause notice, the Ld. assessing officer has not at all made up his mind that whether the assessee has concealed income or furnished inaccurate particulars of income. On examination of assessment order passed by the Ld. assessing officer he has merely mentioned that penalty proceedings are initiated separately. Therefore, even in the assessment order, the Ld. assessing officer has not given a satisfaction whether there is concealment of income or furnishing of inaccurate particulars of income. On perusal of the penalty Pinky rubber Udyog private limited versus Income Tax Officer ITA 2526/DEL/2011 Assessment year 2007 – 08 order it has been mentioned at page No. 6 of that order by the Ld. assessing officer that:- “ Keeping in view the above facts and as a consequence of furnishing inaccurate particulars of income, I am of the view that assessee is liable for imposition of penalty under section 271(1)(C) of the IT act 1961. In this case the assessee has willfully and knowingly concealed an income of Rs. 1652904/– and as per explanation 1 to section 271(1)(C) the said amount is deemed to be the income on which tax was sought to be evaded.”
Therefore, on reading of the penalty order also, it is apparent that the assessing officer was not sure whether it is a consequence of furnishing of inaccurate particulars of income or concealment of income. Therefore, on conjoint readings of assessment order, show cause notice and penalty order it is apparent that one cannot discern that charge on the assessee is whether furnishing inaccurate particulars of income or of concealment of income. It is an established principle that assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. Furthermore, the argument of the revenue that assessee has not challenged the addition before the tribunal is also devoid of any merit so far as the penalty is concerned. It is also an established principle that 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 the 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. No doubt, the surrender from the assessee has come after detection by the revenue authorities, however, before leaving any penalty, the revenue