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Income Tax Appellate Tribunal, MUMBAI BENCH “I” MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the assessee. The relevant assessment year is 1998-99. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)- 35, Mumbai and arises out of the penalty order u/s 271(1)(c) of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal
filed by the assessee read as under:-
1. Ld. CIT(A) erred to confirm the levy of penalty as such levy by the AO is without requisite satisfaction as required by the provision.
2. Ld. CIT(A) failed to appreciate that the levy of penalty is without application of mind as such levy was merely based on the addition made in the assessment order.
3. Ld. CIT(A) failed to appreciate that the levy of penalty on some of the issues have become barred by the period of limitations whereas on other additions of income, there were two different views in the two different orders of the CIT(A) and under the circumstances, levy of penalty is bad in law.
4. Ld. CIT(A) failed to see that the levy was bad in law as the needed approval given by the Ld. Additional Commissioner is without application of mind in view of the (ii)/(iii), above.
5. Ld. CIT(A) failed to see that the addition made by the assessing officer on account of rent Rs.1,14,000/- is bad in law, as addition of income was based on inquiry made behind the back of the appellant, Kisanchand Chellaram ITR 713 (SC) applies.
6. Ld. CIT(A) has held, in para 8 of the order, that 3 issues would require re- examination and adjudication and re-adjudication and still upholds the levy of penalty brushing aside the decision of the High Court in the case of appellant himself to set aside the stated 3 issues back to the AO, in view of which decision relied upon in the case of Nayan Builders & Developers Pvt. Ltd. vs. ITO (ITAT Mumbai) applied was overlooked.
7. Without prejudice to aforesaid in para 8 of the order, Ld. CIT(A) is erred to state that “as regards the addition on leave and license compensation received from Mitchell, in any case there is no adjudication pending and neither has the appellant come forth with any credible explanation as to why the penalty imposed by the AO on the same should not be upheld”.
3. Briefly stated the facts of the case are that the assessee filed his return of income for the AY 1998-99 on 28.09.1998 declaring total income of Rs.1,55,853/-. The Assessing Officer (AO) completed the assessment u/s 143(3) on 28.02.2001 making the following additions:
Income from other Sources 1. Leave and License compensation recd from Mitchelle being the consideration of constructing hotel at Charoti Nake Rs.3,59,226 2. Compensation income from 4 shops Rs.1,44,000 3. Income from undisclosed sources u/s 69 being the Rs.3,00,000 cash deposits in various banks 4. Income from undisclosed sources u/s 69 being the Rs.3,50,000 cheque deposits
Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) vide order dated 30.12.2002 granted partial relief to the assessee bringing the total income to Rs.4,79,900/-. In further appeal the ITAT vide their order dated 15.09.2006 directed the Ld. CIT(A) to adjudicate the matter afresh. Thereafter, the Ld. CIT(A) passed an order on 18.01.2008 confirming the additions made by the AO in the original order dated 28.02.2001. Subsequently, the AO imposed minimum penalty of Rs.3,06,779/- u/s 271(1)(c) of the Act.
Aggrieved by the penalty order of passed by the AO, the assessee filed an appeal before the Ld. CIT(A). The Ld. CIT(A) held that (i) the AO has passed the order within the prescribed time limit as mentioned in proviso to section 275(1)(a), (ii) as per the order of the ITAT, the addition of (i) rent of Rs.1,44,000/-, (ii) Rs.3,00,000/- as unexplained cash deposit in the bank account and (iii) Rs.3,50,000/- as unexplained income were the issues which were remanded back to the CIT(A). Thus the Ld. CIT(A) concluded that the AO has rightly imposed penalty u/s 271(1)(c) on the above three additions. As regards the addition on leave and license compensation received from Mitchell, there was no adjudication pending. Also the assessee could not file any credible explanation as to why penalty imposed by the AO on the above should not be upheld. Therefore, the Ld. CIT(A) upheld the penalty on this ground also. Considering the above facts, the Ld. CIT(A) dismissed the appeal filed by the assessee. 6. Before us, the Ld. counsel of the assessee submits that (i) the AO has not recorded his satisfaction in the assessment order for initiating penalty the penalty u/s 271(1)(c) and (ii) the notice issued by the AO u/s 274 r.w.s 271 of the Act is not specific whether it is for concealment of income or furnishing inaccurate particulars of such income. Reliance was placed by him on the decision in the case of CIT vs. Ram Commercial Enterprises (2000) 246 ITR 568(Del.), CIT vs. Rampur Engineering Co. Ltd. (2009) 309 ITR 143 (Del.) (FB), CIT vs. Manjunath Cotton and Ginning Factory (2013) 359 ITR 565 (Karn.), CIT vs. SSA’s Emerald Meadows (2016) 73 taxmann.com 248 (SC) and CIT vs. Shri Samson Perinchery in 1097, 1154 & 1226/2014 (Bombay High Court).
Regarding the merit of the case, the Ld. counsel submits that the AO has imposed penalty on the addition of Rs.3,59,226/- without appreciating that the addition was made in the assessment order by changing the head from ‘business income’ to ‘income from other sources’. Therefore, neither there was concealment of income nor furnishing of inaccurate particulars of such income by the assessee. Regarding the penalty levied by the AO on Rs.1,44,000/-, the Ld. counsel submits that the addition of the above amount of compensation from four shops was reduced by the Ld. CIT(A) to Rs.57,600/- vide order dated 30.12.2002. The ITAT set aside the order. The Ld. CIT(A) restored the original addition made by the AO. Regarding the penalty levied on Rs.3,00,000/- and Rs.3,50,000/-, the Ld. counsel submits that an addition of Rs.37,899/- was confirmed by the Ld. CIT(A) vide order dated 30.12.2002 and the balance was deleted on merit. The ITAT set aside the order. The Ld. CIT(A) restored the original addition made by the AO. As the additions became a debatable issue, the Ld. counsel submits that the penalty of Rs.3,06,779/- levied by the AO u/s 271(1)(c) be deleted.
On the other hand, the Ld. DR supports the order passed by the Ld. CIT(A). Specific reference is made by him to para 8 of the order dated 12.11.2014 passed by the Ld. CIT(A).
We have heard the rival submissions and perused the relevant materials on record. We find that the AO has not recorded in the assessment order dated 28.02.2001 even his elementary satisfaction for initiating penalty u/s 271(1)(c). We also find that the AO has not deleted the inappropriate words and paragraphs of the notice u/s 274 r.w.s 271 dated 28.02.2011 issued by him. 8.1 In Ram Commercial Enterprises(supra), it is held that Assessing Authority has to form its own opinion and record its satisfaction before initiating penalty proceedings under s.271(1)(c); proceedings initiated without recording such satisfaction were quashed. The Hon’ble Delhi High Court observed: “A bare reading of the provisions of s. 271 and the law laid down by the Supreme Court makes it clear that it is the assessing authority which has to form its own opinion and record its satisfaction before initiating the penalty proceedings. Merely because the penalty proceedings have been initiated, it cannot be assumed that such a satisfaction was arrived at in the absence of the same being spelt out by the order of the assessing authority. Even at the risk of repetition we would like to state that the assessment order does not record the satisfaction as warranted by s. 271 for initiating the penalty proceedings.”
In Rampur Engineering Co. Ltd. (supra), their Lordships, speaking through the learned Chief Justice Ajit Prakash Shah affirmed Ram Commercial Enterprises Ltd.(supra) and held as under: “8. Ram Commercial Enterprises Ltd. been followed in Diwan Enterprises vs. CIT (2000) 246 ITR 571 (Del) and CIT vs. J.K. Synthetics Ltd. (1996) 219 ITR 267 (Del). Same is the view taken by the Bombay High Court in CIT vs. Dajibhai Kanjibhai (1991) 189 ITR 41 (Bom).
9.In our opinion, the legal position is well settled in view of the Supreme Court decisions in CIT & Anr. vs. S.V. Angidi Chettiar (1962) 44 ITR 739 (SC) and D.M. Manasvi (1972) 86 ITR 557 (SC), that power to impose penalty under s. 271 of the Act depends upon the satisfaction of the ITO in the course of the proceedings under the Act. It cannot be exercised if he is not satisfied and has not recorded his satisfaction about the existence of the conditions specified in cls. (a), (b) and (c) before the proceedings are concluded. It is true that mere absence of the words ‘I am satisfied’ may not be fatal but such a satisfaction must be spelt out from the order of the assessing authority as to the concealment of income or deliberately furnishing inaccurate particulars. In the absence of a clear finding as to the concealment of income or deliberately furnishing inaccurate particulars, the initiation of penalty proceedings will be without jurisdiction. In our opinion, the law is correctly laid down in Ram Commercial Enterprises Ltd.(supra) and we are in respectful agreement with the same. The reference is answered accordingly.”
8.2 We notice that in the instant case the AO has forgotten to record even his elementary satisfaction for initiating penalty u/s 271(1)(c) in the assessment order dated 28.02.2001 passed by him.
8.3 In Manjunatha Cotton & Ginning Factory (supra), the Hon’ble Karnataka High Court observed:
“Notice u/s 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. Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law.
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. Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. 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.”
The above decision has been affirmed by the Hon’ble Bombay High Court in Shri Samson Perinchery (supra).