MR. SHIVAKUMAR MAHADEVAIAH ,MYSORE vs. INCOME-TAX OFFICER, WARD-2(3), MYSORE

4. Appellant craves leaves to add, to alter, to amend and to Appellant craves leaves to add, to alter, to amend and to delete Appellant craves leaves to add, to alter, to amend and to any other grounds at the time of hearing. any other grounds at the time of hearing.”

3. The brief facts of the case are that the Assessing Officer (AO) passed an The brief facts of the case are that the Assessing Officer (AO) passed an The brief facts of the case are that the Assessing Officer (AO) passed an order under Section 143(3) of the Act by making addition of Rs.20,16,940/- on order under Section 143(3) of the Act by making addition of Rs.20,16,940 order under Section 143(3) of the Act by making addition of Rs.20,16,940 account of unexplained cash credit under Section 68 of the Act. Aggrieved by account of unexplained cash credit under Section 68 of the Act. Aggrieved by account of unexplained cash credit under Section 68 of the Act. Aggrieved by the order of the AO the assessee preferred an appeal before the learned the order of the AO the assessee preferred an appeal before the learned the order of the AO the assessee preferred an appeal before the learned CIT(A), Mysore. However, the case was dismissed CIT(A), Mysore. However, the case was dismissed by the Ld. CIT(A) by the Ld. CIT(A) and accordingly the assessee paid t the assessee paid the entire tax demand. The Ld.AO initiated AO initiated the penalty proceedings on or before the completion of the Assessment on or before the completion of the Assessment on or before the completion of the Assessment Proceedings by observing as follows: - “Penalty u/s. 271(1)(c) initiated separately by way of issue of notice “Penalty u/s. 271(1)(c) initiated separately by way of issue of notice “Penalty u/s. 271(1)(c) initiated separately by way of issue of notice u/s. 274 for furnishing of inaccu u/s. 274 for furnishing of inaccurate particulars/concealment of rate particulars/concealment of income.”

Mr. Shivakumar Mahadevaiah 5. Thereafter, the Ld. AO passed a Penalty order under Section 271(1)(c) of the Act by levying the maximum penalty of Rs.18,15,246/- on 30.01.2020 holding that the assessee has furnished incorrect particulars of income to the extent of Rs.20,16,940/- and it is a fit case for levy of penalty under Section 271(1)(c) and levied the maximum penalty @ 300% amounting to Rs.18,15,246/- for AY 2014-15. Aggrieved by the penalty order passed under Section 271(1)(c) dated 30.01.2020, the assessee preferred an appeal before the learned CIT(A) who confirmed the penalty by way of dismissing the appeal by observing as follows: - 6.1. I have carefully considered the facts of the case and the order u/s. 271(1)(c) of the Act and the applicable law in this regard. The appellant had been giving inconsistent answers and replies suiting to his need in the course of assessment proceedings, appellate proceedings in respect of quantum addition and in the present appellate proceedings in respect of penalty appeal. The inconsistencies are evident from the assessment order and appellate order on quantum addition. In the present appeal, the appellant has only dwelled on case laws without clarifying backed by evidences and proofs as to how the Id.AO was incorrect. Case laws cannot save an assessee-appellant unless the facts are fully cleared before the appellate forum and how he did not have any mens rea in furnishing inaccurate particulars of income and in concealing the income. The assessee-appellant failed to demonstrate how his case does not call for any penalty. 6.2. I am convinced that the appellant has concealed his particulars of income and also furnished inaccurate particulars of his income amounting to Rs.20,16,940/- by not disclosing true facts. Further, the Hon'ble CIT(A) Mysore has dismissed the appellant's appeal against quantum addition by order dated 28.05.2018. I am satisfied that the appellant's case is a fit case for levy of penalty u/s.271(1)(c) of Rs. 18,15,246/- and accordingly I hold that the Id.AO has rightly levied the necessary penalty u/s. 271(1)(c). Hence I uphold the penalty u/s. 271(1)(c) and dismiss the appeal.” Aggrieved by the order of the learned CIT(A) the assessee filed the present appeal before the Tribunal.

Mr. Shivakumar Mahadevaiah 6. The solitary issue that is raised whether the CIT(A) is justified in confirming the penalty by not considering the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Manjunatha Cotton and Ginning Factory- 359ITR 565. Before us the learned A.R. of the assessee submitted that the authorities below failed to appreciate that without issuing specific show cause notice to the assessee, as required under Section 274 r.w.s. 271(1)(c), penalty cannot be sustainable.

Mr. Shivakumar Mahadevaiah "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 Mr. Shivakumar Mahadevaiah 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. 4.2 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." 4.3 It is clear from the aforesaid decision that on the facts of the present case that 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. Following the decision of the Hon'ble Karnataka High Court, we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled. 4.4 We may also add that the provision of section 292B of the Act cannot cure the basic defect in assumption of jurisdiction and only cure the mistake, defect or omission in return of income, assessment, notice or the proceeding is in substance and effect in conformity with or according to intent and purpose of the Act. As we have already seen that the Hon'ble Karnataka High Court in the decision referred to earlier view the show cause notice and the reasons mentioned in the show cause notice are part of the process of the natural justice and the defect in such notice cannot be overlooked. In view of the aforesaid decision, we do not find any infirmity in the arguments advanced by the learned AR before us. 4.5 The contention of the Ld. DR is that the assessee has participated in the penalty proceedings and hence the error, if any Mr. Shivakumar Mahadevaiah that has occurred would be cured in view of the provisions of sec. 292B/292BB of the Act. Opposing the said contention, reliance was placed on the decision rendered by the Bangalore Bench of the Tribunal in the case of Shri K. Prakash Shetty vs. ACIT (ITA Nos. 265 to 267/Bang/2014 dt. 05/06/2014) wherein it was held that the provisions of sec.292BB would not come to the rescue of the revenue, when the notice was not in substance and effect in conformity with or according to the intent and purpose of the Act. In our view, the notice issued by the Assessing Officer was not in substance, and effect in conformity with or according to the intent and purpose of the Act, since the Assessing Officer did not specify the charge for which penalty proceedings were initiated and further there was non- application of mind on the part of the Assessing Officer. 4.6 Furthermore, when the assessee has already disclosed his additional income while filing regular return on 27.10.2015 for the year under consideration including that of Rs.1.30 Crores, which was declared during the course of survey u/s 133A of the Act and paid tax accordingly on such additional income, we do not find any decision in levying penalty u/s 271(1)(c) of the Act in the present facts and circumstances of the case. Thus, as the same view was taken by the ld. CIT(A), we do not find any reason to interfere with such observations made by the ld. CIT(A) and in quashing the penalty proceedings initiated against the assessee which is found to be just and proper. The appeal filed by the revenue is therefore found to be devoid of merit and thus dismissed.

Order pronounced in the open Court on 12th June, 2024.