AMIT KHEMKA,KOLKATA vs. ITO, WARD - 43(1), KOLKATA

Present for: assessee by : Shri Vikash Kumar Agarwal, FCA Respondent by : Shri Manoj Kumar Pati, Addl. CIT, Sr. DR Date of Hearing :20.06.2024 Date of Pronouncement :20.08.2024 O R D E R PER BENCH: Both these appeals filed by the assessee are against the separate orders of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “the Ld. CIT(A)”] passed u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) vide Order Nos. ITBA/NFAC/S/250/2023- 24/1060387478(1) and ITBA/NFAC/S/250/2023-24/1060393621(1) for AY 2012-13 dated 01.02.2024. However, since both the appeals relate to the same assessee, hence for the sake of brevity and convenience, they are being decided vide this common order.

& 636/Kol/2024 Amit Khemka AYs: 2012-13 “1. That on the facts and under circumstances of the case, the penalty order passed by the learned Assessing Officer as confirmed by the learned CIT (Appeals)-NFAC is not tenable being no fact for initiation of penalty proceeding u/s 271B was mentioned in the Original Assessment Order passed u/s 147/143(3) dated 26-03-2015.

3. That on the facts and under circumstances of the case, the learned CIT(A) erred in observing that assessee has not pressed Ground of Appeal No. 1 and 2, whereas in the written submission filed by the assessee through online mode, the submission regard to Ground No. 1 and 2 was duly made along with supporting documents and the same is available online on record.”

6.1 We have considered the rival submissions made. The assessee has relied upon several judicial pronouncements in this regard; however the facts and the issues mentioned in those cases are different from the facts and the issues in the case of the assessee and, therefore, they are not applicable to the facts of the case of the assessee. section 271B of the Act nowhere requires that unlike the penalty under section 271(1)(c) which has to be initiated in the course of any proceeding, the penalty under section 271B also has to be initiated in the course of any proceeding. The penalty under section 271B relates to not getting the accounts audited under the Act and as the same is not related to the quantum of income assessed but to the turnover, therefore the proceeding can be initiated independent of the assessment proceeding, as regards section 271B. In the case of Madan Roller Flour Mills vs. Commissioner of Income-tax [2008] 171 Taxman 70 (Punjab & Haryana) it has been held that in all cases where penalty proceedings are not required to be initiated during course of any proceedings, there is no limitation prescribed under section 275 (prior to its amendment with effect from 1.4.1989) for passing penalty order and since section 271B does not require that initiation of penalty proceedings can only be during course of some proceedings, limitation prescribed under section 275 would not be applicable to order passed under section 271B. Hence, ground no. 1 of the appeal is rejected.

8. Regarding ground No. 4, it is submitted that the assessing officer did not consider the fact that the assessee throughout the assessment and & 636/Kol/2024 Amit Khemka AYs: 2012-13 appellate proceeding contended that the deposits in the bank account were nothing but the collection on behalf of suppliers which were subsequently remitted to the suppliers and he acted as an agent and earned only commission income which was disclosed in his return of income. The matter was settled by the Ld. CIT(A) wherein he considered the deposits in the bank account as turnover of the assessee and worked out the income of the assessee @ 8%. Thus, there cannot be any question of maintaining books of account and getting them audited. It is a judicially settled principle that penalty cannot be imposed for not getting books of account audited if no books are maintained as per section 44AA. The assessee has relied upon various judicial pronouncements in this regard and has submitted that the penalty order is void ab initio and liable to be quashed as in the present case the assessee was not required to maintain the books of account and thus there cannot be any question of maintaining books of account and getting them audited. Further, the assessing officer had not applied his mind while imposing the penalty u/s 271B, which is also evident from his actions that while calculating the penalty amount, the assessing officer did not adhere to the provisions of 271B and has requested that the penalty imposed on the assessee may be deleted in full.

8.1 We have considered the submissions made. In Surajmal Parsuram Todi vs. Commissioner of Income-tax [1996] 222 ITR 691 (Gauhati), it has been held that when a person commits an offence by not maintaining books of account as contemplated by section 44AA, the offence is complete and after that, there can be no possibility of any offence as contemplated by section 44AB and therefore, in the instant case, imposition of penalty under section 271B was erroneous on account of violation of section 44AA by assessee, as penalty was prescribed under section 271A. In Commissioner of Income-tax, Bareilly vs. Bisauli Tractors [2007] 165 Taxman 1 (Allahabad) it has been held that section & 636/Kol/2024 Amit Khemka AYs: 2012-13 271B is not attracted in a case where no account has been maintained and instead recourse under section 271A can be taken. Further in the case of Commissioner of Income-tax vs. S.K. Gupta and Co. [2010] 322 ITR 86 (Allahabad), it has been held that requirement of getting books of account audited could arise only where books of account are maintained. If for some reason the assessee had not maintained books of account, penalty could not be imposed under section 271B. Hence in view of these judicial pronouncements, the additional ground of appeal is allowed and since the assessee had not maintained any books of account, the same could not have been audited and, therefore, the penalty of Rs. 1,50,000/- imposed under section 271B is hereby deleted.

10. The assessee has raised the following grounds of appeal in 1. That on the facts and under circumstances of the case, penalty order passed by the learned assessing officer as confirmed by the learned CIT (Appeals)-NFAC is not tenable as notice issued u/s 274/271(1)(c) dated 29-10-2018 is void ab initio being defective as the notice does not specify as to whether it is for concealment of income or for furnishing of incorrect particulars of income.

2. That on the facts and under circumstances of the case the penalty order passed by the learned Assessing Officer as confirmed by the learned CIT (Appeals)-NFAC is not tenable as the assessing officer in the Original Assessment order u/s 147 dated 26 -03-2015 had initiated the penalty for furnishing inaccurate particulars of income whereas the Assessing Officer concluded the impugned Penalty Order U/S 271(1)(c) by imposing the penalty for concealment of income.

3. That the learned CIT (Appeals) has erred in law and on facts in sustaining the penalty levied U/S 271(1)(c) of the Act by the learned Assessing Officer when no opportunity of being heard was given by the Assessing Officer to the assessee as no show-cause notice was issued in this regard.

4. That the learned CIT (Appeals) has erred in law and on facts by sustaining the penalty levied U/S 271(l)(c) of the Act by the learned

9. Accordingly I am of the considered view that the penalty levied of Rs. 10,54,733 is to be reduced and is calculated as per the assessee's contentions in the statement of facts and the penalty recalculated at Rs. 5,59,838/- (i.e., Tax on assessed income at Rs. 6,25,545/- less tax on returned income of Rs. 65,710/-).

13.1 We have gone through the submission made and the decisions cited. In Principal Commissioner of Income-tax vs. Thakur Prasad Sao & Sons (P.) Ltd. [2024] 163 taxmann.com 449 (Calcutta) where the facts were that after search and seizure operations assessee declared certain undisclosed income which was added to the income disclosed in returns filed in response to notice issued under section 153A and the assessment orders were followed by notices under section 271(1)(c) read with section 274 and after considering assessee’s submissions, the assessing officer levied penalty under section 271(1)(c) but on appeal, the Tribunal cancelled penalty on the ground that the show cause notice under section 274 was defective as it did not spell out grounds on which penalty was & 636/Kol/2024 Amit Khemka AYs: 2012-13 sought to be imposed. It has been held by the Hon’ble jurisdictional High Court that when assessing officer had recorded in the assessment order particulars of concealed income/undisclosed income of the assessee and on that basis initiated penalty proceeding under section 271(1)(c) then consequential notice under section 274 issued by the assessing officer to the assessee to afford him opportunity of hearing, was specifically a notice for penalty for concealment of particulars of income/undisclosed income and such a notice complied with principles of natural justice and was a valid notice under section 274 and the Tribunal had committed a manifest error of law by setting aside penalty orders on ground that the grounds for imposition of penalty were not mentioned in show cause notice under section 274 of Act and thus, show cause notice was defective. Hence, following the order of the Hon’ble jurisdictional High Court, this ground of appeal is rejected.

14. Ground No. 2 is against the order of the Ld. CIT(A) for not considering the fact that in the original assessment order u/s 147, the Ld. AO had initiated the penalty alleging the assessee to have furnished inaccurate particulars of income whereas in the penalty order u/s 271(1)(c), the penalty was imposed alleging the assessee to have concealed the income. The assessee has submitted as under in this regard: a) The assessing officer in the assessment order u/s 147/143(3) of the Act dated 26-03-2015, initiated the penalty alleging the assessee to have furnished the inaccurate particulars of income. However, in the penalty order dated 23-04-2019, the assessing officer imposed the penalty alleging the assessee to have concealed income. b) In this regard, this is to state that it has been judicially upheld that the AO cannot initiate penalty on the charge of concealment of particulars of income, but ultimately find the assessee guilty in the penalty order of furnishing inaccurate particulars of income (and vice versa). In the same manner, he cannot be uncertain in the & 636/Kol/2024 Amit Khemka AYs: 2012-13 penalty order as to concealment or furnishing of inaccurate particulars of income by using slash between the two expressions. The error renders the penalty order unsustainable in law. c) The legal position in relation to the above matter can be discussed with reference to case decisions of Amritsar Bench of ITAT in the case of HPCL Mittal Energy Ltd (ITA Nos.554 & 555/Asr/2014) wherein it was held that "The AO cannot initiate penalty on the charge of 'concealment of particulars of income', but ultimately find the assessee guilty in the penalty order of 'furnishing inaccurate particulars of income’ (and vice versa). In the same manner, he cannot be uncertain in the penalty order as to concealment or furnishing of inaccurate particulars of income by using slash between the two expressions. Such error is not procedural but goes to the root of the matter and is not saved by s. 2928. The error renders the penalty order unsustainable in law" (page nos. 90 to 114 of Paper Book) In consideration of the facts and case decision cited above, it is submitted that the Penalty Order is void-ab-initio and liable to be quashed. 14.1 This ground of appeal is allowable as per the subsequent discussions made.

16. Ground No. 4 is against the action of the Hon'ble CIT(A) in sustaining the penalty levied u/s 271(1)(c) of the Act by the learned assessing officer even when the addition was made on estimation basis. The assessee has submitted as under: a) The assessee states that the CIT(A) while perusing the addition made in the 147 Order, presumed the entire deposits as trading receipts and by applying 8% estimated margin derived the additional total income at Rs. 18,58,785/-. b) The assessee would like to state that such calculation is made on an ad-hoc basis and is construed to be an act on the basis of certain presumption, conjecture and surmise. The assessee had not filed any further appeal in respect of such ad-hoc addition as to avoid to be dragged into long-drawn litigation involved in the appeal Procedure. Such step of the assessee should not be considered as submission of any ill doing and used as a pedestal to impose penalty on it and such principal has been settled by various courts time and again. The assessing officer failed to take cognizan ce of the fact & 636/Kol/2024 Amit Khemka AYs: 2012-13 that the both assessment and penalty proceedings are separate and distinct from each other. Mere addition in the Assessment order does no: ipso facto makes the penalty imposable in nature. Thus, the Act of the assessing officer of imposing the penalty on t he estimated additional income is not justified. c) The legal position in relation to the above matter can be discussed with reference to case decision of Delhi Bench of ITAT in the case of Rai Industrial Power Pvt. Ltd. Vs DCIT (ITA 4862/Del/2013) wherein it was held that simply because the additions made were not challenged by the assessee this fact by itself is not a good enough reason to confirm or impose penalty. It also held that there can be many reasons which may prevail on the mind of an as sessee on account of which the assessee may not challenge the additions in a certain year and the mere fact of accepting the additions ipso facto does not lead to the conclusion that the assessee has nothing to say. (page nos. 115 to 120 of Paper Book) d) In the case of Subhash Trading Co [1996] 86 Taxman 30 (Gujarat), the Hon'ble Gujarat High Court has upheld that when the addition has been made on the basis of estimate and not on any concrete evidence of concealment, penalty under section 271(1)(c) of the Act is not leviable. (page nos. 121 to 125 of Paper Book) In consideration of the facts and case decision cited above, it is submitted that the penalty should not be imposed on estimated additional income and thereby may be deleted in full. 16.1 It is further mentioned in the summation as under:

1.

2. That the notice issued under section 271(1)(c) read with 274 is a defective notice as both the option of concealment / furnishing of inaccurate particulars has been kept open and nothing has been strike out.

3. That the Penalty Order is void-ab-initio and liable to be quashed as in the assessment order, the Ld. AO initiated the penalty alleging the assessee to have furnished inaccurate particulars of income whereas in the Penalty Order u/s 271(1)(c), the penalty was imposed alleging the assessee to have concealed income. This all substantiates that the assessing officer had not applied his mind while imposing the penalty u/s 271(1)(c) which is also evident from his actions that while calculating the penalty amount, the assessing officer also considered the interest component while & 636/Kol/2024 Amit Khemka AYs: 2012-13 calculating the tax sought to be evaded. This issue was settled by the Hon'ble CIT(A) in his Order. Thus, it is humbly submitted before your Honour that the penalty order passed by Ld. AO u/s 271(1)(c) lacks application of mind, is unsustainable and thus the penalty imposed on the assessee may be deleted in full.

17.1 Further, in CIT v. Indian Metals & Ferro Alloys Ltd. [1994] 117 CTR (Ori.) 378, It has been held that the expressions 'has concealed the particulars of income' and 'has furnished inaccurate particulars of income' have not been defined either in section 271(1)(c) or elsewhere in the Act. One thing is certain that these two circumstances are not identical in details although they may lead to the same effect, namely, keeping off a certain portion of income. The former is direct and the latter may be indirect in its & 636/Kol/2024 Amit Khemka AYs: 2012-13 execution. The word 'conceal' is derived from the Latin word 'concolare' which implies 'to hide'. Webster's New International Dictionary equates its meaning to 'hide or withdraw from observation; to cover or keep from sight; to prevent the discovery of; to withhold knowledge of'. The offence of concealment is thus a direct attempt to hide an item of income or a portion thereof from the knowledge of the income-tax authorities. In furnishing its return of income, as assessee is required to furnish particulars and accounts on which such returned income has been arrived at. These may be particulars as per its books of account if it has maintained them, or any other basis upon which it has arrived at the returned figure of income. Any inaccuracy made in such books of account or otherwise which results in keeping off or hiding a portion of its income is punishable as furnishing inaccurate particulars of its income. . . . The penalty under section 271(1)(c ) is not automatic on the basis of the addition made or part of the addition sustained in appeal. In assessment, addition can be made on the basis of presumption. But, in penalty, the Assessing Officer has to establish that there is conscious concealment.

17.2 In CIT v. K.R. Chinni Krishna Chetty [2000] 246 ITR 121 (Mad.) it has been held that under section 271(1)(c) of the Act the authority is given the discretion to levy a penalty if there is concealment of particulars of income and even as regards the quantum of the penalty there is a discretion. Of greater importance is the necessity for a definite finding that there is concealment, as without such a finding of concealment, there can be no question of imposing any penalty. The mere revision of the income to a higher figure by the assessing authority does not automatically warrant an inference of concealment of & 636/Kol/2024 Amit Khemka AYs: 2012-13 the expenditure on the construction. The addition to the income of the assessee based on the report of the valuer was rightly regarded by the Tribunal as being insufficient for recording a finding of concealment of income. Concealment implies some deliberate act on the part of the assessee in withholding the true facts from the authorities. The fact that the valuer assessed the building at a figure higher than the one reported by the assessee does not by itself lead to the inference that there had been concealment.

17.3 As regards penalty on the estimated income, in Harigopal Singh v. CIT [2002] 125 Taxman 252 (Punj. & Har.) where the assessee had not maintained any accounts but had filed his return of income on estimate basis, and the Assessing Officer made his own estimate with which the Tribunal did not agree, it could not be said that the assessee had 'concealed' his income so as to attract penalty. There has to be a positive act of concealment on the assessee's part and the onus to prove this is on the department.

17.4 In Commissioner of Income-tax v. Manjunatha Cotton & Ginning Factory [2013] 35 taxmann.com 250 (Karnataka) there was a bunch of appeals involving various facets of imposition of penalty. It has been held as under: ▪ Penalty under section 271(1)(c) is a civil liability. Therefore, mens rea is not an essential element for imposing penalty for breach of such civil obligations or lia- bilities. Wilful concealment is not an essential ingredient for attracting civil liabil- ity. [Para 63] Existence of conditions stipulated in section 271(1)(c) is a sine qua non for initia- ▪ tion of penalty proceedings under section 271. The existence of such conditions should be discernible from the assessment order or order of the Appellate Author- ity or Revisional Authority. Even if there is no specific finding regarding the exist- ence of the conditions mentioned in section 271(1)(c), at least the facts set out in Explanation 1(A) and (B) should be discernible from the said order, which would, by a legal fiction, constitute concealment because of deeming provision. 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 & 636/Kol/2024 Amit Khemka AYs: 2012-13 section 1(B). The said deeming provisions are not applicable to the orders passed by the Commissioner (Appeals) and the Commissioner. [Para 63] ▪ The imposition of penalty is not automatic, i.e., imposition of penalty even if the tax liability is admitted, is not automatic. Even if the assessee has not challenged the order of assessment levying tax and interest and has paid the same, that by itself would not be sufficient for the authori- ties either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such un- earthing or enquiry concluded by authorities which has resulted in pay- ment of such tax or such tax liability came to be admitted, and if not, it would have escaped from tax net as opined by the Assessing Officer in the assessment order. Only when no explanation is offered or the explanation of- fered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty can be passed. If the explana- tion offered, even though not substantiated by the assessee, is found to be bona fide and all facts relating to the same and material for the computation of his total income have been disclosed by him, no penalty can be imposed. [Para 63] The direction referred to in Explanation 1B to section 271 should be clear and ▪ without any ambiguity. If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings in appeal, but the appellate authority records satisfaction, then the penalty proceedings have to be initiated by the appellate authority and not the Assessing Authority. ▪ Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. [Para 63] ▪ The penalty proceedings are distinct from the assessment proceedings. The pro- ceedings for imposition of penalty, though emanate from proceedings of assess- ment, are independent and separate aspect of the proceedings. The findings rec- orded 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 assess- ment or reassessment cannot be declared as invalid in the penalty proceedings. [Para 63] In respect of individual cases, it was held in Case 1 that: Therefore, it is clear that merely because the assessee agreed for addition and ▪ accordingly assessment order was passed on the basis of this addition and when the assessee had paid the tax and the interest thereon in the absence of any material on record to show the concealment of income, it cannot be inferred that the said addition was on account of concealment. Moreover, the assessee had offered the explanation. The said explanation was not found to be false. On the contrary, it was held to be bona fide. In fact, in the assessment proceedings, there is no whisper about these concealment. Under these circumstances, the entry found in the rough cash book could have been reflected in the accounts for the said financial year in which the survey took place, as the last date for closing the account was still not over. The very fact that the assessee agreed to pay tax and did not challenge the assessment order, cannot be construed as mala fide. There- fore, the Tribunal was justified in setting aside the orders passed by the Appellate Authority as well as the Assessing Authority. [Para 64] Further, it was held in Case 3 of the bunch of appeals that: In the instant case, the penalty proceedings were initiated by the Assessing Authority initially on the basis of his assessment order. During the pendency of & 636/Kol/2024 Amit Khemka AYs: 2012-13 the said penalty proceedings, the assessment order was challenged by way of an appeal. In appeal the Appellate Authority deleted the additions made under section 69 by the Assessing Authority. Instead, he sustained additions under new grounds of under valuation of the closing stock. However, the Assessing Authority, in the penalty proceedings, took note of the Appellate order and suitably amended the penalty proceedings and proceeded further in the matter and then imposed penalty. Therefore, it is clear, that the subject matter of the penalty proceedings was the order of the Appellate Authority and not the order passed by the Assessing Authority. If the Appellate Authority was satisfied that the addition had to be made on the ground of under valuation of the closing stock, which was not the finding recorded by the Assessing Authority, on which penalty proceedings had been initiated by the Assessing Authority, then, it was the Appellate Authority who should have initiated penalty proceedings and issued notice to the assessee to show cause why penalty should not be imposed. The said procedure was not followed, and therefore, though for different reasons, the first Appellate Authority set aside the order levying penalty, the Tribunal correctly appreciated the facts in a proper perspective and was justified in not interfering with the order passed by the Appellate Authority, setting aside the penalty order. In that view of the matter, there is no justification to interfere with the well-considered order passed by the Tribunal. Thus, the substantial questions of law are answered in favour of the asses 18. In the instant case, the order of the Ld. AO was modified by the Ld. CIT(A) who did not initiate the penalty nor issued any directions for the same. Hence, the Ld. AO was not the competent authority to impose the penalty. Further, the income was estimated and hence penalty was also not imposable automatically. Hence, considering the totality of facts of the case and the attending circumstances, the penalty imposed cannot be upheld and is hereby deleted as the same does not stand the test of judicial pronouncements. Ground nos. 2 and 4 of the appeal are allowed.

Order pronounced in the open court on 20th August, 2024.