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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM]
For the Assessee : Shri Akkal Dudhwewala, AR For the Revenue : Shri David Z. Chawngthu, JCIT, Sr. DR ORDER Per Bench: All these cross appeals by assessee and revenue are arising out of separate orders of CIT(A), Central-I, Kolkata vide Appeal Nos. 95 to 98/CC-XI/CIT(A),C-1/10-11 dated 27.09.2011. Assessments were framed by DCIT, Central Circle-XI, Kolkata u/s. 153A/143(3) of the Income tax Act, 1961 (hereinafter referred to as the “Act”) for AYs 2004-05 to 2007-08 vide his order dated 31.12.2009. Penalty u/s. 271(1)(c) of the Act was imposed by DCIT, Central Circle-XI, Kolkata vide his order dated 21.06.2010 and 22.06.2010. The appeals of the revenue are against the reduction of penalty amount from 300% to 100% against the order of ld CITA. The appeals of the assessee are against the confirmation of levy of penalty @ 100% by the ld CITA. Since issues are identical we have taken up all the appeals together for hearing and dispose of the same by this consolidated order.
2 to 1643 /Kol/2011 & ITANo.1688 to 1690/K/2011 Sumit Kumar Sarawgi, AYs 2004-05 to 2007-08 2. The only issue to be decided in all these appeals is as to whether the penalty u/s 271(1)(c) of the Act could be levied in respect of income offered after the search but in the return filed u/s 153A of the Act.
The brief facts of this issue is that a search and seizure operation was conducted on 24.1.2008 u/s 132 of the Act at the residence of the assessee at 3rd floor, New India Assurance Co Ltd Building, G.S.Road, Guwahati on 24.1.2008 besides conducting search in various factory and residential premises of the group. Besides a search and seizure operation was conducted at Locker No. 26 of HDFC Bank, Bhangagarh, Guwahati and some jewelleries were found. In the course of search, the assessee was found to be in possession of undisclosed income. Consequent upon search and seizure operation, the jurisdiction of the case was transferred. Thereafter proceedings u/s 153A of the Act were initiated and returns filed accordingly. The assessee pleaded that pursuant to the order passed by the ld CIT, Dhanbad u/s 127 of the Act , the seized materials were transferred to Kolkata and inspection of the seized records could be carried out only after that time and based on the information gathered from inspection of the seized records, the actual extent of undisclosed income could be ascertained by the assessee. But in the meanwhile, the assessee had to file the returns in response to notice u/s 153A of the Act at a lesser figure. After inspection of the seized records and on ascertaining the actual extent of undisclosed income, the assessee offered additional income during the course of section 153A proceedings and revised the computation of income. It was also pleaded that the assessee was able to substantiate the undisclosed income with reference to seized documents and that no inaccuracy or infirmity in the working of the undisclosed income were found by the ld AO. Effectively no additions were made to the undisclosed income by the ld AO other than what was disclosed by the assessee in the return filed u/s 153A of the Act and later revised during the assessment proceedings. It was further pleaded that the assessee had fully co- operated with the assessment proceedings by making proper disclosure of undisclosed income and paying taxes due thereon with interest and search assessments were completed accepting such undisclosed income declared by the assessee and proper clarifications were given for each and every seized documents. Accordingly it was pleaded that there was no conscious or deliberate concealment of income or furnishing of inaccurate particulars of 3 to 1643 /Kol/2011 & ITANo.1688 to 1690/K/2011 Sumit Kumar Sarawgi, AYs 2004-05 to 2007-08 income on the part of the assessee warranting any levy of penalty. But the ld AO not satisfied with the pleadings of the assessee sought to levy the penalty u/s 271(1)(c ) of the Act on the ground that but for the search, the assessee would not have come forward with the disclosure of undisclosed income and hence penalty is leviable thereon. The ld AO levied penalty as under for various assessment years :- Asst Year Amount of Penalty Remarks 2004-05 32,139 300% 2005-06 21,91,752 300% 2006-07 17,67,795 300% 2007-08 22,43,964 300% The ld CITA on first appeal upheld the levy of penalty but reduced the same to 100% of tax sought to be evaded. Aggrieved, both the assessee as well as the revenue are in appeals before us.
The ld AR placed on record the copy of the show cause notice issued u/s 274 rws 271(1)(c ) of the Act for all the asst years under appeal by pointing out that the ld AO had merely made a tick mark on the said notice without mentioning the specific charge of offence committed by the assessee i.e. whether he had concealed the particulars of income or furnished inaccurate particulars of income. When the specific charge of offence is not mentioned, no penalty u/s 271(1)(c ) of the Act could be levied, in support of which he placed reliance on the decision of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning Factory reported in (2013) 359 ITR 565 (Kar). He also placed on record a copy of the decision of the Hon’ble Supreme Court on the said issue in the case of CIT & Anr vs M/s SSA’S Emerald Meadows in CC No. 11485/2016 dated 5.8.2016. He argued that this appeal to Hon’ble Apex Court had emanated against the order passed by the Hon’ble Karnataka High Court which placed reliance on its earlier decision in the case of CIT vs Manjunatha Cotton and Ginning Factory reported in (2013) 359 ITR 565 (Kar). He argued that hence the ratio laid down by the Hon’ble Karnataka High Court in 359 ITR 565 (supra) had been approved and upheld by the Hon’ble Supreme Court in the case referred supra. The ld AR also placed reliance on the decision of the co-ordinate bench of this tribunal in the case of Harish Kumar Sarawgi vs DCIT in to 4 to 1643 /Kol/2011 & ITANo.1688 to 1690/K/2011 Sumit Kumar Sarawgi, AYs 2004-05 to 2007-08 1226 / Kol/2011 and ITA Nos. 1496 to 1499/Kol/2011 for the Asst Years 2003-04 to 2007- 08 dated 26.8.2016 wherein on similar ground, the penalty u/s 271(1)(c ) of the Act was deleted.
In response to this, the ld DR vehemently relied on the orders of the lower authorities.
We have heard the rival submissions and perused the materials available on record. We find from the perusal of the show cause notice issued u/s 274 read with section 271(1)(c) of the Act, the ld AO had merely made a tick mark without mentioning the specific charge of offence and without strucking off the relevant portion in the show cause notice as to whether the assessee had concealed his income or furnished inaccurate particulars of income. Reliance was placed on the decision of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning Factory reported in (2013) 359 ITR 565 (Kar) which has been followed by the same court in the case of CIT vs M/s SSA’S Emerald Meadows in of 2015 dated 23.11.2015. We find that the Hon’ble Apex Court had approved and upheld the decision of the Hon’ble Karnataka High Court in the case of SSA’S Emerald Meadows supra vide its order dated 5.8.2016. We also find that that the Hon’ble Karnataka High Court in the aforesaid decision has considered the effect of Sec. 271(1B) of the Act, in the light of the decision of the Hon’ble Delhi High Court in the case of Ms.Madhushree Gupta Vs. Union of India 317 ITR 107(Del) and held that the penalty in such cases pursuant to defective show cause notice is not leviable, wherein it was held :- “In the result, conclusions are as follows : (i) sec. 271(1B) is not violative of Art. 14 of the Constitution; (ii) the position of law both pre and post amendment is similar, inasmuch, the AO will have to arrive at a prima facie satisfaction during the course of proceedings with regard to the assessee having concealed particulars of income or furnished inaccurate particulars, before he initiates penalty proceedings; (iii) ‘prima facie’ satisfaction of the AO that the case may deserve the imposition of penalty should be discernible from the order passed during the course of the proceedings. Obviously, the AO would arrive at a decision, i.e., a final conclusion only after hearing the assessee; (iv) at the stage of initiation of penalty proceeding the order passed by the AO need not reflect satisfaction vis-a-vis each and every item of addition or disallowance if overall sense gathered from the order is that a further prognosis is called for; (v) however, this would not debar an assessee from furnishing evidence to rebut the ‘prima facie’ satisfaction of the AO; since penalty proceeding are not a continuation of assessment proceedings; (vi) due compliance would be required to be made in respect of the provisions of ss. 274 and 275; (vii) the proceedings for 5 to 1643 /Kol/2011 & ITANo.1688 to 1690/K/2011 Sumit Kumar Sarawgi, AYs 2004-05 to 2007-08 initiation of penalty proceeding cannot be set aside only on the ground that the assessment order states ‘penalty proceedings are initiated separately’ if otherwise, it conforms to the parameters set out hereinabove are met. The prayers made in the writ petitions are thus rejected with the caveat that provisions of s. 271(1)(c) post-amendment will be read in the manner indicated above.”
6.1. We find that the co-ordinate bench of this tribunal in the case of Harish Kumar Sarawgi vs DCIT vide order dated 26.8.2016 supra had held as under :-
5.5. We have also perused the show-cause notice issued u/s.274 of the Act for all the aforesaid AYs 2003-04 to 2007-08. The AO in the said show cause notice has not struck off the irrelevant portion as to whether the charge against the Assessee is “concealing particulars of income or furnishing of inaccurate particulars of income”. In this regard, this tribunal in the case of Shri Satyananda Achariya Biswas Vs. DCIT order dated 2.12.2015 for AY 2003-04 has taken the following view on the effect of not striking off the irrelevant portion in the show cause notice u/s.274 of the Act as follows: 9. The next argument that the show cause notice u/s.274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the for “furnishing inaccurate particulars of income” or “concealing particulars of such income”. On this aspect we find that in the show cause notice u/s.274 of the Act the AO has not struck out the irrelevant part. It is therefore not spelt out as to whether the penalty proceedings are sought to be levied for “furnishing inaccurate particulars of income” or “concealing particulars of such income”. 9.1. The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon’ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed. 9.2. The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down the following principles to be followed in the matter of imposing penalty u/s.271(1)(c) of the Act.
“NOTICE UNDER SECTION 274 59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein 6 to 1643 /Kol/2011 & ITANo.1688 to 1690/K/2011 Sumit Kumar Sarawgi, AYs 2004-05 to 2007-08 and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.
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 the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable.
7 to 1643 /Kol/2011 & ITANo.1688 to 1690/K/2011 Sumit Kumar Sarawgi, AYs 2004-05 to 2007-08 61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of MANU ENGINEERING reported in 122 ITR 306 and the Delhi High Court in the case of VIRGO MARKETING reported in 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind.” The final conclusion of the Hon’ble Court was as follows:-
“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.
8 to 1643 /Kol/2011 & ITANo.1688 to 1690/K/2011 Sumit Kumar Sarawgi, AYs 2004-05 to 2007-08 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 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. 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 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.” (emphasis supplied)
9.3. 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.
The aforesaid ruling will squarely apply to the facts of the present case. In the present case also the show cause notice u/s.274 of the Act is defective. Following the decision referred to above, we hold that the penalty imposed on the Assessee u/s.271(1)( c) of the Act cannot be sustained and the same is directed to be cancelled.
6.2. In view of aforesaid findings and respectfully following the judicial precedents relied upon hereinabove and considering the totality of the facts and circumstances of the case, we hold that the penalty levied u/s 271(1)(c ) of the Act deserves to be cancelled on all counts. Accordingly, the grounds raised in the revenue appeals are dismissed and that of the assessee appeals are allowed.
In the result, the appeals of the assessee are allowed and appeals of the revenue are dismissed.