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Income Tax Appellate Tribunal, “D” BENCH: KOLKATA
Before: Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM]
ORDER
Per Shri M. Balaganesh, AM:
This appeal by assessee is arising out of order of CIT(A)10, Kolkata vide appeal No. 206/CIT(A)-10/Wd.34(4)/2013-14/Kol dated 29.02.2016. Penalty u/s. 271(1)(c) of the Act was imposed by ITO, Wd-34(4), Kolkata vide his order dated 26.06.2013.
The only issue to be decided in this appeal of assessee is as to whether the ld CIT(A) is justified in confirming the penalty u/s. 271(1)(c) of the Act in the sum of Rs.3,51,673/- in the facts and circumstances of the case.
The brief facts of this issue are that return of income was filed on 27.09.2010 showing a total income of Rs.5,35,500/-. The said return was processed u/s. 143(1) of the Act, thereafter case was selected for scrutiny assessment and the ld AO passed assessment order u/s. 143(3) of the Act on 21.12.2012 determining taxable income at Rs. 17,30,160/-. The ld AO thereafter issued notice to the assessee on 21.12.2012 calling for explanation as to why penalty u/s. 271(1)( c) of the Act shall not be imposed. In response to the same, the assessee stated that the penalty should not be imposed as the assessee filed explanation before the lower authorities and assessee’s explanation was not considered with judicial view. It was also submitted before the ld AO that there was no specific charge that was leveled on the assessee as could be deciphered from the show cause notice as to whether the assessee had concealed his particulars of income or furnished inaccurate particulars of income. The ld AO levied penalty u/s 271(1)(c ) of the Act on the additions made in the sum
2 Flow & Fluid Control Centre, AY 2010-11 of Rs. 5,45,841/- and Rs. 5,92,261/- and levied penalty of Rs. 3,51,673/- being 100% of the tax on the additions made. Aggrieved, assessee went in appeal before Ld. CIT(A), who confirmed the action of ld AO. Aggrieved, assessee is in further appeal before us.
At the time of hearing before us, the ld AR placed the copy of the show cause notice for initiating penalty proceedings u/s 274 read with section 271(1) (c ) of the Act wherein, the ld AO had merely ticked the portion of concealment of income or furnishing of inaccurate particulars of income without making specific charge on the assessee to respond. It is well settled that the penalty proceedings are distinct and separate from assessment proceedings. He placed reliance on the decision of the Co-ordinate Bench decision of this Tribunal in the case of Suvaprasanna Bhattacharya vs ACIT in dated 6.11.2015. In response to this, the ld DR filed a written submission dated 30.11.2016 by placing reliance on the decision of the Hon’ble Calcutta High Court in the case of Rahmat Development and Engineering Corporation vs CIT reported in (1981) 130 ITR 602 (Cal) dated 3.7.1980.
We have heard the rival submissions. It is well settled that the penalty proceedings are distinct and separate from assessment proceedings. It is also well settled that the ld AO should specifically pinpoint the charge of offence committed by the assessee inasmuch as to whether the assessee had concealed the particulars of his income or furnished inaccurate particulars of his income in his penalty notice. We find that the show cause notice u/s.274 of the Act dated 21.12.2012, which is in a printed form does not strike out as to whether the penalty is sought to be levied on 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. The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory reported in 359 ITR 565 (Kar), 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. We also find that this case law has been relied upon in the following cases of the co-ordinate benches of this tribunal and other tribunals :-
3 Flow & Fluid Control Centre, AY 2010-11 (i) Satyananda Achariya Biswas vs DCIT in ITA No. 05/Kol/2010 dated 2.12.2015 (Kolkata Tribunal) (ii) Gouri Das Maity vs ITO in ITA No. 2590/Kol/2013 dated 2.2.2016 (Kolkata Tribunal) (iii) Deepak Kumar Patwari vs ACIT in ITA Nos. 616 to 618/Kol/2013 dated 3.2.2016 (Kolkata Tribunal) (iv) Ramesh Prasad Sao vs DCIT in ITA No. 997/Kol/2011 dated 3.2.2016 (Kolkata Tribunal) (v) DCIT vs Pratap Properties Pvt Ltd in ITA Nos. 1386-1388/Kol/2010 dated 10.2.2016 (Kolkata Tribunal) (vi) E Krishnappa vs ITO in ITA Nos. 313 to 315/Bang/2014 dated 14.8.2015 (Bangalore Tribunal) (vii) Ashwani Kumar Arora vs ACIT in ITA No. 844/Del/2014 dated 19.5.2016 (Delhi Tribunal) (viii) ITO vs Gope M Rochlani in ITA No. 7737/Mum/2011 dated 24.5.2013 (Mumbai Tribunal)
We find that the ld DR had relied upon on the decision of the Hon’ble Calcutta High Court supra. In that case, the assessee had constructed a building. The investment in construction as disclosed in the books of accounts of the assessee was less than that estimated by the valuer. The difference in the investment in construction was added as unexplained investment not recorded in the books of accounts and as income by invoking the deeming provisions of section 69 of the Act. In the assessment proceedings which are referred to as quantum proceedings, the Tribunal reduced the estimation of the valuer and therefore the addition to the income stood reduced. In respect of the addition that was ultimate sustained in the assessment proceedings, penalty proceedings u/s 271(1)(c ) of the Act were initiated against the assessee. The AO initiated penalty proceedings against the assessee for concealment of particulars of income and imposed penalty for the said charge which was confirmed by the IAC. The assessee preferred appeals before the Tribunal against the order of the IAC imposing penalties. In the said appeals it was contended that (1) that the penalties were based on additions made by the ITO and those additions were based on the Departmental Valuer’s report. As the Tribunal had rejected that report, the very basis of the imposition of penalty had been knocked out ; (2) The ITO had initiated penalty proceedings on the ground of concealment of income. The IAC had imposed the penalties on the ground of furnishing inaccurate particulars of income. It was urged that the charge of concealment of income and the charge of furnishing inaccurate particulars of income were mutually exclusive and the ITO not having initiated proceedings on the ground of furnishing inaccurate particulars, the IAC had no jurisdiction to pass orders on this ground ; (3) Lastly
4 Flow & Fluid Control Centre, AY 2010-11 and thirdly, it was urged that the difference between the returned income and the assessed income had been properly explained and the assessee had proved that the failure to return the income assessed by the ITO did not arise from any fraud or willful neglect on the part of the assessee. Upon these submissions, it was urged that the orders imposing the penalty were not sustainable. The Tribunal was , however, unable to accept the said contentions for the reasons received in its order dated 31.5.1975 and upheld the penalty orders as passed by the IAC. Upon these, the following two questions were considered by the Hon’ble High Court :- 1. Whether the Tribunal’s finding of fact bearing on the question of penalty are perverse in that they are unsupported by and / or contrary to evidence ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the order under section 271(1)(c ) ?
Before the Hon’ble High Court, the contention of the assessee was that the ITO had initiated the penalty proceedings on one ground, namely, that there had been concealment of income but the IAC had, according to the assessee, sought to impose penalty on the ground of furnishing inaccurate particulars. It was, therefore, submitted that the grounds of furnishing incorrect or inaccurate particulars of income and concealment of income were mutually exclusive and in the facts and circumstances of the case there was no question of either concealment of income or furnishing inaccurate particulars . Dealing with the aforesaid contention, the Hon’ble High Court held that section 69 makes the unexplained investment to be the income of the assessee and that position has to be accepted in the penal proceedings because that has been confirmed though for a reduced amount by the Tribunal in the quantum appeal which will be deemed to be the income of the assessee for that financial year. Therefore, it is not open by virtue of section 69 to say that it does not represent the income. The law deemed such an unexplained investment to be the income of the assessee. Under such a situation it is no longer open to say that the inference of rejection of the assessee’s explanation did not give rise to the fact that the disputed amount did not represent the income. The inference follows as the deeming provision makes such unexplained investment as the income of the assessee by the fiction of law. In such a situation the next question that becomes relevant is whether there was any explanation for non-disclosure of income. There was certainly non-disclosure of this income. Penalty u/s 271(1)(c ) was accordingly leviable on the merits of the case. Great stress was laid on behalf of the assessee upon the finding that the inaccurate particulars had been furnished
5 Flow & Fluid Control Centre, AY 2010-11 was inconsistent with the charge of concealment of income. If the income was concealed or not returned, there could not be any question of furnishing any inaccurate particulars. Though the expressions concealment’ and ‘furnishing of inaccurate particulars’ are used in disjunctive terms, that is to say, there are two separate different offences, commission of one need not necessarily mean the commission of other, but the commission of one does not exclude or does not eliminate the possibility of the commission of other and very often, inaccurate particulars are furnished in order to strengthen the concealment of income of a particular assessee. Therefore, there is no significance of this argument upon which a great deal of stress was laid that these two charges are mutually exclusive. Further, these two charges can very often do subsist together. Even in a particular case, whether the two charges simultaneously exist or not must depend upon the entirety of the circumstances and the entirety of the order. The Hon’ble Court thereafter dealt with the facts of the case and concluded that the ITO had asked the assessee to reconcile the difference between the two accounts , viz., the accounts given by the valuer of the assessee as well as the amount given by the assessee and the assessee was asked to show cause before actual addition. The IAC in his order observed that there was gross and willful neglect to disclose the correct expenditure of the investment, that is to say, the correct quantum of investment was made from the concealed income. In that expression the IAC was upholding both charges, that is to say if the assessee had disclosed the correct expenditure of the investment that would tantamount to the furnishing of the correct particulars which could have been deemed to have been the income of the assessee by virtue of section 69. Therefore, there is no inconsistency between the findings made by the IAC of the charges made by the ITO and the notice which the ITO had issued. The assessee was told clearly to reconcile the difference and was asked to explain why the difference amount should not be treated as his concealed income. Therefore, in the facts and circumstances of this case, there was no question of opportunity being given to meet the charge and the charge being upheld on other basis.
It will be significant to note that the decision rendered by the Hon’ble Calcutta High Court in the case of Rahmat Development and Engineering Corporation, supra was based only on the facts of the case before the Court. The Hon’ble Court accepted the proposition that 6 Flow & Fluid Control Centre, AY 2010-11 show cause notice cannot specify one charge and penalty levied on the assessee for another charge. This will be clear from paragraph 16 of its judgement, which reads thus :-
“Next decision upon which reliance was placed wag a Bench decision of the Gujarat High Court in the case of CIT v. Lakhdhir Lalji [1972] 85 ITR 77. There the ITO added a sum of Rs. 58,000 which he held that the assessee had realised by the sale of 1,383 bags of garlic and concealed, and issued a notice to the assessee under s. 274 of the I.T. Act, 1961, for levying penalty for concealment of income. As the amount of penalty leviable would have been more than Rs. 1,000, he referred the case to the IAC. On appeal from the assessment order, the AAC had held that 1,383 bags of garlic were included in the stock of the assessee and that a sum of Rs. 34,000 should be added on the footing of under-valuation of the stock and not Rs. 58,000. The IAC took note of the AAC's order and levied a penalty of Rs. 7,400 under s. 271(1)(c) on the ground that the assessee had deliberately furnished inaccurate particulars of his income. On appeal from the IAC's order levying penalty, the Appellate Tribunal held that the order of the IAC was without jurisdiction as his jurisdiction was restricted to those items of concealment of income with regard to which the ITO was satisfied that there was concealment of income. On a reference to the High Court it was held that the penalty proceedings had been commenced against the assessee on a particular footing, that is to say, concealment of income, but the final conclusion for levying the penalty was based on a different footing altogether, viz., on the footing of furnishing inaccurate particulars of income. Under the circumstances, it could not be said that the assessee had been given a reasonable opportunity of being heard before the order imposing the penalty was passed. The very basis for the penalty proceedings against the assessee initiated by the ITO disappeared when the AAC held that there was no suppression of income by the assessee. The conclusion of the Tribunal that the IAC had no jurisdiction to impose a penalty under s. 271(1)(c) for concealment of income was correct; Now, as would be evident from the narration of the facts of that case, there the basis upon which the Division Bench of the Gujarat High Court proceeded was that before imposing penalty reasonable opportunity had not been given to the assessee of the offence alleged against him. Now, in the facts and circumstances of this case and in the background that the assessee was asked to explain the difference between the two valuation reports and was further asked to explain why the difference between the estimated valuation of the departmental valuer and his own valuer should not be treated as concealed income and, thereafter, treating it on that basis, penalty was imposed and the IAC considering the explanation of the assessee upheld the findings that there was, concealment of the particulars of income which was also revealed from his books of account, there was no question of the assessee being not heard or not giving a reasonable opportunity to the assessee in the facts of this case unlike in the case before the Division Bench of the Gujarat High Court. It is true that if notice is given in respect of one offence only and the finding is based on another then we could say that the law was not complied with. Further, it was found in that case that there was no concealment as such. In this case, the position is somewhat different. In this case, the concealment was found and the Tribunal upheld the decision though for a reduced amount. Therefore, in our opinion, the observations of the Division Bench of the Gujarat High Court would not be applicable to the facts and circumstances of the instant case.”
6.1. In the present case before the Tribunal, the ld AO did not specify the ground on which he is proposing to impose penalty in the show cause notice u/s 274 of the Act. The proposition laid down by the Hon’ble Calcutta High Court would therefore be true only in a case where show cause notice u/s 274 of the Act specifies a particular charge and in the order imposing penalty or in further appellate orders imposition of penalty is confirmed on 7 Flow & Fluid Control Centre, AY 2010-11 some other charge. In a case where the charge itself is not specified in the show cause notice u/s 274 of the Act, we are of the view that the decision rendered by the Hon’ble Karnataka High Court in the case of ACIT vs Manjunatha Cotton and Ginning Factory reported in 359 ITR 565 (Kar) would apply. In that view of the matter, we are of the view that there is no conflict between the ratio laid down by the Hon’ble Karnataka High Court in the case of Manjunatha Cotton supra and the Hon’ble Calcutta High Court in the case of Rahmat Development & Engineering Corporation vs CIT, supra.
It is clear from the aforesaid decisions 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 which has been followed in the aforesaid tribunal decisions, we hold that the order imposing penalty in the assessment year 2010-11 have to be held as invalid and consequently penalty imposed is cancelled.
For the reasons given above, we hold that levy of penalty in the present case cannot be sustained. We therefore cancel the orders imposing penalty on the Assessee and allow the appeal by the Assessee. In view of our above conclusions on the issue of not recording of proper satisfaction and the defect in show cause notice u/s.274 of the Act, we are not dealing with the other arguments made on merits of the order imposing penalty on the Assessee.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 09.12.2016