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Income Tax Appellate Tribunal, BANGALORE BENCH ‘B’
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI INTURI RAMA RAO
PER SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER These appeals are directed against the penalty order u/s 271(1)(c) of the Act dated 10/3/2011 passed by the Income-tax Officer, Ward-2(4), Bangalore for the assessment years 2004-05 to to1001/B/14 2 2008-09. Since the facts of all the assessment years are identical, therefore these appeals are disposed off in this common appellate order for sake of convenience. The appellant is an individual filed her return of income for the assessment years 2004-05 to 2008-09.
The appellant furnished revised (belated) return on 2.7.2010 declaring an additional income of Rs.13,92,280/-, Rs.3,13,743, Rs.14,71,266/- Rs.4,32,003/- and Rs.7,83,288/- for the Asst. Years 2004-05, 2005-06, 2006-07, 2007-08 and 2008-09 respectively, under the head ‘income from other sources’ which was omitted in the original return. Subsequently, notice u/s 148 dt.19/7/2010 along with notices u/s 142(1) and 143(2) were issued to the appellant. In response to the notices the appellant filed a letter dtd. 20/07/2010 requesting to the AO to regularize the revised returns already filed on 2.7.2010. The AO after verification of the original and revised return of income, asked the appellant why SB account interest of Rs.17,207/-, Rs.29,955/-, Rs.92,083/- Rs.85,094/- and Rs.71.289/- for the financial year relevant to the assessment year 2004-05, 2005-06, 2006-07, 2007-08, and 2008-09 respectively was not declared in either of the returns. The AR of the appellant submitted that by oversight the income had not admitted to the to1001/B/14 3 total income and therefore had no objection for the addition of the same. Simultaneously, notices u/s 271(1)(c) of the Act dated 21/7/2010 was issued and served on the appellant. In response to the notice the appellant filed detailed reply dated 28/7/2010 requesting the AO to drop the penalty proceedings. The AO without considering the submissions of the appellant levied a penalty u/s 271(1)(c) of the Act as mentioned above. Aggrieved by the same, the appellant is in appeal.
3. Information was collected from the National Co-op Bank Ltd., and from it transpires that the appellant depositing amount from 29/7/2003 onward under Cumulative Time Deposit Scheme.
The aforesaid deposits as well as accrued interest from the assessment year 2004-05 has not been disclosed in his return of income for respective assessment years. The appellant also deposited with State Bank of India and Vijaya Bank, however interest accrued therefore not admitted in the return of income for the respective assessment years. The AO has given break-up year- wise of undisclosed deposits and accrued interest thereon from the asst. years 204-05 to 2008-09. to1001/B/14 4 4. Subsequently, the appellant has filed a revised return of income for the assessment years under consideration on 02/07/201, offered further income as mentioned above in tabular chart.
The AO has issued notice u/s 148 on 19/7/2010 with prior approval of the Addl. CIT, Range-2, Bangalore. In compliance to the said notice the AR of the appellant submitted that the revised return filed on 2/7/2010 may be considered in response to the notice issued u/s 148 of the Act. In the course of asst. proceedings the appellant’s AR pleaded that the aforesaid investment/income as offered in the revised return of income may be considered as taxable income for the asst. year 2004-05 to 2008-09 and the AO has finalized the assessment accordingly. Simultaneously, the penalty proceedings u/s 271(1)(c) also initiated.
Notice u/s 271(1)(c) of the Income-tax Act, 1961 dated 21.07.2010 was issued and served. In response to the same, the assessee filed her reply on 28.7.2010 giving detailed explanation to the penalty notice and requesting for dropping the penalty proceedings initiated on the following grounds: to1001/B/14 5 “Return of income is furnished on 30.10.2005 with prescribed particulars. Thereafter revised return is furnished with additional income under the head ‘Income from Other Sources which was omitted in the original return. To this, notice u/s 148 was issued along with notices u/s 142(1)/143(2). A request letter was filed to regularize the revised return made already. Assessment is made determining the total income and tax payable accepting the revised return. However, addition of interest credit in the savings bank account. The said savings bank account is disclosed in the return. To this, notice u/s 274 r.w.s 271 of the Income-tax Act 1961 is issued to show cause why order imposing penalty should not be made u/s 271(1)(c).
It is humbly submitted that, as per the proviso to s.271(1)(c) when assessment is made with additions/disallowances to the returned income, and basically when the explanation offered by the assessee in respect of the facts material to the computation of total income-tax. c) is found to be false or d) is not able to substantiate and fails to prove the explanation offered is bonafide. Only then the amount added or disallowed in computing the total income shall be deemed to have been concealed. That apart, the difference between the tax on assessed income and the income returned will be the tax sought to to1001/B/14 6 be evade only, if assessee’s explanation is false or if the bonafides are not proved. Accordingly, as per s. 271(1)(c), after being satisfied that, the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income only then, a penalty shall be levied which is equal to the tax amount sought to be evaded by concealment or by furnishing inaccurate particulars of income but, such penalty shall not exceed three times the amount of tax sought to be evaded.
In the present case, the difference in the income returned in the original and revised return is made voluntarily with full co-operation with the revenue. The difference of income returned is on account of the bank deposits in FD & FD accrued interest. The deposits are made out of the accumulated daily deposit amount. However, the same has been returned as additional income in the current year only to buy peace. That apart, the difference in the assessed income and the income returned in the revised return is the interest credited to the savings bank account which was not returned by oversight and the same was agreed for addition. The difference on account of low drawings was also accepted and offered to tax to buy peace and avoid hazardous litigation. Therefore, as such in the facts and circumstances of the case, the amount added or disallowed in determining the income is not (deemed to to1001/B/14 7 have been) concealed. So also the difference between the tax on assessed income and the income returned is not sought to be evaded. There is no such finding.”
The assessee in support of the above claim has also relied on the following decisions: a) Bangalore Steel Distributors Vs. ITO (1995) 51 TTJ (Bang) 125; b) ITO Vs. Smt. JenabaiMohd. (1976) 2 TTJ (Bang) 777; c) Ram Saran Gupta Vs. ACIT (1997) 58 TTJ (JP) 702; d) CIT Vs. Suresh Chandra Mittal (2001) 251 ITR 9 (SC); e) KP Madhusudhan Vs. CIT (2001) 251 ITR 99 (SC); f) Bharat Rice Mill Vs. CIT (2005) 278 ITR 299 (All).
At the time of appeal hearing before the CIT(A) the appellant reiterated that in the present case, difference in income returned in the original and revised return was made voluntarily with full co-operation with the Department. The difference of income returned is on account of the bank deposit in FDs and accrued interest of FDs. The deposits were made out of the accumulated daily deposit amount. However, the same has been returned as additional income in the asst. years under consideration only to buy peace. That part the difference in the assessed income and the retuned income in the revised return is the interest credited to the savings bank account which was not returned by oversight to1001/B/14 8 and the same was agreed for addition. Therefore as such in the facts and circumstances of the case the amount added or disallowed in determining the income is not deemed to have been concealed.
The AO made an addition over and above the returned income in assessment year-wise as below:-
Assessment Year Additional Income 2004-05 Rs. 13,92,280 2005-06 Rs. 3,13,743 2006-07 Rs. 14,71,266 2007-08 Rs. 4,32,003 2008-09 Rs. 7,83,288
These additions were made as a result of enquiries made through the National CO-operative Bank Ltd. wherein the appellant deposited amount under cumulative Time Deposit Scheme and the same were not disclosed in the returns of income in the relevant assessment years. Subsequently, the appellant filed belated revised return of income for the assessment years 2004-05 to 2008-09 offering additional income as mentioned above. The AO has regularized said returns by issue of notice u/s 148 of the Act, followed by issue of notice u/s 143(2) and 142(1) of the Act.
During the course of assessment proceedings the appellant’s AR pleaded that income so offered in revised returns of income may be to1001/B/14 9 considered as taxable income and the AO accordingly completed the assessment accepting income as per revised (belated) returns of income and brought to tax. The AO during the assessment proceedings initiated penalty proceedings u/s 271(1)(c) of the Act rejecting the plea of the appellant that the additional income was offered voluntarily in order to buy peace and could not be construed as concealment of income or inaccurate particulars of income. In this view of the matter it could be construed that the appellant’s surrender of concealed income as not voluntarily but after detecting the undisclosed deposits and after confronting the evidence by the AO and when the appellant was cornered.
The CIT(A) concluded that disclosure of additional income is not voluntary and the assessee could not establish her stand with supportive evidence or material. The CIT(A) held, relying on the decision of MAK Data (P) Ltd. v. CIT (2013) 358 ITR 593 (SC), that the AO was justified in levying penalty u/s. 271(1)(c) of the Act.
Aggrieved, the assessee has filed appeal before the Tribunal. to1001/B/14 10 13. The assessee has filed additional grounds of appeal which are as follows:-
“1. The Assessing Officer having issued the notice under section 274 r.w.s 271(1)(c) of the Act in a mechanical manner, the penalty order passed u/s 271(1)(c) of the Act is not sustainable in the eye of law. 2. The appellant begs to submit that the decision of the Jurisdictional High Court in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 359 ITR 565 (Karn) is squarely applicable and, therefore the impugned order of the authorities below is required to be set aside.”
The ld. counsel for the assessee drew our attention to the decision of the Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), wherein the Hon’ble High Court 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 be quashed.
The ld. DR relied on the order of the CIT(Appeals) wherein the CIT(A) has expressed his opinion that the assessee was fully aware of the charge against him and he cannot take shelter on technical grounds.
16. The additional ground being a pure question of law, can be decided on the basis of facts available on record and the same is admitted for adjudication keeping in view the decision of the Hon’ble Supreme Court in the case of NTPC, 229 ITR 383 (SC).
17. We find that the coordinate Bench in the case of Shri H.
Lakshminarayana in to 996/Bang/2014 by order dated 03.07.2015 on an identical issue has held as follows:-
“14. We have heard the rival submissions. 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
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 and then penalty proceedings is initiated, in the to1001/B/14 12 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 farm 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 to1001/B/14 13 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.
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 to1001/B/14 14 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. to1001/B/14 15 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 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. to1001/B/14 16 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.”
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. In our view, the aforesaid defect cannot be said to be curable u/s. 292BB of the Act, as the defect cannot be said to be a notice which is in substance and effect in conformity with or according to the intent and purpose of the Act. 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. to1001/B/14 17 18. Since the appeals are decided on the technical ground, the grounds raised on merits are not being gone into.”
17. We also find that the Hon’ble Karnataka High Court in the case of CIT v. Shri Partha L in by judgement dated 29.09.2015 has held as follows:-
“2. Learned counsel for the parties have jointly stated that the question involved in this appeal is covered by the decision of this Court in the case of Commissioner of Income Tax–vs- Manjunatha Cotton and Ginning Factory, (2013) 359 ITR 565, wherein, the question has been decided in favour of assessee and against the appellant – revenue.
As such, we are of the opinion, no substantial question of law arises for determination by this Court. The appeal is accordingly dismissed.” .
In the present cases, we find that the show cause notice issued u/s. 274 r.w.s. 271 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Respectfully following the judgments of the Hon’ble jurisdictional High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (supra) and CIT v. Shri Partha L (supra) and the coordinate Bench decision of this Tribunal in the case of Shri H. Lakshminarayana (supra), 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 additional grounds of appeal raised by the assessee for all the years is allowed and in view of the same, the other grounds of appeal on merits are not taken up for consideration.
In the result, the appeals are allowed.
Order pronounced in the open court on 18th November, 2015.