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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, MUMBAI BEFORE SRI MAHAVIR SINGH, JM (A.Y:2009-10) Lalitkumar M Sakhala, Vs. D.C.I.T, Cir-24(1), C/o. Shantilal B. Chhajed, Mumbai 202, Inder Tower, K. G. Marg, Near Tilak Bhavan, Dadar (West), Mumbai 400 025 PAN: BGEPS9156C Appellant .. Respondent Appellant by Shri Satish Mody, AR Respondent by Shri Manoj Kumar, Sr.DR Date of hearing 07-07-2016 Date of pronouncement 10-08-2016 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of order of CIT(A) in Appeal No. CIT(A)-41/IT-50/2012-13 dated 19-11-2014. Assessment was framed by DCIT-24(1), Mumbai for the assessment year 2009-10 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’) vide his order dated 15-11-2011. Penalty under dispute was levied by DCIT-24(1), Mumbai u/s. 271(1) ( c) of the Act vide his order 01-05-2012.
The only issue in this appeal of assessee is against the order of the CIT(A) confirming the levy of penalty u/s. 271(1) ( c) of the Act for concealment of income on the issue of adjustment of stock value of plot of land.
Briefly stated the facts of the case are that the assessee is engaged in the business of buying and selling of land. The AO during the course of assessment proceedings noticed that the assessee has sold one plot 1096 at Adgaon at a loss of Rs.6,65,800/-. Similarly, loss in plot of Pathardi 311/1a was incurred at Rs. 21,08,290/-. According to the AO, the land transactions are negatively shown whereas price of land always appreciates and never reduces. The assessee himself submitted a revised computation of income. On query from the AO, the assessee suo motu estimated the income of Rs. 27,69,898/-. The AO initiated penalty proceedings u/s. 271(1)( c) for furnishing of inaccurate particulars of income leading to concealment of income. The AO levied the penalty u/s. 271(1) (c) of the Act for concealment of income by observing as under:-
“8. It is not out of place to mention he that had the assessment not selected for scrutiny, this fact of suppression /discrepancies in value of the opening and closing stock would have escaped assessment. In view of the above, it is a fit case for levy of penalty u/s.271(1)(c) of the IT Act. The assessee has concealed income to the extent of Rs.27,69,898/- and is, therefore, liable for penalty u/s.271(1)(c) of the I.T. Act, 1961 The minimum penalty leviable is Rs.1003,803/-, which is 100% of the tax sought to be evaded and the maximum penalty leviable is Rs.30,11,409/-, which is 300% of the tax sought to be evaded.”
Aggrieved, the assessee preferred appeal before the CIT(A), who also confirmed this action of the AO by a cryptic order. Aggrieved, the assessee is in second appeal before the Tribunal.
Before me, the ld. counsel for the assessee stated that he has filed the explanation before the AO and the CIT(A) and also argued that in this case the AO has levied penalty for concealment u/s 271 (1) (c) of the Act, but without any specific charge i.e. the penalty for concealment of income or furnishing of inaccurate particulars of income. According to Ld. Counsel the AO himself is not convinced about the charge. The ld. counsel for the assessee drew my attention to the pages 2-3 of the assessee’s paper book, wherein penalty notice u/s. 271(1)( c) r.w.s 274 of the Act dated 17-11-2011 was issued by the AO to the assessee. The ld. counsel for the assessee stated before me that this issue is covered in favour of the assessee by the decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar.). I find that the notice issued u/s. 274 r. w. s. 271 of the Act, dated 17-11- 2011, clearly reveals that the AO while issuing the notice has not strike off inappropriate words and accordingly, the purpose of the notice issued for levy of penalty is lost. Accordingly, it is not clear what default is committed by the assessee i.e. whether it is initiated for concealment of particulars of income or for furnishing of inaccurate particulars of income so that the penalty u/s. 271(1)( c) can be levied. I find that the Hon’ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (supra) has held as under:-
“58. It must be noticed that this finding recording concealment in the order to be passed by these authorities is only for the purpose of initiating. The said finding is not conclusive; it is in the nature of prima facie satisfaction, which authorizes them to initiate the penalty proceedings. Once a penalty proceedings is validly initiated, then under Section 274(1) an obligation is cast on the person initiating the proceedings to issue notice to the assessee. When such a notice is issued, it is open to the assessee to contest the accusation against him that he has concealed income or he has furnished inaccurate particulars. As there is an initial presumption of concealment, it is for the assessee to rebut the said presumption. The presumption found in Explanation 1 is a rebuttable presumption. If the authority, after hearing the assessee and looking into the material produced in the said proceedings before him is satisfied that though the income is undisclosed there was no intent to avoid tax and therefore, if he holds there is no concealment of income, then question of imposing penalty would not arise. It may be a case of not disclosing income without any intent to avoid tax; it may be a case of furnishing particulars without any intention to avoiding tax. Both stand on the same footing. It is only when the authority is satisfied that non-disclosure of income or furnishing inaccurate particulars was with the intention of evading tax, then it amount to concealment, it amounts to furnishing inaccurate particulars. Then, at his discretion, he may impose penalty as provided under the Act. Therefore, merely because the assessee accepted addition or deletion and did not challenge the assessment order by way of appeal, it cannot be concluded that such addition or deletion amounts to concealment of income or furnishing of inaccurate particulars. When a plea is taken that in order to avoid litigation and purchase peace, the tax levied is paid with interest, if the assessee is able to demonstrate his bona fides and if the authority is satisfied about his bonafides, then the question of imposing penalty would not arise. Similarly, in cases where though the tax was not actually due but still the assessee pays tax with a hope of claiming deductions in the subsequent years, if the assessee is able to demonstrate there was no liability to pay tax at all, merely if assessee pays tax and he does not challenge order, that would not constitute concealment of income so as to enable the authorities to impose penalty. Similarly, in cases, where the legal position is not well settled, when few High Courts and Tribunals have taken a view in favour of the assessee and some High Courts and Tribunals have taken a view in favour of the Revenue and on legal advice if an assessee relies on the said legal position for not disclosing the income and for non-payment of tax, certainly, that is a fact which should weigh in the penalty proceedings after the assessee has paid tax with interest before imposing penalty.
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 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 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.
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.”
In view of the facts of the case that there is no specific charge raised by the AO while issuing notice u/s 274 r. w. s. section 271 of the Act, as discussed above, the issue is covered by the decision of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (supra). Respectfully following the above, I allow the appeal of the assessee.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 10-08-2016