ITO, WARD - 2, SURI, BIRBHUM vs. M/S. HOTEL TARA, BIRBHUM

आदेश /O R D E R

PER Waseem Ahmed, Accountant Member:-

Shri A.K. Tibrewal, Ld. Authorized Representative appeared on behalf of assessee and Shri Arup Chatterjee, Ld. Departmental Representative appeared on behalf of Revenue. 2. Sole issue raised by assessee in his appeal is that Ld. CIT(A) erred in confirming the order of Assessing Officer by imposing penalty of ₹7,10,700/- u/s 271(1)(c) of the Act. For this, assessee has raised following ground:-

A.Y. 2010-11 Abhishek Goyal vs. ACIT, CC-XII Kol. Page 2 “1) That the Ld. CIT(A) erred in confirming penalty amounting to Rs.7,10,700/- levied by the AO under sec.271(1)(c) of the Income Tax Act, 1961. In the case of the assessee, proceeding was instigated u/s. 153C of the Act and the Financial Year has not ended on the date of search. As per provision of the Act, in the cases where the year has not ended or the due date of filing of return has not expired on the date of search, penalty (if any) may be levied only under sec. 271AAA of the Act. the penalty levied by the AO under sec. 271(11)(c) & confirmed by the Ld. CIT(A) is bad in law and need to be cancelled.”

3. Facts in brief are that assessee in the instant case is an individual and engaged in business of petroleum products. The assessee for the year under consideration has filed its return of income declaring total income of ₹15,78,480/- but assessment was framed u/s. 154/143(3) of the Act at a total income of ₹38,78,480/-.

There was a search and seizure operation u/s 132 of the Act conducted in “Fortune Ispat Group” of case on 16.02.2010 and subsequent dates. During the search proceedings cash payment for ₹2,09,03,682/-was found in terms of seized documents marked as FI/Office/6 & FI/Office/7which was owned by assessee in his statement disclosure petition u/s. 132(4) of the Act. Accordingly, notice u/s. 153C r.w.s. 153A was issued upon assessee. During the course of assessment proceedings, assessee submitted that he was engaged in his personal capacity in the business of trading of pig iron and paid a sum of ₹2,09,03,628/-. The assessee offered 5% of such receipt as income earned on the undisclosed transactions of sale and purchase of pig iron. The assessee also offered a sum of ₹10 lakh as investment in the undisclosed business but AO treated the undisclosed investment of ₹ 23 lakh and accordingly undisclosed income was assessed at ₹33,45,181/-. At the time of assessment, AO has initiated penalty proceedings u/s 271(1)© of the Act which was confirmed by Assessing Officer in its penalty order vide dated 28.06.2012. The AO, in his penalty order has levied penalty for ₹7,10,700/- @ 100% of the amount tax sought to be evaded u/s. 271(1)© of the Act.

The Assessing Officer may, notwithstanding anything contained in any other provisions of this Act, direct that, in a case where search has been initiated under section 132 on or after the 1st day of June, 2007, the assessee shall pay by way of penalty, In addition to tax, if any, payable by him, a sum computed at the rate of ten percent of the undisclosed income of the specified previous year.”

In the case of appellant, on facts, there is no dispute that no search under section 132 has been initiated and, therefore, the provisions of section 271AAA are not applicable in his case. In view of above, it Is held that the AO has correctly initiated the penalty proceedings u/s 271(1)(c) of the Act instead of u/s. 271AAA of the Act. The action of the AO in this regard is upheld and the ground no. 1 is dismissed.

5.1 Coming to the merits of imposition of penalty u/s 271(1)(c) of the Act, I am of the opU1ion that the AO has rightly imposed the penalty on the addition of Rs.23 lakh made by him In the course of assessment proceedings on account of initial capital. The claim of the appellant that he himself has admitted additional Income of RS.I0 lakhs on account of Initial capital at the time of assessment proceeding is not correct because he admitted the sum of Rs.I0 lakh only when he was again confronted with the seized documents in the course of assessment proceedings. He did not admit any income for initial capital at the time when his statement was recorded by the DDIT (lnv.). At that time he accepted only the profit on pig iron trading activity though he was very well aware that he had employed his undisclosed Income as initial capital to carry on the trading business activity. Further, even at the time of assessment proceedings, he did not admit correct amount of initial capital and tried to escape by offering sum of Rs.10 lakhs only whereas he was aware that as per the seized documents he had made payment of Rs.23 lakhs on a single day i.e. on 12.01.2010. The AO was absolutely correct in his observations that as to how the appellant could made payment of Rs.23 Jakh on 12.01.2010 if the amount of initial capital was Rs.l0 lakh. Thus, I am of the opinion that the appellant has tried at every step to avoid payment of tax on the undisclosed initial capital unless the fact was brought to the light by the AO. Under the circumstances, It cannot be said that the disclosure of RS.10 lakh being the amount of Initial capital offered in the course of assessment was voluntary and in good faith as claimed by the appellant. In view of above, I am of the opinion that the AO has correctly imposed the penalty us/s 271(1)(c) of the Act at Rs.7,10,700/-. The penalty imposed by the AO is confirmed. The ground no.2 is dismissed.”

Being aggrieved by this order of Ld. CIT(A) assessee came in appeal before us. A.Y. 2010-11 Abhishek Goyal vs. ACIT, CC-XII Kol. Page 5 5. Before us Ld AR submitted the copy of notice issued u/s. 274 r.w.s 271(1)(c) of the Act and stated that notice is defective as it does not clearly strike out the charge of penalty whether it has been initiated penalty can be initiated either for concealment of income or furnishing inaccurate particulars of income. The next argument of the ld. AR was that the case of the assessee is covered for the penalty proceedings under section 271AAA of the Act as the present case pertains to specified year.

On the other hand, the ld. DR submitted that the recording of intiation of penalty proceedings under section 271(1)(c) is sufficient enough to satisfy the requirement of the compliance of law. He relied on the judgment of Hon’ble High Court of Madras in the case of M. Sajjanraj Nahar & Ors. Vs. CIT 283 ITR 230 (Mad). The ld. DR also relied in the order of Hon’ble High Court of Allahabad in the case of Nainu Mal Het Chand Vs. CIT 294 ITR 185 (All). The ld. DR also relied in the order of Hon’ble Supreme Court in the case of D.M. Manasvi Vs. CIT 86 ITR 557 (SC). He vehemently relied on the order of Authorities Below.

Similarly the case cited by the ld. DR of Hon’ble Supreme Court in the case of D.M. Manasvi Vs. CIT 86 ITR 557 is distinguishable from the facts of the instant case. As the issue before the Hon’ble Apex Courts were the following :

"(1) Whether, on the facts and in the circumstances of the case the proceeding for the imposition of penalty were properly commenced in the course of any proceedings under the Act as required by s. 271 of the IT Act, 1961, for the asst. yrs. 1959- 60 to 1962-63 ? (2) Whether, on the facts and in the circumstances of the case, there was any material or evidence before the Tribunal to hold that the assessee had deliberately concealed particulars of his income or deliberately furnished inaccurate particulars of such income as required by s. 271(1)(c) of the Act for the asst. yrs. 1959-60 to 1962-63 ?"

The issue in the instant case under consideration whether the specific charge for levying the penalty is for concealment or furnishing inaccurate particulars of income and the same should emanate from the notice issued under section 274 of the Act. Therefore we are of the view that the case law of Apex Court cited by the ld. DR is not relevant to the instant facts of the case. For holding that the notice should speak the specific charge for the levy of the penalty we rely in the judgment of Hon’ble High court of Karnataka in the case of CIT Vs. Manjunatha Cotton & Ginning Factory 359 ITR 565. The relevant is of the judgment is reproduced below :

“Penalty u/s 271(1)(c) is a civil liability. Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. Willful concealment is not an essential ingredient for attracting civil liability. Existence of conditions stipulated in Section 271(1)(c) is a sine qua non for initiation of penalty proceedings u/s 271. The existence of such conditions should be discernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. Even if there is no specific finding regarding the existence of the corrections 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 A.Y. 2010-11 Abhishek Goyal vs. ACIT, CC-XII Kol. Page 7 concealment because of deeming provision. Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings u/s 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). The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner.

The imposition of penalty is not automatic. 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 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 AO in the assessment order.

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. 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.

The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. If the AO 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.

Notice u/s 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. Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law.

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. Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. 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.

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.

A.Y. 2010-11 Abhishek Goyal vs. ACIT, CC-XII Kol. Page 8 In the light of what we have stated above, 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 has 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 is on account of concealment. Moreover, the assessee has offered the explanation. The said explanation is not found to be false. On the contrary, it is held to be bonafide. In fact in the assessment proceedings there is no whisper about these concealment. The very fact that the assessee agreed to pay tax and did not challenge the assessment order, it is clear the conduct of the assessee cannot be construed as mala fide. Therefore, the Tribunal was justified in setting aside the orders passed by the Appellate Authority as well as the Assessing Authority. In so far as the imposition of penalty is concerned, it is not in accordance with law. No fault could be found with the Tribunal for deleting the penalty. Merely because the assessee agreed for addition and accordingly assessment order was passed on the basis of addition and when the assessee has 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 is on account of concealment so as to levy penalty u/s 271(1)(c).”

Similarly we rely in the order of Hon’ble jurisdictional High Court in the case of Smt. Parama Basak Vs. CIT in ITA 155 of 2003 dated 19.03.2015 where it was held as under: - “The penalty proceedings were started and approved by the impugned judgment and order on the basis that the claim made by the assessee on account of bad debt was not allowed. It is not in dispute that the amount of debt had duly been written off by the assessee; why was the same not allowed is however a mystery to us but be that as it may, the fact remains that the claim for bad debt after the debt had been written off could never be a ground for initiating penal proceedings. Before initiating the penal proceedings the Assessing Officer is required to be satisfied as to whether any income has been concealed or any inadequate particulars have been furnished.”

Similarly we rely in the order of Hon’ble jurisdictional High Court in the case of CIT Vs. Arti & Sons, in GA. No. 2682 of 2014, ITAT 129 of 2014 dated 10.09.2014 where it was held as under : “Heard Md. Dhudhoria, learned advocate for the appellant. Since we fin d from the orders of the assessing officer or the CIT that there is no allegation against the assessee for concealment of particulars of income or had furnished inaccurate particulars of such income, we are of the view that the learned Tribunal was justified in passing the order under challenge. Therefore, the application and appeal are dismissed.”

We also find that the Revenue has filed the SLP No. 5281/2016 before the Hon’ble Supreme Court against the judgment of the Hon’ble High Court in the case of CIT Vs. A.Y. 2010-11 Abhishek Goyal vs. ACIT, CC-XII Kol. Page 9 Manjunatha Cotton & Ginning Factory 359 ITR 565 (SC) which was dismissed as under : “We do not find any merit in these petitions. The special leave petitions are, accordingly, dismissed. Pending applications, if any, stand disposed of.” In view of above we have no hesitation in holding that the penalty proceedings are invalid in view of the aforesaid discussions as the notice issued under section 274 of the Act found defective.