Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SMT. ASHA VIJAYARAGHAVAN & SHRI JASON P. BOAZ
Date of hearing : 05.11.2015 Date of Pronouncement : 06.11.2015 O R D E R Per Asha Vijayaraghavan, Judicial Member
These appeals by the different assessees are directed against the common order dated 05.02.2015 of the CIT(Appeals), Mysuru relating to assessment year 2007-08.
The only issue involved in these appeals relate to imposition of penalty u/s. 271(1)(c) of the Act.
The facts material are that the assessee purchased land situated at Sr.No.71/3, Vajamangala grama measuring 1.39 acres for a consideration of Rs.1,97,500 along with his brother. This is registered as document No.MYN-1-13721-2005-06 and dt. 22.11.2005. This land was a dry land and no agricultural operation had been carried on in this land prior to the purchase and it remained a dry land throughout. Not even dry crops were raised. The said lands were never put to use for agricultural purposes and no attempt to use it for agricultural purposes was also made like making it arable.
4. The land held by the assessee jointly with his brother was sold for a consideration of Rs.3,00,000 during financial year ending 31.03.2007. In the course of the assessment proceedings the AO pointed out that the Sub- Registrar had for purpose of stamp duty valued the said property at Rs.19.75Lakhs. Based on Sub-Registrar valuation, the AO invoked the provision of Section 50C and levied the capital gain on differential amount.
Further, during the course of assessment or penalty proceedings, the AO has not doubted the genuineness of the transaction or any concealment of income or proceeds of sale. The recourse resorted by the AO was only invoking the legal fiction of Section 50C and levied the capital gain. The matter was carried before CIT(A) who upheld the order of the AO.
Meanwhile, the AO issued show-cause notice for levying penalty u/s 271 (1)(c) and the assessee replied that the matter is pending before the Tribunal and requested to keep the proceeding under abeyance till it reaches finality. The AO however passed penalty order u/s. 271(1)(c) of the Act dated 27.03.2012 imposing penalty on the assessees. The Tribunal by order dated 14.08.2014 has allowed the quantum appeals of the assessees in & 275(Bang)2011.
Against the penalty order u/s. 271(1)(c) passed by the AO, the assessee preferred appeals before the CIT(Appeals). The CIT(Appeals) held as follows:-
“While the A() assessed incomes under the head capital gain, the Hon’ble ITAT directed to assess the same under the head business. Nevertheless, the fact still remains that, the income there from is concealed and the appellant did file inaccurate particulars regarding the same till the date of survey. Hence, 1 agree with the findings of the AO that, this is the fit case for levy of penalty. To that extent I agree with the findings of the AO. However, the AO is directed to restrict the penalty based on the revised computation by treating the income under the head business and levy the penalty via media between the minimum and maximum in the same ratio as per the penalty order. To that extent, the appellants get relief.”
Thus, the CIT(Appeals) partly allowed the appeals of the assessees.
Aggrieved, the assessees are in appeals before us on the following grounds of appeal:-
“1. The order of the learned CIT[A] in confirming the action of the Learned A.O. to Levy penalty u/s.271[1][c] of the Act, in principle and directing the Learned A.O. to limit the same to the extent of the income as relating to “Business” in respect of the income assessed under the head “Capital Gains” on the sale of property under the order of assessment impugned in appeal before and allowed by the Hon’ble ITAT is contrary to law, equity, weight of evidence, facts and circumstances of the case and therefore, liable to be cancelled.
2. The Learned CIT[A] failed to appreciate that the appellant has challenged the validity of the assessment order in the course of which the proceedings for the initiating the levy of penalty was initiated and the impugned penalty order was passed was as bad in Law as the revised return of income filed was bad in law and not voluntary, which fact was not disputed by the department and further, the gains on the sale of the property was assessable not in the hands of the appellant but in the hands of the AOP consisting of the appellant and his brother and at any rate assessing the income under the head “Capital Gains” by invoking the provisions of section 50C of the Act, was bad in law, which was accepted by the Hon’ble ITAT and the Hon’ble ITAT deleted the addition made under the head “Capital Gains” and did not give any specific direction to assess the income under the head Business instead and therefore, the learned CIT[A] would not be justified in directing the Learned A.O. to levy the penalty on the income attributable under the head “business” when no income was attributable to the sale of the asset was either admitted as business income in the original return filed or assessed as business income by the A.O. in the impugned assessment order.
3. The learned CIT[A] failed to appreciate that the learned A.O. was not specific as to the exact default actionable u/s.271[1][c] of the Act in the notice as he was vacillating between two separate actionable default and therefore, the levy of penalty u/s.271[1][c] finally on one of two defaults is bad in law and contrary to the ratio of the decision of the Hon’ble Karnataka High Court in the case of CIT V. MANJUNATHA COTTON & GINNING FACTORY reported in 359 ITR 565 and decision of the Hon’ble ITAT, Bangalore Bench “C” in the case of SRINIDHI GOLD in dated 19/12/2014 and the penalty levied requires to be cancelled.
Without prejudice to the above, the penalty levied was bad in law as no income attributable to the sale of the property was assessable in the hands of the appellant in “Individual” status and the same was assessable in the hands of the AOP consisting of the appellant and his brother as members of the AOP and non- offering of the income in the hands of the appellant was thus due to reasonable cause and therefore, no penalty was leviable at all.
5. The order of learned C1T[A] in confirming the penalty in principle is on a erroneous appreciation of the facts of the case and the erroneous understanding and interpretation of the order of the Hon’ble ITAT and is in violation of the principles of natural justice and consequently, the penalty levied by the A.O. and sustained by the learned CIT[A] requires to be cancelled. 6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
The learned AR has filed a copy of the notice issued u/s. 274 r.w.s. 271 of the Act dated 24.12.2009. A perusal of the notice reveals that the AO has not deleted inappropriate words and parts in the 4th para of the notice, whereby it is not clear as to the default committed by the assessee, i.e. furnishing of inaccurate particulars of income or concealing the particulars of income for which penalty is sought to be levied.
We find that the Hon’ble High Court of Karnataka in the case of 10. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn) has held that such a notice is invalid and the consequential penalty proceedings are also not valid. The relevant portion of the judgment at paras 59 to 61 is extracted hereunder for reference:-
“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 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 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.”
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. 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.”
The coordinate Bench of this Tribunal where similar notice has been issued u/s. 274 r.w.s. 271 of the I.T. Act in the case of Presidency Builders & Developers in by order dated 14.05.2015 has deleted the penalty u/s. 271(1)(c) of the Act, following the decision of Hon’ble jurisdictional High Court in the case of Manjunatha Cotton and Ginning Factory (supra).
Respectfully following the judgment of the Hon’ble High Court of Karnataka in the case of Manjunatha Cotton and Ginning Factory (supra) and the co-ordinate Bench decision in the case of Presidency Builders & Developers (supra), we hold that the notice issued u/s. 274 r.w.s. 271 of the Act dated 24.12.2009 is invalid and consequently, the penalty proceedings are also invalid and accordingly we delete the penalty levied u/s. 271(1)(c) of the Act.
Since the levy of penalty u/s. 271(1)(c) of the Act has been deleted, the other grounds of appeal raised by the assessee regarding levy of the penalty on merits require no adjudication at this stage.
In the result, both the appeals by the assessees are allowed.
Pronounced in the open court on this 6th day of November, 2015.