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Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
Before: SHRI J. SUDHAKAR REDDY & MS. SUCHITRA KAMBLE
Appellant by : Sh. Anil Garg, C.A. Respondent by : Sh. Raman Kant Garg, Sr.D.R. ORDER PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
This is an appeal filed by the assessee directed against the order of the Ld.CIT(A), Muzaffarnagar dt. 16.1.2013 passed u/s 271(1)(c ) of the Income Tax Act, 1961 (the Act) on 21.7.2013.
Facts in brief:- The assessee is an individual and is in the business of whole sale trading of sugar, ghee etc. He carries on business under the name and style M/s N.R.Trading Co. He filed return of income for the A.Y. 2009-10 on 30.9.2009 declaring net profit of Rs.87,713/-. The A.O. completed the assessment u/s 143(3) of the Act on 27.12.2011 determining the total income at Rs.90,06,406/-. He made an addition of Rs.89,18,693/- u/s Sh. Rajeev Kumar, Muzaffarngar 69 of the Act. The assessee carried the matter in appeal. Penalty proceedings u/s 271(1)(c ) of the Act were initiated by the AO and there after a show cause notice was issued to the assessee. No penalty was levied by the AO thereafter. Hence the proceedings for levy of penalty were dropped by the A.O.
2.1. The Ld.CIT(A), Muzaffarnagar in his order dt. 16.1.2013 deleted the addition of Rs.89,18,693/-. He made a separate addition of Rs.2,16,300/- on the ground that the assessee might have earned profit of Rs.70 per sugar bag on total sales of 3090 bags on behalf of M/s Jai Shree Traders, Delhi which works out to Rs.2,16,300/-.
2.2. The Ld.CIT(A) further states in his appellate order that penalty proceedings u/s 271(1)(c ) of the Act are separately initiated on account of concealment of income of the assessee. Subsequently show cause notice dt. 16.1.2013 u/s 271(1)(c ) of the Act was issued. In this notice the Ld.CIT(A), Muzaffarnagar states as follows: “ thus you are required to show cause as to why penalty u/s 271(1)(c ) of the Act for concealing the particulars of income or for furnishing of inaccurate particulars be not imposed.”
2.3. Further, in his penalty order dt. 29.7.2013 the Ld.CIT(A), Muzaffarnagar concluded as follows.
“On the basis of all the above case laws, which include the decision of the Jurisdictional High Court also, I hold that the angle of concealment of actual income and showing inaccurate particulars of taxable income is more than established, and,
Sh. Rajeev Kumar, Muzaffarngar therefore, I impose penalty u/s 271(1)(c ) of the Act at @ 300% of tax concealed on Rs.2,16,300/- which comes to Rs.1,94,670/-. The AO is directed to issue notice of demand.”
3. Aggrieved the assessee is in appeal before us on the following grounds.
“1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in imposing the penalty u/s 271(1) (c) ,which is not payable under the Income Tax Act.
2. That in any case and in any view of the matter Ld.CIT(A) has erred in law in imposing the penalty, while the appellant was in bona fide belief about the income taxable in the name of Rajeev kumar and sons and Smt. Satya Wati, mother of the appellant which the CIT(Appeal ) sustained in the income of the appellant on estimate basis and impose the penalty thereon @300% and, as the assessment order is not sustainable on various legal and factual grounds and more so by recording incorrect facts and finding.
That the penalty u/s 271 (1) (c) has been wrongly imposed where the addition was made on estimate basis in the income of the appellant.
4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in imposing the penalty @300 % of tax due amounting Rs.1,94,670/- while the tax demand was Rs. 15,602/- only .
That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
We have heard Sh.Raman Kant Garg, Ld.Sr.D.R. on behalf of the Revenue and Shri Anil Garg, the Ld.Counsel for the assessee.
Sh. Rajeev Kumar, Muzaffarngar
5. The Ld.CIT(A), in our view, has travelled beyond his jurisdiction in levying the penalty u/s 271(1)(c ) of the Act. It is well settled that penalty can be levied by the Ld.CIT(A) only with respect to enhancement of assessment. In this case there is no enhancement of assessment. Moreover when the AO had initiated penalty proceedings u/s 271(1)(c) of the Act and dropped the same, the Ld.CIT(A) does not have any jurisdiction to reinitiate such proceedings or start a fresh proceedings. Thus on this ground alone the penalty is to be quashed.
Be it as it may, the Ld.CIT(A) is not clear as to the charge under which he proposes to levy penalty in the show cause notice. The Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton Ginning Factory, 359 ITR 565, wherein the Hon’ble High Court considered the entire case law on the subject of levy of penalty u/s 271(1)(c ) of the Act and summarized the law as follows. “Merely because the assessee agreed for addition does not lead to the inference that the said addition is on account of concealment if the assessee has offered an explanation which is not found to be false. The mere fact that the assessee agreed to pay tax and did not challenge the assessment order does not mean that his conduct is mala fide. The following principles apply: (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) Wilful 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.
Sh. Rajeev Kumar, Muzaffarngar (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 l1(A) and (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(1)(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.
Sh. Rajeev Kumar, Muzaffarngar (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 insofar 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 aS7essmen or reassessment cannot be declared as invalid in the penalty proceedings.”
6.1. Similarly the ITAT, Mumbai Bench in the case of Shri Hafeez S.Contractor vs. ACIT (in and 6223/2013 held that the penalty u/s 271(1)(c ) cannot be imposed in case where no specific charges are mentioned in the penalty notice.
Sh. Rajeev Kumar, Muzaffarngar
By applying the propositions laid down in the above cited cases, we delete the penalty levied u/s 271(1)(c) of the Act and allow the grounds of the assessee.
In the result this appeal of the assessee is allowed.
Order pronounced in the Open Court on 07th April, 2016.