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Income Tax Appellate Tribunal, “A”, BENCH KOLKATA
Before: SHRI WASEEM AHMED, AM & SHRI K. NARASIMHA CHARY, JM
आदेश / O R D E R Per Shri K. Narasimha Chary, JM:
This is an appeal by assessee challenging the order dated 25.07.2013, in Appeal No.19/CC-XVII/CIT(A)-C-1/11-12, passed by the ld. Commissioner of Income Tax (Appeals)-9, Kolkata [hereinafter called as ‘CIT(A)’].
./2013 Assessment year: 2005-2006 Page 2 of 9 2. Brief facts of the case are that original assessment u/s.143(3) was completed by 18.12.2007, wherein an addition of Rs.14,00,000/- was made by the Assessing Officer u/s.68 on account of unexplained cash credit, since the assessee failed to explain the source of share application money, which was confirmed in appeal before the ld. CIT(A), vide order dated 6.12.2010. On 23.11.2007, there was a search and seizure operations u/s.132 of the Act in the premises of the assessee company and assessment u/s.153A was done on 31.12.2009, wherein the addition of Rs.14 lakhs was maintained, since even at that time the assessee failed to explain the source of its income. An appeal was preferred against this assessment but was withdrawn by the assessee. Since the assessee failed to explain the source of share application money, the AO concluded that assessee company has introduced bogus share application money into its books of accounts, thereby furnished inaccurate particulars of income and concealed the income as such initiated proceedings u/s.271(1)(c) of the Act, which concluded in imposition of penalty of Rs.10 lakhs.
Challenging the same, the assessee carried the matter in appeal and the ld. CIT(A) confirming the propriety of imposition of penalty, but reduced the same from Rs.10 lakhs to Rs.5,12,295/- being the penalty at 100%. Aggrieved by the said impugned order, the assessee is before us in this appeal on the following grounds :-
“1) That the Ld.CIT(A)-C-I, Kolkata, erred in confirming penalty amounting to Rs.5,12,295/- @ 100% of the amount of tax without considering the fact that no addition was made in the proceedings under sec.
./2013 Assessment year: 2005-2006 Page 3 of 9 153A of the Income Tax Act, 1961. The addition was made in the original assessment made under sec. 143(3) of the Act and penalty was also imposed in respect of the same. As such, the penalty has been imposed twice for a single addition which is arbitrary, unjustified, illegal and deserves to be deleted.”
Ld. Counsel for the assessee drew our attention to the show cause notice issued u/s.274 of the Act before imposing penalty and submitted that the said notice does not specify as to whether the Assessee is guilty of having “furnished inaccurate particulars of income” or of having “concealed particulars of such income”. He pointed out that in the printed show cause notice without striking out the irrelevant portion viz., “furnished inaccurate particulars of income” or “concealed particulars of such income”. He drew our attention to a decision of the Hon’ble Karnataka High Court in the case of CIT Vs. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.) wherein it was held that if the show cause notice u/s.274 of the Act does not specify as to the exact charge viz., whether the charge is that the Assessee has “furnished inaccurate particulars of income” or “concealed particulars of income” by striking out the irrelevant portion of printed show cause notice, than the imposition of penalty on the basis of such invalid show cause notice cannot be sustained.
The learned DR relied on the order of the ld. CIT(A). He placed reliance on the decision of the Hon’ble Supreme Court in the case of MAK Data (P)
Ltd. Vs. CIT 358 ITR 593 (SC) wherein it was held that satisfaction is not ./2013 Assessment year: 2005-2006 Page 4 of 9 required to be recorded in any particular manner or reduce such manner of arriving at satisfaction in writing.
The point that arises for our consideration is as to whether the penalty proceedings are sustainable on the face of defects on the notice issued u/s.271(1)(c) of the I.T. Act.
We have gone through the copy of notice u/s.274 r.w.s.271 of the Income Tax Act issued by the AO. It is a printed form with so many clauses.
This notice does not specifically point out as to whether there is any concealment of particulars of income or furnishing any inaccurate particulars of such income but across the printed line, there is a big tick mark.
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 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 ./2013 Assessment year: 2005-2006 Page 5 of 9 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 ./2013 Assessment year: 2005-2006 Page 6 of 9 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 pro forma 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 ./2013 Assessment year: 2005-2006 Page 7 of 9 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 bona fide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide 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.
./2013 Assessment year: 2005-2006 Page 8 of 9 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.” (emphasis supplied) 9. Ld. AR also placed reliance on the decision of Hon’ble Supreme Court in case of Commissioner of Income-tax Vs. SSA’s Emerald Meadows, [2016] 73 taxmann.com 248 (SC). In this matter, the Tribunal followed the decision of Hon’ble Karnata High Court and held that notice issued u/s.274 r.w.s.271(1)(c) of the I.T.Act. was bad in law as it did not specify the thing in which limb of Section 271(1)(c) of the Act, penalty proceedings had been initiated. The Hon’ble High Court held that there was no substantial question of law. Against that order, an SLP was filed before the Hon’ble Supreme Court and the Hon’ble Supreme Court also held that there was no substantial question of law.
It is clear from the aforesaid decisions that on the facts of the present case, 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. Following the decision of the Hon’ble Karnataka High Court, we hold that the order imposing penalty has to be held as invalid and consequently penalty imposed is cancelled. ./2013 Assessment year: 2005-2006 Page 9 of 9 11. For the reasons given above, we hold that levy of penalty in the present case cannot be sustained. We therefore cancel the orders imposing penalty on the Assessee and allow the appeal by the Assessee.
In the result, appeal filed by assessee is allowed.
Order pronounced in the open court on 07/10/2016.