SRI BHASKAR GHOSH,KOLKATA vs. DCIT, CC-2(4), KOLKATA, KOLKATA

Per Bench.: These four appeals filed by the assessee are directed against four separate orders, all dated 30.01.2015 passed by the ld. Commissioner of Income Tax (Appeals)-20, Kolkata, whereby he confirmed the penalties of Rs.5,44,377/-, Rs.7,28,402/-, Rs.13,21,733/- and Rs.15,01,410/- imposed by the Assessing Officer under section 271(1)(c) for assessment years 2007-08, 2008-09, 2009-10 & 2010-11 respectively.

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residential premises of the assessee on 12.07.2010. During the course of search, an undisclosed Bank account maintained by the assessee with IDBI Bank, Gariahat Road Branch, Kolkata, was found. In his statement recorded under section 132(4), the assessee agreed that the transactions reflected in the said Bank account were not accounted for by him. He also agreed to surrender his undisclosed income on account of such transactions. In the returns of income filed originally in response to the notices issued by the Assessing Officer under section 153A of the Act for all the four years under consideration, the assessee, however, did not offer or disclose any amount of such income surrendered during the course of search in respect of the transactions reflected in his undisclosed Bank account. At the fag end of the proceedings under section 153A read with section 143(3), the assessee filed revised returns for all the four years under consideration on 21.03.2013 declaring such undisclosed income. Although the assessments under section 153A/143(3) for all the four years under consideration were made by the Assessing Officer vide his orders dated 31.03.2013 on the same income as declared by the assessee in his revised returns, he treated the additional income offered by the asessee on account of the transactions reflected in his undisclosed Bank account with IDBI, Gariahat Road Branch, Kolkata as found during the course of search, as the concealment on the part of the assessee and initiated penalty proceedings under section 271(1)(c). The explanation offered by the assessee in reply to the notices issued by him during the course of penalty proceedings was not found acceptable by the Assessing Officer and he proceeded to impose penalties of Rs.5,44,377/-, Rs.7,28,402/-, Rs.13,21,733/- and Rs.15,01,410/- for assessment years 2007-08, 2008-09, 2009-10 & 2010-11 respectively being 100% of the tax sought to be evaded by the assessee in respect of the income from the transactions reflected in his undisclosed Bank account for the following reasons given in the penalty orders.:- “(i) The concealed bank account no.086104000105095 belongs to IDBI Bank Ltd, Gariahat Road Br., Kolkata maintained in his name had been invented during search & seizure u/s.132 and the assesse admitted the fact with

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clarification that the said bank account has never been considered to determine his income for any year till the date of search & seizure.

(ii) Though the assessee had admitted the fact of not disclosing the bank account no.086104000105095 during search & seizure u/s.132(4) yet, he had not shown an iota of willingness to disclose the said bank account in his return of income filed u/s.153A in consequence of search & seizure for any of the assessment years.

(iii) The notices u/s.153A were served upon assessee on 10.10.2011 allowing the assesse thirty (30) days' time to file the returned income where the assesse could have exercised his option of willingness to offer an additional income as per his commitment u/s.132(4) of I.T. Act, 1961 in respect of undisclosed bank account transactions for each relevant assessment years covered u/s.153A of I.T. Act, 1961. But the assesse without seeking any extra time to file the return u/s. 153A, ultimately filed after inordinate delay on 06.03.2013 and revised it on 21.03.2013. Thus the returned income filed u/s.l53A is not in time as permitted by the notice u/s.153A or belated return.

(iv) The case of the assesse is fully covered by the clause (i) below Explanation 5A to the section 271(1)(c) of I.T. Act, 1961 hence, the assessee in respect of year wise income has been deduced from the transactions of undisclosed bank account no.086104000105095 of IDBI Bank Ltd, Gariahat, Kolkata may be deemed to have concealed the particulars [i.e. account no.086104000105095 of IDBI] of his income”.

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“5. I have considered the facts of the case and perused the material on record. I find that search u/s 132 was conducted on 12-07-2010 at the residential premise of the assessee thereby resulting in the recovery of unaccounted cash of Rs.35 lakhs and undisclosed bank account held by the assessee in the IDBI Bank. The assessee had filed his original return for the relevant year on 29-06-2007 at total income of Rs.6,42,567/-. The assessee was served on 10-10-2011 notice u/s 153A thereby requiring him to file his return within 30 days. The assessee did not seek extension of time for filing the return but still chose to file the same on 06-03-2012 at total income of Rs.5,B5,612/-. The assessee had earlier made disclosure of Rs.15,71,724/- for the relevant assessment year 2007-08 on account of undisclosed bank account before the DDIT(Inv) but did not include the same in his return filed on 06-03-2012 in response to the notice u/s 153A. The assessee vide notice u/s 142(1) issued on 03-10-2012 by the AO was inquired about his bank account with the IDBI Bank. The assessee then admitted before the AO that the bank account with the IDBI Bank was not disclosed in his returns and offered additional income of Rs.1,3B,35,413/- for the financial years 2006- 07 to 2010-11. The assessee filed revised return on 21-03-2013 thereby including the unaccounted income of Rs.15,71,724/ - embedded in the undisclosed bank account related to the relevant assessment year 2007-08. I therefore find merit in the finding of the AO that the surrender of undisclosed income of Rs.15,71,724/- by the assessee was not voluntary. I agree with the AO that it was only after the assessee was inquired about the nature of his bank account with the IDBI Bank that he eventually surrendered the undisclosed income by filing the revised return. I also find merit in the finding of the AO that the revised return filed by the assessee was legally invalid. The material on record suggested that the notice u/s 153A was served on 10-10-2011 thereby requiring the assessee to submit his return within 30 days. The assessee in response neither sought extension of time for filing the return nor did he file the return within the enquired period of 30 days. The assessee instead filed the return on 06-03-2012. The assessee subsequently filed revised return on 21-03-2013. I am of the opinion that there is no explicit provision under the I T Act for revising a return filed in compliance to the notice u/s 153A. But even otherwise, if one attempts to draw a parallel with the provisions related to regular return, then the return filed by the assessee on 06-03-2012 was beyond the due date as prescribed in the notice u/s 153A and consequently the assessee was not lawfully competent to file the revised return. I uphold the finding of the AO that the revised return filed by the assessee on 21- 03-2013 was not valid in law. The assessee therefore cannot be permitted to argue that he had declared the undisclosed income of Rs.15,71,724/- in his return. The Ld AR has argued before me that the assessee voluntarily admitted the undisclosed income and so there was no lawful case for levy of penalty u/s 271(1)(c). I however having considered the facts of the case do not find merit or substance in the arguments of the Ld AR. The conduct of the assessee does not suggest or indicate that the undisclosed income was voluntarily surrendered by him. The assessee on the contrary chose to take his chances and deferred till the last moment the declaration

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of the undisclosed income in his return. I find from the assessment order that the search at the residential premise yielded recovery of cash of Rs.35 lakhs but the assessee instead of admitting its ownership initially tried to shift onus by claiming that the money belonged to the KPC Medical College & Hospital. I find that no disclosure of undisclosed income was made by the assessee at the time of the search. The assessee admitted before the DDIT (Inv] undisclosed income of Rs.175 lakhs for the assessment years 2007-08 to 2011-12 but later did not honour his commitment while furnishing his returns for those years in as much as the undisclosed income admitted before the DDIT (Inv) was not included in such returns. However, when the incriminating material found in the search was confronted by the AO at the assessment stage, the assessee turned around and offered the undisclosed income for taxation. The assessee still deferred the declaration of such undisclosed income in his return which he eventually did on 21-03-2013 just before the limitation for assessment was due to expire on 31-03-2013. The series of events clearly lead to only one possible conclusion that the assessee consciously and deliberately made all attempts to conceal the particulars of his income with the sole objective of evading tax. I note that the assessee did so even when incriminating material was recovered in the search and undisclosed income embedded therein had been unearthed by the income tax department. I therefore reject the argument of the assessee that the surrender of undisclosed income was voluntarily made by him. I find on the contrary that the series of events and incriminating material found in the search left the assessee with no option but to eventually declare the undisclosed income by furnishing the revised return which he was anyway not lawfully entitled to furnish. I also uphold the finding of the AO that the provisions contained in Explanation 5A to section 271(1)(c) were applicable in the present case for the search u/s 132 was conducted after the 1st June, 2007 and the assessee was found to be maintaining a bank account which represented income of Rs.15,71,724/- for the previous year 2006-07 which had ended before the date of the search and such income had not been declared in the return for the previous year 2006-07 furnished before the date of the search and consequently, notwithstanding that such income was declared by him in any return furnished after the date of the search, the assessee for the purposes of levy of penalty u/s 271(1)(c) shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. The Ld AR has argued that Explanation 5A was not applicable in a case where the assessment was made on the basis of estimate. I however find that the assessment in the present case involves no estimation. The search conducted at the residential premise of the assessee resulted in recovery of unaccounted money and undisclosed bank account. The unaccounted money so found and the unaccounted income represented by the undisclosed bank account was eventually surrendered by the assessee as his undisclosed income. The unaccounted income represented by the undisclosed bank account was determined on the basis of the transactions made through the bank account. The break-up of the disclosure made by the assessee and the computation of income made by the AO in the impugned

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order clearly suggested that the undisclosed income was meticulously worked out on the basis of the material found in the search. I therefore reject the argument that the assessment was made on the basis of estimation. The assessment on the contrary was made on the basis of the evidence recovered in the search and the undisclosed income was meticulously worked out from the transactions recorded in the undisclosed bank account of the assessee. But even otherwise, the deeming provisions as contained in Explanation 5A to section 271(1)(c) are clearly attracted in the present case. Also, I do not find merit in the argument that the due date contained in clause (b) of Explanation 5A could possibly be extended to mean the due date for filing the return u/s 139(4). But even otherwise, it is the clause (a) which is applicable in the case of the assessee. The judicial decisions cited by the Ld AR are not relevant to the facts of the case. In view of the above, I uphold the finding of the AO that the assessee has concealed the particulars of his income and has also furnished inaccurate particulars of such income. The impugned penalty order is upheld. The grounds raised by the assessee are dismissed”.

Aggrieved by the orders of the ld. CIT(Appeals) confirming the penalties imposed by the Assessing Officer for all the four years under consideration, the assessee has preferred these appeals before the Tribunal.

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under section 274 of the Act for all the four years under consideration by the Assessing Officer as to whether the assessee was guilty of having “furnished inaccurate particulars of income” or of having “concealed particulars of such income”, the initiation of penalty proceedings itself was bad in law and the penalty orders passed in pursuance thereof are liable to be quashed being invalid. He has invited our attention to the show-cause notices issued by the Assessing Officer for all the four years under consideration under section 274 in the printed form to point out that the irrelevant portion, viz. “furnished inaccurate particulars of income” or “concealed particulars of such income” was not struck off by the Assessing Officer. In this regard, it is observed that the Coordinate Bench of this Tribunal in the case of Suvaprasanna Bhattacharya –vs.- ACIT (ITA No. 1303/KOL/2010) cited by the ld. Counsel for the assessee had an occasion to consider a similar issue in the identical fact situation and the order passed by the Assessing Officer imposing penalty under section 271(1)(c) was held to be invalid by the Tribunal relying on the decision of the Hon’ble Karnataka High Court in the case of CIT & Another –vs.- Manjunatha Cotton & Ginning Factory reported in 359 ITR 565 after discussing the proposition laid down therein in great detail in paragraph no. 8 to 8.2 of its order dated 06.11.2015, which read as under:- “8. The next argument that the show cause notice u/s.274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the for “furnishing inaccurate particulars of income” or “concealing particulars of such income”. On this aspect we find that in the show cause notice u/s.274 of the Act the AO has not struck out the irrelevant part. It is therefore not spelt out as to whether the penalty proceedings are sought to be levied for “furnishing inaccurate particulars of income” or “concealing particulars of such income”.

8.1 The Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon’ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed.

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8.2 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 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. 60. 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

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subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. 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 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 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

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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. 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) It is clear from the aforesaid decision that on the facts of the present case that 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 orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled. 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”.

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(3) Commissioner of Income Tax (Appeals)-20, Kolkata; (4) Commissioner of Income Tax- , (5) The Departmental Representative (6) Guard File By order

Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S.