SHRI RAVI BADALIA,KOLKATA vs. A.C.I.T.-CC-XXVII, KOLKATA, KOLKATA

I.T.A. Nos. 2846 to 2849/KOL./2013 Assessment years: 2006-2007 to 2009-2010 Page 1 of 10

IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA ‘B’ BENCH, KOLKATA

Before Shri P.M. Jagtap, Accountant Member and Shri N.V. Vasudevan, Judicial Member I.T.A. Nos. 2846, 2847, 2848 & 2849/KOL/ 2013 Assessment Years: 2006-2007, 07-08, 08-09 & 2009-2010 Sri Ravi Badalia,..........................................................................Appellant C/o. S.L. Kochar, Advocate, 86, Canning Street, Kolkata [PAN : ADJPB 0934 C] -Vs.- Assistant Commissioner of Income Tax, ...........,......................Respondent Central Circle-XXVII, Poorva, Kolkata

Appearances by: Shri S.L. Kochar, Advocate and Shri Anil Kochar, Advocate, for the assessee Shri Banibrata Dutta, Addl. CIT, Sr. D.R., for the Department Date of concluding the hearing : August 18, 2016 Date of pronouncing the order : September 02, 2016

O R D E R Per Bench :- These four appeals filed by the assessee are directed against four separate orders passed by the ld. Commissioner of Income Tax(Appeals), Central-II, Kolkata, all dated 07.11.2013, whereby he confirmed the penalties of Rs.1,53,000/-, Rs.2,69,280/-, Rs.4,07,880/- and Rs.5,09,850/- imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 for assessment year 2006-07, 2007-08, 2008-09 and 2009- 10 respectively.

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Bank lockers. In his statement recorded under section 132(4) during the course of search, the assessee agreed to surrender his undisclosed income of Rs.5,00,00,000/- for the relevant five years as under:- Assessment Year Amount 2006-07 Rs. 5,00,000/- 2007-08 Rs. 8,00,000/- 2008-09 Rs. 12,00,000/- 2009-10 Rs. 15,00,000/- 2010-11 Rs.4,60,00,000/-

Consequent to the search, notices under section 153A were issued by the Assessing Officer, in response to which, the assessee filed his returns of income for the relevant six years including all the four years under consideration offering therein the income surrendered during the course of search. In the assessments completed under section 153A/143(3) vide orders dated 28.12.2011, the income as returned by the assessee for all the four years under consideration was accepted by the Assessing Officer. He, however, initiated penalty proceedings under section 271(1)(c) keeping in view the Explanation 5A inserted in Section 271(1)(c) as the same was applicable in the case of the assessee, wherein the search was initiated under section 132 after 1st day of June, 2007. The explanation offered by the assessee in this regard to the notices issued during the course of penalty proceedings was not found acceptable by the Assessing Officer and he proceeded to impose penalties of Rs.1,53,000/-, Rs.2,69,280/-, Rs.4,07,880/- and Rs.5,09,850/- for assessment year 2006- 07, 2007-08, 2008-09 and 2009-10 respectively by relying on Explanation 5A to section 271(1)(c).

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acceptable by him, the ld. CIT(Appeals) proceeded to confirm the penalties imposed by the Assessing Officer for all the four years under consideration for the following reasons given in paragraph no. 5 of his impugned order passed for A.Y. 2006-07, which are identical for the remaining three years:- “5. I have considered the submission of the appellant and perused the penalty order. It is observed that a search & seizure operation was conducted in the case of appellant on 10.10.2009. In the course of search, certain documents and assets were found and seized. The appellant owned the undisclosed income to the extent of Rs.5 crore in his hand for different assessment years and accordingly in the course of search, additional income of Rs.5 Crores was admitted. For the assessment year 2006-07 additional income of Rs.5,00,000/- was disclosed. In the course of assessment proceedings, the assessee submitted the details of undisclosed income which was declared on the basis of seized documents and assets. In the return of income filed u/s 153A, the said declared income of Rs.5,00,000/- was taken into consideration. The assessment was completed u/s. 153A/143(3) of the Act at the returned income. However, it is a fact on record that the appellant did not disclose the aforesaid income of Rs.5 lakh in the return of income filed u/s. 139(1) of the Act. In the course of appellate proceedings, the appellant has contended that the penalty u/s. 271(1)(c) is not leviable in his case because the additional income was disclosed in the course of search u/s 132(4) of the Act and the same income was assessed by the AO. That, no paper or evidence was found regarding undisclosed income. It is also argued by the appellant that the return filed u/s. 153A is equivalent to the return filed u/s. 139(1) and hence even the penalty is not leviable by applying provisions of Explanation 5A of section 271(1)(c). However, on careful consideration of the facts and going through the amended provisions of section 271(1)(c) along with Explanation 5A, I am not inclined to agree with the submission of the appellant that for the year under appeal the penalty is not leviable u/s 271(1)(c). The provisions of Explanation 5A of section 271(1)(c) reads as under :

[Explanation 5A - Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of -

(i) any money, bullion, jewellery or other valuable article or thing(hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilizing (wholly or in part) his income for any previous year; or

(ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry

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in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of search and, -

(a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or

(b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return,

then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income.]

5.1 On perusal of Explanation 5A of section 271(1)(c) substituted by the Finance (No.2) Act, 2009 applicable with retrospective effect from 01.06.2007, it is apparent that in a case of an assessee where the search is initiated on or after 1st day of June, 2007 and such an assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing or having any income based on any entry in any books of account or other documents and relates to any previous year which has ended before the date of search and where the return of income for such previous year has been furnished before the said date but such income has not been declared therein, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purpose of imposition of penalty u/s: 271(1)(c), be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. In the case of appellant, there is no dispute that the search was conducted after 01.06.2007 and the income relates to the previous year which has ended before the date of search. The appellant had filed return of income for such previous year but did not declare the income therein. Under the circumstances, even if the appellant has declared the undisclosed income in the return filed u/s. 153A, he will be deemed to have concealed the particulars of his income for the purpose of imposition of penalty. As per Explanation 5A to section 271(1)(c), no immunity has been provided from the penalty if the undisclosed income was declared u/s 132(4) in the course of search proceedings as provided earlier by Explanation 5 of this section. In view of above, I am of the opinion that the AO was justified in imposing the penalty u/s. 271(1)(c) of the Act. His action is in accordance with the provisions of the Act. Hence, the penalty imposed by the AO u/s. 271(1)(c) amounting to Rs.1,53,000/- is confirmed. The ground no. 1 is dismissed”.

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Aggrieved by the orders of the ld. CIT(Appeals), the assessee has preferred these appeals before the Tribunal.

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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. 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

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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. 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

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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 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.”

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(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”. 5. In our opinion, the decision of the Coordinate Bench of this Tribunal rendered in the case of Suvaprasanna Bhattacharya –vs.- ACIT rendered vide its order dated 06.11.2015 in ITA No. 1303/KOL/2010 by 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 is squarely applicable in the present case and respectfully following the same, we hold that the show-cause notices issued by the Assessing Officer under section 274 for the years under consideration not being in accordance with law, the penalty orders passed by the Assessing Officer in pursuance thereof are liable to be cancelled being invalid. We accordingly cancel the orders passed by the Assessing Officer imposing penalties under section 271(1)(c) for the years under consideration and allow the appeals of the assessee.

(N.V. Vasudevan) (P.M. Jagtap) Judicial Member Accountant Member Kolkata, the 2nd day of September, 2016

Copies to : (1) Sri Ravi Badalia, C/o. S.L. Kochar, Advocate, 86, Canning Street, Kolkata-700 001 (2) Assistant Commissioner of Income Tax, Central Circle-XXVII, Poorva, Kolkata,

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(3) CIT(Appeals), Central-II, Kolkata (4) CIT, Kolkata- , Kolkata

(5) The Departmental Representative (6) Guard File By order

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