BRIJ KISHOR PRASAD,SILIGURI vs. C.I.T-CIRCLE-I, KOLKATA, SILIGURI

In this appeal the assessee has challenged the order of CIT(A) whereby the CIT(A) confirmed the order of AO imposing penalty on the assessee us/ 271(1)(c) of the Act.

The facts and circumstances under which penalty was imposed on the assessee by the AO are as follows : The Assessee is an individual. The assessee is engaged in the business of exporting and trading in rice, wheat, coal and pulses etc. In the course of assessment proceedings the AO noticed that the assesee had effected sales to one party namely Shri Sajjan Kumar Maskara of Rs.,37,87,080/- on 15.01.2009, Rs.21,27,730/- and Rs.16,59,350 against bill No.15 and 14/08-09 respectively. The assessee also recorded total receipts on sale proceeds from Sajjan Kumar Masakara Rs.60,73,711/-. The net liability payable by Sajjan Kumar Maskara as per the books of accounts of the Kishore Prasad-A.Y.2009-10 assesee was thus Rs.22,86,631/- as on 31.03.2009. On verification by the AO Shri Sajjan Kumar Maskara had shown purchases from the assessee of only Rs.34,23,711/- and Rs.26,70,045/- as per bill No.15/08-09 and 14/08-09 respectively. He had also shown that he had paid Rs.60,73,711/- to the assessee and further debited on account of defective quality of soya of Rs.20,045/-. There was thus a difference of Rs.22,86,631/- between the figure of sales shown by the assessee and that shown by Sajjan Kumar Maskara. The assessee had shown sales more by Rs.22,86,631/- which the AO wanted to treat as unexplained cash credit u/s 68 of the Act.

Besides the above, the assessee had shown outstanding dues payable to Bholanath Rice Mill of Rs.9,00,000/- but the aforesaid party has shown as outstanding to the party as nil. The AO therefore wanted to treat the aforesaid sum of Rs.9,00,000/- as a benefit that accrued to the assessee as a result of cessation of liability and wanted to bring the same to tax. Further the AO was also of the view that the gross profit from unsuppressed sales had to be made for the following reasons :- “As per ledger of the assessee a sales of Rs. 37,87,080/-to Sri Sajjan Kumar Maskara was shown but information received from Sajjan kumar Maskara revealed that the assessee had actually made total sales of Rs. 60,73,711./- Thus, Rs, 23,06,676/- has been suppressed on account of sales. The assesse vide this office letter NO: DCIT/Cir- 1/Slg/2011-12/571. Dated: 22.12.2011 was informed that the G.P of. such sales proceed was proposed to be added back to the total income. No compliance were made to the letter and no explanation were furnished. The assesse has shown a G.P. of 3.19%, thus an amount of Rs. 73,583/- [3.19% of Rs. 23,06,676/ is added back to the assesse as undisclosed income from suppressed sales.”

The AO ultimately added the aforesaid sum to the total income of the assessee.

In the order of the assessment the AO had not initiated penalty proceedings u/s 271(1)(c) of the Act. Nevertheless the AO proceeded to issue show cause notice to the assessee for imposing penalty u/s 271(1) (c) of the Act. The AO ultimately held that the assessee has deliberately and wilfully furnished inaccurate particulars in the return of income in respect of the additions referred to earlier and imposed penalty of Rs.13,44,986/- which was 125% of the tax sought to be evaded. Kishore Prasad-A.Y.2009-10

On appeal by the assessee the CIT(A) confirmed the order of the AO. Aggrieved by the order of CIT(A) the assessee has preferred the present appeal before the Tribunal.

We have heard the submissions of the ld. Counsel for the assessee and the ld. DR. The ld. Counsel for the assessee pointed out that before making the impugned additions the AO had issued show cause notice to the assessee and had also proposed “appropriate penal proceedings was proposed to be initiated or will be initiated”. After making the additions the AO has not recorded satisfaction that the assessee was guilty of concealing or furnishing inaccurate particulars of income and has also not thereafter initiated penalty proceedings u/s 271(1)(c) of the Act. Besides the above, the ld. Counsel for the assessee also pointed out that in the show-cause notice issued before levying penalty the AO has not struck off the irrelevant portions namely whether the assessee is guilty of having ‘concealed particulars of income’ or of having furnished ‘inaccurate particulars of income’. The ld. Counsel for the assessee placed reliance on the decision of ITAT, Kolkata Bench in the case of Suvaprasanna Bhattacharya vs ACIT vide order dated 06.11.2015 wherein this Tribunal took a view that in a case where show cause notice before imposing penalty does not spell out as to whether penalty proceedings are initiated for concealment of particulars of income or furnishing of inaccurate particulars of income, then the very initiation of penalty proceedings are invalid and the consequent order imposing penalty on the assessee is liable to be quashed. The ld. DR placed reliance on the orders of the revenue authorities.

We have given a very careful consideration to the rival submissions. As rightly contended by the ld. Counsel for the assessee, in the order of the assessment the AO has not initiated penalty proceedings u/s 271(1)(c ) of the Act. As rightly pointed out by the ld. Counsel for the assessee even in the assessment proceedings the AO has not made any reference to the provision of section 271(1)(c) of the Act in the show cause notice issued before making the impugned additions in respect of which penalty was Kishore Prasad-A.Y.2009-10 imposed. The AO has merely observed that appropriate penal proceedings was proposed to be initiated. Thereafter there has been no actual initiation of penalty proceedings in the order of the assessment. The requirements of levying of penalty u/s 271 (1)(c) of the Act is the satisfaction of the AO in the course of any proceedings under the Act that any person has concealed particulars of his income or furnished inaccurate particulars of such income. Such satisfaction can emanate only from initiation of penalty proceedings while concluding the assessment. In the absence of initiation of penalty proceedings in the order of assessment the proceedings u/s 271(1)(c) of the Act have to be held illegal and invalid and are liable to be quashed.

Apart from the above, we also find that in the show cause notice issued before imposing penalty u/s 271(1)(c) of the Act, the AO has not struck off the irrelevant portions namely whether the penalty is sought to be levied for furnishing inaccurate particulars of income or for concealing particulars of income. This Tribunal in the case of Suvaprasanna Bhattacharya vs ACIT (supra) has held that imposition of penalty on such defective show cause notice is improper and liable to be cancelled. The following are the relevant observations relied in this regard :- “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.

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 Kishore Prasad-A.Y.2009-10 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 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 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.

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 by the Assessee is allowed.