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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S Viswanethra Ravi
SHRI S.S VISWANETHRA RAVI, JM These appeals of the asessee arise out of the common order of the CIT(A)- Central-III, Kolkata in Appeal Nos. 25 & 26/CC-I/CIT(A)C-III/11-12/Kol dated 28-01-2013 for the assessment years 2006-07 & 2007-08 against the order of penalty levied u/s. 271(1) ( c) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
The appellant assessee has initially raised the following common ground of appeal for both the assessment years under consideration:- “1. That the ld. CIT(A) erred in confirming penalty amounting to Rs.23,56,670/- u/s. 271(1) ( c) of the Income Tax Act, 1961 @ 100% of the tax alleged to be sought to be evaded on the amount of additional income voluntarily disclosed by the assessee u/s. 132(4) and included in the return filed u/s. 153A of the Act. The penalty so levied is unjustified and need to be deleted.”
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Subsequently, the assessee has raised following additional ground of appeal for both the assessment years under consideration:- “1) That the Ld. AO erred in not mentioning the limb sec 271(1)( c) that has been violated by the assessee, in the notice issued u/s. 274 r.w.s 271 of the Income Tax Act 1961. Further, the Ld. AO has not recorded any satisfaction as to whether the assessee has concealed his income or has furnished inaccurate particulars of his income in the penalty notice issued u/s. 274/271 of the Income Tax Act 1961. Hence, the penalty proceeding is bad in law and the same is liable to be quashed. “
3.1 After hearing both the parties and perusing the material available on record, we admit the additional ground as raised by the assessee since the issue involved therein is a legal issue and all the facts necessary for adjudication thereof are already on record.
Brief facts of the case are that a search and seizure operation was conducted u/s. 132 of the Act in the Aroma Group of cases on 27-02-2009. The assessee filed his return of income on 12-11-2010 declaring total income of Rs. 72,34,300/- in response to notice dated 02-09-2010 issued u/s. 153A of the Act. During the course of assessment the notices u/s. 143(2)/142(1) of the Act were issued. In response to which the ld.AR of the assessee appeared from time to time and made necessary submissions. During the course of assessment proceedings the assessee explained the return filed with reference to various seized and impounded books, papers, documents and various assets, books of account, bank statements, bills, vouchers and other supporting documents. Finally the AO after considering the various submissions/papers of the assessee assessed the total income of the assessee at Rs.72,34,300/- by stating as under:- During the course of .search .and seizure operations conducted at the residential premises of the assessee, cash amounting to Rs.
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1,08,34,500/- was found. The amount of cash found has been owned up by the assessee and the same has been considered as application of funds out of his income disclosed u/s 132(4). During the course of search and seizure operations conducted at the residential premises of the assessee, an inventory of 12 items of jewellery marked as BKT/1 to BKT/12 (net weight of gold being 1839.80 gm and diamond being 27.10 carat) and valued by the departmental valuer at 'Rs.29,54,177/- was made. Further, during the course of operation of Locker No. 39 maintained by Shri Vimal Kumar Tulsyan and Smt. Nirmala Tulsyan with Punjab National Bank, Shastri Nagar, Dhanbad, 17 items of jewellery bearing Sl. Nos. 1 to 17 of net weight 1859.040 gm and valued by the departmental valuer at Rs.21,58,1571- was made. Out of the total jewellery found, jewellery of net weight 331.50 (being item nos. BKT/05 and BKT/07) valued at Rs. 5,10,8701-has been owned up by the assessee and the same has been considered as application of funds out of his income disclosed u/s 132(4). The remaining jewellery items of net weight of gold 3367.70 gm and diamond of 27.10 carat have been found to form part of the jewellery disclosed by the assessee's HUF and other family members as per their Wealth Tax returns and stridhan received by Smt. Anamika Tulsyan at the time of her marriage.
During the course of search and seizure operations conducted at the residential premises of the assessee, an inventory of silver utensils and articles weighing approximately 46.381 kg and valued by the departmental valuer at Rs.10,66,763/- was made. Out of the silver utensils and articles inventoried as stated above, silver utensils and articles of gross weight 30.00 kg and valued at Rs. 6,90,000/- were owned up by the assessee and the same have been considered as application of funds out of his income disclosed u/s 132(4). The remaining silver utensils and articles weighing 16.381 kg have been found to form part of the silver utensils and articles disclosed by various members of the assessee's family as per their Wealth Tax returns. During the course of search and seizure operations conducted at the residential premises of the assessee, an inventory of 5 nos. of KVPs of Rs. 50,000/- was made. The said KVPs have been found to belong to the assessee and the same have been considered as application of funds out of his income disclosed u/s 132(4) for the AY 2004-05.
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During the course of search and seizure operations conducted at the residential premises of the assessee, an inventory of one FD of Rs. 1,01,649/- was made. The said FD has been found to belong to the assessee and the same has been considered as application of funds out of his income disclosed u/s 132(4) for the AY 2006-07.
In the disclosure petition filed u/s 132(4), the assessee had disclosed an amount of Rs.15,00,00,000/- as his undisclosed income.”
Thereafter, the AO issued notice u/s. 274 r.w.s 271 of the Act dated 30- 12-2010 to the assessee to show cause why penalty be imposed for both the assessment years under consideration. In response to such notice, the assessee submitted as under:- “5. The disclosure of income was made on the assurance of the DDIT (Inv) that no penalty u/s. 271(1)( c) would be made on the disclosure made. The assessee has also quoted Section 153A(1)(a) of the Income Tax Act, 1961 and stated that Return filed in response to the Notice u/s. 153A of the I.T Act will be treated as return filed u/s. 139 of the I.T Act and all of the provisions of the Act will apply as if the Return is filed u/s. 139 of the I.T Act, 1961, thereby giving him the immunity vis a vis disclosed income He has stated that ‘As such the income disclosed suo moto by the assessee in the return filed cant be treated as concealed income. 6. The assessee has cited explanation 5A to section 271(1)9 c) and tried to explain that the amount of Rs. 70,00,000/-, which is undisclosed income for the assessment year 2006-07 has been covered in the disclosure petition filed by Sri Vaibhav Tulsyan along with the source from which such undisclosed income was earned. It was also stated that the entire tax along with interest on the undisclosed income. He has also quoted various judgements of ITATs as well as High Courts.
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The AO after examining and considering the various submissions of the assessee regarding imposing of penalty u/s. 271(1)(c) and imposed penalty @ Rs.23,56,670/- for A.Y 2006-07 and Rs.25,13,837/- for A.Y 2007-08.
Aggrieved, the assessee went in appeal before the CIT-(A). The CIT-(A) opined that the assessee had disclosed additional income for the assessment years 2006-07 and 2007-08 only to cover up and take care of the omissions and mistakes in the seized documents. The CIT(A) confirmed the impugned penalty by observing as under:- “In the instant case search u/s. 132 was conducted on 27.02.2009 i.e after 01.06.2007. The appellant had admitted additional undisclosed income for the A.yrs 2006-07 and 2007-08 to cover up and take care of the omissions/mistakes in the seized documents. That means the additional undisclosed income was admitted based on seized documents and previous year relevant to A.yrs. 2006-07 and 2007-08 had expired before the date of search. Further, the appellant had not declared such additional undisclosed income in the returns of income furnished for those assessment years before the date of search. In view of the specific provisions of Explanation 5A of section 271(1)( c) and on facts of the instant cases it is held that penalty u/s. 271(1) ( c) has rightly levied by the AO in these cases. Therefore, levy of penalty of Rs. 23,56,670/- for A.Y 2006-07 and Rs.25,13,837/- for A.Y 2007-08 in these cases is confirmed.”
Aggrieved, the assessee is in appeal before us by raising the additional ground of appeal as above.
During the course of hearing before us the Ld. Counsel for the assessee submitted and prayed to decide the preliminary issue being additional ground as raised by the assessee before us. The ld. Counsel also submitted that the AO has not recorded any satisfaction as to whether the assessee has concealed his
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income or has furnished inaccurate particulars of his income. He also drew our attention to the notice dated 30-12-2010 and submitted that the notice does not specify as to whether the assessee is guilty of being furnished inaccurate particulars of income or concealed particulars of such income. He also submitted that in the said notice the AO has failed to strike out the irrelevant portion of the printed show cause notice. In this regard, he relied on the decision of the Hon’ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), wherein it has been held that the notice issued 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. He also relied on the order of the Tribunal in the case of Suvaprasanna Bhattacharya Vs. ACIT, Cir- 55, Kolkata dated 06-11-2015. On the contrary, the ld. DR has relied on the orders of the lower authorities and the Judgment of the Hon’ble Jurisdictional Calcutta High Court in the case of Binani Industries. He also argued that if a mistake committed by the AO in levying penalty that can be rectified u/s. 292 B of the Act.
Heard the rival submissions and perused the material available on record. The question before us is as to whether the penalty order passed by the AO and confirmed by the CIT(A) falls for our consideration in pursuance of the Judgment of the Hon’ble Karnataka High Court supra. That on perusal of the said show cause notice dated 30-12-2010 issued u/s. 274 r.ws. 271(1)( c) of the Act purportedly issued to show cause why the penalty shall not be imposed, We find that irrelevant portion of such notice was not struck out by the AO. Therefore, the said notice is not clear whether it was issued for furnishing of inaccurate particulars of income or concealment of particulars of such income.
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We find that the assessee as relied on the order dated 06-11-2015 in the case of Suvaprassanna Bhattacharya Vs. ACIT, Kolkata in ITA No. 1303/Kol/2010 for the AY 2006-07 is applicable to the case on hand. The relevant findings of the said tribunal order is reproduced herein below for better understanding:- “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 spell out as to whether the penalty proceedings are sought to be levied for “furnishing inaccurate particulars of income “or “concealing particulars of such income”. 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. 5.1 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
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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
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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:-
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“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.
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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
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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.
In the present case, as we noted above, the AO failed to strike out the irrelevant portion in the said show cause notice, Respectfully following the order above, we cancel the penalty levied u/s. 271(1) ( c) of the Act by the Assessing Officer as confirmed by the CIT-(A) for both the assessment years under consideration. Having held that the notice issued by the AO U/Sec 274 r/w Sec 271(1)(c) of the Act during the course of penalty proceedings is not in conformity with the relevant provisions of the Act, we are of the view that Section 292B can not come to the rescue of the Revenue and the reliance of the Ld.DR on the said provision is clearly misplaced. Therefore, preliminary issue as raised by the assessee by way of additional ground for both the assessment
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years 2006-07 & 2007-08 are allowed, in view of the same the other grounds raised requires no adjudication, therefore, all are dismissed.
In the result, the appeals of assessee are allowed.
THIS ORDER IS PRONOUNCED IN OPEN COURT ON 27 /05 /2016
Sd/- Sd/- P.M. Jagtap, S.S Viswanethra Ravi, Accountant Member J Judicial Member
Date 27 /05 /2016
Copy of the order forwarded to: 1.. The Appellant/Assessee : Shri Vaibha Tulsyan 706 Shantiniketan Building Camac Street, Kolkata- 700016. 2 The Respondent/Department- The Dy. Commissioner of Income Tax CC-I, Aaykar Bhawan (Poorva) 110 Shantipally, Kol-107. 3 /The CIT,
/The CIT(A) 4.. 5. DR, Kolkata Bench 6. Guard file. True Copy, By order, Asstt Registrar
** PRADIP SPS
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