JAIN INFRA PROJECTS LTD.(SINCE TAKEN OVER BANGAL CONSTRUCTION CO.),KOLKATA vs. ACIT, CC-IV, KOLKATA, KOLKATA

SHRI.M.BALAGANESH, AM

These are appeals by the revenue against separate orders of the Learned CIT(A), Central-I, Kolkata in Appeal No. 65/CC-IV/CIT(A),C-I/10-11 dated 5.7.2011 for Asst Year 2006-07 ; Appeal No. 66/CC-IV/CIT(A),C-I/10-11 dated 5.7.2011 for Asst Year 2007-08 in the case of M/s Bengal Construction Co. (erstwhile firm) and

ITA Nos.1320,1321/K/2011 & 1 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

Appeal No.74/CC-IV/CIT(A),C-I/10-11 dated 1.7.2011 for Asst Year 2007-08 in the case of Jain Infraprojects Ltd. In all these appeals the assessee has challenged the order of the Learned CIT(A) whereby the Learned CIT(A) confirmed the order of the Learned AO imposing penalty @ 100% of the tax on the assessee u/s.271(1)( c ) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) and the Revenue has challenged the order of the CIT(A) wherein the Learend CITA had reduced the penalty from 300% to 100% of the tax u/s 271(1)(c ) of the Act.

The Income Tax Department had conducted search and seizure operations u/s.132(1) of the Act in the office of the group concerns at No.39, Shakespeare Sarani, Kolkata ; at Janki Sadan, Anchal Road, Iskcon Mandir Road, Siliguri on 18.03.2008. The assessee group is mainly engaged in the business activities of infrastructure developments and trading. The group has also invested huge monies in land and properties and raised share capital through accommodation transactions. In the course of search and seizure operations, Panchanama were drawn in the name of the assessee, individual members and group concerns. Manoj Kumar Jain & Sons (HUF) filed a letter dated 19.2.2009 in which it was stated that some of the assets and documents found and seized in the course of search and seizure operation at the various premises of the group which are outside the regular books of accounts of the group concerns belongs to it. In the said letter, the Karta of the assessee has also stated that the disclosure of income made u/s 132(4) of the Act on 19.03.2008 by Mr.Manoj Kumar Jain of Rs. 8.75 crores was on behalf of the assessee.

ITA Nos.1320,1321/K/2011 & 2 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

As the issues involved are identical for all these appeals, they are taken up together and disposed off by this consolidated order for the sake of convenience.

3.1. Asst Year 2006-07

The assessee in response to the notice issued u/s 153A of the Act stated that for the Asst Year 2005-06 , the profit from construction business before interest, depreciation and taxes was estimated @ 14.5% of gross contract receipts and from that, the interest, depreciation and taxes was allowed. If the same basis is followed for working out business income, the income calculated thereon resulted in lower figure compared to the returned income by the assessee and hence the assessee considered the original returned income of Rs. 2,14,24,950/- for section 153A proceedings also. The assessee also filed another submission that it had shown bogus purchase of machinery of Rs. 1,08,16,000/- in Financial Year 2005-06 and claimed bogus depreciation of Rs. 8,11,200/- and claimed bogus machinery hire charges payable of Rs. 11,46,700/- in Financial Year 2005-06 from M/s D.K.Enterprises. M/s D.K.Enterprises was claimed to be the proprietary concern of Manoj Kumar Jain & Sons (HUF). The assessee in effect admitted additional income of Rs. 19,57,900/- ( 8,11,200+ 11,46,700) in the assessment proceedings.

During the penalty proceedings u/s 271(1)(c ) of the Act, the assessee claimed that it had made voluntary disclosure of additional income of Rs. 19,57,900/- which were ultimately added in the search assessment and also stated that the same cannot be construed as a disclosure made by the assessee as a result of the search proceedings and based on any search material. It was also contended by the assessee that the

ITA Nos.1320,1321/K/2011 & 3 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

present management took over the business of M/s Bengal Construction Co. with effect from 07.11.2006. M/s Bengal Construction Co. was a firm which had shown bogus purchase of plant and machinery in the Financial Year 2005-06 from M/s D.K. Enterprises. so, the fixed assets came from erstwhile partnership firm and the present management was not aware of these facts as this was not in control of its affairs. As such it was argued that the false claim was initiated by the erstwhile firma and for that, the present management cannot be held responsible since it was not aware of this fact. The Learned AO not satisfied with this reply levied penalty @ 300% of the tax on additions made in the search assessment. On first appeal, the Learned CITA found that the assessee had not offered the aforesaid income of Rs. 19,57,900/- in the return filed in response to notice issued u/s 153A of the Act. The Learned CITA held that as per the plain reading of Explanation 5A to section 271(1)(c ) of the Act, any undisclosed income which is found or declared after the date of search initiated u/s 132 of the Act on or after 1.6.2007, the assessee will be liable for penalty on the said amount which is not already declared in the return filed u/s 139(1) of the Act. Hence the Learned CITA held that the assessee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. But however, he reduced the penalty from 300% to 100% of tax.

3.2. Asst Year 2007-08

The assessee in response to the notice issued u/s 153A of the Act stated that for the Asst Year 2004-05 in the scrutiny assessment completed us 143(3) of the Act on 29.12.2006 , the profit from construction business before interest, depreciation and taxes was estimated @ 14.5% of gross contract receipts and from that, the interest, depreciation and taxes was allowed. If the same basis is followed for working out business income, the income calculated thereon resulted in lower figure compared to the returned income by the assessee and hence the assessee considered the original returned income of Rs. 3,47,23,020/- for section 153A proceedings also. The ITA Nos.1320,1321/K/2011 & 4 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

assessee also filed another submission that it had shown bogus purchase of machinery of Rs. 1,08,16,000/- in Financial Year 2005-06 and claimed bogus depreciation of Rs. 9,04,543/- from M/s D.K. Enterprises. M/s D.K.Enterprises was claimed to be the proprietary concern of Manoj Kumar Jain & Sons (HUF). The assessee in effect admitted additional income of Rs. 9,04,543/- in the assessment proceedings.

During the penalty proceedings u/s 271(1)(c ) of the Act, the assessee claimed that it had made voluntary disclosure of additional income of Rs. 9,04,543/- which were ultimately added in the search assessment and also stated that the same cannot be construed as a disclosure made by the assessee as a result of the search proceedings and based on any search material. It was also contended by the assessee that the present management took over the business of M/s Bengal Construction Co. with effect from 07.11.2006. M/s Bengal Construction Co. was a firm which had shown bogus purchase of plant and machinery in the Financial Year 2005-06 from M/s D.K.Enterprises. so, the fixed assets came from erstwhile partnership firm and the present management was not aware of these facts as this was not in control of its affairs. As such it was argued that the false claim was initiated by the erstwhile firma and for that, the present management cannot be held responsible since it was not aware of this fact. The Learned AO not satisfied with this reply levied penalty @ 300% of the tax on additions made in the search assessment. On first appeal, the Learned CITA found that the assessee had not offered the aforesaid income of Rs. 9,04,543/- in the return filed in response to notice issued u/s 153A of the Act. The Learned CITA held that as per the plain reading of Explanation 5A to section 271(1)(c ) of the Act, any undisclosed income which is found or declared after the date of search initiated u/s 132 of the Act on or after 1.6.2007, the assessee will be liable for penalty on the said amount which is not already declared in the return filed u/s 139(1) of the Act. Hence the Learned CITA held that the assessee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. But however, he reduced the penalty from 300% to 100% of tax. ITA Nos.1320,1321/K/2011 & 5 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

3.3. Aggrieved, the assessee as well as the revenue are in appeal before us. The assessee has also raised additional ground before us as follows:-

1) That the Ld. A.O. erred in not mentioning the limb of 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.

The same additional ground is raised by the assesee for all the years except change in figures.

3.4. The Learned AR prayed for admission of additional ground as it goes to the root of the matter and does not require any adjudication of fresh facts thereon and placed reliance on the decision of the Hon’ble Apex Court in the case of NTPC Ltd reported in 229 ITR 383 (SC) in support of his proposition. He argued that the Learned AO had not recorded his satisfaction in the show cause notice issued u/s 274 read with section 271(1)(c ) of the Act as to whether the assessee had concealed its income or furnished inaccurate particulars of its income. In support of this, he also filed the copy of show cause notice issued for penalty by the Learned AO. In response to this, the Learned DR vehemently objected to the admission of additional ground.

3.5. We have heard the rival submissions. The Learned AR submitted that the AO has not recorded satisfaction in the order of assessment that the assessee is liable to be proceeded against u/s.271(1)( c) of the Act except recording as follows in the order of assessment viz., “Penalty u/s.271(1)( c) initiated separately.” According to him, the above manner of initiation of penalty proceedings in the order of assessment is not in accordance with law. In this regard he made reference to the decision of the Hon’ble

ITA Nos.1320,1321/K/2011 & 6 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

Karnataka High Court in the case of CIT Vs. MWP Ltd. (2014) 41 taxmann.com 496 (Karn.). In the aforesaid decision it was held that mere mention of “Penalty Proceedings under section 271(1)( c) initiated separately” in assessment order, does not amount to a direction under Section 271(1)( (c) for levy of penalty. The Learned AR pointed out that the Hon’ble Karnataka High Court in the aforesaid decision has considered the effect of Sec.271(1B) of the Act, in the light of the decision of the Hon’ble Delhi High Court in the case of Ms.Madhushree Gupta Vs. Union of India 317 ITR 107(Del) wherein it was held

“In the result, conclusions are as follows : (i) sec. 271(1B) is not violative of Art. 14 of the Constitution; (ii) the position of law both pre and post amendment is similar, inasmuch, the AO will have to arrive at a prima facie satisfaction during the course of proceedings with regard to the assessee having concealed particulars of income or furnished inaccurate particulars, before he initiates penalty proceedings; (iii) ‘prima facie’ satisfaction of the AO that the case may deserve the imposition of penalty should be discernible from the order passed during the course of the proceedings. Obviously, the AO would arrive at a decision, i.e., a final conclusion only after hearing the assessee; (iv) at the stage of initiation of penalty proceeding the order passed by the AO need not reflect satisfaction vis-a-vis each and every item of addition or disallowance if overall sense gathered from the order is that a further prognosis is called for; (v) however, this would not debar an assessee from furnishing evidence to rebut the ‘prima facie’ satisfaction of the AO; since penalty proceeding are not a continuation of assessment proceedings; (vi) due compliance would be required to be made in respect of the provisions of ss. 274 and 275; (vii) the proceedings for initiation of penalty proceeding cannot be set aside only on the ground that the assessment order states ‘penalty proceedings are initiated separately’ if otherwise, it conforms to the parameters set out hereinabove are met. The prayers made in the writ petitions are thus rejected with the caveat that provisions of s. 271(1)(c) post-amendment will be read in the manner indicated above.”

Pointing out the above observations it was contended that the order of assessment in the present case does not spell out any satisfaction as is contemplated in the decisions referred to above.

ITA Nos.1320,1321/K/2011 & 7 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

3.5.1. The Learned AR also 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 the printed show cause notice does not strike 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.

3.5.2. Reference was also made to several judicial pronouncements. In particular our attention was drawn to a decision of the ITAT Kolkata Bench “A” Bench in the case of Shri Satyananda Achariya Biswas Vs. DCIT ITA No.5/Kol/2010 order dated 2.12.2015 for AY 2003-04 wherein on identical facts penalty was deleted after considering all the judicial pronouncements referred to above.

3.5.3. The Learned DR relied on the order of the CIT(A). He placed reliance on the decision of the Hon’ble Suprme Court in the case of MAK Data (P) Ltd. Vs. CIT 358 ITR 593 (SC) wherein it was held that satisfaction is not required to be recorded in any particular manner or reduce such manner of arriving at satisfaction in writing.

3.5.4. The Learned AR placed reliance on the decision of the Hon’ble AP High Court in the case of CIT Vs. Lotus Constructions (2015) 55 taxmann.com 182 (AP) wherein the Hon’ble AP High Court explained the decision of the Hon’ble Supreme Court in the case of MAK Data (supra) and held that in the absence of initiation of ITA Nos.1320,1321/K/2011 & 8 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

penalty proceedings in the order of assessment, imposition of penalty u/s.271(1)( c) of the Act was unsustainable.

3.5.5. We have given a very careful consideration to the rival submissions. We have also perused the orders of assessment for AYs 2006-07 & 2007-08. In AYs 2006-07 & 2007-08, certain additions have been made in the search assessment. There was no adverse observation by the Learned AO in the order of assessment. The Assessee also did not object to the addition made by the Learned AO and it was more or less an agreed addition. In the circumstances, the question arises whether satisfaction required for initiating proceedings for concealment or furnishing of inaccurate particulars of income in the course of assessment proceedings has been arrived at by the Learned AO. We have also perused the show-cause notice issued u/s.274 of the Act for all the aforesaid AYs 2006-07 & 2007-08. The Learned AO in the said show cause notice has not struck off the irrelevant portion as to whether the charge against the assessee is “concealing particulars of income or furnishing of inaccurate particulars of income”. In this regard, this tribunal in the case of Shri Satyananda Achariya Biswas (supra) has taken the following view on both the question with regard to existence of satisfaction for initiation of penalty proceedings and the effect of not striking off the irrelevant portion in the show cause notice u/s.274 of the Act as follows: “7. On the above issue the first aspect which we notice is that in the order of assessment, which we have extracted in the earlier part of this order, nowhere spells out or indicates that the AO was of the view that the Assessee was guilty of either concealing particulars of income or furnishing inaccurate particulars of income. The offer to tax of income by the Assessee has just been accepted. It is no doubt true that it is not the requirement of the law that the satisfaction has to be recorded in a particular manner, especially after the introduction of the provisions of Sec.271(1B) of the Act with retrospective effect from 1.4.1989. Nevertheless, as laid down by the Hon’ble Delhi High Court in the case of Ms.Madhushree Gupta (supra), the position of law both pre and post Sec.271(1B) of the Act is similar, inasmuch, the AO will have to arrive at a prima facie satisfaction during the course of proceedings with regard to the assessee having concealed particulars of ITA Nos.1320,1321/K/2011 & 9 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

income or furnished inaccurate particulars, before he initiates penalty proceedings. ‘prima facie’ satisfaction of the AO that the case may deserve the imposition of penalty should be discernible from the order passed during the course of the proceedings. At the stage of initiation of penalty proceeding the order passed by the AO need not reflect satisfaction vis-a-vis each and every item of addition or disallowance if overall sense gathered from the order is that a further prognosis is called for. The decision of the Hon’ble Supreme Court in the case of MAK Data (P) Ltd. (supra) has to be understood in the context of the facts of the said case. The relevant portion of the judgment in the aforesaid case, reads thus:

“9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer 8 deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961. 10. The AO has to satisfy whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the AO is not required to record his satisfaction in a particular manner or reduce it into writing…….” 8. The Revenue places reliance only on the sentence appearing in para-10 of the judgment without reading it in the context of the observations in the last portion of para-9 of the said judgment. Therefore even the Hon’ble ITA Nos.1320,1321/K/2011 & 10 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

supreme court’s decision suggests that the satisfaction need not be recorded in a particular manner but from a reading of the assessment order as a whole such satisfaction should be clearly discernible. If the AO accepts all the contentions of the Assessee and the offer of income that has not been declared in the return of income to tax without indicating either directly or indirectly that the Assessee has concealed particulars of income or furnished inaccurate particulars of income, it cannot be said that satisfaction for initiation of penalty proceedings is discernible from the order of assessment. If the Assessee in good faith offers income to tax voluntarily prior to any positive detection by the AO, such voluntary offer cannot be taken advantage of by the AO to initiate penalty proceedings against the Assesssee without specifying the reasons why penalty proceedings are initiated u/s.271(1) ( c) of the Act. In the present case, we have read the order of assessment as a whole and are satisfied that satisfaction for initiation of penalty proceedings is not discernible from the order of assessment. We therefore concur with the argument of the learned counsel for the Assesssee that initiation of penalty proceedings was not proper in the present case and on that ground the imposition of penalty u/s.271(1)( c) of the Act is unsustainable.

9.1. 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.

ITA Nos.1320,1321/K/2011 & 11 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

9.2. 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 ITA Nos.1320,1321/K/2011 & 12 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

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. 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 ITA Nos.1320,1321/K/2011 & 13 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

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 proforma 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). ITA Nos.1320,1321/K/2011 & 14 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

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 bonafide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide 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.

ITA Nos.1320,1321/K/2011 & 15 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

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)

9.3. 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.

3.5.6. The aforesaid ruling will squarely apply to the facts of the present case. In the present case also satisfaction for initiation of penalty proceedings u/s.271(1)( c) of the Act is not discernible from the order of assessment. The show cause notice u/s.274 of the Act is also defective. The same is also enclosed as Annexure A to this order. Following the decision referred to above, we hold that the penalty imposed on the Assessee u/s.271(1)( c) of the Act cannot be sustained and the same is directed to be cancelled. Accordingly, the additional ground raised by the assessee in all the four appeals are allowed. The other ground raised by the revenue and assessee are dismissed as infructuous.

ITA Nos.1320,1321/K/2011 & 16 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

The facts and circumstances under which penalty was imposed on the assessee by the Learned AO in the Asst Year 2007-08 referred to above are as follows:-

The Income Tax Department had conducted search and seizure operations u/s.132(1) of the Act in the premises of the assesee and various group concerns / group companies at Flat No. 502, Premlata Building, 39, Shakespeare Sarani, 5th floor, Kolkata-700017 on 18.03.2008. The assessee group is mainly engaged in the business activites of infrastructure developments and trading. The group has also invested huge monies in land and properties and raised share capital. In the course of search and seizure operations, Panchanama were drawn in the name of the assessee, individual members and group concerns. Manoj Kumar Jain & Sons (HUF) filed a letter dated 19.2.2009 in which it was stated that some of the assets and documents found and seized in the course of search and seizure operation at the various premises of the group which are outside the regular books of accounts of the group concerns belongs to it. From the records, the Learned AO observed that the assessee company was incorporated on 7.11.2006 as M/s Bengal Infrastructure Ltd and subsequently the name was changed to M/s Jain Infraprojects Ltd w.e.f. 21.12.2006 and the first return was filed for the Asst Year 2007-08. M/s Bengal Construction Co. which was carrying on business as a partnership firm was taken over by this company with all its assets and liabilities.

4.1. The assessee filed original return of income on 19.9.2008 disclosing taxable income of Rs. 5,51,11,049/- and declared the same income in response to notice issued u/s 153A of the Act. During the assessment proceedings, Manoj Kumar Jain & Sons (HUF) filed a submission that M/s Bengal Construction Co. had purchased bogus plant and machinery from M/s D.K.Enterprises in the Financial Year 2005-06 for Rs.

ITA Nos.1320,1321/K/2011 & 17 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

1,08,16,000/- and on which it has claimed depreciation in the Financial Years 2006-07 & 2007-08. The said partnership firm M/s Bengal Construction Co. has been taken over by the assessee with effect from 7.11.06 and has claimed depreciation of Rs. 5,96,176/- for Asst Year 2007-08 on the aforesaid plant and machinery. M/s D.K.Enterprises was claimed to be the proprietary concern of Manoj Kumar Jain & Sons (HUF). The assessee accordingly offered Rs. 5,96,176/- for taxation in Asst Year 2007-08. Apart from this, the Learned AO also made additions towards disallowance of filing fees paid for increase of authorized capital amounting to Rs. 2,50,000/- ; service tax disallowed u/s 43B of the Act amounting to Rs. 8,04,061/- based on tax audit report and disallowance u/s 40(a)(ia) of the Act amounting to Rs. 31,97,865/-. During the penalty proceedings u/s 271(1)(c ) of the Act, the assessee claimed that it had made voluntary disclosure of additional income of Rs. 5,96,176/- which were ultimately added in the search assessment and also stated that the same cannot be construed as a disclosure made by the assessee as a result of the search proceedings and based on any search material. It was also contended by the assessee that the present management took over the business of M/s Bengal Construction Co. with effect from 07.11.2006. M/s Bengal Construction Co. was a firm which had shown bogus purchase of plant and machinery in the Financial Year 2005-06 from M/s D.K.Enterprises. so, the fixed assets came from erstwhile partnership firm and the present management was not aware of these facts as this was not in control of its affairs. As such it was argued that the false claim was initiated by the erstwhile firma and for that, the present management cannot be held responsible since it was not aware of this fact. The Learned AO not satisfied with this reply levied penalty @ 300% of the tax on additions made in the search assessment. On first appeal, the Learned CITA found that the assessee had not offered the aforesaid income of Rs. 5,96,176/- in the return filed in response to notice issued u/s 153A of the Act. The Learned CITA held that as per the plain reading of Explanation 5A to section 271(1)(c ) of the Act, any undisclosed income which is found or declared after the date of search initiated u/s 132 ITA Nos.1320,1321/K/2011 & 18 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

of the Act on or after 1.6.2007, the assessee will be liable for penalty on the said amount which is not already declared in the return filed u/s 139(1) of the Act. Hence the Learned CIT(A) held that the assessee shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. But however, he reduced the penalty from 300% to 100% of tax.

4.2. Aggrieved, the assessee as well as the revenue are in appeal before us. The assessee has also raised additional ground before us as follows:-

1) That the Ld. A.O. erred in not mentioning the limb of 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.

4.3. We have already admitted this additional ground in the case of M/s Bengal Construction Co. (supra) and allowed the same hereinabove. The decision rendered thereon would apply with equal force to this appeal. The copy of the show cause notice issued for initiation of penalty proceedings u/s 271(1)(c ) of the Act is enclosed as Annexure A to this order. Accordingly, we hold that the penalty imposed on the Assessee u/s.271(1)( c) of the Act cannot be sustained and the same is directed to be cancelled. 5. In the result the appeals of the assessee are allowed and appeals of the revenue are dismissed.

Order pronounced in the Court on 23.03.2016

Sd/- Sd/- [N.V.Vasudevan ] [ M.Balaganesh ] Judicial Member Accountant Member

Dated : 23.03.2016 ITA Nos.1320,1321/K/2011 & 19 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd

Copy of the order forwarded to: 1.. The Department: The ACIT, CC-IV, Poddar Court,18 Rabindra Sarani,Kolkata 700 001.

2 The Assessee:1) M/s. Jain Infra Projects Ltd (since taken over M/s. Bengal Construction Company) 39 Shakespeare Sarani, Kol-17 & 2) M/s. Jain Infra projects Ltd, 39 Shakespeare Sarani, Kolkata-17. 3 /The CIT, 4.The CIT(A)

DR, Kolkata Bench 5. 6. Guard file. True Copy, By order, Asstt Registrar **PRADIP SPS

ITA Nos.1320,1321/K/2011 & 20 ITA Nos. 1234 to 1236/K/2011 M/s. Jain Infra Projects Ltd ( since taken over M/s.Bengal Construction Co) & M/s. Jain Infraprojects Ltd