THAKUR PRASAD SAO & SONS (P) LTD,KOLKATA vs. D.C.I.T CC - XVII,KOLKATA, KOLKATA

SHRI.M.BALAGANESH, AM

These are appeals by the assessee against separate orders of the Learned CIT(A), Central 1, Kolkata in Appeal No. 352/CC-XVII/CIT(A),C-I/12-13 dated 18.3.2013 for Asst Year 2006-07 and Appeal No. 351/CC-XVII/CIT(A),C-I/12-13 dated 18.3.2013 for Asst Year 2007-08 against the separate orders of assessment framed us 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

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The Income Tax Department had conducted search and seizure operations u/s.132(1) of the Act against various persons and business concerns of the Thakur Prasad Sao Group of Chaibasa at different locations of Chaibasa and Kolkata on 23.11.2007. Survey u/s 133A of the Act was also carried out simultaneously at different places of business of the Group at Joda (Orissa), Rourkela (Orissa), Jamshedpur and Tirildih (Jamshedpur). The group is engaged in the mining of iron ore, manufacturing of sponge iron and trading in liquor. In the course of search and seizure operations, Panchanama were drawn in the names of various assesses in the Group including the assessee herein. A disclosure u/s 132(4) of the Act for Rs. 4,99,00,000/- was made by Mr.R.P.Sao, Director of the company for Asst Year 2006-07 , which was also followed by filing of return in response to notice issued u/s 153A of the Act. The assessment was completed u/s 153A of the Act determining total income at Rs. 27,14,06,050/- wherein certain additions to the tune of Rs. 58,42,500/- were made towards donation, delay in deposit in provident fund , disallowance u/s 14A of the Act and 1/5th of compensation paid to Government. On first appeal in quantum proceedings, the Learned CITA granted relief to the extent of Rs. 54,91,493/- out of total additions made to the extent of Rs. 58,42,500/-. The Learned AO levied penalty u/s 271(1)(c ) of the Act on the income disclosed u/s 132(4) of the Act pursuant to the search at 100% of the tax on income disclosed at Rs. 4,99,00,000/- for the Asst Year 2006-07.

3.1. Asst Year 2007-08

The facts and circumstances under which penalty was imposed on the Assessee by the AO in the Asst Year 2007-08 are as follows:-

The Income Tax Department had conducted search and seizure operations u/s.132(1) of the Act against various persons and business concerns of the Thakur

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Prasad Sao Group of Chaibasa at different locations of Chaibasa and Kolkata on 23.11.2007. Survey u/s 133A of the Act was also carried out simultaneously at different places of business of the Group at Joda (Orissa), Rourkela (Orissa), Jamshedpur and Tirildih (Jamshedpur). A disclosure u/s 132(4) of the Act for Rs. 10,63,00,000/- was made by Mr.R.P.Sao, Director of the company for Asst Year 2007- 08 , which was also followed by filing of return in response to notice issued u/s 153A of the Act. The assessment was completed u/s 153A of the Act determining total income at Rs. 142,51,50,010/- wherein certain additions were made. On first appeal in quantum proceedings, the Learned CIT(A) granted relief to the extent of Rs. 3,61,88,410/-.

3.2. The Learned AO levied penalty u/s 271(1)(c ) of the Act on the income disclosed pursuant to the search for Rs. 1,67,96,340/- and Rs. 3,63,20,279/- for Asst Years 2006- 07 and 2007-08 respectively.

3.3. The assessee pleaded that the income was disclosed u/s 132(4) of the Act on the condition that no penalty u/s 271(1)(c ) of the Act would be imposed on the same. The Learned AR further argued that the disclosure made u/s 132(4) of the Act was duly followed by the return filed in response to notice issued u/s 153A of the Act and hence the same should be treated as return filed u/s 139(1) of the Act. Accordingly, he pleaded that no penalty would be exigible on the same. It was further pleaded that there is no finding in the assessment order that there was any concealment of income or furnishing of inaccurate particulars of income with regard to the income returned by the assessee. It was argued that penalty u/s 271(1)(c ) of the Act read with Explanation 5A would apply to the additions made by the Learned AO based on the seized documents or assets found and not on the income returned u/s 153A / 139 of the Act. On first appeal in the penalty proceedings, 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

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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 and accordingly upheld the action of the Learned AO.

3.4. Aggrieved, the assessee is in appeal before us. The assessee has raised the following grounds before us :-

1) That the Ld. CIT(A) erred in confirming the penalty u/s 271(1)(c ) of the Income Tax Act @ 100% of the amount of additional income offered in the return u/s 153A of the I.Tax Act and disclosed u/s 132(4) of the Income Tax Act. The assessee has paid tax & interest and disclosed the income int eh return u/s 153A , which is the return u/s 139 of the I.Tax Act. Confirming the penalty by the Ld.CIT(A) is wrong and penalty need to be cancelled.

2) That the assessee craves leave to add, alter, amend, or withdraw any ground or grounds of appeal before or at the time of hearing.

3.5. The Learned AR 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 supported the orders of the lower authorities.

3.6. 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

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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.

3.6.1. The Learned AR 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.

3.6.2. We have given a very careful consideration to the rival submissions. The argument of the Learned AR was that the show cause notice u/s 274 of the Act which is in a printed form and the learned AO has not indicated in the said notice as to whether the penalty is sought to be levied on the assessee for “furnishing inaccurate particulars of income” or “concealing particulars of such income” by striking off the irrelevant portion of the printed show cause notice. On this aspect we find that in the show cause notice u/s 274 of the act, the Learned 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”.

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3.6.3. 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 of the Act 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.

3.6.4. 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

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the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. 60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts 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,

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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 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). 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.

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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. 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

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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)

3.6.5. 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.

3.6.6. For the reasons given above, we hold that the levy of penalty in the present case cannot be sustained. We therefore cancel the orders imposing penalty on the assessee and allow the appeals of the assessee. In view of our above conclusions on the issue of defect in show cause notice u/s 274 of the Act, we are not dealing with the other arguments made on merits of the orders imposing penalty on the assessee.

Order pronounced in the Court on 23 .03.2016

Sd/- Sd/- [N.V.Vasudevan ] [ M.Balaganesh ] Judicial Member Accountant Member Dated : 23 .03.2016

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Copy of the order forwarded to: 1.. The Appellant/Assessee: M/s. Thakur Prasad Sao & Sons Pvt. Ltd ‘Avani Signature’2nd floor, Kolkata-700 016. 2 The Respondent/Department: The DCIT, CC-XVII, Kolkata Aaykar Bhawan (Poorva) 110 Shantipalli, Kol-107. Bhawan, Matigara, Siliguri. 3 /The CIT, 4.The CIT(A) DR, Kolkata Bench 5. 6. Guard file. True Copy, By order, Asstt Registrar **PRADIP SPS

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