SMT ALPANA SAHA ( L/H OF LATE P.K.SAHA),BURDWAN vs. A.C.I.T CIR - 2,BURDWAN, BURDWAN

This appeal by assessee is arising out of order of CIT(A)-Durgapur vide Appeal No. 16/CIT(A)/ASL/Cir-2/BWN/2009-10 dated 06.03.2013. Assessment was framed by ACIT, Cir- 2, Burdwan u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2005-06 vide his order dated 31.12.2007. Penalty was imposed by ACIT, Cir- 2, Burdwan u/s. 271(1)(c) of the Act vide his order dated 29.05.2009.

The only issue in this appeal of assessee is against the order of CIT(A) confirming the penalty levied by AO u/s. 271(1)(c) of the Act on estimated income.

Briefly stated facts are that the assessee is engaged in trading of Indian made foreign liquor (IMFL) and Beer. This business is carried on by assessee under Excise licence granted by State Excise Authorities and all purchases, sales and stocks are monitored and controlled by Excise Authorities. A survey u/s. 133A of the Act was conducted on the business premises of the assessee on 17.09.2004 from where some stock registers, invoice of purchases, cash /sale memos etc. were found and impounded. The AO during the course of assessment proceedings examined the impounded cash/sale memos and selected on random basis from month of April, 2004 to November, 2004 and estimated the sale of 25 days which were worked out at Rs.3,47,508/-. Accordingly, the AO estimated the suppressed sale for FY 2004-05 relevant to this AY 2005-06 at Rs. 45 lacs. According to AO, GP rate declared on the gross sales is at 13.69% and on net of literage fees sale the GP rate was declared at 16.39%. Accordingly, AO worked out undisclosed sales at Rs.7,37,550/-. The AO also made addition of cash found during Smt. Alpana Saha, AY 2005-06 the course of survey at Rs.1,08,540/-. The AO initiated penalty proceedings u/s. 271(1)(c) for furnishing of inaccurate particulars of income. This addition of Rs.7,37,550/- was estimated by CIT(A) at Rs. 1 lac and for this, CIT(A) observed “… in my considered opinion, it will meet the ends of justice if the addition is estimated to Rs.100000”, is clear and explicit.” This estimation was also confirmed by Tribunal. Accordingly, the AO started penalty proceedings.

We have heard rival submissions and gone through facts and circumstances of the case. We find that first of all the penalty is levied on estimation of income and that was also confirmed by CIT(A) without any basis. Secondly, neither the AO nor the CIT(A) is sure about the charge of levy of penalty whether the penalty is for concealment of income or for furnishing of inaccurate particulars of income. In view of these facts, now this issue is squarely covered by the decision of this Coordinate bench in the case of Suvaprasanna Bhattacharya Vs. ACIT, AY 2006-07 dated 06.11.2015, wherein it has been held as under: “6. We shall now deal with the question whether proper satisfaction was arrived at by the AO for initiating penalty proceedings u/s.271(1)(c), in the course of concluding the assessment proceedings, wherein the additions in respect of which penalty was imposed were made. 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 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.

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…….”

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 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 assessee 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 assessee that initiation of penalty proceedings was not Smt. Alpana Saha, AY 2005-06 proper in the present case and on that ground the imposition of penalty u/s.271(1)( c) of the Act is unsustainable.”