DCIT, C.C. I, KOLKATA, KOLKATA vs. AMARNATH SHROFF, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH ‘A’ KOLKATA [Before Hon’ble Shri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM ] ITA Nos.1797 to 1800/Kol/2009 Assessment Years : 2001-02,2002-03,2004-05&2005-06

Amar Nath Shroff . -versus- D.C.I.T., Central Circle-1, Kolkata Kolkata (PAN:AMQPS2466J) (Appellant) (Respondent) ITA Nos.1494 to 1497/Kol/2010 Assessment Years : 2001-02,2002-03,2004-05&2005-06

D.C.I.T., Central Circle-1, -versus- Amar Nath Shroff Kolkata Kolkata (PAN:AMQPS2466J) (Appellant) (Respondent)

For the Assessee Shri A.K.Tibrewal, FCA & Shri Amit Agarwal, Advocate For the Department : Shri Anil Kumar Pande, JCIT, Sr.DR

Date of Hearing : 08.02.2016. Date of Pronouncement : 02.03.2016.

ORDER PER Bench

ITA Nos.1797 to 1800/Kol/2009 are appeals by the assessee against the common order dated 26.08.2009 of CIT(A)-Central-III, Kolkata relating to A.Y.2001-02, 2002-03, 2004-05 and 2005-06. In these appeals, the assessee has challenged the order of CIT(A) whereby the CIT(A) confirmed the order of AO imposing penalty u/s 271(1)(c) of the Act. 2. The facts and circumstances under which penalty u/s 271(1)(c) of the Act was imposed on the assessee by AO are as follows :- The Assessee is an individual. He carries on the business of property development. The Assessee had filed returns of income for A.Yrs. 2001-02, 2002-03,

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2004-05 and 2005-06 in the normal course u/s 139(1) of the I.T.Act, within the due date admitting the following incomes : Assessment Year Income returned (Rs.) 2002-02 9,24,202/- 2002-03 7,31,722/- 2004-05 4,95,693/- 2005-06 13,59,795/-

In effect, the assessee was in possession of undisclosed cash and income of Rs.4,12,22,035/-.

2004-05 15,30,967/- 2005-06 71,15,928/- 2006-07 1,33,80,134/- 2007-08 98,61,421/- Total 4,32,62,823/-

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of a prima facie case of concealment of income and furnishing of inaccurate particulars of income as per explanation 1 to Sec. 271(1)(c) of the Act. The AO also held that the Assessee is guilty of concealment of particulars of income. In the show cause notice u/s 274 of the Act issued prior to the passing of the order u/s 271(1)(c) of the Act imposing penalty, the AO has not specified as to whether the charge against the Assessee is for furnishing inaccurate particulars of income or for concealing particulars of income.

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(ii) In such statement the assessee specifies the manner in which such income has been derived and (iii) Pays taxes together with interest in such income, if any.

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25,67,626/- and regular tax of Rs.7,29,558/- paid on 11-09-2008. The appellant is still due to pay tax and interest of Rs.5,75,374/- . Appellant had not paid the entire tax with interest on the disclosed incomes for the Assessment Years. 2001-02, 2002-03, 2004-05 and 2005-06, and, hence, has not satisfied conditionality of tax payment. From the above facts it is seen that the appellant has not satisfied all the conditions, cumulatively, under Clause (2) to Explanation 5 to Section.271(1)(c) of the I.T.Act, 1961 in respect of A/Yrs. 2001-02,2002-03 ,2004-05 and 2005-06.”

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an error apparent in the office of the records. The assessee furnished details of payment of taxes and prayed for rectification of the order dated 26.08.2009 of CIT(A).

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Thus, it is established beyond doubt that there had been a mistake in appraising the overall facts of the case in so far as the payment of tax with interest is concerned as had been noted in the Appellate Order dated 26-8-2009 and such mistake is apparent from the records. In terms of the decision of the Supreme Court of India in CIT vs. Hero Cycles (P) Ltd, reported in 228 ITR 463 (SC) 1997, rectification under section 154 can be made when a glaring mistake of fact or law has been committed by the Officer passing the order and it is apparent from the records. It has also been held in the case of N. Rajamoni Amma vs. Deputy CIT reported in 86 CTR (Ker) 12, 1990 that the Commissioner of Income Tax being an authority mentioned u/s 116 of the Income Tax Act, has the power to rectify an obvious mistake (either of fact or of law) in any order passed by him provided it is established that the mistake is one apparent from records. In the instant case. the findings of the CIT(Appeals), my predecessor in office, are not supported by the finding noted by the Assessing Officer himself in his remand report dated 10.05.2010 the details of which had all along been a part of the Departmental records. So, I am of the opinion that there is a mistake apparent in the Appellate Order dated 26- 8-2009 passed in this case in ascertaining the correct factual position relating to payment of tax interest made by the Appellant/ Applicant on the disclosure of income made by him in course of the search. Such mistake needs to be rectified in the interest of justice as well as in terms of section 154 of the Act since all taxes having been paid by the Appellant/Applicant, he satisfied the requirements of availing itself of the immunity granted as per Explanation (5) u/s 271(1)(c) of the Income Tax Act, 1961. Therefore, the prayer for rectification u/s 154 of the Act 271 (l)( c) of the Income Tax Act, 1961. Therefore, the prayer for rectification u/s 154 of the Act is allowed on merit by this combined order for all the assessment years namely 2001-02, 2002-03, 2004-05 and 2005-06. Such rectification has the effect of allowing the Appeal also for all the four assessment years which was dismissed previously by the Order dated 26-8-2009 on an apparently erroneous finding of fact.”

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“Explanation 5.—Where in the course of a search under Section 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income,— (a ) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein ; or (b ) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, unless,— (1 ) such income is, or the transactions resulting in such income are recorded,— (i) in a case falling under clause (a), before the date of the search ; and (ii) in a case falling under clause (b), on or before such date, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date ; or (2 ) he, in the course of the search, makes a statement under sub-section (4) of Section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furnished before the expiry of time specified in sub-section (1) of Section 139, and also specifies in the statement the manner in which such income has been derived and pays the tax, together with interest, if any, in respect of such income.”

In the present appeal we are concerned with clause (2) of Expln.5 to Sec.271 of the Act. In this regard it was brought to our notice that in the order dated 26.8.2009 passed by the CIT(A) which is impugned in the appeals filed by the Assessee, the satisfaction of the condition that (a) Income declared in the return of income filed u/s.153A of the Act, has been disclosed in a statement u/s 132(4) of the Act. And (b) In such statement the assessee specifies the manner in which such income has been derived has been accepted by the CIT(A) and the revenue has not challenged the said finding. The CIT(A) in the order dated 26.05.2010 of CIT(A)-Central-III, Kolkata has accepted that taxes due on the income so disclosed together with interest are paid by the Assessee. In the appeal filed by the revenue against the aforesaid order of CIT(A) ITA Nos.1797 to 1800/Kol/2009&1494 to 1497Kol/2010-Amar Nath Shroff A.Y.2001-02 to 200203 & 2004-05&2005-06

dated 26.5.2010, the revenue cannot challenge any other finding except the specific finding of the CIT(A) in the said order with regard to payment of taxes on the income disclosed. It was submitted by him that the challenge by the revenue in their appeal was general and no specific instances as to why the assessee was not entitled to such immunity has not been brought out in the grounds of appeal. It was further submitted by him that the time at which the tax had to be paid has not been set out under Explanation (5) to section 271 of the Act. The Hon’ble Supreme Court , however, in the case of ACIT vs M/s. Gebilal Kanhailal HUF in Civil Appeal No.636 of 2005 (SC) Judgment dated 04.09.2012 has taken a view that since no time limit for payment of tax was prescribed under clause (2) the only requirement was that an assessee to get the immunity has to pay tax after the search proceedings along with interest up to the date of payment of tax. The following observation of the Hon’ble Supreme Court were brought to our attention :- “However, no time limit for payment of such tax stood prescribed under clause (2). The only requirement stipulated in the third condition was for the assessee to "pay tax together with interest". In the present case, the third condition also stood fulfilled. The assessee has paid tax with interest upto the date of payment. The only condition which was required to be fulfilled for getting the immunity, after the search proceedings got over, was that the assessee had to pay the tax together with interest in respect of such undisclosed income upto the date of payment. Clause (2) did not prescribe the time limit within which the assessee should pay tax on income disclosed in the statement under Section 132(4). “ 18. The learned DR however submitted that the payment of tax should be on or before filing of the return u/s 153A of the Act or at any rate before conclusion of the assessment proceedings.

of income. In this regard our attention was drawn to the decision of ITAT Kolkata Bench in the case of Satyananda Achariya Biswas vs DCIT in ITA No.05/Kol/2010 for A.Y.2003-04 dated 02.12.2015 wherein it was held that such defect in the show cause notice u/s.274 of the Act renders the order imposing penalty illegal.

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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.

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.

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. ITA Nos.1797 to 1800/Kol/2009&1494 to 1497Kol/2010-Amar Nath Shroff A.Y.2001-02 to 200203 & 2004-05&2005-06

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.

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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. 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. ITA Nos.1797 to 1800/Kol/2009&1494 to 1497Kol/2010-Amar Nath Shroff A.Y.2001-02 to 200203 & 2004-05&2005-06

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 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.

9.4. 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 view of our above conclusions on the issue of not recording of proper satisfaction and the defect in show cause notice u/s.274 of the Act, we are not dealing with the other arguments made on merits of the order imposing penalty on the Assesssee.”

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Sd/- Sd/- [Waseem Ahmed ] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 02.03.2016. [RG PS] Copy of the order forwarded to: 1.Amar Nath Shroff, 68/2, Harish Mukherjee Road, Kolkata-700025. 2.D.C.I.T., Central Circle-1, Kolkata 3. CIT(A)-Central-III, Kolkata 4. CIT-Central-III, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata. True Copy By order,

Asst. Registrar, ITAT, Kolkata Benches

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