DCIT, C.C.XXVII, KOLKATA, KOLKATA vs. M/S. PRATAP PROPERTIES LTD., KOLKATA

Shri Sri M.Balaganesh, AM:

These appeals of the revenue arise out of the separate orders of the Learned CIT(A), Central-II, Kolkata in Appeal No. 110/CC-XXVII/CIT(A)-C-II/KOL./09-10 dated 22.3.2010 for Asst Year 2005-06 ; Appeal No. 111/CC-XXVII/CIT(A)-C-II/KOL./09- 10 dated 22.3.2010 for Asst Year 2006-07 and Appeal No. 112/CC-XXVII/CIT(A)-C- II/KOL./09-10 dated 22.3.2010 for Asst Year 2007-08 against the order of the Learned AO levying penalty u/s 271(1)(c ) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

1 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

3.1. In the course of search, inventory of various documents vide identification marked HRV/1 to HRV/22 and other documents were made. The assessee sought to explain before the Learned AO that the additional income was declared with a view to cooperating with the department based on certain scribblings on loose papers etc found in pursuance of action u/s 132 of the Act in the case of Nangalia, Saraf and Agarwal group of cases for which panchanama was drawn in the name of Hotel & Resort Venture P Ltd, Bindal Leafin Private Limited, Forex Finance Limited and Salkia Estate Development Private Limited. The assessee also explained tht in the course of search, no money, bullion, jewellery or other valuable article or thing belonging to the 2 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

assessee were found and seized. It was also argued that certain loose papers were found recording various notings which are neither authenticated nor signed by any person including the assessee. Shri Bimal Kumar Jhunjhunwala, key person in the group, furnished a statement u/s 132(4) of the Act on 23.4.2007 and disclosed a sum of Rs. 5 crores on behalf of the group concerns as a whole. It was further argued that the basis of filing the return u/s 153C and 139(1) and the addition in the search assessment is the loose sheets which in the eyes of law are merely dumb documents. The assessee stated that however with a view to cooperating with the department filed returns of income u/s 153C of the Act for the Asst Years 2005-06 & 2006-07 offering additional income voluntarily and return u/s 139(1) of the Act offering regular income for Asst Year 2007-08 and paid taxes thereon. The Learned AO for the Asst Years 2005-06 , 2006-07 and 2007-08 levied penalty u/s 271(1)(c ) of the Act by stating that the assessee had not demonstrated the manner of deriving the undisclosed income and had made the disclosure u/s 132(4) of the Act followed by offering the same in the returns filed u/s 153C and 139(1) of the Act , as the case may be, only because of the search and not otherwise and in terms of Explanation 5 to section 271(1)(c ) of the Act, the assessee is deemed to have concealed the particulars of income.

3.2. The assessee had offered the undisclosed income based on the cash flow statement and cash rotation statement and had duly offered the interest income arising out of rotation of cash in its return of income. But the Learned AO without appreciating the same and thought that it is an interest expenditure claimed by the assessee which could not be available with the assessee as source in his cash flow statement and accordingly brought the following sums to tax separately in the assessments completed u/s 153C of the Act and section 143(3) of the Act for the Asst Years 2005-06 and 2007-08 respectively :-

3 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

Asst Year 2005-06 – towards undisclosed interest – Rs. 9,06,250/- Asst Year 2007-08 – towards undisclosed interest – Rs. 36,51,503/-

Learned AR also tried to argue that the said issue eventhough not raised in original assessment proceedings , the assessee is not debarred from raising the same in the penalty proceedings as both the proceedings and distinct, separate and independent. He argued that this aspect goes into the root of the matter and hence could be raised at any time during the appellate proceedings and relied on certain case laws in support of his contentions. In response to this, the Learned DR vehemently objected to the same and argued that the validity of search assessment proceedings was never objected by the assessee in the assessment proceedings and accordingly prayed for dismissal of the petition in terms of Rule 27 of the ITAT Rules.

5.1. We have heard the rival submissions on this issue. We are not in agreement with the argument advanced by the Learned AR that the jurisdiction issue could be raised by him in Petition under Rule 27 of ITAT Rules without preferring cross appeal or cross objections. The provisions of Rule 27 of ITAT Rules is reproduced herein below for the sake of convenience :-

“The respondent though he may not have appealed, may support the order appealed against on any of the grounds decided against him.”

We find that the assessee had not questioned the validity of search assessment and consequential penalty levied thereon in the grounds raised before the Learned CIT(A). Hence the Learned CIT(A) could not get an occasion to adjudicate the said issue. We hold that the recourse to Rule 27 of ITAT Rules could be resorted by the respondent assessee only in respect of grounds decided against him by the Learned CIT(A). Here is a case where no ground was raised before Learned CIT(A). We hold that two essential elements of Rule 27 come to the fore on its bare reading. First is the condition precedent for invoking this Rule and the second is scope of interference. In so far as the first element is concerned, we find that this Rule has been enshrined with a view to dispense justice to an assessee who is otherwise enttield to assail the

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correctness of the impugned order by filing appeal or cross objection, whether or not actually filed. This is borne out from the expression ‘though he may not have appealed’ used in the context of an assessee. This amply indicates the existence of a pre-right of the respondent to appeal, which may have remained un-availed. This Rule cannot help the respondent in a situation where he is otherwise debarred from filing cross appeal or cross objection. If no right to file a cross appeal or cross objection statutorily vests in the respondent, then it cannot be inferred indirectly by taking recourse to Rule 27. The next element is the scope of intereference by the respondent. This is contained in the later part of the Rule, which provides that the respondent ‘may support the order appealed against on any of the grounds decided against him’. Crux of the matter is that the order appealed against can be challenged by the assessee only qua the aspects of the issue decided against him in deciding such overall issue against the assessee, which has been assailed in the appeal. It means that there is an inherent limitation on the power of the assessee in not challenging the order appealed against under Rule 27 de hors the ground decided against the assessee. In all the case laws relied upon by the Learned AR, the assessee therein had raised a specific ground before the Learned CIT(A) and got it dismissed. In such circumstances, the tribunal entertained the petition under Rule 27 of ITAT Rules, whereas in the instant case, no ground was raised by the assessee before the Learned CIT(A) regarding non-recording of satisfaction in terms of section 153C of the Act and validity of search assessments thereon. Hence the petition filed by the assessee for the three asst years in terms of Rule 27 of the ITAT Rules is dismissed as unadmitted.

Explanation 5 to section 271(1)(c ) of the Act viz., (1) Assessee should have made disclosure u/s 132(4) of the Act followed by disclosure of the same in the return of income ; (2) Assessee specifies in the disclosure statement the manner in which undisclosed income was derived by him and (3) assessee pays the tax together with interest on such undisclosed income. He further argued that, even assuming without conceding, immunity is available for the assessee in terms of Clause 2 of Explanation 5 to Section 271(1)(c ) of the Act, it is available only for the year of search and for the previous year for which the due date of filing the return had not expired and hence the immunity, in any case, is not available for the earlier years other than these two years. In other words, the immunity cannot be made available to the assessee for the Asst Years 2005-06 and 2006-07.

7.1. He further argued that the immunity provided in clause 2 of Explanation 5 to section 271(1)(c ) of the Act is available to the assessee when the return filed u/s 153A / 153C of the Act has been accepted by the Learned AO ultimately in the assessment.

7 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

7.2. He also stated that the Learned AO had erroneously misunderstood the facts with regard to the interest element in the cash flow statement. He explained that the assessee had showed the interest income earned through rotation of cash as a source in the cash flow statement and had duly considered the same while offering the income u/s 132(4) followed by filing of return u/s 153C of the Act and no interest expenditure was claimed by the assessee as stated by the Learned AO.

7.3. He argued that no satisfaction as to concealment of income or furnishing of inaccurate particulars of income is not discernible either in the the show cause notice for initiating penalty proceedings u/s 274 read with section 271(1)(c ) of the Act or from the assessment order. In response to this, the Learned DR relied on the provisions of Section 271(1B) of the Act which is introduced with retrospective effect from 1.4.1989. He relied on various case laws in support of his various contentions stated supra.

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undisclosed income. In this regard, it would be pertinent to get into the various questions and replies given by Shri Bimal Kumar Jhunjhunwala, key person of the assessee group, in his sworn statement recorded on 29.3.2007. The relevant portions are extracted herein below for the sake of convenience:-

Q.No.10. Kindly go through the bunch of loose sheets marked HRV-1 and explain the contents therein ?

Ans. This bunch contains written pages from 1 to 48 . Of these the following are explained below –

Page 1 - …… Pages 2 -8 - ………. Pages 9 to 10 - ………..

Pages 11 to 48 relate to M/s Pratap Properties Ltd (PPL). This is company which has investment in various properties in Kolkata and Howrah. The company originally belonged to the Chamarias but is in the processof being taken over by us. The cash flow statements from Pages 30 -42 contain transactions which are both accounted as well as unaccounted. The quantum of unaccounted payments will be submitted by verifying the same with the regular books in due course.

Q. No. 14. Please go through the bunch of loose sheets marked HRV -5 and explain the contents therein ?

Ans. Pages 1 to 72 relate to M/s PPL. Of these pages 71, 72 containt he cash flow statement of M/s PPL as on 17.3.2007. The details of various unaccounted expenses. The last mentioned head of expenses amounting to Rs. 22.345 lakhs is not accounted for. The quantum of unaccounted expenses under the heads needs to be determined.

Pages 75 to 87 contained the details of cash received and payment made by the group during the financial year 06-07. The exact quantum of unaccounted transaction as per these pages needs to be determined.

Q. No. 16. Please go through the bunch of loose sheets marked HRV -7 and explain the contents therein ?

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Ans. Page 1 relates to purchase of property at 42, Chowringhee Road, Ko;-11 . This is same as the transaction recorded in the bunch of loose sheet marked HRV -1 pages 9 and 10. Page 5 & 6 contained cash sheets of this premises as on 12.8.06.

Page 5,6 is the cash sheet of the premises as on 12.08.06. An amount of RS. 14.40 lakhs was received in this office out of books.

Pages 7 to 13 relate to legal expenses of M/s PPL.

Pages 19 to 22 - …… Pages 23 to 27 - ……… Pages 28 to 32 - ……. Page 33 - ….. Page 34 - ….. Pages 35 to 37 - …….. Pages 39 to 46 …….

Q. No. 19. Please go through the bunch of loose sheets marked HRV -10 and explain?

Ans. This bound pages 1 to 53 relates to accounted and unaccounted transaction of M/s PPL.

We find that the assessee had demonstrated the manner of deriving the undisclosed income vis- a- vis the seized documents to some extent and hence the statement of the Learned AO that the same was not demonstrated at all is not acceptable. We also hold that the manner of deriving the undisclosed income need not be demonstrated by the Learned AO in full when substantial compliance of immunity clauses have been satisfied by the assessee viz. filing of disclosure petition u/s 132(4) followed by filing of return thereon u/s 153C and paying taxes thereon. We place reliance on the decision of the Hon’ble Gujarat High Court in the case of CIT vs Mahendra C Shah reported in (2008) 299 ITR 305 (Guj) , it was held that at page 315 :-

“In so far as the alleged failure on the part of the assessee to specify in the statement under section 132(4) of the Act regarding the manner in which 10 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

such income has been derived, suffice it state that when the statement is being recorded by the authorized officer it is incumbent upon the authorized officer to explain the provisions of Explanation 5 in its entirety to the assessee concerned and the authorized officer cannot stop short at a particular stage so as to permit the Revenue to take advantage of such a lapse in the statement. The reason is not far to seek. In the first instance, the statement is being recorded in the question and answer form and there would be no occasion for an assessee to state and make averments in the exact format stipulated by the provisions considering the setting in which such statement is being recorded, as noted by the Allahabad High Court in the case of CIT Radha Kishan Goel (2005) 248 ITR 454. Secondly, considering the social environment it is not possible to expect from an assessee, whether literate or illiterate, to be specific and to the point regarding the conditions stipulated by exception No.2 while making statement under section 132(4) of the Act. The view taken by the Tribunal as well as the Allahabad High Court to the effect that even if the statement does not specify the maner in which the income is derived, if the income is declared and tax thereon paid, there would be substantial compliance not warranting any further denial of the benefit under exception No.2 in Explanation 5 is commendable.

Hence, the Tribunal was justified in coming to the conlusion that in so far as the value of diamonds was concerned, the assessee having made a declaration under section 132(4) of the act and paid taxes thereon, had fulfilled all the conditions for availing of the benefit of immunity from levy of penalty as provided under Explanation 5 to section 271(1)(c ) of the Act. In the absence of any infirmity in the order of the Tribunal on this count the question referred is answered in the affirmative, i.e in favour of the assessee and against the Revenue.

8.1. The next aspect is with regard to the fact as to whether penalty could be levied when there was no additions made in the search assessments by the Learned AO. We find that the Learned AO did not independently work out the quantum of undisclosed income which was different from or in excess of what was promised in the statement given u/s 132(4) of the Act followed by filing of return u/s 153C and u/s 139(1) of the Act. It will be relevant to discuss the following case law at this juncture i.e the decision of ITAT Delhi Bench in the case of Prem Arora vs DCIT reported in 11 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

(2012) 24 taxmann.com 260 (Delhi) wherein the head notes are reproduced herein below:-

Section 271(1)(c ), read with section 153A, of the Income Tax Act, 1961 – Penalty – For Concealment of income – Assessment Year 2004-05 – Whether for purpose of imposition of penalty under section 271(1)(c ) resulting as a result of search assessments made under section 153A, original return of income filed under section 139 cannot be considered – Held, Yes – Whether concealment of income has to be seen with reference to additional income brought to tax over and above income returned by assessee in response to notice issued under section 153A and, therefore, once returned income under section 153A is accepted by Assessing Officer, it can neither be a case of concealment of income nor furnishing of inaccurate particulars of such income – Held, yes – Search was conducted on 22-11-2006 and cash was found from possession of assessee – Assessee had drawn cash flow statement for entire period of six years in order to determine undisclosed income based on seized material for each of six assessment years – Whether penalty under section 271(1)(c ) cannot be imposed by invoking Explanation 5 in assessment year 2004-05 in respect of cash found in previous year relevant to assessment year 2007-08 , merely on presumption that assessee might have been in possession of cash throughout period covered by search assessments – Held, yes [ in favour of assessee]

8.1.1. We find that this decision of Delhi Tribunal has been followed by this Tribunal in the case of DCWT vs Vivek Kr. Kathotia in WTA Nos. 02 to 08 / Kol / 2013 dated 15.5.2015, wherein it was held that :-

That the concept of a voluntary return of income may be important in penalty proceedings initiated in the normal assessment proceedings u/s 143(3) or 147 of the Act but not u/s 153A of the Act. When accepted by the AO then there is no concealment of income and consequently penalty u/s 271(1)(c ) of the Act cannot be imposed. The concealment of income is to be determined with regard to the return of income in response to notice u/s 153A of the Act. Therefore, in the present circumstances and facts of the case once the returned wealth is accepted by the AO u/s 153A of the Act then there cannot be a case of concealment of income or furnishing inaccurate particulars of income. In the circumstances and facts of the case the decision in the case of Prem Arora vs DCIT (24 taxmann.com 260) 12 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

(Delhi Tribunal) is squarely applicable in the present case, since in the present case the assessee has disclosed gold and diamond in the statement recorded u/s 132(4) of the Act during the search operation itself, in the wealth tax return the Tribunal has approved the findings in quantum with regard to the genuineness of the declaration of gold and diamonds. Accordingly the assessee is not liable to have penalty u/s 271(1)(c ) of the Act.

8.1.2. We find that the assessee had made a disclosure statement u/s 132(4) of the Act after the search offering undisclosed income, explaining the manner in which such income was derived and paid taxes thereon together with interest. The assessee also duly offered the said undisclosed income in the returns filed in response to notice under section 153C of the Act and assessments completed accordingly. We hold that the expression “to be furnished” in Clause 2 of Explanation 5 to Section 271(1)(c ) of the Act has to be understood as “required to be furnished” which in turn has to be understood as a return required to be furnished in response to notice u/s 153A of the Act. In this regard, we place reliance on the decision of the Jurisdictional Calcutta High Court in the case of CIT vs Brijendra Gupta in ITA No. 330 of 2009 dated 8.6.2015 , wherein the question raised before their Lordships and their decision rendered thereon is as under:-

The following question of law was suggested by the revenue:-

“Whether on the facts and circumstances of the case, the Learned Tribunal was justified in law in confirming the order of the CIT(A) in deleting the penalty levied under section 271(1)(c ) of the Income Tax Act, 1961 on the ground that the assessee is entitled to immunity from penalty on account of Explanation 5 to section 271(1)(c ) when the assessee’s case does not come under the purview of the exceptions provided therein.”

Held that :

Clause (a) of Explanation 5 to section 271(1)(c ) contemplates income for any previous year for which returns has been furnished but the income since disclosed had not been shown. It is axiomatic that if such income had been disclosed in the returns filed under section 139, the question of 13 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

undisclosed income would not have arisen. When the return had been filed but the income since discovered was not disclosed, the question of concealment naturally arises. The legislature, however, made a conscious departure by carving out an exception provided the conditions laid down in Clause (i) or Clause (ii) thereof have been complied with.

We are, in this case, concerned with Clause (ii). One of the conditions is that the assessee makes a statement under section 132(4) that the assets unearthed have been acquired out of his income which has not been dislosed so far in his returns of income already filed. The difficulty arises by the use of the expression “to be furnished before the expiry of time specified in sub-section (1) of section 139”. A confusion is likely to arise as to whether the departure has been sought to be made by the legislature only for those cases where the statement as regards undisclosed income was made pertaining to a previous year for which time to file return under section 139 had not expired. But that was not the intention because the expression “unless” appears after Clauses (a) and (b) of Explanation which provides for imposition of penalty. Therefore, “unless” has to apply to the provision for imposition of penalty. Therefore, the aforesaid expression “to be furnished” has to be interpreted as “required to be furnished”. Only in that case the section will make a meaning otherwise the section does not make any meaning.

We are supported in our view by the Judgement of the Madras High Court in the case of CIT vs S.D.Chandru reported in (2004) 266 ITR 175 (Mad)wherein a Division Bench opined that “The additional words which refer to the time specified in section 139(1) are only a reiteration of the legal requirement regarding the time within which returns should normally be filed.”

In that view of the matter, the question proposed by Revenue is answered in the affirmative and in favour of the assessee. The appeal is thus disposed of.

8.1.3. We would like to place reliance on the following decisions on the impugned issue before us :-

A) Jurisdictional High Court in the case of CIT vs Shri Samit Roy in ITA 354 of 2009 dated 3.9.2015, wherein the questions raised before their Lordships and their decision rendered thereon is as below:-

14 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

“(a) WHETHER on the facts and in the circumstances of the case the Income Tax Appellate Tribunal erred in law in upholding the order of Commissioner of Income Tax (Appeal) holding their amounts disclosing after search, which was not previously offered to tax is not a concealment on the part of the respondent / assessee ?

(b) WHETHER on the facts and in the circumstances of the case the Income Tax Appellate Tribunal erred in law in upholding the order of Commissioner of Income Tax (Appeal) holding the Assessing Officer was not justified in levying penalty under section 271(1)(c ) of the Income Tax Act, 1961 for the Assessment Years 2003-04 to 2005-06 ?”

Since both the questions are covered by the judgements passed by this Court in ITA 39 of 2010 (Commissioner of Income Tax , Central –I, Kolkata vs Amardeep Singh Dhanjal) and in ITA 330 of 2009 (Commissioner of Income Tax, Central –III, Kolkata vs Brijendra Gupta), both the questions are answered in the negative, against the revenue and in favour of the assessee.

The appeal is dismissed.

B) Jurisdictional High Court in the case of CIT vs Tapan Kumar Ghosh in ITA 6 of 2010 dated 3.9.2015, wherein the questions raised before their Lordships and their decision rendered thereon is as below:-

“ Whether on the facts and in the circumstances of the case the learned Tribunal has committed error in applying the provisions of the Explanation 5 of Section 271(1)(c ) of the Income Tax Act, 1961 and thereby committed error in law in modifying the order of penalty of Rs. 4,17,926/- in relation to the Assessment Years 2003-04 and 2005-06”

Since we find that the issue stands covered by the judgements delivered in ITA 39 of 2010 (Commissioner of Income Tax , Central –I, Kolkata vs Amardeep Singh Dhanjal) and in ITA 330 of 2009 (Commissioner of Income Tax, Central –III, Kolkata vs Brijendra Gupta), in favour of the assessee, the question is answered in the negative, against the revenue and in favour of the assessee.

The appeal is dismissed.

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C) Gujarat High Court in the case of Kirit Dahyabhai Patel vs ACIT in Tax Appeal No. 1181 of 2010 with Tax Appeal No. 1182 to 1185 of 2010 dated 3.12.2014, wherein the question raised before their Lordships and their decision rendered thereon is as below:-

“Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in restoring the penalty imposed under section 271(1)(c ) of the Act holding that benefit under Explanation 5 to Section 271(1)( c) of the Act would be available only for period where due date for filing the return under section 139(1) of the Act had not expired ?”

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D. Rajasthan High Court in the case of CIT vs Kanhaialal reported in (2008) 299 ITR 19 (Raj) , it was held that :-

Where the Assessing Officer had found the income to relate to different assessment years, in different volumes, as contra distinguished to the one submitted by the assessee, and had accordingly made the assessments, which assessments had become final and were not the subject matter of challenge, penalty u/s 271(1)(c ) could not be imposed by virtue of Explanation 5.

E. Madras High Court in the case of CIT vs S.D.Chandru reported in (2004) 266 ITR 175 (Mad) , it was held that :-

Penalty u/s 271(1)( c) was not leviable by operation of Explanation 5 in a case where a statement u/s 132(4) was filed in course of a search and seizure and therefore, admitted a larger income for the earlier years on which tax with interest had been paid.

F. Rajasthan High Court in the case of ACIT vs Gebilal Kanhaialal reported in (2004) 270 ITR 523 (Raj) , it was held that:-

Penalty u/s 271(1)(c ) was not leviable by operation of Explanation 5 in a case where a statement u/s 132(4) was filed in course of a search and seizure and thereafter the assessee has disclosed a particular concealed income and surrendered it for tax and tax had been together with interest.

8.2. The next aspect is as to whether the immunity provided in clause 2 of Explanation 5 to section 271(1)(c ) of the Act is available to all the assessment years. We hold that the immunity provided in Clause 2 of Explanation 5 to section 271(1)(c ) of the Act is available to all the assessment years prior to the year of search if the conditions stipulated thereon are satisfied. Reliance in this regard is placed on the decision of the Jurisdictional High Court in the case of CIT vs Ramesh Chand Goyal in G.A.No. 2347 of 2010 in ITAT No. 181 of 2010 dated 11.8.2010 , wherein the question raised before their Lordships and decision rendered thereon is as below:- 17 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

“(a) Whether on the facts and in the circumstances of the case the Learned Tribunal was justified in law in cancelling the order of penalties for Rs. 3,99,476/- , Rs. 5,24,169/-, Rs. 5,96,020/-, Rs. 4,86,030/- and Rs. 25,12,525/- for the assessment years 2002-03 , 2003-04, 2004-05, 2005-06 and 2006-07 respectively on the ground that the Explanation 5 to section 271(1)( c) protects the assessee from penalty on admitted undisclosed income under section 132(4) of the Act without appreciating that the assessee has made the disclosure in the Assessment Years 2006-07 and the immunity under Explanation 5 to Section 271(1)( c) is available for the years for which the return is yet to be furnished before the expiry of time limit under section 139(1) of the Act whereas the due date for filing of return under section 139(1) of the Act for the assessment years 2001-02 to 2005-06 had already expired and returns filed prior to the date of search and for the assessment years 2006-07 also the return was not filed on the due date.”

We have heard Mr.Sinha extensively and gone through the impugned judgement and order of the Learned Tribunal. The Learned Tribunal has recorded the fact that the record does not show that the Assessing Officer had detected the additional income in the assessment proceedings. It further recorded upon perusal of the records that small variation in income was due to bona fide mistakes and difficulties in working out the undisclosed income. It is further recorded that the voluntary action on the part of the assessee to settle the tax issues for peace of mind appears from the conduct of the assessee. While recording the aforesaid fact, the Learned Tribunal ultimately relied on a decision of the Tribunal rendered in the case of Additional CIT vs Prem Chand Garg. Mr. Sinha, however, is unable to say whether the earlier decision of the Tribunal in the case of Prem Chand Garg has been challenged or not. Moreover, the learned Tribunal has also relied on a large number of decisions of the various court on the same point. Hence when the point is covered, we do not find any merit in this appeal for admission. Accordingly, the same is dismissed.

8.3. The next aspect to be considered is as to whether proper satisfaction was recorded by the Learned AO either in the show cause notice for initiating penalty proceedings or in the assessment order. We hold that it is the bounden duty of the Learned AO that he has to record the specific charge on which the assessee has committed the crime and which has to be answered by him i.e whether assessee has concealed the particulars of 18 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

income or furnished inaccurate particulars of his income. This should be clearly spelt out in the assessment order and in the show cause notice and should be clearly discernible thereon. In this regard, we place reliance on the recent decision of the Hon’ble Apex Court in the case of CIT , Panchkula vs Jai Laxmi Rice Mills Ambala City reported in (2015) 64 taxmann.com 75 (SC) vide order dated 20.11.2015, wherein it was held that :-

8.3.1. We also place reliance on the co-ordinate bench decision of this tribunal in the case of Suvaprasanna Bhattacharya vs ACIT in ITA No. 1303/Kol/2010 for Asst Year 2006-07 dated 6.11.2015, which in turn placed reliance on the decision of the Hon’ble Karnataka High Court in the case of CIT & Anr vs Manjunatha Cotton and Ginning Factory reported in 359 ITR 565 (Kar) and which considered the applicability of newly inserted provision of section 271(1B) of the Act with retrospective effect from 1.4.1989 and the decision of the Hon’ble Delhi High Court in the case of Ms. Madhushree Gupta vs Union of India reported in 317 IR 107 (Del). In this judgement, the relevant operative portions are reproduced herein below:- “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 19 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

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.

20 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

8.2 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. 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.

21 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

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 bona fide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity.

22 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

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) 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. “

23 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

8.4. In view of the aforesaid facts and circumstances of the case and in view of the various judicial precedents relied upon hereinabove including that of the Jurisdictional High Court and other High Courts, we are of the considered opinion that :

- the assessee has cumulatively satisfied all the conditions stipulated in Clause 2 of Explanation 5 to Section 271(1)( c) of the Act and hence entitled for immunity from levy of penalty for all the assessment years under appeal;

- the assessee had filed the returns u/s 153C and u/s 139(1) of the Act as the case may be, and the same has been accepted in the search assessments and regular assessment, no penalty u/s 271(1)(c ) of the Act could be levied ;

- the expression ‘to be furnished’ mentioned in Clause 2 of Explanation 5 to Section 271(1)(c ) has to be construed as ‘required to be furnished u/s 153A of the Act’

- no satisfaction with regard to specific charge of concealment, as contemplated in section two limbs of section 271(1)(c ) of the Act , was recorded by the Learned AO and the same is not discernible either from the show cause notice or from the assessment order; Accordingly, the grounds raised by the revenue for all the assessment years are dismissed.

24 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata

THIS ORDER IS PRONOUNCED IN OPEN COURT ON Dt 10 -02-2016

Sd/- Sd/- ( (M. Balaganesh, Accountant Member). ( ( Mahavir Singh, Judicial Member) Date: 10 - 02-2016 *PP Sr.PS

Copy of the order forwarded to:

: Dy. Commissioner of Income Tax, CC XXVII, 5th fl., 18 1. Appellant) Rabindra Sarani, Kol-1. Respondent): M/s. Pratap Properties Limited ,17 M.G Road, 2nd fl., Room 2 No.110, Kol-7. The CIT, 3.

Asst. Registrar, ITAT, Kolkata Benches, Kolkata

25 ITA Nos. 1386 to 1388/Kol/2010-C-AM M/s. Pratap Properties Ltd, Kolkata