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Income Tax Appellate Tribunal, KOLKATA BENCH “A” KOLKATA
Before: Shri N.V.Vasusdevan & Shri Waseem Ahmed
आदेश /O R D E R
PER BENCH:-
These four appeals by one assessee are arising out of orders of Commissioner of Income Tax (Appeals)-II, Kolkata in appeals No.50-47/CC – XXVII /CIT(A)C-II/12-13 all dated 28.02.2013. Assessments were framed by ACIT, Central Circle-XXVII, Kolkata u/s 153A/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his orders dated 30.12.2011 for assessment years 2006-07 to 2009-10 respectively. Penalty levied u/s 271(1)(c) of the act by Assessing Officer separately vide orders dated 29.06.2012.
-964/Kol/2013 A.Ys. 06-07 to 09-10 Nishith Kr. Jain v. ACIT, CC-XXVII, Kol. Page 2 2. Since common grounds are involved except amount in all these appeals, therefore, we heard them together and deem it appropriate to dispose of them by way of this common order.
Except figure the facts in all the appeals are same therefore we are taking the facts of the case for the A.Y 2006-07 as a lead ( ) case for the sake of convenience and passing a consolidated order for all the appeals. In all these appeals, assessee has challenged the orders of Ld. CIT(A) whereby Ld. CIT(A) confirming the order of Assessing Officer imposing penalty on the assessee u/s. 271(1)(c) of the Act. The assessee has raised the following grounds of appeal:-
1. That Ld. CIT(A) having admitted that additional income offered u/s. 132(4) was accepted and included in order u/s 153A has erred in holding no immunity from p0enalty is available.
2. That on the acts and in the circumstances of the case, Ld. CIT(A) is wrong in confirming the penalty order by relying to Explanation 5A of Section 271(1)(c) as substituted by Finance (No.2) Act 2009 with retrospective effect.
3. That on the facts and in the circumstances of the case the conclusion of Ld. CIT(A) that no immunity from penalty u/s 271(1)(c) is available for declaration u/s 132(4) is erroneous and arbitrary since Section 271AAA(2) grants immunity from penalty under similar situations.”
3.1 The facts of the case are that assessee is an individual and engaged in several types of business viz. real estate development, export of fruit and Jewellery business. There was a search and seizure operation u/s. 132(1) of the Act in Badalia Group of cases. The assessee in the instant case was also searched u/s 132(1) of the Act. In the course of search several incriminating documents, jewellery & cash etc. were found. The assessee in his statement recorded u/s 132(4) of the Act has disclosed an income of ₹. 250 lacs pertaining to AYs 2006-07 to 2010-11 and has given break-up of undisclosed income of ₹ 250 lacs.
ITA No.961-964/Kol/2013 A.Ys. 06-07 to 09-10 Nishith Kr. Jain v. ACIT, CC-XXVII, Kol. Page 3 3.2 A notice u/s. 153A of the Act was issued upon assessee for the AYs 2006-07 to 2010-11 for filing the return of income. In response thereto, assessee filed his return of income as declared in the statement furnished u/s. 132(4) of the Act. Subsequently Assessing Officer has accepted the return of income in the assessment framed by him and details in this regard can be summarized in the following two charts:- Sl.No. Assst. Year Amount 1 2006-07 Rs.5 lacs 2 2007-08 Rs.5 lacs 3 2008-09 Rs.10 lacs 4 2009-10 Rs.130 lacs 5 2010-11 Rs.100 lacs A.Y. Returned Retuned Additional Addition made Total income offered income u/s income income in the curse of by the assessee and 139 u/s. shown in the income assessed. 153A the return assessment u/s 153A u/s 153A 2006-07 Rs.1,11,510 Rs. 5 Nil Nil Rs. 6,11,510/- lacs 2007-08 Rs.1,68,700/- Rs.5 lacs Nil Nil Rs. 6,68,700/- 2008-09 Rs.1,93,250/- Rs.10 Nil Rs.9,45,659/- Rs. 21,38,905/- lacs 2009-10 Rs. Nil Rs.1.30 Nil Rs.3,54,840/- Rs.1,33,54,840/- lacs In assessment orders passed for various AYs, the AO has accepted the income declared by assessee after making some additions and after verifying the books of accounts, other documentary evidence. The AO also initiated penalty proceedings against assessee u/s. 271(1)(c) of the Act by observing as follows:- “Penalty proceedings u/s 271(1)(c) has been separately initiated.” A show cause notice u/s. 274 of the Act was issued to the assessee for the AYs 2006-07 to 2009-10. The assessee submitted reply to the show cause notice pointing out that the disclosure made by the assessee was voluntary prior to any detection by the revenue and that there was no attempt to conceal particulars of income. The AO however held that but for the search and A.Ys. 06-07 to 09-10 Nishith Kr. Jain v. ACIT, CC-XXVII, Kol. Page 4 seizure operation the income declared by the assessee would not have been declared. Accordingly, the AO imposed penalty u/s. 271(1)(c) of the Act on the assessee for AYs 2006-07 to 2009-10.
On appeal by the assessee, Ld. CIT(A) confirmed the order of the AO imposing penalty by holding that Explanation 5A to Sec. 271(1)(c) of the Act was applicable to the case and therefore penalty was to be imposed on the assessee and therefore notwithstanding the fact that the income ultimately brought to tax in the assessment framed u/s. 153C of the Act was declared in the return of income filed by the assessee, penalty was to be imposed. Explanation 5A to Sec. 271(1)(c) of the Act reads thus:- “Explanation 5A: Where, in the course of as arch initiated under section 132 on or after the 1sst day of June, 2007, the assessee is found to be the owner of- (i) Any money, bullion, jewellery or other valuable article or ting (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 for any previous year; or (ii) Any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year,
which has ended before the date of search and,-
(a) Where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or (b) The due date for filing the return of income for such previous year has expired but the assessee has not filed the return,
Then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause © of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income.”
-964/Kol/2013 A.Ys. 06-07 to 09-10 Nishith Kr. Jain v. ACIT, CC-XXVII, Kol. Page 5 5. Aggrieved, by this order of Ld. CIT(A) assessee has preferred the present appeal before the Tribunal.
We have heard the submissions of the learned counsel for the assessee who submitted that the AO has not recorded satisfaction in the order of assessment that the assessee is liable to be proceeded against us/s 271(1)(c) of the Act except recording as follows in the order of assessment viz., “Penalty proceeding u/s. 271(1)(c) initiated”. According to him the above manner of initiation of penalty proceedings in the order of assessment is not in accordance with law.
The learned counsel for the assessee drew out attention to the show cause notice issued u/s. 274 of the Act before imposing penalty and submitted that the said notice doe s 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 pointed 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 v. 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 pointed show cause notice, then the imposition of penalty on the basis of such invalid show cause notice cannot be sustained.
The learned DR relied on the order of the CIT(A).
We have considered the rival submissions. The argument of the learned counsel for the Assessee was that the show cause notice u/s.274 of A.Ys. 06-07 to 09-10 Nishith Kr. Jain v. ACIT, CC-XXVII, Kol. Page 6 the Act which is in a printed form and the AO has 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 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”.
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 A.Ys. 06-07 to 09-10 Nishith Kr. Jain v. ACIT, CC-XXVII, Kol. Page 7 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.
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.
The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income -964/Kol/2013 A.Ys. 06-07 to 09-10 Nishith Kr. Jain v. ACIT, CC-XXVII, Kol. Page 8 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. 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.
-964/Kol/2013 A.Ys. 06-07 to 09-10 Nishith Kr. Jain v. ACIT, CC-XXVII, Kol. Page 9 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 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. -964/Kol/2013 A.Ys. 06-07 to 09-10 Nishith Kr. Jain v. ACIT, CC-XXVII, Kol. Page 10 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 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.
Taking a consistent view of assessee’s appeal in , so we allow remaining appeals of assessee accordingly.