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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: Shri Mahavir Singh, & Shri M. Balaganesh
This appeal of the assessee arises out of the order of the Learned CIT(A), Central-1, Kolkata in Appeal No. 91/CC-XI/CIT(A), C-I/10-11 dated 19-08-2011 for the assessment year 2008-09 against the penalty order passed by the Learned AO u/s 271(1)(c ) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
The only issue to be decided in this appeal is as to whether the penalty u/s 271(1)(c ) of the Act could be levied in the facts and circumstances of the case.
The brief facts of this issue is that a survey operation u/s 133A of the Act was conducted in the factory premises of the assessee on 24.1.2008 wherein the stocks were inventorized by employing a surveyor. The Learned AO observed that the stock of materials found at the factory was more than the stock recorded in the books to the tune of Rs. 7,05,210/- which was added as undisclosed income of the assessee. No appeal has been filed against the quantum addition. While completing the assessment
1 M/s. Atibir Hi-Tech Pvt. Ltd proceedings, the Learned AO initiated penalty proceedings u/s 271(1)( c) of the Act for concealing the particulars of income. The assessment was completed u/s 143(3) of the Act for the Asst Year 2008-09 on 31.12.2009. The order of penalty u/s 271(1)(c ) of the Act was passed on 29.6.2010 levying penalty @ 300% of the tax sought to be evaded on the addition of Rs. 7,05,210/- and penalty of Rs. 6,53,727/- was levied on the charge of furnishing inaccurate particulars of income. On first appeal, the Learned CITA confirmed the levy of penalty but reduced the same from 300% to 100% of tax sought to be evaded. Aggrieved, both the assessee as well as the revenue were in appeal before us. The revenue’s appeal has been dismissed for low tax effect based on the circular No. 21/2015 dated 10.12.2015. The assessee has raised the following grounds before us :- 1) For that on the facts and in the circumstances of the case, the Ld. CIT(A) was unjustified in law & on facts in imposing penalty u/s 271(1)(c ) of the Act even though the appellant was not guilty of concealment of income.
2) For that on the facts and in the circumstances of the case, the Ld. CIT(A) was unjustified in holding the appellant guilty of furnishing inaccurate particulars in respect of alleged discrepancy in stock even though the stock taking conducted by the survey team was on eye estimate without having any qualification for undertaking stock exercise.
3) For that on the facts and in the circumstances of the case, the Ld. CIT(A) was grossly unjustified in levying penalty u/s 271(1)(c) even though no defects in the stock records regularly maintained and quantitative details certified by the auditor could be found.
4) For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in levying penalty of 100% u/s 271 (1)( c ) of the tax on the grounds that the appellant had accepted the addition and did not prefer an appeal; hence, the appellant was guilty of furnishing particulars of income.
2 M/s. Atibir Hi-Tech Pvt. Ltd
5) For that the appellant craves leave to submit additional grounds and/or amend or alter the grounds already taken either at the time of hearing of the appeal or before.
The Learned AR argued that the penalty was initiated on one charge i.e for concealing the particulars of income at the time of assessment proceedings but levied on the charge i.e for furnishing inaccurate particulars of income. Hence he argued that the penalty levied u/s 271(1)(c ) on the charge is different from the charge on which the satisfaction was recorded by the Learned AO at the time of issuance of penalty notice and accordingly prayed for deletion of the penalty. He relied on the decision of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton & Ginning Factory reported in (2013) 35 taxmann.com 250 (Karnataka) in support of his contentions. In response to this, the Learned DR vehemently supported the orders of the lower authorities.
We have heard the rival submissions and perused the materials available on record. We find that in the instant case that the assessee has been charged with one offence of concealing the particulars of income while initiating the penalty proceedings by the Learned AO. It will be relevant to reproduce the relevant portion of the assessment order recording satisfaction for initiation of penalty proceedings u/s 271(1)(c ) of the Act, as below:-
“I am satisfied that it is a fit case for initiation of penalty proceedings u/s 271(1)(c ) of I.T. Act, 1961 for concealing the particulars of income. Accordingly, penalty proceedings u/s 271(1)(c ) of the I.T.Act, 1961 is initiated separately.”
Whereas the Learned AO while levying the penalty u/s 271(1)(c ) of the Act had accused the assessee for another offence i.e furnishing inaccurate particulars of income. It will be relevant to reproduce the relevant portion of the penalty order recording satisfaction for levying penalty u/s 271(1)(c ) of the Act, as below:-
3 M/s. Atibir Hi-Tech Pvt. Ltd
“In view of the above, I am satisfied that it is a fit case for imposition of penalty u/s 271(1)(c ) for furnishing inaccurate particulars of income.”
We hold that merely because the assessee accepted addition and did not challenge the assessment order by way of appeal, it cannot be concluded that such addition amounts to concealment of income or furnishing of inaccurate particulars of income. We are of the opinion that the assessee should be specifically informed about the specific charge on which he has committed the offence i.e whether he has concealed the particulars of income or he has furnished inaccurate particulars of income. Admittedly the provisions of section 271(1)(c ) of the Act contains two limbs which are completely separate and distinct. We find that our proposition is endorsed by the decision of the Hon’ble Karnataka High Court in the case of CIT vs Manjunatha Cotton & Ginning Factory reported in (2013) 35 taxmann.com 250 (Karnataka) in this regard and hence the reliance placed by the Learned AR on the said decision is well placed and directly on the impugned issue. Their Lordships of the Karnataka High Court held as below:- “ 60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both the offences. But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(l)(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 4 M/s. Atibir Hi-Tech Pvt. Ltd 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.”
Respectfully following the aforesaid judgement of the Karnataka High Court , we hold that the penalty initiated in the assessment proceedings on the ground of concealment of income but later imposed on the ground of inaccurate particulars of income is bad in law. For the reasons given hereinabove, we hold that the levy of penalty in the present case cannot be sustained. We therefore cancel the order imposing penalty on the assessee and allow the appeal by the assessee.
In the result, the appeal of the assessee is allowed.
THIS ORDER IS PRONOUNCED IN OPEN COURT ON 20 -01-2016