SRI SASHI BADALIA,KOLKATA vs. A.C.I.T CC - XXVII,KOLKATA., KOLKATA

These five appeals filed by same assessee against the order of Commissioner of Income Tax (Appeals)-II, Kolkata dated 11.01.2013. Assessments were framed by ACIT, CC-XXVII, Kolkata u/s 153A r.w.s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 28.12.2011 for assessment years 2005-06 to 2009-10 respectively. Penalty levied by Assessing Officer u/s 271(1)© of the Act vide order dated 29.06.2012.

The facts the case are that there was a search and seizure under section 132 of the Act in the Badalia Group on dated 10-10-2009 at 66/3A, Beadon Street, Kolkata-700006. The Badalia Group engaged in the business of gems, jewellery & diamonds. The assessee, in the present appeal, is one of the key persons of the group. During the course of the search, the cash and jewellery was found from the residence, office premises, bank lockers and from the premises of the workers. The statement of the assessee was recorded under section 132(4) of the Act. As a result of search, assessee has made the disclosure of the following incomes besides the income already declared under section 139 of the Act. A.Y Amount (Rs) 2010-11 14,00,50,000/- 2009-10 16,00,000/- 2008-09 15,00,000/- 2007-08 13,50,000/- 2006-07 45,00,000/- 2005-06 10,00,000/- Total 15,00,00,000/- The AO has made the assessment under section 153A/143(3) of the Act by accepting the income declared in pursuance of section 153A of the Act. For the year under consideration the assessee has declared an additional income of ₹10 lakhs which is over and above the income declared in the original return of income. The assessee was found to have generated this unaccounted income for the relevant year under consideration out of the A.Ys.05-06 to 09-10 Sh. Sashi Badalia v. ACIT,CC-XXVII, Kol. Page 4 jewellery business which was not offered for the tax. The assessee confirmed the disclosure in the deposition made u/s 131 of the Act. The seized material as a result of the search was also confronted to the assessee. However the assessee submitted that there was sufficient and reasonable cause which prevented the assessee to disclose such income before the tax authorities. The original return was filed for an amount of ₹2,71,951/- only. Now the assessment was framed under section 153A of the Act for an amount of ₹12,71,951/- only. In the assessment order, AO initiated penalty proceedings and issued a notice u/s 274 of the Act stating that you have concealed the particulars of income or furnished inaccurate particulars of such income. Finally the AO imposed penalty in terms of explanation 5A to the section 271(1)(c) of the Act by holding that the penalty is levied for furnishing the inaccurate particulars of income leading to concealment of ₹10 lacs for an amount ₹3,36,600/- @100% of the tax sought to be evaded.

Aggrieved assessee preferred appeal before Ld. CIT(A) who has upheld the action of Assessing Officer by observing as under:- “5. I have considered the submission of the appellant and perused the assessment order. I have also gone through the judicial pronouncements relied upon by the appellant. It is observed that a search & seizure operation was conducted in the case of Shri Shashi Badalia & Group on 10.10.2009. In the course of search, incriminating documents and undisclosed assets were found. The appellant owned the undisclosed income and unaccounted assets in his hand and accordingly in the course of search, additional income of Rs.15 crores was admitted from assessment year 2005-06 to 2010-11. In the course of assessment proceedings, the assessee submitted the year-wise bifurcation of additional income which was declared in the respective assessment years. For the year under appeal the undisclosed income admitted by the appellant was Rs.10,00,000/-. In the return of income filed u/s 153A, the said declared income was taken into consideration and the return was filed showing total income of Rs.12,71,951/-. The assessment was also completed on the same income. However, it is a fact on record that the appellant did not disclose the aforesaid income in the return of income filed u/s. 139(1) of the Act. In the course of appellate proceedings, the appellant has contended that the penalty u/s. 271(1)© is not leviable in his case because the additional income was disclosed in the course of search u/s. 132(4) of the Act and the same A.Ys.05-06 to 09-10 Sh. Sashi Badalia v. ACIT,CC-XXVII, Kol. Page 5 income was assessed by the AO. It is also argued by the appellant that the return filed u/s 153A is equivalent to the return filed u/s. 139(1) and hence even the penalty is not leviable by applying provisions of Explanation 5A of section 271(1)©. However, on careful consideration of the facts and going through the amended provisions of section 271(1)© along with Explanation 5A, I am not inclined to agree with the submission of the appellant that for the year under appeal the penalty is not leviable u/s. 271(1)©. The provisions of Explanation 5A of section 271(1)© reads as under:- [Explanation 5A – Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of –

Shri S.L. Kochar and Shri Anil Kochar, Ld. Authorized Representative appearing on behalf of assessee and Shri Niraj Kumar, Ld. Departmental Representative appearing on behalf of assessee.

We have heard rival contentions of both the parties and perused the materials available on record. Before us the ld. AR submitted that all the seized papers and documents relate to AY 2010-11. There is no paper/document seized that could show any undisclosed income relatable to AYs 2005-06 to 2009-10. During the course of search and seizure operation the assessee had admitted a rough amount of ₹15 crores on estimate basis A.Ys.05-06 to 09-10 Sh. Sashi Badalia v. ACIT,CC-XXVII, Kol. Page 7 as his income. But later the assessee found that the entire amount of ₹15 crores was not related to seized papers & documents except income of Rs.14.05 crores relating to AY 2010-11. However, the assessee was advised to show the balance amount in the returns for AY 2005-06 to 2009-10 suo- motu. The assessment which abated on the date of search related to AY 2009-10 and for all other years the assessment had already been completed. So those years could not be disturbed. Besides, the penalty proceedings initiated u/s. 271(1)(c) by way of notice do not indicate the satisfaction as to whether it is a case of concealment of income or furnishing of inaccurate particulars of income. Thus, the notice issued u/s. 271(1)(c) is bad in law. Ld. AR drew our attention to the legal principles enunciated by Hon'ble Bombay High Court in the case of Continental Warehousing Corporation (Nhava Sheva) Ltd. and Hon'ble Allahabad High Court in the case of Shaila Agarwal and Mumbai Special Bench decision in the case of All Cargo Global Logistic on the issue of assessments u/s. 153A of the Act. Ld. AR submitted that since search & seizure proceedings u/s 132 of the Act are governed by the provisions contained in Sec. 153A, 153B and 153C which are in fact self contained provision, any return filed u/s. 153A of the Act cannot have any bearing about the return filed earlier u/s. 139 of the Act. Therefore, the AO cannot make weighment of the amount of income as shown u/s. 139 of the Act and shown u/s. 153A of the Act. A reference to para-9 of the penalty order is requested which is subtracted hereunder:- “The explanation of the assessee is also not tenable in view of the present decision given by the Ahmedabad Tribunal in the case of ACIT, Central Circle (Ahd) TM. It has been held that immunity against the penalty as per Explanation-5 to Sec. 271(1)(c) will be available only in respect of such assessment years where the original return u/s. 139(1) was due and filed after the search and not for earlier assessment years where return u/s. 139(1) was filed earlier.

From the aforesaid discussion we find that the assessee has declared the income as a result of search and seizure on the premises of the assessee. The AO in the instant case found that the assessee has declared an income of Rs. 10 lacs over and above the income declared in the original return. The AO initiated the penalty proceedings under section 271(1)(c) of the Act and imposed the same. However in the instant case we find from the claim of the ld. AR that the income disclosed as a result of search was roughly estimated Rs. 15 crores at the time of search and the statement was accordingly given. But the assessee after viewing the seized assets and documents found the undisclosed income is of Rs. 14.05 crores only. Besides it was also found out that the entire undisclosed income pertains to the assessment 2010-11. Hence there was no undisclosed income pertaining to the year under consideration. However the assessee decided to offer the income to tax in pursuance of the statement recorded under section 132(4) of the Act i.e. Rs. 15 crores and allocated the income Rs. 0.95 crores over the assessment years from 2005-06 to 2009-10. We also observed that the ld. DR has also not brought anything on record to controvert the argument of the assessee. -447/Kol/2013 A.Ys.05-06 to 09-10 Sh. Sashi Badalia v. ACIT,CC-XXVII, Kol. Page 9 Besides the above, the income disclosed by the assessee in pursuance to section 153A of the Act has been admitted by the Revenue.

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 -447/Kol/2013 A.Ys.05-06 to 09-10 Sh. Sashi Badalia v. ACIT,CC-XXVII, Kol. Page 11 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 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 pro forma 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. -447/Kol/2013 A.Ys.05-06 to 09-10 Sh. Sashi Badalia v. ACIT,CC-XXVII, Kol. Page 12 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 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. -447/Kol/2013 A.Ys.05-06 to 09-10 Sh. Sashi Badalia v. ACIT,CC-XXVII, Kol. Page 13 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.”

Taking a consistent view in assessee’s appeal in as a leading case and common grounds raised in other appeals of assessee in ITA No.444/Kol/2013 to 447/Kol/2013, hence, we allow assessee’s appeals in terms of our decision in para-7 to 8.3 of this order accordingly.