SMT. AMINA ANVAR,KOLLAM vs. THE DCIT, CIRCLE 1, ALAPPUZHA, ALAPPUZHA

The brief facts of the case are as under: -

Pursuant to the reassessment order passed u/s. 143(3) r.w.s. 147 of the I.T.Act, 1961, the penalty proceedings were initiated u/s. 271(1)(C) of the Act. Subsequently, the AO/NFAC passed penalty order u/s. 271(1)(C) of the Act on 10.02.2022 ( penalty imposed Rs. 38,669/- being 100% of the tax sought to be evaded).

Aggrieved by the order imposing penalty. The assessee filed appeal before the first appellate authority. The ld.CIT(A) rejected the appeal of the assessee, since assessee did not file any written submissions in spite of two e-notices being issued to the assessee. The relevant findings of the ld.CIT(A) reads as follows:

Under the facts and circumstances of the case and in law the order passed by the AO u/s 271(1)( c) of the I.T. Act, 1961 by striking off the printed portion of the notice " have concealed the particulars of income" in the show cause notice dated 30.12.2019 and imposing penalty under section 271(1)(c) for "concealing the particulars of such income" is bad in law.

Under the facts and circumstances of the case and In law the order passed by the AO u/s 271(1)( c) of the I.T. Act, 1961 is against the principles of judicial consistency and therefore, bad in law. 3. That the order passed by the AO u/s. 271(1)(c) of the I.T.Act, 1961 is void ab intitio deserves to be quashed as no satisfaction was recorded with reference to concealment of income or furnishing inaccurate particulars of income, 4. Unless any positive concealment is found no penalty is leviable on basis of addition made on estimate. 5. The addition to the income of the assessee in this case is based on estimate basis whereas the concealment implies some deliberate act on the part of the assessee in withholding the true facts from the authorities. Therefore, in a case the additions were made on the basis of estimation and as agreed to by the assessee/ the penalty cannot be levied on such additions. 6. 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. 7 . The satisfaction regarding the grounds mentioned in section 271(1)(c) is essential for the Revenue to initiate the penalty proceedings. 8. The penalty proceedings must be confined only to those grounds specifically stated in the notice so that the assessee could meet those grounds. It is not open to the authority, to impose a penalty on the grounds other than what the assessee was called upon to meet. 9. The assessment was completed without giving proper opportunity to your appellant. The appellant sought an adjournment on 25-06-2022 upto 12-07 2022,which was not considered by the CIT NFAC, and dismissed the appeal on 30-06- 2022.1n view of this, . the order of the CIT NFAC is invalid. 10. Any other grounds that may be adduced at the time of hearing may also be considered. 7. The ld. AR submitted that penalty has been initiated for “furnishing inaccurate particulars” by the issue of show-cause notice date 30.12.2019,

The ld. DR on the other hand supported the orders of the AO and the ld.CIT(A).

We have heard the rival submissions and perused the material available on record. The Penalty u /s. 271(1)(c) of the Act can be initiated for i) concealment particulars of income or ii) furnishing inaccurate particulars of such income. Admittedly, in this case penalty proceedings was initiated in the assessment order for the latter limb namely “furnishing inaccurate particulars of such income”. Further, the notice u/s. 274 r.w.s. 271(1)(c) of the Act ( notice dated 30.12.2019) was issued for “furnishing inaccurate particulars of such income”. However, we noticed the penalty has been imposed vide order dated 10.02.2022 by referring to the first limb of section 271(1)(c) of the Act namely “concealment particulars of income”. Initiation of penalty on one of the limb and imposing the same on another limb of section 271(1)(c) of the Act does not satisfy the requirement of law. The imposition of penalty has to be clear as to the limb for which it is imposed. The Hon’ble Gujarat High Court in the case of A.M.Shah & Company vs. CIT (supra) had held that if very basis for penalty proceedings initiated by the AO disappears, then the penalty imposed on a different footing altogether cannot be sustained. The relevant finding of the Hon’ble Gujarat High Court reads as follows:-

The Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton and Ginning Factory reported in 359 ITR 565 has held the levy of penalty has to be clear as to the limb for which it is imposed and when the position being unclear, the penalty is unsustainable. The relevant finding of the Hon’ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton and Ginning Factory reads as follows:-

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 6 Smt. Amina Anvar 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 Gujrat 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 Taxmn 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.

Therefore, initiating the penalty in one limb and imposing the same on another limb does not satisfy the requirement of the law in view of the aforesaid judicial pronouncement. The levy of penalty has to be clear as to the limb for which it is imposed and the position in the instant case is unclear, hence, the penalty is not sustainable. Therefore, when the AO proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Not only that the penalty should be imposed under the same limb. Hence, respectively following judgments of the Hon’ble High Courts cited (supra), we direct the AO to delete the penalty imposed u/s. 271(1)(c) amounting to Rs. 38,669/-. It is ordered accordingly.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 09th March, 2023.