TMI Blog2017 (11) TMI 1620X X X X Extracts X X X X X X X X Extracts X X X X ..... uary 2014, passed by the learned Commissioner (Appeals) 1, Thane, confirming penalty imposed of ` 45 lakh under section 271(1)(c) of the Income tax Act, 1961 (for short the Act ) for the assessment year 2000 01. 2. Brief facts are, the assessee a trust is engaged in running a number of educational institutions in Thane District. Pursuant to a search and seizure operation conducted under section 132 of the Act on the assessee on 20th July 2005, a notice under section 153A was issued to the assessee on 24th March 2006. In response to the said notice, the assessee filed its return of income for the impugned assessment year on 31st May 2006, declaring loss of ` 74,69,576. In the course of assessment proceedings, the Assessing Officer while examining assessee s claim under section 11 of the Act found that the assessee was granted registration under section 12A of the Act from 1st April 2000. Hence, the said registration granted to the assessee is not applicable for assessment year 2000 01. Therefore, the assessee cannot claim exemption under section 11 of the Act. Further, he also found that the registration granted to the assessee under section 12A of the Act was subsequently cance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not specified the exact offence for which he intends to impose penalty by striking off the inappropriate words. Learned Authorised Representative submitted, that being the case, order passed imposing penalty under section 271(1)(c) is invalid as the mandatory conditions of the statute have not been fulfilled. In support of such contention, he relied upon the following decisions. i) CIT v/s Manujunatha Cotton and Ginning Factory, 359 ITR 565 (Kar.); ii) A.P. Shanmugaraj v/s M.W.P. Ltd., [2014] 264 CTR 502 (Kar.); iii) CIT v/s SSA‟s Emerald Medos, [2016] 73 taxmann.com 248 (SC); iv) H.C. Jahangir v/s ACIT, ITA no.1261/Mum./2011 dated 17th May 2017; v) Vadhwa Estate and Developers v/s ACIT, ITA no.2158/Mum./ 2016 dated 24th February 2017; and vi) Subha Prasanna Bhattacharya v/s ACIT, ITA no.1303/Kol./ 2010; 6. Learned Departmental Representative strongly supporting the order of the learned Commissioner (Appeals) submitted that in the course of search and seizure operation various incriminating material was found and on that basis as well as on the basis of the report of the special audit additions were made by the Assessing Officer, part of which was su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to be construed more strictly. They have to be interpreted only for the said issue for which it has deemed and the manner in which the deeming has been contemplated to be restricted in the manner sought to be deemed. As the words used in the legal fiction or the deeming provisions of Section 271(1B) is Direction, it is imperative that the assessment order contains a direction. Use of the phrases like (a) penalty proceedings are being initiated separately and (b) penalty proceedings under Section 271(1)(c) are initiated separately, do not comply with the meaning of the word direction as contemplated even in the amended provisions of law. The direction should be clear and without any ambiguity. The word direction‟ has been interpreted by the decision of the Apex Court in the case of RAJENDRANATH reported in 120 ITR pg.14, where it has been held that in any event whatever else it may amount to, on its very terms the observation that the ITO is free to take action, to assess the excess in the hand of the coowners cannot be described as a direction. A direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the option and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is any concealment of particulars of his income or he has furnished inaccurate particular of income the said satisfaction must be expressly stated in the said order. If that is not stated, at least, the order should state what is mentioned in Explanation 1. It is only if those facts are set out in the order, then the deeming provision in Explanation 1 applies and the concealment of income could be presumed and then they are entitled to initiate penalty proceedings under Section 271. If the said order do not disclose the facts set out in Explanation 1, they are not entitled to the benefit of deeming provision contained in provision (1)(B). The said deeming provision is confined only to the Assessing Officer. 10. The Hon ble Court after dealing with all the aspects ultimately concluded as under: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfaction, 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 procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 271(1)(c) of the Act he intends to invoke for imposing penalty on the assessee. The Assessing Officer has not struck off inappropriate words in the said notice. Thus, cumulative effect of the aforesaid facts if examined in the touch stone of the ratio laid down in the decisions referred to above, it becomes absolutely clear that the Assessing Officer has not recorded any satisfaction regarding the exact nature of offence committed by the assessee for initiating proceedings for imposition of penalty under section 271(1)(c) of the Act. Therefore, the basic conditions of the said penalty provision has not been complied with. Thus, on overall consideration of the facts and material on record and keeping in view the ratio laid down in the judicial precedents cited before us, we are of the considered opinion that the impugned penalty order passed in case of the assessee is invalid due to lack of recording of satisfaction by the Assessing Officer with regard to the nature of offence committed by the assessee. Hence, we have no hesitation in deleting the penalty imposed. 13. Since we have deleted the penalty on the legal ground raised by the assessee it is needless to go into the me ..... X X X X Extracts X X X X X X X X Extracts X X X X
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