TMI Blog2013 (7) TMI 620X X X X Extracts X X X X X X X X Extracts X X X X ..... on record to show the concealment of income - it cannot be inferred that the said addition is on account of concealment - the assessee has offered the explanation - The said explanation is not found to be false - On the contrary it is held to be bonafide - the entry found in the rough cash book could have been reflected in the accounts for the said financial year in which the survey took place as the last date for closing the account was still not over - the assessee agreed to pay tax and did not challenge the assessment order decided in favor of assesse. Validity of notice u/s 271(1)(c) - Whether the notice issued under Section 271(1)(c) in the printed form without specifically mentioning whether the proceedings are initiated on the ground of concealment of income or on account of furnishing of inaccurate particulars is valid and legal and the proceedings initiated by the Assessing Authority was legal and valid Held that:- The Tribunal was justified in holding that the entire proceedings are vitiated as the notice issued is not in accordance with law thus justified in interfering with the order passed by the Appellate Authority as well as the Assessing Authority and in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GEMENT:- A batch of appeals where different facets of Section 271 of the Income Tax Act, 1961 are involved, were placed before us. Therefore, we heard all the learned counsel appearing in the batch of cases, considered all the arguments addressed and interpreted Section 271 in its different facets and have laid down the law. FACTUAL MATRIX FACTS IN ITA Nos. 2564 2565/2005 2. The facts of this case are as under:- The assessee - firm in ITA No. 2564/2005 is in the business of purchasing kapas and converting it into cotton in the ginning factory owned by it and trades in cotton and cotton seeds. The assessee had filed the return of income for the assessment year 2000-01 declaring total income of ₹ 2,29,520/-. A survey under Section 133A of the Income Tax Act (for short hereinafter referred to as the Act ) was conducted in the business premises of the assessee on 23.11.2000. During the course of survey, a notebook was found in the business premises of the assessee, wherein certain transactions carried were noted. These transactions pertains to four cases showing names and amounts. The total of the transactions amounted to ₹ 7,98,200/-. The partner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsue the said orders and accepted the quantum proceedings. It is on the basis of the said revised return, the additions were made. 5. Therefore, notice under Section 274 read with Section 271(1)(c) of the Act was issued to the assessee to explain why penalty should not be levied for having concealed particulars of income/showing inaccurate particulars of income. The assessee contended that the said amounts were paid to the agriculturists towards purchase of Kappas, which was noted in the rough cash book and the entries were yet to be entered in the cash book at the time of survey. To buy peace with the Department, they have voluntarily agreed to declare the said sums towards cessation of the creditors liabilities and that accordingly as per the instructions of authorities, they filed revised return of income for the assessment year 2000-01 on 08.12.2000. Though the survey was made on 23-11-2000 during the financial year 2000-01 relevant to the assessment year 2001-02, they had paid taxes for the assessment year 2000- 01 itself and co-operated with the department in Survey and assessment proceedings to keep good relations. Assessing Officer found that reply was not convincing and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order. The Appellate Authority came to the conclusion that there was stock outside the books of accounts, the fact of which was accepted by the assessee also and the assessee has been producing more iron ore than what is being shown as produced in the books of accounts. Therefore, he held addition made under Section 69 of the Act is unsustainable. However, he made the addition as closing stock/suppressed stock of 3,98,704 metric tons. Thus he gave relief to the extent of ₹ 1,47,29,052/- and the value of the suppressed stock of ore, which was added was ₹ 3,51,08,948/-. To purchase peace, the assessee agreed to pay the tax and had not challenged the order of the Appellate Authority. Even after the said order of the Appellate Authority, the Assessing authority proceeded with the penalty proceedings initiated on 05.05.2006. The assessee filed his objections to the same on 26.02.2007 contending that the Assessing Officer has not recorded satisfaction about the assessee furnishing inaccurate particulars or concealing the income. Addition made under Section 69 of the Act at ₹ 4,98,39,000/- has not been accepted by the Appellate Authority, who also had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds the impugned order passed by the Appellate Authority as well as the Assessing Authority was set-aside by its order dated 9th April, 2009. Aggrieved by the said order, the present appeal is filed. In ITA Nos.5022 and 5023 of 2009 10. The assessee M/s.V.S.Lad Sons is a partnership, firm carrying on the business of mining, processing of iron ore, its sale and export. For the assessment year 2003-04, the Assessing Officer made additions of ₹ 55,74,02,205/- and for the assessment year 2004-05 a sum of ₹ 19,14,73,408/- under Section 69 of the Act being undisclosed stock and concluded the assessment accordingly. Thereafter, the Assessing Authority simultaneously initiated penal proceedings under Section 271(1)(c) of the Act. Against the aforesaid additions, the assessee preferred appeal to the Commissioner of Income tax (Appeals). The Appellate Authority held that the Assessing Authority had not brought any evidence of any expenditure outside books of accounts, so as justify the additions under Section 69. Therefore, he set aside the said additions. However, he found that there is a stock outside books of accounts. It has to be valued and brought to tax. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority, Gulbarga who made the orders of disallowances by upholding the disallowances on different grounds for both the assessments years under dispute. This was not so. That being the situation, they declined to interfere with the order passed by the Appellate Authority who has cancelled the levy of penalty. Aggrieved by the said order, the Revenue has preferred this appeal. ITA Nos.5025 and 5026 of 2010 12. The assessee M/s. G.M. Exports is a partnership firm, which is engaged in the business of manufacture of trading of processed dimensional granite blocks. It is also engaged in the business of dealing in import of ceramic tiles. Return of income for the assessment year 2003-04 was filed on 28.11.2003 declaring a total income of ₹ 3,62,590/-. For the assessment year 2004-05 the return was filed on 29.10.2004 declaring the total income of ₹ 4,78,649/-. The returns were processed under Section 143(1) of the Act on 13.02.2004 for the assessment year 2003-04 and on 25.01.2005 for the assessment year 2004-05. Subsequently, the returns were taken up for scrutiny. The additional DIT Investigation Unit-I at Bangalore forwarded certain information on account of a searc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts of the assessee company and as shown by the assessee in its books of accounts. The assessee replied contending that the said addition was made in the assessment on agreed basis and therefore, there was no justification to impose penalty under Section 271(1)(c) in respect of the said addition. Insofar as the excess quantities are concerned it was contended that a notional valuation adopted under the customs valuation rules could not be taken as a basis to allege any concealment of his income from the assessee. There was nothing available on record to show that any extra payment either in the books or outside the books was made by the assessee against the imported tiles and in the absence of the same, it cannot be said that any unexplained investment was made on behalf of the assessee to attract levy of penalty under Section 271(1)(c). The said explanation was not accepted and penalty was imposed. Aggrieved by the said order imposing penalty, the assessee preferred an appeal to the Commissioner of Income tax (Appeals). The Appellate Authority held that although the claim of the assessee has not been accepted by the Assessing authority, it did not out rightly reject the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Tribunal. The Tribunal, on consideration of the aforesaid material held the valuation under Section 14 of the Customs Act is a sort of notional valuation inasmuch as the same is done without taking into consideration the actual payment made by the purchaser of imported goods. There was nothing brought on record to show that any payment outside the books of accounts was made by the assessee against purchase or import of tiles from the overseas supplements and in the absence of the same, the alleged under-invoicing of imported tiles on the basis of valuation made under the Customs Act would justify the addition to the total income of the assessee but not imposition of penalty under Section 271(1)(c) of the Act. The said addition made on the basis of the valuation made under the Customs Act was accepted by the assessee to buy peace of mind and to avoid extra litigation. Therefore, the Tribunal was of the view that no adverse inference can be drawn against the assessee on the basis of the same to impose penalty under Section 271(1)(c). Similarly, the addition made on account of difference in creditors accounts was accepted by the assessee to avoid any further litigation as he c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome, the assessee had not declared the income which came to be detected by the department during the course of survey. It is after the survey the assessees have filed the revised returns which itself would go to show that amount offered during the survey is concealed income. There is no finding by the tribunal that there was cessation of liability of these amounts during the relevant financial year. Hence, he contends that levy of penalty is required to be sustained. For imposition of penalty mens rea is not a requirement. Once the conditions mentioned in Section 271 (1) (c) is held to have been established the imposition of penalty is automatic and no discretion is left in the authorities. 20. Sri. Shankar, learned counsel appearing for the assessees contends that explanation offered by the assessees was not held to be false by the Tribunal. The payments recorded in a rough cash book which was found during the time of survey did not contain any dates against the payments made and entries were to be made by the accountant on the next working day and as such in order to buy peace with the department the assessees in quantum proceedings voluntarily declared the sum as income repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to substantiate the entry but in the penalty proceedings, penalty cannot be levied on inference. Therefore, they held the admission of an additional income do not lead to conclude that the assessee has failed to furnish the income/inaccurate particulars of income are furnished. Therefore, the Tribunal held the penalty under Section 271(1)(c) of the Act is not attracted in both the cases and accordingly ordered for its deletion. STATUTORY PROVISIONS 23. Chapter XIV of the Income Tax, 1961 deals with procedure for assessment. Section 139 deals with return of income. Section 140 deals with return by whom to be signed. Section 140A deals with self assessment. Section 141 deals with provisional assessment. Section 142 deals with enquiry before assessment. Section 143 deals with assessment. Section 147 deals with income escaping assessment. Chapter XXI deals with penalties imposable. Section 271 deals with failure to furnish returns, comply with notices, concealment of income, etc., It reads as under:- 271. FAILURE TO FURNISH RETURNS, COMPLY WITH NOTICES, CONCEALMENT OF INCOME, ETC. (1) If the Assessing Officer or the Commissioner (Appeals) in the course of any pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ousand rupees, except with the prior approval of the Deputy Commissioner. (3) An income- tax authority on making an order under this Chapter imposing a penalty, unless he is himself the Assessing Officer, shall forthwith send a copy of such order to the Assessing Officer'. 25. Chapter XXII deals with offences and prosecutions. Section 276C deals with willful attempt to evade tax, etc., It reads as under: - Section 276C. WILFUL ATTEMPT TO EVADE TAX, ETC (1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable, - (i) in a case where the amount sought to be evaded exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine; (ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine. (2) If a person wilfully attempts in any manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore to be conducted in accordance therewith, subject always to the rules of natural justice. The provisions for the assessment and levy of tax will not apply as such for the imposition of penalty. In such a situation, i.e., when there is a specific provision, proceedings should be taken only thereunder and not under any other provision. Section 271 alone, therefore, governs the imposition of penalties for concealment of income or for furnishing inaccurate particulars of such income. The validity of penalty proceedings will have to be tested only from the perspective of Section 271. 28. Section 271(1) makes appropriate provision for levying penalties on assessee in different eventualities. One such eventuality is for concealment of income or furnishing of inaccurate particulars of such income. The penalty provisions has two distinct limbs. One limb deals with the condition precedent for initiating penalty action and assumption of jurisdiction of the authority concerned. This limb is separately enacted in Clause (c) of sub-section (1) of section 271. The other limb of the penalty provisions is the substantial part which deals with the actual imposition of the liability for pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed income needs an explanation. (2) If no explanation is offered, levy of penalty may justified. (3) If explanation is offered, but is found to be false, penalty will be exigible. (4) If explanation is offered and it is not found to be false, penalty may not be leviable, - (a) such explanation is bona fide. (b) the assessee had made available to the Assessing Officer all the facts and materials necessary in computation of income. 32. Therefore the Explanation-I understood in the proper context, in particular, clause (c) of Sub-section (1) of Section 271 makes the intention of the legislaure manifest. It clearly sets out when penalty is leviable and when penalty is not leviable. The condition precedent for levying the penalty is the satisfaction of the authority that there is a concealment of the particulars of the income or inaccurate particulars are furnished to avoid payment of tax. Once the authority comes to such conclusion, the law mandates that before imposing penalty, the assessee must be heard. The assessee is given the opportunity to offer his explanation. Once such an opportunity is given and the assessee fails to offer the explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NCEALMENT 34. The word conceal means to hide, to keep secret. The phrase conceal the particulars of his income would include false deduction or exemptions claimed by the assessee in his return. The word conceal involves a knowledge on the part of the assessee of the real income when giving the particulars. Concealment might arise even if the statement as to the income is a guarded one, as, for example, the enquiry should be made to ascertain the correct income. Concealment of income may arise in various ways. It may take various forms of manipulation of entries in accounts, non-disclosure of items of source that existed and income that has clearly been earned by the assessee in the previous year, claim of false deductions or losses, suppression of sales, camouflage of income as loans taken from third parties and claim of interest thereon as deduction, giving a colour of agricultural income to the otherwise taxable income, and unexplained investments that can be clearly attributed to concealed income. However, mere addition or estimates made on mere suspicion that there is something wrong with the book entries or their incompleteness, inadvertent omissions, debatable addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be found that the assessee concealed any income. Where there is no concealment, or no material for concealment, no penalty can be imposed. But where the assessee has concealed income, any subsequent act of voluntary disclosure would not affect the imposition of penalty. The mere addition to the taxable income would not automatically lead to an order of penalty. Further, the levy of penalty is not an automatic concomitant of the assessment. Therefore, safeguards have been provided for in the Act itself to see that penalties are levied only in appropriate cases. The Apex Court in the case of SURESHCHANDRA MITTAL reported in 251 ITR 9, held that higher income offered after search would not lead to levy of penalty automatically. The Apex Court in the case of DILIP SHROFF reported in 291 ITR 529, at Page 547 at para 62 has observed that finding in assessment proceedings cannot automatically be adopted in penalty proceedings and the authorities have to consider the matter afresh from different angle. This Court in the case of VASANTH K HANDIGUND reported in 327 ITR 233, has held that when addition has been accepted to buy peace and avoid litigation and the explanation was found reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eft with the authorities in the matter of imposing penalty. In support of the said contention, the revenue relied on the judgment of the Apex Court in the case of UNION OF INDIA VS. DHARMENDRA TEXTILES PROCESSORS OTHERS reported in (2008) 306 ITR 277 (SC). 38. The Supreme Court in the case of Gujarat Travancore Agency V. CIT [1989] 3 SCC 52, at page 55, paragraph 4 held as under: ..It is sufficient for us to refer to section 271(1)(a), which provides that a penalty may be imposed if the Income-tax Officer is satisfied that any person has without reasonable cause failed to furnish the return of total income, and to section 276C which provides that if a person wilfully fails to furnish in due time the return of income required under section 139(1), he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine. It is clear that in the former case what is intended is a civil obligation while in the latter what is imposed is a criminal sentence. There can be no dispute that having regard to the provisions of section 276C, which speaks of wilful failure on the part of the defaulter and taking into consideration the nature of the penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income-tax Act was lost sight of in Dilip N. Shroff s case (2007) 8 Scale 304 (SC). The Explanations appended to section 272(1)(c) of the Income Tax Act entirely indicate the element of strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The judgment in Dilip N. Shroff s case (2007) 8 Scale 304 (SC) has not considered the effect and relevance of section 276C of the Income-Tax Act. The object behind the enactment of section 271(1)(c) read with the Explanations indicates that the said section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under Section 276C of the Income-Tax Act. ..Dilip N. Shroff s case (2007) 8 Scale 304 (SC) was not correctly decided but Chairman, SEBI s case (2006) 5 SCC 361 has analysed the legal position in the correct perspectives. The reference is answered. 40. In the Dharmendra s case the apex Court was dealing with the penalty provisions contained in the Central Excise Act, 1944, Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alam, J.) was a party to the decision in Dharmendra Textile (supra ) and we see no reason to understand or read the decision in that manner .. . 21. From the above, we fail to see how the decision in Dharmendra Textile (supra) can be said to hold that S. 11AC would apply to every case of non-payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application. 23. The decision in Dharmendra Textile (supra) must, therefore, be understood to mean that though the application of S. 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-s. (2) of s.11A. That is what Dharmendra Textile (supra) decides. 24. It must, however, be made clear that what is stated above in regard to the decision in Dharmendra Textile (supra) is only insofar as s. 11 (A) (C) is concerned. We make no observations (as a matter of fact there is no occasion for it! ) with regard to the several other statutory provisions that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses of section 271(1)(c),the amount added or disallowed in computing the total income is deemed to represent the concealed income. The penalty spoken of in Section 271(1)(c) is neither criminal nor quasi-criminal but a civil liability; albeit a strict liability. Such liability being civil in nature, means rea is not essential. .The decision in Dharmendra Textile must, therefore, be understood to mean that though the application of section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of section 11A. That is what Dharmendra Textile decides. Then the Apex Court held as under: It goes without saying that for applicability of section 271(1) (c), the conditions stated therein must exist. 45. Following the said judgment it was held that it goes without saying that for the applicability of Section 271(1) (c) conditions stated therein must exist. 46. In a recent judgment the Supreme Court after referring to the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was no necessity of mens rea. The court went on to hold that the objective behind the enactment of section 271(1)(c) read with Explanations indicated with the said section was for providing remedy for loss of revenue and such a penalty was a civil liability and, therefore, wilful concealment is not an essential ingredient for attracting civil liability as was the case in the matter of prosecution under section 276C of the Act. The basic reason why decision in Dilip N. Shroff v. Joint CIT was overruled by this Court in Union of India V. Dharmendra Textile Processors, was that according to this Court the effect and difference between section 271(1)(c) and section 276C of the Act was lost sight of in the case of Dilip N. Sharoff V. Joint CIT. However, it must be pointed out that in Union of India v. Dharmendra Textile Processors, no fault was found with the reasoning in the decision in Dilip N. Shroff v. Joint CIT, where the Court explained the meaning of the terms conceal and inaccurate . It was only the ultimate inference in Dilip N. Shroff v. Joint CIT to the effect that mens rea was an essential ingredient for the penalty under section 271(1)(c) that the decision in Dilip N. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clear where in respect of any facts material to the computation of the total income of any person under this Act such person fails to offer an explanation or offers an explanation which is found to be false or offers an explanation which is not able to substantiate and fails to prove that such explanation is bonafide, then the amount added or disallowed in computing the total income of such person as a result thereof shall for the purposes of clause (c) of this sub-section be deemed to represent the income in respect of which particulars have been concealed. Therefore, it is clear that aforesaid instances by itself do not constitute concealment. The Assessing Officers were just writing at the end of the assessment order that penalty proceedings are initiated or something to the effect. The Delhi High Court in the case of Ram Commercials has held that such a note alone in the assessment order does not satisfy the requirement of assuming jurisdiction in law in respect of the initiation of penalty proceedings. The satisfaction should be in the assessment order. The said view was also approved by the full Bench of the Delhi High Court in the case of RAMPUR ENGINEERING reported in 309 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r interpretation by the Delhi High Court in the case of MADHUSHREE GUPTA reported in 317 ITR 107, wherein the Delhi High Court held that the satisfaction should be discernable in the assessment order. Position post amendment is not in much variance with preamendment. They held that provisions will fall foul of Article 14 of the Constitution if the same is not read in the manner it has read and in fact has read down the provisions to hold it Constitutional. Therefore according to Delhi High Court, in post amendment and pre amendment there is not much difference and the satisfaction is required to arrived in the course of assessment proceedings and should be discernable in the assessment order. Therefore, this provision makes it abundantly clear that satisfaction of the Assessing Officer before initiation of penalty proceedings is a must. The satisfaction should be that he has concealed particulars of his income or furnished inaccurate particular of such income and even in the absence of those expressed words or findings recorded in the Assessment proceedings, if a direction as aforesaid is mentioned, it constitutes satisfaction of the Assessing Officer. DIRECTION 50. A readi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 1 applies to all these three Officers whereas the deeming provision (1)(B) refers only to the Assessing Officer. Therefore, if an order of assessment is passed by Commissioner of Appeals or Commissioner in the course of the said proceedings, if they are satisfied that 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. 53. From these discussion, it is clear that condition precedent for initiation of penalty proceedings under Section 271(1)(c) is existence of condition referred to in the said section. The person ini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment or at the stage of an appeal. At the assessment stage, the Assessing Officer has to issue a notice to the assessee to show cause why a penalty should not be imposed and this notice has to be issued in the course of the assessment proceedings. The imposition of the penalty has also to be done by the Assessing Officer but this can be done within the time prescribed in section 275. 55. In the case of initiation of penalty proceedings during the course of appeal or revision proceedings, the authority who has to be satisfied is the authority in whose proceedings the issue is examined and not any other authority. The levy of penalty has also to be done by the same officer as the language used in the later part of Section 271 is that: He may direct that such person shall pay by way of penalty . The authority in which proceedings, there is satisfaction of concealment or furnishing inaccurate particulars of income alone can levy the penalty and not any other authority. If the Commissioner (Appeals) in the course of appeal proceedings is satisfied then it is the Commissioner (Appeals) who have to initiate the penalty proceedings and also complete the same by levying the penalty. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out any intent to avoid tax; it may be a case of furnishing particulars without any intention to avoiding tax. Both stand on the same footing. It is only when the authority is satisfied that non-disclosure of income or furnishing inaccurate particulars was with the intention of evading tax, then it amount to concealment, it amounts to furnishing inaccurate particulars. Then, at his discretion, he may impose penalty as provided under the Act. Therefore, merely because the assessee accepted addition or deletion and did not challenge the assessment order by way of appeal, it cannot be concluded that such addition or deletion amounts to concealment of income or furnishing of inaccurate particulars. When a plea is taken that in order to avoid litigation and purchase peace, the tax levied is paid with interest, if the assessee is able to demonstrate his bona fides and if the authority is satisfied about his bonafides, then the question of imposing penalty would not arise. Similarly, in cases where though the tax was not actually due but still the assessee pays tax with a hope of claiming deductions in the subsequent years, if the assessee is able to demonstrate there was no liability to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. 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(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent therefrom. The assessment proceedings are taxing proceedings. The proceedings for imposition of penalty though emanating from proceedings of assessment are independent and separate aspects of the proceeding. Separate provision is made for the imposition of penalty and separate notices of demand are made for recovery of tax and amount of penalty. Also separate appeal is provided against order of imposition of penalty. Above all, normally, assessment proceedings must precede penalty proceedings. Assessee is entitled to submit fresh evidence in the course of penalty proceedings. It is because penalty proceedings are independent proceedings. The assessee cannot question the assessment jurisdiction in penalty proceedings. Jurisdiction under penalty proceedings can only be limited to the issue of penalty, so that validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter in penalty proceedings. It is not possible to give a finding that the re-assessment is invalid in such penalty proceedings. Clearly, there is no identity between the assessment proceedings and the penalty proceedings. The latter are separate proceedings that may, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said explanation is not found to be false. On the contrary, it is held to be bonafide. In fact in the assessment proceedings there is no whisper about these concealment. Under these circumstances, the entry found in the rough cash book could have been reflected in the accounts for the said financial year in which the survey took place as the last date for closing the account was still not over. The very fact that the assessee agreed to pay tax and did not challenge the assessment order, it is clear the conduct of the assessee cannot be construed as malafide. Therefore, the Tribunal was justified in setting aside the orders passed by the Appellate Authority as well as the Assessing Authority. 65. In so far as the imposition of penalty is concerned, it is not in accordance with law. No fault could be found with the Tribunal for deleting the penalty. Thus, we answer the substantial question of law in favour of the assessee and against the Revenue. In ITA No. 5020/2009 66. In view of the aforesaid law, we are of the view that the Tribunal was justified in holding that the entire proceedings are vitiated as the notice issued is not in accordance with law and accordingly justi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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