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Shri Y.C. Sandeep Reddy Versus The Assistant Commissioner of Income Tax, Circle 4 (1) , Bangalore

2015 (10) TMI 2164 - ITAT BANGALORE

Penalty u/s. 271(1)(c) - validity - Held that:- In view of the fact that notice u/s. 274 of the Act in the present case does not make any reference as to whether the assessee has concealed or furnished inaccurate particulars of income, the entire penalty proceedings are held to be invalid. Penalty imposed is accordingly cancelled. - Decided in favour of assessee. - ITA No. 1012/Bang/2014 - Dated:- 23-9-2015 - Shri N. V. Vasudevan, Judicial Member And Shri Abraham P. George, accountant member For .....

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er which penalty was imposed on the assessee by the AO are as follows. 3. The assessee is an individual. He is engaged in the business of executing civil engineering contracts. The assessee claimed exemption u/s. 54F of the Act in respect of capital gain on sale of a property at Bangalore. The said claim for exemption was found to be incorrect by the AO and accordingly the same was not allowed. In respect of the addition made by denying the claim of deduction u/s. 54F of the Act, the AO initiate .....

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the notice under section 271 read with section 274 whether the penalty is leviable for concealment of income or for furnishing of inaccurate particulars of income. 6. According to the assessee, the show cause notice u/s. 274 of the Act, which is issued before levying penalty u/.s 271(1)(c) of the Act, does not specify as to whether the assessee is guilty of concealment of particulars of income or furnishing of inaccurate particulars of income. The said show cause notice is given as Annexure-I to .....

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legal ground which goes to the root of the jurisdiction of the AO to impose penalty and therefore should be admitted as an additional ground. Our attention was drawn to the ITAT Bangalore Bench decision in the case of E. Krishnappa v. ITO, ITA Nos.313 to 315/Bang/2014, order dated 14.8.2015, wherein this Tribunal on an identical request for admission of additional ground, admitted the same observing as follows:- 4.4.1 We have heard the rival contentions and perused the material on record on the .....

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facts otherwise than those on the records of the department. Taking into consideration the matter before us, we are of the considered view that, in the interest of equity and justice, these additional grounds raised by the assessee require to be admitted for consideration in this appeal as they go to the very root of the matter of the validity of the initiation of the proceedings that resulted in the levy of penalty u/s.271(1)(c) of the Act in the case on hand for Assessment Years 2007-08 to 200 .....

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that the additional ground deserves to be admitted and the same is accordingly admitted. 9. As far as merits of ground No.3 raised by the assessee is concerned, the Hon ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down the following principles to be followed in the matter of imposing penalty u/s.271(1)(c) of the Act. NOTICE UNDER SECTION 274 59. As the provision stands, the penalty proceedings can be initiated on various ground .....

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n contained in Explanation-1 or in Explanation- 1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing penalty on him as the Section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the .....

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ion 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is 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 .....

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o 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 .....

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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. 61. 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 un .....

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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 proforma wi .....

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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 .....

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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 .....

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erial 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. 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 Assess .....

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