TMI Blog2014 (1) TMI 1682X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs have been conducted, gives rise to a presumption that assessee has bonafidely admitted higher income. Even though found in the course of survey proceedings, A.O. have not stated how the amount was quantified and why the amount has to be considered as concealment of income. It cannot be stated that the amount offered by the assessee can be considered as concealed income in the light of facts of the case. Penalty under section 271(1)(c) is not imposable on the facts of the case. Even otherwise, assessee having given bonafide explanation that he has offered higher income even though that much income is not taxable, this contention of the assessee was not rebutted. As briefly stated above in the facts, A.O. has neither brought any calculations on record nor mentioned how the amount was quantified. In these set of circumstances, assessee’s contention that it had unexplained expenditure in earning that gross receipts cannot be rejected. Therefore, even the provisions of Explanation 1 to section 271(1)(c) come into operation as the assessee’s explanation has not been disproved. Therefore, the conditions for imposing penalty does not satisfy. In view of the various factors discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attracting civil liability. Further, A.O. relied on the decision of Hon ble Kerala High Court in the case of CIT vs. R. Kesav Nair 287 ITR 276 (Ker.) wherein it was held that assessee agreeing to addition is not a bar on imposition of penalty. Reliance is also placed on CIT vs. C. Anantharaman Chettiar 273 ITR 401 (Mad.) and Christopher vs. CIT 286 ITR 511 (Mad.) wherein the Hon ble Madras High Court held that disclosure of additional income by filing revised return with an assertion that disclosure is to buy peace is not bar on penalty and penalty can be imposed even in the case of so-called voluntary disclosure. Relying on above decisions, A.O. went on to levy a penalty of ₹ 50,00,000/- considering that the 100% tax on income sought to be evaded worked out to ₹ 49,07,271/-. 3. Before CIT(A), assessee has raised grounds and contested the issue on various grounds. Arguments taken-up by the assessee before the CIT(A) can be summarized as follows: (a) Assessee voluntarily offered income in good faith; (b) Assessee filed revised return based on which assessment was completed; (c) There is no finding by the A.O. that there is concealment; (d) Burden of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that admission of additional income was on an assurance given by survey party, learned CIT(A) relying on the Hon ble Kerala High Court Judgment in the case of CIT vs. A. Sreenivasa Pai 242 ITR 29 and also in the case of Anand Liquors vs. CIT 232 ITR 35 and other cases to held that even if there is an agreement, which is in this case obviously did not exist, that cannot stop the due process of law. 4.6 On the argument that there was additional expenditure as noted in the impounded documents and inspite of that assessee admitted additional income, learned CIT(A) rejected the contention stating that assessee is taking-up this argument for argument sake, without substantiating the same. 4.7 By analyzing each of the contentions and relying on various case law, learned CIT(A) upheld the levy of penalty under section 271(1)(c) of the Act. 5. Aggrieved by this order, the assessee is in appeal before us and has raised the following grounds 2. The learned CIT(A), is not justified in upholding the penalty of ₹ 50,00,000/- levied by the A.O. u/s. 271(1)(c) of the Income Tax Act, 1961. 3. The learned CIT(A), ought to have held that the A.O. having accepted the income as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has submitted that in the statutory notice accompanying the assessment order, the learned A.O. cut-out all the words and paragraphs except with reference to non-compliance to sections 142(1) and 143(2). Specifically, he referred to the striking of the paragraph pertaining to have concealed particulars in your income or furnishing inaccurate particulars of such income . Since the relevant paragraphs of the notice issued under section 274 read with section 271 (1)(c) does not indicate initiation of proceedings for concealed particulars of income or for furnishing in accurate particulars of income, the notice perse is invalid. Then, learned Counsel referred to the explanation given by the assessee dated 21.1.2010 in response to the notice dated 24.12.2009, to submit that the assessee submitted that the proposal for levy of penalty under section 271(1)(c) is not proper as there is no willful concealment of income or filing of inaccurate particulars. It was further submitted that your goodself has made addition to the return income by disallowing the expenditure. Hence, there is no suppression of income on our part . Explaining the above, learned Counsel submitted that since the notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel referred to the Judgment of Hon ble Gujarat High Court in the case of DCIT vs. Panna Corporation 74 DTR (Guj.) 89 to submit that consistently Courts are following the principle that even upon detection of on money received or unaccounted cash receipt, what can be brought to tax is that the profit on such receipts and not the entire receipt itself. If that be the legal position, what is to be estimated is, reasonable profit out of such receipts which must bear an element of estimation. Relying on the above, learned Counsel submitted that what assessee has offered is the entire socalled on money without any claim of expenditure and if the expenditure details in the impounded documents are considered, the income would be much less than what was accepted by the assessee. It was his submission that assessee was under bonafide belief that no penalty will be initiated under section 271(1)(c) as the assessee has filed revised return even before issuance of notice by the A.O. For the year under consideration i.e., A.Y. 2008-2009, assessee has submitted higher income and no proceedings under section 271(1)(c) were initiated for that year as the return of income itself was filed disclosin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the notice itself. He opposed the contention of the learned Counsel for the assessee. 12.1. Learned D.R. placed on record paper book and case law to submit that notice under section 274 read with section 271 is only a show cause notice whereas the jurisdiction for initiation of proceedings is the proceedings in the assessment order. Since it is only a procedural requirement, striking off paras in the notice does not make the proceedings invalid. He, then referred to the second notice issued by the same Officer wherein it was clearly stated that reply was to be given for concealment of income. Assessee has not given any reply to the second notice and no further explanation was provided. In view of this, there is neither any misunderstanding nor any non-application of mind. Since assessee has not given any explanation for the second notice, it cannot be considered that A.O. has not considered the explanation. What has happened is a simple technical mistake in striking-up the various columns in the notice which is curable and cannot have nullifying effect on the proceedings. Not only provisions of section 292B but also various case law are in support of the contention that the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons for selection of case to scrutiny. This issue was neither discussed by the A.O. nor raised before us. As seen from the chronology of events, the survey happened on 11.09.2008. First statement of the Director was taken on 11.09.2008 in the office premises under section 131 and on 12.09.2008 and further continued by another statement under section 131 stated to be in continuation of earlier statement on 22.09.2008. As briefly stated above, before filing the revised return, assessee paid taxes of ₹ 50 lakhs on 24.10.2008 and ₹ 10,85,000/- on 07.11.2008 and return was filed on 28.11.2008. As seen from the order of the assessment, except briefly stating about the survey proceedings, there was no discussion on any of the issues ie. why the additional income was offered and why the revised return was filed and whether there is any concealment of income or furnishing of inaccurate particulars. The order of the A.O. is very brief and can be extracted, which is as under : The assessee is a company engaged in the business of Real Estate Developers . In this case the assessee filed original return of income for the A.Y. 2007-08 on 18.10.2007 admitting an income of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h indicate that notice under section 271(1)(c) was routinely issued for initiation of separate proceedings. The order as well as order sheet indicate the non application of mind to the penalty proceedings. Moreover there is no discussion on the amount of concealment or satisfaction for initiating proceedings. 13.4. As contended, notice under section 271(1)(c) was originally issued by the A.O. dated 24.12.2009. The notice under section 274 read with section 271, in the proforma prescribed under the Act, has stricken off certain starred portions(*) in the notice. Para 1 which was stricken off relates to failure to furnish return of income is not relevant for the present case. A crucial part was the para 3 that have concealed the particulars of your income or furnishing inaccurate particulars of such income was also striken off fully. The only portion left in the notice, without any striking off, is with reference to have without reasonable cause failed to comply with the notice under section 142(1)/143(2) dated 27.02.2009, 04.06.2009 and 25.08.2009 issued by this office . As can be seen from the notice, this notice was specifically issued for non-complying with the notice under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total extent of sold area is 60,612. We have offered @ 700/- in the books. The difference amount comes to ₹ 1,50,69,196/-. I admit this difference amount as my additional income even though I have explained expenditure also and offer the same to tax. Q.No.7: I am showing you loose sheet bundle No.37 serially numbered from 1 to 349 impounded from your office premises during the course of survey conducted u/s.133A on 11.9.2008. Please go through the contents of page No.246 to 253 and explain the same. Ans: Yes, I have gone through the contents of the papers. They relate to Godavari Enclave, at Rajahmundry. The amounts reflected are the sale values received by us. We have undertaken up the project Godavari Enclave at Rajahmundry in an extent of 56 acres of land with total plotted area around 1,55,000 sq. yards. Out of which we have sold 45,000 sq. yards to M/s. Sreemitra Townships Pvt. Ltd., Hyderabad, in bulk, @ ₹ 800/- per sq. yard. Apart from this, we have sold near about 95,000 sq. yards leaving balance of around 17,000 sq. yards. We have admitted @ ₹ 800/- per sq. yard in the books as sale value on the sold plots. But, as per the information available o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statement, there seems to be a bonafide action on the part of the assessee. 14. LAW ON THE PENALTY PROCEEDINGS : 14.1. The Income Tax Act 1961 has different chapters dealing with procedure for assessment, for penalties. Chapter- IV of the Income Tax Act, 1961 deals with the procedure for assessment whereas, Chapter-XXI deals with the penalties leviable. Section 271 deals with penalties for failure to furnish returns, complying with notices, concealment of income etc., and Section 274 deal with procedure which are 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 proceedings under this Act, is satisfied that any person - (a) Omitted (b) has failed to comply with a notice under sub-section (1) of section 142 or sub-section (2) of section 143 or fails to comply with a direction issued under sub-section (2A) of section 142, or (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,- (i) Omitted (ii) in the cases referred to in cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ural 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 there under 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. 14.3 Section 271(1) makes appropriate provision for levying penalties on assessees 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 penalty and the quantification thereof. This limb is found enacted, in clause (iii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustified. (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, if (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. 14.7 Therefore, Explanation 1 understood in the proper context, in particular, clause (c) of sub-section (1) of section 271 makes the intention of the Legislature manifest. 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 explanation or offers explanation which is found to be false, then the penalty will follow as prescribed under sub-clause (iii) of clause (c) of sub-section (1) of section 271. Where the assessee offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are attracted. When those conditions are not fulfilled, there is no question of exercising power under the said provision to impose penalty. 14.10. Ld CIT DR vehemently argued that the deficiency in the notice does not affect the proceedings and the levy of penalty was valid. Most of the arguments of revenue were analysed and examined in detail in the case of CIT vs Manjunatha cotton and Ginning Factory (Supra) relied by learned Counsel. Hon ble Karnataka High Court in the case of CIT vs. Manjunatha Cotton and Ginning Factory in 359 ITR 565 has extensively analysed the provisions of the Act vis- -vis various case law, including that of Hon ble Supreme Court and in conclusion arrived at the following principles governing the penalty proceedings under section 271(1)(c). These are : 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 271 (1) (c) is a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 grounds mentioned in section 271 are mentioned would not satisfy the requirement of law. (r) The assessee should know the grounds which he has to meet specifically. Otherwise, the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing total income........be deemed to represent the income in respect of which particulars have been concealed would indicate that it is only the addition or disallowance to the total income that would represent the income for the purposes of levy of penalty within the meaning of Expln. 1 to s. 271(1)(c). In other words if no addition or disallowance is made in computing total income then there will not be any income which can be deemed as income in respect of which particulars have been concealed. Clause (c) to Expln. 4 to s. 271(1)(c) explains the amount of tax sought to evade. It means the difference between tax on the total income assessed and the tax that would have been chargeable at such total income is reduced by the amount added. Since in the present case the AO has not made any addition in the returned income, question of working out any tax sought to be evaded would not arise. (Para 6) The basis for levy of penalty is return of income. If any amount has been shown in the return of income then it cannot be said that assessee has concealed any particulars about that income or furnished inaccurate particulars in relation thereto. There cannot be any concealment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inaccurate particulars should be viewed by the AO as done with respect to return of income. The omission or commission or contumacious conduct has to be viewed from the return of income and if certain thing is not disclosed or not furnished therein only then it can be said that assessee has concealed the particulars of income or furnished inaccurate particulars of income. Prior to this assessee has not done any contumacious conduct on which penalty can be levied. Merely because certain receipts are not recorded in the books of account or receipts are not issued to the patients, but income therefrom was finally declared in the return of income, then there is no contumacious conduct. For not maintaining books of account or not issuing receipts to the patients for the amount received by the assessee, the books, at the best, can be rejected by invoking provisions of s. 145(3) and income can be estimated in accordance with s. 144. But where the AO accepts the income declared in the return of income then assessee cannot be charged for any contumacious conduct. Thus where returned income is accepted there is no case for levy of penalty. -CIT vs. Parkash Industries Ltd. (2010) 322 ITR 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer thereafter reassessed the assessee for the relevant assessment years on the basis of revised returns filed by the assessee and on reassessment, the assessee was found to have additional taxable income for all those years and tax was levied accordingly. The assessing officer also levied penalty under sections 271(1)(c) upon the assessee. Hence, the above said case law, which the assessing officer had relied to levy penalty does not apply to the present case. 15.4 CIT v. C. Ananthan Chettiar [2005] 142 TAXMAN 556 (MAD.) As per the facts of the case, during the search, Cash Jewellery were found with the assessee. The assessee filed a revised return by disclosing the additional income, but no explanation was offered except asserting that he had disclosed income only to buy peace with the department. The return was accepted and assessment made on the basis of the return. The assessee in response to the notice seeking to impose penalty, took the stand that there was no concealment and it was only for the purpose of buying peace with the Department that the additional income was disclosed and the return filed. In the assessee case there is no search and no seizure of any asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce has been offended. On the basis of such proceedings, no penalty could be imposed on the assessee. Not only that the assessment order indicates that there is no difference between assessed income and returned income. What has been added in the assessment is not the subject matter of penalty. Even though the assessee has filed originally a return, revised return filed by the assessee before the scrutiny proceedings have been conducted, gives rise to a presumption that assessee has bonafidely admitted higher income. Even though found in the course of survey proceedings, A.O. have not stated how the amount was quantified and why the amount has to be considered as concealment of income. It cannot be stated that the amount offered by the assessee can be considered as concealed income in the light of facts of the case. 16.2 More importantly on similar issue, the Hon ble High Court of A.P. in the case of V.V. Projects and Investments Pvt. Ltd. Vs. DCIT 300 ITR 40 (A.P.) considered similar situation and held that penalty is not imposable. The Hon ble High Court considering the facts held as under : The language of sub-s. (1) of s. 271 itself makes it clear that recording of satisfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 271(1)(c) is not imposable on the facts of the case. Even otherwise, assessee having given bonafide explanation that he has offered higher income even though that much income is not taxable, this contention of the assessee was not rebutted. As briefly stated above in the facts, A.O. has neither brought any calculations on record nor mentioned how the amount was quantified. In these set of circumstances, assessee s contention that it had unexplained expenditure in earning that gross receipts cannot be rejected. Therefore, even the provisions of Explanation 1 to section 271(1)(c) come into operation as the assessee s explanation has not been disproved. Therefore, the conditions for imposing penalty does not satisfy. In view of the various factors discussed above, we have no hesitation in cancelling the penalty. 16.4. There is one more aspect to the issue. Unlike in a search case there is no presumption that the amount unearthed during the course of survey will automatically be considered as concealed income . No provision/explanation similar to Explanation-5 was provided in the section to cover survey cases. Since, the income detected/offered in survey cannot be deemed to ..... 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