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2016 (1) TMI 718 - ITAT KOLKATA

2016 (1) TMI 718 - ITAT KOLKATA - TMI - Penalty proceedings u/s.271(1)( c) - Held that:- On the facts of the present case that the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision of the Hon'ble Karnataka High Court In the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory [2013 (7) TMI 620 - KARNATAKA HIGH COURT ] we hold that the orders imposing penalty in all the assessment yea .....

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has challenged the orders of CIT(A) whereby the CIT(A) confirmed the order of the AO imposing penalty on the Assessee u/s.271(1)( c) of the Income Tax Act, 1961 (Act). 3. The facts and circumstances under which penalty u/s.271(1) (c) of the Act was imposed on the Assessee by the AO are as follows: The Assessee is a HUF. There was a search and seizure operation u/s.132(1) of the Act, conducted in the case of Shri.Sajjan Kumar Bansal, the karta of the Assessee HUF on 30.4.2008. In the course of s .....

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Act was issued to the Assessee for AYs 2002-03 to 2008-09. Since the Assessee i.e., the HUF was not searched the proceedings were initiated by the AO by issue of notice u/s.153C of the Act for each of aforesaid AYs. In response to the said notices, the Assessee filed return of income declaring income as was declared in the statement u/s.132(4) of the Act ( an additional sum of ₹ 31,724 was offered over and above ₹ 7 crores after again verifying the documents seized) and the same was .....

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(4) (Rs.) Additional income in the return u/s 153C (Rs.) (b) Addition made in the course of assessment u/s 153C (Rs.) (c) Total income offered by the assessee and income assessed. (Rs.) D=(a+b+c) 2003-04 1,24,300/- 3,00,000/- 4,24,300/- NIL 4,24,300/- 2004-05 Nil 5,00,000/- 5,00,00 NIL 5,00,000/- 2005-06 Nil 2,80,000/- 2,80,00 NIL 2,80,000/- 2006-07 1450/- 37,81,033/- 37,57,48 NIL 37,57,480/- 2007-08 970/- 58,74,298/- 58,15,26 NIL 58,15,260/- 3.1. In the orders of Assessment passed for the vario .....

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notice u/s.274 of the Act was issued to the Assessee for the AYs 2003-04 to 2007-08. The Assessee submitted reply to the show cause notice pointing out that the disclosure made by the Assessee was voluntary prior to any detection by the revenue and that there was no attempt to conceal particulars of income. The AO however held that but for the search and seizure operation the income declared by the Assessee would not have been declared. Accordingly, the AO imposed penalty u/s.271(1)( c) of the .....

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A to Sec.271(1)( c) of the Act reads thus: "Explanation 5A : Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of- (i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or (ii) any income based on any ent .....

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assessee has not filed the return, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income. 4. Aggrieved by the orders of the CIT(A), the Assessee has preferred the present appeals before the Tribunal. 5. We have hea .....

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ssessee drew our attention to the show cause notice issued u/s.274 of the Act before imposing penalty and submitted that the said notice does not specify as to whether the Assessee is guilty of having "furnished inaccurate particulars of income" or of having "concealed particulars of such income". He pointed out that the printed show cause notice does not strike out the irrelevant portion viz., "furnished inaccurate particulars of income" or "concealed particul .....

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nted show cause notice, than the imposition of penalty on the basis of such invalid show cause notice cannot be sustained. 6. The learned DR relied on the order of the CIT(A). 7. We have considered the rival submissions. The argument that the show cause notice u/s.274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the assessee for "furnishing inaccurate particulars of income" or "concealing particulars of such income&q .....

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e Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon'ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted th .....

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rious ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deem .....

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w that the conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued .....

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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 conf .....

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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 refer .....

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l 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 Gujarat High Court in t .....

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proforma without striking of the relevant clauses will lead to an inference as to non-application of mind." The final conclusion of the Hon'ble Court was as follows:- "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 .....

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ch would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition o .....

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ent 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 .....

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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 .....

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