TMI Blog2016 (1) TMI 980X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A), Aurangabad dated 21.11.2013 relating to assessment year 2003-04 against penalty levied under section 271(1)(c) of the Act, 1961. 2. The assessee has raised the following grounds of appeal :- 1. The learned Commissioner of Income Tax (Appeals), Aurangabad has erred in facts and on law in initiating and levying fresh penalty u/s 271(1)(c) of the Income Tax Act, 1961 on differential amount arising from original return filed u/s 139 and against the revised return filed in response to notice u/s 148 of the Income Tax Act, 1961 amounting to ₹ 1,24,56,810/-. The penalty amounting to ₹ 39,23,895/- may be deleted. 2. The learned Commissioner of Income Tax (Appeals), Aurangabad has erred in facts and on law in treating the Income declared in revised return as concealed income inspite of the fact that the Learned Assessing Officer has accepted the revised return filed after survey. The penalty initiated and levied amounting to ₹ 39,23,895/- may be deleted. 3. Such other orders be passed as may be deemed fit and proper. 4. The Appellant craves leave to add, amend, alter vary and/or withdraw any or all the above grounds of appeal. 3. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer on 29.12.2009. Pursuant thereto, the Assessing Officer passed an order under section 271(1)(c) of the Act dated 25.06.2010. The Assessing Officer notes the factual aspects of the case that the original return of income was filed at ₹ 82,842/-, the notice issued under section 148 of the Act, the filing of revised return at ₹ 1.52 crores including agricultural income and thereafter the assessment being completed under section 143(3) of the Act at ₹ 1.49 crores plus agricultural income of ₹ 1,75,348/-. The Assessing Officer further noted that the additions were made on account unexplained investment in Hotel Varsha at ₹ 23,01,567/- and agricultural income being unproved at ₹ 1,51,640/-. The Assessing Officer considering the contention of the assessee and the nature of additions held the assessee to have furnished inaccurate particulars of income to the extent of ₹ 24,53,207/- i.e. on account of addition of ₹ 23,01,567/- plus ₹ 1,51,640/-. The Assessing Officer thus levied penalty under section 271(1)(c) of the Act at ₹ 7,72,759/-. The assessee filed an appeal before the CIT(A) with regard to the said levy of penalty u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and agricultural income of ₹ 1,75,348/-. It is also undisputed fact that during the course of survey proceedings u/s 133A conducted on 22/11/2007, it has been revealed that the appellant has earned substantial undisclosed income of ₹ 1,24,56,810/- [Rs.1,25,39,650/- (-) ₹ 82,840/-] which has also been disclosed and included in the return of income filed after survey action. From the balance sheets filed with original return of income, it has been noticed that investment in land has been shown in the audited balance sheet at ₹ 66,33,000/- whereas in the return of income filed after survey action, the same has been shown at ₹ 2,08,13,572/-, therefore, the undisclosed investment was ₹ 1,41,80,572/-. It has also been noticed that in the audited profit and loss account filed with original return, the business profit has been shown at ₹ 1,22,029/- and the same has been shown as per profit loss account filed after survey action at ₹ 1,25,79,646/- by crediting Declaration Account to profit loss account to the extent of ₹ 1,42,00,000/-. As the return filed by the appellant was beyond the time limit prescribed u/s 139(5), the A.O. has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r imposing penalty under this chapter shall be passed- (a) (c) in any other case, after the expiry of financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later. From the above provision of section 271(1)(c), it is evident that CIT(Appeals) in the course of any proceedings i.e. including appellate proceedings can initiate and levy penalty u/s 271(1)(c), if he is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income. In the case under appeal, the appellant has concealed income of ₹ 1,24,56,810/- as the same has not been disclosed in the original return filed on 18/12/2003 and the same has been disclosed in the return filed on 05/11/2009 after survey action, filed in response to notice u/s 148 of the Act. It has also been noticed that the appellant has not filed any bonafide explanation in respect of the concealed income of ₹ 1,24,56,810/-. The penalty u/s 271(1)(c) is leviable in view of E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income, though on lower level the Assessing Officer did not initiate any penalty proceedings under section 271(1)(c) of the Act. The learned Authorized Representative for the assessee further pointed out that while levying penalty under section 271(1)(c) of the Act, the Assessing Officer issued show cause notice to the assessee only on two additions made by him and thereafter, levied the penalty under section 271(1)(c) of the Act on ₹ 7,72,760/-. The CIT(A) in the appeal deleted the penalty on addition of ₹ 23,01,567/-, but confirmed the addition on account of agricultural income of ₹ 1,51,640/-. The learned Authorized Representative for the assessee fairly admitted that no appeal has been filed either by the Revenue or the assessee in respect of above said directions of the CIT(A). However, vide para 11, the CIT(A) show caused the assessee as to why penalty under section 271(1)(c) of the Act should not be levied on the additional income declared by the assessee pursuant to Survey upon the assessee. Our attention was drawn to the provisions of section 251(1) of the Act to point out that it talks of the powers of CIT(A) to vary the quantum of penalty levied, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but the CIT(A) could not direct the Assessing Officer to initiate and levy penalty on any issue. In the said letter, it has been mentioned by the learned Departmental Representative for the Revenue that he had an occasion to be present in B Bench of the Tribunal, wherein the same learned Authorized Representative for the assessee as in the present case was arguing one case of Vivek Chowdhary, wherein the issue involved was about the powers of CIT(A) to issue and levy the penalty. In the case of Vivek Chowdhary, the CIT(A) rather than initiating and levying penalty by himself had proceeded to direct the Assessing Officer to initiate and levy penalty for concealment under section 271(1)(c) of the Act. In support of its claim that the CIT(A) cannot direct the Assessing Officer to initiate and levy penalty, the learned Authorized Representative for the assessee in the case of Vivek Chowdhary had relied upon the decision of Hon ble Karnataka High Court in CIT Anr. Vs. Manjunath Cotton and Ginning Factory (supra). In view thereof, a prayer was made before us to consider the said decision of the Hon ble Karnataka High Court. 13. We have heard the rival contentions and perused the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 271(1)(c) of the Act on the aforesaid undisclosed income of ₹ 1.24 crores. In view of the provisions of clause (b) of section 251(1) of the Act, the CIT(A) was of the view that though the Assessing Officer had not initiated penalty proceedings on the undisclosed income of ₹ 1.24 crores, but in view of clear-cut provisions of section 271(1)(c) of the Act, the CIT(A) observed that where he is satisfied that any person has concealed particulars of his income or furnished inaccurate particulars of income, the CIT(A) is empowered to initiate and levy penalty under section 271(1)(c) of the Act. Consequently, the CIT(A) held that the assessee had concealed income of ₹ 1.24 crores and hence, liable for levy of penalty under section 271(1)(c) of the Act on the said concealed income of ₹ 1.24 crores and levied penalty of ₹ 39,23,895/-. 15. The issue arising before us is whether where the Assessing Officer had not initiated and levied penalty under section 271(1)(c) of the Act on the additional income furnished by the assessee at ₹ 1.24 crores, is the CIT(A) authorized to initiate and levy the penalty on the said undisclosed income of ₹ 1.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mposition of penalties prescribed. The proceedings have, therefore, 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. 17. The Hon ble High Court further observed that from the section, it is clear that the said provision is attracted only when the conditions stipulated in section 271(1)(c) of the Act are attracted. In case the conditions are not fulfilled, there is no question of exercising power under the said provision to impose penalty. The Hon ble High Court thereafter, deliberated upon the conditions which must exist before initiating the proceedings under section 271 of the Act. The Hon ble High Court was of the view that levy of penalty is not a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time of computation of the total income of any person and as it results in an assessment order which has to be mandatorily in writing, the satisfaction should be found in the said order. [underlined for emphasis by the undersigned] 18. The Hon ble High Court further held as under:- This provision is attracted once in any such assessment orders, a direction for initiation of penalty proceedings under clause (c) of sub-section (1) is made. Thereby, it means even if the order does not contain a specific finding that the assessee has concealed income or he is deemed to have concealed income because of the existence of facts which are set out in Explanation 1, if a mere direction to initiate penalty proceedings under clause (c) of sub-section (1) is found in the said order, by legal fiction, it shall be deemed to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under the said clause (c). The said provision came up for interpretation by the Delhi High Court in the case of Ms. Madhushree Gupta reported in [2009] 317 ITR 1 07 (Delhi), wherein the Delhi High Court held that the satisfaction should be discernible in the assessment ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd without any ambiguity. The word direction has been interpreted by the decision of the apex court in the case of Rajinder Nath v. CIT reported in [1979] 120 ITR 14 (SC), where it has been held that in any event whatever else it may amount to, on its very terms the observation that the Incometax Officer is free to take action, to assess the excess in the hands of the co-owners 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 discretion of the Income-tax Officer whether or not take action, it cannot be described as a direction. 20. The Hon ble High Court further observed that under the scheme of section 271(1)(c) of the Act, the persons who are authorized to compute income as well as initiate the proceedings are the Assessing Officer, CIT(A) or Commissioner in the course of revisionary jurisdiction. It was clarified by the Hon ble High Court that Explanation (1) applies to all these three officers, whereas the deeming provision of sub-section 1(B) refers only to the Assessing Officer. Where the order of assessment is passed by the CIT(A) or the Commissioner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cords, the officer passing the order may categorically state that he is satisfied that the assessee has concealed income. Once such a finding is recorded that is sufficient to initiate penalty proceedings. Assuming such a categorical finding is not recorded in the order, at least, he has to record facts as contemplated in Explanation 1. If these facts are discernible from the assessment order, the deeming clause in Explanation 1 is attracted and the income is deemed to have been concealed. That gives the jurisdiction to the officer passing the order to initiate the penalty proceedings. If the officer passing the assessment order is the Assessing Officer, in the said order, the aforesaid facts are not discernible, at least he must direct initiation of proceedings under section 271(1)(c). Then section (1B) is attracted and these conditions deemed to exist which confers jurisdiction on him to initiate penalty proceedings. Sub-section (1B) has no application to an order passed by the Commissioner of Income-tax (Appeals) or the Commissioner. 21. It was categorically laid down by the Hon ble High Court that the person initiating penalty proceedings should be satisfied about the exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeding itself i.e. during the completion of the assessment of the income in the hands of assessee. The power which has been enshrined on the CIT(A) or the Commissioner, in the course of any proceedings, is in relation to the assessment proceedings being carried on by the said person. There are two stages before the penalty for concealment can be levied against any person. The first stage is the initiation of proceedings which has to be done during the course of assessment proceedings, which admittedly is a separate stage. After such satisfaction has been recorded, then the assessee is to be show caused as to why penalty for concealment should not be levied and this power is enshrined in section 271(1) of the Act, under which, before imposing any penalty, show cause notice is again to be given to the assessee within time frame provided under the Act in section 275 of the Act. The Hon ble High Court in CIT Anr. Vs. Manjunath Cotton and Ginning Factory (supra) also adjudicated on the issue and held as under:- Who initiates penalty proceedings 54. As is clear from the words in section 271, if the Assessing Officer or the Commissioner of Income-tax (Appeals) or the Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment by the Assessing Officer or during the course of appeal or revision proceedings, where if the authority is satisfied regarding concealment and furnishing of inaccurate particulars, it is then that authority, which is satisfied, has to initiate penalty proceedings and thereafter pass orders in respect of the penalty to be imposed. The Hon ble High Court also elaborated that the imposition of penalty may be done at the stage of assessment or at the stage of an appeal. At the assessment stage, the Assessing Officer has to issue notice to the assessee to show cause as to why penalty should not be levied and this notice has to be issued in the course of assessment proceedings. Thereafter, the imposition of penalty has also to be done by the Assessing Officer within prescribed time. Where the penalty proceedings are initiated 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. Further, levy of penalty has also to be done by the same authority, but by different proceedings. The Hon ble High Court very clearly held the authority in whose proceedings, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of levy of penalty under section 271(1)(c) of the Act had no jurisdiction to initiate the penalty proceedings and thereafter, also complete the same. The order initiating the penalty proceedings has to be a different order and has to be passed by the person, who has made the addition / assessment in the hands of the assessee. In case the said person is CIT(A), then he is competent to initiate the penalty proceedings and also competent to levy the penalty by passing a separate order, but the CIT(A) is not competent to initiate and levy the penalty for concealment under section 271(1)(c) of the Act by the same order while deciding the appeal against the order levying penalty for concealment passed by the Assessing Officer under section 271(1)(c) of the Act. The CIT(A) in the present case has exceeded the jurisdiction and we find no merit in the order passed by the CIT(A). 24. The learned Departmental Representative for the Revenue before us has stressed that the Hon ble High Court in CIT Anr. Vs. Manjunath Cotton and Ginning Factory (supra) had laid down the proposition that where the CIT(A) during the course of appellate proceedings, had initiated the penalty proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld 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 mala fide. 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. 26. The facts and issues before the us are identical to the facts and issues before the Hon ble High Court of Karnataka in CIT Anr. Vs . Manjunath Cotton and Ginning Factory (supra) and following the ratio laid down by the Hon ble High Court, we hold that there is no merit in the jurisdiction exercised by the CIT(A) for initiating and levying penalty for concealment of income and furnishing inaccurate particulars of income under section 271(1)(c) of the Act. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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