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Shri Narasimha Reddy Versus Deputy Commissioner of Income-Tax

Penalty order passed u/s 271(1)(c) - Held that:- Following the judgment of the Hon'ble High Court in case of Manjunatha Cotton & Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT ) as well as case of H.Lakshminarayana (2015 (7) TMI 601 - ITAT BANGALORE ), we hold that the orders of levy of penalty u/s 271(1)(c) in all the assessment years are invalid for want of spelling out the specific grounds on which the penalty was sought to be imposed and consequently the penalty imposed is cancelle .....

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e common grounds in these appeals. The grounds raised for the AY 2005-06 are as under: 1. "On the facts and in the circumstances of the case, the order of the Commissioner of Income-tax (Appeals) upholding the levy of penalty under section 271(l)(c) of the Act was opposed to law and to the principles of natural justice in that the submissions of the appellant had not been brought out and considered and accordingly the impugned order is liable to be set aside and the penalty levied u/ s.27l( .....

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the penalty proceedings were invalid and no penalty u/s.271(l)(c) of the Act was exigible and thus the impugned penalty is liable to be cancelled. 4. The learned Commissioner (A) ought to have appreciated that the explanation of the appellant had not been considered by the assessing authority and consequently the penalty levied was opposed to law and liable to be cancelled. 5. The learned Commissioner (A) ought to have appreciated that the additional income offered was to buy peace and did not .....

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le to be cancelled. 7. Without prejudice, the penalty levied is excessive, arbitrary and unreasonable and liable to be deleted in toto. 8. For these and other grounds that may be urged at the time of hearing of the appeal the appellant prays that the appeal may be allowed. " 3. The assessee is in the business of real estate apart from deriving income from house property. There was a search u/s 132 of the IT Act on 26/8/2008 in the case of the assessee. During the course of search proceeding .....

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ears. Consequently the AO initiated penalty proceedings u/s 271(1)(c) by issuing separate notices for each assessment year. The AO proceeded to levy penalty equivalent to 100% of the tax sought to be evaded for each of the assessment years while passing the penalty order u/s 271(1)(c). 3. The assessee challenged the action of the AO levying the penalty u/s 271(1)(c) before the CIT(A) but could not succeed. The CIT(A) held that the assessee is liable to be penalised u/s 271(1)(c) read with Explan .....

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iled the respective copies of the show cause notice for all these four assessment years issued by the AO dated 28/12/2010 and submitted that the AO has not specified the grounds mentioned in sec. 271(1)(c) whether it is for concealment of income or furnishing inaccurate particulars of income. Therefore, the show cause notice issued u/s 274 is a defective notice and in view of the judgment of the Hon'ble jurisdictional High Court in case of Manjunatha Cotton & Ginning Factory (359 ITR 565 .....

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tton & Ginning Factory (supra), have held that the defect in the show cause notice u/s 274 cannot be said to be curable u/s 292BB of the Act. Thus, learned AR of the assessee has submitted that the penalty levied u/s 271(1)(c) would not survive in the case of the assessee when the show case notice issued u/s 274 is defective. 5. On the other hand the learned Departmental Representative has relied upon the orders of the authorities below and submitted that when the assessee itself has offered .....

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assessee has not disputed the addition in question as it was offered by the assessee itself, then, the validity of levy of penalty cannot be questioned. 6. We have considered the rival submissions as well as relevant material on record. We find that the show cause notice issued u/s 274 of the IT Act dated 28/12/2010 the AO has given the reason for initiation of the penalty as the assessee has concealed the particulars of income or furnished inaccurate particulars of income. Therefore, the AO has .....

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pellate authority or the revisional authority. The Hon'ble High Court has observed in para.59 of the judgment that the person who is accused of conditions mentioned in sec. 271(1)(c) should be made known about the grounds on which the intent imposing of penalty on him as the sec.274 makes it clear that the assessee has a right to contest such proceeding and should have full opportunity to meet the case of the department and show that the conditions stipulated in section 271(1)(c) do not exis .....

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r. Thus, it is not open to the authority at the time of imposing the penalty to impose penalty on a ground other than what the assessee was called upon to meet. Thus, by analysing the requirement of the provision, the Hon'ble High Court has held that the standard proforma without striking out the relevant clauses in the show cause notice will lead to inference of nonapplication of mind. We note that the Tribunal in the series of decisions has followed the judgment of the Hon'ble jurisdic .....

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re the Tribunal. The said additional ground filed by the Assessee for all the Assessment years in these appeals, is common and it reads as follows:- "1. The Assessing Officer having issued the notice under section 274 read with section 271(1)(c) of the Act in a mechanical manner, the penalty order passed under section 271(1)(c) of the Act is not sustainable in the eye of law. 2. The Appellant begs to submit that the decision of the jurisdictional High Court in the case of CIT vs. Manjunatha .....

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he validity of the orders imposing penalty on the ground that the show cause notice issued u/s. 274 of the Act was defective for all the assessment years involved in these appeals. 10. On the above objections, we have heard the parties at length. A copy of the show cause notice issued u/s. 274 of the Act for the Assessment years involved in these appeals, is placed at pages 1 to 5 of the assessee's paperbook, the same is given as Annexures-I to V to this order. 11. The ld. counsel for the as .....

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Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), wherein the Hon'ble High Court has held that notice u/s. 274 of the 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 hel .....

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We have heard the rival submissions. 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 set out therein. If the order passed by the Authority categorically records a finding regarding the existence of .....

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ability, 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 conditions stipulated in Section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of th .....

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ffended 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 drawi .....

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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 of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural .....

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ed 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 under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer .....

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xman 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 without striking of the relevant clauses will lead to an inference as to non-application of mind." 15. The final .....

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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 constitute concealment because of deeming provision. g) Even if these conditions do not exist .....

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e 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 t .....

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mposed. 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 Assessing Authority. p) Notice under Section 274 of the Act should specifically state the grounds me .....

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ne 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 not operate as res judicata in the penalty procee .....

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