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2016 (3) TMI 642 - ITAT KOLKATA

2016 (3) TMI 642 - ITAT KOLKATA - TMI - Penalty proceedings u/s 271(1)(c) - defective notice - 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. Thus hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled. - Decided in favour of assessee - ITA No.961-964/Kol /2013 - Dated:- 10- .....

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ferred to as the Act ) vide his orders dated 30.12.2011 for assessment years 2006-07 to 2009-10 respectively. Penalty levied u/s 271(1)(c) of the act by Assessing Officer separately vide orders dated 29.06.2012. 2. Since common grounds are involved except amount in all these appeals, therefore, we heard them together and deem it appropriate to dispose of them by way of this common order. 3. Except figure the facts in all the appeals are same therefore we are taking the facts of the case for the .....

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3A has erred in holding no immunity from p0enalty is available. 2. That on the acts and in the circumstances of the case, Ld. CIT(A) is wrong in confirming the penalty order by relying to Explanation 5A of Section 271(1)(c) as substituted by Finance (No.2) Act 2009 with retrospective effect. 3. That on the facts and in the circumstances of the case the conclusion of Ld. CIT(A) that no immunity from penalty u/s 271(1)(c) is available for declaration u/s 132(4) is erroneous and arbitrary since Sec .....

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. The assessee in his statement recorded u/s 132(4) of the Act has disclosed an income of ₹. 250 lacs pertaining to AYs 2006-07 to 2010-11 and has given break-up of undisclosed income of ₹ 250 lacs. 3.2 A notice u/s. 153A of the Act was issued upon assessee for the AYs 2006-07 to 2010-11 for filing the return of income. In response thereto, assessee filed his return of income as declared in the statement furnished u/s. 132(4) of the Act. Subsequently Assessing Officer has accepted th .....

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lacs Nil Nil ₹ 6,11,510/- 2007-08 Rs.1,68,700/- Rs.5 lacs Nil Nil ₹ 6,68,700/- 2008-09 Rs.1,93,250/- Rs.10 lacs Nil Rs.9,45,659/- ₹ 21,38,905/- 2009-10 Rs. Nil Rs.1.30 lacs Nil Rs.3,54,840/- Rs.1,33,54,840/- In assessment orders passed for various AYs, the AO has accepted the income declared by assessee after making some additions and after verifying the books of accounts, other documentary evidence. The AO also initiated penalty proceedings against assessee u/s. 271(1)(c) of t .....

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clared by the assessee would not have been declared. Accordingly, the AO imposed penalty u/s. 271(1)(c) of the Act on the assessee for AYs 2006-07 to 2009-10. 4. On appeal by the assessee, Ld. CIT(A) confirmed the order of the AO imposing penalty by holding that Explanation 5A to Sec. 271(1)(c) of the Act was applicable to the case and therefore penalty was to be imposed on the assessee and therefore notwithstanding the fact that the income ultimately brought to tax in the assessment framed u/s. .....

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by him by utilising (wholly or in part) his income for any previous year; or (ii) Any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of search and,- (a) Where the return of income for such previous year has been furnished before the said date but such income has not been dec .....

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d, by this order of Ld. CIT(A) assessee has preferred the present appeal before the Tribunal. 6. We have heard the submissions of the learned counsel for the assessee who submitted that the AO has not recorded satisfaction in the order of assessment that the assessee is liable to be proceeded against us/s 271(1)(c) of the Act except recording as follows in the order of assessment viz., Penalty proceeding u/s. 271(1)(c) initiated . According to him the above manner of initiation of penalty procee .....

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ed inaccurate particulars of income or concealed particulars of such income . He drew our attention to a decision of the Hon'ble Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory (2013) 218 Taxman 423 (Kar.) wherein it was held that if the show cause notice u/s. 274 of the Act does not specify as to the exact charge viz., whether the charge is that the assessee has furnished inaccurate particulars of income or concealed particulars of income by striking out t .....

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ng inaccurate particulars of income or concealing particulars of such income by striking off the irrelevant portion of the printed show cause notice. On this aspect we find that in the show cause notice u/s.274 of the Act the AO has not struck out the irrelevant part. It is therefore not spelt out as to whether the penalty proceedings are sought to be levied for furnishing inaccurate particulars of income or concealing particulars of such income . 9.1. The Hon ble Karnataka High Court in the cas .....

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g penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed. 9.2. 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 Ac .....

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nce of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision 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 .....

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0% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 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 .....

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1(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to 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 .....

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imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the 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 .....

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d furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of 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 a .....

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s. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions 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 .....

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orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. 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 .....

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en though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material 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 re .....

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which he has to meet specifically. Otherwise, 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 .....

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