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2016 (4) TMI 552 - ITAT KOLKATA

2016 (4) TMI 552 - ITAT KOLKATA - TMI - Penalty u/s 271(1)(c) - Held that:- Penalty levied u/s 271(1)(c) of the Act is liable to be cancelled on the ground that there was no proper recording of satisfaction in the order of assessment and that the show cause notice u/s 274 of the Act does not satisfy the specific charge against the assessee. Consequently the orders imposing penalty for all the four assessment years are held to be invalid and illegal and are hereby cancelled. - Decided in favour o .....

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assessee has challenged the order of CIT(A) whereby the CIT(A) confirmed the order of AO imposing penalty u/s 271(1)(c) of the Act. 2. The facts and circumstances under which penalty u/s 271(1)(c) of the Act was imposed on the assessee by AO are as follows :- The Assessee is an individual. He carries on the business of property development. The Assessee had filed returns of income for A.Yrs. 2001-02, 2002-03, 2004-05 and 2005-06 in the normal course u/s 139(1) of the I.T.Act, within the due date .....

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:- S.No. Particulars of Income Amount (Rs.) 1. On account of cash found at residence & office 19,00,000/- 2. Income from relinquishment of tenancy rights at 9/12, Lal Bazaar Street, Kolkata. 92,45,700/- 3. Accretions from 4, Chowringhee Lane, Kolkaya from 01.01.2005 to 18.08.2006 2,62,76,335/- 4. Jessore Road Project of Diamond Group 12,00,000/- 5. Various miscellaneous transactions and receipts from 1st April, 2005 to 22nd August, 2006 26,00,000/- Total 4,12,22,035/- In effect, the assessee .....

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Nil 2004-05 15,30,967/- 2005-06 71,15,928/- 2006-07 1,33,80,134/- 2007-08 98,61,421/- Total 4,32,62,823/- 5. The assessee, in the course of assessment proceedings u/s 153A, further admitted incomes of ₹ 8,83,517/- and ₹ 15,00,000/- for assessment years 2002-03 and 2007- 08, thereby admitting an aggregate undisclosed income of ₹ 4,56,46,339/-. The A.O. had accepted the disclosures made by the Assessee and assessed the Assessee as under :- Asst.Year Income admitted u/s 139(1) (Rs .....

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e Assessee s offer to tax income to the extent mentioned above. The AO has accepted such offer to tax of income and completed the Assessment. The order of assessment makes a reference to initiation of penalty proceedings as follows :- Penalty proceedings u/s 271(1)(c) is initiated Accordingly. 7. The AO issued show cause notice u/s 274 of the Act for imposing penalty u/s 271(1)(c) of the Act on the Assessee and imposed penalty on the Assessee. According to the AO the offering of income had been .....

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cified as to whether the charge against the Assessee is for furnishing inaccurate particulars of income or for concealing particulars of income. 8. Before CIT(A) the assessee submitted that the assessee was entitled to immunity under Explanation 5 to section 271 of the Act as the assessee satisfies all the conditions laid down therein. The assessee also contended that Explanation 1 to section 271(1)(c) of the Act was not applicable to the case of the assessee because the assessee offered explana .....

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ct was applicable in the case of the assessee because the assessee had not furnished any bona fide explanation in the penalty proceedings to explain the reasons as to why he had not admitted the entire incomes in each of the returns filed u/s 139(1) of the Act for A.Y.2001-02, 2002-03, 2004-05 and 2005-06. With regard to the immunity Explanation 5 to Sec. 271(1)(c) of the Act, the CIT(A) was of the view that to claim immunity under Clause (2) of Explanation 5 to section 271 of the Act the assess .....

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ot filed any appeals against the common order of the CIT(A) dated 26.8.2009 and therefore we need not elaborate on the aforesaid findings of the CIT(A). The CIT(A) however held that with regard to payment of taxes, the assessee had not fulfilled the conditions. The observations of the CIT(A) in this regard were as follows :- In regards to tax payments, the appellant for Assessment Year 2001-02 on a total income of ₹ 29,71,040/- was liable to pay tax of ₹ 10,12,415/- and interest u/s .....

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0/- was liable to pay tax of ₹ 33,12,912/- and interest u/s.234A of ₹ 33,129/-, interest u/s.234B of ₹ 21,35,900/- and interest u/s.234C of ₹ 1,21,677/-,aggregating to ₹ 56,02,718/-, which had been discharged in part by way of self assessment tax u/s.140A of ₹ 28,69,581/- and regular tax of ₹ 10,00,000/- and ₹ 11,61,181/- paid on 22-07-2008 and 01.08.2008 respectively. The appellant is still due to pay tax and interest of ₹ 5,71,956/- For Ass .....

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The appellant is still due to pay tax and interest of ₹ 53,445/- . For Assessment Year 2005-06, the appellant on a total income of ₹ 84,75,7201- was liable to pay tax of ₹ 28,23,757/-, interest u/s.234A of ₹ 28,237/- , interest u/s.234B of ₹ 9,16,087/- and interest u/s.234C of ₹ 1,04,477/- ,aggregating to ₹ 38,72,558/- which had been discharged in part by way of self assessment tax u/s.140A of ₹ 25,67,626/- and regular tax of ₹ 7,29,558/- pai .....

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02,2002-03 ,2004-05 and 2005-06. 11. Aggrieved by the order of CIT(A) the assessee is in appeal for the Tribunal. 12. The grounds of appeal originally filed before the Tribunal were narrative and had not specifically challenged the legality of the order of CIT(A) confirming the order of AO imposing penalty on the assessee u/s 271(1)(c) of the Act. The assessee has therefore filed an additional ground which reads as follows :- That the learned Commissioner of Income Tax (Appeals) erred in confirm .....

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me Court held that adjudication of a legal ground by way of an additional ground when facts are available on record should be permitted. 14. The assessee apart from filing these appeals in which he has challenged the finding of the CIT(A) that the Assessee has not paid admitted tax on additional income disclosed in the returns filed u/s.153A of the Act, also filed an application u/s 154 of the Act before CIT(A) pointing out that CIT(A) conclusion that assessee does not satisfy one of the require .....

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iled u/s 153A of the Act and was therefore entitled to immunity under Explanation 5 to section 271 of the Act. The following were the relevant observations of CIT(A) in this regard : On a careful examination of the facts of the case it is found that the Appellant/ Applicant has filed a chart showing year-wise details of disclosure of income and tax payment thereon. It is also apparent from the impugned order of my predecessor-inoffice and his orders in the related cases of the same group that hi .....

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er the appellant has paid all the taxes together with interest for the assessment years 2001-02, 2002-03, 2004-05 and 2005-06 before the appeal order dated 26.08.2009. Vide his letter No.DCIT/CCI/ Kol/Remand/2010-11/52 dated 10.05.2010 the AO has categorically stated "On verification of the records, it is seen that in the case of the assessee Shri Amar Nath shroff (AMQPS2466J), there was no demand outstanding as on the date of appellate order viz., 26.08.2009 for the A. Yrs. 2001-02, 2002-0 .....

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e date of the appellate order. However, the assessee had requested for adjustment against refund due to him of ₹ 46,536/- for A/Y 2003-04 before the date of appellate order i.e. 26.08.2009. The assessee cannot be held responsible for the inordinate delay on the part of the department in effecting the requisite adjustment. Since he has made a formal request for adjustment of refundable amount almost 8 months before the date of appellate order, it is construed that he had made satisfactory a .....

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erned as had been noted in the Appellate Order dated 26-8-2009 and such mistake is apparent from the records. In terms of the decision of the Supreme Court of India in CIT vs. Hero Cycles (P) Ltd, reported in 228 ITR 463 (SC) 1997, rectification under section 154 can be made when a glaring mistake of fact or law has been committed by the Officer passing the order and it is apparent from the records. It has also been held in the case of N. Rajamoni Amma vs. Deputy CIT reported in 86 CTR (Ker) 12, .....

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been a part of the Departmental records. So, I am of the opinion that there is a mistake apparent in the Appellate Order dated 26- 8-2009 passed in this case in ascertaining the correct factual position relating to payment of tax interest made by the Appellant/ Applicant on the disclosure of income made by him in course of the search. Such mistake needs to be rectified in the interest of justice as well as in terms of section 154 of the Act since all taxes having been paid by the Appellant/Appli .....

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assessment years which was dismissed previously by the Order dated 26-8-2009 on an apparently erroneous finding of fact. 16. This order of CIT(A) was passed on 26.05.2010. Aggrieved by the order of CIT(A) dated 26.05.2010 passed u/s 154 of the Act the revenue has preferred these appeals being 1494 to 1497/Kol/2010 for the Tribunal. 17. We have heard the submissions of the learned counsel for the assessee and the learned DR. The first and principal submission of the learned counsel for the Asses .....

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assets have been acquired by him by utilising (wholly or in part) his income,- (a ) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein ; or (b ) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of .....

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, in the books of account, if any, maintained by him for any source of income or such income is otherwise disclosed to the Chief Commissioner or Commissioner before the said date ; or (2 ) he, in the course of the search, makes a statement under sub-section (4) of Section 132 that any money, bullion, jewellery or other valuable article or thing found in his possession or under his control, has been acquired out of his income which has not been disclosed so far in his return of income to be furni .....

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f the condition that (a) Income declared in the return of income filed u/s.153A of the Act, has been disclosed in a statement u/s 132(4) of the Act. And (b) In such statement the assessee specifies the manner in which such income has been derived has been accepted by the CIT(A) and the revenue has not challenged the said finding. The CIT(A) in the order dated 26.05.2010 of CIT(A)-Central-III, Kolkata has accepted that taxes due on the income so disclosed together with interest are paid by the As .....

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mitted by him that the time at which the tax had to be paid has not been set out under Explanation (5) to section 271 of the Act. The Hon ble Supreme Court , however, in the case of ACIT vs M/s. Gebilal Kanhailal HUF in Civil Appeal No.636 of 2005 (SC) Judgment dated 04.09.2012 has taken a view that since no time limit for payment of tax was prescribed under clause (2) the only requirement was that an assessee to get the immunity has to pay tax after the search proceedings along with interest up .....

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lfilled for getting the immunity, after the search proceedings got over, was that the assessee had to pay the tax together with interest in respect of such undisclosed income upto the date of payment. Clause (2) did not prescribe the time limit within which the assessee should pay tax on income disclosed in the statement under Section 132(4). 18. The learned DR however submitted that the payment of tax should be on or before filing of the return u/s 153A of the Act or at any rate before conclusi .....

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f income or for furnishing inaccurate particulars of income. In this regard our attention was drawn to the decision of ITAT Kolkata Bench in the case of Satyananda Achariya Biswas vs DCIT in ITA No.05/Kol/2010 for A.Y.2003-04 dated 02.12.2015 wherein it was held that such defect in the show cause notice u/s.274 of the Act renders the order imposing penalty illegal. 20. We have carefully considered the rival submissions. As rightly pointed out by the learned counsel for the assessee the CIT(A) ha .....

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Act. And (b) In such statement the assessee specifies the manner in which such income has been derived has been accepted by the CIT(A) and the revenue has not challenged the said finding. In the order dated 26.05.2010 passed u/s 154 of the Act, the CIT(A) has found that the condition with regard to payment of taxes on income declared in the return of income filed u/s.153A of the Act was also satisfied by the assessee. The grievance of the revenue against the order u/s 154 of the Act can therefo .....

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that the payment of tax should be after the search proceedings and there is no time limit within which the said payment has to be made. In view of the aforesaid decision of the Hon ble Supreme Court, we are of the view that there is no merit in the appeals filed by the revenue. 21. As far as the appeals filed by the assessee are concerned we find that the facts of the assessee s case are identical to the decision in the case of Satyananda Achariya Biswas vs DCIT rendered by ITAT Kolkata Bench (s .....

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The ruling in the case of Satyananda Achariya Biswas (supra) would therefore apply to the present appeals by the Assessee as well. The following were the observations of the Tribunal in the case of Satyananda Achariya Biswas (supra) on the effect of not recording satisfaction regarding concealment in the order of assessment as well as defective notice u/s.274 of the Act. : 6. We shall now deal with the question whether proper satisfaction was arrived at by the AO for initiating penalty proceedin .....

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ome by the Assessee has just been accepted. It is no doubt true that it is not the requirement of the law that the satisfaction has to be recorded in a particular manner, especially after the introduction of the provisions of Sec.271(1B) of the Act with retrospective effect from 1.4.1989. Nevertheless, as laid down by the Hon ble Delhi High Court in the case of Ms.Madhushree Gupta (supra), the position of law both pre and post Sec.271(1B) of the Act is similar, inasmuch, the AO will have to arri .....

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and every item of addition or disallowance if overall sense gathered from the order is that a further prognosis is called for. The decision of the Hon ble Supreme Court in the case of MAK Data (P) Ltd. (supra) has to be understood in the context of the facts of the said case. The relevant portion of the judgment in the aforesaid case, reads thus: 9. We are of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detectio .....

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ngs under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to decl .....

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AO has to satisfy whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the AO is not required to record his satisfaction in a particular manner or reduce it into writing……. 8. The Revenue places reliance only on the sentence appearing in para-10 of the judgment without reading it in the context of the observations in the last portion of para-9 of the said judgment. Therefore even the Hon ble supreme court s decision suggests that .....

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of penalty proceedings is discernible from the order of assessment. If the Assessee in good faith offers income to tax voluntarily prior to any positive detection by the AO, such voluntary offer cannot be taken advantage of by the AO to initiate penalty proceedings against the Assesssee without specifying the reasons why penalty proceedings are initiated u/s.271(1) ( c) of the Act. In the present case, we have read the order of assessment as a whole and are satisfied that satisfaction for initi .....

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hing inaccurate particulars of income or concealing particulars of such income . 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 case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR .....

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ther 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 Act. NOTICE UNDER SECTION 274 59. As the provision stands, the penalty .....

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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 to contest such proceedings and should have full opportunity to meet .....

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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 doubt, the facts of some cases may attract both the offences and in s .....

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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 to impose penalty on the grounds other than what assessee was called .....

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alty 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 of any proceedings that there is concealment of income or furnishing .....

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tions. 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 appropriately marked. Similar is the case for furnishing inaccurate pa .....

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ng 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 set out in Explanation 1(A) & (B) it should be discernible from .....

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) 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 account of such unearthing or enquiry concluded by authorities it ha .....

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ide 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 records satisfaction, then the penalty proceedings have to be initiated .....

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ustice 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 &q .....

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