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2015 (12) TMI 1524 - ITAT KOLKATA

2015 (12) TMI 1524 - ITAT KOLKATA - TMI - Penalty u/s 271(1)( c) - Held 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.

See case of CIT Vs. MWP Ltd. [2013 (12) TMI 1214 - KARNATAKA HIGH COURT ] wherein held that mere mention of "Penalty Proceedings under section 271(1)( c) initiated separately" in assessment order, does not amount to a direction under Section 271(1)( (c) for levy of penalt .....

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he facts and circumstances under which penalty was imposed on the Assessee u/s.271(1)( c) of the Act are as follows: The Assessee is an individual. He is the principal person of the group "AIRCRAFT GROUP". There was a search and seizure operation carried out u/s.132 of the Act on 24.1.2006 in the case of the Aircraft group and the Assessee in his individual capacity was also subjected to such a search. The group is involved basically into Air Hostess Training, Pilot & Steward Train .....

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sessee had made investments in purchase of properties besides monies lying in various bank accounts. The investments and monies so found for the various AYs were to the tune of ₹ 12,09,896/-. The above computation of investments and monies were given by the Assessee himself in the course of assessment proceedings u/s.153A of the Act. The sum of ₹ 12,09,896/- was offered to tax in various AYs by the Assessee as follows: AY 2000-01 Rs.26,000 AY 2001-02 Nil AY 2002-03 Rs.56,741 AY 2003- .....

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to tax a sum of ₹ 10,44,874 to the total income for AY 2003-04. The order of the AO in this regard there is a reference to various items of jewellery, undisclosed bank accounts and seized papers/documents. Thereafter there is a reference to the 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 proc .....

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on 1 to Sec.271(1)(c ) of the Act. The offering has been made owing to the inability of the Assessee to explain the source of certain investments in flats noted in seized documents and their undisclosed nature was very much within the knowledge of the Assessee. The Assessee was confronted with interrogation at the time of assessment proceedings which he could reply satisfactorily and hence he had no other option but to offer the unexplained investment to tax. The AO has also held that the Assess .....

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f the CIT(A). 3. Before the Tribunal the learned counsel for the Assessee reiterated the stand taken before the AO and CIT(A). He further submitted that the AO has not recorded satisfaction in the order of assessment that the Assessee is liable to be proceeded against u/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 proceedings in the order of .....

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in the aforesaid decision has considered the effect of Sec.271(1B) of the Act, in the light of the decision of the Hon ble Delhi High Court in the case of Ms. Madhushree Gupta Vs. Union of India 317 ITR 107(Del) wherein it was held "In the result, conclusions are as follows : (i) sec. 271(1B) is not violative of Art. 14 of the Constitution; (ii) the position of law both pre and post amendment is similar, inasmuch, the AO will have to arrive at a prima facie satisfaction during the course of .....

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passed by the AO need not reflect satisfaction vis-a-vis each and every item of addition or disallowance if overall sense gathered from the order is that a further prognosis is called for; (v) however, this would not debar an assessee from furnishing evidence to rebut the prima facie satisfaction of the AO; since penalty proceeding are not a continuation of assessment proceedings; (vi) due compliance would be required to be made in respect of the provisions of ss. 274 and 275; (vii) the proceed .....

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ase does not spell out any satisfaction as is contemplated in the decisions referred to above. The AO accepted whatever evidence the Assessee produced and also the offer of the Assessee to tax. 3.1. The learned counsel for the Assessee also 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 havin .....

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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 the irrelevant portion of printed show cause notice, than the imposition of penalty on the basis of such invalid show cause notice cannot be sustained. 4. The learned DR relied on the order of the CIT(A). He placed reliance on the decision of the Hon ble Supreme Court in the case of MAK Data (P) Ltd .....

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ence of initiation of penalty proceedings in the order of assessment, imposition of penalty u/s.271(1)( c) of the Act was unsustainable. 6. We shall now deal with the question whether proper satisfaction was arrived at by the AO for initiating penalty proceedings u/s.271(1)(c) in the course of concluding the assessment proceedings wherein the additions in respect of which penalty was imposed were made. 7. On the above issue the first aspect which we notice is that in the order of assessment, whi .....

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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 arrive at a prima facie satisfaction during the course of proceedings with regard to the assessee having concealed particulars of income or furnished inaccurate particulars, before he initiates penalty proceedings. prima facie satisfaction of th .....

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ntext 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 detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain do .....

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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 declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from .....

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p;." 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 the satisfaction need not be recorded in a particular manner but from a reading of the assessment order as a whole such satisfaction should be clearly discernible. If the AO accepts all the contentions of the Assessee and the off .....

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he 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 initiation of penalty proceedings is not discernible from the order of assessment. We therefore concur with the argument of the learned counsel for the Assesssee that initiation of penalty proceedings was not proper in the present cas .....

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herefore 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 565 (Karn), 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 fu .....

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ble 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 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 any said grounds m .....

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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 the Department sendi .....

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w 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 drawing up penalty proc .....

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unds. 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 justice and canno .....

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covery 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 while issuing noti .....

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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." The final conclusion of the Hon .....

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ence 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 in the assessment order pa .....

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ged 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 the assessing officer in th .....

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eferred 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 mentioned in Section 271(1)( .....

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