TMI Blog2016 (4) TMI 1124X X X X Extracts X X X X X X X X Extracts X X X X ..... AM These are appeals by the revenue against separate orders of the Learned CIT(A), Central-I, Kolkata in Appeal No. 65/CC-IV/CIT(A),C-I/10-11 dated 5.7.2011 for Asst Year 2006-07 ; Appeal No. 66/CC-IV/CIT(A),C-I/10-11 dated 5.7.2011 for Asst Year 2007-08 in the case of M/s Bengal Construction Co. (erstwhile firm) and Appeal No.74/CC-IV/CIT(A),C-I/10-11 dated 1.7.2011 for Asst Year 2007-08 in the case of Jain Infraprojects Ltd. In all these appeals the assessee has challenged the order of the Learned CIT(A) whereby the Learned CIT(A) confirmed the order of the Learned AO imposing penalty @ 100% of the tax on the assessee u/s.271(1)( c ) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) and the Revenue has challenged the order of the CIT(A) wherein the Learend CITA had reduced the penalty from 300% to 100% of the tax u/s 271(1)(c ) of the Act. 2. The facts and circumstances under which penalty was imposed on the Assessee by the AO in all the AYs referred to above are as follows:- The Income Tax Department had conducted search and seizure operations u/s.132(1) of the Act in the office of the group concerns at No.39, Shakespeare Sarani, Kolkata ; at Janki S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect admitted additional income of ₹ 19,57,900/- ( 8,11,200+ 11,46,700) in the assessment proceedings. During the penalty proceedings u/s 271(1)(c ) of the Act, the assessee claimed that it had made voluntary disclosure of additional income of ₹ 19,57,900/- which were ultimately added in the search assessment and also stated that the same cannot be construed as a disclosure made by the assessee as a result of the search proceedings and based on any search material. It was also contended by the assessee that the present management took over the business of M/s Bengal Construction Co. with effect from 07.11.2006. M/s Bengal Construction Co. was a firm which had shown bogus purchase of plant and machinery in the Financial Year 2005-06 from M/s D.K. Enterprises. so, the fixed assets came from erstwhile partnership firm and the present management was not aware of these facts as this was not in control of its affairs. As such it was argued that the false claim was initiated by the erstwhile firma and for that, the present management cannot be held responsible since it was not aware of this fact. The Learned AO not satisfied with this reply levied penalty @ 300% of the tax o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal Construction Co. with effect from 07.11.2006. M/s Bengal Construction Co. was a firm which had shown bogus purchase of plant and machinery in the Financial Year 2005-06 from M/s D.K.Enterprises. so, the fixed assets came from erstwhile partnership firm and the present management was not aware of these facts as this was not in control of its affairs. As such it was argued that the false claim was initiated by the erstwhile firma and for that, the present management cannot be held responsible since it was not aware of this fact. The Learned AO not satisfied with this reply levied penalty @ 300% of the tax on additions made in the search assessment. On first appeal, the Learned CITA found that the assessee had not offered the aforesaid income of ₹ 9,04,543/- in the return filed in response to notice issued u/s 153A of the Act. The Learned CITA held that as per the plain reading of Explanation 5A to section 271(1)(c ) of the Act, any undisclosed income which is found or declared after the date of search initiated u/s 132 of the Act on or after 1.6.2007, the assessee will be liable for penalty on the said amount which is not already declared in the return filed u/s 139(1) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 penalty. The Learned AR pointed out that the Hon ble Karnataka High Court 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 proceedings with regard to the assessee having concealed particulars of income or furnished inaccurate particulars, before he initiates penalty proceedings; (iii) prima facie satisfaction of the AO that the case may deserve the imposition of penalty should be discernible from the order passed during the course of the proceedings. Obviously, the AO would arrive at a decision, i.e., a final conclusion only after hearing the assessee; (iv) at the stage of initiation of pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iswas Vs. DCIT ITA No.5/Kol/2010 order dated 2.12.2015 for AY 2003-04 wherein on identical facts penalty was deleted after considering all the judicial pronouncements referred to above. 3.5.3. The Learned DR relied on the order of the CIT(A). He placed reliance on the decision of the Hon ble Suprme Court in the case of MAK Data (P) Ltd. Vs. CIT 358 ITR 593 (SC) wherein it was held that satisfaction is not required to be recorded in any particular manner or reduce such manner of arriving at satisfaction in writing. 3.5.4. The Learned AR placed reliance on the decision of the Hon ble AP High Court in the case of CIT Vs. Lotus Constructions (2015) 55 taxmann.com 182 (AP) wherein the Hon ble AP High Court explained the decision of the Hon ble Supreme Court in the case of MAK Data (supra) and held that in the absence of initiation of penalty proceedings in the order of assessment, imposition of penalty u/s.271(1)( c) of the Act was unsustainable. 3.5.5. We have given a very careful consideration to the rival submissions. We have also perused the orders of assessment for AYs 2006-07 2007-08. In AYs 2006-07 2007-08, certain additions have been made in the search assessment. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 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 documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer 8 deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case and on that ground the imposition of penalty u/s.271(1)( c) of the Act is unsustainable. 9. The next argument that the show cause notice u/s.274 of the Act which is in a printed form does not strike out as to whether the penalty is sought to be levied on the for furnishing 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 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 furnishing inaccurate particulars of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cifically. 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 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 proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as follows:- 63. In the light of what is stated above, what emerges is as under: a) Penalty under Section 271(1)(c) is a civil liability. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. 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 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 passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding 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 proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings. (emphasis supplied) 9.3. It is clear from the aforesaid decision 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. Following the decision of the Hon ble Karnataka High Court, we hold that the orders imposing penalty in all the assessment years have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al return of income on 19.9.2008 disclosing taxable income of ₹ 5,51,11,049/- and declared the same income in response to notice issued u/s 153A of the Act. During the assessment proceedings, Manoj Kumar Jain Sons (HUF) filed a submission that M/s Bengal Construction Co. had purchased bogus plant and machinery from M/s D.K.Enterprises in the Financial Year 2005-06 for ₹ 1,08,16,000/- and on which it has claimed depreciation in the Financial Years 2006-07 2007-08. The said partnership firm M/s Bengal Construction Co. has been taken over by the assessee with effect from 7.11.06 and has claimed depreciation of ₹ 5,96,176/- for Asst Year 2007-08 on the aforesaid plant and machinery. M/s D.K.Enterprises was claimed to be the proprietary concern of Manoj Kumar Jain Sons (HUF). The assessee accordingly offered ₹ 5,96,176/- for taxation in Asst Year 2007-08. Apart from this, the Learned AO also made additions towards disallowance of filing fees paid for increase of authorized capital amounting to ₹ 2,50,000/- ; service tax disallowed u/s 43B of the Act amounting to ₹ 8,04,061/- based on tax audit report and disallowance u/s 40(a)(ia) of the Act amo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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