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2016 (4) TMI 1124 - ITAT KOLKATA

2016 (4) TMI 1124 - ITAT KOLKATA - TMI - Penalty u/s.271(1)( c ) - Held that:- In the present case satisfaction for initiation of penalty proceedings u/s.271(1)( c) of the Act is not discernible from the order of assessment. The show cause notice u/s.274 of the Act is also defective. The same is also enclosed as Annexure A to this order. Following the decision referred to above, we hold that the penalty imposed on the Assessee u/s.271(1)( c) of the Act cannot be sustained and the same is directe .....

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i Amit Kumar, ACA, ld.AR ORDER SHRI.M.BALAGANESH, 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 appeal .....

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y 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 Sadan, Anchal Road, Iskcon Mandir Road, Siliguri on 18.03.2008. The assessee group is mainly engaged in the business activities of infrastructure developments and trading. The group has also invested huge monies in land and properties and raised share capital thro .....

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the Karta of the assessee has also stated that the disclosure of income made u/s 132(4) of the Act on 19.03.2008 by Mr.Manoj Kumar Jain of ₹ 8.75 crores was on behalf of the assessee. 3. ITA NO. 1234/Kol/2011 (AY 2006-07) - ASSESSEE APPEAL ITA NO. 1236/Kol/2011 (AY 2007-08) - ASSESSEE APPEAL ITA NO. 1320/Kol/2011 (AY 2006-07) - REVENUE APPEAL ITA NO. 1321/Kol/2011 (AY 2006-07) - REVENUE APPEAL As the issues involved are identical for all these appeals, they are taken up together and dispo .....

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re compared to the returned income by the assessee and hence the assessee considered the original returned income of ₹ 2,14,24,950/- for section 153A proceedings also. The assessee also filed another submission that it had shown bogus purchase of machinery of ₹ 1,08,16,000/- in Financial Year 2005-06 and claimed bogus depreciation of ₹ 8,11,200/- and claimed bogus machinery hire charges payable of ₹ 11,46,700/- in Financial Year 2005-06 from M/s D.K.Enterprises. M/s D.K.E .....

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de 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 fa .....

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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 the Act. Hence the Learned CITA held that the assessee shall be deemed to have concealed the particulars of h .....

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xes was allowed. If the same basis is followed for working out business income, the income calculated thereon resulted in lower figure compared to the returned income by the assessee and hence the assessee considered the original returned income of ₹ 3,47,23,020/- for section 153A proceedings also. The assessee also filed another submission that it had shown bogus purchase of machinery of ₹ 1,08,16,000/- in Financial Year 2005-06 and claimed bogus depreciation of ₹ 9,04,543/- f .....

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closure 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 .....

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esponse 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 the Act. Hence the Learned CITA held that the assessee shall be deemed to have concealed the particul .....

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atisfaction as to whether the assessee has concealed his income or has furnished inaccurate particulars of his income in the penalty notice issued u/s 274/271 of the Income Tax Act 1961. Hence, the penalty proceeding is bad in law and the same is liable to be quashed. The same additional ground is raised by the assesee for all the years except change in figures. 3.4. The Learned AR prayed for admission of additional ground as it goes to the root of the matter and does not require any adjudicatio .....

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by the Learned AO. In response to this, the Learned DR vehemently objected to the admission of additional ground. 3.5. We have heard the rival submissions. The Learned AR 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 u/s.271(1)( c) initiated separately. According to him, the above manner of initiation of penalty proce .....

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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 .....

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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 proceedi .....

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s not spell out any satisfaction as is contemplated in the decisions referred to above. 3.5.1. The Learned AR 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 having concealed particulars of such income . He pointed out that the printed show cause notice does not strike out the irrelevant portion viz. .....

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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. 3.5.2. Reference was also made to several judicial pronouncements. In particular our attention was drawn to a decision of the ITAT Kolkata Bench A Bench in the case of Shri Satyananda Achariya Biswas 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 judicia .....

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5) 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 add .....

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perused the show-cause notice issued u/s.274 of the Act for all the aforesaid AYs 2006-07 & 2007-08. The Learned AO in the said show cause notice has not struck off the irrelevant portion as to whether the charge against the assessee is concealing particulars of income or furnishing of inaccurate particulars of income . In this regard, this tribunal in the case of Shri Satyananda Achariya Biswas (supra) has taken the following view on both the question with regard to existence of satisfactio .....

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of income 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 .....

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is 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 d .....

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roceedings 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 .....

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10. The 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 suggest .....

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tiation 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 fo .....

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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, .....

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

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er 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 to contest such proceedings and should have full opportunity t .....

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d 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 doubt, the facts of some cases may attract both the offences a .....

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

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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 of any proceedings that there is concealment of income or fur .....

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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 appropriately marked. Similar is the case for furnishing inaccu .....

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ttracting 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 discernibl .....

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oner. 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 account of such unearthing or enquiry concluded by authoritie .....

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e 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 records satisfaction, then the penalty proceedings have to be in .....

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tural 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) The findings recorded in the assessment proceedings in so fa .....

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rom 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 held as invalid and consequently penalty imposed is cancelled. 3.5.6. The aforesaid ruling will squarely apply to the facts of the present case. In the .....

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ll the four appeals are allowed. The other ground raised by the revenue and assessee are dismissed as infructuous. 4. ITA No. 1235/Kol/2011 (AY 2007-08) in the case of Jain Infra Projects Ltd (Assessee Appeal) The facts and circumstances under which penalty was imposed on the assessee by the Learned AO in the Asst Year 2007-08 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 premises of the assesee and various g .....

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filed a letter dated 19.2.2009 in which it was stated that some of the assets and documents found and seized in the course of search and seizure operation at the various premises of the group which are outside the regular books of accounts of the group concerns belongs to it. From the records, the Learned AO observed that the assessee company was incorporated on 7.11.2006 as M/s Bengal Infrastructure Ltd and subsequently the name was changed to M/s Jain Infraprojects Ltd w.e.f. 21.12.2006 and t .....

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onstruction 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 propriet .....

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dings u/s 271(1)(c ) of the Act, the assessee claimed that it had made voluntary disclosure of additional income of ₹ 5,96,176/- 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 .....

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t 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 ₹ 5,96,176/- 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 19 of the A .....

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