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2016 (5) TMI 244 - ITAT KOLKATA

2016 (5) TMI 244 - ITAT KOLKATA - TMI - Penalty u/s 271(1)(c ) - Held that:- In the present case 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. 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 Nos. 1534 & 1535/Kol/2013 - Dated:- 23-3-2016 - Shri N.V.Vasudevan, JM & Shri M.Balaganesh, A .....

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to as the Act ). 2. In both these appeals, the assessee has challenged the order of Learned CIT(A) whereby the Learned CIT(A) has confirmed the order of the Learned AO imposing penalty u/s 271(1)(c ) of the Act. As the issues involved are identical for all these appeals, they are taken up together and disposed off by this consolidated order for the sake of convenience. 3. The facts and circumstances under which penalty was imposed on the Assessee by the AO in the Asst Year 2006-07 are as follows .....

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iron and trading in liquor. In the course of search and seizure operations, Panchanama were drawn in the names of various assesses in the Group including the assessee herein. A disclosure u/s 132(4) of the Act for ₹ 4,99,00,000/- was made by Mr.R.P.Sao, Director of the company for Asst Year 2006-07 , which was also followed by filing of return in response to notice issued u/s 153A of the Act. The assessment was completed u/s 153A of the Act determining total income at ₹ 27,14,06,050 .....

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search at 100% of the tax on income disclosed at ₹ 4,99,00,000/- for the Asst Year 2006-07. 3.1. Asst Year 2007-08 The facts and circumstances under which penalty was imposed on the Assessee by the AO in the Asst Year 2007-08 are as follows:- The Income Tax Department had conducted search and seizure operations u/s.132(1) of the Act against various persons and business concerns of the Thakur Prasad Sao Group of Chaibasa at different locations of Chaibasa and Kolkata on 23.11.2007. Survey u .....

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10/- wherein certain additions were made. On first appeal in quantum proceedings, the Learned CIT(A) granted relief to the extent of ₹ 3,61,88,410/-. 3.2. The Learned AO levied penalty u/s 271(1)(c ) of the Act on the income disclosed pursuant to the search for ₹ 1,67,96,340/- and ₹ 3,63,20,279/- for Asst Years 2006- 07 and 2007-08 respectively. 3.3. The assessee pleaded that the income was disclosed u/s 132(4) of the Act on the condition that no penalty u/s 271(1)(c ) of the A .....

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income with regard to the income returned by the assessee. It was argued that penalty u/s 271(1)(c ) of the Act read with Explanation 5A would apply to the additions made by the Learned AO based on the seized documents or assets found and not on the income returned u/s 153A / 139 of the Act. On first appeal in the penalty proceedings, 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 .....

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owing grounds before us :- 1) That the Ld. CIT(A) erred in confirming the penalty u/s 271(1)(c ) of the Income Tax Act @ 100% of the amount of additional income offered in the return u/s 153A of the I.Tax Act and disclosed u/s 132(4) of the Income Tax Act. The assessee has paid tax & interest and disclosed the income int eh return u/s 153A , which is the return u/s 139 of the I.Tax Act. Confirming the penalty by the Ld.CIT(A) is wrong and penalty need to be cancelled. 2) That the assessee cr .....

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e Learned DR vehemently supported the orders of the lower authorities. 3.6. 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 proceedings in the order of assessment is not in .....

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such income . He drew our attention to a decision of the Hon ble Karnataka High Court in the case of CIT Vs. 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 the irrelevant portion of printed show cause notice, than the imposi .....

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relevant 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 Learned 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 . 3.6.3. The Hon ble Karnataka High Court in the case of CIT & Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), has he .....

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b 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. 3.6.4. 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 procee .....

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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 the ca .....

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tly 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 some ca .....

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y 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 upon t .....

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ust 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 of in .....

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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 particul .....

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il 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 sa .....

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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 has resu .....

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d 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 by th .....

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