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2016 (5) TMI 544 - ITAT KOLKATA

2016 (5) TMI 544 - 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. Since the order impos .....

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8 to 1243/Kol/2011 are appeals by the assessee against the six orders all dated 16.6.2011 of CIT(A)-Central-I, Kolkata relating to A.Y.2002-03 to 2007-08. In these appeals, the assessee has challenged the order of CIT(A) whereby the CIT(A) confirmed the order of AO imposing penalty @ 100% of the tax sought to be evaded u/s 271(1)(c) of the Act. ITA No.1183 to 1187/Kol/2011 are appeals by the Revenue against the very same orders of CIT(A) for AY 2002-03 to 2005-06 & 2007- 08. In these appeals .....

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e Income Tax Act, 1961 (Act) on 18.3.2008 by the Income Tax department. In the course of said search & seizure proceedings Mr.Manoj Kumar Jain, Karta of the assessee made a disclosure of ₹ 8.75 crores u/s 132(4) of the I.Tax Act. The assessee filed a letter dt.19.02.09 claiming that some of the assets and documents found and seized in the course of search & seizure operation at the various premises of the group, belonged to it. In the said letter, Mr. Manoj Kumar Jain, Karta of the .....

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ice u/s 153C of the Act was issued on 03.03.09 for the assessment year 2002-03 to 2007-08. In response to the said notice, the assessee filed return for the assessment year 2002-03 to 2007-08 on 31/03/2009 diclosing ₹ 4,75,00,000/- out of the said additional income of 8.75 crore. It can be seen from the break-up of income disclosed that after excluding ₹ 4 crores declared in AY 2008-09, the undisclosed income disclosed for AY 02-03 to 07-08 was ₹ 4,75,00,000/-. Assessment for t .....

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4,630/- 2006-07 95,220/- 5,00,000/- NIL 5,95,220/- 2007-08 1,04,940/- 3,93,00,000/- NIL 3,94,04,940/- 2008-09 4,00,00,000/- N.A. 51,50,000/- 4,51,50,000/- 4. Additional incomes disclosed for the Asst.Year 2002-03 to 2006-07 are not based on any seized documents or assets found in the course of search & seizure operation. The income disclosed was purely voluntary to co-operate with the department and to buy peace. In the Asst. Year 2007-08 only income of ₹ 40 lacs is on the basis of pea .....

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he returned income has been accepted , no question of penalty arises on the returned income. Penalty u/s 271(1)(c) read with Explanation 5A will apply to the additions made by the AO based on the seized documents or assets found and not on the income returned u/s 153A/139 of the Income tax Act. The Assessee also submitted that the following statements would show that the income disclosed for A.Y.2002-03 to 2007-08 has not been utilised for any investments based on the seized documents or assets .....

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0/- 9,26,50,000/- STATEMENT OF CASH IN HAND AVAILABLE AFTER CONSIDERAING THE ADDITONAL INCOME DISCLOSED STATEMENT OF UTILISATION OF ADDITONAL INCOME DISCLOSED BASED ON THE SEIZED DOCUMENTS : Asst.Year Cumulative Additional Income Cash in Hand (Cumulative) Additional income utilised on the basis of seized documents 2002-03 21,00,000/- 21,00,000/- 2003-04 31,50,000/- 31,50,000/- NIL 2004-05 52,50,000/- 44,00,000/- 8,50,000/- 2005-06 77,00,000/- 94,75,280/- 2006-07 82,00,000/- 2,23,45,095/- NIL 200 .....

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umulative income of that year. Therefore, according to the Assessee, the income offered by the assessee is purely voluntary. 7. It was also the plea of the Assessee that in the course of said search & seizure operation following cash, jewellery and other assets were found and partly seized. The same are related to Financial Year 2007-08 relevant to Asst.Year 2008-09 as under : Sl.No. Address Items Found Seized 1. Hari Kunj, 4th Floor, 7, Iron Side Road, Kol-19 Jewellery RJ/1 to 19 (Rs.26,75, .....

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2002-03 to 2007-08, 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 proceedings u/s 271(1)(c) is initiated Accordingly. It was the plea of the As .....

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re operations and discovery of material in such search, the Assessee would not have offered income to tax in the course of search proceedings and in the return of income filed after the search in the proceedings u/s.153A of the Act. The AO imposed penalty equal to 300% of the tax sought to be evaded. In the show cause notice u/s 274 of the Act issued prior to the passing of the order u/s 271(1)(c) of the Act imposing penalty, the AO has not specified as to whether the charge against the Assessee .....

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rt of its claim that he was entitled to immunity from imposition of penalty. 11. CIT(A) was of the view that 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 the relevant AYs. In question. He also held that under Explanation 5A to Sec. 271(1)(c) of the Act, that penalty is automatic in respect of income declared in a return of income fi .....

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of penalty from 300% of the tax sought to be evaded to 100% of the tax sought to be evaded, the Revenue is in appeal before the Tribunal. 13. The Assessee has in his appeals filed additional ground in which it has raised an issue that the AO has not recorded satisfaction in the order of assessment that the Assessee is guilty of concealing particulars of income and that the show cause notice u/s.274 of the Act before imposing penalty u/s.271(1)( c) of the Act does not specify the specific charge .....

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.Ltd. vs CIT 229 ITR 383 wherein the Hon ble Supreme Court held that adjudication of a legal ground by way of an additional ground when facts are available on record should be permitted. 15. We have heard the submissions of the learned counsel for the assessee and the learned DR. The learned counsel for the assessee also submitted that no proper satisfaction has been recorded by the AO in the order of assessment. It was also submitted that in the show cause notice issued u/s 274 of the Act, the .....

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e notice u/s.274 of the Act renders the order imposing penalty illegal. The learned DR relied on the order of the AO. 16. We have carefully considered the rival submissions. 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 (supra). In the present case as well as in the case of Satyananda Achariya Biswas (supra), the AO in the order .....

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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 proceedings u/s.271(1)( c ) in the course of concluding the assessment proceedings wherein the additions in respect o .....

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at 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 arrive at a prima facie satisfaction during the course of proceedings with regard to the assessee having conceal .....

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osis 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 .....

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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 declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of .....

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roceedings 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 the satisfaction need not be recorded in a particular manner but from a reading of the assessment order as a .....

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come 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 initiation of penalty proceedings is not discernible from the order of assessment. We therefore concur with the a .....

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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 bei .....

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ly 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 proceedings can be initiated on various ground set out therein. If the order passed by the Authority categor .....

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gh 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 case of the Department and show that the conditions stipulated in Section 271(1)(c) do not exist as such .....

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cally. 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 proce .....

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ated 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 to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order .....

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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 inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars .....

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rt 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 particulars of income. The standard proforma without striking of the relevant clauses will lead to an inferenc .....

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ion 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 i .....

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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 resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped .....

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ed 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 the appellate authority and not the Assessing Authority. p) Notice under Section 274 of the Act should s .....

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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 "concealment of income" and "furnishing of incorrect particulars" would not operate as res .....

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