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2016 (6) TMI 838 - ITAT KOLKATA

2016 (6) TMI 838 - ITAT KOLKATA - TMI - Penalty u/s 271(1)(c) - validity of show cause notice - 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. Following the decision of the Hon’ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT ) we hold that the orders imposing penalty in the assessment year under consideration has to be held .....

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by DCIT, Circle-2, Jalpaiguri u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 03.12.2012 for assessment year 2010-11. Penalty levied u/s. 271(1)(c) of the Act vide his order dated 21.01.2013. 2. Only issue in this appeal of assessee is that Ld. CIT(A) erred in confirming the penalty imposed by Assessing Officer u/s 271(1)(c) of the Act. For this, assessee has raised following grounds:- 1. For that the penalty under u/s. 271(1)(c)of the Act is op .....

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cting activity. During the course of assessment proceeding, Assessing Officer has made the addition to the total income of assessee on account of following:- i) Non disclosure of interest income earned on the FDR of ₹ 19,022/- ii) Claim of bogus purchases for ₹ 18,61,658/- At the time of assessment, AO initiated the penalty proceedings u/s. 271(1)(c) for the concealment of income in relation to non-disclosure of income from FDR and for the bogus purchase on account of furnishing inac .....

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was indeed a bogus purchase and this entry was made in the purchase register to reduce the taxable income. This transactions was entered into with malafide intention of tax evasion. Regarding the nondisclosure of accrued interest in the return of income, the AO is directed to verify whether the entire interest for one year has been offered for tax in the return for the subsequent year. If this entire interest of twelve months is offered for tax in the subsequent year, then penalty under section .....

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of Revenue. 5. Before us L d 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 having concealed particulars of such income . He submitted that the two additions were made in the assessment order. For one addition the penalty was initiated on account of concealment of income and second .....

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ecorded that tax on penalty under section 271(1)(c) of the Act is computed. 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 irr .....

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other hand L d DR relied on the order of the CIT(A). 6. We have given a very careful consideration to the rival submissions. The facts go to show that the AO came to know that the Assessee had not disclosed the interest income earned on the FDR and claimed the bogus purchases. 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 con .....

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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 income. The Hon ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted that in the .....

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passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or .....

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271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed farm where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the groun .....

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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 gro .....

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alid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and material .....

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nishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of MANU ENGINEERING reported in 122 .....

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lauses will lead to an inference as to non-application of mind. 6.2 The final conclusion of the Hon ble Court was 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( .....

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use 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 provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty ev .....

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ed and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order. l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of .....

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der Section 274 of the Act should specifically state the grounds mentioned in Section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income q) Sending printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law. r) The assessee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be .....

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