TMI Blog2016 (6) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... : The Assessee is an individual. For A.Y.2008-09 the assessee filed return of income declaring total income of ₹ 12,97,315/-. In the course of assessment proceedings the AO noticed that the assessee had declared short term capital gain on sale of shares of ₹ 12,40,550/-. The AO further noticed that the shares which were sold by the assessee had been held by the assessee as stock in trade and not as investment. The AO therefore treated the short term capital gain declared by the assessee as income under the head income from business. The total income was accordingly computed by the AO. As a consequence of the change of head of income from the head capital gain to the head Income from Business, the tax payable on the total income filed by the Assessee stood increased. Consequently tax payable by the Assessee was more. In respect of the increase in the tax liability of the Assessee consequent to change of head of income, the AO imposed penalty u/s 271(1)(c) of the Act. 4. On appeal by the assessee the CIT(A) confirmed the order of AO. Aggrieved by the order of CIT(A) the assessee has preferred the present appeal before the Tribunal. 5. Before us the primary objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 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. 8.2 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 categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 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 As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, 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 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 resulted in payment of such tax or such tax liability came to be admitted 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 i ..... 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