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2016 (10) TMI 416 - ITAT KOLKATA

2016 (10) TMI 416 - ITAT KOLKATA - TM - Penalty imposed u/s. 271(1)(c) - validity of notice - Held that:- In the present case, the notice dt: 27-12-2010 issued to Assessee by the AO U/Sec 274 r/w 271 of the Act does not show on which ground the penalty is sought to be imposed, hold that the order dt: 24-06-2011 levying penalty is not valid. See CIT & Anr. v. Manjunatha Cotton and Ginning Factory [2013 (7) TMI 620 - KARNATAKA HIGH COURT ] - Decided in favour of assessee - I.T.A. No. 204/KOL/ 2014 .....

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he I.T. Act, 1961. 2. The brief facts of the case are that the assessee is an individual and dealing in the business of manufacturing of machines. The assessee filed her return of income at Rs. NIL on 29-09-2008 Under scrutiny, notice U/sec 143(2) was issued. During such proceedings, the AO determined total income of the assessee at ₹ 23,34,605/- to that effect an assessment order dt: 27-12-2010 was passed u/sec 143(3) of the Act. During such proceedings the AO observed that the assessee c .....

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me and levied penalty of ₹ 7,84,087/- U/Sec 271(1)(c) of the Act by an order dt. 24-06- 2011. Against which the assessee preferred an appeal before the CIT(A). The CIT-A found that the assessee could not able to satisfy prima facie that her claim is bonafide. Accordingly, he confirmed the penalty imposed by the AO. Aggrieved, the assessee is in appeal before us by raising the following grounds:- 1. For that the ld.CIT(A) ought to have accepted the contention of the appel lant that in view .....

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, the request of the appel lant made to the ld. CIT(A) in penalty appeal to keep the appeal pending for disposal ought to have been accepted. 3. For that the appel lant had ef fected sales of some machines which were manufactured upon receipt of orders and due to some defects in the machines suppl ied, the buyers had paid less amounts which were claimed as deductions by the appel lant but were not al lowed by the AO the ld. CIT(A) did not consider these facts properly and confirmed the levy of p .....

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led the fol lowing additional ground:- For that the assumption of jurisdiction by the AO and issue of notice u/s. 274 read with Sec 271 is wrong, uncal led for and the resultant levy of penalty u/s. 271(1) ( c) is total ly bad in law. and contended that the notice dt.27-12-2010 issued by the AO u/s 274/271 of the Act is defective. With the consent of both the parties, we admit the additional ground. 4. During the course of arguments the ld. AR for the assessee submitted that the case under consi .....

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5. Heard the rival submissions and perused the material available on record. The question before us is as to whether the penalty order passed by the AO and confirmed by the ld.CIT(A) is falls for our consideration in pursuance of the law laid down by the Hon ble Karnataka High Court supra. 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 pen .....

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e Karnataka High Court supra the relevant portion of which reproduced hereunder: 8. 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 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 whe .....

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igh 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 .....

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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 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 accus .....

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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 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 p .....

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her 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 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 hi .....

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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 .....

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oncealment 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 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 .....

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, 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(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 .....

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) 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 .....

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ion offered is found to be false or when the assessee fails to prove that the explanation offered is not bona fide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide 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 a .....

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ncorrect 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 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 a .....

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