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2016 (10) TMI 599 - KARNATAKA HIGH COURT

2016 (10) TMI 599 - KARNATAKA HIGH COURT - TMI - Levy of Penalty u/s 271 (1)(c) - defective notice - Held that:- Had it been a case where the notice for penalty was not on record in the proceedings of assessment, the matter might stand on a different footing. In any case, where notice for imposition of penalty under Section 271(1)(c) of the Act was already there on record and when the Tribunal was to examine the applicability of this Court decision in the case of M/s.Manjunatha Cotton and Ginnin .....

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d. - Decided in favour of assessee - ITA Nos. 251/2016 & 390/2016 (T-IT) - Dated:- 21-9-2016 - Jayant Patel And Aravind Kumar, JJ. For the Appellant : Sri. P. Dinesh For Sri. S. Parthasarathi For the Respondent : Sri. K. V. Aravind, Advocate JUDGMENT Appellant - assessee has preferred the present appeal. However, learned counsel appearing for the appellant after some arguments did not press question Nos.1 and 2 and hence, only question No.3 is pressed, which reads as under: Whether in law, the I .....

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al is admitted and finally heard. 3. The only aspect to be considered in the present appeal is the order for imposition of penalty under Section 271 (1)(c) of the Act and whether such penalty could survive in view of the decision of this Court in case of COMMISSIONER OF INCOME-TAX AND ANOTHER vs. MANJUNATHA COTTON AND GINNING FACTORY reported in [2013] 359 ITR 565 (KAR), inspite of the fact that said decision was brought to the notice of the lower authority including Tribunal. 4. The facts of th .....

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carried before the Appellate Tribunal. Appellate Tribunal by the impugned order dated 13.01.2015 on the aspects of penalty made the following observations at paragraph 6.4.1. to 6.4.7 as under: 6.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decisions cited. It is not in dispute and clearly evident that the assessee has not been able to furnish any evidence at all to substantiate the claim of expenditure incurred on c .....

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ischarge the onus of proving the claim of expenditure being incurred would entail levy of penalty u/s. 271(1)(c) of the Act, it is settled principle that an addition or / disallowance resulting in increase to the income of the assessee, raises a presumption of concealment of income. It is a rebuttable presumption, which the assessee can rebut by furnishing material evidence to establish its claim. Explanation -1 to section 271(1)(c) of the Act provides that, if a person fails to offer an explana .....

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ee to furnish material to establish that the assessee has not concealed income or has not furnished inaccurate particulars of income. In the absence of any such evidence, the presumption of concealment of income or furnishing of inaccurate particulars of income gets sustained. The decision in the case of Manjunatha Cotton & Ginning Factory (supra) of the Hon ble Karnataka High Court, cited by the assessee, also upholds this view. 6.4.3 The judicial decisions cited by the assessee do not supp .....

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nd, however, the penalty has been levied because the assessee could not furnish any evidence in support of the claim of expenditure incurred made in the return of income/ financial statements and the presumption has not been rebutted. The facts of he cited cased vis-à-vis the case on hand are quite different. 6.4.4. In the case of SAS Pharmaceuticals (supra), it was held that there cannot be any penalty levied only on surmises, conjectures and possibilities and since 271(1)(c) of the Act .....

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, there is no surmise or conjecture involved in the levy of penalty in the assessee s case. Therefore, the facts of the cited case are different and the cited decision would be of no help to the assessee. 6.4.5 In the case of Manjunatha Cotton & Ginning Factory (supra) of the Hon ble Karnataka High Court, it was held that merely because assessee agreed for the addition and the assessment order passed on the basis of this addition, in the absence of any material on record to show concealment .....

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ra) of the Hon ble Karnataka High Court, that the decision in fact goes against the assessee. In that case the Hon ble High Court upheld the levy of penalty u/s. 271(1)(c) of the Act observing at para 6 thereof that, 6.We are constrained to reject the assessee s contention. We are pained to note that the Tribunal completely ignored the assessment order which was not based on any concession from the assessee. Concealment of income in the return filed by the assessee is a glaring fact in the insta .....

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ement between revenue and the assessee on this point. 6.4.7 The cited decision of Gem Granites (supra) of the Hon ble High Court of Madras also, in a way goes against the assessee. In that case, the penalty was cancelled because the assessee had given a cogent explanation and therefore discharged the onus upon it. In the case on hand, however, the assessee has not given any explanation supported by material evidence to substantiate the claim made in the return of income and as such, the decision .....

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ions made by the Tribunal would indicate that during the course of hearing the attention of Tribunal was brought to the decision of this Court in the case of COMMISSIONER OF INCOME-TAX AND ANOTHER vs. MANJUNATHA COTTON AND GINNING FACTORY reported in [2013] 359 ITR 565 (KAR) (supra). However, Tribunal did not accept the contention of the assessee by examining the facts to the extent that the penalty has not been levied because the addition was an agreed addition but because the assessee could no .....

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ed 15.12.2008 for imposition of penalty, which as per the learned counsel for appellant was a part of record in the proceedings before the Tribunal. Learned counsel for the respondent - revenue is unable to dispute that notice dated 15.12.2008 was issued by the Department for imposition of penalty under Section 271(1)(c) of the Act. Hence, said notice for the purpose of consideration is taken on record. Said notice disclose that it is a printed notice and further no specific ground is mentioned, .....

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a 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 order of the Appellate Authority or Revisional Authority. (f) Ever if there is no specific .....

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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 initiat .....

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ation 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 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 satisfac .....

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ioned 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 are distinct from the assessment proceedings. The proceedings for imposition o .....

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annot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings. 8. We are not required to consider the other contingencies for examination of legality and validity of the penalty under Section 271(1)(c) of the Act, but clauses (p), (q) & (r) of the above referred observations are required to be considered. 9. As per the above referred decision of this Court, the notice would have to specifically state the ground men .....

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cally otherwise the principles of natural justice would be violated and consequently, no penalty could be imposed on the assessee if there is no specific ground mentioned in the notice. No specific ground is mentioned in the subject notice and resultantly the principles of natural justice could be said as violated. 10. In our view, if the observations made by this Court in the above referred decision and more particularly clauses (p), (q) and (r) are considered, it was a case wherein the decisio .....

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e notice in question issued under Section 271(1)(c) for levy of penalty and consequently the penalty imposed, both would be unsustainable and cannot stand in the eye of law. 12. In the rectification power, the Tribunal at one point of time did observe that since a specific contention was not raised by the assessee before the Appellate Authority, it is a mixed question of law and fact and the same may also be permissible. The relevant observations of the Tribunal are referred in the order passed .....

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