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2016 (8) TMI 1130 - ITAT KOLKATA

2016 (8) TMI 1130 - ITAT KOLKATA - TMI - Penalty u/s 271(1)( c) - income offered after the search but in the return filed u/s 153A - Held that:- there was lot of correspondences between the assessee and the revenue with regard to centralization of cases to Ranchi and Patna and ultimately that dispute got settled vide order of CBDT dated 9.4.2009 wherein it was decided to centralize the cases at Kolkata. Only after the said CBDT order was served on the officials of Kolkata jurisdiction , thereaft .....

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. We find that on the date of giving sworn statement u/s 132(4) of the Act on the date of search, the amended provisions of Explanation 5A to section 271(1)(c ) of the Act was not in force. It is quite evident from the statement recorded u/s 132(4) of the Act on 24.1.2008 / 25.1.2008 that there is a reference to waiver of penalty proceedings by the group head in his statement. - The assessee was prevented from reasonable cause from filing the return u/s 153A of the Act before the amendment w .....

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ce penalty u/s 271(1)(c ) of the Act by application of Explanation 5A (amended provisions) could not be made applicable to the assessee. - Decided in favour of assessee. - We find that the ld AO had merely made a tick mark in the show cause notice for the Asst Year 2003-04 without striking off the specific charge on which the assessee has to meet while replying to the penalty notice. In respect tof Asst Years 2004-05 to 2007-08, we find that the ld AO had not even given any tick or struck of .....

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out of separate orders of CIT(A), Central-1, Kolkata vide appeal Nos. 85-89/CC-XI/CIT(A),C-1/10-11 dated 18.08.2011. Assessments was framed by DCIT, Central Circle-XI, Kolkata u/s.153A/143(3) of the Income tax Act, 1961 (hereinafter referred to as the Act ) for AYs 2003-04 to 2007-08 vide his separate orders dated 31.12.2009. Penalties were imposed by DCIT, Central Circle- XI, Kolkata u/s 271(1)(c) of the Act vide his separate orders dated 22.06.2010. Since issues are identical and facts are com .....

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filed u/s 153A of the Act. 4. The brief facts of this issue is that a search and seizure operation was conducted on 24.1.2008 u/s 132 of the Act in the Sribir Group (Sarawgi) of cases. The assessee is one of the individuals belonging to this group. Sribir Group is a Giridih based leading business group of Jharkhand , engaged in the manufacturing activities of sponge iron, TMT bars, wires, nail etc besides running petrol pumps and owning agencies of Bajaj Auto & Mahindra Auto , operating from .....

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f undisclosed income and accordingly the assessee gave disclosure statement u/s 132(4) of the Act offering substantial income as below:- Assessment Year Disclosure amount 2002-03 Nil 2003-04 1,29,946 2004-05 38,94,000 2005-06 91,91,000 2006-07 38,55,000 2007-08 66,71,000 2008-09 12,62,61,040 15,00,01,986 The head of the group Shri S.K. Sarawgi gave a sworn statement on the date of search on 24.1.2008 / 25.1.2008 offering ₹ 15 crores as undisclosed income of the entire group with a request .....

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.40 crores was already paid in the name of the assessee and the balance tax was undertaken to be paid at the time of filing the block return u/s 153A of the Act. In respect of the remaining undisclosed income of ₹ 5 crores, it was stated that the seized papers are under examination and after completion of the same, another statement u/s 132(4) of the Act would be given very shortly. The head of the group reinforced the disclosure originally made in the sum of ₹ 15 crores in the sworn .....

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year pursuant to the search , income declared in the return filed u/s 153A of the Act for each assessment year and assessed income thereon are tabulated as below:- Particulars 03-04 04-05 05-06 06-07 07-08 08-09 1 Income admitted u/s. 139(1) 125974 169888 253220 38221 676289 N.A. 2 Additional income offered in proceedings u/s. 153A pursuant to statement u/s. 132(4) 129946 3894000 9191000 3855000 6671000 126261040 3 Income disclosed in computation u/s. 153A 255920 4063688 9444220 4243221 7347289 .....

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the purpose of computation of undisclosed income. It was submitted that the authorized officer had informed both the assessee as well as his eldest brother Shri S.K Sarawgi at the time of search, that if disclosure is made for undisclosed income, manner of deriving the same is explained and taxes due thereon were paid, then the assessee would be eligible for immunity from levy of penalty. It was stated that the assessee had accordingly come forward to disclose a sum of ₹ 15 crores as undi .....

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se the undisclosed income of ₹ 15 crores which was ultimately returned by the assessee u/s 153A and assessments framed thereon. The ld AO levied penalty u/s 271(1)(c ) of the Act at the rate of 300% of tax . On first appeal, the ld CITA reduced the same to 100% of tax. Aggrieved, both the assessee as well as the revenue is in appeals before us. 5. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee. We find that a .....

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K Sarawgi. It was argued by the ld AR that in the course of search, the Authorised Officer informed the assessee that in terms of Explanation 5 to Section 271(1)(c ) of the Act , if suo moto disclosure of income is made u/s 132(4) of the Act, then the assessee would get immunity from levy of penalty. After peripheral scrutiny of the seized documents, an income disclosure of ₹ 15 crores was made in the statement recorded u/s 132(4) of the Act . This preliminary statement recorded on the dat .....

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ncome. We find that the ld AO had held that since the income was disclosed only at the time of search and not in the return filed u/s 139(1) of the Act, there was deliberateness in the action of the assessee warranting levy of penalty. 5.1. The ld AR argued that consequent on completion of search, there were proposals for centralization of case records of Sarawgi Group first at Ranchi and thereafter at Patna. On the other hand, the assessee was requesting for centralization of assessment records .....

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ries Group of cases to Kolkata. Pursuant to the said order , the seized materials were transferred to ld AO at Kolkata. On receipt of the case records , inspection of the seized records were done by the AR of the assessee and based on information gathered from inspection of the seized records, the assessee was able to ascertain the actual extent of undisclosed income which was required to be included in the returns in accordance with the statements recorded u/s 132(4) of the Act. 5.2. The ld AR .....

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the case of CIT vs Bank of Nova Scotia in Civil Appeal No. 1704 of 2008 dated 7.1.2016 had upheld the view taken by the CITA and the Tribunal and held that no substantial question of law was involved in the said appeal and accordingly dismissed the appeal of the revenue. In the said case, the tribunal had held in the context of levy of penalty u/s 271C of the Act that it is necessary to establish that there was contumacious conduct on the part of the assessee. The tribunal also placed reliance .....

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s containing earning of income were not found to be false or inaccurate. Hence the bona fide conduct is proved in the instant case beyond doubt. This was further sanctified by the ld AO assessing the same returned income declared u/s 153A of the Act without making any addition. He argued that in the instant case, the assessee had made full disclosure in the return of income, cooperated in the assessment proceedings and paid full and proper taxes along with interest in the income disclosed in the .....

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on the ground that but for the search, the assessee would not have come forward for disclosure of his undisclosed income and pay taxes thereon. With regard to arguments of Learned DR that but for the search this undisclosed income could not have been unearthed, the Learned AR argued that this issue is squarely covered in favour of the assessee by the decision of the Hon ble Calcutta High Court in CIT vs Amardeep Singh Dhanjal in ITA No. 39 of 2010 dated 11.1.2013. 5.3. At this juncture, it woul .....

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oney, bullion, jewellery or valuable article or thing which has been acquired out of income; OR (b) any income found based on any entry in books of account, documents or transactions which represents his income Assessee should be found to be (a) owner of any money, bullion, jewellery or valuable article or thing which has been acquired out of income; OR (b) any income found based on any entry in books of account, documents or transactions which represents his income (iii) Such Income pertains to .....

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for the year; (iv) Notwithstanding that such income has been declared in any return of income filed subsequent to date of search shall for the purposes of imposition of penalty will be deemed to have concealed particulars of income or furnished inaccurate particulars of income Notwithstanding that such income has been declared in any return of income filed subsequent to date of search shall for the purposes of imposition of penalty will be deemed to have concealed particulars of income or furnis .....

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a bona fide belief that no penalty would be levied. Just because the law is changed retrospectively, the assessee cannot be invited with a penal liability when his case was falling under the erstwhile provisions of Explanation 5A to Section 271(1)( c) of the Act on the date of search. In this regard, we draw reference to the decision of Full Bench of Hon ble Supreme Court in the case of CIT vs Vatika Township (P) Ltd reported in (2014) 367 ITR 466 (SC) wherein it was held :- 31. Of the various .....

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e law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips v. Eyre [1870] LR 6 QB 1, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the firs .....

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isions of the Finance (no. 2) Act, 2009, the amendment to explanation 5A was explained as under: "53.2 By substituting the Explanation 5A it has been clarified that the scope extends to the cases where the assessee has filed the return of income for any previous year and the income found during the course of search relates to such previous year and had not been disclosed in the said return, then such income shall represent deemed concealment of income and assessee shall be liable to pay pen .....

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aled income, even if the Assessee had filed a return of income earlier for the relevant Assessment Year. Prior to the amendment, if an assessee had already filed a return of income, the addition made in the assessment made u/s 153A cannot be deemed to be concealed income) 23. No doubt the amendment to Explanation 5A has been made with retrospective effect from 1.6.2007 and is applicable to searches initiated after 1.6.2007, the issue is whether this amendment to Explanation will apply to returns .....

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on 31.8.2009 and by that time the amended provisions of Explanation 5A to Section 271(1)(c ) of the Act would become applicable , but still the circumstances leading to delayed issuance of notice u/s 153A of the Act and filing of return thereon could not be ignored in the facts and circumstances of the case. As stated earlier, there was lot of correspondences between the assessee and the revenue with regard to centralization of cases to Ranchi and Patna and ultimately that dispute got settled vi .....

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ed documents to the assessee at Kolkata. Notice u/s 153A of the Act was issued by the Kolkata jurisdictional officer on 3.8.2009 and the returns were filed by the assessee on 31.8.2009. We find that on the date of giving sworn statement u/s 132(4) of the Act on the date of search, the amended provisions of Explanation 5A to section 271(1)(c ) of the Act was not in force. It is quite evident from the statement recorded u/s 132(4) of the Act on 24.1.2008 / 25.1.2008 that there is a reference to wa .....

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ears 2002-03 to 2008-09. From the above, it could be understood that the assessee was prevented from reasonable cause from filing the return u/s 153A of the Act before the amendment was proposed by the Finance (No.2 ) Act, 2009 in Explanation 5A to Section 271(1)( c) of the Act. It cannot be ignored that returns u/s 153A of the Act could be filed only after issuance of notice u/s 153A of the Act thereon which was admittedly issued only on 3.8.2009 and assessee had immediately filed the returns i .....

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t advanced by the ld AR is that the show cause notice issued u/s 274 read with section 271(1)(c ) of the Act is defective in as much as the ld AO had not struck off the relevant portion in the show cause notice as to whether the assessee had concealed his income or furnished inaccurate particulars of income. Reliance was placed on the decision of the Hon ble Karnataka High Court in the case of CIT vs Manjunatha Cotton and Ginning Factory reported in (2013) 359 ITR 565 (Kar) . We find that the ld .....

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n ble Karnataka High Court in the aforesaid decision has considered the effect of Sec.271(1B) of the Act, in the light of the decision of the Hon ble Delhi High Court in the case of Ms.Madhushree Gupta Vs. Union of India 317 ITR 107(Del) wherein it was held :- In the result, conclusions are as follows : (i) sec. 271(1B) is not violative of Art. 14 of the Constitution; (ii) the position of law both pre and post amendment is similar, inasmuch, the AO will have to arrive at a prima facie satisfacti .....

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ty proceeding the order passed by the AO need not reflect satisfaction vis-a-vis each and every item of addition or disallowance if overall sense gathered from the order is that a further prognosis is called for; (v) however, this would not debar an assessee from furnishing evidence to rebut the prima facie satisfaction of the AO; since penalty proceeding are not a continuation of assessment proceedings; (vi) due compliance would be required to be made in respect of the provisions of ss. 274 and .....

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aforesaid AYs 2003-04 to 2007-08. The AO in the said show cause notice has not struck off the irrelevant portion as to whether the charge against the Assessee is concealing particulars of income or furnishing of inaccurate particulars of income . In this regard, this tribunal in the case of Shri Satyananda Achariya Biswas Vs. DCIT ITA No.5/Kol/2010 order dated 2.12.2015 for AY 2003-04 has taken the following view on the effect of not striking off the irrelevant portion in the show cause notice u .....

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d 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. M.anjunatha 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 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 prin .....

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on 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 the notice to be issued under Section 274, they .....

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ould 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 he is not liable to pay penalty. The practice of the Department sending a printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of .....

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use (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 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 .....

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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 th .....

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, 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 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 furnishi .....

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lty 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 inference as to non-application of mind. 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 Sect .....

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uthority. 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 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 .....

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or 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 asse .....

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er 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 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 f .....

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oceedings 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 judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of w .....

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