TMI Blog2016 (8) TMI 1130X X X X Extracts X X X X X X X X Extracts X X X X ..... earch, 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 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 in response thereto on 31.8.2009. It is not in dispute that the assessee had filed regular returns u/s 139(1) of the Act prior to the date of search for all the years under appeal. Hence 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 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2008 besides conducting search in various factory and residential premises of the group. Besides a search and seizure operation was conducted in the residence at Flat No. 2, 3rd floor, Lav Flat Owners Association, Howrah A.C. Market, 47, Dobson Road, Howrah on 24.1.2008. In the course of search, the assessee was found to be in possession of 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 153A 255920 4063688 9444220 4243221 7347289 127486910 4 Income assessed u/s. 153A 255920 4063688 9444220 4243221 7347289 127486910 5 Any other addition made in order u/s. 153A beyond the income returned u/s. 153A NIL NIL NIL NIL NIL NIL Total sum Rs.15,00,01,986/- 4.2. This was followed by further letter dated 5.10.2009 wherein detailed explanation substantiating the manner in which undisclosed income was derived by the assessee for each asst year was given by the assessee and enclosing the fund flow analysis for each assessment year for 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 undisclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on undisclosed income of ₹ 15 crores. We find that except the undisclosed income offered by the assessee in the statement recorded u/s 132(4) of the act and subsequently in the return filed u/s 153A of the Act, the ld AO did not detect any further undisclosed income in the search assessment. We find that the assessee had deposited the taxes due on the said income. 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 of the group at Kolkata where the registered office of Atibir Industries Ltd was situated. Since the issue of centralization of records had not reached finality, the assessee did not have any idea about the correct jurisdiction and it was alos not possible for him to obtain inspection of the seized records so as to compile full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 return filed u/s 153A of the Act. It is not a case where the assessee had made false disclosures in the return of income or failed to cooperate during the assessment proceedings. Further, it is also not a case where no explanations were furnished or the explanation furnished were found to be false. It would be pertinent to note that the ld AO was unable to identify any further undisclosed income other than the income offered by the assessee. He stated that ultimately the penalty has been levied 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of income In the instant case, the assessee had been searched on 24.1.2008 which was prior to the amendment brought in by Finance Act 2009, wherein, even the persons who had regularly filed their returns prior to the date of search also would get covered by the Explanation 5A to section 271(1)(c ) of the Act. In this regard, we hold that the assessee was made to understand the penalty provisions as it stood on the date of search and disclosure was made accordingly with 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 rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 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 filed before the amended explanation became part of the Statute in 2009. In the instant case the Assessee had filed return of income on 7.7.2008. He filed revised return pursuant to notice u/s 153A on 12.11.2008. Thus both the original return as well as the revised return was filed before the amendment to Explanation5A became a part of the Statute. In the instant case, the notice u/s 153A of the Act was issued on the assessee only on 3.8.2009 and the return in response to such notice was filed 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 circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tio laid down by the Co-ordinate Bench of Hyderabad Tribunal supra would be squarely applicable to the facts of the instant case wherein it was held that penalty u/s 271(1)(c ) of the Act by application of Explanation 5A (amended provisions) could not be made applicable to the assessee. 5.5. Another argument 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 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 off the irrelevant portion and had merely given a blank show cause notice by just ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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/s.274 of the Act as follows: 9. 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 whether the penalty proceedings are sought to be levied 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inciples of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. 60. Clause (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 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 his claim, if at all, penalty is to be imposed, it should be imposed only on the groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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(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) 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 initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment proceedings. The proceedings 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 which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings. (emphasis supplied) 9.3. It is clear from the aforesaid decision that on the facts of the present case 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, we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled. The aforesaid ruling will squarely apply to the facts of the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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