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2016 (7) TMI 1226 - ITAT KOLKATA

2016 (7) TMI 1226 - ITAT KOLKATA - TMI - Penalty levied as per Explanation 5A to Sec. 271(1)(c) - defective notice - Held 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 in the case of Manjunatha Cotton and Ginning Factory (2013 (7) TMI 620 - KARNATAKA HIGH COURT ) we hold that the orders imposing penalty in the assessment year under consider .....

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T-DR For The Respondent : Shri S.K.Tulsian, Advocate ORDER PER Waseem Ahmed, Accountant Member:- Both appeal by the Revenue are directed against the common orders of Commissioner of Income Tax (Appeals) Central-I, Kolkata dated 05.03.2013. Assessments were framed by DCIT, Central Circle-VII Kolkata u/s 153C/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his orders dated 24.12.2010 for assessment years 2006-07 and 2007-08 respectively. Penalty levied by Assessing Of .....

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/- by the AO. 2. On the facts and circumstances of the case and also in law, the CIT(A) has erred in deleting the penalty on the presumption that Explanation 5A to Sec. 271(1)(c) does not apply to assessment completed u/s. 153C of the IT Act. 3. On the facts and circumstances of the case and also in law, the CIT(A) is perverse in as much as it fails to take into account the express provisions of Sec. 153C(1) of the IT Act. 4. On the facts and circumstances of the case and also in law, the CIT(A) .....

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lanation 5A to Sec. 271(1)(c) has clarified that if the income has not been declared in the original return filed under Sec. 139 then the income declared in the return under Sec. 153C shall be deemed to have been concealed. 3. Inter-connected issue in grounds No.1 to 5 are that L d CIT(A) erred in deleting the penalty levied by Assessing Officer as per Explanation 5A to Sec. 271(1)(c) of the Act. 4. Before coming to the specific issue let us understand the history of the case. In the present cas .....

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by assessee and Shri Kamal Gandhi about the purchase of the immovable property. Accordingly, AO sought the clarification from the persons of SG about the papers marked as DS/1 to DS/3. In response to, Shri Dinesh Sancheti on 25.02.2009 replied that SG has no connection with the transactions as narrated in these seized papers except the fact that these two parties are personal friend of mine and these seized papers are belonging to them which are merely lying with me (Sh. Dinesh Sancheti). On the .....

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05-06 100,800/- Hari Das Mondal 2005-06 4,763,950/- Narayan Das Mondal 2005-06 536,350/- Registration charges 2005-06 585,845/- Arun Kr. Bhoumik 2006-07 20,240/- Arun Kr. Bhoumik 2007-08 (20,240/-) Cancelled Arun Kr. Bhoumik 2007-08 21,580/- Navketan Enterprises 2008-09 399,700/- Cash final settlement 2008-09 100,000/- 2 Abha Vyapaar Pvt. Ltd Gayatri Mondal 2006-07 437,500/- Arun K. Bhoumik 2007-08 38,420/- 4 Bhavsagar Sales Pvt. Ltd Hari Das Mondal 2006-07 180,600/- 5 Jagran Marketing Pvt. Ltd. .....

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006-07 and balance of ₹ 34,60,000.00 was invested in the AY 2007-08. The assessee during the course of search proceedings u/s 132A of the Act has admitted the undisclosed investment and offered the same to tax in the respective years as stated above. Accordingly, AO further issued notice as Explanation 5 to Section 271(1)(c) of the Act for initiating penalty proceedings on the assessee. In response thereto, it was submitted that assessee vehemently came forward and offered the aforesaid un .....

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ision of Explanationn-5A is applicable. Accordingly, AO has levied the penalty on account of concealment of income u/s 271(1)(c) of the Act. 5. Aggrieved, assessee preferred an appeal before L d CIT(A) where assessee submitted that the provision of Sec. 153C of the Act starts with non obstante clause which is having overriding effect to the other provision of Income Tax Act, which is starts with the words Notwithstanding anything contained in Sec. 139, Sec. 147, Sec. 148… … So the .....

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mitted that the provision of Explanation 5A to Sec. 271(1)(c) of the Act starts with the words which states that where, in the course of search initiated u/s 132 on or after 1st day of June, 2007 . From the plain reading of the provision of Section, it is clear that Explanation 5A to Sec. 271(1)(c) is applied to assessee where the search was conducted. In the instant case, search was not conducted upon the assessee, therefore the provision of Explanation 5A to Sec. 271(1)(c) is not applicable to .....

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to the provision as specified for filing return of income u/s. 139 of the Act for the purpose of imposition of penalty u/s 271(1)(c) of the Act. ii) The income offered in response to the notice issued u/s 153C of the Act was accepted by the Assessing Officer without making any addition. Therefore, there was no concealment of income as per the provisions of Explanation 5A to Sec. 271(1)(c) of the Act. iii) As per the provision of Explanation 5A to Sec. 271(1)(c), the penalty will be levied in cas .....

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ld. DR before us submitted that the instant case of the assessee is duly covered under explanation 5A to section 271(1)(c) of the Act and vehemently relied on the order of AO. On the other hand, Ld AR filed paper book which is running pages from 1 to 97 and reiterated same submission as stated before L d CIT(A) and submitted various case laws in support of its claim which are reproduced below:- 1) DCIT vs. Shri Vivek Kr. Kathoria WTA No. 02-08/Kol/2013 dt. 15.05.2015 2) DCIT vs. M/s Pratap Prope .....

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was appearing on those seized document. Again, he drew our attention on page 32 of the paper book and submitted that no specific charge has been mentioned in the notice issued u/s 274 of the Act. The notice is silent whether the penalty is levied for concealment of income or for furnishing inaccurate particulars of income. Lastly, he requested the Bench to uphold the order of Ld CIT. 7. We have heard the rival contentions and perused the materials available on record. From the foregoing discussi .....

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ed income tax return and paid tax thereon by filing revised return which was accepted by the AO. The AO also initiated the penalty proceedings which was subsequently deleted by Ld CIT(A) in appellate stage on the ground that there was no mismatch in the income of assessee which declared by assessee u/s. 153C of the Act and the assessee was not search party u/s 132 of the Act. Therefore, undisclosed income is out of the purview of the provisions specified under Explanation 5A to Sec. 271(1)(c) of .....

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ith the findings of Ld CIT(A) that assessee was not searched u/s 132 of the Act, therefore, the provision of Explanation 5A to Sec. 271(1)(c) of the Act is not applicable to assessee. At this juncture, we would like to reproduce the provision of Explanation 5A to Sec. 271C which are reproduced as under :- [271. Failure to furnish returns, comply with notices, concealment of income, etc. (1)…. (2)… … [Explanation 5A. - Where, in the course of a search initiated under section .....

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ther documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of search and,- (a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or (b) the due date for filing the return of income for such previous year has expired but the assessee has not filed the return, then, notwithstanding that such income is declared by him in any return of income fur .....

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32 of the Act. Therefore, we reject the finding of Ld CIT(A). We also do not agree with the finding of Ld CIT(A) that the income furnished in response to notice u/s. 153C of the Act was accepted by AO in assessment proceedings framed u/s. 153C of the Act without making any such addition. In the instant case, it is pertinent to note that the assessee offered its undisclosed income only after initiation of search u/s 132 of the Act on M/s SALTEE Group and after issuing the notice u/s 153C of the A .....

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case of CIT & Anr. Vs. Manjunatha Cotton and Giniing Factory has laid down the following principles to be followed in the matter of imposing penalty u/s. 271(1)(c) of the Act. The Hon ble Karnataka High Court in the case of Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn) (supra), 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 .....

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nataka High Court in the case of 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 .....

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ed of the conditions mentioned in Section 271 should 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 farm where all the ground mentioned in Section 271 .....

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enalty 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 anot .....

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s 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 .....

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validate the order of penalty which, when passed, 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 c .....

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it is levied and the position being unclear penalty 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 nonapplication of mind. 7.2 The final conclusion of the Hon ble Court was as follows:- 63. In the light of what is stated abo .....

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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) .....

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d 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 explan .....

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nd without any ambiguity. o) If the Assessing Officer 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 i .....

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