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Nandkishor Tulsidas Katore Versus The Asst. Commissioner of Income Tax, Central Circle-1, Nashik

2016 (12) TMI 1077 - ITAT PUNE

Levy of penalty under section 271(1)(c) - recording of satisfaction - declaration of income in revised return filed - Held that:- We find merit in the stand of assessee in this regard, wherein Explanation 5A to section 271(1)(c) of the Act categorically provides that the same is applicable in case of searches. However, the Statute is silent about the additional income offered by the persons in the revised return of income filed pursuant to Survey proceedings. The additional income was declared d .....

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come or for furnishing of inaccurate particulars of income. In the absence of the same, notice issued in such circumstances, which also is not clear as to which limb of section 271(1)(c) of the Act is attracted, stands vitiated and the penalty order passed consequent to such notice is invalid in law. Accordingly, we delete the penalty levied under section 271(1)(c) of the Act in the case of assessee. - Decided in favour of assessee - ITA No s.2174 to 2180/PN/2014 - Dated:- 14-12-2016 - MS. SUSHM .....

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n 271(1)(c) of the Act. 3. The issue arising in all the appeals is similar and hence, all the appeals are being disposed of by way of this consolidated order for the sake of convenience. However, reference is being made to the facts and issues in ITA No.2175/PN/2014 in which assessment was completed under section 143(3) r.w.s. 153A of the Act . Though the first year of appeal relates to assessment year 2002-03, however, the assessment in the said year was completed under section 143(3) r.w.s. 14 .....

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on 153A is the first return under section 153A. The income returned is accepted by the Learned AO. There is no addition to income hence the penalty may please be cancelled. 3. On the facts and in the circumstances of the case and in law the Learned CIT (A) is not justified in confirming the penalty when the amount declared was included in the return of income filed by the appellant under section 153A and there was no retraction. The penalty may please be cancelled. 4. On the facts and in the cir .....

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when the additions are made on estimate basis. The penalty may please be cancelled. 6. On the facts and in the circumstances of the case and in law the Learned CIT (A) is not justified in confirming the penalty when it is the personal presumption of the Learned Assessing Officer and confirmed by CIT (A) that had the search has not been conducted, the additional income would not have been unearthed. The penalty cannot be levied on presumption. The penalty may please be cancelled. 7. On the facts .....

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the basis of the opinion of the Learned Assessing Officer. The penalty may please be cancelled. 9. On the facts and in the circumstances of the case and in law the Learned CIT (A) is not justified in confirming the penalty ignoring the number of decisions applicable to the facts of the appellant's case. The same may please be considered in its proper perspective. For example Prem Arora (2012) 149 TTJ (Del) 590, the return filed u/s 153A is treated as first return and penalty cannot be levied .....

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elled. 10. Without prejudice to the above Additional Ground of appeal: On the facts and in the circumstances of the case and in law, on verification of penalty order, it is seen that the Learned Assessing Officer has levied the penalty without considering the reduction granted by CIT(A) in quantum appeal as such the penalty order is ab initio invalid and may please be cancelled. 5. Briefly, in the facts of the case, search and seizure operations were carried out at the residential premises of as .....

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s marked as A- 36, A-38 & A-39 were impounded. None of these documents related to assessment year 2003-04 i.e. instant assessment year but when the assessee reconstructed its books of account after Survey and Search & Seizure, the assessee noted that certain assets had remained to be disclosed in the original return of income. Such assets were on account of furniture & fixtures, machinery, insurance policies and certain personal expenses. The assessee had originally filed the return .....

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making cash payments and during the course of search, none of these bills or vouchers were found at the premises of assessee. No inventory of assets was prepared by the search party. During the course of search or during post search enquiry, the assessee never brought to the notice of authorized officers any such assets. Under the circumstances, the Assessing Officer disallowed additional depreciation on assets of ₹ 37,947/-. Further, the Assessing Officer noted that though the assessee h .....

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ng Officer while passing the order levying penalty under section 271(1)(c) of the Act noted that the additional income was offered in the returns of income filed under section 153A of the Act which was on the basis of incriminating evidences found during the course of search. The plea of assessee that the additional income was offered on agreed basis and hence, does not warrant levy of penalty for concealment, was rejected. Further, the Assessing Officer observed that Explanation 5A to section 2 .....

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was conducted at the assessee s residential / business premises on 16.09.2010. The assessee was running Hospital / Nursing Home at Nashik Road, Nashik. The CIT(A) further states that search under section 132 of the Act lead to seizure of number of incriminating documents in the form of rough pages, note books, diaries, receipt books, etc. which contained details of suppressed receipts on account of OPD / IPD and endoscopy charges received from the patients. During investigation, the assessee ad .....

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of IPD patients for assessment year 2003-04 to 2008-09, which were estimated at ₹ 22,12,750/- for assessment years 2003-04 to 2008- 09. Further, the assessee was found to have declared ₹ 15,51,235/- as his additional income for assessment years 2003-04 to 2008-09 on account of undisclosed investment in insurance policies and mutual funds. The assessee also disclosed ₹ 6 lakhs for assessment year 2002-03 on account of undisclosed investment in construction of house and for asses .....

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assessee that it had voluntarily made disclosure for peace of mind and to avoid litigation, was not accepted, in view of seizure of various papers / documents giving details of unaccounted receipts / investment / expenditure. Reliance was placed on the ratio laid down by the Hon ble Supreme Court in MAK Data P. Ltd. Vs. CIT in Civil Appeal No.9772 of 2013, judgment dated 30.10.2013 and the appeal of assessee was dismissed by the CIT(A). 8. The assessee is in appeal against the order of CIT(A). 9 .....

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arch had worked out the additional income year-wise and declared the same. He pointed out that during the course of search, evidences of jewellery, investment, insurance policies, etc. were found, source of which investments was out of income generated from hospital. With regard to assessment years 2003-04, 2004-05 and 2005-06, the learned Authorized Representative for the assessee pointed out that no specific inventory was prepared and the assessee declared the value of assets as such. He stres .....

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not applicable. He stressed that search was at the residence of assessee, wherein only certain investments were found and the source of said investments was out of income from the hospital and hence, part of the income declared pursuant to Survey and consequently not declared because of search. The next plea raised by the learned Authorized Representative for the assessee was that the perusal of assessment order would reflect that prima facie satisfaction as to which limb of section 271(1)(c) of .....

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milar question was raised and the Hon ble High Court held that penalty order was liable to be quashed. The learned Authorized Representative for the assessee pointed out that the Hon ble Supreme Court has dismissed the SLP filed by the Department and hence, the ratio laid down by the Hon ble High Court stands. He further relied on the ratio laid down by the Pune Bench of Tribunal on similar issue in Kanhaiyalal D. Jain Vs. ACIT in ITA Nos.1201 to 1205/PN/2014, relating to assessment years 2003-0 .....

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7 of the Act, wherein also satisfaction to initiate penalty proceedings was vague. In respect of assessment years 2007-08 and 2008-09, the learned Authorized Representative for the assessee fairly pointed out that Explanation 5A to section 271(1)(c) of the Act is attracted. 10. The learned Departmental Representative for the Revenue on the other hand, placing reliance on the orders of authorities below pointed out that the Assessing Officer vide para 7 has clearly held that the default is of con .....

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receipts, rough pages, note books, diaries, receipt books, etc. were found. The assessee admitted the fact of suppression of receipts from OPD, IPD, endoscopy charges, etc. The assessee has declared suppressed receipts for assessment years 2003-04 to 2008-09 on estimate basis as under:- Receipts from OPD for A.Y. 2003 -04 to 2008-09 - Rs.15,40,000/- Receipts IPD patients for A.Y. 2003 -04 to 2008-09 - Rs.22,12,750/- Endoscopy charges for A.Y. 2005 -06 - Rs.4,50,000/- 12. Further, from the resid .....

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account of undisclosed investment in insurance policies and mutual funds, ₹ 6 lakhs for assessment year 2002-03 on account of undisclosed investment in construction of house and ₹ 1.70 lakhs for assessment year 2003-04 on investment in construction of hospital. The assessee is a sole proprietor of hospital and had disclosed additional income in the return of income pursuant to notice issued under section 153A of the Act. The learned Authorized Representative for the assessee has veh .....

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om year to year is tabulated hereunder:- A.Y. Income as per Original return of income (Rs.) Date of original return of income Income as per return u/s 148/153A (Rs.) Income assessed u/s 148/153A (Rs.) Income concealed (Rs.) Penalty imposed u/s 271(1)(c) (Rs.) 2002-03 3,42,664 06/08/2002 9,47,960 9,47,960 6,05,291 1,80,052 2003-04 2,36,714 08/01/2004 5,71,710 6,09,657 3,72,947 1,17,479 2004-05 2,38,950 30/10/2004 6,05,710 7,56,152 5,60,437 1,55,713 2005-06 2,97,960 26/02/2005 8,73,410 9,91,232 7, .....

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r levy of penalty under section 271(1)(c) of the Act. The first issue raised by the learned Authorized Representative for the assessee is that in case any income is declared pursuant to Survey, then the same is not covered under Explanation 5A to section 271(1)(c) of the Act. We find merit in the stand of assessee in this regard, wherein Explanation 5A to section 271(1)(c) of the Act categorically provides that the same is applicable in case of searches. However, the Statute is silent about the .....

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335 ITR 259 (Del), wherein it has been held as under:- 12. After considering the respective submissions of the learned counsel for the parties, we are of the view that the argument of the learned counsel for the assessee has to prevail as it carried substantial weight. It is to be kept in mind that s. 271(1)(c) of the Act is a penal provision and such a provision has to be strictly construed. Unless the case falls within the four corners of the said provision, penalty cannot be imposed. Sub-s. ( .....

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the IT return, particulars of income have been duly furnished and the surrendered amount of income was duly reflected in the IT return. The question is whether the particulars of income were concealed by the assessee or not. It would depend upon the issue as to whether this concealment has reference to the IT return filed by the assessee, viz., whether concealment is to be found in the IT return. 14. We may, first of all, reject the contention of the learned counsel for the Revenue relying upon .....

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IT(A) or the CIT does not arise. We have to keep in mind that it is the AO who initiated the penalty proceedings and directed the payment of penalty. He had not recorded any satisfaction during the course of survey. Decision to initiate penalty proceedings was taken while making assessment order. It is, thus, obvious that the expression in the course of any proceedings under this Act cannot have the reference to survey proceedings in this case. 15. It necessarily follows that concealment of part .....

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led by the assessee. This view gets supported by Explns. 4 as well as 5 and 5A of s. 271 of the Act as contended by the learned counsel for the respondent. 16. No doubt, the discrepancies were found during the survey. This has yielded income from the assessee in the form of amount surrendered by the assessee. Presently, we are not concerned with the assessment of income, but the moot question is as to whether this would attract penalty upon the assessee under the provisions of s. 271(1)(c) of th .....

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, penalty cannot be imposed. There is no such concealment or non-disclosure as the assessee had made a complete disclosure in the IT return and offered the surrendered amount for the purposes of tax. 17. We, thus, answer the questions as formulated above, in favour of the assessee and against the Revenue finding no fault with the decisions of the CIT(A) as well as the Tribunal. As a result, this appeal is dismissed. 14. Another facet which has to be considered is that the additional income was o .....

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ny proceedings under this Act could not have the reference to survey proceedings, in this case . Since the assessee had made complete disclosure in the return and surrendered the amount for the purpose of tax, the Hon ble High Court held that there was no such concealment of non-disclosure and the assessee was held to be not liable for levy of penalty. Applying the said proposition to the facts of the present case, we hold that the assessee is not liable to levy of penalty on the additional inco .....

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h limb penalty proceedings are initiated against the assessee while the Assessing Officer is making charge under Explanation 5A to section 271(1)(c) of the Act. The Assessing Officer states that the assessee has concealed the particulars of such income but while initiating penalty proceedings, prima facie, the satisfaction recorded does not discernable as to under which limb of section the satisfaction is so recorded. Even the notice issued levying penalty is not clear as to which limb has to be .....

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and the levy of penalty has been considered by the Pune Bench of Tribunal in Kanhaiyalal D. Jain Vs. ACIT in ITA Nos.1201 to 1205/PN/2014, relating to assessment years 2003 -04 to 2007-08, order dated 30.11.2016 and it has been held as under:- 13. We have heard the rival contentions and perused the record. The issue arising in the present bunch of appeals is jurisdictional issue of levy of penalty under section 271(1)(c) of the Act. The requirement of section is that where the Assessing Officer .....

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on in the course of any proceedings under the Act, that the person has concealed the particulars of his income or furnished inaccurate particulars of his income. After recording the satisfaction, during the course of penalty proceedings also, the concerned Officer has come to a finding that as to whether the person has concealed the particulars of his income or furnished inaccurate particulars of such income and thereafter, levy the penalty accordingly. The word used between the two acts i.e. co .....

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e particulars of income. Similarly, in cases where the assessee concerned had furnished inaccurate particulars of such income, then similar exercise has to be carried out by the concerned Officer. 14. The first stage of invocation of provisions of section 271(1)(c) of the Act is the satisfaction to be recorded by the Assessing Officer, which admittedly, has to be during the course of assessment proceedings. So, where the assessment proceedings are pending, then the Assessing Officer has to apply .....

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oncealment of income and furnishing of inaccurate particulars of income, based on the nature of additions, then in such cases, satisfaction and notice thereon should specify exact charge against the assessee. The charge has to be further specified while completing penalty proceedings and the Assessing Officer has to come to a conclusion as to whether it is case of concealment of income or furnishing of inaccurate particulars of income. The question which further arises where the satisfaction rec .....

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et 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 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 .....

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ditions 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 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 .....

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ences 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 th .....

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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 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 inf .....

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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 furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in [2007] 292 ITR 11 (SC) at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the .....

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e particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind. 15. The Hon ble Karnataka High Court has laid down the proposition that the Assessing Officer is to be satisfied in the course of proceedings that there is either concealment of income or furnishing of inaccurate particulars of income under clause (c) to section 271(1) of the Act. It has been categorically held that concealment of income and furnishing .....

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articulars of income carry different connotation. Applying the said proposition, it was held that where the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similarly, for furnishing inaccurate particulars of income, the standard proforma without striking of relevant clauses, as per the Hon ble High Court would lead to inference as to non-application of mind. 16. Further, the Hon ble Karnataka High Court in CIT Vs. SSA S Emera .....

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eme Court in CIT Vs. SSA S Emerald Meadows (supra) has dismissed the Special Leave Petition. 17. The Pune Bench of Tribunal in M/s. Sai Venkata Construction Vs. Addl. CIT (supra) and in Sanjog Tarachand Lodha Vs. ITO (supra) have applied the ratio laid down by the Hon ble Karnataka High Court (supra) and held that where there is no striking off of either of limbs, then notice issued under section 274 r.w.s. 271(1)(c) of the Act was invalid and subsequent penalty proceedings were held to be vitia .....

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nal held that notice issued for initiating penalty proceedings were invalid and consequently penalty proceedings were invalid. 19. Similar proposition has been laid down by Kolkata Bench of Tribunal in Shri Deepak Kumar Patwari Vs. ACIT in ITA Nos.616 to 618/Kol/2013, relating to assessment years 2007-08 to 2009-10, order dated 03.02.2016 and it has been further held that the provisions of section 292B of the Act cannot cure the basic defect in assumption of jurisdiction and could only cure the .....

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laced heavy reliance on the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Smt. Kaushalya (supra). In the facts of the case before the Hon ble Bombay High Court, the Hon ble High Court quashed the penalty levied for assessment year 1967-68 as the same was imposed without affording reasonable opportunity of hearing to the assessee. In respect of other two years where there was nonstriking of inaccurate portion, the Hon ble High Court held that the same would not invalidate the notice .....

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being heard. The jurisdictional High Court deliberated upon the provisions of section 274 of the Act which contained principle of natural justice of the assessee being heard before levying penalty. It also held that mere mistake in the language used or mere non-striking of inappropriate portion could not itself be invalidated the notice. It was held that the entire factual background would fall for consideration in the matter and no one aspect would be decisive. 21. In respect of assessment yea .....

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inst him as in the notice not only there was use of word or between the group of cases but there was use of word deliberately also. The Hon ble High Court held that notice clearly demonstrated non-application of mind on the part of Assessing Officer. The vagueness and ambiguity in the notice had also prejudiced the right of reasonable opportunity to the assessee since he did not know of exact charges he had to face. In this background, quashing of penalty proceedings for assessment year 1967-68 .....

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then such notice is invalid. 22. Now, coming to the facts of the case before us, wherein search and seizure operations were carried out on Chhoriya group of concerns on 22.08.2008 and declaration of ₹ 11.44 crores was made in the hands of whole group for various years. Consequent to the notices issued under section 153A of the Act for various years, different entities filed the return of income for the respective years and cumulatively for ₹ 13.99 crores as additional income. The in .....

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(1)(c) r.w.s. Explanation 5A of the Act. The notice is to be issued to the assessee under section 274 of the Act. Before issuing such notice, satisfaction has to come out from the proceedings going on before the Assessing Officer. The perusal of assessment order passed in the present case reflects that the Assessing Officer while initiating proceedings has recorded satisfaction as to the assessee has furnished inaccurate particulars of income and has also concealed the income. The only source of .....

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er makes reference to both the limbs i.e. concealment of income and furnishing of inaccurate particulars of income and in the final, levies penalty for concealment of income. 23. However, the question which is raised before us by way of additional ground of appeal is root of start of the proceedings i.e. recording of satisfaction and the issue of notice, which has been challenged by the assessee to be invalid. Applying the ratio laid down by the Hon ble Karnataka High Court in CIT & Anr. Vs. .....

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74 r.w.s. 271(1)(c) of the Act by not striking of portion which is not applicable, prejudice the right of reasonable opportunity to the assessee, as he was not made aware of exact charge he had to face. It is a clearcut case of concealment since the assessee had offered additional income pursuant to search carried out at its premises. It is not the case of furnishing of inaccurate particulars of income and hence, the Assessing Officer should have recorded the satisfaction accordingly and issued .....

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proceedings under section 271(1)(c) of the Act, exact charge of the Department against the assessee is not clear. The Assessing Officer records the satisfaction for initiating penalty proceedings on both the counts i.e. concealment of income and furnishing of inaccurate particulars of income. The Hon ble Bombay High Court had also upheld the quashing of penalty proceedings for assessment year 1967-68 to be justified on account of vagueness and ambiguity in the notice issued. But the Hon ble High .....

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and proceedings thereafter are to be quashed. 25. The Hon ble Supreme Court in T. Ashok Pai Vs. CIT (supra) had held as under:- 23. Section 271(1)(c) remains a penal statute. The rule of strict construction shall apply thereto. The ingredients for imposing penalty remain the same. The purpose of the Legislature that it is meant to be a deterrent to tax evasion is evidenced by the increase in the quantum of penalty, from 20 per cent under the 1922 Act to 300 per cent in 1985. 24. Concealment of .....

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ngs as to under which limb the case of assessee falls. In the present set of facts, the satisfaction as recorded by the Assessing Officer which is evident from the assessment order itself does not establish the case of Revenue against the assessee that it is liable for levy of penalty for concealment under which limb i.e. for concealment of income or for furnishing of inaccurate particulars of income. The notice issued under section 274 of the Act by the Assessing Officer also does not show caus .....

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ed pursuant to such notice are vitiated and the same are held to be invalid. 27. Now, coming to the merits of case, the assessee had offered additional income on account of on-money on sale of plots. The Assessing Officer had accepted the same and had initiated penalty proceedings under section 271(1)(c) of the Act. The CIT(A) during the course of appellate proceedings relating to section 271(1)(c) of the Act issued enhancement notice to the assessee. Thereafter, he had gone through the seized d .....

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e loans received by the assessee, there is change in opinion and basis for levy of penalty for concealment varies. In such circumstances, there is no merit in levy of penalty under section 271(1)(c) of the Act and there is no merit at all in levying the penalty @ 150%. Accordingly, we allow the claim of assessee even on merits. Thus, the grounds of appeal raised by the assessee and additional ground of appeal raised by the assessee are allowed. 16. Another aspect raised by the learned Authorized .....

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yond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under section 274 r.w.s. 271(1)(c) is bad in law and invalid despite the amendment of Section 271(1B) with retrospective effect and by virtue of the amendment, the Assessing Officer has initiated the penalty by properly recording the satisfaction for the same? 1 .....

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