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2016 (12) TMI 1238 - ITAT PUNE

2016 (12) TMI 1238 - ITAT PUNE - TMI - Levy of penalty u/s 271(1)(c) - additional income on account of on-money on sale of plots - Held that:- 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 ha .....

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s the same and holds the same to be 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. - ITA Nos.1201 to 1205/PN/2014 - Dated:- 30-11-2016 - MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM. Appellant by : S/Shri Nikhil Pathak .....

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for the sake of convenience. However, reference is being made to the facts and issues in ITA No.1201/PN/2014 to adjudicate the issues. 3. The assessee in ITA No.1201/PN/2014 has raised the following grounds of appeal:- 1] The learned CIT(A) erred in directing levy of penalty u/s 271(1)(c) @ 150% of the tax sought to be evaded on the ground that the appellant had concealed its income and also misrepresented the facts of the case. 2] The learned CIT(A) erred in enhancing the penalty levied from 10 .....

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ad misrepresented the facts and therefore, the levy of penalty was justified in law. 4] The learned CIT(A) failed to appreciate that the additional income declared by the group of ₹ 13.99 Crs. was to buy peace and to cooperate with the dept. and there was no evidence that the assessee had actually earned that income and accordingly, the penalty levied by the A.O. was not justified at all. 5] The learned CIT(A) ought to have appreciated that if its contention is accepted and the notings on .....

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7] The learned CIT(A) erred in holding that the assessee had misrepresented the facts without appreciating that if his contention is accepted, no income is taxable in the hands of the assessee and therefore, the question of levy of penalty simply does not arise. 8] The learned CIT(A) has erred in passing the order without considering the correct facts of the case. 4. The assessee has also raised additional ground of appeal, which reads as under:- 1] The assessee submits that the penalty order p .....

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nal issue raised by the assessee by way of additional ground of appeal. Since the ground of appeal does not involve any investigation of facts and is purely legal, the same is admitted for adjudication. 7. Briefly, in the facts of the case, search and seizure action under section 132 of the Act was carried out on Chhoriya Group of cases on 22.08.2008. The assessee had filed original return of income on 01.12.2003 declaring total income of ₹ 5,94,985/-. Consequent to notice issued under sec .....

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iled in response to notice under section 153A of the Act, the assessee offered ₹ 39,75,780/- as additional income. The Assessing Officer while completing assessment proceedings in the case of assessee noted that if there was no search and seizure operations, the assessee would not have disclosed the additional income of ₹ 39,75,780/and the same would have remained concealed with the assessee. Thus, the assessee had concealed particulars of income of ₹ 39,75,780/- and furnished .....

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the same was gross sale receipts, on account of sale of plots, etc. The Assessing Officer vide para 4.3 held that the penalty was initiated under section 271(1)(c) of the Act within meaning of Explanation 5A to section 271(1)(c) of the Act and under the given circumstances, the assessee was deemed to have concealed the particulars of income and furnished inaccurate particulars of such income. The assessee was held to be liable to pay the penalty as the Act did not provide any immunity to such pe .....

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iled to establish as to whether the assessee had concealed his particulars of income or furnished inaccurate particulars of income and has thus, erred in levying the penalty under section 271(1)(c) of the Act on both the counts. The CIT(A) in the first round, had deleted the levy of penalty under section 271(1)(c) of the Act, against which the Revenue filed an appeal before the Tribunal in ITA Nos.1389 to 1395/PN/2012, ITA Nos.1922 to 1938/PN/2012, ITA Nos.1946 to 1953/PN/2012 and ITA Nos.1957 & .....

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ified in levying the penalty under section 271(1)(c) r.w.s. Explanation 5A of the Act . Thereafter, the CIT(A) noted the factual aspects of the case and the documents seized during the course of search and also the declaration made by the Karta of assessee s family. He noted that the assessee had revised its return of income on account of transaction of purchase and sale of plots. However, on perusal of seized documents and the transaction with one Shri Devichand M. Jain found recorded in the sa .....

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hhoriya Group & others and was of the view that with regard to levy of penalty under section 271(1)(c) of the Act for concealment of income and furnishing of inaccurate particulars of income, there was no doubt. The CIT(A) upheld the order of Assessing Officer in quantification of income for the purpose of levy of penalty, however, the CIT(A) enhanced the penalty to be levied at the higher rate of 150%. 9. The assessee is in appeal against the order of CIT(A) in levying the penalty at 150% a .....

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, the issue was against the validity of penalty order passed under section 271(1)(c) of the Act as the notice issued for levying penalty did not mention the specific charge. He further referred to the assessment order passed by the Assessing Officer in which penalty for concealment had been initiated both for concealment of income and furnishing of inaccurate particulars of income. The learned Authorized Representative for the assessee also pointed out that the penalty has been levied also on bo .....

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persons. He admitted that Explanation 5A to section 271(1)(c) of the Act was attracted since the assessee offered the additional income. However, attention was drawn to the satisfaction recorded by the Assessing Officer, wherein the requirement was satisfaction of one of the limbs, whereas the Assessing Officer was satisfied that the assessee had both concealed the particulars of income and furnished inaccurate particulars of income. He further pointed out that during the course of search when .....

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ars, wherein it was pointed out that the Assessing Officer had not ticked the relevant parts and had not crossed irrelevant parts and it is not clear whether the Assessing Officer wants to hold the assessee liable for penalty for concealment or for furnishing inaccurate particulars of income. Our attention was further drawn to the order levying penalty under section 271(1)(c) of the Act, wherein in para 4.3, the Assessing Officer had referred to both the limbs, however, in para 6 only one limb w .....

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ce, the additional ground of appeal. The learned Authorized Representative for the assessee pointed out that the ratio decided by the Hon ble Karnataka High Court in CIT & Anr. Vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar) is squarely applicable to the facts of the present case. He further relied on decisions of Pune Bench of Tribunal in M/s. Sai Venkata Construction Vs. Addl. CIT in ITA No.994/PN/2013 and Sai Venkata Construction Vs. ACIT inITA No.995/PN/2013, both rela .....

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Kar) and also pointed out that SLP filed before the Hon ble Supreme Court in CIT Vs. SSA S Emerald Meadows (2016) 73 taxmann.com 248 (SC) has been dismissed. Without prejudice to the above, the learned Authorized Representative for the assessee stressed that where the CIT(A) had treated the entries as loan, then the same was not the income of assessee and hence, no penalty for concealment under section 271(1)(c) of the Act was attracted. 11. The learned Departmental Representative for the Revenu .....

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. The learned Authorized Representative for the assessee in rejoinder pointed out that the decision in CIT Vs. Smt. Kaushalya (supra) refers to assessment years 1968-69 to 1969-70 and also pointed out that the Hon ble Bombay High Court had held that where exact charge was not known could prejudice the rights of assessee, as held for assessment year 1967-68. 13. We have heard the rival contentions and perused the record. The issue arising in the present bunch of appeals is jurisdictional issue of .....

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on to tax, if any, payable by the said person. The section thus requires the concerned Officer to record satisfaction 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 .....

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d initiate penalty proceedings and thereafter on fixation of charge, levy the penalty for such act of concealing the 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 o .....

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ment of income or furnishing of inaccurate particulars of income. There may be cases where there is issue of both concealment 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 inc .....

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t and observed as under:- 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 could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existenc .....

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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 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% .....

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bt, 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 .....

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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 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 im .....

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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 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 .....

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imb 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. 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 .....

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. CIT (2007) 292 ITR 11 (SC), wherein at page 19 it was held that concealment of income and furnishing inaccurate particulars 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 le .....

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n Bench of the Court rendered in CIT & Anr. Vs. Manjunatha Cotton and Ginning Factory (supra). The Hon ble Supreme 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 .....

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to levy penalty for concealment, then following the ratio laid down by the Hon ble Karnataka High Court, the Tribunal 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 provisi .....

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ich have been relied upon by the assessee before us. 20. The learned Departmental Representative for the Revenue placed 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 ther .....

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so-called ambiguity wording in the notice impaired or prejudiced the right of assessee of reasonable opportunity of 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 backgrou .....

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even before the assessment order was made and where the assessee had no knowledge of exact charge of Department against 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 kno .....

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mately prejudice the right of opportunity of hearing of the assessee as contemplated under section 274 of the Act, 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 th .....

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cealed the income or furnished inaccurate particulars of income and is liable to levy of penalty under section 271(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 .....

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f the Act, irrelevant part has not been struck off. While completing penalty proceedings also, the Assessing Officer 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 .....

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r, where the assessee is not aware of exact charge against him, the ambiguity in the notice issued under section 274 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 clear-cut 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 p .....

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t him. As pointed out, in present case, in the assessment order itself while recording satisfaction for initiating 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 asses .....

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quashed. The issue of notice under section 274 of the Act on such vagueness and ambiguity makes such notice invalid 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 i .....

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visions of the Act, the satisfaction has to be recorded by the Assessing Officer before initiating penalty proceedings 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 par .....

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making the assessee aware of exact charge against him, hence the same is quashed. The penalty proceedings completed 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 se .....

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