TMI Blog2017 (1) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... same is quashed. The penalty proceedings completed pursuant to such notice are vitiated and the same are held to be invalid. 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 documents and elaborately referred to them and even reproduced the scanned copies of such documents and comes to conclusion that loans were received from Ratanlal Bafna, but still upholds the penalty levied under section 271(1)(c) of the Act. Once the finding of CIT(A) is that these are loans received from Bafna and are not on-money received on sale of plots, then in cases where penalty proceedings have been initiated on a different footing and the CIT(A) reverses 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Additional income offered 2003-04 11,97,660/- 2004-05 21,04,100/- 2005-06 4,92,620/- 2006-07 7,68,950/- 3.2 Aggrieved by the orders levying penalty for the respective assessment years, the assessee filed appeals before the CIT(A). The CIT(A) vide impugned order common for all the assessment years not only confirmed the levy of penalty u/s.271(1)(c) of the Act but also enhanced the penalty from 100% to 150%. Against the order of CIT(A) now the assessee is in second appeal before the Tribunal. 4. The assessee has raised following grounds of appeal in A.Y. 2003-04 : 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 100% to 150% without appreciating that on the facts of the case and in law, he had no power to enhance the penalty levied by the A.O. and accordingly, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coordinate Bench of the Tribunal in the case of Kanhaiyalal D. Jain Vs. ACIT in ITA Nos. 1201 to 1205/PN/2014 for A.Yrs. 2003-04 to 2007-08 decided on 30-11- 2016 has deleted the levy of penalty on account of invalid notice issued u/s.274 r.w.s. 271(1)(c) of the Act, as also on merits. The Ld. Authorised Representative placed on record copy of the order of Coordinate Bench in the case of Kanhaiyalal D. Jain (Supra). The Ld. Authorised Representative submitted that penalty proceedings in the case of present assessee and Kanhaiyalal D. Jain are outcome of assessment proceedings resulting from search and seizure action in the case of Chhoriya group. 6. The Ld. Authorised Representative further contended that a perusal of notice issued u/s.274 r.w.s. 271(1)(c) at pages 197 to 204 of the paper book would show that the notices are ambiguous. Irrelevant contents of the notices have not been struck off and it is not clear whether the penalty proceedings are initiated for concealing particulars of income or furnishing of inaccurate particulars of income. The Ld. Authorised Representative pointed that the Assessing Officer at the time of passing of the assessment order has mentioned that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or the Commissioner of Appeals or the Principal Commissioner or Commissioner, in the course of any proceedings under the Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, then he may direct that such person shall pay by way of penalty the amounts as specified in sub-clause (iii) which would be in addition 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 particulars of such income and thereafter, levy the penalty accordingly. The word used between the two acts i.e. con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot 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 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 case of Manu Engineering Works reported in [1980] 122 ITR 306 (Guj) and the Delhi High Court in the case of CIT v. Virgo Marketing P. Ltd. reported in [2008] 171 Taxman 156, has held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave 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 vitiated. 18. The Mumbai Bench of Tribunal in Sanghavi Savla Commodity Brokers P. Ltd. Vs. ACIT in ITA No.1746/Mum/2011, relating to assessment year 2007-08, order dated 22.12.2015 while deciding similar issue, wherein the Assessing Officer had initiated penalty proceedings for concealment of particulars of income without striking inappropriate words or any parts of notice and proceeded 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, re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demonstrate non-application of mind by the authority and / or ultimate prejudice to the right of opportunity of hearing contemplated under section 274 of the Act. The show cause notice for assessment year 1967-68 was issued 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 know of exact charges he had to face. In this background, quashing of penalty proceedings for assessment year 1967-68 was held to be justified. Applying the said principle laid down by the Jurisdictional High Court, application of mind before issuing the notice under section 274 of the Act has to be considered. The Hon ble High Court clearly held that where there is vagueness and ambiguity in the notice issued which could demonstrate non-application of mind by the auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round 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. Manjunath Cotton and Ginning Factory (supra) and CIT Vs. SSA S Emerald Meadows (supra) and in view of SLP being dismissed, we find merit in the plea of assessee that the satisfaction recorded in the present case to initiate penalty proceedings both for concealment of income and furnishing of particulars of income against additional income offered by the assessee is incorrect. Further, 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 particulars of income and hence, the Assessing Officer should hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulars of income are two different connotations, then as per provisions 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 particulars of income. The notice issued under section 274 of the Act by the Assessing Officer also does not show cause the assessee as to make him aware of exact charge levied against him. In the absence of same, it causes prejudice to the right of reasonable opportunity to be allowed to the assessee before levy of penalty under section 271(1)(c) of the Act. Consequently, penalty notice issued in the present case suffers from infirmities i.e. lack of satisfaction and lack of notice being issued in making the assessee aware of exact charge against him, hence the same is quashed. The penalty proceedings completed pursuant to such not ..... 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