TMI Blog2017 (1) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... n made during assessment proceedings does not lead to conclusion that the assessee was having some undisclosed income or concealed the particulars of income. The addition in assessment order may be because of some technical reasons which do not mean that the assessee had concealed income. Therefore, for imposing a penalty, the AO had to prove that the assessee was having concealed income. The penalty u/s 271(1)(c) of the Act is not automatic and for imposing penalty u/s 271(1)(c) of the Act, the AO had to brought on record any positive material to show that the assessee concealed his income. There must be independent finding. See Vaibhav Tulsyan Versus I.T.O Ward 29 (4) , Kolkata [2016 (11) TMI 1030 - ITAT KOLKATA] wherein allowed the appeal of the assessee on the issue of penalty u/s 271(1)(c) of the Act.- Decided in favour of assessee - ITA No. 772/JP/2016 - - - Dated:- 29-12-2016 - Shri Bhagchand, Accountant Member Assessee by : Shri Vijay Goyal, CA Revenue by :Shri Rajinder Singh, Addl.CIT - DR ORDER Per Bhagchand, AM The assessee has filed an appeal against the order of the ld. CIT(A)-4, Jaipur dated 15-06-2016 for the assessment year 2003-04 raising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 4 lakh which were subsequently gifted to Sh. Murari Lal Mittal in A.Y. 200708. ii) During the course of assessment proceedings the assessee submitted these were sundry advances given to farmers for purchase of land. Subsequently, these were explained from past savings. During the course of search, it is pertinent to note that no documentary evidence was found to show that the assessee had given any amount of advances to anybody for land or otherwise. iii) On perusal of statements u/s 132(4) taken during the course of search, it is seen that he did not mention having given any advance for land. What emerges from his statements is that he is a person of very small means and totally dependent on the other members of the family for even his household expenditure. In his statement taken on 27.08.2008, he has stated that his monthly income is ₹ 5,000/-. He has stated he has 06 daughters the eldest daughter was married in 1984 and the marriage expenses of all the daughters were borne collectively by the brothers of the family. During the course of search a very small amount of cash of ₹ 18,000/- was found at his residential premises. This clearly proves him t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onus. In view of the facts discussed above, the amount of ₹ 4 lakh added to the income of the appellant u/s 69 by the Ld. CIT(A) in ITA No.212/10-11. Here at this stage, assessee has raised objection with regard to initiation of penalty proceedings for furnishing of inaccurate particulars whereas in the penalty notice dated 31-08-2010, the AO has mentioned as under:- Whereas in the course of assessment proceedings before me for the A.Y. 2003-04 it appears to me as per Section 274 read with Section 271(1) of the I.T. Act you are liable for penalty for concealment of income/ furnishing inaccurate particulars of income. In view of this assessee's is challenging the penalty proceedings itself. Now let me explain what is the exact scope of the provisions of Section 292B of the I.T. Act, 1961 (the Act)? Section 292-B of the Act was introduced w.e.f. October, 1,1975 and states that no return of income, assessment, notice, summons or other proceedings furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of the Act shall be invalid or shall be deemed to be invalid merely b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r according to intent and purpose of the Act, the mistake defect or omission is to be ignored as per the underlining philosophy of section 292-B of the Act. On a plain reading of this section, it is observed that the return of income, etc., shall not be considered as invalid merely by defect or omission in such return or notice if it is in substance and effect in conformity with the intent and purpose of this Act. The rationale behind this section is that the return of income, assessment notice, penalty notice, summons or other proceedings should not be held to be invalid due to technical mistakes , which otherwise do not have much impact touching its legality provided such return, assessment/penalty notice, summons or other proceedings, etc., are otherwise in conformity with the purpose of the Act. The purpose of the Act and in particularly section 271(1)(c) of the Act is to impose penalty on concealed income or furnishing of inaccurate particulars of income of the assessee. This purpose is best fulfilled when AO has correctly determined the correct concealed income in this case. It involves the making of assessment by the AO in which the particulars at income as furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn of income, notice, etc. have the same or substantially the same effect as would return, notice etc. without mistake, defect or omission would have, such return, notice etc. must be given effect to and cannot be treated as invalid. If in substance and in effect, the intent and purpose of the enactment has been served, the action (return, notice etc.) cannot be held to be invalid. Substance over form theory is the underlining philosophy of section 292-B of the Act. If in substance and in effect return, notice or assessment is in conformity with or according to intent and purpose of the Income-tax Act, the mistake, defect or omission is to be ignored. In view of facts and circumstances of the case, the penalty imposed of ₹ 99,000/- under explanation 1 to the provision of section 271(1)(c), on concealed income of ₹ 4 lakh is hereby sustained. Assessee s appeal fails on this ground. In the result, the appeal stands dismissed for A.Y. 2003-04 2.2 During the course of hearing, the ld. AR of the assessee submitted that the ld. CIT(A) has erred in not following the decision of jurisdiction ITAT Jaipur Bench in the case of Shankar Lal Khandelwal (supra) and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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. 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. Therefore, in notice U/s 274 is to be marked appropriate on the basis of levy of penalty. The standard proforma without striking of the relevant item will lead to an inference as non-application of mind. 3. Hon ble ITAT Jaipur Bench, Jaipur in its recent judgment in ITA 878/JP/2013 dated 11.03.2013 in the case of Shankar Lal Khandelwal Vs DCIT held that when assessing Officer has mentioned at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curate particulars of income but at the time of notice U/s 274 he simply has ticked in prescribed proforma concealed particulars of income or furnished inaccurate particulars of income without deleting either limb of penalty even he has not put and in the notice itself between two limbs. The amended provisions of Sub-section (1B) of Section 271 has been considered by the Hon'ble Delhi High Court in the case of Madhu Shree Gupta vs. UOl, 317 ITR 107 wherein it has been held that at the stage of initiation of penalty proceedings, the order passed by the Assessing Officer need not reflect satisfaction vis a vis each and every item of addition or disallowance if the overall sense gathered from the order is that a further prognosis is called for. It would be sufficient compliance with the law that there is a prima facie evidence for concealment of particulars of income or furnishing inaccurate particulars of income. Even after this section, the Assessing Officer has to satisfy the particular limb of initiation of penalty imposable U/s 271(1)(c) of the Act at the time of assessment proceedings. The Hon ble Karnataka High Court in the case of CIT vs. M/s Manjunatha Cotton Ginning Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of his income by not disclosing his correct and true income in original return. The ld. AO could not specified that whether the assessee concealed the income or furnish inaccurate particulars of income. . 5. Hon ble ITAT in its recent judgment in case of Shri Murari Lal Mittal ITA No. 334/JP/2015 order dated 09/11/16 has cancelled the penalty on the same grounds following the decision of Shri Shanker Khandelwal. The findings of Hon ble ITAT are as under:- 2.5 I have heard the rival contentions and perused the materials available on record. It is noted from the record that the assessee is an individual declaring income from house property and income from business or profession as proprietor of M/s. Mittal Enterprises. The return u/s 139(1) of the Act was filed on 25-10-2004 by the assessee declaring total income of ₹ 1,51,100/-. Search and seizure operations were carried out on 27-08-2008 on residential and business premises of the assessee. The return u/s 153 of the I.T. Act was filed on 31-03- 2009 declaring total income of ₹ 5,85,090/- which included additional income surrender of ₹ 4,53,819/-. The assessment was made by the AO u/s 153A/143(3) of I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 2007-08 by observing as under:- 6. We have heard the rival contentions of both the parties and perused the material available on the record. In this case, the ld Assessing Officer initiated penalty proceedings for concealing of particulars of income and for furnishing inaccurate particulars of income vide order dated 31/12/2009. Notice U/s 274 read with Section 271-272 of the Act was issued on 30/12/2009 by ticking of the notice as under:- U/s 271(1)(c):- Concealed particulars of income or furnished inaccurate particulars of income . The ld Assessing Officer again gave notice during the course of penalty proceedings on 23/1/2012 wherein he gave show cause notice U/s 271(1)(c) for imposing of penalty without specifying the limb for reasons to impose the penalty, whether it is for concealed particulars of income or furnished inaccurate particulars of income. The ld CIT(A) has considered all the aspect and held that Explanation 5A to Section 271(1)(c) is applicable as in this case, a search was carried out after 01/6/2007 and the assessee has furnished return for A.Y. 2007-08 before search and additional income has been disclosed U/s 153A. Therefore, dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty proceedings, which was tantamount to satisfaction have recorded to the fact on the basis of addition made by the Assessing Officer for concealed income in assessment order. The Hon ble Court has confirmed the penalty even penalty proceedings initiated by the Assessing Officer by mentioning penalty proceeding for concealing/furnishing of inaccurate particulars of income. The Hon ble Punjab Haryana High Court has expressed different view on initiation of penalty proceedings even notice U/s 274 issued by putting oblique between concealing and furnishing of inaccurate particulars of income whereas the Hon ble Karnataka High Court has held that the Assessing Officer has to satisfy at the time of initiation of penalty proceeding and issuing notice U/s 274 of the Act that whether penalty is for concealed particulars of income or furnishing of inaccurate particulars of income. There were two opinions of the Hon ble Courts. The Hon'ble Supreme Court has held that in case of two views of the court, favourable view of the assessee would be taken as held in the case of CIT Vs Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and a recent decision in the case of CIT Vs. Vatika Township ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed. 5.1 The Hon ble Karnataka High Court in the case of CIT Anr. v. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and 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 explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. For the reasons given above, we hold that levy of penalty in the present case cannot be sustained.We, therefore, cancel the orders imposing penalty on the Assessee and allow the appeal by the Assessee. 11. In the present case, as we noted above, the AO failed to strike out the irrelevant portion in the said show cause notice, Respectfully following the order above, we cancel the penalty levied u/s. 271(1) ( c) of the Act by the Assessing Officer as confirmed by the CIT( A) for both the assessment years under consideration. Having held that the notice issued by the AO U/Sec 274 r/w Sec 271(1)(c) of the Act during the course of penalty proceedings is not in conformity with the relevant provisions of the Act, we are of the view that Section 292B can not come to the rescue of the Revenue and the reliance of the Ld.DR on the said provision is clearly misplaced. Therefore, preliminary issue as raised by the assessee by way of additional ground for both the assessment years 2006-07 20070 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- 9. The entire addition is based on the statement of affairs of 31.03.2002 and 31.03.2003 submitted by the assessee himself. The assessing officer presumed that the sundry advance created to generate cash for gift given to Shri Murari Lal Mittal in AY 2007-08. In such a case the opening capital as well as opening advance will be reduced and no addition deserves to made in the year under consideration. The opening balance in capital account in the balance sheet as on 31.3.2003 is closing balance of capital account as on 31.3.2002. The assets/ income prior to the Assessment Year cannot be considered in the Assessment Year. However the ld. AO as well as CIT (A) rejected the explanations of the assessee solely on the ground that the assessee failed to establish the source of cash or furnish other substantiating evidence to support the submission. Thus the addition was made because of the technical reason that the assessee could not filed the supporting evidence in support of his explanation otherwise the ld. AO as well as CIT (A) both could not prove that the payment of advances was made by the assessee out of his concealed income. 10. During the year under considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... binding in penalty proceedings. No any positive material was brought in penalty proceedings to show that the assessee has made willful attempt to conceal the income or to furnish inaccurate particulars of income. The assessment proceedings and penalty proceedings are two separate proceedings. The additions made during assessment proceedings does not lead to conclusion that the assessee was having some undisclosed income or concealed the particulars of his income. The additions in assessment order or may be because of some technical reasons which always does not mean that the assessee had concealed income, therefore for imposing a penalty the assessing officer has to prove that the assessee was having concealed income. 15. The case law relied by the AO are also not applicable in the case of the assessee as in the cited case laws the penalty was confirmed because the assessee knowingly furnish inaccurate particulars of income or concealed the particulars of income while in the case of the assessee the assessee submitted his explanation which has not been disproved by the department. The department have no positive material to prove that the assessee has knowingly furnished inac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. In the present case, the assessee has proved his explanation to be genuine. Penalty proceedings being penal in character, the department must establish that the additions so made are real income of the assessee The department must have before it before levying penalty cogent material or evidence from which it could be inferred that the assessee has consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars in respect of the same. The penalty cannot be levied solely on the basis of the reasons given in the original order of assessment. In the case Sharma (J.P.) and Sons v. Commissioner of Income-tax reported in [1985] 151 ITR 0333 (Raj.) it has been held that Mere non-disclosure of true particulars of income or furnishing of inaccurate particulars is not sufficient to attract the penalty provisions contained in section 271(1)(c) of the Income-tax Act, 1961. In order that penalty may be imposed, there should be conscious concealment of particulars or inaccurate particulars must have been furnished deliberately by the assessee. The Hon ble Supreme Court in case of Dilip N. Shroff v. Joint CIT [2007] 291 ITR 519 (SC) has again reit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(A) 2.3 The ld. DR relied on the orders of the authorities below and the decision of Hon'ble Allahabad High Court in the case of Nanu Mal Het Chand vs. CIT, (2007) 294 ITR 185 (All.). 2.4 I have heard the rival contentions and perused the materials available on record. It is noted from the records that originally no return of income had been filed by the assessee for the year under consideration. In this case, search was conducted on 27-08-2008. Various assets/ books of accounts and documents had been found and seized as per annexure prepared during the course of search. Accordingly, notice u/s 153A of the Act was issued and served upon the assessee on 31-03-2010. In response to the same, the assessee filed the return of income on 11-05-2010 declaring Nil income. It is noted from the assessment order that the assessee derived income from interest from bank. The AO completed the assessment u/s 153A/143(3) on 31-08-2010 determining total income of ₹ 4,00,130/- by making addition of ₹ 130/- on account of income from bank interest and ₹ 4,00,000/- u/s 69 of the Act. The AO initiated penalty proceedings u/s 274 r.w.s. 271(1) of the Act for concealment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Shri Murari Lal Mittal in A.Y. 2007-08. It is further noted that opening balance in capital account in the balance sheet as on 31-03-2003 is closing balance of capital account as on 31-03-2002. The assets/ income prior to the assessment year cannot be considered in the assessment year under consideration. However, the lower authorities rejected the contention of the assessee on the ground that assessee failed to establish the source of cash or furnished the other substantiating evidence to support the submission. It is also noted that during the year the assessee was not having any source of concealed income. The Department carried out intensive search over the assessee and no cogent material was found to show that the assessee was having any concealed source of income during the year under consideration. It is also noted in the assessment order that sundry debtors created to generate cash was utilized for gift to Shri Murari Lal Mittal in assessment year 2007-08 was without bringing any adverse positive material. No any positive material was brought in penalty proceeding to show that the assessee had made willful attempt to conceal the income or to furnish inaccurate particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Murari Lal Mittal vs. DCIT, Central Circle- 2, Jaipur had deleted the penalty vide order dated 9-11-2016 in ITA No. 333 334/JP/2015 by observing as under:- 2.5 I have heard the rival contentions and perused the materials available on record. It is noted from the record that the assessee is an individual declaring income from house property and income from business or profession as proprietor of M/s. Mittal Enterprises. The return u/s 139(1) of the Act was filed on 25-10-2004 by the assessee declaring total income of ₹ 1,51,100/-. Search and seizure operations were carried out on 27-08-2008 on residential and business premises of the assessee. The return u/s 153 of the I.T. Act was filed on 31-03-2009 declaring total income of ₹ 5,85,090/- which included additional income surrender of ₹ 4,53,819/-. The assessment was made by the AO u/s 153A/143(3) of I.T. Act on total income of ₹ 6,18,980/- which included the addition of ₹ 33,892/- made by the AO on account of disallowance made from various expenses. In penalty proceedings, the AO imposed the penalty of ₹ 1,36,145/- being 100% of tax payable on additional income of ₹ 4,53,819/- d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iculars of income vide order dated 31/12/2009. Notice U/s 274 read with Section 271-272 of the Act was issued on 30/12/2009 by ticking of the notice as under:- U/s 271(1)(c):- Concealed particulars of income or furnished inaccurate particulars of income . The ld Assessing Officer again gave notice during the course of penalty proceedings on 23/1/2012 wherein he gave show cause notice U/s 271(1)(c) for imposing of penalty without specifying the limb for reasons to impose the penalty, whether it is for concealed particulars of income or furnished inaccurate particulars of income. The ld CIT(A) has considered all the aspect and held that Explanation 5A to Section 271(1)(c) is applicable as in this case, a search was carried out after 01/6/2007 and the assessee has furnished return for A.Y. 2007-08 before search and additional income has been disclosed U/s 153A. Therefore, deeming provisions are applicable. It is undisputed fact that the assessee has disclosed additional income in return filed U/s 153A on the basis of incriminating document found during the course of search. We have considered view that Explanation 5A is not required to be mentioned by the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeding for concealing/furnishing of inaccurate particulars of income. The Hon ble Punjab Haryana High Court has expressed different view on initiation of penalty proceedings even notice U/s 274 issued by putting oblique between concealing and furnishing of inaccurate particulars of income whereas the Hon ble Karnataka High Court has held that the Assessing Officer has to satisfy at the time of initiation of penalty proceeding and issuing notice U/s 274 of the Act that whether penalty is for concealed particulars of income or furnishing of inaccurate particulars of income. There were two opinions of the Hon ble Courts. The Hon'ble Supreme Court has held that in case of two views of the court, favourable view of the assessee would be taken as held in the case of CIT Vs Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and a recent decision in the case of CIT Vs. Vatika Township P Ltd. (2014) 367 ITR 466 (SC). Therefore, we are of the considered view that initiation of penalty proceedings is not as per law and Assessing Officer did not have any jurisdiction to impose penalty U/s 271(1)(c) of the Act. As the matter has been decided on technical issue, we are not expressing any vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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