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2017 (1) TMI 997 - ITAT PUNE

2017 (1) TMI 997 - ITAT PUNE - TMI - Levy of penalty u/s. 271(1)(c) - disallowance of ‘goodwill written off’ - concealment of income or for furnishing of incorrect particulars of income - Held that:- A perusal of the assessment order shows that while recording satisfaction for initiating penalty proceedings u/s. 271(1)(c), the Assessing Officer in paragraph 4 of the order has stated that the penalty proceedings are initiated u/s. 271(1)(c) for filing wrong particulars of income and in concluding .....

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uity in the notice with respect to charge for levy of penalty. It is not clear from the notice whether the penalty is being levied for concealment of income or furnishing of inaccurate particulars of income. The Assessing Officer has issued notice without striking of irrelevant clause in the standard proforma. Since, the notice issued u/s. 274 is vague, the same is invalid and the subsequent proceeding arising therefrom are thus vitiated. - See Commissioner of Income Tax Vs. Manjunatha Cotto .....

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AND SHRI VIKAS AWASTHY, JM For The Assessee : Shri Hari Krishan For The Revenue : Shri Suhas S. Kulkarni ORDER PER VIKAS AWASTHY, JM : This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-I, Thane dated 16-06-2014 for the assessment year 2007-08 upholding the levy of penalty u/s. 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as the Act ). 2. The brief facts of the case as emanating from records are: The assessee is a partnership firm .....

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eproduced in the assessment order as well as penalty order as Annexure-II. As per the said document the assessee had transferred eight shops and one office at market value of ₹ 1,05,03,400/- to the two retiring partners, whereas in the books of account an amount of ₹ 35,03,400/- was recorded in respect of aforesaid transactions. During the course of assessment proceedings the assessee explained that the total sale consideration as per market value is ₹ 1,05,03,400/-, value disc .....

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proceedings u/s. 271(1)(c) of the Act. In first appeal, the Commissioner of Income Tax (Appeals) upheld the addition in respect of goodwill written off. The matter travelled up to the Tribunal. The Tribunal in ITA No. 1079/PN/2011 for the assessment year 2007-08 decided on 30-03-2016 upheld the findings of Commissioner of Income Tax (Appeals) and rejected the contentions of the assessee with respect to write off of goodwill. The Assessing Officer vide order dated 15-09-2011 levied penalty of  .....

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f penalty. 3. Shri Hari Krishan appearing on behalf of the assessee submitted that the difference between the market value and the value shown in the books of assessee firm is treated as goodwill. The assessee has claimed ₹ 11,44,680/- as depreciation on goodwill and has written off the same. Originally, Shri Hiralal Rangani (Patel), one of the partners of the assessee firm in his statement recorded on 30-08-2007 had agreed to disclose the amount in the books of the individual partners. Ho .....

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y the Assessing Officer are liable to be set aside as they are defective. The ld. AR pointed that at the time of recording satisfaction for initiating penalty, the Assessing Officer at the conclusion of the findings in assessment order has observed that penalty proceedings are initiated u/s. 271(1)(c) for filing wrong particulars of income. However, while concluding the assessment order the Assessing Officer has observed that show cause notice u/s. 274 r.w.s. 271(1)(c) has to be issued for conce .....

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naccurate particulars of income. There is no consistency in the assessment order, notice issued u/s. 274 r.w.s. 271(1)(c), order levying penalty u/s. 271(1)(c) and the order of Commissioner of Income Tax (Appeals) with respect to charge for levy of penalty. It is not clear whether the penalty is levied for concealment of income or furnishing of inaccurate particulars of income or both. Therefore, the penalty proceedings are liable to be set aside. In support of his submissions the ld. AR placed .....

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erusal of assessment order would show that while making addition in para 4 of the order, the Assessing Officer has recorded his satisfaction for initiating penalty proceedings u/s. 271(1)(c) for filing wrong particulars of income. However, in concluding paragraph of the assessment order, both charges are mentioned as a matter of procedure. The Assessing Officer and Commissioner of Income Tax (Appeals) in penalty proceedings have held that penalty u/s. 271(1)(c) is levied for furnishing inaccurat .....

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istent and there is no ambiguity with respect to the charge for levy of penalty. The ld. DR further pointed that penalty cannot be deleted merely on absurd or illogical interpretation of the decisions or provisions of the Act. The ld. DR placed reliance on the decision of Hon ble Delhi High Court in the case of Commissioner of Income Tax Vs. HCIL KALINDEE ARSSPL in ITA 480/2012 decided on 29-07-2013. 5. We have heard the submissions made by the representatives of rival sides and have perused the .....

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The penalty has been levied u/s. 271(1)(c) in respect of addition of ₹ 11,44,680/- on account of disallowance of goodwill written off . The Assessing Officer while adjudicating this issue in paragraph 4 of the assessment order concluded as under : As the fair market value of the goods transferred is much more than the value shown in the return of income, therefore this amount is taxable in the hands of the firm as has been done by the assessee. However, the assessee is not entitled to any .....

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f the assessment order shows that the Assessing Officer while concluding the assessment observed as under: Give credit for prepaid taxes. Issue D.N/Challan/R.O. accordingly after verification of prepaid taxes. Charge interest u/s. 234A, 234B and 234C as applicable. Issue show cause notice u/s. 274 r.w.s. 271(1)(c) as the assessee has concealed income/furnished inaccurate particulars of income as discussed in the order. Issue show cause notice u/s. 274 r.w.s. 271B of the I.T. Act. 7. A perusal of .....

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was issued to the assessee on 29-12-2009. The relevant contents of the notice issued to the assessee are as under : NOTICE UNDER SECTION 274 READ WITH SECTION 271(1)(c) OF THE INCOME TAX ACT, 1961 Date-29/12/2009 To M/s. Mateshwari Enterprises 413/2, 7-8, sector-17, New Panvel. Sir, Whereas in the course of proceedings before me for the assessment year 2007-08 it appears to me that you :- *have concealed the particulars of your income or furnished inaccurate particulars of such income. You are h .....

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Officer, Ward-2 Panvel, Distt.:-Raigad. A bare perusal of the notice reveal that the Assessing Officer has not specifically mentioned whether the penalty proceedings u/s. 271(1)(c) are initiated for concealment of income or furnishing inaccurate particulars of income or both. 9. The Assessing Officer levied penalty u/s. 271(1)(c) vide order dated 15-09-2011. The Assessing Officer in paragraph 12 of the penalty order has specified the charges for levy of penalty. The paragraph 12 of the order rea .....

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1(1)(c) of the Act, being 100% of the tax sought to be evaded. 10. When the assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals), the Commissioner of Income Tax (Appeals) confirmed the levy of penalty u/s. 271(1)(c) for furnishing inaccurate particulars of income. It is an undisputed fact that the addition with respect to disallowances of goodwill written off has been confirmed by the Tribunal. It is a well settled law that penalty proceedings and assessment proc .....

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different offences. There can be certain instances where there can be overlapping of the charges. While recording satisfaction for initiating penalty proceedings u/s. 271(1)(c), the Assessing Officer should specify the charge for which penalty is being initiated. The onus is on the Department to make out a case for levy of penalty. Similarly, while issuing notice u/s. 274 of the Act, the charge for which penalty proceedings are initiated should be discernible. The principle of natural justice d .....

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stated that show cause notice u/s. 274 r.w.s. 271(1)(c) to be issued for concealment of income/furnishing inaccurate particulars of income. This shows that the Assessing Officer is himself not clear whether the penalty is to be levied for furnishing of inaccurate particulars of income or concealment of income. A further perusal of the notice issued u/s. 274 r.w.s. 271(1)(c) which has been reproduced here-in-above further reveal that there is ambiguity in the notice with respect to charge for le .....

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Ginning Factory reported as 359 ITR 565 has held that notice u/s. 274 of the Act should specifically state the grounds mentioned in section 271(1)(c), i.e., whether it is for concealment of income or for furnishing of incorrect particulars of income. Sending printed form where all the grounds mentioned in section 271(1) are mentioned would not satisfy the requirement of law. The assessee should know the grounds which he has to meet specifically. Otherwise, the principles of natural justice are o .....

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ey 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 .....

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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 274 should satisfy the grounds which he has to meet specifically Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. 60. C .....

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he 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 those grounds and the said grounds have to be specifically stated so that the 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, .....

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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 pass .....

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hing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 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 that levy of penalty has to be clear as to the limb for which it is .....

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of Income Tax (supra) had deleted the levy of penalty under similar circumstances by following the decision rendered in the case of Commissioner of Income Tax Vs. Manjunatha Cotton and Ginning Factory (supra) and various other decisions. The relevant extract of the findings of Co-ordinate Bench are as under : 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 h .....

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e 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 furn .....

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the Department against 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 .....

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d the same are to be 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 .....

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ions, 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 furnish .....

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