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2017 (2) TMI 169 - ITAT PUNE

2017 (2) TMI 169 - ITAT PUNE - TMI - Penalty u/s. 271(1)(c) - non-recording of proper satisfaction by the Assessing Officer while completing assessment - Held that:- Assessing Officer while completing assessment and making disallowance on each account had stated that penalty under section 271(1)(c) of the Act needs to be initiated and the same was so initiated by issue of notice under section 274 r.w.s. 271(1)(c) of the Act. However, the Assessing Officer has failed to give satisfaction as to wh .....

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ORDER PER SUSHMA CHOWLA, JM: This appeal filed by the assessee is against the order of CIT(A)-I, Nashik, dated 09.02.2015 relating to assessment year 2009-10 against penalty levied under section 271(1)(c) of the Income-tax Act, 1961 (in short the Act ). 2. The assessee has raised the following ground of appeal:- On the facts and in law the CIT(A) has erred in confirming penalty of ₹ 2,83,600/- levied by the A.O. u/s. 271(1)(c), on the addition of ₹ 8,93,811/- on account of alleged no .....

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ed u/s 271(1)(c) r.w.s. 274, the learned A.O. has not recorded proper satisfaction as to whether the penalty proceedings are initiated for furnishing inaccurate particulars of income or for concealing income and hence, the said notice is bad in law and therefore, the levy of penalty u/s 271(1)(c) is not justified. 4. The present appeal filed by the assessee before the Tribunal was after the delay of 10 days. The assessee has filed an application for condonation of the said delay along with an Af .....

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y of additional ground of appeal is against nonrecording of proper satisfaction for initiating penalty proceedings under section 271(1)(c) of the Act, while completing assessment in the hands of assessee. The assessee is further aggrieved by the notice issued in the case, wherein inappropriate portion has not been struck off. Further, the learned Authorized Representative for the assessee pointed out that even while passing the order levying penalty for concealment, the Assessing Officer has not .....

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on account of understatement of closing stock - Rs.23,986/- (b) Addition on account of suppression of profit - Rs.8,93,811/- 7. The Assessing Officer while making individual disallowances has observed that penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961 are separately initiated. Such observation is made individually in respect of each of the disallowance made in the hands of assessee. While concluding the assessment, the Assessing Officer directs issue notice under sectio .....

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ty under section 271(1)(c) of the Act. 9. The first issue which has arisen for adjudication by way of additional ground of appeal is non-recording of proper satisfaction by the Assessing Officer while completing assessment. The perusal of assessment order reflects though the Assessing Officer mentions that penalty proceedings needs to be initiated and eventually directs issuance of notice under section 271(1)(c) of the Act, but no satisfaction has been recorded by the Assessing Officer as to whi .....

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hor Tulsidas Katore Vs. ACIT in ITA Nos.2174 t o 2180/PN/2014, relating to assessment year 2002-03 to 2008-09, order dated 14.12.2016. The learned Authorized Representative for the assessee also pointed out that even in the notice issued under section 274 r.w.s. 271(1)(c) of the Act, inappropriate por tion is not struck off, hence no proper show cause notice has been given to the assessee before initiating and levying penalty under section 271(1)(c) of the Act. The Assessing Officer has finally .....

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tions 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 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 suc .....

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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. concealment of particulars of income and furnishing of inaccurate particulars of such income is or . So the penalty levied by the concerned Officer is on satisfaction of any of the limbs and not the satisfaction of both the limbs. Where the assessee had concealed the particulars o .....

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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 his mind and on being satisfied, he has to give a finding that the assessee before him has either concealed the particulars of income or furnished inaccurate particulars of income in respect of the issue before him. Thereafter, the notice should be issued to such person by the .....

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dings 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 recorded by the Assessing Officer and the notice issued thereafter is without application of mind, then can the subsequent order passed levying penalty be held to be valid?. The Hon ble Karnataka High Court in CIT & Anr. Vs. Manjunatha Cotton and Ginning Factory (supra) had dea .....

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rder 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 o .....

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see 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. Clause (c) deals with two specific offence .....

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n 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, it should be imposed only on the grounds .....

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nitiation 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 Assessin .....

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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 that levy of penalty has to be clear as to the limb for which it is levied and the position bein .....

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edings 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 of inaccurate particulars of income are different. The Hon ble High Court has thus, laid down that the Assessing Officer while issuing notice has to come to conclusion that whether it is case of concealment of income or case of furnishing of inaccurate particulars of income. The .....

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ncome, 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 Emerald Meadows (supra) has dismissed the appeal of Revenue, where the Tribunal had allowed the appeal of assessee holding that the notice issued by the Assessing Officer under section 274 r.w.s. 271(1)(c) of the Act to be bad in law as it does not satisfy which limb of section 271(1) .....

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ka 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 concea .....

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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 mistake, defect or omission in the return of income, assessment, notice or the proceedings. The Tribunal further held that show cause notice and the reasons mentioned in the show cause notice were part of process of natural justice and the defect in such notice could not be overlo .....

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out affording reasonable opportunity of hearing to the assessee. In respect of other two years where there was non-striking of inaccurate portion, the Hon ble High Court held that the same would not invalidate the notice issued under section 274 of the Act. It was further held that the assessment orders were also made and reasons for issuing notice under section 274 r.w.s. 271(1)(c) of the Act were recorded by the Assessing Officer and since the assessee fully knew in detail the exact charge of .....

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ropriate 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 year 1967-68, the Hon ble High Court in CIT Vs. Smt. Kaushalya (supra) acknowledged that there could exist a case where vagueness and ambiguity in the notice could demonstrate nonapplication of mind by the authority and / or ultimate prejudice to the right of opportunity of hearing .....

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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 .....

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equent 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 income was declared on account of on-money on sale of plots, which was detected from the documents seized during the course of search. Admittedly, Explanation 5A to section 271 (1)(c) of the Act is attracted in such cases. However, the case of assessee before us is that the Assessin .....

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sent 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 addition in the hands of assessee is additional income offered by the assessee pursuant to search operations. In such circumstances, it is categorically a case of concealment. However, the Assessing Officer refers to both the limbs of section 271(1)(c) of the Act and the satisfa .....

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t 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 .....

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al 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 the notice accordingly. 24. We find no merit on the partial reliance placed upon by the learned Departmental Representative for the Revenue on the decision of Jurisdictional High Court in CIT Vs. Smt. Kaushalya (supra). The Hon ble High Court has clearly laid down the propositio .....

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ars 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 Court further held that where the assessee was fully aware of exact charge of the Department against him, then technical non-striking of certain terms in the notice would not invalidate the proceedings. Where there is default in the first stage of making the assessee aware of e .....

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me. 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 income and furnishing of inaccurate particulars carry different connotations. Concealment refers to a deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppression very or suggestion falsi. 26. Where concealment of .....

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enalty 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 .....

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s 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 the .....

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