TMI Blog2017 (12) TMI 1051X X X X Extracts X X X X X X X X Extracts X X X X ..... booked, 50% of such expenditure was disallowed being his personal expenditure. Vis-a-vis the said disallowance, we hold that same has been upheld in the hands of the assessee for want of proof and not for violation of any of the provisions of the Act. In view thereof, we find no merit in the levy of penalty under section 271(1)(c) of the Act on such partial disallowance of expenditure on maintenance of car and credit card expenses of Mr. B.E. Avhad. In assessment year 2006-07, disallowance on depreciation of car and Honorarium paid, i.e. facilities to Mr. B.E. Avhad have been upheld to the extent of 50%. We hold that the assessee is not liable to levy of penalty on partial disallowance of facilities provided to Mr. B.E. Avhad. The assessee is liable to levy of penalty under section 271(1)(c) of the Act on the expenditure incurred on Foreign Tour of the trustees, scholarship given to the relatives of the trustees and also on the interest on loan given to relatives of the trustees, disallowance of which under section 13(1)(c) of the Act has been upheld in the hands of the assessee. Hence, grounds of appeal raised by the assessee are partly allowed. - ITA Nos. 968 to 971 & 973 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culars of income by providing undue benefits to the trustees and related parties and hence, the learned A.O. was justified in levying the penalty on account of disallowance of exemption u/s 11. 6] The learned CIT(A) failed to appreciate that the assessee trust had not provided any benefit to the trustees and their relatives and accordingly, there was no question of violation of provisions of Section 13(1)(c) and hence, the denial of exemption u/s 11 was also not justified and the penalty levied may also kindly be deleted. 7] The learned CIT(A) erred in not appreciating that the issue whether the assessee had violated the provisions of section 13 (1)(c) was a debatable one and two opinions were clearly possible and hence, the question of levy of penalty on such debatable issue simply does not arise. 8] The learned CIT(A) ought to have appreciated that the assessee trust had submitted its explanation that no benefit was provided to the trustees and the levy of penalty by simply rejecting the explanation furnished without proving it to be false is not justified at all. 9] The learned CIT(A) failed to appreciate that there was no concrete evidence that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 10(23C)(vi) of the I.T. Act. The Assessing Officer however denied the said exemption claimed under section 10(23C)(vi) of the Act. The Assessing Officer further held the assessee to have deliberately filed inaccurate particulars of its income and claimed deduction under section 10(23C)(vi) of the Act though not eligible and hence penalty proceedings under section 271(1)(c) of the Act were initiated. In the assessment order, the Assessing Officer, directed Issue of notice under section 274 read with section 271(1)(c) of the Act . The CIT(A) upheld the order of the Assessing Officer in not granting the exemption under section 10 (23C)(vi) and under section 11 of the Act. The Tribunal in ITA Nos. 915 to 920/PUN/2012 for the assessment years 1999- 2000 to 2004-05 order dated 10.02.2017 held the assessee to be entitled to the exemption under section 11 of the Act except for the violation under section 13(1)(c) of the Act. The said issue was decided by the Tribunal vide Para Nos. 148 to 152 of its order. Further the Tribunal in ITA Nos. 921 to 923/PUN/2012 relating to assessment years 2005-06 to 2007-08 order dated 16.05.2017 also held similarly. 8. Meanwhile, the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003-04 to 2007-08, order dated 30.11.2016. He also pointed out that the Assessing Officer has failed to strike out irrelevant limb in the notice issued under section 271(1)(c) of the Act and for such act of the Assessing Officer the initiation and levy of penalty under section 271(1)(c) of the Act was invalid and bad in law. In this regard, he placed his reliance on the ratio laid down by the Mumbai Bench of the Tribunal in the case of Meherjee Cassinath Holdings Pvt. Ltd. Vs. ACIT for assessment year 2008-09 in ITA No.2555/Mum/2012, order dated 28.04.2017. 11. The Ld. Departmental Representative for the Revenue in reply pointed out that the additions have been sustained by the Tribunal on merits and once the additions have been sustained then there is a case for levy of penalty under section 271(1)(c) of the Act . With regard to the failure of the Assessing Officer to strike off the irrelevant portion in the notice issued, he placed reliance on the ratio laid down by the Mumbai Bench of the Tribunal in the case of Earthmoving Equipment Service Corporation Vs DCIT for assessment year 2010-11 in ITA No.6617/Mum/2011, order dated 02.05.2017. 12. We have heard the rival conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roposition that the satisfaction of the Assessing Officer with regard to only one of the two breaches mentioned under section 271(1)(c) of the Act, for initiation of penalty proceedings will not warrant/permit penalty being imposed for the other breach. It was further observed that the assessee would respond to the ground on which the penalty has been initiated/notice issued. It was thus held that that the order imposing penalty has to be made only on the ground on which the penalty proceedings had been initiated and it cannot be on a fresh ground on which the assessee has no notice. 15. Further, the Pune Bench of the Tribunal in the case of Kanhaiyalal D. Jain Vs. ACIT for the assessment years 2003-04 to 2007-08 in ITA Nos. 1201 to 1205/PN/2014 order dated 30.11.2016 has also laid down the said proposition by holding as under : 13. We have heard the rival contentions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. Manjunath a Cotton and Ginning Factory (supra) had dealt upon the issue of notice under section 274 of the Act for the purpose of levying penalty for concealment 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 proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 satisfaction recorded in this case suffers from infirmity. Further, even in the notice issued under section 274 of 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 pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 274 of the Act had to be considered. In a case, where there was vagueness and ambiguity in the notice issued, then that would ultimately prejudice the right of opportunity of hearing of the assessee as contemplated under section 274 of the Act and such notice was invalid. 17. In view of the ratio laid down by the jurisdictional High Court, we find no merit in the reliance placed by the Ld. Departmental Representative for the Revenue on the ratio laid down by the Mumbai Bench of the Tribunal in the case of Earthmoving Equipment Service Corporation Vs. DCIT (supra). 18. Another reliance which was placed by the Ld. Departmental Representative for the Revenue was on the ratio laid down by the Hon ble Apex Court in the case of Mak Data Pvt. Ltd. Vs. CIT reported in (2013) 358 ITR 593 (SC) judgment dated 30.10.2013, wherein it was held that the satisfaction of the Assessing Office need not be recorded in a particular manner. However, the context of the ratio laid down by the Hon ble Apex Court was different wherein it was held that manner of recording satisfaction could be different. On the issue before us, the issue is not the manner of recording satisfaction but satisfact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 974/PUN/2015. 22. Since we have decided the jurisdictional issue raised by the assessee by way of Additional Ground and the penalty proceedings have been held to be invalid and bad in law, we find adjudication of the grounds of appeal on merits of the case become academic in nature. Therefore, the grounds of appeal raised by the assessee are dismissed as academic. 23. Now coming to the bunch of appeals in ITA Nos. 2018 to 2021 2023 to 2024/PUN/2012 filed by the assessee against the levy of penalty for concealment under section 271(1)(c) of the Act which is on the enhancement made by the CIT(A) on different grounds, part of which has been sustained by the Tribunal. The CIT(A) initiated the penalty proceedings in the appellate order passed. Thereafter, order imposing penalty under section 271(1)(c) of the Act was passed by the CIT(A) vide order dated 27.08.2012 against which the assessee has preferred the present bunch of appeals. The said penalty under section 271(1)(c) of the Act has been levied in the case of the assessee on account of the following issues : (i) Disallowance of part expenses, (ii) Expenditure on Foreign Tour expenses where the assessee had fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f penalty under section 271(1)(c) of the Act by the CIT(A) on such enhanced income which were made by him while passing the appellate order for the instant assessment years. For ready reference and in order to adjudicate the issue we would make a reference to the tabulated chart filed by the assessee for the respective assessment years which briefly gives the details of amounts originally assessed in the hands of the assessee, again enhanced by the CIT(A) and income sustained by the Tribunal. The assessee in this regard has filed the tabulated chart which reads as under : A.Y. Description Amount originally assessed penalty levied by AO Amount enhanced and penalty levied by CIT(A) Income sustained by ITAT 2001-02 1. Facilities to Shri B.E. Avhad Vehicle Maintenance (50% disallowed 21,850 - 10,925 Depreciation on car (0% disallowed) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption u/s.11 12 but deleted by ITAT 19,862,618 Assessed Income 19,862,618 671,227 306,610 Penalty levied on income 28,473,372 6,077,960 201,368 2006-07 1. Facilities to Shri B.E. Avhad Vehicle Maintenance (50% disallowed - 236,191 118,096 Depreciation on car (50% disallowed) - 280,057 140,029 Credit Card Expenses (50% disallowed) - 210,636 105,318 Honorarium paid (50% disallowed) - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he source. The Tribunal (supra) noted that the daughter of Mr. V.D. Karad, Managing Trustee was staying in Australia and though the assessee claimed that such expenditure was on account of attending the World Peace tour, but no merit was found in the argument of the assessee and the expenditure of ₹ 1,52,930/- for assessment year 2001-02 was held to be not for the objects of the trust. Similarly, the Foreign Travel expenses in other years were held to be not for the objects of the trust and the same were brought to tax by Tribunal (supra) vide Para No. 156 at page 113 of the order. The Tribunal further considered the claim of the assessee, vis-a-vis concessional education given to employees of Trust wherein it was held that the same was not covered by the provisions of section 13(1)(c) of the Act and hence the same were allowed in the hands of the assessee. However, in respect of the relatives of the trustees, as defined in Explanation to section 13, the Tribunal (supra) held that the same cannot be allowed as an expenditure in the hands of the assessee. 29. In the assessment year 2002-03, further disallowance was made in addition on the facilities provided to Mr. B.E. Avh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowance was made on account of interest free loan given to Mr. Rahul Karad again in violation of section 13(1)(c) of the Act. The Tribunal had held that the concession in education given to the employees or their relatives is allowable in the hands of the assessee. However, concession given to the relatives of the Directors of the assessee trust attracts the provisions of section 13(1)(c) of the Act and hence the disallowance in the hands of the assessee trust. 31. Once the disallowance has been upheld in the hands of the assessee trust on account of non-fulfilment of the provisions of the Act, the said disallowances may be concessional educational expenses or loan given to relatives of trustees and foreign travel expenses of trustees cannot be said to be mere adhoc disallowance of expenses in the hands of the assessee trust. Accordingly, we hold that there is no merit in the plea of the assessee in this regard. The assessee is liable to levy of penalty for concealment under section 271(1)(c) of the Act in respect of the enhancement of disallowance made by the CIT(A) in this regard. 32. Various Courts have time and again held that where the assessee has failed to compl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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