TMI Blog2016 (1) TMI 1357X X X X Extracts X X X X X X X X Extracts X X X X ..... tral-III, Kolkata, relating to AY 2002-03 to 2006-07. In all these appeals the Assessee has challenged the order of the CIT(A) whereby the CIT(A) confirmed the order of the AO imposing penalty on the Assessee u/s. 271(1)(c) of the Income Tax Act, 1961 (Act). 2. The facts and circumstances under which penalty was imposed on the Assessee by the AO in all the AYs referred to above are as follows: The Income Tax Department had conducted search and seizure operations u/s. 132(1) of the Act in the Builder Group of Cases on 23.08.2006. Shri. Uma Shankar Agarwal(the Assessee in these appeals) and his brother Shri. L.K. Agarwal are members of the Builder Group. The search and seizure operations were carried out at the premises -DA 14 and DA 122, Salt Lake city, Sector I, Kolkata. In the course of search on 24-08-2006, Shri L.K. Agarwal, brother of the appellant, had made an ad-hoc disclosure, in his Statement given under Section 132(4) of the Income Tax Act, 1961, of ₹ 6.25 Crores in respect of himself and his family members. Subsequently, the Assessee, vide his letter dated 20.10.2006 addressed to the Deputy Director of Income Tax (Investigation), Unit - 1(2), Kolkata, offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. On appeal by the Assessee the CIT(A) found the position with regard to income disclosed in the returns filed u/s. 139(1) and the income assessed u/s. 153A of the Act, was as follows: He held that but for the search the Assessee would not have declared income in the return filed u/s. 153A of the Act and agreed to the addition made in the assessment proceedings u/s. 153A of the Act. The Assessee had pleaded before the CIT(A) that he was entitled to immunity under Explanation 5 to Sec. 271(1)(c) of the Act. The CIT(A) however held that the Assessee had not made any statement u/s. 132(4) of the Act and it was only his brother Mr. L.K. Agarwal who made statement u/s. 132(4) of the Act when the search was conducted. He held that statement given by Mr. L.K. Agarwal cannot be construed as statement given by the Assessee so as to extent the benefit of immunity under Explanation 5 to Sec. 271(1)(c) of the Act. With regard to the other conditions for grant of immunity the CIT(A) was of the view that the Assessee satisfied the other conditions for grant of immunity. The CIT(A) therefore confirmed the orders of the AO imposing penalty on the Assessee. 4. Aggrieved by the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the AO; since penalty proceeding are not a continuation of assessment proceedings; (vi) due compliance would be required to be made in respect of the provisions of ss. 274 and 275; (vii) the proceedings for initiation of penalty proceeding cannot be set aside only on the ground that the assessment order states 'penalty proceedings are initiated separately' if otherwise, it conforms to the parameters set out hereinabove are met. The prayers made in the writ petitions are thus rejected with the caveat that provisions of s. 271(1)(c) post-amendment will be read in the manner indicated above. Pointing out the above observations it was contended that the order of assessment in the present case does not spell out any satisfaction as is contemplated in the decisions referred to above. The AO accepted whatever evidence the Assessee produced and also the offer of the Assessee to tax.. 6. The learned counsel for the Assessee also drew our attention to the show cause notice issued u/s. 274 of the Act before imposing penalty and submitted that the said notice does not specify as to whether the Assessee is guilty of having furnished inaccurate particulars of income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been made based on seized documents. There was no adverse observation by the AO in the order of assessment. The Assessee also did not object to the addition made by the AO and it was more or less an agreed addition. In the circumstances, the question arises whether satisfaction required for initiating proceedings for concealment or furnishing of inaccurate particulars of income in the course of assessment proceedings has been arrived at by the AO. We have also perused the show-cause notice issued u/s. 274 of the Act for all the aforesaid AYs 2002-03 to 2006-07. The AO in the said show cause notice has not struck off the irrelevant portion as to whether the charge against the Assessee is concealing particulars of income or furnishing of inaccurate particulars of income . In this regard, this tribunal in the case of Shri Satyananda Achariya Biswas (supra) has taken the following view on both the question with regard to existence of satisfaction for initiation of penalty proceedings and the effect of not striking off the irrelevant portion in the show cause notice u/s. 274 of the Act as follows: 7. On the above issue the first aspect which we notice is that in the order of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urvey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the assessee to record all its transactions in the books of account, to explain the source of payments made by it and to declare its true income in the return of income filed by it from year to year. The AO, in our view, has recorded a categorical finding that he was satisfied that the assessee had concealed true particulars of income and is liable for penalty proceedings under Section 271 read with Section 274 of the Income Tax Act, 1961. 10. The AO has to satisfy whether the penalty proceedings be initiated or not during the course of the assessment proceedings and the AO is not required to record his satisfaction in a particular manner or reduce it into writing....... 8. The Revenue places reliance only on the sentence appearing in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nishing 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. 9.2. 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 initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 bonafide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide and all fact ..... 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