TMI Blog2017 (5) TMI 1542X X X X Extracts X X X X X X X X Extracts X X X X ..... professional receipts which have not been declared by the assessee, which were admitted by the assessee as his additional income in his statement recorded under section 132(4) - The additions on account of unexplained payments for purchase of plots, which were over and above the investments declared by the assessee in his books of account has been confirmed in the hands of assessee and penalty for concealment under section 271(1)(c) of the Act is squarely leviable. he second plea of the assessee that the suppressed professional income was estimated for the period for which no incriminating document was found does not stand where admittedly, the assessee himself had declared the additional income while filing the return of income under section 153A of the Act. Accordingly, the assessee is exigible to levy of penalty under secton 271(1)(c) of the Act. We hold so. The only question which remains is the determination of penalty leviable which shall be calculated by the Assessing Officer in the respective years on the basis of final income added in the hands of assessee in each of the years. The original grounds of appeal raised by the assessee are thus, dismissed. We find no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in law, the Hon'ble CIT(A) was not justified in sustaining the levy of penalty when the Ld AO was not clear whether the appellant was guilty of concealment or of furnishing of inaccurate particulars either at the time of issuance of show cause or in the detailed penalty order. 5. On facts and in law, the Hon'ble CIT(A) was not justified in sustaining the levy of penalty when the additions were made by the Ld AO on the estimated basis and the Hon ble ITAT has reduced the estimate substantially. The aforesaid legal grounds of appeal inadvertently remained to be taken at the time of appeal. It may be mentioned that all the facts necessary to decide the additional grounds are already on record and no new evidence is required to be brought on record. I most humbly want to submit that my case is fully covered by the decision of the Hon ble Supreme Court in the absence of National Power Company Ltd Vs CIT (1998) 229 ITR 383 (SC), 4. The Revenue in ITA No.1645/PUN/2013, relating to assessment year 2002-03 has raised the following grounds of appeal:- 1. The order of the learned Commissioner of Income-tax (Appeals) is contrary to law and to the facts and circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gisters for the entire period were not found and the assessee claimed that they may have been disposed of. In view of the evidence found and seized, the professional income was estimated in the hands of assessee on account of difference between registers maintained by the Accountant and actual receipts as per operation receipts registers maintained at the counter. Further, evidence was found in respect of certain land transactions which were accepted by the assessee in his statement recorded under section 132(4) of the Act. The Assessing Officer during the course of assessment proceedings calculated the receipts for each of the year under search and also took note of the undisclosed investments made by the assessee and made the following additions in the respective years:- AY Addition (Rs.) 1999-2000 5,00,000 2000-01 27,40,885 2001-02 21,76,725 2002-03 14,30,225 + 1022,850 2003-04 12,69412 2004-05 11,04,743 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as estimated by him. The assessee claimed before the CIT(A) that where the Assessing Officer had levied penalty on the estimated addition excluding the quantum declared under section 153A of the Act by taking into account, the provisions of Explanation 5 to section 271(1)(c) of the Act, he was inconsistent in levying penalty in assessment year 2002-03. The CIT(A) held that where the assessee had offered additional receipts of ₹ 24,40,510/- in the return of income filed under section 153A of the Act, on account of entries found and where the Assessing Officer had extrapolated gross receipts for the entire period, which approach has been accepted by the Tribunal in ITA No.90/PN/2011 vide order dated 24.09.2012 vide paras 33 to 40, then it is illogical that the penalty for concealment is to be levied on the entire amount as extrapolated for the whole year. The relevant findings of the Tribunal are reproduced at pages 21 to 23 of the appellate order. The Tribunal had restricted the addition to 10% as against 20% estimated by the Assessing Officer. Vis- -vis unexplained investments made by the assessee, for the balance sum of ₹ 10,22,850/-, the Tribunal rejected the content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified the manner in whch such income representing the impugned receipts were derived. Reference was made to the question Nos.19 to 21 of the statement recorded of the assessee under section 132(4) of the Act. The finding of CIT(A) in this regard was that the statement of assessee was too vague and general and did not specify the amount of undisclosed income under different heads proposed to be admitted by the assessee. It was thus, held that the assessee was not entitled to the benefit of immunity provided under clause (2) to Explanation 5 to section 271(1)(c) of the Act. Reliance was placed upon by the assessee on Tribunal‟s order for assessment year 2004-05, wherein penalty was levied only in respect of additional estimated professional receipts was also held to be misplaced. The CIT(A) noted that for assessment year 2004-05, the Assessing Officer had perhaps considered Explanation 5 in imposing penalty since as per the provisions of the Act, the return of income for current year i.e. search year had not become due i.e. time specified under section 139(1) of the Act had not expired. 10. The next contention of assessee that residual amount of ₹ 14,30,225/- was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 01 51,95,123 5,04,600 32,45,485 14,95,400 2001-02 30,12,938 Nil 21,76,725 9,67,433 2002-03 41,66,563 54,17,660 78,70,735 13,56,087 2003-04 32,14,934 18,32,000 31,01,412 0 2004-05 61,53,481 40,68,215 51,72,958 11,04,743 12. The Assessing Officer recorded satisfaction and initiated penalty proceedings under section 271(1)(c) of the Act under Explanation (1) being initiated separately for concealment of income / filing inaccurate particulars of income for ₹ 38,70,735/-. Further penalty proceedings were also initiated for addition of ₹ 10,22,850/- on account of unexplained investments made under section 271(1)(c) of the Act under Explanation (1) for concealment of income / filing of inaccurate particulars of income for ₹ 40 lakhs. It may be noted herein that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidences found during the aion under sec. 132 in the form of second set of books and operation registers, and investment in immovable properties. The additional income declared by the appellant in the statement recorded on 4.9.2004 and subsequently in the returns filed under sec. 153A represents income from professional receipts not disclosed so far and investment in immovable properties. Thus, the appellant concealed the particulars of income and also furnished inaccurate particulars of income in respect of different sources of income as unearthed during the action u/s. 132. The subsequent admission of additional income in the returns of income filed under sec. 153A cannot be treated as voluntary and does not take away the effect of wrongful conduct earlier displayed by the appellant by not offering the said income in the original return. Thus, the appellant is guilty of contumacious conduct and concealment of income under the main part of the provisions of sec. 271(1)(c) as the appellant has concealed particulars of income and furnished inaccurateparticulars of income in the original returns. In this regard, reference can be madeto the decision of the Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal No.4 is against the satisfaction when the Assessing Officer was not clear as to whether the assessee was guilty of concealment or of furnishing inaccurate particulars either at the time of issuance of show cause notice or in the detailed penalty order. The said issue being purely legal, we admit the same and we shall deal with the same while deciding the appeal. 19. The next additional ground of appeal No.5 is against the sustenance of penalty where additions were made by the Assessing Officer on estimate basis and where the Tribunal had reduced the estimate substantially. The said ground of appeal is also admitted being purely legal in nature. 20. The learned Authorized Representative for the assessee strongly placed reliance on the ratio laid down by the Pune Bench of Tribunal in bunch of appeals with lead order in Gaikwad Associates Vs. DCIT in ITA 2090/PUN/2013, relating to assessment year 2009-10, order dated 20.01.2017 and pointed out that the facts of present case are identical and hence, where the Assessing Officer had initiated penalty both for concealment of income and for furnishing of inaccurate particulars of income, then the said penalty levied under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he pointed out that the Revenue is in appeal against final directions of the CIT(A), wherein in the initial paras, the CIT(A) considered it fit to levy the penalty on whole of the concealed income but later on restricts the penalty to the additions confirmed by the Tribunal. 22. We have heard the rival contentions and perused the record. The issue arising in the present bunch of appeals is with regard to levy of penalty for concealment under section 271(1)(c) of the Act. In the facts of the case before us, search and seizure action was conducted at the premises of assessee under section 132 of the Act on 01.09.2004. The assessee is an ophthalmologist and was running eye clinic and hospital along with his wife. During the course of search, incriminating documents were found, wherein it was detected that the assessee was maintaining two sets of books of account i.e. one at the counter and the other which was maintained by the accountant. The assessee was not declaring its total OPD receipts and IPD receipts in the books of account which was maintained with the accountant. In addition, incriminating material was found in respect of certain land transactions, wherein cash payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the regular books of account. The cash balance in assessee‟s books was to the extent of ₹ 10,22,850/- and the assessee offered the balance amount of ₹ 29,77,150/- to tax as unaccounted investment. The first issue which was raised before the Hon ble Bombay High Court was the rejection of assessee‟s plea of set off by the Assessing Officer and addition of ₹ 10,22,850/-. The second plea raised was the addition on account of estimation of undisclosed income over and above the figure disclosed by the assessee. The Hon ble Bombay High Court held that the assessee has not discharged the burden cast upon it that the cash available with him was utilized for making the payment to Shri Renavikar and to that extent, the set off of the amount be given. The Hon ble High Court noted that it was not the case that there was no transaction after 30.06.2001 i.e. on the date of which, he claims that he had cash balance of ₹ 10,22,850/-. The second plea of assessee that it had cash available from the transaction of Doke brothers that the amounts advanced to him were returned, was not accepted in the absence of any supporting evidence. Accordingly, the addition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of plot, wherein the assessee claims that since it had available cash on account of professional receipts, the source is explained which has not been accepted by the authorities but that itself would not attract levy of penalty under section 271(1)(c) of the Act. 26. We may first take the preliminary issue raised by the assessee that the Assessing Officer has failed to record satisfaction as to which limb of section 271(1)(c) of the Act is attracted and also has failed to strike off non-applicable portion of notice issued under section 274 r.w.s. 271(1)(c) of the Act and hence, there is no merit in levy of penalty under section 271(1)(c) of the Act. The Tribunal has already elaborately discussed the issue of recording of satisfaction by the Assessing Officer at the time of initiation of penalty proceedings in series of cases with lead order in Kanhaiyalal D. Jain Vs. ACIT (supra), wherein it was held 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnishing of inaccurate particulars of income. There may be cases where there 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. Manjunatha 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 exis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similarly, for furnishing inaccurate particulars of income, 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)(c) of the Act under which it has been initiated The Hon ble High Court had relied on decision of Division Bench of the Court rendered in CIT Anr. Vs. Manjunatha Cotton and Ginning Factory (supra). The Hon ble Supreme Court in CIT Vs. SSA‟S Emerald Meadows (supra) has dismissed the Special Leave Petition. 17. The Pune Bench of Tribunal in M/s. Sai Venkata Construction Vs. Addl. CIT (supra) and in Sanjog Tarachand Lodha Vs. ITO (supra) have applied the ratio laid down by the Hon ble Karnataka ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were recorded by the Assessing Officer and since the assessee fully knew in detail the exact charge of Department against him, it could not be said that either thee was non-application of mind by the ITO or so-called ambiguity wording in the notice impaired or prejudiced the right of assessee of reasonable opportunity of being heard. The jurisdictional High Court deliberated upon the provisions of section 274 of the Act which contained principle of natural justice of the assessee being heard before levying penalty. It also held that mere mistake in the language used or mere non-striking of inappropriate 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 non-application of mind by the authority and / or ultimate prejudice to the right of opportunity of hearing contemplated under section 274 of the Act. The show cause notice for assessment year 1967-68 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 penalty for concealment of income. 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 has been challenged by the assessee to be invalid. Applying the ratio laid down by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are vitiated and 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 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 particuars 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 income and furnishing of inaccurate particulars of income are two different connotations, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee are allowed. 27. The Pune Bench of Tribunal has further in bunch of cases in Nanasaheb Shankarrao Gaikwad in ITA Nos.2095 to 2098/PUN/2013, relating to assessment years 2004-05 to 2007-08 order dated 20.01.2017 has held as under:- 9. Further, in bunch of cases e. in Nandkishor Tulsidas Katore Vs. ACIT in ITA Nos.2174 to 2180/PN/2014, relating to assessment years 2002-03 to 2008-09, order dated 14.12.016, reference was made to the judgment of Hon ble High Court of Karnataka in CIT Vs. SSA‟S Emerald Meadows (2016) 73 taxmann.com 241 (Kar), wherein the issues raised before the Hon ble High Court were as under:- (1) Whether, omission if Assessing Officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under section 274 r.w.s. 271(1)(c) is bad in law and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard. However, in the facts of the present case and as pointed out hereinabove, the Assessing Officer has failed to record satsfaction correctly and consequently, we hold that initiation of penalty proceedings against the assessee are not valid for non-recording of satisaction by the Assessing Officer while completing assessment proceedings. Further, the Assessing Officer has failed to strike off either of the limbs of section 271(1)(c) of the Act, which are not satisfied by the assessee and consequently, notice issued under section 274 r.w.s. 271(1)(c) of the Act s bad in law and order levying penalty for concealment thereafter, is infructuous. Accordingly, we hold so. The Statute has provided distinction between concealment of income and furnishing of inaccurate particulars of ncome, which may be thin line of distinction, but the same has to be kept in mind while recording satisfaction by the Assessing Officer. Folowing the same parity of reasoning as laid down by the Hon ble High Court of Karnataka in CIT Anr. Vs. Manjunatha Cotton and Ginning Factory (2013) 359 ITR 565 (Kar), CIT Vs. SSA‟S Emerald Meadows (supra) and the Pune Bench of Tribunal in Kanhaiyalal D. Jain Vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. When such reasons are given the decision becomes one which attracts article 141 of the Constitution which provides that the law declared by the Supreme Court shall be binding on all the courts within the territory of India 29. In the case of CIT Anr. Vs. M/s. SSA‟s Emerald Meadows (supra), Special Leave Petition has been dismissed against the judgment of the Hon ble High Court and where it is not a speaking order, then it cannot be said to have declared a law on the issue. Applying the ratio laid down by the Hon ble Bombay High Court, we find no merit in the plea of learned Authorized Representative for the assessee in this regard and the same is dismissed. 30. Now, coming to the facts of the present case, wherein we have referred to the order of Assessing Officer in the quantum and penalty proceedings and the order of CIT(A) against penalty levied under section 271(1)(c) of the Act elaborately in the paras hereinabove. The Assessing Officer has passed a consolidated order and has referred to the facts of each of the cases in assessment years 1999-2000 to 2004-05 and has individually dealt with the quantum of additions to be made on either of accounts in the resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue being settled by the Hon ble Bombay High Court in CIT Vs. Smt. Kaushalya Ors (supra) we find no merit in the said plea of assessee. Once the Assessing Officer a the time of finalizing the assessment has applied his mind and recorded satisfaction to the effect that the assessee has concealed its income as per Explanation (1) to section 271(1)(c) of the Act, the assessee is put to notice as to which limb of section 271(1)(c) of the Act needs to be explained / satisfied and in such circumstances, we hold that the Assessing Officer has put the assessee to the charge for which penalty proceedings were initiated and it cannot be said that the Assessing Officer has not applied his mind for initiating penalty proceedings. In respect of the issue of notice under section 274 r.w.s. 271(1)(c) of the Act, we may refer to our reasoning in Kanhaiyalal D. Jain Vs. ACIT (supra) on this aspect, which read as under:- 20. The learned Departmental Representative for the Revenue placed heavy reliance on the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Smt. Kaushalya (supra). In the facts of the case before the Hon ble Bombay High Court, the Hon ble High Court quashed the pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 notice issued which could demonstrate non-application of mind by the authority which in turn, would ultimately prejudice the right of opportunity of hearing of the assessee as contemplated under section 274 of the Act, then such notice is invalid. 31. Now, coming to the merits of levy of penalty for concealment under section 271(1)(c) of the Act. Search and seizure operations were carried out at the premises of assessee on 01.09.2004. The assessment has been completed in he case of assessee under section 143(3) r.w.s. 153A of the Act. At the relevant time, the provisions of Explanation 5 to section 271(1)(c) of the Act were applicable, wherein as per the said Explanation where in the course of search, the assessee was found to be owner of money, bullion, jewellery or other valuable article or thing and the assessee claims that such assets have been acquired by him by utilizing wholly or in part his income, for (a) any previous year which has ended before the date of search but the return of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Various arguments raised by the learned Authorized Representative for the assessee are thus, dismissed. Even otherwise, there is no merit in the plea of assessee that part of the amount was disclosed during the course of search, where in the statement recorded during the course of search, the assessee has not even explained the manner in which the income was earned. The assessee is also aggrieved by levy of penalty on estimated professional receipts. However, in the facts of the present case, the gross receipts were detected on the basis of incriminating evidence found during the course of search and estimation was only vis- -vis rate to be applied. Hence, we find no mert in the plea of assessee in this regard and the same is rejected. Accordingly, there is no merit in the plea of assessee in taking the shelter under Explanation 5 to section 271(1)(c) of the Act. Admittedly, in the case of assessee during the course of search, incriminating evidence was found as to the assessee having made cash investment for purchase of plot of land over and above declared value of investment and also undisclosed professional receipts which have not been declared by the assessee, which were admit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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