TMI Blog2018 (11) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... fferences in estimation and consequent valuation are but natural and so long as fundamental methodology so adopted by the valuation officer are not disputed, such minor differences in valuation cannot form the basis for levy of penalty as held by various Courts including the Hon’ble Supreme Court in case of Dilip N. Shroff (2007 (5) TMI 198 - SUPREME COURT) wherein it was held that only because the opinion of registered valuer is not accepted or some other expert gives another opinion, is not by itself sufficient for arriving at a conclusion that the assessee had furnished inaccurate particulars attracting penalty u/s 271(1)(c). In light of the same, the penalty so levied u/s 271(1)(c) of the Act is hereby directed to be deleted in hands of Sh. Sapan Jain. - decided in favour of assessee. - ITA. No. 922/JP/2018 And ITA. No. 920/JP/2018, ITA. No. 921/JP/2018 And ITA. No. 923/JP/2018 - - - Dated:- 31-10-2018 - SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SINGH YADAV, AM For The Assessee : Shri P. C. Parwal (CA) For The Revenue : Shri J. C. Kulhari (JCIT) ORDER PER BENCH: These are appeals filed by the respective assessees against the order of ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 2009. In the statement recorded u/s 132(4), Sh. Sapan Jain stated that he has spent ₹ 65-70 lakhs in construction of house which was started in the year 2007 and was completed in 2009. He also stated that he has further made investment of ₹ 20 lacs on fittings, furnishing, furniture, etc. after the construction in FY 2009- 10. However, in the return filed u/s 153A, both the assessees declared total cost of construction at ₹ 53,21,778/-, i.e. ₹ 26,60,889/- each by Sh. Sapan Jain and Smt. Shipra Jain. 2.1 The AO referred the matter to DVO who determined the cost of construction at ₹ 1,05,40,097/- and thereby determined difference at ₹ 52,18,319/-. Accordingly, AO added the difference amount in the hands of both the assesses equally during FY 2006-07 to 2008-09, resulting into addition of ₹ 9,38,800/- in the year under consideration. On this addition, AO initiated penalty proceedings u/s 271(1)(c) of the IT Act. 2.2 On appeal, assessees pointed out various defects in the DVO s report. The Ld. CIT(A) after considering the defects restricted the addition to ₹ 2,68,051/-. Accordingly, addition of ₹ 1,34,025/- (2,68,051/2) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of ₹ 20 lakhs but the same is in relation to furnishing items for which addition has been made in AY 2010-11 and it has no relevance with the cost of construction. Hence, on such addition which is on account of estimation of cost of construction by DVO, no penalty is leviable. For this purpose, reliance was placed on the following cases:- Dilip N. Shroff Vs. JCIT Anr. (2007) 291 ITR 519 (SC) The Hon ble Supreme Court held that only because the opinion of registered valuer is not accepted or some other expert gives another opinion, is not by itself sufficient for arriving at a conclusion that the assessee had furnished inaccurate particulars attracting penalty u/s 271(1)(c). Primary burden of proof of furnishing inaccurate particulars of income is on the Revenue and it is only on discharge of primary burden that secondary burden of proof would shift on the assessee. Accordingly, penalty was deleted on addition made on the basis of valuation report. CIT Vs. K.R. Chinni Krishna Chetty (2000) 246 ITR 121 (Mad.) (HC) The Hon ble Madras High Court held that penalty under sec. 271(1)(c) could not be levied on assessee whose income had been assessed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous year has expired but the assessee has not filed the return, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished in accurate particulars of such income. 4.1 In the instant case, in the course of search which has been carried out u/s 132 on 08.06.2011, Sh. Sapan Jain along with his wife Smt. Shipra Jain was found to be the joint owner of a residential house at Plot No. 6 Usha Colony, Malviya Nagar, Jaipur. In the statement recorded u/s 132(4), Sh. Sapan Jain stated that he has spent ₹ 65-70 lakhs in construction of the house which was started in the year 2007 and completed in the year 2009. In the return of income filed pursuant to notice u/s 153A, the assessee did not disclose the full cost of construction/investment so stated in his statement recorded u/s 132(4) and thereafter, the AO referred the matter to the DVO who determined the cost of construction at ₹ 1,05,40,097/- as against ₹ 52,18,319/- determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted in the penalty order, as to whether the assessee is guilty of 'concealment of particulars of income' or 'furnishing of inaccurate particulars of such income'. 4.3 In this regard, useful reference can be drawn to the decision of the Coordinate Bench in case of HPCL Mittal Energy vs Add. CIT reported in 96 Taxman.com 3 where the matter was referred to the Third Member to decide on the issue as to Whether, in case where the satisfaction of the AO while initiating penalty proceedings u/s. 271(l)(c) of the Income-tax Act, 1961 is with regard to alleged concealment of income by the assessee, whereas the imposition of the penalty is for 'concealment/furnishing inaccurate particulars of income', the levy of penalty is not sustainable? . After analyzing catena of judicial pronouncements including the decisions which have been cited by the ld AR, the Coordinate Bench speaking through the Third Member has held as under: 9. On an analysis of the factual matrix narrated above, it is manifested that the AO recorded satisfaction qua the three items of disallowance/additions leading to penalty, as 'concealment of income' in all the assessment orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording of satisfaction by the AO in the assessment order as to whether the assessee concealed the particulars of income or furnished inaccurate particulars of income. There was a lot of litigation on this point. The assessees were contending before the appellate courts that the AO had not recorded proper satisfaction in the assessment order and hence the penalty should be deleted. On the other hand, the Department was contending that the satisfaction was properly recorded. Considering the magnitude of litigation on the point, the Finance Act, 2008, inserted sub-section (1B) to section 271, w.r.e.f. 1.4.1989, which runs as under: - 'Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under clause (c) of sub-section (1), such an order of assessment or reassessment shall be deemed to constitute satisfaction of the Assessing Officer for initiation of the penalty proceedings under the said clause (c).' 13. The effect of this insertion is that when an amount is added or disallowed in an assessment and the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssfully passed out the first stage. ( b) Recording of satisfaction at the penalty stage 14. It has been noted above that penalty proceedings are separate from assessment proceedings, which get kicked with the issue of notice u/s. 274 and culminate in the penalty order u/s. 271(l)(c) of the Act. Many a times, penalty initiated in the assessment order on one or more counts by means of notice u/s. 274, is not eventually imposed by the AO on getting satisfied with the explanation tendered by the assessee in the penalty proceedings. In any case, confronting the assessee with the charge against him is sine qua non for any valid penalty proceedings. It is only when the assessee is made aware of such a charge against him that he can present his side. Thus prescribing the charge in the penalty notice and penalty order is must. Absence of a charge in the penalty notice or not finding the assessee guilty of a clear offence in the penalty order, vitiates the penalty order. 15. The moot question is that what should be the nature of specification of a charge by the AO at the stage of initiation of penalty proceedings and at the time of passing the penalty order. Is the AO requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also in the penalty order, the penalty order becomes unsustainable in law. 16. The Hon'ble Karnataka High Court in CIT v. Manjunatha Cotton and Ginning Factory [2013] 359 ITR 565/218 Taxman 423/35 taxmann.com 250 has held that a person who is accused of the conditions mentioned in section 271 should be made known about the grounds on which they intend imposing penalty on him as section 274 makes it clear that assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in section 271(l)(c) do not exist as such he is not liable to pay penalty. The Hon'ble High Court went on to hold that: 'Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income.... But drawing up penalty proceedings for one offence and finding the assessee guilty of another offence or finding him guilty for either the one or the other cannot be sustained in law .. 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 proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een made, but the AO is not sure at the stage of initiation of penalty proceedings of the precise charge as to 'concealment of particulars of income' or furnishing of inaccurate particulars of income'. In such circumstances, he may use slash between the two expressions at the time of initiation of penalty proceedings. However, during the penalty proceedings, he must get decisive, which should be reflected in the penalty order, as to whether the assessee is guilty of 'concealment of particulars of income' or 'furnishing of inaccurate particulars of such income'. Uncertain charge at the time of initiation of penalty, must necessarily be substituted with a conclusive default at the time of passing the penalty order. If the penalty is initiated with doubt and also concluded with a doubt as to the concealment of particulars of income or furnishing of inaccurate particulars of such income etc., the penalty order is vitiated. If on the other hand, if the penalty is initiated with an uncertain charge of 'concealment of particulars of income/furnishing of inaccurate particulars of income' etc., but the assessee is ultimately found to be guilty of a speci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty order u/s 271(1)(c) in respect of undisclosed investment on construction of house amounting to ₹ 134,025 (to the extent sustained by the ld CIT(A) out of ₹ 938,800) and levied penalty u/s 271(1)(c) amounting to ₹ 45,555 by stating as under: 6. In view of above stated facts and legal position, the assessee under consideration is, clearly liable for penalty u/s 271(1)(c) of the Act is imposed upon him as per following computation:- Total undisclosed/concealed income liable to penalty u/s 271(1)(c) ₹ 1,34,025 Penalty imposable (100% of tax sought to evaded) ₹ 45,555/- Penalty imposable (300% of tax sought to evaded) ₹ 1,36,665/- Penalty levied (100% of the tax sought to evaded ₹ 45,555/- In view of the above, a penalty of ₹ 45,555/- is hereby levied u/s 271(1)(c) of the Income-tax Act, 1961. Issued demand notice. 4.5 It is thus a case where the AO has recorded the satisfaction in the assessment order stating that the assessee has concealed his particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 52,18,319 in various years including the year under consideration (Rs 938,800) was made by the him. The ld CIT(A) on review of the said DVO report and the objections/explanations so filed by the assessee held that the assessee has been able to explain the difference in the valuation between the two valuations to the extent of ₹ 49,50,171 (out of ₹ 52,18,319) and the balance addition of ₹ 2,68,051 was sustained equally among the two assessees. The said addition forms the basis of impunged penalty orders drawing solely and heavily on the findings of the assessment order and there is no further finding so recorded by the AO during the course of penalty proceedings. We thus find that the explanation of the assessee has been accepted to a large extent by the ld CIT(A) where he deletes the addition of ₹ 49,50,171 out of ₹ 52,18,319 and the bonafide of such explanations are thus established. In respect of remaining additions of ₹ 268,051 which is so sustained, it is again solely based on estimation by the DVO which is found more scientific as against the valuation which the assessee has got done through its own valuer. To our mind, such minor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition of ₹ 5,57,000/- in each hand. 5.3 In penalty proceedings, the AO rejected the assessee s submission/explanation and levied penalty on addition of ₹ 10 lacs (sustained by the ld CIT(A)) and referring to Explanation 5A held that the assessee case is clearly covered and liable for penalty under section 271(1)(c) of the Act. 5.4 On appeal against the said levy of penalty, the Ld. CIT(A) held that explanation 5A to section 271(1)(c) of the Act. In case of Smt. Shipra Jain, he confirmed the levy of penalty on addition of ₹ 10 lacs however without giving effect to the order of the Tribunal in quantum proceedings. In case of Sh. Sapan Jain, he confirmed the levy of penalty on the addition which was sustained by the Tribunal but took the amount at ₹ 4,43,000/- instead of ₹ 5,57,000/-. 6. During the course of hearing, the ld. AR submitted that the AO in the body of the order has mentioned that assessee is liable for penalty u/s 271(1)(c) of the IT Act. At the end of the order, penalty proceedings are initiated for concealment of income. In the notice issued u/s 274 read with sec. 271(1)(c) dated 21.3.2014, penalty proceedings u/s 271(1)(c) was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axmann.com 9 (Raj). 7. We have heard the rival contentions and perused the material available on record. Undisputedly, the facts and circumstances of the case are identical to the facts and circumstances in AY 2009-10 except for the fact that there is an admission by the assessee u/s 132(4) during the course of search that he has made investment to the tune of ₹ 20 lacs on furniture, fittings and electrical household items and which has formed the basis of addition in the quantum proceedings. However, the Coordinate Bench on appeal has sustained such addition to the tune of ₹ 11,40,000 only. Therefore, the very basis for levy of penalty stand modified to ₹ 11,40,000 and to the extent of ₹ 557,000 in hands of both the assessees. We find that said addition of ₹ 557,000 is again based on estimation as there are no specific details in terms of bills/vouchers etc. which were found during the course of search except the inventory of such items found installed in the residential premises which was prepared at the time of search. The same could be a basis for making the addition in the quantum proceedings but not for levying penalty. Therefore, our findings ..... X X X X Extracts X X X X X X X X Extracts X X X X
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