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2018 (11) TMI 469

the penalty proceedings is uncertain where he uses the expression “concealment particulars of income or furnished inaccurate particulars of income”. As during the penalty proceedings, he has given a decisive finding as reflected in the penalty order that the assessee is guilty of 'concealment of particulars of income' by not disclosing the investment in the construction of his house. - As held in case of HPCL Mittal Energy vs Add. CIT [2018 (8) TMI 507 - ITAT AMRITSAR] the uncertain charge at the time of initiation of penalty has been made good and substituted with a conclusive default at the time of passing the penalty order and that in such a case, no fault can be found in the penalty order.” In such a case, we donot see any infirmity in the penalty order so passed by the Assessing officer and the contentions so raised by the AR in this regard are not accepted. - Minor differences 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 .....

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w in confirming the levy of penalty of ₹ 3,09,000/- on addition of ₹ 10 lacs made on account of alleged estimated unexplained investment in construction of house. He has further erred in confirming the above penalty ignoring the fact that after the order of Hon ble ITAT, addition is restricted to ₹ 5,57,000/- only. ITA. No. 922 & 920/JP/2018 2. Briefly stated, the facts of the case are that a search and seizure operation was carried out u/s 132 of the Income Tax Act, 1961 on 08.06.2011 at the business and residential premises of the assessees. Both the assessees, being husband & wife, jointly purchased a plot for consideration of ₹ 32,65,200/- during FY 2005-06 and constructed a house on it during 2007 to 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 ₹ 53,21,7 .....

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which penalty is leviable imposed the penalty u/s 271(1)(c). Thus, in the absence of any specific charge against the assessee in the penalty notice and in the penalty order, consequent penalty imposed by AO is illegal and bad in law. Reliance in this connection was placed on the various decisions including CIT Vs. SSA S Emerald Meadows (2016) 242 Taxman 180 (SC), CIT vs. M/s Manjunatha Cotton & Ginning Factory &Ors.359 ITR 565 (Kar). 3.1 On merits, it was submitted that the entire addition made by the AO and reduced by the CIT(A) is on the basis of cost of construction estimated as per DVO s report. In search, no evidence of investment over and above that declared by the assessee was found. The AO referred to surrender 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 .....

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n referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or (ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income (wholly or in part) for any previous year, which has ended before the date of search, and (a) where the return of income for such previous year has been furnished before the said date but such income has not been declared therein; or (b) the due date for filing the return of income for such previous 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 w .....

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deems the assessee to have concealed the particulars of his income or furnished inaccurate particulars of such income similar to what has been provided in clause (c) to section 271(1) of the Act. In search cases as well, the legislature has thus envisaged applicability of one or both of these charges. It is settled position now as held by catena of judicial pronouncements that the notice initiating the penalty proceedings should specify the charge against the assessee and even where the charge is uncertain at the time of initiation of penalty proceedings, subsequently during the penalty proceedings, the AO 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'. 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 .....

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cord a satisfaction in the assessment order as to whether the additions/disallowances, on which penalty is likely to be imposed, represent concealment of particulars of income or furnishing of inaccurate particulars of income. There can be two sub-stages in penalty proceedings requiring the AO to record such satisfaction, viz., at the time of initiating the penalty proceedings and at the time of passing the penalty order. I will deal with such two stages in the present context. (a) Recording of satisfaction at the assessment stage. 12. It has been noticed hereinabove that the first stage of imposition of penalty is recording 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-sectio .....

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he AO should be deemed to have recorded proper satisfaction with reference to each addition/disallowance as to concealment or furnishing of inaccurate particulars, once a direction is contained in the assessment order to initiate penalty u/s. 271(l)(c) of the Act. Requiring the recording of separate satisfaction, once again, by the AO would militate against the deeming provision contained in sub-section (1B). Admittedly, in all the four appeals under consideration, the AO directed to initiate penalty u/s. 271(l)(c) of the Act in the assessment orders. Thus, the Revenue can be safely considered to have successfully 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 .....

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e must specify it so by using the word 'and' between the two expressions in the notice at the time of initiation of penalty proceedings. If he remains convinced in the penalty proceedings that the penalty was rightly initiated on such counts and imposes penalty accordingly, he must specifically find the assessee guilty of 'concealment of particulars of income' and also 'furnishing of inaccurate particulars of income' in the penalty order. If the charge is not levied in the above manner in all the three clear-cut situations discussed above in the penalty notice and 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 exi .....

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h the actual default. If the clear-cut charge in the penalty notice or the penalty order is that of 'concealment of particulars of income', but it turns out to be a case of 'furnishing of inaccurate particulars of such income' or vice-versa, then also the penalty order cannot legally stand. 21. Apart from the above three situations in which the AO has clear-cut satisfaction, there can be another fourth situation as well. It may be when it is definitely a case of under-reporting of income by the assessee for which an addition/disallowance has been 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 i .....

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ect of the five items of disallowance/additions including undisclosed investment on construction of house amounting to ₹ 938,800 leading to penalty, as 'concealment of income' in the assessment order passed under section 143(3) r/w 153A, thereafter initiated penalty by issuance of notice u/s 274 r/w 271 dated 21.30.2014 in respect of all the five items of disallowance/additions by treating them as covered under the expression concealment particulars of income or furnished inaccurate particulars of income and then finally passed the impunged penalty 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 ta .....

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ant case, the Assessing officer in his assessment order states that the cost of construction estimated by the assessee s valuation officer (AVO) is not correct and acceptable, and the cost of construction estimated by the DVO being made by a Govt. technical person and such valuation is more scientific which is based on correct plinth area rates was found acceptable and addition of ₹ 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 .....

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y made addition of ₹ 10 lacs in hands of both the assessees. On this addition, the AO also initiated penalty proceedings u/s 271(1)(c) of the IT Act. 5.2 Against the addition, the assessee filed an appeal before the Ld. CIT(A) who confirmed the addition. The Tribunal vide its order dt. 15.05.2017 restricted the addition to ₹ 11,14,000/-, thereby confirmed the 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/-. .....

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pan Jain and not on the basis of any incriminating material found in search. Hence, addition of ₹ 10 lakhs was only on estimation which is reduced to ₹ 5.57 lakhs only on estimation. On such estimated addition, no penalty is leviable as held in case of Shiv Lal Tak Vs. CIT 251 ITR 353 (Raj) and CIT Vs. Krishi Tyre Retreating and Rubber Ind. [2014] 44 taxmann.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 estimati .....

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