TMI Blog2019 (6) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, without application of mind thereby rendering the initiation of such proceedings and consequent passing of the penalty order under section 271(1)(c) of the Act to be illegal and bad in law. This view of ours is supported by the decision of CIT vs. Samson Perinchery [ 2017 (1) TMI 1292 - BOMBAY HIGH COURT] wherein the decision of Karnataka High Court in the case of CIT vs. Manjunatha Cotton Ginning Factory [ 2013 (7) TMI 620 - KARNATAKA HIGH COURT] was also considered, AO while issuing notice under section 274 r.w.s 271 of the Act, has not applied his mind. Hence, the penalty proceedings initiated in the present case is without application of mind thereby rendering the initiation of the proceedings and consequent passing of the order u/s 271(1)(c) is bad in law. Hence, we quash the penalty on this count also. - Decided in favour of assessee. - ITA No. 7192/Mum/2016 - - - Dated:- 31-5-2019 - Sri Mahavir Singh, JM And Sri G Manjunatha, AM For the Appellant : Shri Nitesh Joshi, AR For the Respondent : S/shri Anadi Varma, Vijay Kumar Jaiswal, DRs ORDER PER MAHAVIR SINGH, JM: This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to tax under the Act. The said amount was offered to tax only with a view to buy peace of mind. Therefore, penalty could not be levied in respect of the same under section 271(c) of the Act. 6. The learned CIT(A) has erred in holding that the Revenue had full proof evidence to show that the amount of ₹ 3,99,01,729 was income chargeable to tax in the Appellant's hands in India and that his disclosure in the search proceedings was as a consequence of such information. At the time of search, the search party only had an unsigned/unauthenticated printed piece of paper referred by the search party as 'base note'. 3. Briefly stated facts are that a search operation under section 132 of the Act was conducted on the residence and office premise of the assessee by the Income Tax Department on 29.07.2011. This search was inconsequence to information received by Govt. of India from French Government under Double Tax Avoidance Agreement (DTAA) in exercise of its sovereign power that some Indian nationals and residents have foreign bank accounts in HSBC Bank Geneva, Switzerland. This information was received in the form of a document, refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belonged to me only. My explanation was accepted by the investigating wing and thereafter I have paid the income tax along with interest on the said peak balance. I respectfully further submit that I do not have any records nor can furnish copy of bank statement as requested. In this regard, I further wish to state that I had already received a similar letter dated 22.07.2013 from ACIT CC 15 16 requesting me to furnish duly signed consent from in prescribed Performa and in reply thereto, vide my letter dated 23.07.2013 addressed to the additional commissioner of Income Tax, I had already explained the nature of the said account with all relevant facts and circumstances and in view thereof had explained my inability to correspond any further with the said bank. A copy of the said letter dated 22.07.2013 together with a copy of my letter dated 4.11.2011 addressed to Dy. Director of Income Tax, Unit IV (4) along with all its annexures attached to my said reply are enclosed herewith. 4. The assessee before AO explained that the said bank account was an escrow account over which assessee did not have any control and the funds in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under: - 6.2 From the perusal of the above rule the assessee's contention that he calculated the exchange rate and resultant amount of declaration as per I T Rules seems to be correct. Further AO also did not find any legal or factual inconsistencies in the assessee's calculation. Only reason for the AO making the addition seems to be that the declaration given by the assessee is ₹ 4.5 Cr. which he did not honour and did not intimate DDIT or AO that the declaration works out to ₹ 3.99 Cr. and not 4.5 Cr. Even assuming that the assessee did not intimate the calculation and resultant deduction in declaration to DDIT or AO, that will not debar the assessee in returning the correct income as per the provision of the Act. Anyway the return of income is before the AO and he could have found out any deficiency therein at any time during the assessment proceedings and could have taken corrective action accordingly. The assessee declared an approximate amount of ₹ 4.5 Cr.(around 4.5 Cr. was the word used in statement) which he corrected as per IT Rules and I don't find any fault with the same. Even if the assessee declared 4.5 Cr. without us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara 8, 9 and 10 as under: - 8. It is therefore seen that the assessee has not disclosed the sums that he received during the stay in UK for the services rendered and towards the cost of relocation as above. The copies of bank statements have also not been furnished. Therefore, as the assessee has not stated anything regarding the manner in which this income has been earned, they are clearly liable to penalty under section 271(1)(c) for furnishing inaccurate particulars. 9. Further, during assessment proceedings, AO had called for the details of the said bank account vide notices dated 22.07.2013 and 02.01.2014 but the assessee neither furnished any detail nor copies of the HSBC bank account or bank statements. As per the HSBC statements, the sum found at $ 9,24,292 equivalent to ₹ 4.5 cr were earned by the assessee who had not disclosed this in his Return of income. Moreover, the assessee had shown his non-cooperation and lack of compliance to the notices issued as mentioned above as he did not sign the consent waiver form so as to enable the department to gather information from the concerned authorities. Although the assessee has accepted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt and only disclosed it when he was confronted with fool proof evidence in the form of base note during search. The assessee, therefore, having not disclosed the said amount has concealed Its income from the income-tax department. Though the assessee contended that this as in the nature of Escrow bank account, it is established fact that the account is in the name of assessee. It is also an established fact that the money was shown lying in the credit of the said account and therefore, I have no hesitation that the assessee deliberately concealed the foreign bank account and the amount therein at the time of filing of original return and hence assesses is liable for concealment penalty u/s. 271(1)(c) of the Assessee is only trying to propose various theories when he was confronted with hard evidence which clearly establishes that there is deliberate concealment of income. The contention of assessee that the declaration is voluntary cannot be accepted as the assessee declared the amount only when he was left with no escape route on being confronted with hard evidence. 12. To summarize, it can be seen that the assessee has concealed the particulars ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t efficient manner and would also be solely responsible for the management and the operation of the proposed JV. In consideration thereof, Dorchester had agreed to allow to the Assessee sweat equity upto 20% of the total voting capital of the proposed JV. The Assessee confirms that no JV entity had been formed pursuant to the MOU. A Supplementary MOU was entered into between the Assessee and Dorchester, with a view to demonstrate its commitment to the proposed JV and also agreed to deposit in escrow a sum of USD 1 million into a separate bank account to be opened which was proposed to be in the name of the Assessee and would he operational till such time as the JV got formalised. It was agreed that after formation of JV and allotment of sweat equity shares to the Assessee, the balance of funds in the said bank account shall be transferred to the JV as contribution of Dorchester. Since, money lying in the said bank account was to be held in escrow it was specifically agreed that the Assessee would be holding the money in trust and shall not be entitled to expend or appropriate any part of the said sum without obtaining the prior permission of Dorchester. Assessee woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount lying in the said bunk account was paid back to Dorchester upon termination of the MOU and the Assessee has not received any benefit from the same. 10. Before us, the learned Counsel for the assessee first of all narrated the facts that the penalty, as presently surviving is amounting to ₹ 1,34,53,030/- i.e. relatable to an amount of ₹ 3,99,01,729/- and the issues which arise for consideration before the Tribunal in the present appeal were raised as under: - a. Whether the notice dated 28.03.2014 issued by the AO under section 274 read with section 271(1)(c) of the Act fulfils the jurisdictional pre-conditions as specified in the said sections and also does it reflect any application or mind. b. Whether it was open to the Commissioner of Income-tax (Appeals) to uphold the levy of penalty for the default of concealment of income when the A.O. had instituted and levied penalty for furnishing of inaccurate particulars of income. C. Whether any penalty could be levied under section 271(1)(c) of the Act in respect of the amount of ₹ 3,99,01,729, when: i. no satisfaction as requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccurate particulars of income whereas the CIT(A) uphold the levy of penalty for the default of concealment of income, it means that authorities below are not sure about the specific charge. On these two issues, the learned Counsel for the assessee relied on the following case laws:- On the issue of notice invalid 1. CIT vs. Manjunatha Cotton Ginning Factory -35 taxman 250 (Karnataka) 2. CIT vs. SSA s Emerald Meadows -73 Taxman 241 (Karnataka) 3. CIT vs. SSA s Emerald Meadows (SC) 4. CIT vs. Samson Perinchery 392 ITR Mumbai High Court 5. Cenzar Industries Ltd. vs. ITO ITA 1970/Mum/2015 6. Eon Aviation Pvt. Ltd. Vs. DCIT-ITA 3011/Mum/2016 7. Trans Conduct (India) Vs. ACIT ITA 3198/Mum/2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lya (1994) 75 Taxmann 549 (Bombay) 7. ACIT vs. Dr. Nitin Laxmikant Lad, IN ITA No. 2241 to 2244/PN/2012 8. CIT Vs. Sangmeshwara Associate (2012) 345 ITR 396 (Kar) 9. S. Rajnish Vohra vs. DCIT ITA No. 516/Chd/2012 10. CIT vs. Mussadilal Ram Bharose 165 ITR 14 11. M/s Lakshmi Ring Travellers, ITA No. 2083 (Mds)/2011 12. CIT vs. Munish Iron Store (2003) 263 0484 (2004) 13. Mahendra Mital vs. ACiT (2011) 139 TTJ 513 (Mum) 14. Mrs. SArita Kaur Manjeet Singh Chopra V. ITO (2017) 88 Taxmann.com 360 (Pune-Trib) 15. MAK Data (P) Ltd. v. CIT (2013) 358 ITR 593 16. m/S Madhushree Gupta vs. UOI Anr. (2009) 317 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned CIT- DR, has relied on the following case laws: - SN Name 17. Shri Mahesh M. Gandhi Vs. ACIT ITA No. 2976/Mum/2016 18. Airen Metals (P) Ltd. Vs. ACIT (2018) 191 TTJ 609 (Jal) 19. Maharaj Garage Co. vs. CIT (2017) 85 taxmann.com 86 (Bom) 20. Earthmoving Equipment Service Corporation vs. DCIT (2017) 84 Taxmann.com 51 (Mumbai-Trib) 21. Lake Palace Hotels Motels Ltd. Vs. DCIT (2002) 83 ITD 286 (Jodhpur) 22. CIT vs. Smt. Kaushalya (1994) 75 Taxmann 549 (Bombay) 23. ACIT vs. Dr. Nitin Laxmikant Lad, IN ITA No. 2241 to 2244/PN/2012 24. CIT Vs. Sangmeshwara Associate (2012) 345 ITR 396 (Kar) 25. S. Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated that they failed to appreciate that the Assessee never relocated himself to UK. Further, he had shown that the funds lying in the said bank account could not be regarded as his income and, consequently, no penalty could be levied thereon. 15. We noted that a search and seizure action was carried out on the Assessee and its group. Despite the search continuing for hours, no incriminating information of any kind was found by the search party. Thereafter, while recording the statement of the Assessee under section 132(4) of the Act, the Assessee was shown photocopy of the bank account statement held in his name with HSBC Bank, Geneva. The assessee made declaration and agreed to offer to tax the peak amount lying in the said escrow bank account and after that the department concluded the search. The assessee before us contended that with a view to stop the mental trauma placed on the Assessee especially because of his and his mother's health as well as the search action at her married daughter's residence and with a view to buy peace of mind, the Assessee agreed to offer the peak amount of USD 9,24,923 to tax (the rupee equival ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the said bank account which was an escrow account and the circumstances which disabled him from signing the consent waiver form. In any event, he was offering to tax peak of the entire amount lying to the said account and therefore no further information was necessary. 17. Now, we have to go through the legal issue raised by the assessee regarding satisfaction not recorded by the AO. We noted that this plea raised the assessee is with respect to the amount of ₹ 3,99,01,729/-, there is no penalty initiated by the AO as is clear from the assessment order. The learned counsel for the assessee stated that the penalty is initiated only with respect to the amount added by the AO and he particularly drew our attention to Para 7.15 of the assessment order, which has already been reproduced in this order above but for the sake of brevity, we are reproducing the same again which reads as under: - 7.15 Accordingly, on the basis of search proceedings and statement of assessee recorded under section 132(4) of the I.T. Act, 1961, it was ₹ 4.5 cr to be disclosed by the assessee, however he has disclosed only 3,99,01,729/- in this return of income, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. The power to impose penalty under section 28 depends upon the satisfaction of the Income-tax Officer in the course of proceedings under the Act; it cannot be exercised if he is not satisfied about the existence of conditions specified in clauses (a), (b) or (c ) before the proceedings are concluded. The proceeding to levy penalty has, however, not to be commenced by the Income-tax Officer before the completion of the assessment proceedings by the Income-tax Officer. Satisfaction before conclusion of the proceeding under the Act, and not the issue of a notice or initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction. There is no evidence on the record that the Income-tax Officer was not satisfied in the course of the assessment proceeding that the firm had concealed its income. The assessment order is dated the 10th of November, 1951, and there is an endorsement at the foot of the assessment order by the Income-tax Officer that action under section 28 had been taken for concealment of income indicating clearly that the Income-tax Officer was satisfied in the course of the assessment proceeding that the firm had conceal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lty has, however, not to be commenced by the Income-tax Officer before the completion of the assessment proceedings by the Income-tax Officer. Satisfaction before conclusion of the proceeding under the Act, and not the issue of a notice or initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction. 19. From the above, it is clear from the recording of satisfaction made by the AO during the assessment proceedings that the assessee has concealed the particulars of income or had furnished inaccurate particulars of such income. Hon ble Supreme Court has observed that satisfaction in the very nature of thing precedes the issue of such notice and it would not be correct to equate the satisfaction of the AO with the actual issue of notice. It was further observed that the issue of notice is a consequent of the satisfaction of the AO. In the present case, before us there is no satisfaction recorded by the AO with respect to the addition of the amount of ₹ 3,99,01,729/- as the AO has mention with referred to section 271(1)(c) of the Act in the assessment order in the second part of paragraph 7.15 as noted above. A bare perusal of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer. In the present case, a bare perusal of the notice dated 28.03.2014 issued by the AO under section 274 read with section 271 of the Act shows that the same has been issued without any application of mind. The said notice has been issued in a standard format without indicating the default on the part of the Assessee and the reason for which penalty proceedings are initiated. The said notice also makes a reference to section 24(1)/22(2)/22(4)/ 23(2)/34 of the Income-tax Act 1922 and sections139(I)/I39(2)/I42(I)/l43(2) and 148 of the Income-tax Act, 1961 without cancelling the irrelevant part in the notice. In view thereof, we are of the view that penalty proceedings have been initiated, in the present ease, without application of mind thereby rendering the initiation of such proceedings and consequent passing of the penalty order under section 271(1)(c) of the Act to be illegal and bad in law. This view of ours is supported by the decision of Hon ble Bombay High Court in the case of CIT vs. Samson Perinchery [2017] 392 ITR 4 (Bombay), wherein the decision of Karnataka High Court in the case of CIT vs. Manjunatha Cotton Ginning Factory [2013] 359 ITR 565 (Karnataka) was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard proforma without striking of the relevant clauses will lead to an inference as to non-application of mind. 5. The grievance of the Revenue before us is that there is no difference between furnishing of inaccurate particulars of income and concealment of income. Thus, distinction drawn by the impugned order is between Tweedledum and Tweedledee. In the above view, the deletion of the penalty, is unjustified. 6. The above submission on the part of the Revenue is in the face of the decision of the Supreme Court in Ashok Pai v/s. CIT 292 ITR 11 [relied upon in Manjunath Cotton Ginning Factory (supra)] wherein it is observed that concealment of income and furnishing of inaccurate particulars of income in Section 271(1)(c) of the Act, carry different meanings/ connotations. Therefore, the satisfact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbay High Court in the case of Samson Perinchery (supra) has considered this issue. Hence, we are of the view that show cause notice has to be self explanatory and reference cannot be made to the assessment order to ascertain the default. Even otherwise, the decision of Bombay High Court in the case Samson Perinchery (supra) is later judgement. Hence, we are of the view that, the AO while issuing notice under section 274 r.w.s 271 of the Act, has not applied his mind. Hence, the penalty proceedings initiated in the present case is without application of mind thereby rendering the initiation of the proceedings and consequent passing of the order under section 271(1)(c) of the Act is bad in law. Hence, we quash the penalty on this count also. 23. The assessee has also raised the other issues i.e. challenging application of explanation 5A of section 271(1)(c) of the Act and also on merits. Since, we have adjudicated the issue on jurisdiction and deleted the penalty on the issue of satisfaction and validity of notice under section 274 r.w.s. 271 of the Act, we refrain ourselves from adjudicating the other issues. 24. In the result, the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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