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2019 (12) TMI 140

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..... tion of penalty proceedings or any time during proceedings, then subsequent issue of show-cause notice is a formality to communicate the assessee about initiation of penalty proceeding. In this case, AO had issued one more show-cause notice and also, called upon the assessee to explain why penalty proceedings shall not be initiated for furnishing inaccurate particulars of income, for which no compliance from the assessee. Therefore a proper satisfaction has been arrived at before initiation of penalty proceedings, and then a defect in notice including mere non-striking of irrelevant portion in the notice does not invalidate the penalty proceedings. Although, the assessee has cited certain judicial precedents, including the decision in the case of Mehrjee Cassinath Holdings Pvt.Ltd. vs ACIT [2017 (5) TMI 904 - ITAT MUMBAI] we find that facts of the present case are entirely different from the case laws relied upon by the assessee and hence, are not considered as applicable to the case of the assessee. In the case of M/s. Earthmoving Equipment Services Corporation vs DCIT [2017 (5) TMI 474 - ITAT MUMBAI] had considered an identical issue and held that when, proper satisfaction has be .....

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..... d in law the CIT(A) ought to have held that the assessing officer had not compiled with the provisions of section 274(1) of the Act by not granting assesses reasonable opportunity of being heard and hence the penalty levied under section 271(1)( c) of the Act is bad in law. 2. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have held that the assessing officer had not complied with the provisions of section 274 of the Act r.w.s. 271(1)(c) since the assessing officer erred in levying penalty without explicitly mentioning in the penalty notice the reason for initiating penalty proceedings. It is humbly submitted that the initiation of proceedings u/s 271(1)(C) of the Income-tax Act, is not valid as the assessing officer erred in not striking off the inappropriate portion of the notice. The assessing officer ought to have struck off the inappropriate portion and indicated to the assesses the applicable portion in the notice. Therefore, as the Notice u/s 271(1) (c) is bad in law, the penalty levied needs to be cancelled. 3. On the facts and in the circumstances of the case and in law the CIT(A) has erred in upholding the penalty levied u/s 271(1)(c) ir .....

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..... nsidering relevant submissions of the assessee and also taken note of provisions of Explanation-1 to section 271(1)(c) held that without any sufficient reasonable cause, the assessee has committed default by furnishing inaccurate particulars of its income and accordingly, opined that it is a fit case for levy of penalty u/s 271(1)(c) and hence, levied penalty of ₹ 41,63,924/-, which is 100% of tax sought to be evaded. The relevant findings of the Ld. AO are as under:- 4. The proposition laid down by the appellate authorities is that interest received by a company which carries on business, from bank deposits and loans could only be taxable as "income from other sources" and not as "business income. The income derived by an assessee has to be fitted under one or other head having regard to the source from which that Income is derived. It is the manner In which the Income is derived mat is relevant and not merely the fact that the persons in engaged In a business or in a profession. Moreover, the assessee had not deposited money by way of money lending business therefore the Interest earned on fixed deposits added under the head of Income from other sources. It w .....

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..... that without any sufficient and reasonable cause the assesses has committed default by furnishing inaccurate particulars of its Income as defined u/s 271(1) (c) of the I.T Act. Considering the facts of the case and provisions of explaination-1 to Section 27l(1)(c), I am satisfied that the assessee has furnished inaccurate particulars leading concealment of income. The minimum and maximum penalty leviable is at 100% being Rs, 41,37199/- and at 300% being ₹ 1,24,11,597/- respectively. Keeping in view of the facts of the case, I, therefore, levy a minimum penalty of ₹ 41,37,200/- (Forty one Lakh Thirty Seven Hundred Only)being 100% of the tax sought to be evaded. Working of penalty:- (I) Assessed Income including concealed Income: ₹ 1,2250436/- (ii) Tax on assessed Income inducing concealed Income: ₹ 41,63,924/- (iii) Assessed Income excluding concealed Income: ₹ 86,490/- (iv) Tax on assessed Income excluding concealed Income; ₹ 26,725/- Difference between (ii) and (iv) above: ₹ 4137199/- Minimum penalty 100% .. ₹ 41,37199/- Maximum penalty 300%.. ₹ 12411597 4. Aggrieved by the penalty order, the assesee preferred an appeal before .....

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..... 59 Taxann.co 2012. Accordingly, the additional ground raised by the appellant is not admissible, therefore, dismissed. 5.1 During assessment proceedings the AO noticed that this is a first year of the appellant s business and the business activities could not be started due to delay in acquiring the land and other infrastructure. In view of these facts the appellant had parked its surplus share capital/funds in the bank, in the form of FDRs. Against these FDRs the appellant had earned interest income of ₹ 1,22,50440/- and capitalized with a plea that the same had been earned out of share capital. After considering the contention of the appellant, the AO, assessed the interest income of ₹ 122,50440/- under the head income from other sources. By holding that interest on Fixed Deposits are not incidental to the business of the appellant, as the appellant is engaged in business of manufacturing of galvanized steel. 5.2 The AO also initiated penalty proceedings u/s 271(1)(c) of the Act, for furnished inaccurate particulars of income. The appellant preferred first appeal before the CIT(A) 4 Mumbai, against the order passed u/s 143(3) of the Act. The Ld.CIT(A)-4, Mumbai, vide .....

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..... wn and operate a power plan deposited unutilized borrowed funds in short term fixed deposits during the construction of power plant interest earned on those deposits would be taxed as income from other sources . 5.5 The fact that a person/entity carried on business does not lead to inference that all the income received by such person/entity is business income. It is the manner in which income is derived that is relevant and not merely the fact that the person/entity are engaged in the business. In light of above discussion, the contention of the appellant to treat the income earned against fixed deposits, as capital asset, as it had not started the business, is not tenable. The case laws cited by the appellant are distinguishable, as in appellant s case it had surplus fund which was parked with the bank, thereby earned the interest income which is liable to be assessed as income from other sources, hence not applicable to the fact of the present appeal. Had this case not been picked up for scrutiny, then the taxable income, to this extent would have escaped the assessment. 5.6 In view of the above discussions and having regard to the facts and circumstances of the case, I am of th .....

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..... d any explanation nor justified its case in light of Explanation-1 to section 271(1)(c) of the I.T.Act 1961. We, further noted that the Ld. AO has arrived at proper satisfaction, in respect of additions made towards interest income on fixed deposits at the time of assessment proceedings, where he had initiated penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income leading to concealment of income. We, further noted that the Ld. AO had levied penalty u/s 271(1)(c) for furnishing inaccurate particulars of income leading to concealment of income. Therefore, once a proper satisfaction has been arrived at before initiation of penalty proceedings or any time during proceedings, then subsequent issue of show-cause notice is a formality to communicate the assessee about initiation of penalty proceeding. Further, in this case, the Ld. AO had issued one more show-cause notice and also, called upon the assesse to explain why penalty proceedings shall not be initiated for furnishing inaccurate particulars of income, for which no compliance from the assessee. Therefore, we are of the considered view that once, a proper satisfaction has been arrived at before initiatio .....

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