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2015 (7) TMI 6 - AT - Income TaxPenalty under section 271(1)(c) - unaccounted donations - notice under section 153C - argument of the ld. Departmental Representative was that if AO of the searched person and the assessee is the same it does not make any difference whether satisfaction is recorded in the case of the searched person or the other person - Held that - The ITAT had arrived at a conclusion that satisfaction was recorded while taking up the cases of other person. This conclusion has been drawn on the basis of material supplied under query made as per RTI Act. It is a factual issue. We are conscious of this fact but we have dealt with the facts in the present case and observed that satisfaction was recorded by the AO while scrutinizing the papers of the searched person. It is very difficult to create a distinction to find out when such satisfaction was recorded when files of both the assessees are lying open upon the table of A.O. The ITAT, Delhi Bench had drawn inference on the basis of facts available in that case. It had not interpreted any provision. We have considered this aspect under the fore going paragraph. Therefore, we do not find any merit in the first fold of submission made by the ld. counsel of the assessee. On examination of the facts, we find that firstly, there is no explanation at the end of assessee, why it has not disclosed these donations in the original return(s)? There is no bona fide in the alleged explanation of the assessee that it had received the money through account payee cheque and, therefore, harbored a belief that donations are genuine. This explanation is wholly for the sake of explanation. The assessee failed to spell out specific facts and circumstances or reason which operated in the minds of its managing director, finance while preparing the return and treating these donations as genuine. Looking to the facts of these five donors, no prudentman would, however, harbor a belief that such companies can give donation. It is pertinent to note that it cannot be a co-incidence or a chance that five companies managed by a common director, having assets of less than ₹ 1 lac, not done any business but would give donations of ₹ 33 crores. These circumstances in itself suggest a well designed scheme at the behest of the assessee, because it is the assessee who is ultimately getting the benefit. Therefore, there was no explanation at the end of assessee for not showing these donations as its income in the original return(s) or in the return(s) filed in response to notice under section 153C. The ld. Commissioner has rightly confirmed the penalty upon the assessee. We do not find merit in the contentions of the ld. counsel for the assessee. Powers of the Commissioner while dealing with penalty appeal are restricted to the penalty proceedings only. He may confirm or cancel the imposition of penalty. He may enhance or reduce the penalty. He cannot give direction to the AO for exploring the additions in an assessment. Direction given by the ld. Commissioner in pargraph 6.3 to 6.7 are contrary to the provisions of law and, therefore, this finding of the ld. CIT(A) is quashed. The penalty imposed by the AO in the cases of KPC Medical College & Hospital is confirmed in all the three years. The appeals are treated as partly allowed for statistical purpose.
Issues Involved:
1. Validity of penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961. 2. Validity of notice issued under section 153C of the Income Tax Act, 1961. 3. Adequacy and reliability of evidence used to impose penalty. 4. Whether the assessee was denied the opportunity to cross-examine witnesses. 5. Applicability of Explanation 1 to section 271(1)(c) regarding concealment of income. 6. Directions issued by the CIT(A) to the AO under section 115BBC of the Income Tax Act, 1961. Detailed Analysis: 1. Validity of Penalty Proceedings under Section 271(1)(c): The primary grievance of the assessee was that the CIT(A) erred in confirming the levy of penalty imposed under section 271(1)(c) of the Income Tax Act, 1961. The Tribunal emphasized that penalty proceedings are independent of assessment proceedings and that the Assessing Officer (AO) must be satisfied that the assessee has concealed income or furnished inaccurate particulars of income. The penalty can range from 100% to 300% of the tax sought to be evaded. The Tribunal noted that the assessee failed to offer a satisfactory explanation for not disclosing the donations in the original returns, and thus the penalty was justified. 2. Validity of Notice Issued under Section 153C: The assessee challenged the validity of the notice issued under section 153C, arguing that the AO did not have valid satisfaction for initiating proceedings. The Tribunal examined the satisfaction note recorded by the AO, which was based on the statement of Shri Bhaskar Ghosh and the cash found during the search. The Tribunal concluded that the AO had sufficient material to form a prima facie opinion that the money belonged to the assessee, thereby justifying the issuance of the notice under section 153C. 3. Adequacy and Reliability of Evidence: The assessee argued that the only evidence possessed by the department was the statement of Shri Kamala Shankar Pandey, which was not subjected to cross-examination. The Tribunal noted that while the statement highlighted the modus operandi, it was not the sole basis for the penalty. The Tribunal found that the five donor companies were paper entities with no substantial business activities, and the donations were highly improbable. The Tribunal concluded that the evidence on record was sufficient to justify the penalty. 4. Opportunity to Cross-Examine Witnesses: The assessee contended that it was not given the opportunity to cross-examine Shri Kamala Shankar Pandey. The Tribunal acknowledged that the statement of a witness not subjected to cross-examination should not be used against the assessee. However, the Tribunal noted that the assessee had offered the donations for taxation, and the statement of Shri Pandey was corroborative rather than the sole evidence. The Tribunal found that the lack of cross-examination did not invalidate the penalty. 5. Applicability of Explanation 1 to Section 271(1)(c): The Tribunal discussed the deeming provisions of Explanation 1 to section 271(1)(c), which come into play when the assessee fails to offer a satisfactory explanation or the explanation is found to be false. The Tribunal found that the assessee's explanation for not disclosing the donations was not bona fide, and the circumstances indicated a well-designed scheme to introduce dubious money. The Tribunal concluded that the deeming fiction under Explanation 1 was applicable, justifying the penalty. 6. Directions Issued by the CIT(A) under Section 115BBC: The assessee argued that the CIT(A) exceeded its jurisdiction by directing the AO to explore additions under section 115BBC. The Tribunal agreed, noting that the powers of the CIT(A) in penalty appeals are limited to confirming, canceling, or varying the penalty. The Tribunal quashed the directions issued by the CIT(A) for exploring additions under section 115BBC, but confirmed the penalty imposed by the AO. Conclusion: The Tribunal dismissed the appeals of the assessee, confirming the penalties imposed under section 271(1)(c) for concealment of income. The directions issued by the CIT(A) under section 115BBC were quashed as beyond the scope of its jurisdiction.
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