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TMI Blog2015 (11) TMI 1281X X X X Extracts X X X X X X X X Extracts X X X X ..... confirming the order of the Assessing Officer imposing penalty u/s. 271(1)(c) of the Income Tax Act, 1961 (Act) on the assessee. 3. The facts and circumstances under which penalty u/s. 271(1)(c) of the Act was imposed by the AO on the assessee are as follows. The assessee is an individual. He is in the business of purchase and sale of Masala Products, Onion and Potato on wholesale as well as retail basis. The return of income for AY 08-09 was filed declaring total income of ₹ 1,36,990/-. The Assessment u/s.143(3) was completed on 26.3.2010 determining total income of ₹ 6,12,900/-. 4. The additions made to the total income while completing the assessment u/s.143(3) of the Act by the AO were as follows:- (i) The Assessee declared rent received on letting out of shop of ₹ 41,400. Against the said income, the Assessee claimed deduction of ₹ 52,685 which was interest paid to HDFC Bank Ltd., on loan borrowed for repairing residential house which was a different property. Since the requirement for deduction of interest paid on borrowing against income from house property u/s.24(b) of the Act was that the borrowed funds ought to have been used for acquirin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the assessee drew our attention to the decision of the Hon ble Karnataka High Court in the case of CIT Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn) , wherein the Hon ble High Court has held that notice u/s. 274 of the Act should specifically state as to whether penalty is being proposed to be imposed for concealment of particulars of income or for furnishing inaccurate particulars of income. The Hon ble High court has further laid down that certain printed form where all the grounds given in section 271 are given would not satisfy the requirement of law. The Court has also held that initiating penalty proceedings on one limb and find the assessee guilty in another limb is bad in law. It was submitted that in the present case, the aforesaid decision will squarely apply and all the orders imposing penalty have to be held as bad in law and liable to be quashed. 8. The ld. DR relied on the order of the CIT(Appeals) wherein the CIT(A) has expressed his opinion that the assessee was fully aware of the charge against him and he cannot take shelter on technical grounds. 9. We have heard the rival submissions. The Hon ble Karnataka High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the offences. 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. It is needless to point out satisfaction of the existence of the grounds mentioned in Section 271(1)(c) when it is a sine qua non for initiation or proceedings, the penalty proceedings should be confined only to those grounds and the said grounds have to be specifically stated so that the assessee would have the opportunity to meet those grounds. After, he places his version and tries to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. Thus once the proceedings are initiated on one ground, the penalty should also be imposed on the same ground. Where the basis of the initiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernible from the Assessment Order or order of the Appellate Authority or Revisional Authority. f) Even if there is no specific finding regarding the existence of the conditions mentioned in Section 271(1)(c), at least the facts set out in Explanation 1(A) (B) it should be discernible from the said order which would by a legal fiction constitute concealment because of deeming provision. g) Even if these conditions do not exist in the assessment order passed, at least, a direction to initiate proceedings under Section 271(l)(c) is a sine qua non for the Assessment Officer to initiate the proceedings because of the deeming provision contained in Section 1(B). h) The said deeming provisions are not applicable to the orders passed by the Commissioner of Appeals and the Commissioner. i) The imposition of penalty is not automatic. j) Imposition of penalty even if the tax liability is admitted is not automatic. k) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible ..... 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