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TMI Blog2016 (3) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... lty under Section 271(1)(c) of the Act against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The learned CIT (Appeals) is not justified in upholding the penalty under Section 271(1)(c) of the Act in respect of the following disallowances/additions : a) Difference in the opening stock : ₹ 2,67,186. b) Difference in the opening balance of capital account : ₹ 2,96,158. 3. The authorities below failed to appreciate that the appellant has neither concealed any income nor furnished inaccurate particulars of income to warrant levy of penalty and therefore, the penalty levied under Section 271(1)(c) of the Act requires to be cancelled. 4. Without prejudice to the above, the penalty levied is highly excessive and liable to be reduced substantially. 5. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs. 3. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer found that the assessee has taken the opening balance at ₹ 7,87,441 as against ₹ 4,91,283 being the closing balance. Thus there is a difference of ₹ 2,96,158. The assessee was asked to explain the above difference. The Assessing Officer has recorded in the assessment order that no explanation was offered by the assessee and accepted the mistake. Hence the difference of ₹ 2,96,158 was also added to the total income of the assessee. Subsequently, the Assessing Officer initiated the penalty under Section 271(1)(c) of the Act and levied the penalty of ₹ 1,72,383 being 100% of tax sought to be evaded on the concealed income of ₹ 5,63,344 which comprising the difference in the closing and opening balance of stock as well as difference in the capital account. The assessee challenged the action of the Assessing Officer before the CIT (Appeals) and submitted that when the Assessing Officer has made the addition on account of difference in opening stock as well as the opening balance of the capital account, then it should have been telescoping effect and despite the assessee admitted the said amount to tax, the penalty cannot be levie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Factory 359 ITR 365, the notice issued under Section 274 is invalid and consequently the penalty levied under Section 271(1)(c) is not sustainable. In support of his contention, he has relied upon the decision of co-ordinate bench of this Tribunal dt.1.10.2015 in case of Sri Raghunath H Baddi Vs. ITO in ITA No.669/Bang/2015 and submitted that on an identical facts the Tribunal while following the jurisdictional High Court in the case of Manjunatha Cotton Ginning Factory (supra) has decided the issue in favour of the assessee holding that show cause notice under Section 274 of the Act is defective and therefore the consequential order under Section 271(1)(c) of the Act is not sustainable. 6. On the other hand, the learned Departmental Representative has submitted that as far as the merits of the case are concerned, the assessee has accepted the difference amount being the income of the assessee which was offered to tax in the assessment proceedings, therefore this issue cannot be raised at this stage when the assessee has not raised in the assessment proceedings. Further it is a case of enhancement of opening stock of this year and therefore the mistake which is accepted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. We have heard the rival submissions. The Hon ble Karnataka High Court in the case of CIT Anr. v. Manjunatha Cotton and Ginning Factory (supra) has laid down the following principles to be followed in the matter of imposing penalty u/s.271(1)(c) of the Act. NOTICE UNDER SECTION 274 59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a case of relying on deeming provision contained in Explanation-1 or in Explanation- 1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the person who is accused of the conditions mentioned in Section 271 should be made known about the grounds on which they intend imposing pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty should also be imposed on the same ground. Where the basis of the initiation of penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts and materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c). Concealment, furnishing inaccurate particulars of income are different. Thus the Assessing Officer while issuing notice has to come to the conclusion that whether is it a case of concealment of income or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in 292 ITR 11 at page 19 has held that concealment of income and furnishing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the assessing officer in the assessment order. l) Only when no explanation is offered or the explanation offered is found to be false or when the assessee fails to prove that the explanation offered is not bonafide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bonafide and all facts relating to the same and material to the computation of his total income have been disclosed by him, no penalty could be imposed. n) The direction referred to in Explanation IB to Section 271 of the Act should be clear and without any ambiguity. o) If the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal, if the appellate authority records satisfa ..... 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