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TMI Blog2016 (4) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty u/s 271(1)(c) of the Act. 2. The facts and circumstances under which penalty u/s 271(1)(c) of the Act was imposed on the assessee by AO are as follows :- The Assessee is an individual. He carries on the business of property development. The Assessee had filed returns of income for A.Yrs. 2001-02, 2002-03, 2004-05 and 2005-06 in the normal course u/s 139(1) of the I.T.Act, within the due date admitting the following incomes : Assessment Year Income returned (Rs.) 2002-02 9,24,202/- 2002-03 7,31,722/- 2004-05 4,95,693/- 2005-06 13,59,795/- 3. There was a search and seizure operation carried out u/s.132 of the Income Tax Act, 1961 (Act) on 23.8.2006 by the Income Tax department on the Builder Group of Cases of which the Assessee was a member. In the course of search, the Assessee was found to be in possession of undisclosed cash, and undisclosed income. The details are as given below :- S.No. Particulars of Income A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/- 20,46,839/- 29,71,040/- 6,86,000/- 2002-03 7,31,722/- 93,27,534/- 1,09,30,784/- 27,34,037/- 2004-05 4,95,693/- 15,30,967/- 20,26,660/- 2,54,720/- 2005-06 13,59,795/- 71,15,928/- 84,75,723/- 13,04,932/- 6. The order of the AO in this regard there is a reference to various items of jewellery, undisclosed bank accounts and seized papers/documents. Thereafter there is a reference to the Assessee s offer to tax income to the extent mentioned above. The AO has accepted such offer to tax of income and completed the Assessment. The order of assessment makes a reference to initiation of penalty proceedings as follows :- Penalty proceedings u/s 271(1)(c) is initiated Accordingly. 7. The AO issued show cause notice u/s 274 of the Act for imposing penalty u/s 271(1)(c) of the Act on the Assessee and imposed penalty on the Assessee. According to the AO the offering of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above. The findings of the CIT(A) in this regard 12 to 15 of his order. These findings were accepted by the revenue as they had not filed any appeals against the common order of the CIT(A) dated 26.8.2009 and therefore we need not elaborate on the aforesaid findings of the CIT(A). The CIT(A) however held that with regard to payment of taxes, the assessee had not fulfilled the conditions. The observations of the CIT(A) in this regard were as follows :- In regards to tax payments, the appellant for Assessment Year 2001-02 on a total income of ₹ 29,71,040/- was liable to pay tax of ₹ 10,12,415/- and interest u/s 234A of ₹ 7,256/-, interest u/s 234B of ₹ 6,72,710/-, and interest u/s 234C of ₹ 395/-, aggregating to ₹ 16,92,236/-, which had been discharged in part by way of TDS of ₹ 2,86,782/-, self assessment tax u/s 140A of ₹ 7,19,454/- and regular tax of ₹ 5,00,000/- and ₹ 54,374/- paid on 22-07-2008. The appellant is still due to pay tax and interest of ₹ 1 ,31 ,626/- For Assessment Year 2002-03, the appellant on a total income of ₹ 1,09,30,780/- was liable to pay tax of ₹ 33,12,912/- and interest u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Commissioner of Income Tax (Appeals) erred in confirming the penalty of ₹ 6,89,343 imposed by the Assessing Officer under section 271(1)(c) of the Income Tax Act, 1961 in respect of the Assessment Year 2001-02. 13. Since the additional ground projects the grievances of the assessee which arises from the order of CIT(A) and facts available on record, the same is admitted for adjudication keeping in view the decision rendered by the Hon ble Supreme Court in the case of National Thermal Power Co.Ltd. vs CIT 229 ITR 383 wherein the Hon ble Supreme Court held that adjudication of a legal ground by way of an additional ground when facts are available on record should be permitted. 14. The assessee apart from filing these appeals in which he has challenged the finding of the CIT(A) that the Assessee has not paid admitted tax on additional income disclosed in the returns filed u/s.153A of the Act, also filed an application u/s 154 of the Act before CIT(A) pointing out that CIT(A) conclusion that assessee does not satisfy one of the requirements for grant of immunity under Explanation 5 to section 271 of the Act namely payment of taxes together with interest, suffered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. However, the assessee had requested for adjustment against refund due to him of ₹ 46,536/- for A/Y 2003-04 before the date of appellate order i.e. 26.08.2009. The assessee cannot be held responsible for the inordinate delay on the part of the department in effecting the requisite adjustment. Since he has made a formal request for adjustment of refundable amount almost 8 months before the date of appellate order, it is construed that he had made satisfactory arrangement for payment of the demand of ₹ 46,535/- for A/Y 2005- 06. So, on consideration of all these documents which are part of the records, it is evident that the Appellant/Applicant has satisfied the conditions of Explanation (5) to section 271(1)(c) for availing itself of the immunity from penalty imposable under the Act. Thus, it is established beyond doubt that there had been a mistake in appraising the overall facts of the case in so far as the payment of tax with interest is concerned as had been noted in the Appellate Order dated 26-8-2009 and such mistake is apparent from the records. In terms of the decision of the Supreme Court of India in CIT vs. Hero Cycles (P) Ltd, reported in 228 ITR 463 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) to section 271 of the Act. For the sake of easy understanding of the contentions, Expln.5 to Sec.271 is extracted below: Explanation 5.-Where in the course of a search under Section 132, the assessee is found to be the owner of any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income,- (a ) for any previous year which has ended before the date of the search, but the return of income for such year has not been furnished before the said date or, where such return has been furnished before the said date, such income has not been declared therein ; or (b ) for any previous year which is to end on or after the date of the search, then, notwithstanding that such income is declared by him in any return of income furnished on or after the date of the search, he shall, for the purposes of imposition of a penalty under clause (c) of sub-section (1) of this section, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income, unless,- (1 ) such income is, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Gebilal Kanhailal HUF in Civil Appeal No.636 of 2005 (SC) Judgment dated 04.09.2012 has taken a view that since no time limit for payment of tax was prescribed under clause (2) the only requirement was that an assessee to get the immunity has to pay tax after the search proceedings along with interest up to the date of payment of tax. The following observation of the Hon ble Supreme Court were brought to our attention :- However, no time limit for payment of such tax stood prescribed under clause (2). The only requirement stipulated in the third condition was for the assessee to pay tax together with interest . In the present case, the third condition also stood fulfilled. The assessee has paid tax with interest upto the date of payment. The only condition which was required to be fulfilled for getting the immunity, after the search proceedings got over, was that the assessee had to pay the tax together with interest in respect of such undisclosed income upto the date of payment. Clause (2) did not prescribe the time limit within which the assessee should pay tax on income disclosed in the statement under Section 132(4). 18. The learned DR however submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of filing the return of income or in any event before conclusion of the assessment proceedings. The Hon ble Supreme Court however in the case of ACIT vs M/s. Gebilal Kanhaialal HUF (supra) has taken a view that the payment of tax should be after the search proceedings and there is no time limit within which the said payment has to be made. In view of the aforesaid decision of the Hon ble Supreme Court, we are of the view that there is no merit in the appeals filed by the revenue. 21. As far as the appeals filed by the assessee are concerned we find that the facts of the assessee s case are identical to the decision in the case of Satyananda Achariya Biswas vs DCIT rendered by ITAT Kolkata Bench (supra). In the present case as well as in the case of Satyananda Achariya Biswas (supra), the AO in the order of assessment accepted the offer of additional income to tax as declared in the return of income filed u/s.153 of the Act and there is no specific comments on the conduct of the Assessee. So also the show cause notice u/s.274 of the Act did not contain specific charge as to whether the Assessee was guilty of furnishing inaccurate particulars of income or concealing p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the view that the surrender of income in this case is not voluntary in the sense that the offer of surrender was made in view of detection made by the AO in the search conducted in the sister concern of the assessee. In that situation, it cannot be said that the surrender of income was voluntary. AO during the course of assessment proceedings has noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income Tax Returns and assessment orders and blank share transfer 8 deeds duly signed, have been impounded in the course of survey proceedings under Section 133A conducted on 16.12.2003, in the case of a sister concern of the assessee. The survey was conducted more than 10 months before the assessee filed its return of income. Had it been the intention of the assessee to make full and true disclosure of its income, it would have filed the return declaring an income inclusive of the amount which was surrendered later during the course of the assessment proceedings. Consequently, it is clear that the assessee had no intention to declare its true income. It is the statutory duty of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enalty is sought to be levied on the for furnishing inaccurate particulars of income or concealing particulars of such income . On this aspect we find that in the show cause notice u/s.274 of the Act the AO has not struck out the irrelevant part. It is therefore not spelt out as to whether the penalty proceedings are sought to be levied for furnishing inaccurate particulars of income or concealing particulars of such income . 9.1. The Hon ble Karnataka High Court in the case of CIT Anr. v. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Karn), 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 penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be overlapping of the two offences but in such cases the initiation of the penalty proceedings also must be for both 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 proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)(c) is a sine qua non for initiation of penalty proceedings under Section 271. e) The existence of such conditions should be discernible 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 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articulars would not operate as res judicata in the penalty proceedings. It is open to the assessee to contest the said proceedings on merits. However, the validity of the assessment or reassessment in pursuance of which penalty is levied, cannot be the subject matter of penalty proceedings. The assessment or reassessment cannot be declared as invalid in the penalty proceedings. (emphasis supplied) 9.3. It is clear from the aforesaid decision that on the facts of the present case that the show cause notice u/s. 274 of the Act is defective as it does not spell out the grounds on which the penalty is sought to be imposed. Following the decision of the Hon ble Karnataka High Court, we hold that the orders imposing penalty in all the assessment years have to be held as invalid and consequently penalty imposed is cancelled. 9.4. For the reasons given above, we hold that levy of penalty in the present case cannot be sustained. We therefore cancel the orders imposing penalty on the Assessee and allow the appeal by the Assessee. In view of our above conclusions on the issue of not recording of proper satisfaction and the defect in show cause notice u/s.274 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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