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TMI Blog2016 (4) TMI 992X X X X Extracts X X X X X X X X Extracts X X X X ..... alty is levied i.e. for concealment of income or for furnishing inaccurate particulars of income. 1.2 The Ld. Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the levy of penalty of Rs. 14,25,187/- u/s 271(1)(c) of the Income Tax Act, 1961. 2. The sole ground of appeal is against imposition of penalty U/s 271(1)(c) of the Income Tax Act, 1961 (in short the Act). In this case, there was a search seizure operation carried out by the department on 21-25/06/2007 at the business premises and four bank lockers of the assessee group. The ld Assessing Officer scrutinized U/s 153A/143(3) read with Section 153B of the Act. The assessee filed return for A.Y. 2005-06 on 08/09/2005 declaring total income of Rs. 1,56,290/-. In response to notice U/s 153A, the assessee has filed return of income declaring same income i.e. Rs. 1,56,290/-. During the course of search, the assessee disclosed additional income U/s 132(4) of the Act of Rs. 5.00 crores for different years i.e. for A.Y. 2006-07 Rs. 1.00 crore, for A.Y. 2007-08 Rs. 3.00 crores, and for A.Y. 2008-09 at Rs. 1.00 crore in total Rs. 5.00 crores. The ld Assessing Officer scrutinized the seized material and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r investment in unaccounted debtors/interest income. (c) As a result of appeal effect to the order of the ITAT in assessment year 2008-09 the surrendered income reduced to Rs. 85,17,000/- against surrender of Rs. 1 Crore. Therefore, the claim of the assessee that out of total income of Rs. 5 Crores income of Rs. 4.49 Crores was appropriated towards unaccounted income of assessment year 2006-07 to 2008-09 and surplus income of Rs. 51 lakhs was more than the addition made for the assessment year 2002-03 to 2005-06. (d) The assessee not disclosed any income in the statement u/s 132(4) of the IT Act, 1961 for the 'assessment year 2005-06. Further no income was offered to tax in the return of income filed in compliance to notice u/s 153A of the IT Act, 1961. Therefore, appropriation of surplus income offered to tax cannot be treated as income of A.Y. 2005-06 without any claim in the return of income. (e) For the A.Y. 2005-06 the assessee has claimed that no satisfaction was recorded for initiation of penalty u/s 271(1)(c) of the IT Act, 1961 though such satisfaction was recorded for other years involved in the search assessment proceedings. The assessee has coated para-5(c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgments are related to claim of expenditure etc and distinguishable from the fact of the case. (j) It would be appropriate to refer the latest decision of SC in the case of Dharmendra Textiles (supra) wherein it has been held (i) the Explanations appended to section 271(1)(c) indicate the element of strict liability, (ii) the object behind the enactment shows that it provides for remedy for loss of revenue, (iii)that penalty under the section is civil liability, (iv)willful concealment is not an essential ingredient for attracting penalty (v) no discretion with the authority imposing penalty. Hence, revenue is not required to prove the element of mens rea on the part of assessee. This decision was understood to mean that levy of penalty is automatic. The above decision has been explained by the SC in subsequent decision in the case of UOI-v- Rajasthan Sps & Wvg Mills 224 CTR 1 SC wherein it is explained that levy of penalty is not automatic. If the conditions specified in the section are satisfied then alone, penalty is leviable. Facts of each case would determine whether such conditions are satisfied or not. Mere nonpayment of excise duty in each case would not entail the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing grounds: i) On examination of the facts it is seen that search in the case of appellant was conducted from 21 to 25th June, 2007. The return of income U/s 139 for this A.Y. was filed on 8.9.2005 declaring total income of Rs. 1,56,290/-. Subsequently return u/s 153A was filed declaring total income of Rs. 1,56,290/-. The assessment order was passed on 30.10.2009 determining the income of the appellant at Rs. 44,23,148/-. The CIT(A) and Hon. ITAT Jaipur Bench both confirmed this addition on account undisclosed investment in debtors. ii) It is pertinent to note that search and seizure proceedings in this case were conducted from 21 to 25th June 2007 that is after 1.6.2007 and so the case is covered under the deeming provisions of Explanation - 5A to sec. 271(1)(c) as follows: "Where in the course of search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of- i) 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 utilizing (wholly or in part) his income for any previous year; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch suggest that the assessee was indulging in the business outside the books of accounts and this is not disputed by the assessee. " The year wise table showing this unaccounted income was also made part of the order as follows: On the basis of above observations the addition made by the AO to the extent of Rs. 42.25 lakh as investment in debtors outside the books of accounts, was not interfered with by the Hon. ITAT in its order. Thus the facts of the case are clearly covered under the provisions of Explanation-5 A to sec. 271 (1)(c) and the appellant is deemed to have concealed the particular of his income, since documents were found during the course of search showing undeclared income by way of investment in unaccounted debtors. iv) The AR of the appellant has raised the objection that the AO had specifically mentioned the assessment years namely A.Y. 2002-03 to 2004-05 and 2007-08 and 2008- 09 for which he intended to initiate the penalty proceedings u/s 271(l)(c) in the assessment order but for this A.Y. no satisfaction has been recorded for initiation of penalty proceedings. Reliance was placed on the following case laws: i. Madhu Shree Gupta vs. UOl, 317 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g been found during search, penalty u/s 271(1)(c) was upheld. a. DCIT vs. K. Natarajan (ITAT, Bang) 2 ITR (Trib) 273 b. ACIT vs. Kirit Dahyabhai Patel (ITAT, Ahd.-TM) 121 ITD 159 These findings are applicable to the facts of the case of the appellant because not only has he not declared the income in the return filed u/s 153A the addition made by the AO of the undisclosed income on the basis of incriminating documents has been confirmed by the Hon. ITAT, Jaipur Bench. V) The next submission of the AR of the appellant is that the AO has not specified whether the assessee was guilty for concealment of income or for furnishing of inaccurate particulars of income. It is seen that while recording of satisfaction for initiating the penalty proceedings u/s 271(l)(c) the AO has recorded his satisfaction by noting that the penalty notice be issued for concealment/ furnishing of inaccurate particulars of income. However while passing the penalty order the AO has given a categorical finding that the penalty was being imposed on concealed income. The Karnataka High Court in the case of CIT vs. M/s Manjunatha Cotton & Jinning Factory & Ors. has admitted that there could be some case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of CIT vs. Kanhaiya Lai 299 ITR 19. I have carefully perused the case law relied on by the AR. On perusal of the case it is seen that the facts of the case relied on by the AR are different from those of the appellant. The penalty in the case of CIT vs. Kanhaiya Lai (supra) was applicable as per Explanation-5 of sec. 271(l)(c). The Hon. High Court has observed that from the language of sub clause (2) of Explanation-5 of sec. 271(l)(c), it is clear that it does not contemplate the requirement of the assessee paying tax in respect of such income, in any particular A.Y. only. It was clarified that the immunity as per such clause (2) of Explanation- 5 would not be lost, simply because of the spreading of the income over more years. It is pertinent to note that in the case of appellant the penalty is applicable under Explanation-5A of sec. 271(1)(c) and not Explanation-5. Explanation-5A and Explanation-5 to sec. 271(1)(c) are inherently different in so far that no immunity is granted as per sub clause (2) of Explanation-5 in Explanation-5A and therefore the observations of the Hon. Jurisdictional High Court are not applicable to the facts of the case of the appellant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, only mentioning at the end of the assessment order that penalty proceedings are initiated without recording such satisfaction in the specific para of the order where he has dealt regarding initiation of penalty proceedings, cannot be said as recording of satisfaction by the AO to initiate the penalty proceedings. The ld CIT(A) also not justified the finding of the Assessing Officer that, it would be sufficient to infer the satisfaction recorded by the Assessing Officer. 4.1 He further argued that not only the ld Assessing Officer specified in initiating the penalty proceedings but in issuing the notice U/s 274 and had not specified for issue of notice either concealment of income or furnishing inaccurate particulars of income. The Hon'ble Karnataka High Court in case of CIT vs. M/s Manjunatha Cotton & Ginning Factory & Ors.(2013) 359 ITR 565 (Karn) has held that in penalty notice issued by the Assessing Officer, it should be specific in the notice itself that penalty either issued for concealment of income or furnishing inaccurate particulars of income. Sending printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years on the basis of date mentioned on such approval memo though such debtors have arisen as a result of trading transaction of earlier years. Except these approval memos, there is no material on record to hold that it is out of the income of that particular year. Hence, only because the addition of debtors is confirmed in a particular assessment year it cannot be held to be undisclosed income of that year so as to attract levy of penalty u/s 271(1)(c) ignoring that the assessee has paid tax along with interest on such income offered in the statement u/s 132(4). These facts are not disputed by the lower authorities and therefore also penalty on such addition cannot be levied in the year under consideration. Therefore, he prayed to delete the penalty confirmed by the ld CIT(A). 5. At the outset, the ld DR has vehemently supported the order of the ld CIT(A) and argued that the Hon'ble Supreme Court in the case of Mak Data Ltd. Vs CIT (2013) 358 ITR 593 (SC) has held that there is no set standard for initiation of penalty proceedings U/s 271(1)(c) of the Act. A reference of initiation of penalty is sufficient satisfaction of the Assessing Officer. He further argued that as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (i) & (ii) are present a notice to show cause U/s 274 of the Act shall issue setting out therein the infraction the assessee is said to have committed. The notice U/s 274 of the Act can be issued both pre or after the completion of assessment proceedings. The position of law both pre and post amendment is similar inasmuch as the Assessing Officer will have to arrive at a prima facie satisfaction during the course of proceedings with regard to the assessee having concealed particulars of income or furnished inaccurate particulars before he initiated penalty proceedings. The satisfaction of the Assessing Officer should be discernible from the order passed during the course of proceedings. After considering the various decisions on this issue and amended provisions on initiation of penalty proceedings U/s (1B) of Section 271(1)(c) we have come to conclusion that the Assessing Officer has not recorded satisfaction specifically for concealed particulars of income or furnished inaccurate particulars of income and on both. The various courts have held that this satisfaction can be for both the purposes i.e. for concealed particulars of income and furnishing of inaccurate particulars of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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