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TMI Blog2016 (6) TMI 927X X X X Extracts X X X X X X X X Extracts X X X X ..... in trade and not as investment. The AO therefore treated the short term capital gain declared by the assessee as income under the head income from business. The total income was accordingly computed by the AO. As a consequence of the change of head of income from the head capital gain to the head Income from Business, the tax payable on the total income filed by the Assessee stood increased. Consequently tax payable by the Assessee was more. In respect of the increase in the tax liability of the Assessee consequent to change of head of income, the AO imposed penalty u/s 271(1)(c) of the Act. 4. On appeal by the assessee the CIT(A) confirmed the order of AO. Aggrieved by the order of CIT(A) the assessee has preferred the present appeal before the Tribunal. 5. Before us the primary objection was raised by the ld. Counsel for the assessee. The ld. Counsel for the assessee brought to our notice the show cause notice u/s 274 of the Act before imposing penalty u/s.271(1)( c) of the Act did not indicate the ground on which the penalty is sought to be imposed, i.e., as to whether the Assessee is guilty of having concealed particulars of income or of furnishing inaccurate particulars of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 8.2 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 liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 bona fide, an order imposing penalty could be passed. m) If the explanation offered, even though not substantiated by the assessee, but is found to be bona fide 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 o ..... 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