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TMI Blog2017 (1) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... iled to record satisfaction correctly and consequently, we hold that initiation of penalty proceedings against the assessee are not valid for non-recording of satisfaction by the Assessing Officer while completing assessment proceedings. Further, the Assessing Officer has failed to strike off either of the limbs of section 271(1)(c) of the Act, which are not satisfied by the assessee and consequently, notice issued under section 274 r.w.s. 271(1)(c) of the Act is bad in law and order levying penalty for concealment thereafter, is infructuous. Accordingly, we hold so.- Decided in favour of assessee - ITA Nos.1871 to 1875/PN/2014 - - - Dated:- 28-12-2016 - MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM For The Appellant : Shri Hari Krishan For The Respondent : Shri Suhas Kulkarni ORDER PER SUSHMA CHOWLA, JM: This bunch of five appeals filed by the assessee are against consolidated order of CIT(A)-Central, Pune, dated 11.07.2014 relating to assessment years 2005-06, 2007-08 to 2010-11 against respective orders levying penalty under section 271(1)(c) of the Income Tax Act, 1961 (in short the Act ). 2. All the appeals relating to the same assessee on i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rule 29 of ITAT Rules, the assessee can raise the said jurisdictional issue during the course of hearing. The learned Authorized Representative for the assessee further pointed out that even in the notice issued under section 274 r.w.s. 271(1)(c) of the Act, there is no striking of either of the limbs. In this regard, the learned Authorized Representative for the assessee placed reliance on the ratio laid down by the Pune Bench of Tribunal in Kanhaiyalal D. Jain Vs. ACIT in ITA Nos.1201 to 1205/PN/2014, relating to assessment years 2003-04 to 2007-08. 7. The learned Departmental Representative for the Revenue on the other hand, pointed out that looking at the provisions of section 271(1)(1B) of the Act, where direction has been given by the Assessing Officer to initiate penalty proceedings under section 271(1)(c) of the Act; hence satisfaction has been recorded. Thus, there is no merit in the plea of the assessee in this regard. He further placed reliance on the orders of Assessing Officer and CIT(A). 8. We have heard the rival contentions and perused the record. Briefly, in the facts of the case, search under section 132 of the Act was conducted in the Siddheshwar Group o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and the Assessing Officer should have recorded satisfaction accordingly and issued notice. The Assessing Officer had levied penalty under section 271(1)(c) of the Act which was confirmed by the CIT(A), against which the assessee is in appeal. 9. We find that similar issue of recording of satisfaction by the Assessing Officer before issue of notice under section 274 r.w.s. 271(1)(c) of the Act arose before the Tribunal in Kanhaiyalal D. Jain Vs. ACIT (supra), wherein it was held as under:- 13. We have heard the rival contentions and perused the record. The issue arising in the present bunch of appeals is jurisdictional issue of levy of penalty under section 271(1)(c) of the Act. The requirement of section is that where the Assessing Officer or the Commissioner of Appeals or the Principal Commissioner or Commissioner, in the course of any proceedings under the Act, is satisfied that any person has concealed the particulars of his income or furnished inaccurate particulars of such income, then he may direct that such person shall pay by way of penalty the amounts as specified in sub-clause (iii) which would be in addition to tax, if any, payable by the said person. The secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion as to whether it is case of concealment of income or furnishing of inaccurate particulars of income. The question which further arises where the satisfaction recorded by the Assessing Officer and the notice issued thereafter is without application of mind, then can the subsequent order passed levying penalty be held to be valid?. The Hon ble Karnataka High Court in CIT Anr. Vs. Manjunatha Cotton and Ginning Factory (supra) had dealt upon the issue of notice under section 274 of the Act for the purpose of levying penalty for concealment and observed as under:- 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows (supra) has dismissed the appeal of Revenue, where the Tribunal had allowed the appeal of assessee holding that the notice issued by the Assessing Officer under section 274 r.w.s. 271(1)(c) of the Act to be bad in law as it does not satisfy which limb of section 271(1)(c) of the Act under which it has been initiated The Hon ble High Court had relied on decision of Division Bench of the Court rendered in CIT Anr. Vs. Manjunatha Cotton and Ginning Factory (supra). The Hon ble Supreme Court in CIT Vs. SSA S Emerald Meadows (supra) has dismissed the Special Leave Petition. 17. The Pune Bench of Tribunal in M/s. Sai Venkata Construction Vs. Addl. CIT (supra) and in Sanjog Tarachand Lodha Vs. ITO (supra) have applied the ratio laid down by the Hon ble Karnataka High Court (supra) and held that where there is no striking off of either of limbs, then notice issued under section 274 r.w.s. 271(1)(c) of the Act was invalid and subsequent penalty proceedings were held to be vitiated. 18. The Mumbai Bench of Tribunal in Sanghavi Savla Commodity Brokers P. Ltd. Vs. ACIT in ITA No.1746/Mum/2011, relating to assessment year 2007-08, order dated 22.12.2015 while deciding similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 274 of the Act which contained principle of natural justice of the assessee being heard before levying penalty. It also held that mere mistake in the language used or mere non-striking of inappropriate portion could not itself be invalidated the notice. It was held that the entire factual background would fall for consideration in the matter and no one aspect would be decisive. 21. In respect of assessment year 1967-68, the Hon ble High Court in CIT Vs. Smt. Kaushalya (supra) acknowledged that there could exist a case where vagueness and ambiguity in the notice could demonstrate non-application of mind by the authority and / or ultimate prejudice to the right of opportunity of hearing contemplated under section 274 of the Act. The show cause notice for assessment year 1967-68 was issued even before the assessment order was made and where the assessee had no knowledge of exact charge of Department against him as in the notice not only there was use of word or between the group of cases but there was use of word deliberately also. The Hon ble High Court held that notice clearly demonstrated non-application of mind on the part of Assessing Officer. The vagueness and ambigui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lment. However, the Assessing Officer refers to both the limbs of section 271(1)(c) of the Act and the satisfaction recorded in this case suffers from infirmity. Further, even in the notice issued under section 274 of the Act, irrelevant part has not been struck off. While completing penalty proceedings also, the Assessing Officer makes reference to both the limbs i.e. concealment of income and furnishing of inaccurate particulars of income and in the final, levies penalty for concealment of income. 23. However, the question which is raised before us by way of additional ground of appeal is root of start of the proceedings i.e. recording of satisfaction and the issue of notice, which has been challenged by the assessee to be invalid. Applying the ratio laid down by the Hon ble Karnataka High Court in CIT Anr. Vs. Manjunath Cotton and Ginning Factory (supra) and CIT Vs. SSA S Emerald Meadows (supra) and in view of SLP being dismissed, we find merit in the plea of assessee that the satisfaction recorded in the present case to initiate penalty proceedings both for concealment of income and furnishing of particulars of income against additional income offered by the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imposing penalty remain the same. The purpose of the Legislature that it is meant to be a deterrent to tax evasion is evidenced by the increase in the quantum of penalty, from 20 per cent under the 1922 Act to 300 per cent in 1985. 24. Concealment of income and furnishing of inaccurate particulars carry different connotations. Concealment refers to a deliberate act on the part of the assessee. A mere omission or negligence would not constitute a deliberate act of suppression very or suggestion falsi. 26. Where concealment of income and furnishing of inaccurate particulars of income are two different connotations, then as per provisions of the Act, the satisfaction has to be recorded by the Assessing Officer before initiating penalty proceedings as to under which limb the case of assessee falls. In the present set of facts, the satisfaction as recorded by the Assessing Officer which is evident from the assessment order itself does not establish the case of Revenue against the assessee that it is liable for levy of penalty for concealment under which limb i.e. for concealment of income or for furnishing of inaccurate particulars of income. The notice issued under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court and its reply was as under:- (1) Whether, omission if Assessing Officer to explicitly mention that penalty proceedings are being initiated for furnishing of inaccurate particulars or that for concealment of income makes the penalty order liable for cancellation even when it has been proved beyond reasonable doubt that the assessee had concealed income in the facts and circumstances of the case? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the penalty notice under section 274 r.w.s. 271(1)(c) is bad in law and invalid despite the amendment of Section 271(1B) with retrospective effect and by virtue of the amendment, the Assessing Officer has initiated the penalty by properly recording the satisfaction for the same? 11. The Hon ble High Court had allowed the claim of assessee where the Assessing Officer had not explicitly mentioned that as to whether the penalty proceedings were initiated for concealment of income or for furnishing inaccurate particulars of income, suffers from infirmity even if it is established that the assessee had concealed the income in the facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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