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TMI Blog2017 (1) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... onal and legal mistake is not curable u/s 292B of the I.T. Act. 2. On the facts and in the circumstances of the case and in law the ld. CIT(A) erred in confirming the imposition of penalty of Rs. 99,000/- u/s 271(1)(c) of I.T. Act, 1961 on account of addition of Rs. 4 lakhs made u/s 69B of I.T. Act,1961.'' 2.1 Apropos Ground No. 1 and 2 of the assessee, the facts of the case as emerges from the order of the ld. CIT(A) is as under:- ''3.1.2 I have duly considered assessee's submission and carefully gone through penalty order passed by the AO. I have also taken a note of the factual matrix of the case as well as applicable case laws relied upon. In this case, AO had initiated the penalty proceeding u/s 271(1)(c) of the Act in the assessment order passed on 31.08.2010 on the addition made in assessment order and pursuant to appellate order passed by Ld. CIT(A) wherein the addition of Rs. 4,00,000/- was sustained by the Ld CIT(A) in ITA No.212/10-11 dt. 04/10/2013, penalty of Rs. 99,000/- has been imposed under explanation 1 to the provision of section 271 (1)(c) of the Act. Briefly, facts of the case are as under: i) Search was conducted at the various business and residential ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e search proceedings by the appellant. Therefore, these statements of affairs filed by the appellant do not have any evidentiary value. ii) The AR has also filed a copy of the accounts of assessee in the books of M/s Suresh Medical Agency and Mittal Enterprises, and his bank accounts. All the three accounts further reiterate the fact that he was a person of very limited financial means. No direct evidence has been filed regarding the source of investment of Rs. 4 lakh in these debtors. In absence of any direct evidence to explain the source of Rs. 4 lakh and advance to debtors or farmers as claimed, the advances remain unexplained in the hands of the appellant given his lack of financial worth. iii) Furthermore, at no stage were the details by way of the names, addresses or affidavits of the alleged debtors filed at any stage of the proceedings to substantiate his submissions. ivi) Furthermore, the Ld. CIT(A) in the case of Murari Lal Mittal A.Y. 200708 ITA No.445/10-111 dated 01.03.2012 has deleted this addition of Rs. 4 lakh in the hands of the Murari Lal Mittal by observing that if the AO was of the view that source of Rs. 4 lakh was not properly explained in the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT vs. Saraswathi Ammal, 146 ITR 486 (Mad.) (iii) Swaran Kanta vs. CIT , 176 ITR 291 (Pune) (iv) Assam Carbon Products Ltd. vs. CIT 224 ITR 57 (Gau.) (v) Sardar Harbinder Singh Sehgal vs. CIT, 27 ITR 512 (Gau.) (vi) Vanaja Textiles Ltd. vs. CIT, 249 ITR 374 (Ker.) However, in the following cases, Section 292B of the Act was held to be inapplicable:- (i) where no notice had been served on the proper person, it is a fundamental infirmity and not a technical irregularity. (a) CIT vs. Phoolmati Devi (144 ITR 954 All) -notice sent to mother who was not guardian of the minor assessee. (b) Gajendra Kumar Banthia vs. UOI (222 ITR 632 Cal) - notice (ii) Where penalty notice u/s 271(1)(c) was not signed [Umashankar Mishra vs. CIT (136 ITR 330 M.P)] (iii) unsigned return - under section 140 it is a mandatory to sign a return (Khilaldas and Sons vs. CIT , 225 ITR 960 (MP)] Therefore, it is clear from the above decisions that it is only to overcome certain technical objections that section 292-B can be resorted to. Where, however, the clear provisions of the law are not adhered to, section 292-B cannot be resorted to. The question of application of section 292-B cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical defect in it would not render it to be invalid. In such a situation the provisions of section 292-B of the Act would not come to the rescue of the assessee and thus will not make such notice to be invalid. The instant case falls under this category. It is clear from the language of the provision, that its aim is to prevent any return of income, assessment, notice or other proceedings being treated as invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, other proceedings which are in substance and effect in conformity with or according to the intent and purpose of this Act. The question of application of Section 292-B cannot be prejudged by finding that return, notice etc. is not as per the requirement of the statute and is/are invalid. This way the very purpose of the section to prevent declaration of return, notice etc. as invalid is defeated. The finding that the return or notice etc. is invalid or to what extent it is invalid is unnecessary and counterproductive. Invalid in my view is quite a strong word and "mistake, defect or omission" in the return, notice, etc. consider whether such return etc. "is in substanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereas in the course of assessment proceedings before me for the A. Y. 2003-04 it appears to me that as per sections 274 read with section 271(1)(c) of the I.T. Act you are liable for penalty for concealment of income/furnishing inaccurate particulars of income". Thus the penalty proceedings were initiated without specifying the limb for reasons in the penalty notice to impose the penalty i.e. whether the penalty was initiated for concealment of particulars of income or for furnishing inaccurate particulars of income. Therefore the initiation and imposing of penalty proceedings is wrong, bad in law, in valid and void ab initio. 2. The notice U/s 271 should be specific on imposing of penalty u/s 271(1)(c) of Income Tax Act, 1961 i.e. concealed particulars of income or furnishing inaccurate particulars of income. Reliance is placed on the decision in the case of H. Lakshminarayana Vs. ITO, ITAT Banglore Tribunal ITA Nos. 992 to 996/Ban/2014 order dated 3rd July, 2015 wherein the decision of Hon'ble Karnataka High Court in the case of CIT & Anr. Vs Manjunatha Cotton and Ginning Factory has been considered wherein it has been held that penalty proceeding is a civil liability, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31/12/2009. Notice U/s 274 read with Section 271-272 of the Act was issued on 30/12/2009 by ticking of the notice as under:- "U/s 271(1)(c):- Concealed particulars of income or furnished inaccurate particulars of income". The ld Assessing Officer again gave notice during the course of penalty proceedings on 23/1/2012 wherein he gave show cause notice U/s 271(1)(c) for imposing of penalty without specifying the limb for reasons to impose the penalty, whether it is for concealed particulars of income or furnished inaccurate particulars of income. The ld CIT(A) has considered all the aspect and held that Explanation 5A to Section 271(1)(c) is applicable as in this case, a search was carried out after 01/6/2007 and the assessee has furnished return for A.Y. 2007-08 before search and additional income has been disclosed U/s 153A.Therefore, deeming provisions are applicable. It is undisputed fact that the assessee has disclosed additional income in return filed U/s 153A on the basis of incriminating document found during the course of search. We have considered view that Explanation 5A is not required to be mentioned by the Assessing Officer specifically at the time of initiation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... naccurate particulars of income. The Hon'ble Punjab & Haryana High Court has expressed different view on initiation of penalty proceedings even notice U/s 274 issued by putting oblique between concealing and furnishing of inaccurate particulars of income whereas the Hon'ble Karnataka High Court has held that the Assessing Officer has to satisfy at the time of initiation of penalty proceeding and issuing notice U/s 274 of the Act that whether penalty is for concealed particulars of income or furnishing of inaccurate particulars of income. There were two opinions of the Hon'ble Courts. The Hon'ble Supreme Court has held that in case of two views of the court, favourable view of the assessee would be taken as held in the case of CIT Vs Vegetable Products Ltd. (1973) 88 ITR 192 (SC) and a recent decision in the case of CIT Vs. Vatika Township P Ltd. (2014) 367 ITR 466 (SC). Therefore, we are of the considered view that initiation of penalty proceedings is not as per law and Assessing Officer did not have any jurisdiction to impose penalty U/s 271(1)(c) of the Act. As the matter has been decided on technical issue, we are not expressing any view on merit of the case. Accordingly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature 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 penalty on him as section 274 makes it clear that the assessee has a right to contest such proceedings and should have full opportunity to meet the case of the Department and show that the conditions stipulated in section 271(1)(c) do not exist as such he is not liable to pay penalty. The practice of the Department sending a printed form where all the grounds mentioned in section 271 are mentioned would not satisfy the requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100 per cent. to 300 per cent. of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under section 274 should satisfy the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended if the show-cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.'' It is also noted that similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi High Court in the case of Madhu Shree Gupta vs. UOl, 317 ITR 107 wherein it has been held that at the stage of initiation of penalty proceedings, the order passed by the Assessing Officer need not reflect satisfaction vis a vis each and every item of addition or disallowance if the overall sense gathered from the order is that a further prognosis is called for. It would be sufficient compliance with the law that there is a prima facie evidence for concealment of particulars of income or furnishing inaccurate particulars of income. Even after this section, the Assessing Officer has to satisfy the particular limb of initiation of penalty imposable U/s 271(1)(c) of the Act at the time of assessment proceedings. The Hon'ble Karnataka High Court in the case of CIT vs. M/s Manjunatha Cotton & Ginning Factory & Ors.(2013) 359 ITR 565 (Karn) held that sending printed form where all the grounds mentioned in section 271 would not satisfy the requirement of law. The assessee should know the ground which he has to meet specifically, otherwise, the principle of natural justice is offended on the basis of such proceedings, no penalty could be imposed to the assessee.The Hon'ble Punjab & Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30-12-2010 issued u/s. 274 r.ws. 271(1)( c) of the Act purportedly issued to show cause why the penalty shall not be imposed, We find that irrelevant portion of such notice was not struck out by the AO. Therefore, the said notice is not clear whether it was issued for furnishing of inaccurate particulars of income or concealment of particulars of such income. We find that the assessee as relied on the order dated 06-11-2015 in the case of Suvaprassanna Bhattacharya Vs. ACIT, Kolkata in ITA No. 1303/Kol/2010 for the AY 2006-07 is applicable to the case on hand. The relevant findings of the said tribunal order is reproduced herein below for better understanding:" 8. The next argument that the show cause notice u/s. 274 of the Act which is in a printed form does not strike out as to whether the penalty 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 spell out as to whether the penalty proceedings are sought to be levied for "furnishing inaccurate particulars of income " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under Section 274 should satisfy the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended if the show cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee. 60. Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income. No doubt, the facts of some cases may attract both the offences and in some cases there may 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer proposes to invoke the first limb being concealment, then the notice has to be appropriately marked. Similar is the case for furnishing inaccurate particulars of income. The standard pro forma without striking of the relevant clauses will lead to an inference as to non applicationof mind." The final conclusion of the Hon'ble Court was as follows:" 63. In the light of what is stated above, what emerges is as under: a) Penalty under Section 271(1)(c) is a civil liability. b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. c) Willful concealment is not an essential ingredient for attracting civil liability. d) Existence of conditions stipulated in Section 271(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 Section271(1)(c), at least the facts set out in Explanation 1(A) & (B) it should be discernible from the said order which would by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee should know the grounds which he has to meet specifically. Otherwise, principles of natural justice is offended. On the basis of such proceedings, no penalty could be imposed to the assessee. s) Taking up of penalty proceedings on one limb and finding the assessee guilty of another limb is bad in law. t) The penalty proceedings are distinct from the assessment proceedings. The proceedings for imposition of penalty though emanate from proceedings of assessment, it is independent and separate aspect of the proceedings. u) The findings recorded in the assessment proceedings in so far as "concealment of income" and "furnishing of incorrect particulars" 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) 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 defectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of balance sheet for 31.03.2002 and 31.03.2003 has been filed in previous hearing of the case. However a copy of the same is again enclosed herewith for your ready reference. The advance was given to the following farmers (i) Kalu, Shyonath, Ramu, Chittar, Balu, Narayan, Mangilal, Harinarayan, Budha, Gopal, Bhoriya, Radheyshaym, Govind Narain, Jagdish, and Motilal, resident of Village Jaitpura (Hajyawala). The advance was given through a broker for purchase of land at village Jaitpura. 3. Explanation regarding addition of Rs. 4,00,000/- u/s 69 of Income Tax Act, 1961 The advances of Rs. 4,00,000/- was given to the farmers for purchase of land before 01.04.2002, therefore the same cannot be treated as income of the assessee of current year and no addition can be made in AY 2003-04 by applying the provisions of u/s 69 of Income Tax Act, 1961. Your allegation that this advance was created to generate cash which was utilized for gift to Shri Murari Lal Mittal is without basis. It is a fact that the repayment received from the above said persons was utilized in the gift to Shri Murari Lal Mittal but the assessee was of 58 years old and his past savings were sufficient to g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However in penalty proceeding, the benefit of such presumption is not available to the department. In the case of the assessee the assessee explained the source of investment and the same was not disproved by the assessing officer, therefore this is not a case where the assessee concealed the income. 13. The additions made are not because of willful or conscious default, but only because of the reasons, which is of technical nature or estimation of income, and in such cases penalty should not be levied. The assessee rely on the following decision of jurisdictional High Court: - 1) Shiv Lal Tak Vs CIT [2001] 251 ITR 373 (Raj): 2) CIT Vs Harshvardhan Chemicals & Minerals Ltd [2003] 133 Taxman 320 (Raj) 3) Hari Gopal Singh v/s CIT, 258 ITR 85 (P&H) 4) Addl. CIT v/s Agarwal Mishthan Bhandar, 131 ITR 619 (1981)(Raj.) 5) CIT v/s M. M. Rice Mill, 253 ITR 17 (2002) (P&H) 14. In the penalty order the penalty was imposed by relying the finding of assessment order. No further positive material was brought on record to prove that the assessee has actually concealed the income The penalty u/s. 271 (1)(c) is not automatic. The findings of the AO in quantum proceeding are not bind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulars of his income. The additions in assessment order may be because of some technical reasons which always does not mean that the assessee had concealed income, therefore for imposing a penalty the assessing officer has to prove that the assessee was having concealed income. The penalty u/s. 271(1)(c) is not automatic and for imposing the penalty u/s 271(1)(c) of Income Tax Act, 1961 the ld. AO has to brought on record any positive material to show that the assessee concealed his income. There must be independent finding as held a) Hon'ble Calcutta High Court in the case of Durga Kamal Rice Mills v/s. CIT (2004) 265 ITR 25 (Cal.). V). Held that the findings of the quantum proceedings stage are not binding in penalty proceedings. There must be independent finding b) RANI SATI COAL SUPPLIER vs. ITO 26 TW 440; Held that the addition made in quantum assessment and later on sustained is not sufficient ground for imposition of penalty u/s 271(1) (c). c) Sunil Kumar Gangwal vs. DCIT 32 Taxworld 139 Held that finding in quantum proceedings are not binding in the penalty proceedings, for imposition of penalty, independent findings are required. 18. In the present case, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obliged, either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute." In view of the above submission it is clear that the addition in total income do not represent to real income of assessee but is on account of additions made for technical reasons, therefore it cannot be said that the assessee has concealed the income or filed inaccurate particulars. Your honour is requested kindly to cancel the penalty so imposed by the AO and confirmed by ld CIT(A)'' 2.3 The ld. DR relied on the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this account. The ld. CIT(A)(Central), Jaipur in his order in appeal no.2012/10-11 dated 4-10-201 has also dismissed the appeal of the assessee. Further the case law cited by the assessee is distinguishable from the facts of the present case. Hence, the initiation of penalty is within the provision of section 271(1)(c) and the concealment of particulars of income were duly brought out in the assessment order. In view of the facts discussed above, it is clear that the assessee has intentionally concealed his income and furnished inaccurate particulars of his income by not disclosing his correct and true income in the original return. This shows that the assessee has committed the default as prescribed u/s 271(1)(c) of the I.T. Act,19761 and is therefore, liable for penalty.'' In first appeal, the ld. CIT(A) confirmed the penalty of Rs. 99,000/- u/s 271(1)(c) of the Act. It is noted from the records that entire addition is based on statement of affairs of 31-03-2002 and 31-03-2003 submitted by the assessee himself. The AO presumed that the sundry advance was created to generate cash for gift given to Shri Murari Lal Mittal in A.Y. 2007-08. It is further noted that opening bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependent finding b) RANI SATI COAL SUPPLIER vs. ITO 26 TW 440; Held that the addition made in quantum assessment and later on sustained is not sufficient ground for imposition of penalty u/s 271(1) (c). c) Sunil Kumar Gangwal vs. DCIT 32 Taxworld 139 Held that finding in quantum proceedings are not binding in the penalty proceedings, for imposition of penalty, independent findings are required. It is also observed that the penalty proceedings are penal in nature, the Department must establish that the additions so made are real income of the assessee. The Department must have some cogent material or evidence before levying the penalty that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars of income. The Hon'ble supreme Court in the case of Dilip N Shroff vs. JCIT (2007) 219 ITR 519 observed that penalty should not be imposed solely on the basis findings reached in quantum proceedings. It is also noted from the records that on similar issue u/s 271(1)(c) of the Act, the ITAT Jaipur Bench in the case of Shri Murari Lal Mittal vs. DCIT, Central Circle- 2, Jaipur had deleted the penalty vide order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100 per cent. to 300 per cent. of the tax liability. As the said provisions have to be held to be strictly construed, notice issued under section 274 should satisfy the grounds which he has to meet specifically. Otherwise, the principles of natural justice is offended if the show- cause notice is vague. On the basis of such proceedings, no penalty could be imposed on the assessee.'' It is also noted that similar type of issue was decided in favour of the assessee by ITAT Coordinate Bench in the case of Shankar Lal Khandelwal vs. DCIT, Central Circle- 1, Jaipur vide its order dated 11-03-2016 in ITA No. 878/JP/2013 for the assessment year 2007- 08 by observing as under:- 6. We have heard the rival contentions of both the parties and perused the material available on the record. In this case, the ld Assessing Officer initiated penalty proceedings for concealing of particulars of income and for furnishing inaccurate particulars of income vide order dated 31/12/2009. Notice U/s 274 read with Section 271-272 of the Act was issued on 30/12/2009 by ticking of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osable U/s 271(1)(c) of the Act at the time of assessment proceedings. The Hon'ble Karnataka High Court in the case of CIT vs. M/s Manjunatha Cotton & Ginning Factory & Ors.(2013) 359 ITR 565 (Karn) held that sending printed form where all the grounds mentioned in section 271 would not satisfy the requirement of law. The assessee should know the ground which he has to meet specifically, otherwise, the principle of natural justice is offended on the basis of such proceedings, no penalty could be imposed to the assessee. The Hon'ble Punjab & Haryana High Court in the case of Tej Bhan Cotton Ginning & Pressing Factory Vs. CIT, Rohtak (supra) has held that the Assessing Officer in assessment order has satisfied himself regarding initiation of penalty proceedings, which was tantamount to satisfaction have recorded to the fact on the basis of addition made by the Assessing Officer for concealed income in assessment order. The Hon'ble Court has confirmed the penalty even penalty proceedings initiated by the Assessing Officer by mentioning penalty proceeding for concealing/furnishing of inaccurate particulars of income. The Hon'ble Punjab & Haryana High Court has expressed different view o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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