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TMI Blog2017 (1) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... g concealed income. The penalty u/s 271(1)(c) of the Act is not automatic and for imposing penalty u/s 271(1)(c) of the Act, the AO had to brought on record any positive material to show that the assessee concealed his income. Hon’ble Karnataka High Court in the case of CIT vs. M/s Manjunatha Cotton & Ginning Factory & Ors.(2013 (7) TMI 620 - KARNATAKA HIGH COURT) 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. As in the case of Tej Bhan Cotton Ginning & Pressing Factory Vs. CIT, Rohtak (2010 (12) TMI 110 - PUNJAB AND HARYANA HIGH COURT ) 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 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case and in law the ld. CIT(A) erred in confirming the imposition of penalty of ₹ 1,22,400/- u/s 271(1)(c) 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 considered assessee's submission and carefully gone through penalty order passed by the AO. I have carefully gone through the reassessment order passed on 25-03-2014 against which assessee did not prefer appeal. I have also taken a note that of the factual matrix of the case as well as applicable case laws. Here in this case, assessee has raised technical objection with regard to initiation of penalty proceedings. 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to cross examine Shri Sanjay D Sonwani Director of M/s. Washington Software Ltd. Assessee has also not controverted AO s finding given in para 4 of the assessment order. AO has also incorporated assessee's submission made in this regard in pg 4 of the assessment order. Further, post search operation, all concerns except the assessee of the Career Point Gr' approached Hon'ble Settlement Commission, New Delhi. AO has in para 9 pg 6 of the assessment order has mentioned inter alia as under:- .9. Further it is also worthwhile to mention here that in the Career Point Group of Kota in which assessee belongs, during the proceeding before the Income Tax Settlement Commission, New Delhi (ISTC) admitted that they had obtained bogus bills against purchase of software from M/s. Washington Software Ltd. Mumbai. In this group cases, the Hon'ble ISTC has passed the order on 31-03-2013. This fact has also not been controverted by the assessee even at this appellate stage. Now, in view of these findings, AO is quite justified in making out a case of concealment of income inasmuch as furnishing of inaccurate particulars of income of ₹ 4,00,000/- and thereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, 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 to imposing penalty on him as the Section 274 makes it clear that 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. 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 principl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 or even in the show cause notice issued by the Assessing Officer, but basic defect we found that the ld Assessing Officer has mentioned at the time of initiation of penalty proceeding under both the limbs i.e. concealed the particulars of income and furnished inaccurate particulars of income but at the time of notice U/s 274 he simply has ticked in prescribed proforma concealed particulars of income or furnished inaccurate particulars of income without deleting either limb of penalty even he has not put and in the notice itself between two limbs. The amended provisions of Sub-section (1B) of Section 271 has been considered by the Hon'ble Delhi High Court in the case of Madhu Shree Gupta vs. UOl, 317 ITR 107 wherein it has been held th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egetable 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, we delete the penalty confirmed by the ld CIT(A). 7. In the result, the appeal of the assessee is allowed. 4. Hon ble ITAT in its recent judgment in case of Shri Murari Lal Mittal ITA No. 334/JP/2015 order dated 09/11/16 has canceled the penalty on the same grounds following the decision of Shri Shanker Khandelwal. The findings of Hon ble ITAT are as under:- 2.5 I have heard the rival contentions and perused the materials available on record. It is noted from the record that the assessee is an individual declaring income from house property and income from business or profession as proprietor of M/s. Mittal Enterprises. The return u/s 139(1) of the Act was filed on 25-10-2004 by the assessee declaring total income of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly, 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 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or concealing particulars of such income . 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 penalty have to be held as bad in law and liable to be quashed. 5.1 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding 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 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere 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 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 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 authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings. 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 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. 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. 11. In the present case, as we noted above, the AO failed to strike out the irrelevant portion in the said show cause notice, Respectfully following the order above, we cancel the penalty levied u/s. 271(1) ( c) of the Act by the Assessing Officer as confirmed by the CIT( A) for both the assessment years under consideration. Having held that the notice issued by the AO U/Sec 274 r/w Sec 271(1)(c) of the Act during the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re issued by this company in order to help the parties to inflating their expenses. But in the case of the assessee the software was purchased for the school naming Global Public School being run by the assessee and the income of the school is exempted u/s 10(23C)(iiiad) of Income Tax Act, 1961, therefore there is no motive with the assessee to inflate the expenses. Further the software expense was capitalized as fixed assets on which the assessee only claimed the depreciation. d) The assessee had duly purchased the software on 03.06.2006 for ₹ 4,00,000/- from above named company and made the payment through a/c payee cheque. Without making necessary inquiries the reliance of statement of above named party is being made which can be given by him for his own reasons. The person who sold the software to the assessee claimed to be representative of Washington Softwares Ltd and approached to the trustees of the assessee for sales of the software related to School Management. After purchasing the software the person gave the bill of Washington Softwares Ltd and thereafter the payment against bill was made through a/c payee cheque in the name of above named company. e) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the ld. AO. The assessment proceedings and penalty proceedings are two separate proceedings. The additions made during assessment proceedings does not lead to conclusion that the assessee was having some undisclosed income or concealed the particulars of his income. The additions in assessment order may be because of some technical reasons which always do 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 which was not proved in the case of the assessee. 8. The ld. AO not brought any positive material/finding/evidence on record to prove that the assessee was having some undisclosed income The ld. AO has not brought on record any material to show that the explanation of the assessee was false. The explanation of the assessee was not rejected on the strength of material. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during assessment proceedings does not lead to conclusion that the assessee was having some undisclosed income or concealed the particulars 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 quantu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex Court has held that An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed unless the party 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. 2.2 Ground No. 2: - The assessee do not wants to add, alter and amend the grounds of appeal. In view of the above submission it is clear that the addition in total income do not represent to real income of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee and added this amount of ₹ 4,00,000/- to the total income of the assessee. This would result in an addition of ₹ 4.00 lacs. According to the AO, this undisclosed income is not eligible for expenditure u/s 10(23C)(iiiad) as the same is not earned solely from imparting of educational activities. According to the AO, it is clear that the assessee has willfully concealed its income and has given inaccurate particulars of income by taking bogus bills. Thus the AO vide his order assessment order dated 25-03-2014 initiated the penalty proceedings separately u/s 271(1) of the Act for concealment of income and furnishing inaccurate particulars of income. Further the A.O. imposed a penalty of ₹ 1,22,400/- u/s 271(1)(c) of I.T. Act, 1961 vide order dated 24-09-2014 being 100% of tax laviable on ₹ 4,00,000/- treating the same as concealed income of assessee and holding that the assessee had willfully concealed its income and has given inaccurate particulars of its income by taking bogus bill. The ld. CIT(A) confirmed the action of the AO in imposing the penalty of ₹ 1,22,400/-. It is observed that assessment proceedings and penalty proceedings a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of ₹ 6,18,980/- which included the addition of ₹ 33,892/- made by the AO on account of disallowance made from various expenses. In penalty proceedings, the AO imposed the penalty of ₹ 1,36,145/- being 100% of tax payable on additional income of ₹ 4,53,819/- declared by the assessee. The ld. CIT(A) had confirmed the action of the AO. It is noted from the record that the AO had initiated penalty proceedings for concealment of income or for furnishing inaccurate particulars of income. In the notice also, the AO has not specified for which specific reason the penalty proceedings has been initiated whether it is for concealment of income or for furnishing inaccurate particulars of income. Ultimately, the AO levied the penalty for concealment of income. The Hon'ble Karnataka High Court in the case of CIT Anr vs. Manjunatha Cotton Ginning Factory, 359 ITR 565 held as under:- though penalty proceedings are in the nature 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 secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or even in the show cause notice issued by the Assessing Officer, but basic defect we found that the ld Assessing Officer has mentioned at the time of initiation of penalty proceeding under both the limbs i.e. concealed the particulars of income and furnished inaccurate particulars of income but at the time of notice U/s 274 he simply has ticked in prescribed proforma concealed particulars of income or furnished inaccurate particulars of income without deleting either limb of penalty even he has not put and in the notice itself between two limbs. The amended provisions of Sub- section (1B) of Section 271 has been considered by the Hon'ble 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 satisfactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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, we delete the penalty confirmed by the ld CIT(A). 7. In the result, the appeal of the assessee is allowed. In view of the above deliberations and respectfully following the order of the Coordinate Bench in the case of Shankar Lal Khandelwal vs. DCIT, Central Circle- 1, Jaipur (supra), the penalty confirmed by the ld. CIT(A) is directed to be deleted. Thus the appeal of the assessee is allowed. It is also noted that the ld. AR of the assessee relied on various case laws (supra) including the judgement of ITAT, Kolkata Bench in the case of Vaibhah Tulsyan vs. ITO, Ward- 29(4), Kolkata (ITA No. 736 737/Kol/2013 dated 27-05-2016). In the case of Vaibhah Tulsyan vs. ITO, ITAT allowed the appeal of the assessee on the issue of penalty u/s 271(1) of the Act. In view of the above deliberations, facts of the case and the case laws relied on (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X
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