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TMI Blog2017 (1) TMI 1256X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing 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. The Statute has provided distinction between concealment of income and furnishing of inaccurate particulars of income, which may be thin line of distinction, but the same has to be kept in mind while recording satisfaction by the Assessing Officer. - Decided in favour of assessee - ITA No.2090/PUN/2013, ITA Nos.2095 to 2098/PUN/2013, ITA Nos.2091 to 2094/PUN/2013, ITA No.2100 to 2103/PUN/2013, ITA No.2099/PUN/2013 - - - Dated:- 20-1-2017 - MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM For The Appellant : Shri Hari Krishan For The Respondent : Shri Sudhanshu Shekhar ORDER PER SUSHMA CHOWLA, JM: This bunch of appeals filed by different assessee are against respective orders of CIT(A)-Central, Pune, all dated 22.08.2013 relating to respective assessment years 2004-05 to 2008-09 against penalty levied under section 271(1)(c) of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment years 2003-04 to 2007-08, dated 30.11.2016. 6. 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). 7. 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 on the residence and business premises of assessee at Aundh, Pune on 28.04.2009. The proceedings against the assessee were initiated under section 153A of the Act and in response, the assessee filed returns of income for the respective years and offered additional income. During the course of search, the assessee offered additional income in respect of various assessment years. The Assessing Officer accepted the additional income offered by the assessee in the returns of income and was of the view that since the additional income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen 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 section thus requires the concerned Officer to record satisfaction in the course of any proceedings under the Act, that the person has concealed the particulars of his income or furnished inaccurate particulars of his income. After recording the satisfaction, during the course of penalty proceedings also, the concerned Officer has come to a finding that as to whether the person has concealed the particulars of his income or furnished inaccurate particulars of such income and thereafter, levy the penalty accordingly. The word used between the two acts i.e. concealment of particulars of income and furnishing of inaccurate particulars of such income is or . So the penalty levied by the concerned Officer is on satisfaction of any of the limbs and not the satisfaction of both the limbs. Where the assessee had concealed the particulars of income in particular circumstances, then the Assessing Officer may record satisfaction to that effect and initiate penalty proceedings and thereafter on fixation of charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 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. The practice of the Department sending a printed farm where all the ground mentioned in Section 271 are mentioned 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 or is it a case of furnishing of inaccurate particulars. The Apex Court in the case of Ashok Pai reported in [2007] 292 ITR 11 (SC) at page 19 has held that concealment of income and furnishing inaccurate particulars of income carry different connotations. The Gujarat High Court in the case of Manu Engineering Works reported in [1980] 122 ITR 306 (Guj) and the Delhi High Court in the case of CIT v. Virgo Marketing P. Ltd. reported in [2008] 171 Taxman 156, has held that levy of penalty has to be clear as to the limb for which it is levied and the position being unclear penalty is not sustainable. Therefore, when the Assessing 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 proforma without striking of the relevant clauses will lead to an inference as to nonapplica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 issue, wherein the Assessing Officer had initiated penalty proceedings for concealment of particulars of income without striking inappropriate words or any parts of notice and proceeded to levy penalty for concealment, then following the ratio laid down by the Hon ble Karnataka High Court, the Tribunal held that notice issued for initiating penalty proceedings were invalid and consequently penalty proceedings were invalid. 19. Similar proposition has been laid down by Kolkata Bench of Tribunal in Shri Deepak Kumar Patwari Vs. ACIT in ITA Nos.616 to 618/Kol/2013, relating to assessment years 2007-08 to 2009-10, order dated 03.02.2016 and it has been further held that the provisions of section 292B of the Act cannot cure the basic defect in assumption of jurisdiction and could only cure the mistake, defect or omission in the return of income, assessment, notice or the proceedings. The Tribunal further held that show cause notice and the reasons mentioned in the show cause notice were part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 ambiguity in the notice had also prejudiced the right of reasonable opportunity to the assessee since he did not know of exact charges he had to face. In this background, quashing of penalty proceedings for assessment year 1967-68 was held to be justified. Applying the said principle laid down by the Jurisdictional High Court, application of mind before issuing the notice under section 274 of the Act has to be considered. The Hon ble High Court clearly held that where there is vagueness and ambiguity in the notice issued which could demonstrate non-application of mind by the authority which in turn, would ultimately prejudice the right of opportunity of hearing of the assessee as contemplated under section 274 of the Act, then such notice is invalid. 22. Now, coming to the facts of the case before us, wherein search and seizure operations were carried out on Chhoriya group of concerns on 22.08.2008 and declaration of ₹ 11.44 crores was made in the hands of whole group for various years. Cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 incorrect. Further, where the assessee is not aware of exact charge against him, the ambiguity in the notice issued under section 274 r.w.s. 271(1)(c) of the Act by not striking of portion which is not applicable, prejudice the right of reasonable opportunity to the assessee, as he was not made aware of exact charge he had to face. It is a clear-cut case of concealment since the assessee had offered additional income pursuant to search carried out at its premises. It is not the case of furnishing of inaccurate particulars of income and hence, the Assessing Officer should have recorded the satisfaction accordingly and issued the notice accordingly. 24. We find no merit on the partial reliance placed upon by the learned Departmental Representative for the Revenue on the decision of Jurisdictional High Court in CIT Vs. Smt. Kaushalya (supra). The Hon ble High Court has clearly laid down the proposition that the Assessing Officer has to make the assessee fully aware of exact charge of the Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee 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 section 274 of the Act by the Assessing Officer also does not show cause the assessee as to make him aware of exact charge levied against him. In the absence of same, it causes prejudice to the right of reasonable opportunity to be allowed to the assessee before levy of penalty under section 271(1)(c) of the Act. Consequently, penalty notice issued in the present case suffers from infirmities i.e. lack of satisfaction and lack of notice being issued in making the assessee aware of exact charge against him, hence the same is quashed. The penalty proceedings completed pursuant to such notice are vitiated and the same are held to be invalid. 27. Now, coming to the merits of case, the assessee had offered additional income on account of on-money on sale of plots. The Assessing Officer had accepted the same and had initiated penalty proceedings under section 271(1)(c) of the Act. The CIT(A) during the course of appellate proceedings relating to section 271(1)(c) of the Act issued enhancement noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nishing 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 case. The Apex court has dismissed the SLP filed by the Department. 11. The learned Departmental Representative for the Revenue has stressed that in view of the provisions of section 271(1)(1B) of the Act, where the order contains directions for initiation of penalty proceedings, such an order of assessment or re-assessment shall be deemed to constitute satisfaction of the Assessing Officer for initiating penalty proceedings under clause (c). The said objection of the learned Departmental Representative for the Revenue has also been taken note of by the Hon ble High Court in CIT Vs. SSA S Emerald Meadows (supra) by way of question No.2 which has been decided against the Revenue. Admittedly, the satisfaction has to be recorded in the order of assessment or re-assessment by the Assessing Officer while finalizing the assessment order. However, the Assess ing Officer has to at initial stage itself come to a finding as to whether the additions made in the hands of assessee justify the levy of penalty proceedings un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law, the learned CIT(A) has failed to appreciate that since there is no difference in the assessed income and income declared by the appellant in the return of income filed in response to notice issued by the learned Assessing Officer u/s 153A of the I.T. Act 19 61, the penalty levied by the learned Assessing Officer u/s 271(1)(c) of the I.T. Act 1961 was bad in law, patently illegal, without jurisdiction and void ab initio. The impugned penalty levied u/s 271(1)(c) of the I.T. Act 1961 by the learned Assessing Officer and as confirmed by the learned CIT(A) being bad in law the same may please be deleted. 2. The appellant craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of appeal, if deemed necessary at the time of hearing of the appeal. 13. We allow the plea of assessee in raising jurisdictional issue of not recording correct satisfaction while initiating penalty proceedings under section 271(1)(c) of the Act during the course of completion of assessment proceedings. 14. The assessment proceedings in the case were initiated because of search action in the Gaikwad group, wherein the residence of Mr. Deepak Gaware ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act were initiated separately on this count. While issuing notice under section 274 r.w.s. 271(1)(c) of the Act, the Assessing Officer has failed to strike off either of portions of the notice. Further, while levying penalty under section 271(1)(c) of the Act, the Assessing Officer has held the assessee to have concealed its income and hence penalty under section 271(1)(c) of the Act was levied against the assessee at ₹ 10,55,284/-. The Assessing Officer applied the provisions of Explanation 5A to section 271(1)(c) of the Act. 17. The learned Authorized Representative for the assessee pointed out that the issue is covered by order of the Tribunal in Kanhaiyalal D. Jain Vs. ACIT (supra). In the present case, where the Assessing Officer has recorded satisfaction as to concealment of income and has also levied penalty under section 271(1)(c) of the Act for concealing the income, merely because one of the limbs in the notice issued under section 274 r.w.s. 271(1)(c) of the Act have not been struck off, can it be held that penalty proceedings has been wrongly initiated and wrongly finalized. First of all, where the Assessing Officer had initiated penalty proceedings on the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 271(1)(c) of the Act set out the circumstances, which justifies the levy of penalty. For searches initiated under section 132 of the Act before first day of June, 2007, Explanation 5 was introduced by the Finance Act, 2007 with retrospective effect from 01.04.2003. Under the said section, where the assessee was found to be owner of any money, bullion, jewellery or other valuable articles or things and the assessee claims that such assets have been acquired by him by utilizing, wholly or in part his income, for any previous year, which had ended before the date of search, but the return of income for such year had not been furnished before the said date, or where the return of income had been furnished but such income had not been declared therein or for any previous year which is to end on or after the date of search, then notwithstanding that such income was declared by him in the return of income, he was deemed to have concealed particulars of his income or furnished inaccurate particulars of income, unless the income or the transactions were recorded in the books of account or the person in the course of search makes a statement under section 132(4) of the Act that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncealed the particulars of his income or furnished inaccurate particulars of his income. 17. The deeming provisions of Explanation 5A under section 271(1)(c) of the Act are applicable to all the searches initiated under section 132 of the Act on or after first day of June, 2007. The conditions laid down in the Explanation 5A is where during the course of search, the assessee is found to be in possession of any money, bullion, jewellery, valuable articles or things and the assessee claims that such assets have been acquired by him by utilizing wholly or in part his income, for any previous year on any income based on any entries in books of account, or other documents or transactions and he claims that such entries in the books of account or other documents or transactions represent his income for any previous year, then in cases where the return of income for such previous year had been furnished by the assessee prior to the date of search, but the said income had not been declared in the said return of income or the due date for filing the return of income had expired for such previous year and the assessee had not filed the return of income, it is further laid down that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lose its natural connotation. Indeed, it is repeatedly said that it is difficult to define the expression 'income' in precise terms. Anything which can properly be described as income is taxable under the Act unless, of course, it is exempted under one or the other provision of the Act. It is from the said angle that we have to examine whether the amount paid by Ballarpur by way of tax on the salary amount received by the assessee can be treated as the income of the assessee. It cannot be overlooked that the said amount is nothing but a tax upon the salary received by the assessee. By virtue of the obligation undertaken by Ballarpur to pay tax on the salary received by the assessee among others, it paid the said tax. The said payment is, therefore, for and on behalf of the assessee. It is not a gratuitous payment. But for the said agreement and but for the said payment, the said tax amount would have been liable to be paid by the assessee himself He could not have received the salary which he did but for the said payment of tax. The obligation placed upon Ballarpur by virtue of Section 195 of the Income Tax Act cannot also be ignored in this context. It would be unrealisti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra) the Tribunal has held that to patch out the lacuna due to the judicial interpretation of Expl. 5 of Sec. 271(1)(c) which was on the statute book upto 31-5-2007, Explanation 5A has been substituted for Expl. 5 by the Finance Act, 2007 w.e.f 1-6-2007. The said explanation was further amended by the Finance(No.2) Act, 2009 with retrospective effect from 01-07-2007 which is reproduced hereinabove. The Ld. Counsel has raised an important legal question whether the income declared by the assessee which is pertaining to the unrecorded expenditure can said to be the income which is contemplated in Explanation 5A(ii)? The answer to this question is in sec. 69-C which reads as under:- Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year; 20. So far as the Expl.- 5 which was on the statute book, the Courts have taken a view th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atio laid down in DCIT Vs. Purti Sakhar Karkhana (supra), which is a decision of Nagpur Bench of Tribunal and Hyderabad Bench of Tribunal in Shri PV Ramana Reddy Vs. ITO (supra). In view of binding precedent of Pune Bench on the said issue, we find no merit in the reliances placed upon by the learned Authorized Representative for the assessee on DCIT Vs. Purti Sakhar Karkhana (supra) and Shri PV Ramana Reddy Vs. ITO (supra). The other reliance placed upon by the learned Authorized Representative for the assessee on the decision of Pune Bench of Tribunal in Smt. Pramila D. Ashtekar Vs. ITO (2013) 39 taxmann.com 103 (Pune Trib.), it may be pointed out that the said order of Pune Bench of Tribunal has been recalled in MA No.112/PN/2013, order dated 21.06.2013 and has no binding effect for deciding the present issue. Further reference was made to the decision of CIT Vs. Continental Warehousing Corporation (NHAVA Sheva) Ltd. Anr. (supra), where the Hon ble Bombay High Court has deliberated upon the scope of 153A provisions and has no relevance to the issue before us. 19. Applying the said ratio laid down in Mrs.Sarita Kaur Manjeet Singh Chopra Vs. ITO (supra), we hold that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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