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TMI Blog2017 (3) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... AO in the assessment order dated 20-02-2014 framed u/s 143(3) of the Act with which he was burdened for initiating penalty proceedings u/s 271(1)(c) of the Act. We have also observed that in the order dated 26-08-2014 passed by the AO u/s 271(1)(c) of the Act levying penalty on the assessee, the AO after considering the explanation of the assessee has clearly recorded the charge on which penalty had been levied on the assessee u/s 271(1)(c) as held that merely because the assessee is not maintaining books of accounts, he cannot get rid of offering the income earned by him during the year. Thus penalty confirmed - Decided against assessee - I .T.A. No.2976/Mum/2016 - - - Dated:- 27-2-2017 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Assessee : Shri D.D. Jimulia For The Revenue : Shri Saurabhkumar Rai,DR ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the assessee, being ITA No. 2976/Mum/2016, is directed against the appellate order dated 05-02-2016 passed by the learned Commissioner of Income Tax (Appeals)- 36, Mumbai (hereinafter called the CIT(A) ), for the assessment year 2011-12, the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved by the A.O. that the assessee has received an amount of ₹ 3,80,000/- towards director s sitting fees which had not been offered for taxation by the assessee in computation of income filed with the Revenue. The assessee was show caused as to why director s sitting fees should not be added to the total income. In reply, the assessee vide his letter dated 10-02- 2014 submitted as under:- Directors Sitting Fees: Since I had not maintained books of accounts, the said income had escaped the working while finalizing my income tax return. The same can be added to my income and I will pay the appropriate tax on the same. As regards non disclosure of income, I would like to state that I am an honest assessee and the above mistake is only due to over sight and non maintenance of books of accounts. I would also like to draw your attention to the professional fees offered for tax. The entire income has been offered for tax and no expenses have been claimed against the same which also explains my intention is never to conceal income or not pay appropriate taxes. The assessee filed revised computation of income offering ₹ 4 lacs as director s fees which was added to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s return of income filed with the Revenue. It was observed by the AO that merely because the assessee has not maintained books of account cannot be a reasonable cause for not declaring of the said incomes in the return of income filed with Revenue. Moreover it was observed by the AO that the incomes involved are not meager amount that due to oversight the assessee left the same to be offered as income. It was observed by the AO that if the above income was left to be included in the return of income filed by the assesssee with the Revenue, the assessee could have come forward and filed revised return of income which was not done by the assessee as no revised return of income was filed by the assessee. It was observed by the AO that only when queried by the A.O., the assessee had come forward and declared the income by filing revised computation of income which shows that the assessee s intention of evading taxes by not disclosing the income in the return of income filed with the Revenue. Thus, the A.O. held that in the instant case mens rea is proved from the conduct of the assessee and that the assessee has concealed the income by furnishing inaccurate particulars of income and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dated 20-02-2014 u/s 274 read with Section 271(1)(c) of the Act issued by the AO , which is placed in paper book/page 3 filed with the tribunal. In support of his contention, the ld. Counsel for the assessee relied upon the order dated 21-12-2016 of the Mumbai Benches of the tribunal in the case of Dr. Sarita Milind Davare v. ACIT for assessment year 2009-10, which order of the tribunal is placed in file. He submitted that the assessee is a salaried employee as well had income from profession. It was submitted that there was only one/single receipt of professional fee of ₹ 2,73,75,00/- from abroad which was subjected to tax audit. It was submitted that no expenses were claimed against these professional income and this shows that the assessee is an honest tax-payer and has no intention of suppressing income . The extracts of copies of computation of income and tax audit report are placed in paper book/page17-24 filed with the tribunal and to buttress his arguments , our attention was drawn to these extracts although complete tax audit report etc. are not placed in paper book filed with the tribunal. It was submitted that the tax audit report dated 30-09-2011 was received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the first time before the tribunal that said legal contentions were raised . He drew our attention to the grounds of appeal filed before the learned CIT(A) as well to the appellate order dated 05-02-2016 passed by learned CIT(A). It was submitted by learned DR that is a willful mistake committed by the assessee to evade taxes and once the assessee was cornered and confronted by Revenue , the assessee came forward and filed revised computation of income and paid taxes.It was submitted by learned DR that only very less percentage of returns of income are selected for scrutiny and in case the return of income of the assessee was not selected for scrutiny, this non declaration of income would have gone un-noticed and taxes would have been successfully evaded by the assessee. It was submitted that both the heads of income which were not declared to the Revenue by the assessee in return of income filed , were not subjected to tax deduction at source and hence , the Revenue did not had knowledge of these income earned by the assessee but for scrutiny assessment u/s 143(3) r.w.s. 143(2) of the Act, this tax evasion came to the notice of the Revenue. It was submitted that the assessee can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al gains of ₹ 12,32,642/- on redemption of HDFC Mutual funds. It is claimed by the assessee that the assessee is an honest taxpayer, the assessee having paid the taxes along with interest immediately on coming to know of the mistake of having omitted to have declared these income of director sitting fee of ₹ 4,00,000/- and short term capital gains of ₹ 12,32,642/- arising from redemption of HDFC mutual funds. The plea of the assessee that books of account were not maintained or the tax-audit report was received on the last date of filing of return of income on 30-09-2011 which led to inadvertent mistake cannot be accepted as the assessee was fully aware of the receipt of income of director sitting fee of ₹ 4,00,000/- as well capital gains arising from redemption of HDFC mutual funds to the tune of ₹ 31,39,368/- and ₹ 30,84,274/- which by no means are meager amounts which can be claimed to have skipped the attention of the assessee in ordinary and normal course while filing return of income with the Revenue more so that assessee is deriving income mainly from salaries and also that the professional receipt of ₹ 2,73,75,000/- received by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9/03/2014 at 11:30 AM and show cause why an order imposing a penalty on you should not be made under Section 271(1)(c) of the Income Tax Act, 1961. If no one attends this office on the said date the case shall be decided on the basis of material available on records. Yours faithfully Sd/- (P. K. SINGH) JCIT 20 (2) ,MUMBAI Seal office of: Date and time of attending: 19- MAR 14 at 11.30 It is pertinent to mention here that the above notice dated 20-02-2014 issued by the AO u/s 274 read with section 271(1)(c) of the Act is not a standard printed format but is a typed notice issued to the assessee. We have observed that the assessee has raised legal ground for the first time regarding non framing of specific charge against the assessee by the AO w.r.t. whether the assessee concealed the particulars of income or furnished inaccurate particulars of income. The law-makers have inserted sub-section (1B) to Section 271 of the Act by Finance Act, 2008 , w.e.f. 01-04-1989 wherein it is provided that where any amount is added or disallowed in computing the total income or loss of an tax-payer in any order of assessment or reassessment and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear of filing of return of income. Even after that when the case was under hearing, the assessee did not offer the income of ₹ 12,23,642/- being redemption of HDFC Mutual Fund unless he was specifically asked to explain the same. It is , therefore evident from the conduct of the assessee that he was trying to evade the income to the extent of ₹ 12,23,642/- . Considering these facts, income of ₹ 12,23,642/- is assessed under the head income from capital gain. In view of the above facts, I am satisfied that the assessee has concealed his income by furnishing inaccurate particulars of income to the extent of ₹ 12,23,642/- and thus penalty proceedings u/s 271(1)(c) if the I T Act, 1961 is initiated separately on this point. It is also pertinent to refer to the judgment of Hon ble Karnataka High Court in the case of CIT v. Manjunatha Cotton Ginning Factory (2013) 359 ITR 565 (Kar. HC) wherein the Hon ble Karnataka High Court held as under : DEEMING PROVISION 48. As the opening words of Explanation 1 makes it clear where in respect of any facts material to the computation of the total income of any person under this Act such person fails to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be in writing. As the satisfaction has to be in the course of any proceedings and it is at the time of computation of the total income of any person and as it results in an assessment order which has to be mandatorily in writing, the satisfaction should be found in the said order. The existence of these facts is a condition precedent for initiation of penalty proceedings under Section 271. This provision is attracted once in any such assessment orders, a direction for initiation of penalty proceedings under clause (c) of sub-section (1) is made. Thereby, it means even if the order does not contain a specific finding that the assessee has concealed income or he is deemed to have concealed income because of the existence of facts which are set out in Explanation 1, if a mere direction to initiate penalty proceedings under clause (c) of sub-section (1) is found in the said order, by legal fiction, it shall be deemed to constitute satisfaction of the Assessing Officer for initiation of penalty proceedings under said clause (c). The said provision came up for interpretation by the Delhi High Court in the case of Ms. Madhushree Gupta v. Union of India [2009] 317 ITR 107/183 Taxm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rajendranath 120 ITR pg.14,where it has been held that in any event whatever else it may amount to, on its very terms the observation that the ITO is free to take action, to assess the excess in the hand of the co-owners cannot be described as a direction. A direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the option and discretion of the ITO whether or not take action, it cannot be described as a direction. 51. Therefore, it is settled law that in the absence of the existence of these conditions in the assessment order penalty proceedings could not be proceeded with. The proceedings which are initiated contrary to the said legal position are liable to be set aside. WHEN DEEMING PROVISION NOT APPLICABLE 52. Sub-section (1)(B) only deals with satisfaction of the Assessing Officer. However, under the scheme of Section 271, the persons who are authorised to compute income as well as initiate the proceedings or the Assessing Officer or the Commissioner of Appeals or Commissioner in the course of revisional jurisdiction, Explanation 1 applies to all these three Officers whereas the deeming pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NALTY PROCEEDINGS 54. As is clear from the words in Section 271, if the Assessing Officer or the Commissioner of Appeals or the Commissioner in the course of any proceedings under this Act is satisfied that any person has concealed particulars of his income or furnished inaccurate particulars of his income, he may direct that such person shall pay by way of penalty the amount mentioned therein. Therefore, the penalty proceedings have to be initiated by the person who is satisfied about the concealment of income or furnishing of inaccurate particulars of income in the course of any proceedings under this Act. In a given case if the Assessing Officer has not recorded any satisfaction or has not issued any direction to initiate penalty proceedings, in appeal or in revision, the authority is satisfied regarding concealment and furnishing of inaccurate particulars, then it is that authority which is satisfied about the said concealment or furnishing of inaccurate particulars has to initiate penalty proceedings and then pass orders in respect of the penalty to be imposed. The imposition of penalty may be done at the stage of assessment or at the stage of an appeal. At the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PENALTY 58. It must be noticed that this finding recording concealment in the order to be passed by these authorities is only for the purpose of initiating. The said finding is not conclusive; it is in the nature of prima facie satisfaction, which authorises them to initiate the penalty proceedings. Once a penalty proceedings is validly initiated, then under Section 274(1) an obligation is cast on the person initiating the proceedings to issue notice to the assessee. When such a notice is issued, it is open to the assessee to contest the accusation against him that he has concealed income or he has furnished inaccurate particulars. As there is an initial presumption of concealment, it is for the assessee to rebut the said presumption. The presumption found in Explanation 1 is a rebuttable presumption. If the authority, after hearing the assessee and looking into the material produced in the said proceedings before him is satisfied that though the income is undisclosed there was no intent to avoid tax and therefore, if he holds there is no concealment of income, then question of imposing penalty would not arise. It may be a case of not disclosing income without any inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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(l)(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 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 has to meet specifically. Otherwise, principles of natural justice is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 T. Ashok Pai v. CIT [2007] 292 ITR 11/161 Taxman 340 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 CIT v. Manu Engg. [1980] 122 ITR 306 and the Delhi High Court in the case of CIT v. Virgo Marketing (P.) Ltd. [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 non-application of mind. INDEPENDENT PROCEEDING 62. The pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . CONCLUSION 63. In the light of what is stated above, what emerges is as under: (a) Penalty under Section 271(l)(c) is a civil liability. (b) Mens rea is not an essential element for imposing penalty for breach of civil obligations or liabilities. (c) Wilful concealment is not an essential ingredient for attracting civil liability. (d) Existence of conditions stipulated in Section 271(l)(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 Section 271(l)(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 insofar 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. We do not find any infirmity in the notice dated 20-02-2014 issued by the A.O. u/s 271(1)(c) r.w.s. 274 of the Act wherein the AO has clearly framed an alternate charges for levying penalty u/s 271(1)(c) of the Act at the stage of issue of notice u/s 274 r.w.s. 271(1)(c) of the Act.More-so it is not a standard printed format which is sent to the assessee rather the same is specifically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trying to evade the income to the extent of ₹ 4,00,000/-. Considering these facts, income of ₹ 4,00,000/- is assessed under the head income from business. Considering these facts, I am satisfied that the assessee has concealed his income by furnishing inaccurate particulars of income to the extent of ₹ 4,00,000/- and thus penalty proceedings u/s 271(1)(c) of the I T Act, 1961 is initiated separately on this point. 6 .. *** *** The assessee has vide letter dated 18.02.2014 filed revised computation of income offering ₹ 12,23,642/- under the head Short Term Capital Gains . The explanation submitted by the assessee is considered. It is noted that the assessee has made disclosure of income of ₹ 12,23,642/- only after the assessee was asked to explain the same. The assessee did not pointed out voluntarily after receipt of statutory notice u/s 143(2) which was issued after one year of filing of return of income. Even after that when the case was under hearing, the assessee did not offer the income of ₹ 12,23,642/- being redemption of HDFC Mutual Fund unless he was specifically asked to explain the same. It is , therefore evident from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incomes involved are also not meager that due to oversight , left to be offered. Had the above incomes left by oversight , the assessee would have offered the same any time after filing of return by filing revised return . The assessee s act clearly shows his intention of evading tax by not disclosing his above incomes either in return of income or by filing revised return later on. Even during assessment proceedings, the assessee has not voluntarily offered the same for taxation. It was only when queried by the AO that the assessee offered the incomes and filed revised computation of income. From the above facts and by the conduct of the assessee, mens-rea of the assessee is very well established . In view of the facts of the case and elaborate discussion in assessment order, it is held that the assessee has concealed income by furnishing inaccurate particulars of income. Thus, the assessee has committed default u/s. 271(1)(c) of the I.T.Act and the case of the assessee is a fit case for levy of penalty. Under these circumstances and as per detailed reasoning as set out above by us , we do not find any infirmity in the order of the A.O. as was confirmed by learned CIT(A), we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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