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TMI Blog2018 (8) TMI 507X X X X Extracts X X X X X X X X Extracts X X X X ..... o the root of the matter. All the Hon’ble High courts are consensus ad idem in their opinion on the above issue. Not even a single contrary judgment has been brought on record by the ld. DR. Insofar as invoking section 292B of the Act is concerned, in my view, the same has no applicability, as it is triggered only when there is some mistake, defect or omission in a notice or an order etc., which is otherwise in substance and effect in conformity with or according to the intent and purpose of this Act. The extant defaults in the penalty notices/orders are so fundamental that they cannot be construed as elementary or basic mistakes etc. so as to leave them in substance and effect in conformity with the intent and purpose of the Act. The penalty was wrongly imposed and confirmed in all the four appeals under consideration. I, ergo, agree with the ld. JM. in striking down all the penalty orders. The question posed is, therefore, answered in affirmative to the effect that where the satisfaction of the AO while initiating penalty proceedings u/s 271(1)(c) is with regard to alleged concealment of income by the assessee, whereas the imposition of the penalty is for ‘concealment/furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with banks and HPCL; and non-declaration of interest income on FDRs as security given to the Trial court. The assessee was found guilty in the penalty order of having concealed the particulars of his income/furnished inaccurate particulars of such income . Penalties in the case of HPCL Mittal Energy Ltd. and HPCL Mittal Pipelines Ltd. for the A.Y. 2009-10 were initiated by the AO by means of notices u/s 274 with reference to the second revised return on the charges of concealment of particulars of income on two items, viz., nondeclaration of interest income from deposits with banks and HPCL; and nondeclaration of interest income on FDRs as security given to the Trial court. However, the assessees were eventually found guilty in the penalty orders of having concealed the particulars of his income/furnished inaccurate particulars of such income. All the penalty orders stood affirmed in the first appeals. 3. It was contended in the appeals before the Tribunal that the penalty was not sustainable, inter alia, on the ground that the AO leveled charge of concealment of income in all the assessment orders and also issued penalty notices on the same charge, but found the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of particulars of income/furnishing inaccurate particulars of such income . In that view of the matter, I am not supposed to travel beyond such question and decide on the sustainability or otherwise of penalty on merits. 5. Coming back to the facts relating to four appeals under consideration, it is seen that the assessment orders were passed recording satisfaction and containing direction that the assessees concealed the particulars of their income; penalty notices also recorded similar charge of concealment of particulars of income; but penalty orders found the assesses guilty of concealment of particulars of income/furnishing of inaccurate particulars of such income. 6. At this juncture and before espousing the main question, it would be befitting to first decide as to whether the three items constituting bedrock of penalty, viz., disallowance of business loss; non-declaration of interest income from deposits with banks and HPCL; and non-declaration of interest income on FDRs as security given to the Trial court, fall under the expression concealment of the particulars of income or furnishing of inaccurate particulars of such income . The Hon ble Supreme Court in CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of income, furnishing of inaccurate particulars of income implies giving details of some items of income/expenses, but, claiming them exempt/deductible, fully or partly, which is actually not the case and such action of the assessee results in under-declaration of total income. With the above understanding of the ambit of the two expressions, I will now proceed to examine the true nature of three disallowance/additions, in seriatim, which form the basis of penalty in the four appeals under consideration. 7. First is the disallowance of business loss. Facts of this issue for the A.Y. 2008-09 in HPCL Mittal Energy Ltd. are that the assessee incurred certain expenses and computed business loss of ₹ 5.68 crore, which was carried forward for set off in the succeeding year. The AO observed that the business of the assessee had not commenced during the year and, hence, the loss was not eligible for determination and carry forward. The view taken by the AO has been eventually upheld up to the Tribunal. It is apparent that the assessee computed business loss at ₹ 5.68 crore by incurring certain expenses. Instead of capitalizing such expenses because of the business no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deciphers that there was no concealment of particulars of income inasmuch as no amount of income was sought to be hidden by the assessee. Rather, it is a case of showing the interest income separately in books of accounts and then categorically reducing it from the expenditure incurred during the construction period, while finalizing the Annual accounts, and that too, on the face of the schedule to the balance sheet. Thus, it is vivid that interest earned on term deposits with banks and HPCL and also on deposits in banks as security given to the Trial court falls in the category of furnishing of inaccurate particulars of income. The facts concerning such interest income in other three appeals are mutatis mutandis similar inasmuch as the assessee reduced the amount of similar interest from the Expenditure during construction period by specifically reducing it from the costs incurred and showing such treatment on the face of the balance sheets. The action of the assesses in reducing the amount of interest from the expenditure during construction period can t be characterized as concealment of particulars of income . Rather, it falls within the purview of the expression furnis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time of passing the penalty order. I will deal with such two stages in the present context. a) Recording of satisfaction at the assessment stage. 12. It has been noticed hereinabove that the first stage of imposition of penalty is recording of satisfaction by the AO in the assessment order as to whether the assessee concealed the particulars of income or furnished inaccurate particulars of income. There was a lot of litigation on this point. The assessees were contending before the appellate courts that the AO had not recorded proper satisfaction in the assessment order and hence the penalty should be deleted. On the other hand, the Department was contending that the satisfaction was properly recorded. Considering the magnitude of litigation on the point, the Finance Act, 2008, inserted sub-section (1B) to section 271, w.r.e.f. 1.4.1989, which runs as under : - Where any amount is added or disallowed in computing the total income or loss of an assessee in any order of assessment or reassessment and the said order contains a direction for initiation of penalty proceedings under clause (c) of sub-section (1), such an order of assessment or reassessment shall be deemed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r appeals under consideration, the AO directed to initiate penalty u/s 271(1)(c) of the Act in the assessment orders. Thus, the Revenue can be safely considered to have successfully passed out the first stage. b) Recording of satisfaction at the penalty stage 14. It has been noted above that penalty proceedings are separate from assessment proceedings, which get kicked with the issue of notice u/s 274 and culminate in the penalty order u/s 271(1)(c) of the Act. Many a times, penalty initiated in the assessment order on one or more counts by means of notice u/s 274, is not eventually imposed by the AO on getting satisfied with the explanation tendered by the assessee in the penalty proceedings. In any case, confronting the assessee with the charge against him is sine qua non for any valid penalty proceedings. It is only when the assessee is made aware of such a charge against him that he can present his side. Thus prescribing the charge in the penalty notice and penalty order is must. Absence of a charge in the penalty notice or not finding the asseessee guilty of a clear offence in the penalty order, vitiates the penalty order. 15. The moot question is that what shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree clear-cut situations discussed above in the penalty notice and also in the penalty order, the penalty order becomes unsustainable in law. 16. The Hon ble Karnataka High Court in Manjunatha Cotton and Ginning Factory 359 ITR 565 (Kar) has held that a 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 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 Hon ble High Court went on to hold that : Clause (c) deals with two specific offences, that is to say, concealing particulars of income or furnishing inaccurate particulars of income . 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition/disallowance has been made, but the AO is not sure at the stage of initiation of penalty proceedings of the precise charge as to concealment of particulars of income or furnishing of inaccurate particulars of income . In such circumstances, he may use slash between the two expressions at the time of initiation of penalty proceedings. However, during the penalty proceedings, he must get decisive, which should be reflected in the penalty order, as to whether the assessee is guilty of concealment of particulars of income or furnishing of inaccurate particulars of such income . Uncertain charge at the time of initiation of penalty, must necessarily be substituted with a conclusive default at the time of passing the penalty order. If the penalty is initiated with doubt and also concluded with a doubt as to the concealment of particulars of income or furnishing of inaccurate particulars of such income etc., the penalty order is vitiated. If on the other hand, if the penalty is initiated with an uncertain charge of concealment of particulars of income/furnishing of inaccurate particulars of income etc., but the assessee is ultimately found to be guilty of a specific charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invalid. 25. The ld. DR contended that the use of a particular grammatical sign / is not determinative of the charge. It cannot invalidate penalty proceedings. She further submitted that the penalty orders are in substance and effect in conformity with or according to the intent and purpose of the Act. Use of / by the AO is a case of imperfect drafting arising from the fact that penalty u/s 271(1)(c) is often written/mentioned as penalty for concealment/furnishing of inaccurate particulars of income . She further submitted that the two phrases are often interchangeable. She also invoked the provisions of section 464 of the Code of Criminal Procedure, 1973, to contend that no finding, sentence or order by a court of competent jurisdiction shall be deemed invalid merely on the ground that no charge was framed or on the ground of any error, omission or irregularity in the charge including any misjoinder....... of the charges unless, in the opinion of court of appeal, confirmation or revision, a failure of justice has in fact been occasioned thereby . She also referred to section 292B of the Act for the same proposition. 26. The sum and substance of her submissions is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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