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TMI Blog2018 (11) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... for AY 2009-10 "1. Under the facts and circumstances of the case, order passed u/s 271(1)(c) is illegal and bad in law. 2. The ld. CIT(A) has erred on facts and in law in confirming the levy of penalty on addition of Rs. 1,34,025/- made on account of alleged estimated unexplained investment in construction of house." ITA. No. 921/JP/2018 for AY 2010-11 "1. Under the facts and circumstances of the case, order passed u/s 271(1)(c) is illegal and bad in law. 2. The Ld. CIT(A) has erred on facts and in law in confirming the levy of penalty on addition of Rs. 4,43,000/- (correct amount is Rs. 5,57,000/-) made on account of alleged estimated unexplained investment in construction of house." ITA. No. 923/JP/2018 for AY 2010-11 "1. Under the facts and circumstances of the case, order passed u/s 271(1)(c) is illegal and bad in law. 2. The ld. CIT(A) has erred on facts and in law in confirming the levy of penalty of Rs. 3,09,000/- on addition of Rs. 10 lacs made on account of alleged estimated unexplained investment in construction of house. He has further erred in confirming the above penalty ignoring the fact that after the order of Hon'ble ITAT, addition is restricte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limb under which he sought to impose the penalty. Now, both the assessees are in appeal against the said findings of the ld CIT(A). 3. During the course of hearing, the ld. AR submitted that at the outset, it is submitted that AO in the body of the order has mentioned that assessee is liable for penalty u/s 271(1)(c) of the IT Act. At the end of the order, penalty proceedings are initiated for concealment of income. In the notice issued u/s 274 read with sec. 271(1)(c) dated 21.03.2014, penalty proceedings u/s 271(1)(c) was initiated for concealment of income or furnishing of inaccurate particulars of income. Again in the notice dt. 20.02.2017, penalty proceedings was initiated for concealment of income/ furnishing of inaccurate particulars of income. Further in the penalty order, the AO without specifying any particular limb under which penalty is leviable imposed the penalty u/s 271(1)(c). Thus, in the absence of any specific charge against the assessee in the penalty notice and in the penalty order, consequent penalty imposed by AO is illegal and bad in law. Reliance in this connection was placed on the various decisions including CIT Vs. SSA'S Emerald Meadows (2016) 242 Taxma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard the rival contentions and perused the material available on record. The AO has invoked the deeming provisions of Explanation 5A to Section 271(1)(c) of the Act to levy penalty in the instant case. Section 271(1)(c) of the Act, being in the nature of penal provisions require a strict interpretation and it is to be seen that the instant case falls within the four corners of the said provisions and conditions laid down therein are specifically fulfilled. Therefore, it would be relevant to examine the conditions specified in Explanation 5A which reads as under: "Explanation 5A- Where, in the course of a search initiated under section 132 on or after the 1st day of June, 2007, the assessee is found to be the owner of: (i) any money, bullion, jewellery or other valuable article or thing (hereafter in this Explanation referred to as assets) and the assessee claims that such assets have been acquired by him by utilising (wholly or in part) his income for any previous year; or (ii) any income based on any entry in any books of account or other documents or transactions and he claims that such entry in the books of account or other documents or transactions represents his income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfied in the instant case, the provisions of Explanation 5A are clearly applicable. Further, no specific arguments have been taken by the ld. AR to dispute the applicability of Explanation 5A. In light of these undisputed facts, we donot see any infirmity in invocation of the provisions of Explanation 5A to section 271(1)(c) of the Act. However, the contentions of the AR on merits need to be considered which we have discussed in subsequent paragraphs. 4.2 Now coming to the first contention so raised by the ld. AR that in the absence of any specific charge against the assessee in the penalty notice and subsequently in the penalty order, consequent penalty imposed by AO is illegal and bad in law. We find that Explanation 5A to section 271(1)(c) is a deeming provision and subject to fulfilling the requisite conditions, it deems the assessee to have concealed the particulars of his income or furnished inaccurate particulars of such income similar to what has been provided in clause (c) to section 271(1) of the Act. In search cases as well, the legislature has thus envisaged applicability of one or both of these charges. It is settled position now as held by catena of judicial prono ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is given an opportunity to explain his position qua the imposition of penalty on the additions/disallowances made in the assessment. The AO considers the explanation of the assessee and then decides if the penalty is imposable or not. Further, the opinion of the AO as to concealment of particulars of income or furnishing of inaccurate particulars of such income has to be seen with reference to the day on which he initiates/imposes penalty. Later events, like confirmation or deletion of additions/disallowances in quantum appeals, are irrelevant in this context. 11. It transpires from the above discussion that, insofar as the issue before me is concerned, there are broadly two different stages having bearing on the imposition of penalty, namely, assessment and penalty. At the assessment stage, the AO has to record a satisfaction in the assessment order as to whether the additions/disallowances, on which penalty is likely to be imposed, represent concealment of particulars of income or furnishing of inaccurate particulars of income. There can be two sub-stages in penalty proceedings requiring the AO to record such satisfaction, viz., at the time of initiating the penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfaction' means getting satisfied as to whether it is a case of concealment of particulars of income or furnishing of inaccurate particulars of such income. It cannot be conceived that a direction to initiate penalty proceedings in the assessment order is only 'satisfaction' and not 'proper satisfaction'. This contention, if taken to a logical conclusion, would mean that after such a direction in the assessment order constituting his satisfaction, the AO should once again specifically record satisfaction with reference to each addition or disallowance as to whether it is a case of concealment or furnishing of inaccurate particulars. It is obviously an absurd proposition and goes against the unambiguous language of the provision. Thus, it is overt that after insertion of sub-section (1B) to section 271, invariably, the AO should be deemed to have recorded proper satisfaction with reference to each addition/disallowance as to concealment or furnishing of inaccurate particulars, once a direction is contained in the assessment order to initiate penalty u/s. 271(l)(c) of the Act. Requiring the recording of separate satisfaction, once again, by the AO would militate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishing of inaccurate particulars of income', he must again specify it so in the notice at the time of initiation of penalty proceedings and also in the penalty order. After initiating penalty on the charge of 'furnishing of inaccurate particulars of income', he cannot impose penalty by finding the assessee guilty of 'concealment of particulars of income'. Again, he cannot be uncertain in the penalty order as to concealment or furnishing of inaccurate particulars of income by using slash between the two expressions. When the AO is satisfied that it is a clear-cut case of imposition of penalty u/s. 271(l)(c) of the Act on two or more additions/disallowances, one or more falling under the expression 'concealment of particulars of income' and the other under the 'furnishing of inaccurate particulars of income', he must specify it so by using the word 'and' between the two expressions in the notice at the time of initiation of penalty proceedings. If he remains convinced in the penalty proceedings that the penalty was rightly initiated on such counts and imposes penalty accordingly, he must specifically find the assessee guilty of 'conceal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the Tribunal finally held that the assessee would be deemed to have concealed the particulars of income or to have furnished inaccurate particulars of such income.' 19. Thus it is evident that when the AO is satisfied at the stage of initiation of penalty proceedings of a clear-cut charge against the assessee in any of the three situations discussed above (say, concealment of particulars of income), but imposes penalty by holding the assessee as guilty of the other charge (say, furnishing of inaccurate particulars of income) or an uncertain charge (concealment of particulars of income/furnishing of inaccurate particulars of income), the penalty cannot be sustained. 20. Another crucial factor to be kept in mind is that the satisfaction of the AO as to a clear-cut charge leveled by him in the penalty notice or the penalty order must concur with the actual default. If the clear-cut charge in the penalty notice or the penalty order is that of 'concealment of particulars of income', but it turns out to be a case of 'furnishing of inaccurate particulars of such income' or vice-versa, then also the penalty order cannot legally stand. 21. Apart from the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill have to be said that the assessee had concealed its income and/or that it had finished inaccurate particulars of such income". Now, the language of "and/or" may be proper in issuing a notice as to penalty order or framing of charge in a criminal case or a quasi-criminal case, but it was incumbent upon the IAC to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee.' 23. It is thus evident that uncertain charge at the stage of initiation of penalty proceedings can be made good with a clearcut charge in the penalty order. In any case, existence of a clearcut charge in penalty order is a must so as to validate any penalty order." 4.4 In the instant case, the Assessing officer has recorded his satisfaction in respect of the five items of disallowance/additions including undisclosed investment on construction of house amounting to Rs. 938,800 leading to penalty, as 'concealment of income' in the assessment order passed under section 143(3) r/w 153A, thereafter initiated penalty by issuance of notice u/s 274 r/w 271 dated 21.30.2014 in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO and reduced by the CIT(A) is on the basis of cost of construction estimated as per DVO's report and in search proceedings, no evidence of investment over and above that declared by the assessee was found, the penalty should not be levied. In this regard, as we have noted above, the AO has invoked the provisions of Explanation 5A and the presumption therein is that the assessee has concealed particulars of his income or furnished inaccurate particular of income. As held in case of Manjunatha Cotton & Grinning Factory (supra) that the presumption found in Explanation 1 is a rebuttable presumption, to our mind, the presumption under section 5A is also a rebuttable presumption and the bonafide of the explanation so submitted by the assessee needs to be examined before a final view is taken on the levy of penalty. In the instant case, the Assessing officer in his assessment order states that the cost of construction estimated by the assessee's valuation officer (AVO) is not correct and acceptable, and the cost of construction estimated by the DVO being made by a Govt. technical person and such valuation is more scientific which is based on correct plinth area rates was found accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees. Both the assessees, being husband & wife, jointly purchased a plot for consideration of Rs. 32,65,200/- during FY 2005-06 and constructed a house on it during 2007 to 2009. In the statement recorded u/s 132(4), Sh. Sapan Jain stated that he has spent Rs. 65-70 lakhs in construction of house which was started in the year 2007 and was completed in 2009. He also stated that he has further made investment of Rs. 20 lacs on fittings, furnishing, furniture, etc. after the construction in FY 2009-10 out of undisclosed income which he offered for tax. However, in the return filed u/s 153A, no such disclosure was made by either of the two assessees. 5.1 The AO on the basis of statement of Sh. Sapan Jain determined the undisclosed expenditure on these items at Rs. 20 lacs and thereby made addition of Rs. 10 lacs in hands of both the assessees. On this addition, the AO also initiated penalty proceedings u/s 271(1)(c) of the IT Act. 5.2 Against the addition, the assessee filed an appeal before the Ld. CIT(A) who confirmed the addition. The Tribunal vide its order dt. 15.05.2017 restricted the addition to Rs. 11,14,000/-, thereby confirmed the addition of Rs. 5,57,000/- in each hand. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000/- is concerned, it was submitted that AO solely on the basis of the statement of Sh. Sapan Jain and considering the fact that in search, air conditioners, LCD, paintings, double bed and other furniture were found for which assessee admitted investment of Rs. 20 lakhs, made the addition of Rs. 10 lakhs in each hand which is confirmed by the Ld. CIT(A). However, the Tribunal restricted the addition to Rs. 5,57,000/- (11,14,000/2) by adopting the estimated value of the items found in search which is listed at Pg 9 of the assessment order. It is a fact on record that in search no evidence was found that assessees have made investment in these items. The addition is made only on the basis of the statement of Sh. Sapan Jain and not on the basis of any incriminating material found in search. Hence, addition of Rs. 10 lakhs was only on estimation which is reduced to Rs. 5.57 lakhs only on estimation. On such estimated addition, no penalty is leviable as held in case of Shiv Lal Tak Vs. CIT 251 ITR 353 (Raj) and CIT Vs. Krishi Tyre Retreating and Rubber Ind. [2014] 44 taxmann.com 9 (Raj). 7. We have heard the rival contentions and perused the material available on record. Undisputedly, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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