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TMI Blog2018 (7) TMI 1992X X X X Extracts X X X X X X X X Extracts X X X X ..... law has been decided M/S MANJUNATHA COTTON AND GINNING FACTORY OTHS., M/S. V.S. LAD SONS, [ 2013 (7) TMI 620 - KARNATAKA HIGH COURT] and on similar facts, the issue has been decided KANHAIYALAL D. JAIN VERSUS THE ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 3, NASHIK [ 2016 (12) TMI 1238 - ITAT PUNE] then the order of Assessing Officer in recording satisfaction of violating both the limbs of section 271(1)(c) of the Act suffers from infirmity. The AO on reply of assessee had dropped penalty proceedings and such an order of dropping penalty proceedings cannot be said to be erroneous. Coming to the exercise of jurisdiction by the Commissioner u/s 263 Commissioner in the present case has though exercised his jurisdiction in respect of the order dropping penalty proceedings under section 271(1)(c) of the Act. However, where the Assessing Officer had not initiated the penalty proceedings within framework of law then, the Assessing Officer having dropped penalty proceedings by passing an order, then such an order dropping penalty proceedings cannot be said to be erroneous. In the present set of facts, the order dropping penalty proceedings, which were not validly initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interest of the revenue. 2] The learned CIT erred in setting aside the order passed by the learned A.O. u/s 271(1)(c) dated 10.03.2015 and further erred in directing the A.O. to pass necessary order in accordance with explanation 5A to Section 271(1)(c). 3] The learned CIT failed to appreciate that the order passed by the learned A.O. u/s 271(1)(c) dropping the penalty proceedings was neither erroneous nor prejudicial to the-interest of the revenue, and therefore, the revision order passed by the learned CIT u/s 263 is bad in law and the directions given by the learned CIT are not justified. 4] The learned CIT erred in not appreciating that the penalty proceedings were initiated without proper application of mind on the part of the learned A.O. and hence, there was no question of levy of any penalty u/s 271(1)(c) and therefore, the learned A.O. had rightly dropped the penalty proceedings. 5] The learned CIT erred in holding that the learned A.O. had dropped the penalty proceedings without application of mind. 5.1] The learned CIT failed to appreciate that the learned A.O. had dropped the penalty proceedings after due considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer dropping penalty proceedings was erroneous and prejudicial to the interest of Revenue. Therefore, show cause notice was issued to the assessee. The assessee filed reply which is incorporated by the Commissioner at pages 8 to 15 of the order of revision. The assessee took a stand that no revision under section 263 of the Act could be initiated when two views were possible and the Assessing Officer had taken one of the views. The Commissioner held as under:- 11. Section 263 enables the Commissioner to correct any Order passed by an Officer subordinate to him where such Order is prejudicial to the interests of the Revenue. The issue before the Courts regarding justification of jurisdiction u/s.263 with regard to cases where penalty proceedings were not initiated has been held to be beyond the purview of the revision by several Courts and Tribunals as also cited by the assessee. However, in the present case, the Assessing Officer has dropped the penalty u/s.271(1)(c) wherein the view taken is contrary to law and in such a situation, the assumption of revisional jurisdiction is justified. An attempt to assume jurisdiction by requiring the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search, the additional income was detected and declared finally by the assessee. The Commissioner held that there was non-application of mind by the Assessing Officer, who dropped the penalty proceedings and held the order dropping penalty proceedings under section 271(1)(c) of the Act to be both erroneous and prejudicial to the interest of Revenue. The Commissioner thus, set aside the said order of Assessing Officer with direction to pass necessary orders in accordance with Explanation 5A to section 271(1)(c) of the Act. 9. The assessee is in appeal against the order of Commissioner. 10. The learned Authorized Representative for the assessee referred to the assessment order passed under section 153A r.w.s. 143(3) of the Act and pointed out that additional income declared by the assessee was accepted as such except disallowance under section 40a(ia) of the Act, which addition was deleted by the CIT(A). He then, referred to paras 7 and 8 of the assessment order, wherein the Assessing Officer vide para 7.1 details the additional income offered for different years. Vide para 7.2, the Assessing Officer refers to undisclosed income declared in the return of income co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. He pointed out that in case where the original assessment order was invalid in law, then 263 order holding it to be erroneous is invalid. In this regard, he placed reliance on the decision of the Mumbai Bench of Tribunal in M/s. Westlife Development Ltd. Vs. Pr.CIT in ITA No.688/Mum/2016, relating to assessment year 2011-12, order dated 24.06.2016 and Allahabad Bench of Tribunal in Hari Mohan Das Tandon (HUF) Vs. Pr. CIT (2018) 91 taxmann.com 199 (Allahabad Trib.). Before parting, the learned Authorized Representative for the assessee also pointed out that the perusal of assessment order for each of the years would reflect that penalty proceedings in case of additional income were initiated for both the limbs. However, in case of the addition made under section 40a(ia) of the Act, which addition was deleted by the CIT(A) and the Tribunal, the Assessing Officer had invoked only one limb of section 271(1)(c) of the Act. The said initiation of penalty proceedings being against law was correctly dropped by the Assessing Officer and such an order cannot be revised under section 263 of the Act. 11. The learned Departmental Representative for the Revenue on the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest of Revenue or not. Consequent to search action under section 132 of the Act on the premises of assessee, wherein during recording of statement under section 132(4) of the Act, the assessee had declared additional income on account of various factors in all the years under appeal, which was honoured by the assessee by declaring the additional income in the return of income filed in response to notice under section 153A of the Act. The said additional income was accepted as such by the Assessing Officer in the order passed under section 153A r.w.s. 143(3) of the Act. Vide para 7.2 in assessment year 2004-05, the Assessing Officer initiated penalty proceedings under section 271(1)(c) of the Act on the additional income. The said penalty proceedings were initiated on both the limbs of said section i.e. for concealment of income and furnishing of inaccurate particulars of income. Another addition was also made in the hands of assessee in assessment year 2004-05 on account of disallowance under section 40a(ia) of the Act. Vide para 10.4, the Assessing Officer made the addition and invoked penalty proceedings for concealment on one of the limbs of section 271(1)(c) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in this regard as to which limb of section 271(1)(c) of the Act has not been satisfied by the assessee and accordingly, give him show cause notice by recording satisfaction of violating either of the limbs. 17. The Pune Bench of Tribunal in Kanhaiyalal D. Jain Vs. ACIT (supra) had also after referring to several case laws including the ratio laid down by the Hon ble High Court of Karnataka in CIT Anr. Vs. M/s. Manjunatha Cotton and Ginning Factory (supra) had held as under:- 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. Consequent to the notices issued under section 153A of the Act for various years, different entities filed the return of income for the respective years and cumulatively for ₹ 13.99 crores as additional income. The income was declared on account of on-money on sale of plots, which was detected from the documents seized during the course of search. Admittedly, Explanation 5A to section 271(1)(c) of the Act is attracted in such cases. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtunity 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 Department against him. As pointed out, in present case, in the assessment order itself while recording satisfaction for initiating proceedings under section 271(1)(c) of the Act, exact charge of the Department against the assessee is not clear. The Assessing Officer records the satisfaction for initiating penalty proceedings on both the counts i.e. concealment of income and furnishing of inaccurate particulars of income. The Hon ble Bomb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed 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. 18. It may be pointed out that the case in Kanhaiyalal D. Jain Vs. ACIT (supra) was also with regard to search case, wherein Explanation 5A to section 271(1)(c) of the Act was attracted. There is no dispute about the same. The dispute before the Tribunal was that where the Assessing Officer while completing assessment proceedings had not recorded satisfaction as to which limb of section 271(1)(c) of the Act read with Explanation 5A, was not fulfilled by the assessee and where the Assessing Officer had initiated proceedings by recording satisfaction of the assessee having furnished inaccurate particulars of income and also concealing the income, then satisfaction so recorded was held to suffer from infirmity. The relevant findings of the Tribunal are in paras 22 to 26, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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