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TMI Blog2020 (2) TMI 1033X X X X Extracts X X X X X X X X Extracts X X X X ..... and assessee cannot escape from the mischief of the penalty provision under section 271(1)(c) merely because the said income is declared in the return of income filed after search. In the case in hand, the AO has even not made any reference to any incriminating material so as to bring the income declared by the assessee in the return of income filed in response to notice under section 153A in the ambit of the Explanation 5A to section 271(1)(c) of the Act. Accordingly, when the AO has failed to even make any reference to any incriminating material representing the undisclosed material or the income declared by the assessee, the Explanation 5A to section 271(1)(c) would not be applied in the case of the assessee. Hence in the facts and circumstances of the case, we do not find any reason to interfere with the impugned order of the ld. CIT (A). - Decided against revenue - ITA Nos. 776, 777 And 778/JP/2019 - - - Dated:- 3-2-2020 - Shri Vijay Pal Rao, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri PC Parwal (CA) For the Revenue : Shri B.K. Gupta (CIT) ORDER PER VIJAY PAL RAO, J.M. These three appeals by the revenue are directed against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loyees of the assessee. The details of the income declared by the assessee and additions made by the AO for the assessment years 2010-11 to 2012-13 are as under :- A.Y. Income declared Addition made by the AO 2010-11 1,30,94,390 26,84,725 + 29,75,859 2011-12 3,20,29,420 82,59,551 2012-13 3,00,06,860 69,54,913 On further appeal in the quantum proceedings, the ld. CIT (A) partly deleted the additions made by the AO and consequently the matter was carried to this Tribunal in cross appeals by the revenue as well as by the assessee. This Tribunal vide composite order dated 30th July, 2018 in ITA Nos. 922, 923 924/JP/2016 and ITA Nos. 935, 936 937/JP/2016 deleted the additions made by the AO and sustained by the ld. CIT (A) on account of undisclosed interest income as well as on account of deposits made in the bank accounts of the employees of the assessee whereas the additions made by the AO on account of disallowance of expenditure was set aside t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal in case of Vijay Aggarwal vs. DCIT (supra) after following the decision of Hon ble Madras High Court in case of Sundaram Finance Ltd. (supra) has held that the question whether correct limb has been applied is a question of fact and not a question of law and, therefore, the said question cannot be raised first time before the Appellate Authority. The ld. D/R has then relied upon the decision dated 22nd May, 2019 of Chennai Benches of the Tribunal in case of ITO vs. Shri Rajan Kalimuthu in ITA No. 2900/Chny/2018 and submitted that the Tribunal has decided the issue of validity of initiation of penalty proceedings in favour of the revenue after considering the decision of Hon ble Karnataka High Court in case of CIT vs. Manjunatha Cotton and Ginning Factory, 359 ITR 565 (Kar.). Thus relying upon the above said decision, the ld. D/R has contended that once the AO has issued the show cause notice to the assessee and the assessee has duly responded to the show cause notice, then there is no violation of principles of natural justice so far as the opportunity of hearing was given to the assessee. The assessee was very much aware and knew about the default as the entire addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd submitted that the Tribunal has held that even if the AO was 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 , the AO is required to give a definite finding and a conclusive default at the time of passing the penalty order. In the absence of such definite finding of the AO in the penalty order, the same is invalid. Hence the ld. A/R has submitted that the initiation of penalty proceedings itself is very vague and in uncertain terms, even does not specify under which sub-section of section 271 of the IT Act the AO proposed to initiate the penalty proceedings. Hence he has supported the findings of the ld. CIT (A) on this account. 4.1. As regards the merits of the issue, the ld. A/R has submitted that the Tribunal has already deleted the additions made by the AO on account of undisclosed interest income as well as deposits made in the bank accounts of the employees of the assessee, therefore, the penalty levied by the AO in respect of such additions is not sustainable. Further, the Tribunal has also set aside the issue of disallowance of expenditure a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee contended that due to ill health of the assessee during the said period, as the assessee was suffering from Tuberculosis and therefore, was not able to do any business activity. Hence, the assessee s claim that the income declared by the assessee of ₹ 13,36,237/- for the year under consideration is justified and even the total income declared by the assessee for the three assessment years i.e. A.Y. 2007- 08 to 2009-10 and part of the A.Y. 2010-11 up to 17/6/2009 is matching with the application of income. The assessee has produced fund flow statement showing the income and application of income for all these years. The ld. CIT(A) has annexed the fund flow chart to the impugned order. It is pertinent to note that the assessment framed by the Assessing Officer U/s 143(3) read with Section 153A for the A.Y. 2007- 08 to 2009-10 are falling in the category of reassessment as original assessment as on the date of search were not pending and therefore, in absence of abetment of assessments the orders passed by the Assessing Officer are in the nature of reassessment pursuant to the search and seizure action U/s 132 of the Act. It is settled proposition of law that in the reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 of the revenue s appeal is dismissed. 22. We have considered the rival submissions as well as the relevant material on record. The Assessing Officer has made addition of ₹ 13,26,600/- on account of cash deposits in the bank account of three persons namely Shri Rajendra Jain, Shri Ashok Sharma and Shri Mahaveer Prasad Sharma. The Assessing Officer treated the deposits made in the bank accounts of these persons as undisclosed income of the assessee on the basis of signed cheques of these persons were found during the search and seizure action at the place of the assessee. Though, the signed cheque book found with the assessee can be a ground for further investigation and inquiry regarding any undisclosed income of the assessee by using the accounts of these persons, however, the cheque book itself cannot be considered as an evidence for undisclosed income. The Assessing Officer has picked up the entries in the bank accounts of these persons where the cash was deposited. All other entries in these bank accounts were accepted by the Assessing Officer as carried out by these persons and not by the assessee, therefore, it is not a case of the Assessing Officer that these ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the return of income of these persons wherein the declared income was sufficient to cover the deposits made in the bank accounts, then in the absence of any direct evidence or tangible material to disclose the fact that the cash deposit in the bank accounts of these persons belongs to the assessee, the addition made by A.O. is not sustainable. The said deposit is subject matter of assessment in the hands of these persons, accordingly, in the facts and circumstances of the case, we delete the addition made by the Assessing Officer on this account. 35. We have heard the rival submissions and perused the relevant material available on the record. There is no dispute that the amount of expenditure as claimed by the assessee against the undisclosed income for these three assessment years i.e. 2010-11 to 2012-13 were found recorded in the seized material. The undisclosed income offered by the assessee is also based on the same seized material and therefore, once the income and expenditure both are recorded in the same material, which is found and seized during the course of search and seizure action then the entire record and entries found in the seized material has to be taken i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances, we set aside this issue to the record of Assessing Officer for conducting a proper enquiry of the details of the expenditure and to find out whether any part of the expenditure which is found in the seized material has been claimed in the books of account and then only to that extent the claim of the assessee can be disallowed. Needless to say that the assessee to be given an appropriate opportunity of hearing before deciding this issue. 39. We have considered the rival submissions as well as relevant material on record. There is no dispute that the sale bills of jewellery was found during the course of search and seizure action and seized as Annexure-AS-39, therefore, it is a seized material and cannot be held as a bogus claim or document manipulated or manufactured by the assessee being afterthought cooked story. Therefore, when the sale of jewellery is found as per the bills seized during the search then the transaction of sale cannot be disputed by the department. The sale proceeds of the jewellery was also undisputedly received by cheque and credited in the bank account of mother in law of the assessee. The only doubt which is raised by the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the penalty levied by the AO in respect of such additions is not sustainable and liable to be deleted. 5.1. As regards the addition made by the AO on account of disallowance of certain expenses, since this issue has been set aside by the Tribunal to the record of the AO, therefore the addition itself is no more in existence and consequently the penalty levied under section 271(1)(c) in respect of such addition would not survive. Therefore, the penalty levied by the AO against the additions made to the total income is otherwise liable to be deleted. 5.2. Now we take up the issue of validity of initiation of proceedings for levy of penalty. At the outset, we note that the AO has issued show cause notices dated 13.03.2015 for these three years which are identical in nature and reproduced as under :- NOTICE UNDER SECTION 274 READ WITH SECTION 271 OF THE INCOME-TAX ACT, 1961. PIN AGMPS 2776 H OFFICE OF THE ASSTT. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-2, JAIPUR. Date : 13-03-2015. To, Shri Prakash Chand S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnish under section 139(1) or by a notice given under section 139(2)/148/143(3) of the Income-tax Act, 1961, No._____ dated _____ or have without reasonable cause failed to furnish it within the time allowed and to the manner required by the said section 139(1) or such notice. *have without reasonable cause failed to comply with a notice under section 22(4)/23(2) of the Indian Income-tax Act, 1922 or under section 142(1)/143(2) of the Income-tax Act, 1961 No._____ dated 06.06.2012. *have concealed the particulars of your income or______ furnished inaccurate particulars or such income. Penalty u/s 271(1)(c) initiate for undisclosed income of the specified previous year. You are hereby requested to appear before me at 11.00 AM on 15-05-2015 and show cause why an order imposing penalty on you should not be made under section 271 of the Income-tax Act, 1961. If you do not wish to avail yourself of this opportunity of being heard in person or through your authorized representative you may show cause in writing on or before the said date which will be considered before any such order is made under section 271. Sd/- (Praveen Kumar Mittal) Asstt. Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act and the concealment of particulars of income or furnishing inaccurate particulars of such income. The AO has also given the date of the notices issued under section 142(1)/143(2) as 06.06.2012. It is manifest from these show cause notices that this date of 06.06.2012 has no connection with the assessment proceedings of the assessee when notice under section 153A itself was issued on 10.03.2013. A bare reading of the show cause notice clearly shows that it was issued by the AO without application of mind and even without striking off the irrelevant part of said show cause notice. Although the show cause notice was not in the printed proforma but it was taken as a print out specifically in the name of the assessee. Thus giving the particulars of the assessee along with the PAN of the assessee in the show cause notice clearly shows that this notice was specifically issued to the assessee, however, the AO has grossly failed to even indicate for what default the show cause notice was issued to the assessee. Therefore, the show cause notice itself suffers from illegality of not specifying the default/charges for which the penalty proceedings were proposed to be initiated by the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be good law. Moreover the decision of the Delhi High Court in Ram Commercial Enterprises (6 supra) was also followed by the same High Court in Commissioner of Income Tax v. M.K. Sharma (9supra) and SLP (c) No. 17591 of 2008 filed against the said decision was dismissed by the Supreme Court on 18.7.2008. Applying the above principle that the assessing officer should record in the assessment order his satisfaction that the assessee had either concealed the income or furnished inaccurate particulars of income in his return before imposing penalty, we noticed that in the assessment orders passed by the assessing officer for the assessment year 198283 (which is the subject matter of I.T.T.A. No.29 of 2000) and for the assessment year 198384 (which is subject matter of I.T.T.A. No. 33 of 2000), no such satisfaction is recorded. 6. Another decision of Supreme Court in case of Dilip N. Shroff vs. Joint Commissioner of Income Tax Anr. (2007) 291 ITR 519 (SC) it has been held as under : It is of some significance that in the standard proforma used by the Assessing Officer in issuing a notice despite the fact that the same postulates that inappropriate words and paragraphs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirement that the AO has to specify the default/charge whether he propose to initiate the proceedings for concealment of income or furnishing inaccurate particulars of income. Even in the standard proforma used by the AO, the AO is required to delete the irrelevant and inappropriate word in the paragraph. Similarly, the Third Member decision of Amritsar Bench of the Tribunal in case of HPCL Mittal Energy Ltd. vs. ACIT (supra) has considered this issue and given the concluding finding in para 21 as under :- 21. Apart from the above three situations in which the AO has clear-cut satisfaction, there can be another fourth situation as well. It may be when it is definitely a case of under-reporting of income by the assessee for which an addition/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 penalt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer in the assessment order it is held that the AO, has to give a notice as to whether he proposes to levy penalty for concealment of income or furnishing inaccurate particulars. He cannot have both the conditions and if it is so he has to say so in the notice and record a finding in the penalty order. 10. In that view of the matter, the issue is answered in favour of the assessee and against the department. In this regard, I have perused the said paras 59 to 61 of the Hon'ble Karnataka High Court in the case of Manjunatha Cotton Ginning Factory (supra) and the same read as under: NOTICE UNDER SECTION 274 59. As the provision stands, the penalty proceedings can be initiated on various ground set out therein. If the order passed by the Authority categorically records a finding regarding the existence of any said grounds mentioned therein and then penalty proceedings is initiated, in the notice to be issued under Section 274, they could conveniently refer to the said order which contains the satisfaction of the authority which has passed the order. However, if the existence of the conditions could not be discerned from the said order and if it is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, at the time of imposing penalty to impose penalty on the grounds other than what assessee was called upon to meet. Otherwise though the initiation of penalty proceedings may be valid and legal, the final order imposing penalty would offend principles of natural justice and cannot be sustained. 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 penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid. The validity of the order of penalty must be determined with reference to the information, facts arid materials in the hands of the authority imposing the penalty at the time the order was passed and further discovery of facts subsequent to the imposition of penalty cannot validate the order of penalty which, when passed, was not sustainable. 61. The Assessing Officer is empowered under the Act to initiate penalty proceedings once he is satisfied in the course of any proceedings that there is concealment of income or furnishing of inaccurate particulars of total income under clause (c).Concealment, furnishing inaccu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the case and respectfully following the binding decision of Hon'ble Rajasthan High Court and jurisdictional Hon'ble ITAT there cannot be other view to take but to hold that penalty imposed u/s 271(1)(c) is bad in law. The appellant thus succeed on legal ground/contention raised. The penalty is therefore directed to be deleted. No adjudication on merit of imposition of penalty U/s 271(1)(c) is considered necessary. In view of the facts and circumstances of the case as discussed above as well as various binding precedents, we do not find any error or illegality in the impugned order of the ld. CIT (A). 5.3. As regards the decision relied upon by the ld. D/R, we find that the Tribunal in case of Vijay Aggarwal vs. DCIT (supra) has held in para 16 and 17 as under :- 16. Coming to the plea taken for the first time before us that the penalty notice did not specify under which limb of the section the penalty proceedings have been initiated. In our considered opinion this issue was never raised before the first appellate authority and has been raised for the first time before the Tribunal. We agree with the DR that the question whether correct limb has been applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contention raised by the assessee is liable to be rejected on facts. That apart, this issue can never be a question of law in the assessee's case, as it is purely a question of fact. Apart from that, the assessee had at no earlier point of time raised the plea that on account of a defect in the notice, they were put to prejudice. All violations will not result in nullifying the orders passed by statutory authorities. If the case of the assessee is that they have been put to prejudice and principles of natural justice were violated on account of not being able to submit an effective reply, it would be a different matter. This was never the plea of the assessee either before the Assessing Officer or before the first Appellate Authority or before the Tribunal or before this Court when the Tax Case Appeals were filed and it was only after 10 years, when the appeals were listed for final hearing, this issue is sought to be raised. Thus on facts, we could safely conclude that even assuming that there was defect in the notice, it had caused no prejudice to the assessee and the assessee clearly understood what was the purport and import of notice issued under Section 274 r/w, Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional income of ₹ 1,16,62,560/-declared in the ROI filed u/s 153A was made in order to buy peace of mind and avoid prolonged litigation. The assesee is not filed any reply on this issue. 5. It is clear that the additional income of ₹ 1,16,62,560/-declared in the return of income filed u/s 153A of the Act, is not a lumpsum declaration made by the assessee. In fact, additional income under a specific head viz., Other Sources which was not declared in the return of income u/s 139 has been declared in the ROI u/s 153A. Had the additional income been declared simply to buy peace of mind and to avoid litigation, such additional income would not have been backed up by specific and quantified difference in specific heads of income. The very fact that such additional income was related to specific heads in a quantified manner proves that the additional income declared in the return of income u/s 153A was based on particulars of income concealed in the ROI u/s 139. This fact also proves that the additional income declared u/s 153A was not to buy peace of mind and to avoid litigation. The fundamental contention raised by the assessee, therefore, fails. Consequently, the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lars of income have been furnished inaccurately. 9. The deeming provision of Explanation 5A to section 271(1)(c), thus demonstrably mandates a comparison between the income declared u/s 139 and the income declared subsequent to the search, which in the instant case is u/s 153A of the Act. Hence, for any assessee to say that for the purpose of imposition of penalty u/s 271(1)(c) in a search assessment, the original return of income filed u/s 139 cannot be considered, is wholly incorrect and is in direct contradiction to the mandate of explanation 5A to section 271(1)(c) of the Act. 10. As regards the contention of the assessee that no incriminating documents was found as a result of search indicating any undisclosed income nor any evidence was brought on record during course of assessment from which it could be alleged that assessee was having undisclosed income, it must be said that the basic thrust of such contention is to limit the scope of penalty u/s 271(1)(c) to the finding of incriminating documents during search. In raising this contention, the assessee is only partly correct to the limited extent of clause (i) of explanation 5A to section 271(1)(c).But, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no incriminating document found as a result of search indicating any undisclosed income nor any evidence was brought on record during the course of assessment from which it could be alleged that the assessee was having undisclosed income. The AO while countering these contentions of the assessee has just referred to clause (ii) of Explanation 5A to section 271(1)(c). Therefore, the AO has not disputed these factual contentions of the assessee and also not referred to any incriminating material either in the assessment order or in the penalty proceedings so far as the additional income offered by the assessee in the return of income. It is pertinent to note that the Explanation 5A to section 271(1)(c) is deeming fiction which cannot be extended beyond the scope of the said provision. It is clear from the Explanation 5A that once any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions but the assessee has not declared the said income in the return of income filed prior to the date of search, then even if such income is declared in the return of income filed post search, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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