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TMI Blog2021 (4) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... d the income. 4. Because the Assessing Officer passed the penalty order during the pendency of the quantum appeal before the Hon'ble I.T.A.T. which was finally set aside. 5. Without prejudice to the above, the Ld. CIT(A) did not give opportunity to depose in the case. 6. Because the Ld. CIT(A) erred both on the facts and in law in confirming the penalty order of the Assessing Officer. 7. Because the penalty order is generally bad both on facts and in law. 8. Because the appellant reserves the right to add/alter/rescind any ground of appeal. 3. Ground No. 1 to 3 are regarding validity of the penalty order passed u/s 271(1)(c) on the ground that the Assessing Officer has not initiated the penalty proceedings for a definite default or a correct charge against the assessee. The Ld. AR of the assessee has submitted that the assessee is now represented by his legal representative/wife as he expired on 28.04.2010 after filing his return of income on 26.05.2008. The Ld. AR has submitted that the Assessing Officer has made an addition of Rs. 7,19,036/- on account of unexplained deposits in the bank accounts of the deceased assessee. Since the assessee expired before he could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the assessment proceedings the assessee has failed to explain the source of the deposits made in the bank account to the tune of Rs. 7,19,036/-. Therefore, the Assessing Officer has rightly recorded the satisfaction for initiating the proceedings u/s 271(1)(c). He has further contended that as per section 271(1B) the Assessing Officer is required to record the satisfaction that the penalty proceedings are separately initiated. Thus at the time of recording the satisfaction it is not required on the part of the Assessing Officer to specify any charge. He has further contended that it is a clear case of failure on the part of the assessee to explain the source of deposit and consequently the penalty u/s 271(1)(c) is attracted. He has relied upon the orders of the authorities below. 5. I have considered the rival submissions as well as relevant materials available on record. There is no dispute on the fact that the assessee Late Shri Zia Usmani filed his return of income on 26.05.2008 declaring total income of Rs. 1,31,820/- after claiming the deduction u/s 80C of Rs. 1,00,000/-. The case was taken for scrutiny under CASS and notice u/s 143(2) was issued on 27.08.2009. However , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer has levied the penalty u/s 271(1)(c) by recording his finding that the assessee has filed inaccurate particulars and concealed income. The Assessing Officer has levied the penalty on both charges i.e. inaccurate particulars of income and concealment of income. This reason of levying the penalty is not factually correct as bank account in which the deposits are made has been disclosed by the assesse and complete particulars were furnished showing all the transaction. It is only due to the failure on the part of legal heir of the deceased assessee to explain the source of part of the deposits. In the bank account, the Assessing Officer made the addition. Hence, the addition was not made because of the reason that the assessee has concealed the particulars of income but it is only because of the reason that the legal representative/the widow of the deceased assessee could not explain the source of part of the deposits made in the bank account by deceased assessee. The Assessing Officer has accepted the contract receipt and garment business receipt and therefore, it cannot be ruled out that the deposit which could not be explained by the widow of the deceased assessee may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is proposed to be levied under section 271(1)(c) of the Act, whether for concealment of income, or for furnishing of inaccurate particulars of income, is not specific. The law mandates that the authority, who is proposing to impose penalty, shall be certain as to the basis on which the penalty is being levied and the notice must reflect that specific reason, so that the assessee, to whom such notice is given, can prepare himself regarding the defence, which he would like to take to support his case. This is even enshrined in the principles of natural justice and as has been upheld by Hon'ble Apex Court and other High Courts. 7. In 'CIT vs. SSA's Emerald Meadows', [2016] 73 Taxmann.com 248, the Hon'ble Apex Court looked into the facts before them that Tribunal relying on the decision of Division Bench of Hon'ble Karnataka High Court in the case of CIT and Another vs. Manjunath Cotton & Ginning Factory (supra) allowed the appeal of the assessee holding that notice issued by the Assessing Officer under section 274 read with section 271(1)(c) of the Act was bad in law, as it did not specify under which limb of section 271(1)(c) of the Act, penalty proceedings has been ini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court, following 'K.P. Madhusudanan' in Civil Appeal No. 6465/2000 (SC), has held that Explanation-1 applies whether or not the Assessing Officer has invoked it in the order or in the notice. This judgment is not an authority for the issue under consideration before the Bench. The judgment explains the scope of Explanation- 1 appended to section 271(1)(c) of the Act. It has been held that the onus of the assessee will not get discharged by furnishing an explanation without any further proof; that in Explanation-1 to section 271(1)(c), the onus is the assessee; that where the AO issues a notice to the assessee, he makes the assessee aware that the provisions thereof are to be used against him and these provisions include Explanation-1 to section 271(1)(c); that where the returned income is less than 80% of the assessed income, the Explanation is automatically attracted. In the case under consideration, however, the issue is not about the applicability or non- applicability of Explanation-1 to section 271(1)(c), the issue is regarding the validity and legality of the notice. It is only when a valid notice is issued, that the question of considering the assessee's explanation/repl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lect that specific reason, so that the assessee, to whom such notice is given, can prepare himself regarding the defence which he would like to take to support his case. This is even enshrined in the principles of natural justice and as has been upheld by Hon'ble Apex Court and other High Courts. We place reliance on the following cases:- 1. 'CIT vs. SSA's Emerald Meadows', [2016] 73 Taxmann.com 248 (SC). In this case the Hon'ble Apex Court looked into the facts before them that Tribunal relying on the decision of Division Bench of Hon'ble Karnataka High Court in the case of CIT and Another vs. Manjunath Cotton & Ginning Factory (supra) allowed the appeal of the assessee holding that notice issued by the Assessing Officer under section 274 read with section 271(1)(c) of the Act was bad in law as it did not specify under which limb of 271(1)(c) penalty proceedings has been initiated i.e. whether for concealment of particulars of income or furnishing of inaccurate particulars of income. When the matter travelled upto the High Court, it supported the judgment of Hon'ble Karnataka High Court in the case of CIT and Another vs. Manjunath Cotton & Ginning Factory (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consequent penalty imposed on the basis of such notice is, therefore, illegal and bad in law and liable to be deleted. We, therefore, direct deletion of the penalty." 8. In the case in hand, the Assessing Officer has recorded the satisfaction for initiation of penalty on incorrect charge and the penalty was also levied for an incorrect charge of inaccurate particulars of income and concealment of particulars of income which is not possible in the case of the assessee when the addition was made in respect of only one issue i.e. the source of deposit in the bank account. The Third Member decision in case of HPCL Mittal Energy Ltd. v. Addl. CIT (supra) has held in para 15 to 17 as under : "15. The moot question is that what should be the nature of specification of a charge by the AO at the stage of initiation of penalty proceedings and at the time of passing the penalty order. Is the AO required to specify in the penalty notice/order as to whether it is a case of `concealment of particulars of income'; or `furnishing of inaccurate particulars of income'; or both of them, which can be expressed by using the word `and' between the two expressions. When the AO is satisfied that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 penalty proceedings is not identical with the ground on which the penalty was imposed, the imposition of penalty is not valid'. 17. In CIT vs. Manu Engineering Works (1980) 122 ITR 306 (Guj) penalty was imposed by noting : `that the assessee had concealed its income and/or that it had furnished inaccurate particulars of such income'. Striking down the penalty, the Hon'ble High Court held that : `it was incumbent upon the IAC to come to a positive finding a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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