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TMI Blog2023 (3) TMI 1511X X X X Extracts X X X X X X X X Extracts X X X X ..... lment. Therefore, the ITAT was considered the scope of provision of the IT Act, 1961, as in the instant appeal, the respondent/assessee preferred an appeal before the ITAT and the ITAT on carefully examining the entire material on record, even relating to the specific materials, though dwelling in detail about the particulars i.e., the concealment of particulars furnishing the inaccurate particulars of income, it cannot be arise to draw adverse inference as contended by the learned standing counsel Sri. Y.V. Raviraj for the appellant/revenue. Therefore, the ITAT held under Section 271 (1) (c) that even though the provision has been mandated, the ingredients cannot be attracted in both, either the facts, but the facts found by the ITAT, is based upon the materials. Keeping in view the provision of Section 271 (1) (c), the deemed provision, a legal fiction is created. But reading of Section closely and more so the ingredients of the said provision of IT Act, it is the domain vested with the appellant / revenue to establish their case relating to the scope of inaccurate particulars and concealment of income. But it must be noticed that this finding recording concealment in the order p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Deputy Commissioner of Income Tax, Central Circle 1 (3) , Bangalore 2016 (9) TMI 796 - ITAT BANGALORE ] and in terms of the aforesaid reasons and findings, the appeal deserves to be dismissed as being devoid of merits. X X X X Extracts X X X X X X X X Extracts X X X X ..... as detailed in the aforesaid order for a sum of Rs. 6,50,00,000/-. The grounds of appeal raised are with regard to the levy of the penalty. Shri B.P. Sachin Kumar, C.A. appeared on behalf of the appellant/revenue. Written submissions Lwere filed and the appellant's counsel requested that the case may be finalized on the basis of the written statement. Accordingly, the Assessing Officer noted on the basis of seized documents that there was difference in investment made by the Managing Partner, Shri G. Janardhan Reddy in respect of the land at Lillipur Hamlet, Hyderabad by Rs. 18.75 crore. The same is also revealed in the orders relating to the Assessment Year 2006-07 in respect of M/s. Ennoble Construction, Ballari. 7. It is stated that the order passed by the Competent Authority has clearly brought on record that it is a case for levy of penalty under Section 271 (1) (c) for concealment of income. Incidentally, in this case, the appellant has also furnished the inaccurate particulars as noticed by the Assessing Officer by disclosing this income for the Assessment Year 2008-09 instead of not disclosing the correct particulars of her income for the Assessment Year 2006-07. The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is indisputable that the following ingredients are to be satisfied in order that the penalty is imposed on an assessee under the aforesaid Section. However, the submission dated 09.06.2010 and 22.06.2010, the assessee/respondent contended that the Assessing Officer has added the amount of Rs. 18.75 crores for the Assessment Year 2006-07 while making the assessment as against the corresponding income declared by the assessee for the Assessment Year 2008-09. The assessee also accepts the fact that the details are available in the seized document marked A/GJR/11 and A/OMC/1 seized from the residence of Shri Gali Janardhan Reddy and the business premises of M/s.Obulapuram Mining Company Pvt. Ltd., Ballari respectively, wherein Shri Gali Janardhan Reddy and Smt. Laxmi Aruna have jointly stated that the funds for certain investments which were not recorded in the books of Account have flown from the funds of Partnership Firms M/s. Shri Raghavendra Constructions and M/s. Ennoble Constructions during the current year only i.e., Financial Year 2007-08. The fact that the additional consideration of Rs. 18.75 crores in purchase of the land at Lillipur Hamlet, Hyderabad was funded by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the counsel namely Sri. Y.V. Raviraj for the appellant/revenue. Consequently, the order was passed after obtaining prior approval of the Additional Commissioner of Income Tax, Central Range-1, Bengaluru and also ordered for issue of penalty notice under Section 271 (1) (c) of the Act and issued demand notice. These are all the contentions made by the learned standing counsel for the appellant/revenue and the impugned order passed by the ITAT in ITA No.1844/Bang/2013 for the assessment year 2006-07, which has been challenged under this appeal by urging various grounds with citations. 12. In this appeal, this Court on 02.04.2018, formulated the following substantial questions of law for consideration, which reads as under: i.) Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that the penalty notice under Section 274 r/w Section 271 (1) (c) is bad in law and invalid despite the amendment of Section 271(1B) with retrospective effect and by virtue of the amendment, the Assessing Officer has initiated the penalty by properly recording the satisfaction for the same? ii.) Whether omission of the Assessing Officer to explicitly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al relied upon the decision of this Court in the case of M/s. Manjunath Cotton and Ginning Factory (359 ITR 565), the matter which could not be pursued before the Hon'ble Apex Court in view of the low tax effect. However, it is submitted before this Court that similar issues are involved in the case of M/s. Maganur Builders against the judgment of this Court in ITA No.616/2015, dated 28.07.2016, the Revenue has filed a Special Leave Petition before the Hon'ble Apex Court, the same is pending adjudication. 15. Learned counsel for the appellants/revenue in the grounds of the appeal memo stated that the Tribunal has erred in deleting the penalty levied under Section 271 (1) (c) by the Assessing Officer and when the facts and records prove beyond the reasonable doubt, the assessee/respondent had concealed the income. Further, the learned counsel for the appellants/revenue taken a ground that the Tribunal has grossly erred in holding that the penalty notice under Section 274 read with Section 271 (1) (c) is bad in law and invalid without observing the amendment to Section 271(1B) with retrospective effect and by virtue of the amendment, the penalty initiated by the Assessing Officer ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 139, the assessee has not disclosed the fact of funding in cash a substantial amount of Rs. 18.75 crores out of its income taxable for assessment year 2006-07 for the purposes of making investment by its sister concerns and the assessee disclosed such income of Rs. 18.75 crores in the returns filed in response to 153A notice for the assessment year 2006-07 then only the resubstituted explanation 5A to Section 271 (1) (c) could have been and penalty levied. But for the search action initiated, the fact of funding by cash by the assessee would not have come to light. These are all the contentions made by the learned standing counsel for the appellants/revenue namely Sri. Y.V. Raviraj, who has taken us through the impugned order. 19. In support of his contention, learned counsel Shri Y.V. Raviraj has placed reliance on the judgment of the Hon'ble Supreme Court in the case of K.P. Madhusudhanan Vs. Commissioner of Income Tax reported in (2001) 251 ITR 0099 (SC), wherein at paragraph Nos. 4 & 5, reads as under: "4. In CIT vs. P.M. Shah (supra) the High Court at Bombay observed that the Explanation to s 271 (1) (c) created a legal fiction. It was that the assessee would be deemed to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof and, consequently, be liable to the penalty provided by that section. No. express invocation of the Explanation to s. 271 in the notice under s. 271 is, in our view, necessary before the provisions of the Explanation therein are applied. The High Court at Bombay was, therefore, in error in the view that it took and the Division Bench in the impugned judgment was right." 20. Further, in the case of M/s. Sundaram Finance Limited (Formerly M/s. Sudaram Finance Services Ltd.,) Patullous Road, Chennai Vs. The Assistant Commissioner of Income Tax, Company Circle VI(4), Chennai-600 034 in T.C. (Appeal) Nos.876 and 877 of 2008 disposed off on 23.04.2018, wherein at paragraph No.16, reads as under: "16. We have perused the notices and we find that the relevant columns have been marked, more particularly, when the case against the assessee is that they have concealed particulars of income and furnished inaccurate particulars of income. Therefore, the contention r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reddy and Smt. Lakshmi Aruna admitted that the funds for purchase of land at Lillipur Hamlet, Hyderabad was provided by M/s. Shri Raghavendra Constructions and M/s. Ennoble Constructions during the Financial Year 2007-08 (Assessment Year 2008-09). The respondent/assessee filed returns of income under Section 139 (1) of the Act, 1961 for the Assessment Year 2008-09. In this returns of income, assessee as per statement dated 24.12.2007 issued under Section 132 (4) of the Act, 1961 proceeded to declare Rs. 18.75 crore as income towards money payment for purchase of land at Lillipur Hamlet, Hyderabad. However, the last date for filing the returns of income under Section 129(1) of the Act, 1961 was 31.10.2006 and the last date for filing returns of income under Section 139 (5) of the Act, 1961 was 31.03.2007. Whereas, the returns of income were filed in response to notice under Section 153A of the IT Act for the Assessment Year 2006-07, however, Rs. 18.75 crore towards payment of 'on money payment' was not declared. On 31.12.2009, assessment order was passed under Section 153A read with Section 143 (3) of the Act, 1961 held on money of Rs. 18.75 crore should be brought to tax during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfaction must be spelt out from the order of the assessing authority as to concealment of income or deliberately furnishing inaccurate particulars. In the absence of a clear finding as to the concealment of income or deliberately furnishing inaccurate particulars, the initiation of the penalty proceedings will be without jurisdiction. 24. It is further contended that with regard to onus of proof it is relevant to refer to Section 271 (1) (c) of the Act, 1961, which consists of two parts. The first aspect is that after assumption of jurisdiction the burden of proof would arise. The second aspect deals with the burden of proof. It is submitted that under the old Income Tax Act, 1922 and till the amendment of the new Income Tax Act, 1961, the onus was on the revenue to prove that the assessee has furnished inaccurate particulars or had concealed the income. After the amendment by introduction of explanation to Section 271 (1) (c) of the I.T. Act, the onus of proof has been shifted from the revenue to the assessee. Each of the explanations provided to Section 271 (1) (c) of the I.T. Act contemplates one eventuality in which the assessee can take recourse. Accordingly, the learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 281 (1) (c) of 1922 Act, wherein it is urged that there were two defects in Section 28 (1), as originally drafted that the penalty could be imposed only upon a person who was liable to pay income tax or super tax, and that the penalty which may be imposed was a multiple of the income tax and super tax, if any, which would have been avoided if the income as returned by such person would have been accepted as the correct income, and by the enactment of clause (d) to the proviso, the second defect was removed, but not the first. In support of this argument, counsel relied upon Section 23 (5) as it stood, before it was amended by Section 14 of the Finance Act, 1956. Relying upon this scheme of levying tax, it was urged by counsel for the respondent that as the registered firm was not liable to pay tax, it could be rendered liable to pay penalty under Section 281 (1) (c). 27. It is further contended that in the case of D.M. Manasvi Vs. Commissioner of Income Tax in Civil Appeal Nos. 1447 to 1450 of 1969, dated 19th September 1972 reported in (1972) 40 CCH 0314 ISCC, wherein it is held regarding penalty under Section 271 (1) (c), the initiation of proceedings - before feeling sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d his satisfaction about the existence of the conditions specified in Clause (a), (b) & (c) before the proceedings are concluded. It is true that mere absence of the words 'I am satisfied' may not be fatal but such a satisfaction must be spelt out from the order of the assessing authority as to the concealment of income or deliberately furnishing inaccurate particulars. In the absence of a clear finding as to the concealment of income or deliberately furnishing inaccurate particulars, the initiation of penalty proceedings will be without jurisdiction. 29. Learned counsel for the respondent/assessee has also placed reliance in the case of Diwan Enterprises Vs. Commissioner of Income Tax & Ors. reported in (1998) 66 CCH 1097 Del HC, wherein it is held with regard to the income from undisclosed sources, addition surrender by the assessee. The assessee itself surrendered the amount of alleged loan on its income, the AO was fully justified in treating the amount of loan and interest said to have been paid thereon as income. Further, the penalty under Section 271 (1) (c), concealment recording of satisfaction Section 271(1) contemplates a finding as regards satisfaction of availability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued 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 case of relying on deeming provision contained in Explanation-1 or in Explanation-1(B), then though penalty proceedings are in the nature of civil liability, in fact, it is penal in nature. In either event, the 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 the 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 practice of the Department sending a printed form where all the ground mentioned in Section 271 are mentioned would not satisfy requirement of law when the consequences of the assessee not rebutting the initial presumption is serious in nature and he had to pay penalty from 100% to 300% of the tax liability. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported in (2019) 105 taxmann.com 278 (SC), wherein it is held that section 145 read with Section 271 (1) (c) of the Income Tax Act, 1961, the method of accounting valuation of stock penalty for the assessment year 2008-09 in course of assessment, the assessing officer made addition to assessee's income on account of the alleged excess stock which came up as a result of purchases made outside the books of account. He also passed a penalty order under Section 271 (1) (c) in respect of the said addition, the Tribunal concluded that excess stock existed only on account of wrong entries in books of account and in any case higher stock declared as closing stock in a particular year would be taken as opening stock at beginning of next year and therefore tax effect of such alleged excess stock was 'NIL'. The tribunal thus set aside additions made by the Assessing Officer. Accordingly, a penalty order was also set aside. The High Court upheld the order passed by the Tribunal whether on facts SLP filed against the decision of High Court was to be dismissed. Further, in the case of Commissioner of Income Tax Vs. SSA's Emerald Meadows, reported in (2016) 73 taxmann.com 248 (SC), wherein held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me parties, or between parties under whom they or any of them claim, litigating under the same title, in a Court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such Court. Explanation I.--The expression "former suit" shall denote a suit which has been decided prior to a suit in question whether or not it was instituted prior thereto. Explanation II.--For the purposes of this section, the competence of a Court shall be determined irrespective of any provisions as to a right of appeal from the decision of such Court. Explanation III.--The matter above referred to must in the former suit have been alleged by one party and either denied or admitted, expressly or impliedly, by the other. Explanation IV.--Any matter which might and ought to have been made ground of defense or attack in such a former suit shall be deemed to have been a matter directly and substantially in issue in such a suit. Explanation V.--Any relief claimed in the plaint, which is not expressly granted by the decree, shall for the purposes of this section, be deemed to have been refused. Explanation VI.--Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (1) of section 220. (3) A person convicted of any offense constituted by any act causing consequences which, together with such act, constituted a different offense from that of which he was convicted, may be afterwards tried for such last mentioned offense, if the consequences had not happened, or were not known to the Court to have happened, at the time when he was convicted. (4) A person acquitted convicted of any offense constituted by any acts may, notwithstanding such acquittal or conviction, be subsequently charged with, and tried for, any other offense constituted by the same acts which he may have committed if the Court by which he was first tried was not competent to try the offense with which he is subsequently charged. (5) A person discharged under section 258 shall not be tried again for the same offense except with the consent of the Court by which he was discharged or of any other Court to which the first mentioned Court is subordinate. (6) Nothing in this section shall affect the provisions of section 26 of the General Clauses Act, 1897 (10 of 1897) or of section 188 of this Code. Explanation.--The dismissal of a complaint, or the discharg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cided on the finding of fact. In a case decided on a concurrent finding by the ITAT and thereby challenging the order passed by the DCIT, that no penalty is exigible. There can be no substantial question of law. If the grievances of revenue were on any fact found by the authorities or the Tribunal, the remedy lies in rectification and not in an appeal under the relevant provisions of the Income Tax Act, 1961. Where the issue had been decided solely on facts, there is no question of law. Where a question was not raised nor considered by the Tribunal, it cannot be considered by the High Court. Where there is a failure by the Tribunal to consider a ground that cannot be taken up by way of appeal to the High Court. Though the matter could be agitated before the Tribunal on the ground, the appeal in respect of the ground remains undisposed. But in the instant case, the appellant who is revenue has approached the Income Tax Appellate Tribunal, it has given a finding relating to the facts. It could have been entertained by the High Court on the inference, that the issue, which was undecided, has been decided against the assessee, a view sometimes taken by some Courts. 42. A decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment extensively addressed the scope of Section 260A of the I.T. Act, 1961. 44. Even in the procedure for appeal, the time limit of 120 days is stipulated in clause (a) of Section 260A (2) for appeal to the High Court. In the case of departmental appeal, it is the date of receipt of the order by the Commissioner or Chief Commissioner that could be relevant. Where an appeal was filed beyond the time stipulated under Section 260A (2), the issue was whether the High Court has power to condone the delay in appeal. The appeal has been preferred challenging the order passed by the ITAT, there is a power to hear the appeal and only a question framed by the Court, it is based upon the grounds as urged in the appeal. As provided under Section 260A(4) of the I.T. Act, the procedure at the stage of admission, it is not necessary that there should be a preliminary hearing for admission as was the practice under the reference procedure earlier though such a practice is not barred. The High Court may suo motu without hearing the respondent refuse admission on the ground that there is no substantial question of law involved while dismissing the appeal on this ground, also endorse the findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h income. Now the question arises whether it is necessary to identify in the notice. The penalty provision has two distinct limbs. The first limb deals with condition precedent for initiating penalty action and assumption of jurisdiction of the authority concerned; this limb is separately enacted with each of clause (a) since omitted insofar as Section 271 (1) (c). The second limb of the penalty provision is the substantial part which deals with the actual imposition for the liability of penalty and quantification thereof. The penalty provisions are not onerous so far as substantial and procedural provisions relating to penalty containing the Income Tax Act, 1961 have held to be not onerous. 48. Insofar as the aforesaid provisions of Section 271 of the Income Tax Act is concerned, it is relevant to states that there is no penalty in the absence of positive income; the word income in clause (c) refers to positive income only. Evasion of tax is sin co non. For imposition of penalty, if there is no taxable income or tax assessed for the payment during the particular year, the question of evasion and consequent penalty does not arise. The penalty cannot be imposed under Section 271 (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same cannot be considered. 50. In a given peculiar facts and circumstances of the case and on the substantial question of law as urged, the finding in assessment proceedings cannot be the sole basis of penalty without anything more, but penalty cannot be imposed solely on the basis of findings arrived at during assessment or reassessment or reassessment proceedings or proceedings culminating in best judgment assessment. There cannot be any tenable reason as to why the authorities cannot analyze the same evidence and materials produced earlier in the course of the assessment proceedings and base their findings thereon. It may be that the findings given by the authorities on certain materials at the assessment stage may not be conclusive but still the material constitutes good and relevant evidence. Where the penalty was levied on the ground that additions have been made to the income as unexplained investment and such additions were deleted in appeal filed against the assessment, cancellation of penalty was valid. While penalty does not follow every addition, addition is the basis for penalty. 51. Insofar as a finding of concealment must be recorded, the levy of penalty is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention has been made by the learned counsel for the respondent/assessee. Therefore, in this appeal, learned counsel for the respondent/assessee contending that the same does not call for any interference. 54. The assessee must be informed that the explanation to Section 271 (1) (c) is sought to be applied. In the instant case, since the explanation is only to postulate the rule of evidence and procedure. In view of the matter no specific reference about the explanation is necessary, even the show cause notice itself. However, a contrary view has been expressed in certain reliances rendered. But in the instant case, and even if the ITAT as a fact finding authority and given a finding it is based upon the materials for which collected by the investigating agency under the relevant provisions of IT Act. However, the onus of rebuttal is on the assessee to prove that the explanation given by him is correct, and if it is not discharged, penalty can be levied under Section 271 can be invoked at any stage. Therefore, the scope of Section 271 (1) (c) it was answered by rendering a judgment by the Hon'ble Supreme Court of India that the ITAT is the tax finding body to assess the relevanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, then the Tribunal finds that the notice was issued on a printed proforma in which the AO did not identify whether the assessee has concealed particulars of income or furnished inaccurate particulars of such income, now the question arises whether it is necessary to identify if the notice itself that the proceeding under Section 271 (1) (c) are initiated either for concealment of income or furnishing inaccurate particulars of income. But in the instant case, it is relevant to refer to the case of CIT and another vs. Manjunatha Cotton and Ginning Factory (supra) and wherein it has been laid down the parameters under which penalty 271 (1) (c) of the Act has to be looked into. It is relevant to extract the observation made relating to the scope and objective of Section 271 (1) (c). 59. As the provision stands, the penalty proceedings can be initiated on various grounds 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 satisfa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to substantiate his claim, if at all, penalty is to be imposed, it should be imposed only on the grounds on which he is called upon to answer. It is not open to the authority, at the time of imposing penalty to impose penalty on the grounds other than what the 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 the 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 and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliance rendered by this Court in a coordinate Bench of the ITA No.383/2016 dated 20.07.2022. 58. In the instant case, it is relevant to refer to the judgment rendered by the coordinate Bench of this Court in ITA No.383/2016 relating to the scope of Section 260A of IT Act. The said reliance relating to the assessee wherein arraigned as respondent in the said appeal also, assessee, a partnership firm was engaged in the business during the relevant period relating to the assessment year 2006-07 in respect of the respondent/assessee namely G.Lakshmi Arun - M/s. Ennoble Constructions, No.6/4, Ennoble House, Raghavachari Road, Ballari. In the instant case, it had filed the income tax return relating to the assessment year 2006-07 which dealt with the issues in respect of ITAT whereby the impugned order has been challenged under this appeal by the appellant/revenue. But the ITAT substantially considered the version of assessee/respondent. Therefore, the revenue/appellate authority has preferred this appeal under the relevant provision of Section 260A of the IT Act by raising substantial questions of law as stated above. 59. Having heard the learned counsel for the parties in this appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t define the expression substantial question of law. The Apex Court vide Santosh Hazari vs. Purushottam reported in 251 ITR 84 SC is of the view that the word substantial qualifies the term question of law, it means a question having substance, essential, real or sound worth, important or considerable. The substantial question of law on which an appeal shall be heard need not necessarily be a question of law of general importance. To be substantial, a question of law of general importance. To be substantial, a question of law must be debatable and it must have a material bearing on the decision of the case in the sense that if answered either way insofar as the rights of the parties are concerned. 62. It is relevant to state that it is profitable to see what Kanga & Palkhivala's Law and Practice of Income Tax, Vol.II, Eleventh Edn., Lexis Nexus states that a question is a substantial question of law if: (i) it directly or indirectly affects substantial rights of the parties; or (ii) it is of general importance; (iii) it is an open question in the sense that the issue has not been settled by a pronouncement of the Supreme Court; (iv) it is not free from difficulty; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted this appeal, the said question which is already reproduced above, has been framed keeping in view the provisions of sub section (1) section 37, which has the following text: "Any expenditure (not being expenditure of the nature described in section 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession…". 65. The text of this sub section shows its building blocks such as: 'expenditure', 'wholly and exclusively' and 'incurred for the business'. The burden of proving that the expenditure is incurred 'wholly and exclusively for the purpose of business is on the Assessee' vide JASWANT vs. CIT reported in 212 ITR 24. The question whether an item of expenditure was wholly and exclusively laid out for the purpose of Assessee's business has to be decided on the basis of evidentiary material that prima facie establishes these 'building blocks'. 66. The question on which the appeal is admitted involves, in the first place, the asc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces, the appeal being devoid of merits, the same was rejected. 69. At a cursory glance of the impugned order passed by the ITAT "C" Bench, Bengaluru in ITA No.1844/BANG / 2013 of the assessment year 2006-07, wherein it is observed that: "Turning to the facts of the instant case, we find that undisputedly the AO has not identified in the notices as to whether the penalty proceedings are initiated for concealment of income or furnishing of inaccurate particulars of such income. Therefore, following the aforesaid judgment of Hon'ble jurisdictional High Court, we are of the considered view that on account of defective notice issued for initiation of penalty proceedings, the penalty order passed by the AO is not sustainable in the eyes of law. We accordingly set aside the order of the CIT(Appeals) as well as the Assessing Officer and delete the penalty on account of wrong initiation of penalty proceedings. Since the penalty proceedings are quashed, we find no justification to deal with the appeals on merits, as it becomes academic. In the result, the appeals of the assessee are allowed. 70. In totality of the circumstances of the case relating to the facts, the ITAT is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e return which are not accurate, not exact or correct not according to the truth or erroneous. 71. Keeping in view the provision of Section 271 (1) (c), the deemed provision, a legal fiction is created. But reading of Section closely and more so the ingredients of the said provision of IT Act, it is the domain vested with the appellant / revenue to establish their case relating to the scope of inaccurate particulars and concealment of income. But it must be noticed that this finding recording concealment in the order passed by the authorities is only for the purpose initiating, but the presumption found in explanation (1) is a rebuttable presumption. If the authority after hearing the assessee and looking into the material produced in the said proceeding before him, satisfies, perhaps holds that there is no concealment of income, then the question of penalty would not arise. 72. However, keeping in view the contention made by the learned Standing Counsel Shri Y.V. Raviraj for the appellant / Revenue and so also the learned counsel Shri Mayank Jain for the respondent / Assessee, at the cost of repetition, it is relevant to state that the counsel for the respondent / Assessee had r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it cannot be inferred that insofar as addition even on account of concealment, moreover the assessee has offered the explanation, even the said explanation is not found to be false, on the contrary it is held to be bona fide. In fact in the instant case, in the assessment proceedings there is no whisper about the concealment of income and inaccurate particulars. It is even clear that the conduct of the assessee cannot be construed as a mala fide. Therefore the order passed by the ITAT is found to be justifiable and it is based upon the materials secured by the Investigating Agency under the IT Act, 1961. However, the ITAT justified in holding that the proceedings are initiated even keeping the provision of Section 271 (1) (c), it is not in accordance with law and accordingly justified in interfering with the order passed by the ITAT as well as the Assessing Officer/Authority. Accordingly, the substantial questions of law are answered in favor of the respondent/assessee. 77. Therefore, keeping in view of the aforesaid reasons and findings, we are of the opinion that the appeal preferred by the appellant/revenue do not hold any substances that calls for any interference in the impug ..... X X X X Extracts X X X X X X X X Extracts X X X X
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